ver. O
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-K
Amended 10K #1
This document is being filed to amend the Registrant's
previously filed 10-K to include audited financial statements.
Other parts of the document have been revised to conform
to information contained in these financials statements.
(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, 2001
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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 registered under Section 12(b) of the Exchange Act: None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock
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(Title of Class)
1
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. $142,020,299
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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, 2001
$14,400,000
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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, 2001
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2
TABLE OF CONTENTS PAGE
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PART I
Item 1. Business. 5
Item 2. Properties. 16
Item 3. Legal Proceedings. 17
Item 4. Submission of Matters to a Vote of Security Holders. 18
PART II
Item 5. Market for Registrant's Common Equity and Related 19
Stockholder Matters.
Item 6. Selected Financial Data. 20
Item 7. Management's Decision and Analysis of Financial 22
Condition and Results of Operation.
Item 7A. Quantitative and Qualitative Disclosures About 33
Market Risk.
Item 8. Financial Statements and Supplementary Data 34
Item 9. Changes in and Disagreements with Accountants on 75
Accounting and Financial Disclosure.
PART III
Item 10. Directors and Executive officers of the Registrant. 75
Item 11. Executive Compensation. 77
Item 12. Security Ownership of Certain Beneficial Owners and 78
Management.
Item 13. Certain Relationships and Related Transactions. 79
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K. 79
SIGNATURES 81
3
PART I
Important Factors Related to Forward-Looking Statements and
Associated Risks
This Amended Form 10-K contains certain forward-looking statements
that are based on current expectations and involve a number of risks and
uncertainties. All of the non-historical information herein is forward-
looking. The forward-looking statements included herein and elsewhere in
this filing are based on, among other items, current assumptions that the
Company will be able to meet its current operating cash and debt service
requirements with internally generated funds and its available line of
credit, that it will be able to successfully resolve disputes and other
business matters as anticipated, that competitive conditions within the
semiconductor, integrated circuit and custom diode assembly industries
will not change materially or adversely, that the Company will retain
existing key personnel, that the Company's forecasts will reasonably
anticipate market demand for its products, and that there will be no
materially adverse change in or affecting the Company's operations or
business. Related or other factors that could cause results to vary
materially from current expectations are discussed below in this Part 1,
Item 1 or elsewhere in this Amended Form 10-K, including Part I, Item 3;
and Part II, Items 5,7 and 8. Assumptions relating to forward-looking
statements involve judgments about matters that are difficult to predict
accurately and are subject to many factors that can materially affect
results. Forecasting and other management decisions are subjective
in many respects and thus susceptible to interpretations and periodic
revisions based on actual experience and business developments.
The impact of which may cause the Company to alter its forecasts,
which may in turn affect the Company's results. The Company does
not undertake to update any forward-looking statements made herein, and
shall do so only as and when the Company determines to do so. In light
of the factors that can materially affect the forward-looking
information included herein, the inclusion of such information should
not be regarded as a representation by the Company or any other
person that the objectives or plans of the Company will be achieved.
Readers are cautioned against giving undue weight to forward-looking
statements and are asked to consider all of the factors referred to
herein, in subsequent filings by the Company with the Securities
and Exchange Commission or elsewhere.
4
ITEM 1. BUSINESS.
Bridge's vision is to develop state-of-the-art power electronics
components. The Company uses these components to design leading edge
subsystems and products for information technology, medical, gaming and
communications industries. To capitalize on the potential of these
designs the Company endeavors to develop, purchase, assemble, integrate,
manufacture, test, package, market and sell a broad family of products.
Company established operating divisions and subsidiaries under several
separate business names, each focused on specific products and sales
channels.
Bridge uses in-house development, joint ventures, licensing, and
acquisition of leading edge technologies and companies to deploy them
in new products for OEM customers. The Company is creating innovative
products demanded by computer and communications equipment Original
Equipment Manufacturers (OEMs), value-added resellers and system
integrators, and ultimately by the end users. The Company sells these
products directly to OEMs and systems integrators, and through
selected distributors and manufacturer's representatives. We currently
employ approximately 356 full time employees, including senior management
and manufacturing personnel and 25 administrative personnel.
Currently the Company has four wholly owned subsidiaries: PTI Enclosures,
Inc. (USA), Bridge Technology Ningbo Co., Ltd., Bridge R&D, Inc. (USA),
and Autec Power Systems, Inc. (USA). In addition the Company owns a 90%
interest in CMS Technology (Hong Kong). The Company also owns minority
shares in several small companies in the USA and overseas.
The Company has two primary groups:
I) POWER ELECTRONICS GROUP: AUTEC (USA), PTI (USA), Bridge Technology
Ningbo (China)
II) CHANNEL DISTRIBUTION GROUP: Bridge R&D, CMS Technology, Ltd.
POWER ELECTRONICS GROUP:
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Autec Power Systems Inc.
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Through an exchange of shares of common stock effective December 1, 1999,
the Company acquired 100% of the equity interest in Autec Power Systems Inc.
("Autec"). The exchange was on the basis of one share of the Company's
common stock for two shares of Autec common stock outstanding.
Autec designs, develops, engineers and produces high quality power supplies
for a diversified list of clientele. Autec also sells a family of proprietary
automobile power adapters and selected clear plastic consumer electronics
products to its customers. Mr. Winston Gu, Chairman and principal shareholder
of Autec serves as the Company's Chairman and a member of the Executive
Steering Committee.
The Company opened its new 110,000 square feet, Ningbo, China electronics
manufacturing operation in May 2001 and commenced hiring and training of
manufacturing personnel. Current Ningbo factory capacity is 600,000 power
supply units per month per single shift, with two of the six planned
production lines operational. The Company power electronics division
expects to increase its revenues by providing products and contract
manufacturing services to major OEM customers. The Company expects that
its new facility will gradually increase its utilization during 2002 and
operate near or at capacity by 2004. The maximum theoretical plant
capacity can be expanded by adding 4 additional double-sided production
lines. No assurances can be given that the Company will be able to
increase utilization or revenues.
5
PTI Enclosures, Inc. (PTI)
--------------------------
Delivering the shortest time to market to the OEM customers is PTI, Inc.'s
main business objective. PTI is focused on designing, developing,
manufacturing, testing, and selling custom-designed enclosures, power
supplies and complete subsystems for computer peripherals, tele-
communications equipment, medical equipment, gaming equipment and other
electronics devices. Customers include major computer and computer
peripheral manufacturers, telecommunications manufacturers, government
entities, manufacturers of gaming devices and medical instrumentation
manufacturers who use PTI's capability to produce OEM products
manufactured to their exact specifications. All OEM based and custom
designed products provide high quality at competitive prices.
PTI 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, RAID disk array
enclosures, communications system enclosures, medical system enclosures,
various server enclosures and other enclosures. PTI also supplies
enclosures and power supplies for several special-purpose systems.
Newcorp Technology, Ltd. (Japan)
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The Company reduced its interest in Newcorp Technology, Ltd. Japan
(Newcorp) as of December 31, 2001, selling 85% of Newcorp for 65,000
shares of Bridge Technology, Inc. common stock to Mr. Hideki Watanabe,
the President of Newcorp Technology Ltd. Japan and a Director of
Bridge Technology, Inc..
II. CHANNEL DISTRIBUTION GROUP:
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Bridge R&D has two main distribution activities, Classic Trading and
DataStor. Classic Trading supports leading OEM manufacturers in distributing
their products under contractual arrangements. In today's environment we
have been fortunate in growing this aspect of our business. In addition to
Classic Trading, the Company operates DataStor, as a division of Bridge R&D.
DataStor is a brand name of a family of products marketed by Bridge
R&D, Inc. under the name "DataStor" by the DataStor group. DataStor group
identifies, designs, procures, lightly 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 group also sells
external peripheral kits consisting of enclosures and power supplies,
mounting brackets for various peripherals in PC systems. DataStor group
supplies various mass storage enabling products, including enclosures
for 1 to 7 drives, drive mounting brackets, and fixed and
removable mounting bracket kits.
DataStor group sells its products to Ingram Micro, a major distributor of
computer products. Ingram Micro provides virtual inventory warehouse and
supply operations to national resellers including NECX and others, 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. DataStor group is dedicated
to maintaining its market position as an industry leader in making cutting
edge technology available to customers. DataStor group is constantly
researching market demand and developing new product lines and solutions.
6
CMS Technology, Ltd. (Hong Kong)
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CMS markets and sells IBM Technology Group products, with main emphasis on the
sales of computer hard disk drives in the Hong Kong and Mainland China
markets. CMS was established under the laws of the Hong Kong Special
Administration Region of China on June 22, 1998. CMS signed the first OEM
distribution agreement with International Business Machines Corporation
(IBM) on June 24, 1998 as an authorized distributor of IBM hard disks and
other IBM Technology Group products for the assigned territory including
China, Vietnam and the Philippines. CMS management has over 40 years of
experience in marketing and sales of mass storage peripherals. Prior to
establishing the CMS Hong Kong operation the CMS team has been selling
hard drives and tape drives produced by all major vendors. CMS management
gained significant experience in doing business in China through
involvement in manufacturing and distribution during the past fifteen
years. Combining the experience of doing business with Chinese customers
with an intimate knowledge of mass storage business, CMS quickly
penetrated the rapidly growing China market with IBM hard disk drive
storage products. CMS is focused on sales to major OEM customers,
while building a strong company and brand name reputation with the
distribution and systems integration customers.
CMS settles all sales in Hong Kong in HK dollars, primarily for collectability
and readily convertibility to U.S. currency. In addition, Hong Kong assures the
most favorable exchange rates, and also protects CMS against any currency
fluctuations, since the HK dollar is firmly tied to the US dollar.
CMS manages its inventory under the terms of its contract with IBM, which
affords CMS price protection against decreases in the market price of
hard disk drives. CMS turns its inventory in less than 60 days, while
it has price protection for up to 90 days on all unsold inventory in stock.
The simple and effective structure of CMS requires almost no material capital
investment in property and equipment. CMS infrastructure is very efficient and
we reported revenues of more than $2.27 million per employee in 2001.
The value of property and equipment used in 2001 was less than $70,000,
and it is expected to remain unchanged in the near future. CMS maintains a
close relationship with IBM management and IBM field engineering. CMS
understands End-of-life product management, new product launch and timely
availability to the sales channel, and the related critical inventory
management throughout the entire life cycle of each generation of hard
disk drive products. We are planning to further expand our product line
with IBM, working closely with our customers in procuring additional
new products.
Our customers are of paramount importance to our continued growth. We work
closely with our customer's engineering, purchasing, sales and marketing teams
to create a long-term relationship of trust and mutual success. We support our
customers with early evaluation units of new products, engineering support
during the qualification and selection process, preliminary specifications and
ongoing qualify maintenance. In 2001 Legend Holdings Ltd. accounted for
20 percent of sales.
7
CMS has five Master resellers in China, who support our regional resellers
in the surrounding cities. We support all of our major resellers from our
Hong Kong headquarters. Each of our Master resellers has a minimum of five
years of experience selling and supporting hard drives in their territory.
Although CMS has become a dominant supplier of IBM drives to the China
market, we have strong competitors in other parts of Asia. From time to
time product originally sold to other parts of Asia flows into the China
market without IBM authorization. These competitors are primarily other
IBM Authorized Distributors in South Asia Pacific Region, including, CES
International Limited (Singapore based company), Xanders International
and Acer (both Taiwan based companies).
We utilize standard RMA (Return Material Authorization) process to manage the
replacement of hard disk drives that fail within the warranty period.
We record the serial numbers of all hard disk drives shipped to our
customers, and when submitted to us for RMA replacement by our customers,
we check them against the serial numbers in our database. This allows us
to track 100% of the drives we sold. We are also able to track the drives
sold by un-authorized channels, and determine the original source of
these products. Historical overall RMA rate runs between 3% to 5%,
depending on the specific model. As long as we replace defective units
in a timely manner, the IBM RMA policy allows us to minimize any losses due
to out-of-warranty replacement claims.
CMS revenue projections are very conservative, as we typically base our
forecast primarily on our historical internal organic growth. However,
in light of China's recent accession to the World Trade Organization,
CMS management believes we will be able to increase the scope of our
activities with IBM and further strengthen our already close relationships
within the People's Republic of China. We believe that with additional
financing we could increase revenue and accelerate the growth of the sales
channel base by focused expansion into this rapidly growing market.
Since China was elected to host the Olympic games in 2008, we expect
significant increases in IT spending to accelerate at least until 2008.
The ability of CMS to sustain the historical growth of revenues and
profits will depend, in part, upon the successful marketing of new
products, which depends on the successful and timely introduction of
new products by IBM. It further depends on CMS ability to perform to
IBM forecast, and availability of additional financing to fund the
expected additional growth. The market for hard disk drives is a commodity
market, characterized by continued big increases in storage capacity
and by brutal and sometimes unforeseeable drops in the market prices
of hard disk drives. There can be no assurance that IBM will be able to
keep pace with the steep price erosions, and that it will be able to
provide CMS products that can compete in this fiercely competitive
market. Furthermore, there is no assurance that the Company will be
able to generate and sustain net sales or profitability in the future.
CMS has never been a party to any litigation, nor do we anticipate
any legal issues in the near future.
8
Competition
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Manufacturing of power electronics products and mass storage subsystems,
and distribution of mass storage products, computer peripheral products,
computer enhancement, communications and other commercial electronics
products is fiercely competitive. The Company competes with numerous other
companies, including many established manufacturers and distributors. Certain
competitors have greater financial and other resources than the 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 the Company will be able to continue to
develop and sell products that afford it significant competitive advantage in
the market.
Importance of New Product Development to Growth
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The Company's ability to develop or procure, and quickly and successfully
introduce new products is and will continue to be a significant factor to its
growth and to its remaining competitive. Development, procurement and
introduction 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 during
introduction to the market.
There are many manufacturing and design risks inherent in turning engineering
high cost custom built prototypes, (upon which development and contracting
decisions are often made), into commercial products that can be manufactured
in large quantities at acceptable cost. Also, computer peripherals industry
is characterized by extremely rapid technological change. As technological
changes occur in the marketplace, the Company may have to modify its products
in order to keep pace with these changes and developments.
Introduction of products embodying new technologies, or the emergence
of new industry standards, may cause the existing products, or even the new
products under development, to become obsolete or unmarketable. Any failure by
the 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 major
material adverse effect on the Company's business, results of operations, and
financial condition.
9
Expansion through Internal Growth, Acquisitions and Joint Ventures
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The Company focuses its resources on growing its business by selling existing
products to new customers, by providing additional new products to current
customers, and by targeting new market niches for products that the Company can
produce or procure within its core capabilities. Since new management began
operating the Company in 1997, the Company has experienced rapid growth in
revenues and geographic scope of operations. Any future growth may place a
significant strain on management and on the Company's financial resources and
information processing systems. In conjunction with the Autec acquisition,
Mr. Winston Gu has joined the executive staff as Chairman of the Company, and
Mr. James Djen assumed the role of CEO. To be successful the Company has to
find and attract additional seasoned talent in this highly competitive area.
The failure to recruit additional staff and key personnel, to have sufficient
financial resources to respond effectively to difficulties encountered pursuing
expansion could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company intends to expand its product lines and domestic and
international markets, in part, through acquisitions. The Company's
ability to expand successfully through acquisitions will depend upon the
availability of suitable acquisition candidates at the prices acceptable to
the Company, upon the Company's ability to consummate such transactions
and the availability of financing on terms acceptable to the Company.
There can be no assurance that the Company will be successful in
completing acquisitions.
Such expansions involve numerous risks, including possible adverse short-
term effects on the Company's operating results or the market price of the
common stock. These acquisitions and joint ventures will be subject to
approval or ratification by the Company's stockholders. The Company uses
outside appraisers for all significant acquisitions. It is expected that
the Directors will require its Officers to obtain valuation opinions
or contact letters on all future acquisitions.
Certain of the Company's future acquisitions may also give rise to an
obligation by the Company to make contingent payments or to satisfy certain
repurchase obligations, which could have an adverse financial effect on the
Company. In addition, integrating acquired businesses may result in a loss
of customers or product lines of the acquired businesses and also requires
significant management attention and may place significant demands on the
Company's operations, information systems and financial resources. The
failure effectively to integrate acquired businesses with the Company's
operations could adversely affect the Company. This is especially true of
international acquisitions.
10
In addition, the Company competes for acquisition opportunities with
companies which have significantly greater financial and management
resources than those of the Company. There can be no assurance that suitable
acquisition opportunities will be identified and that any such transactions
can be consummated, or that, if acquired, such new businesses can be
integrated successfully and profitably into the Company's operations.
Moreover, there can be no assurance that the Company's historic rate of
growth will continue and that the Company will continue to successfully
expand, or that growth or expansion will result in profitability.
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 the 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. At December 31, 2001, the Company's accumulated deficit
was $2,188,000, and the loss of approximately $2.54 million occured in 2001.
The ability of the 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. There can be no
assurance that the Company will be able to generate and sustain net
sales or profitability in the future.
Need for Additional Financing
-----------------------------
Based on its current operating plan, the Company anticipates that further
capital will be required during the next twelve months to satisfy the
Company's expected increased working capital requirements and research and
development requirements for its new products already in the planning or
development stage. The Company is currently exploring alternative financing
plans to fulfill these requirements. No assurance can be given that additional
financing will be available when needed or that, if available, it will be on
terms favorable to the Company or its stockholders. If needed funds are not
available, the Company may be required to curtail its operations, which could
have a material adverse effect on the Company's business, operating results
and financial condition. If additional funds are raised through the
issuance of equity securities, additional dilution to stockholders
would occur.
On July 24, 2002 the Company entered into a loan modification and extensions
agreement with a commercial bank for its outstanding balance of $4 million at
December 31, 2001, which was reduced by $100,000 payment made in 2002. Pursuant
to the terms of the new agreement, monthly interest only payments are to be
made through maturity, $50,000 is due by September 15, 2002 and no less than
$1,000,000 is due on November 30, 2002. The Company owns 90% of all issued and
outstanding shares in CMS and pledged 65% of all issued and outstanding shares
in CMS against this outstanding balance and the maturity date of the note has
been extended until November 30, 2002. However, if the Company makes all of
the foregoing payments on a timely basis and has not otherwise defaulted on
the loan, the maturity date for the remaining unpaid balance will be extended
until June 30, 2003.
11
Dependence on Key Personnel
---------------------------
The Company's future performance will depend significantly upon its
management. The Company is in the process of reviewing employment
contracts with the following Officers and Management who are members
of the Company's Executive Steering Committee.
Winston Gu, Chairman of Bridge Technology, Inc.
James Djen, CEO and President of Bridge Technology, Inc.
John T. Gauthier, CFO of Bridge Technology, Inc.
In addition, the Company's success will be dependent upon its ability to
recruit and retain additional qualified personnel. Any failure by the
Company to retain and attract key personnel could have a material adverse
effect on the Company's business, operating results, and financial
condition.
Limited Proprietary Protection
------------------------------
The Company's success and ability to compete is dependent in part upon its
proprietary technology. The Company's proprietary products are not yet
protected by any patents. Therefore, to date the Company has relied primarily
on trademark, trade secrets and Copyright laws to protect its technology.
Also, the 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. Also,
the Company has no license agreements with the end users of its products,
so it may be possible for unauthorized third parties to copy the Company's
products or to reverse engineer or otherwise obtain and use information
that the Company regards as proprietary. If in the future litigation is
necessary to enforce the Company's intellectual property rights, to protect
the Company's trade secrets, or to determine the validity and scope of the
proprietary rights of others, such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect
on the Company's business, operating results and financial condition.
Ultimately, the Company may be unable, for financial or other reasons, to
enforce its rights under the intellectual property laws. In addition, the laws
of certain countries in which the Company's products are or may be distributed
may not protect the company's products and intellectual property rights to the
same extent as the laws of the United States.
12
The Company believes that its products do not infringe upon any valid
existing proprietary rights of third parties. In 2001 the Company was
sued by a competitor and it won its counter-claim against a competitor of
proprietary automobile phone charger products. Although the Company has
received no communication from third parties alleging the infringement of
proprietary rights of such parties since this lawsuit, there can be no
assurance that third parties will not assert infringement claims in the
future. Any such third party claims, whether or not meritorious, could
result in costly litigation or require the Company to enter into royalty
or licensing agreements. There can be no assurance that the Company would
prevail in any such litigation or that any such licenses would be available
on acceptable terms, if at all. If the Company were found to have
infringed upon the proprietary rights of third parties, it could or
required to pay damages, cease sales of the infringing products and
redesign or discontinue such products, any of which alternatives,
individually or collectively could have a material adverse effect on
the Company's business, operating results and financial condition.
Speculative Nature of Company's Proposed Plan
---------------------------------------------
The success of the Company's proposed plan of operation will depend to a
great extent on management, present and future, operating within the
confines of limited financial resources. The planned growth is directly
dependent on the Company's ability to secure investment in its business
units. Negotiations have commenced with interested parties.
Without outside financing the Company may have to revise its
growth plans and lower its estimates. There is no assurance that
outside financing will be available to the Company, and if such financing
were available that the terms of such proposed financing would be
acceptable to the Company.
Lack of Market Research or Marketing Organization
-------------------------------------------------
The Company has determined on its own that a market demand exists for the
Company's contemplated business. The Company does not have a separate
marketing organization. Present management will market the Company's
products and services on a division basis as they are developed. Even if
demand is identified for value added computer peripheral products in the
development stage by the Company, there is no assurance the Company will be
successful in the business.
13
Lack of Diversification
-----------------------
The Company's proposed operations, even if successful, will in all
likelihood be limited in nature until the Company obtains additional
financing planned for the 1st half of the year 2002. The Company's
inability to diversify its activities into a number of areas may subject the
Company to economic fluctuations within a particular specific field, and
therefore increase the risks associated with the Company's operations.
Regulation
----------
Although the Company will be subject to regulation under the Securities
Exchange Act of 1934, management believes the Company will not be subject
to regulation under the Investment Company Act of 1940, insofar as the
Company will not be engaged in the business of investing or trading in
securities. In the event the Company engages in business combinations
which result in the Company holding passive investment interests in a
number of entities, the Company could be subject to regulation under the
Investment Company Act of 1940. In such event, the Company would be
required to register as an investment company and could be expected to incur
significant registration and compliance costs. The Company has obtained
no formal determination from the Securities and Exchange Commission as
to the status of the Company under the Investment Company Act of 1940
and, consequently, any violation of such Act would subject the Company
to material adverse consequences.
Product Liability
-----------------
The Company's power electronics division AUTEC experienced a product liability
claim which was settled. The sale and support of products by the Company may
entail the risk of such claims, and there can be no assurance that the 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 the Company's products
brought against the Company, or negative publicity attendant to any such claim,
could have a material adverse effect upon the Company's business, operating
results and financial condition. The Company intends to procure product
liability insurance with coverage limits of $1,000,000 per occurrence and
$1,000,000 per year. While the Company believes that these amounts are
sufficient, there can be no assurance that amounts are adequate insurance
coverage, there can be no assurance that the amount of insurance will be
adequate to satisfy claims made against the Company in the future, or that the
Company will be able to obtain insurance in the future at satisfactory rates or
in adequate amounts.
14
Limitation of Liability and Indemnification
-------------------------------------------
The 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 the Company shall
indemnify its officers and directors and may indemnify its employees and
other agents to the fullest extent permitted by law.
The Company is entering into indemnification agreements with its directors
and executive officers which may require the Company, among other things,
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.
The Company purchased director's and officer's liability insurance for a
total of $5,000,000. 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 ood 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 the 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.
15
ITEM 2. PROPERTIES.
The Company has minimal properties and at this time has no agreements to
acquire any properties. The Company's corporate offices, and the offices of
its subsidiaries Bridge R&D, Inc. and PTI are located in sublet facilities at
12601 Monarch Street, Garden Grove, CA. 92841. This facility has approximately
50,000 square feet and it houses corporate offices, manufacturing and
warehouse operations. The lease is for 5 years at an average annual rent of
$145,000 per year.
The Company's subsidiary Autec leases a 30,000 square feet facility in Simi
Valley, California. The lease is for 8 years at an average annual rent
$198,000 per year.
Bridge Technology Ningbo Co., Ltd. ("Ningbo") leases a manufacturing
facility in the City of Ningbo, Zhejiang Province of China. This lease
requires a monthly payment of $12,513 through December 2005.
CMS operation is located in the Peninsula Tower, 538 Castle Peak Road, Suite
1610, Kowloon, Hong Kong. CMS leases 3,700 square feet of office space, with a
10-year lease at $40,000 per year.
16
ITEM 3. LEGAL PROCEEDINGS.
On April 24, 2002 a complaint was filed against the Company in the Orange
County Superior Court, Santa Ana, California by Mason Tarkeshian for fees
alleged to be due on an acquisition which was not consummated. The
complaint seeks for damage of approximately $2 million where as the Company
believes that the complaint is without merit and will be resolved in favor
of the Company. The Company tendered this case to the insurance carrier for
settlement and has not accrued any liabilities for this matter as of
December 31, 2001. In 2002, this complaint was settled by the Company's
insurance carrier and the Company. The Company's portion of contribution to
the settlement was to issue a warrant to purchase 25,000 shares of common
stock of Bridge at $0.55 per share. The Company issued that warrant in 2002
and is awaiting the receipt of a specific and general release.
On October 1, 2001 a complaint was filed by a trustee in U.S. Bankruptcy
Court against the Company for alleged transfer of assets, technology, trade
secrets, confidential information, business opportunities from Allied Web,
Inc, a corporation owned by the Company's former President, which filed for
liquidation under Federal Bankruptcy laws on April 6, 2000. At December 31,
2001, management of the Company was unable to assess the possibility of
incurring future liability and estimate the reasonable amount of the
contingent liability. Therefore, the Company did not record any accrued
liability for this matter. In July 2002, this case was settled by the
Company's insurance carrier and the Company in principal.
The Company is awaiting for the finalized documents to be signed soon.
17
On November 14, 2001, a complaint was filed by Oppenheimer Wolff &
Donnelly LLP in the Orange County Superior Court, Santa Ana, California
against the Company for fees allegedly owed by the Company. The Company
intends to vigorously defend this claim because the amount invoiced was
deemed excessive comparing to the actual services rendered. The estimated
liability including interest, costs and statutory attorney's fees was
approximately $100,000. The Company has recorded liabilities for this
amount in accordance with Statement of Financial Accounting Standards
No. 5, "Accounting for Contingencies" ("SFAS No. 5"). A non binding
arbitration settlement disucssions were conducted during the week of
July 15, 2002. The Company is awaiting the arbitrator's decision.
On December 12, 2001, Chung Cheng Chen, a former shareholder of Autec Power
Systems has filed a complaint in the Superior Court County of Ventura,
Simi Valley, California against the former controlling shareholder of Autec,
Mr. Winston Gu and Bridge Technology, Inc., alleging that he/they did not
receive sufficient exchange of shares in this acquisition by Bridge
Technology, Inc. While an attempt to settle this complaint have been made,
the parties have not yet reached a settlement. The Company believes that
the complaint is without merit as to Bridge Technology, Inc. and will be
resolved between the parties. At December 31, 2001, management of the
Company was unable to asses the possibility of incurring future liability
and estimate the reasonable amount of contingent liability. Therefore,
the Company did not record any accrued liability for this matter.
On April 16, 2002, a complaint was filed by Danton Mak Esq. in the
Superior Court of Los Angeles against Autec Power Systems, Inc. for
fees alleged owed by Autec. The matter has been settled by stipulation
with four equal payments of $27,000 due on June 1, July 1, August 1 and
September 1, 2002.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of shareholders in the calendar
year 2001.
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the NASDAQ Small Cap Market System
under the 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
2001
First Quarter ................... $ 3.875 $ 1.375
Second Quarter .................. $ 2.730 $ 1.063
Third Quarter ................... $ 2.140 $ 1.15
Fourth Quarter .................. $ 1.72 $ 0.900
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
Our Company had approximately 2,800 shareholders of record on March 31,
2002.
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. However, the Board
has authorized a stock dividend of the shares of two subsidiaries, subject to
legal approval, tax review, consent of General Bank and the Shareholders.
This action will be presented to the Shareholders at the annual meeting in
early May 2002.
19
Item 6. 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, 2000, and 2001; Autec Power Systems, Inc.
as of December 31, 2000 and 2001; and CMS Technology Limited, Hong Kong as of
December 31, 2000 and 2001. Operating results and per share data for the
years ended December 31, 1997, 1998, 1999, 2000, and 2001 include the results
for PTI Enclosures, Inc. and Autec Power Systems, Inc., and December 31, 2000
and 2001 includes the operating results of CMS Technology Limited, Hong Kong.
Selected Financial Data
(Figures in thousands, except per share amounts)
Years Ended December 31,
----------------------------------------------
1997 1998 1999 2000 2001
-------- ------- ------- ------- -------
Revenues $ 14,489 $ 28,738 $ 34,272 $120,919 $142,020
Cost of goods sold 12,473 23,233 27,962 108,834 134,703
Gross profit 2,016 5,505 6,310 12,085 7,317
Selling, general and
administrative costs 2,031 5,415 5,016 9,077 8,925
R & D expense - 322 339 689 1,185
-------- ------- ------- ------- -------
Income (loss) from
operations (15) (232) 956 2,319 (2,793)
Other income (expense)
Interest income (expense), net (11) 11 69 (391) (738)
Gain on sales of investment - - - - 879
Provision for note receivable
from a related pary - - - - (263)
Other income (expense) (98) 2 (12) 36 317
-------- ------- ------- ------- -------
Income (loss) before tax (124) (219) 1,013 1,964 (2,2598)
Income tax provision
(benefit) (25) 87 363 632 (208)
-------- ------- ------- ------- -------
Net income (loss) before
minority interest (99) (306) 649 1,333 (2,388)
Minority interest - - 11 (233) (154)
-------- ------- -------- ------- -------
Net income (loss) (99) (306) 660 1,099 (2,542)
======== ======= ======== ======= =======
Preferred stock dividend 2 2 - - -
Net income (loss) attributed
to common shares $ (100) $ (308) $ 660 $ 1,099 $(2,542)
======== ======= ======= ======= =======
Basis weighted average
number of common shares 8,183,487 10,703,929
outstanding 3,015,813 9,800,665 10,863,186
Basic earning (loss)
per share $ (0.03) $ (0.04) $ 0.07 $ 0.10 $ (0.23)
======== ======= ======= ======= =======
Diluted weighted average 8,183,487 11,254,022
number of common share 3,015,813 10,581,406 10,863,186
Diluted earnings per share $ (0.03) $ (0.04) $ 0.06 $ 0.10 $ (0.23)
======== ======= ======= ======= =======
20
Selected Financial Data
(Figures in tousands)
At December 31,
---------------------------------------------
1997 1998 1999 2000 2001
---------------------------------------------
Balance Sheet Date
Cash and cash equivalent $ 202 $ 2,116 $ 2,900 $ 4,871 $ 2,413
Working capital 2,428 3,711 5,353 6,932 4,480
Total assets 6,139 12,197 13,534 44,723 40,665
Long-term debts 113 774 728 621 1,243
Minority interest - - 39 667 820
Shareholders' equity $ 2,718 $ 3,782 $ 6,016 $ 9,497 $ 7,341
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION AND
FINANCIAL CONDITION.
Overview
--------
The Company designs, manufactures and sells state of the art power
electronics components and computer peripheral components and enclosures.
In addition the Company has established a strong channel distribution system
in China presently dedicated to IBM products. The Company expects to expand
this distribution system throughout Asia and the Philippines Islands and the
United States. The Company plans to expand its business by manufacturing,
procuring and selling additional products, if it is able to secure additional
financing for this planned expansion.
Critical Accounting Policies
----------------------------
Our consolidated financial statements have prepared in accordance with
accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to use estimations
and assumptions and make judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. We based our estimations on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the result of which form the basis for making
judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions and conditions. Our critical
accounting policies are as follows:
Rebates and Credits Receivable
CMS Technology Co. Ltd. ("CMS"), one of our subsidiaries, is an authorized
distributor of IBM products in the territory including China, Vietnam,
Philippines and Hong Kong. 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 authorized
distributors to sell more of its products. As a result of changes in price
list (usually decreases in prices), CMS 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
applications forms. In general, once applications are approved by IBM
these rebates and credits approved by IBM will be deducted from CMS's
accounts payable to IBM and decrease the cost of goods sold or inventory
correspondingly. However, at the end of reporting period, CMS has to
estimate the relevant rebates and credit receivable based on the quantity
of inventory on hand and anticipated approval for rebates and credits
receivable from IBM, therefore, the actual results could differ from
our estimated amount.
22
Impairment of Long-Lived Assets
In assessing the recoverability of long-lived assets, including goodwill and
other intangibles, we must make assumptions regarding estimated future cash
flows and other factors to determine the fair value of the respective
assets. If these estimates or their related assumptions change in the future,
we may be required to record impairment charges for these assets not
previously recorded.
Accounting for Income Taxes
Significant management judgment is required in determining our provision
for income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded. As of December 31, 2001, we have recorded a full
valuation allowance of approximately $940,000 against our deferred tax
assets balance in the U.S. due to uncertainties related to our deferred tax
assets as a result of our history of losses in the U.S. The valuation is
based on our estimates of taxable income in the U.S. operation and the
period over which our deferred tax assets will be recoverable. In the event
that actual results differ from these estimates or we adjust these estimates
in the future periods, we may need to change the valuation allowance, which
could impact our financial position and results of operations.
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,
----------------------------------------------
2001 2000 1999
-------------- -------------- --------------
(dollars in thousands)
Revenues................ $ 142,020 $ 120,919 $ 34,272
Cost of sales ......... 134,703 108,834 27,962
-------------- -------------- --------------
Gross Profit............ 7,317 12,085 6,310
Percentage ............ 5.2% 10% 18.4%
Operating expenses...... 10,110 9,766 5,355
-------------- -------------- --------------
Operating income (loss). $ (2,793) $ 2,319 $ 955
============== ============== ==============
Net income (loss) from
continuing operations. $ (2,542) $ 1,099 $ 660
============== ============== ==============
23
Percentage of Revenues
Years Ended December 31,
----------------------------------------------
2001 2000 1999
-------------- -------------- --------------
Revenues ................... 100.0 % 100.0 % 100.0 %
Gross profit................ 5.2 10.0 18.4
Operating income (loss)..... (2.0) 1.9 2.8
Interest, net............... (0.5) (0.3) 0.2
Income tax expense ......... (0.1) 0.5 1.1
Net income (loss)........... (1.8) 1.1 1.9
Percentage Increase (Decrease)
Years Ended December 31,
---------------------------------
2000-2001 2000-1999
------------- -------------
Revenues ........................ 17.5 % 252.8 %
Gross profit..................... (39.4) 91.5
Operating income ................ (220.4) 142.6
Interest, net.................... 88.9 (668.6)
Income tax expense .............. (133.0) 73.8
Net income ...................... (331.3) 66.4
24
Results of Operations for Years ended December 31, 2000 and 2001
----------------------------------------------------------------
Revenue increased 17.5% from $120.9 million in 2000 to $142.0 million
in 2001. This was due to the increase of Distribution revenue of
35.7% from $92.8 million in 2000 to $125.9 million in 2001, mainly
resulting from the revenue in CMS from $68.6 million in 2000 to
$103.9 million in 2001. Manufacturing revenue decrease 42.7% from
$28.1 million in 2000 to $16.1 million in 2001, due mainly to the
decline of revenue of Autec in the U.S. from $19 million in 2000
to $7.3 million in 2001 as result of the reduction of business
activities in the tech field in the U.S. and in particular a
reduction in the demand for power systems. The geographic revenue
of Asia increased 46.3% from $72.7 million in 2000 to $106.4 million
in 2001, mainly resulting from the revenue in CMS. The geographic
segment of revenue in the U.S. decreased 25.6% from $47.9 million in
2000 to $35.7 million in 2001, due mainly to the decrease of revenue
of Autec. Products and services mix in 2001 has not changed
substantially in comparison to those in the prior year.
Gross Profit decreased 39.4% from $12.1 million in 2000 to $7.3 million
in 2001 principally as a result of the increase in low margin revenue
in CMS because CMS' gross profit ratio was only approximately 4%.
In addition, the decline of revenue in Autec generated a huge impact
on the decrease in gross profit because Autec historically generated
above a gross profit ratio of above 30%, however, the gross profit in
Autec in 2001 was only approximately 17%. Facing this competitive
environment and declining prices, gross profit as a percentage of
revenue decrease from 10% in 2000 to 5.2% in 2001. Although the
gross margin in CMS was relatively low comparing to the gross margins
in other subsidiaries, but revenues and profits in CMS were more
predictable.
Research and Development expenses increased by approximately 71.9% from
$689,000 in 2000 compared to $1,185,000 in 2001 due mainly to the on-
going product development and enhancement of existing technologies in
Autec in 2001. As a percentage of revenue the research and
development expenses increase from 0.6% in 2000 to 0.8% in 2001.
Selling and Administrative expenses decreased approximately 1.7% from
$9.1 million in 2000 to $8.9 million in 2001. As a percentage of
revenue the selling and administrative expenses decreased from 7.5%
in 2000 to 6.3% in 2001. The decrease in selling, general and
administrative expenses was attributed mainly to the reduction of
business activities in the United States.
Net Income decreased approximately 331.3% from $1.1 million income in
2000 to a loss of $2.5 million in 2001. The decrease in net income was
attributed mainly to the severe decline in revenue and net income of
Autec in 2001.
25
Results of Operations for Years ended December 31, 1999 and 2000
----------------------------------------------------------------
Revenue increased 252.8% from $34.3 million in 1999 to $120.9 million
in 2000. This was due to an increase in both manufacturing revenue in
the U.S. of 46.3% from $19.2 million in 1999 to $28.1 million
in 2000 and distribution revenue of 516.7% from $15 million in 1999
to $92.8 million in 2000. The increase in manufacturing revenue was
due to the increase in Autec and the increase in distribution revenue
was due to inclusion of revenue of CMS in 2000. The geographic segment
of revenue in the U.S. increase 51.4% from $31.6 million in 1999 to
$47.9 million in 2000 due mainly to the increase of revenue in Bridge
R&D and Newcorp Japan. The geographic segment of revenue in Asia
increase 3,164% from $2.2 million in 1999 to $72.7 million in 2000 due
mainly to the inclusion of revenue in CMS. Products and services mix
in 2000 has changed substantially in comparison to those in the prior
year, due mainly to the additional revenue of approximately $68.3
million generated by CMS, which is an authorized IBM products
distributor in Asia.
Gross Profit increased 91.5% from $6.3 million 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 revenue
decreased from 18.4% in 1999 to 10% in 2000 due mainly to the inclusion
of lower gross profit in CMS.
Research and Development expenses increased by approximately 103% from
$339,000 in 1999 compared to $689,000 in 2000. The research and development
expenses as a percentage of revenue decreased from 1% in 1999 to 0.6% in
2000. The increased in expenses in 2000 was attributed to on-going
product development and enhancement of existing technologies.
Selling and Administrative expenses increased approximately 81% from $5.0
million in 1999 to $9.1 million in 2000. As a percentage of revenue the
selling, general and administrative expenses decreased from 14.6% in 1999
to 7.5% in 2000. The selling, general and administrative expenses was
attributed mainly to the expansion of business activities in Asia and the
U.S.
Net Income increased approximately 66.4% from $660,000 in 1999 to $1.1
million in 2000. The increase in net income was attributed to both the
net income generated by Autec and CMS in 2000.
26
Capital Resources & Liquidity
-----------------------------
In summary our cash flows were:
2001 2000 1999
-------------------------------------
Cash provided by (used in)
operating activities (3,634,754) (4,478,241) 686,565
Cash used in Investing
activities (1,803,619) (4,977,712) (667,168)
Cash provided by
financing activities 2,954,329 11,408,930 791,104
Net cash provided by (used in) operating activities was approximately
$687,000, $(4,478,000) and $(3,635,000) for the years ended December
31, 1999, 2000 and 2001, respectively.
The decrease of approximately $5,165,000 in cash provided by operating
activities in 2000 compared to 1999 was attributable primarily to the
inclusion of CMS's operating assets and liabilities mainly in trade
receivable, inventory, and accounts payable because 2000 was the first
year that the consolidated cash flow included CMS's operating asset and
liabilities. Bridge and all other non-restricted subsidiaries together
generated a positive cash flow of approximately $219,000 provided by
operating activities in 2000. See Schedule I (which is included in the
consolidated financial statements) for reference.
The cash of approximately $3,635,000 used in operating activities in
2001 was attributable primarily to the inclusion of CMS's operating
assets and liabilities. The decrease of approximately $843,000 in
cash used in operating activities in 2001 compared to 2000 was a
result of net losses offset by changes in operating assets and
liabilities. Bridge and all other non-restricted subsidiaries together
used cash of approximately $57,000 in operating activities in 2001. See
Schedule I (which is included in the consolidated financial statements)
for reference.
27
Net cash provided by (used in) investing activities was approximately
$(667,000), $(4,978,000) and $(1,804,000) for the years ended December
31, 1999, 2000 and 2001, respectively.
The cash used in investing activities in 2000 was approximately $4,311,000
more than it had been in 1999, due mainly to using cash of approximately
$5,293,000 (net of cash acquired) to acquire 60% interest in CMS Technology
Co. Ltd., a Hong Kong based authorized IBM products distributor. The
repayment from related party contributed a postive cash flow of
approximately $450,000 and the additions to fixed asset was decrease by
approximately $286,000 in 2000. Bridge and all other non-restricted
subsidiaries together used cash of approximately $6,064,000 in investing
activities in 2001, of which $6,000,000 was used to acquire 60% interest
in CMS. See Schedule I (which is included in the consolidated financial
statements) for referenCE.
The cash used in investing activities in 2001 was $3,174,000 less than
it had been in 2000, primarily due to acquisition of CMS which occurred
during 2000 partially offset by the investment of approximately
$2,342,000 in fixed assets located in Bridge Ningbo, a wholly owned
subsidiary located in China. Bridge and all other non-restricted
subsidiaries together used cash of approximately $1,772,000
(net of proceeds of $910,000 from sales of an investment and a note
receivable of approximately $340,000 from Newcorp Japan) in investing
activities in 2001, of which $2,342,000 was used to invest in fixed
assets in Bridge Ningbo. See Schedule I (which is included in the
consolidated financial statements) for reference.
Net cash provided by (used in) financing activities was approximately
$791,000, $11,409,000 and $2,954,000 for the years ended December 31,
1999, 2000, and 2001, respectively.
The net cash provided by financing activities in 1999 related mainly to
proceeds from the sale of the Company's common stock with a net payment
of approximately $372,000 for loans payable in the U.S.
In 2000, the Company reported the proceeds of approximately $5,761,000
from a line of credit and the commitment of approximately $4,242,000 in
capital infusion by CMS's original shareholders. Bridge and all other
non-restricted subsidiary generated a positive cash flow of approximately
$6,756,000 in 2000, including $4,000,000 in a line of credit and $2,800,000
in shareholder loans. See Schedule I (which is included in the
consolidated financial statements) for reference.
28
The net cash provided from financing activities in 2001 was primarily a
combined result of proceeds of $3,000,000 from a line of credit in CMS
and a $1,000,000 loan from a related party in the U.S. partially
offset by repayment of approximately $402,000 for loans payable
and repayment of $700,000 for shareholder loans. Bridge and all
other non-restricted subsidiary used cash of approximately $82,000
in financing activities in 2001. See Schedule I (which is included
in the consolidated financial statements) for reference.
Management believes that the Company does have the economic where-
withal to maintain its operations for the foreseeable future. In
July, 2002 the Company entered into a loan modification and extension
agreement with a commercial bank for its outstanding balance of $4 million
at December 31, 2001, which was reduced by $100,000 payment made in 2002.
Pursuant to the terms of the new agreement, monthly interest only payments
are to be made through maturity, $50,000 is due by September 15, 2002 and
no less than $1,000,000 is due on November 30, 2002. The Company owns 90%
of all issued and outstanding shares in CMS and pledged 65% of all issued
and outstanding shares in CMS against this outstanding balance and the
maturity date of the note has been extended until November 30, 2002.
However, if the Company makes all of the foregoing payments on a timely
basis and has not otherwise defaulted on the loan, the maturity date for
the remaining unpaid principal balance will be extended until June 30, 2003.
In addition, management is negotiating with the Company's major shareholders
to convert a portion of the Company's indebtedness to them into equity in
order to improve the Company's working capital position. Operationally,
management's plans include continuing actions to cut or curb non-essential
expenses and focusing on improving the sales of Autec. No asurance can be
given that the Company will be successful in extending or modifying its
line of credit beyond June 30, 2003 or that the Company will be able to
return to profitable operations. Looking for alternatives, the Company
is currently seeking global financing agreement with a major international
bank to replace existing credit lines in U.S. and Hong Kong. No assurance
can be given that the alternative funding source will be available.
29
Analysis and Satisfaction of Contractual Obligations
---------------------------------------------------
As of December 31, 2001, the Company has the following contractual
obligations
Contractual Less than 1-3 4-5 After 5
Obligations Total 1 Year Years Years Years
___________________________________________________________________________________
Note payable to IBM 5,000,000 5,000,000 - - -
Note payable to General Bank 4,000,000 4,000,000 - - -
Shareholder loans 2,130,000 2,130,000 - - -
Related party loans 989,979 75,118 165,042 186,957 562,862
Long-term bank loans 375,201 46,901 99,613 107,894 120,793
Operating lease 8,346,681 660,332 1,367,320 1,270,378 5,048,651
_________________________________________________________
Total contractual cash 20,841,861 11,912,351 1,631,975 1,565,229 5,732,306
obligations
30
Effects of Fluctuation in Foreign Exchange Rates
------------------------------------------------
The Company continues to buy products and services from foreign suppliers.
The 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 fluctuations with CMS Technology's
operations in China. 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. The Company plans to continue to fund
research and development and its expanded patent, copyright and proprietary
product work with cash generated from internal operations. To the extent
that such expenses precede, or are not subsequently followed by, increased
revenues, the Company's business,operating results and financial condition
will be adversely affected.
Bridge Technology, Inc.
Selected Quarterly Financial Data
1999, 2000 and 2001
(in thousands)
Quarter 1 Quarter 2 Quarter3 Quarter 4 Total
----------------------------------------------------------------
1999
Revenue, net $ 9,588 $ 7,184 $ 9,074 $ 8,426 $ 34,272
Gross profit 1,477 1,439 1,389 2,005 6,311
Net income (loss) 217 190 148 106 661
Basic earnings
per share $ 0.02 $ 0.02 $ 0.01 $ 0.01 $ 0.06
Diluted earnings
per share $ 0.02 $ 0.02 $ 0.01 $ 0.01 $ 0.06
2000
Revenue, net $21,751 $25,504 $28,339 $45,325 $120,919
Gross profit 1,903 3,199 2,316 4,667 12,085
Net income (loss) (64) 601 132 430 1,099
Basic earnings
per share $ (0.01) $ 0.06 $ 0.01 $ 0.04 $ 0.10
Diluted earnings
per share $ - $ 0.05 $ 0.01 $ 0.04 $ 0.10
2001
Revenue, net $27,790 $34,616 $47,254 $32,360 $142,020
Gross profit 2,620 1,616 2,417 665 7,318
Net income (loss) 90 (1,280) (797) (555) (2,542)
Basic earnings
per share $ 0.01 $ (0.12) $ (0.07) $ (0.05) $ (0.23)
Diluted earnings
per share $ 0.01 $ - $ - $ - $ -
31
New Accounting Standards Not Yet Adopted
----------------------------------------
In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, "Business Combinations" ("SFAS No. 141"), and No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142")
SFAS No. 141 requires the use of the purchase method of accounting and
profits and the use of the pooling-of-interests method of accounting for
business combinations initiated after June 30, 2001. SFAS No. 141 also
requires that the Company recognize acquired intangible assets apart
from goodwill if the acquired intangible assets meet certain criteria.
SFAS No. 141 applies to all business combinations initiated after June 30,
2001 and for purchase business combinations completed on or after July 1,
2001. It also requires, upon adoption of SFAS No. 142, companies to
reclassify the carrying amounts of intangible assets and goodwill based
on the criteria in SFAS No. 141. The Company does not expect that the
adoption of SFAS No. 141 will have a material impact on its consolidated
financial statements.
SFAS No. 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS No. 142 requires that the Company identify reporting units
for the purpose of assessing potential future impairments of goodwill,
reassess the useful lives of other existing recognized intangible assets,
and cease amortization of intangible assets with an indefinite useful life.
An intangible asset with an indefinite useful life should be tested for
impairment in accordance with the guidance in SFAS No. 142. SFAS No. 142 is
required to be applied in fiscal years beginning after December 15, 2002 to
all goodwill and other intangible assets recognized at that date, regardless
of when those assets were initially recognized. SFAS No. 142 requires
companies to reassess the useful of other intangible assets within the first
interim quarter after adoption of SFAS No. 142. The Company does not expect
that the adoption of SFAS No. 142 will have a material effect on the
consolidated financial statements.
In June 2001, Financial Accounting Standard Board issued Statement of
Financial Accounting Standards, No. 143, "Accounting for Asset Retirement
Obligations," ("SFAS No. 143"). FAS No. 143 is effective for fiscal years
beginning after June 15, 2002. SFAS No. 143 requires that any legal
obligation related to the retirement of long-lived assets be quantified and
recorded as a liability with the associated asset retirement cost
capitalized on the balance sheet in the period it is incurred when a
reasonable estimate of the fair value of the liability can be made.
In August 2001, Financial Accounting Standard Board issued Statement of
Financial Accounting Standards, No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," ("SFAS No. 144"). SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001. SFAS No. 144 provides a
single, comprehensive accounting model for impairment and disposal of long-
lived assets and discontinued operations.
The Company expects that SFAS No. 143 and SFAS No. 144 will be adopted on
their effective dates and that the adoption will not result in any material
effects on its financial statements.
32
Item 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
Bridge Technology, Inc. develops and procures products in the United States,
Japan and Hong Kong, and the Company sells products 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Bridge Technology, Inc. and Subsidiaries
Consolidated Financial Statements
For the Years Ended December 31, 1999, 2000 and 2001
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 I - Condensed Financial Statements
Condensed Balance Sheets F-29
Condensed Statements of Operations and Comprehensive
Income (Loss) F-30
Condensed Statements of Cash Flows F-31
Schedule II - Valuation and Qualifying Accounts F-32
Independent Auditors' Report
33
The Shareholders of
Bridge Technology, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Bridge
Technology, Inc. and subsidiaries as of December 31, 2000 and 2001, and
the related consolidated statements of operations and comprehensive income
loss), shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 2001. 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 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, 2000 and 2001 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 2001 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.
/s/ BDO Seidman, LLP
Los Angeles, California
March 22, 2002, except for Notes 4 and 7
as to which the date is July 24, 2002
F-2
34
Assets (Note 4)
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS December 31,
----------------------------
2000 2001
------------ -----------
Current assets:
Cash $ 4,870,836 $ 2,413,295
Accounts receivable less allowance for
doubtful accounts of $465,656 and
$308,106 (Note 11) 17,666,626 11,035,057
Tax refund receivable (Note 3) - 500,000
Other receivables 1,100,115 76,296
Inventory (Note 1) 16,991,615 21,692,543
Due from related party (Note 8) 21,932 22,143
Other current assets 219,192 -
------------ ------------
Total current assets 40,870,316 35,739,334
Property and equipment, net (Note 2) 716,384 2,681,018
Goodwill, net of amortization of $598,210
and $1,242,917 (Note 6) 2,586,324 1,949,417
Purchased intangibles (Note 9) 190,000 -
Deferred income tax (Note 3) 63,201 -
Investments 229,862 198,717
Other assets 66,834 96,213
------------ ------------
Total assets $ 44,722,921 $ 40,664,699
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Bank overdraft $ - $ 36,152
Notes payable (Note 4) 6,000,000 9,000,000
Current portion of long term debt (Note 5) 155,980 46,901
Accounts payable, net of accrued rebates
and credits of $698,470 and $0 23,180,434 18,019,422
Accrued taxes payable 537,401 6,400
Deferred income tax (Note 3) 26,425 4,097
Accrued liabilities 1,148,870 1,941,560
Shareholder loan (Note 8) 2,888,919 2,130,000
Current portion ofloans due - 75,118
to related party (Note 8) ----------- -------------
Total current liabilities 33,938,029 31,259,690
Related party loan, less current portion (Note 8) - 914,861
Long term debt, less current portion (Note 5) 621,023 328,300
------------ -------------
Total liabilities 34,559,052 32,502,851
------------ -------------
Minority interest 667,224 820,378
Commitments and Contingencies (Note 7)
Shareholders' equity (Notes 9 and 10):
Common stock; par value $0.01 per share,
authorized 100,000,000 shares, 10,863,186
shares issued and 10,863,186 and
10,798,186 shares outstanding
108,632 108,632
Additional paid-in capital 9,308,139 9,783,013
Related party receivable (Note 8) (225,000) (340,000)
Treasury stock, 1,000 shares and (2,000) (2,000)
66,000 shares at cost (Note 8)
Retained earnings (accumulated deficit) 354,745 (2,187,679)
Accumulated other comprehensive loss (47,871) (20,496)
------------ ------------
Total shareholders' equity 9,496,645 7,341,470
------------ ------------
Total liabilities and shareholders' equity $ 44,722,921 $ 40,664,699
============ ===========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
35
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOss)
Year ended December 31,
-------------------------------------------
1999 2000 2001
------------ ------------ -------------
Net sales (Note 11) $ 34,272,187 $120,918,774 $ 142,020,299
Cost of sales 27,961,504 108,833,687 134,702,750
------------ ------------ -------------
Gross profit 6,310,683 12,085,087 7,317,549
Research and development 339,380 689,056 1,184,687
expenses
Selling, general and
administrative expenses 5,015,522 9,077,087 8,924,512
------------ ------------ ------------
Income (loss) from operations 955,781 2,318,944 (2,791,650)
Other income (expense):
Interest, net 68,724 (390,757) (738,183)
Other (11,949) 35,958 316,824
Gain on sale of investments (Note 8) - - 879,035
Provision for note receivable from
a related party (Note 8) - - (262,550)
----------- ------------ ------------
Income (loss) before income taxes 1,012,556 1,964,145 (2,596,524)
Income taxes (benefit) (Note 3) 363,283 631,557 (208,126)
------------ ------------ ------------
Net income (loss) 649,273 1,332,588 (2,388,398)
Minority interest in net loss
(income) of subsidiaries 11,448 (233,428) (154,026)
----------- ------------ -------------
Net income (loss) applicable
to common shares $ 660,721 $ 1,099,160 $ (2,542,424)
============ ============ =============
Basic weighted average number
of common stock outstanding 9,800,665 10,703,929 10,863,186
============ ============ =============
Basic income (loss) per share $ 0.07 $ 0.10 $ (0.23)
============ ============ =============
Diluted weighted average number
of common stock outstanding 10,581,406 11,254,022 10,863,186
============ ============ =============
Diluted income (loss) per share $ 0.06 $ 0.10 $ (0.23)
============ ============ =============
Comprehensive income (loss) and its components consist of the following:
Net income (loss) $ 660,721 $ 1,099,160 $ (2,542,424)
Foreign currency translation
adjustments (26,197) 16,338 27,375
------------ ------------- ------------
Comprehensive income (loss) $ 634,524 $ 1,115,498 $ (2,515,049)
============ ============= ============
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
36
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(SEE NOTES 9 AND 10)
STOCK SUB- ACCUMULATED
COMMON STOCK ADDITIONAL SCRIPTION OTHER COM-
------------------ PAID-IN ACCUMULATED SHAREHOLDER TEASURY PREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE STOCK LOSS TOTAL
--------------------------------------------------------------------------------------------
BALANCE, January 1, 8,897,186$ 88,972 $ 5,110,968 $(1,405,136) $ 25,000 $ - $ (38,012) $ 3,781,792
1999
Stock issued for
stock subscribed
in prior year 50,000 500 24,500 - (25,000) - - -
Forgiveness of loan
payable to share-
holder in PTI - - 100,000 - - - - 100,000
Warrants exercised 75,000 750 74,250 - - - - 75,000
Stock repurchase
Autec - - - - - (2,000) - (2,000)
Issurance of common
stock 600,000 6,000 444,000 - - - - 450,000
Issurance of common
stock 700,000 7,000 693,000 - - - - 700,000
Issurance of common
stock 120,000 1,200 238,800 - - - - 240,000
Non-employee
compensation due
warrants issued - - 34,500 - - - - 34,500
Warrants issued for
public relation-
ship service - - 1,834 - - - - 1,834
Notes receivable
from shareholder - - - - (250,000) - - (250,000)
Net Income - - - 660,721 - - - 660,721
Translation adjustment - - - - - - (26,197) (26,197)
-------------------------------------------------------------------------------------------
Balance, December 31,
1999 10,442,186 104,422 6,721,852 (744,415) (250,000) (2,000) (64,209) 5,765,650
35
Warrants issued
for public relation-
ship service - - 3,666 - - - - 3,666
Warrants exercised 10,000 100 34,900 - - - - 35,000
Warrants exercised 1,000 10 1,740 - - - - 1,750
Issurance of common
stock 40,000 400 189,600 - - - - 190,000
Issurance of common
stock (Note 6) 360,000 3,600 2,336,400 - - - - 2,340,000
Warrants exercised 10,000 100 17,400 - - - - 17,500
Non-employee compen-
sation due t
warrants issued - - 2,581 - - - - 2,581
Repayments of share-
holder notes
receivable - - - - 25,000 - - 25,000
Net income - - - 1,099,160 - - - 1,099,160
Translation adjustment - - - - - - 16,338 16,338
--------------------------------------------------------------------------------------------
Balance, December 31,
2000 10,863,186 108,632 9,308,139 354,745 (225,000) (2,000) (47,871) 9,496,645
Disposal of invest-
ment in Newcorp
Japan (Note 8) - - 381,284 - - - - 381,284
Foregiveness of
officers'
compensation - - 93,590 - - - - 93,590
Provision for note
receivable - - - - 225,000 - - 225,000
Note receivable from
Newcorp Japan (Note 8) - - - - (340,000) - - (340,000)
Net loss - - - (2,542,424) - - - (2,542,424)
Translation adjustment - - - - - - 27,375 27,375
-------------------------------------------------------------------------------------------
Balance, December 31,
2001 10,863,186$ 108,632 $ 9,783,013 $(2,187,679) $ (340,000 $ (2,000) $ (20,496) $7,341,470
========== ========= =========== =========== ========== ========== ============= ===========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
37
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years ended December 31,
-----------------------------------
1999 2000 2001
----------- ----------- -----------
Cash flows from operating activities
Net income (loss) $ 660,721 $1,099,160 $(2,542,424)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 162,825 857,904 1,045,861
Allowance for doubtful accounts 6,413 382,693 106,584
Inventory reserves (40,764) 451,403 180,270
(Gain)/loss on disposal of fixed
assets - (1,016) -
Gain on sale of investment - - (879,035)
Provision for related party note
Receivable - - 262,550
Write-off of intangible - 50,000 190,000
Stock issued in exchange for services 36,334 6,247 -
Tax refund receivable - - (500,000)
Forgiveness of offficers' compensation - - 93,590
Deferred taxes - (69,026) 40,713
Minority interest 38,522 233,428 154,026
Changes in operating assets and
liabilities, net of business
acquired
Trade receivables 91,794 (7,961,928) 6,524,985
Inventory (179,371) (3,311,272) (4,881,198)
Other receivables 52,240 (994,370) 986,269
Other assets 328,691 (109,830) 189,813
Accounts payable (129,265) 4,668,423 (4,779,728)
Accrued liabilities (571,434) (9,654) 703,772
Income taxes payable 229,859 229,597 (530,802)
----------- ---------- ----------
Net cash provided by (used in) operating
activities 686,565 (4,478,241) (3,634,754)
----------- ---------- ----------
Cash flows from investing activities
Proceeds from sale of investment - - 910,180
Purchase of property, plant and equipment (421,866) (135,620) (2,373,588)
Purchased Intangibles (200,000) - -
Proceeds from disposal of fixed assets - 34,891 -
Due from related party (5,304) 6,175 (340,211)
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 (667,168) (4,977,712) (1,803,619)
---------- ---------- ----------
F-6
38
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years ended December 31,
-----------------------------------
1999 2000 2001
---------- ----------- ------------
Cash flows from financing activities
Bank overdraft - - 36,152
Proceeds from loans payable 102,768 130,680 -
Repayments on loans payable (474,664) (81,320) (401,802)
Proceeds from issuance of common stock 1,390,000 - -
Proceeds from related party loan (Note 8) - - 1,000,000
Repayment on related party loan (Note 8) - - (10,021)
Proceeds from line of credit - 5,761,322 3,000,000
Proceeds from shareholder loans (Note 8) - 16,691,766 30,000
Repayments on shareholder loans (Note 8) - (15,489,413) (700,000)
Related party receivable (Note 8) (250,000) 25,000 -
Proceeds from exercise of warrants - 54,250 -
Stock subscription collected 25,000 75,000 -
Stock subscription collected in CMS - 4,241,645 -
Stock repurchase (2,000) - -
---------- ---------- -----------
Net cash provided by financing activities 791,104 11,408,930 2,954,329
---------- ---------- -----------
Effect of exchange rate changes on cash (26,199) 17,830 26,503
---------- ---------- -----------
Net increase (decrease)
in cash and cash equivalents 784,302 1,970,807 (2,457,541)
Cash and cash equivalents, beginning of
year 2,115,727 2,900,029 4,870,836
---------- ---------- ----------
Cash and cash equivalents, end of year $2,900,029 $4,870,836 $2,413,295
========== ========== ==========
Cash paid during the year for:
Interest $ 44,216 $ 393,303 $ 841,863
Income taxes 51,376 401,960 822,849
---------- ---------- ---------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-7
39
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Supplemental disclosure of non-cash activities:
-----------------------------------------------
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 entity 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.
In December 2001, the Company sold 85% of its equity interest in Newcorp
Technology Ltd., Japan for 65,000 shares of the Company's common stock
(Note 8).
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-8
40
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation and Liquidity
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.
As of December 31, 2001, the Company has the following subsidiaries:
Ownership
---------
Bridge R&D, Inc. 100% Established on June 1, 1997
Newcorp Technology Limited 100% Merged on November 1, 1997
(in Japan) 15% 85% disposed in 2001
PTI Enclosures, Inc. 100% Merged on December 14, 1998
Newcorp Technologies, Inc. (USA) 100% Established on March 23, 1999, inactive
Pacific Bridge Net, Inc. 80% Established on August 16, 1999 and
ceased operation in 2000
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%)
Bridge Technology Ningbo
Co., Ltd. 100% Established on May 28, 2001
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 and manufacture 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.
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)
On May 28, 2001, the Company established a wholly owned subsidiary, Bridge
Technology Ningbo Co. Ltd. ("Ningbo"), in the City of Ningbo, Zhejiang
Province of China. The Ningbo facility is used to conduct assembly work for
power supplies which will be sold to customers in the U.S. and other countries
in Asia. As of December 31, 2001, the Company had invested approximately
$2.18 million in Ningbo.
During the year ended December 31, 2001, the Company incurred a net loss of
$2542,000 and used cash of $3,635,000 in its operations. Management has
undertaken certain actions in an attempt to improve the Company's liquidity
and return the Company to profitability. On July 24, 2002, the Company
entered into a loan modification and extension agreement with a commercial
bank for its outstanding balance of $4 million at December 31, 2001, which
was reduced by $100,000 payment made in 2002. Pursuant to the terms of the
new agreement, monthly interest only payments are to be made through
maturity, $50,000 is due by September 15, 2002 and no less than $1,000,000
is due on November 30, 2002. The Company owns 90% of all issued and
outstanding shares in CMS and pledged 65% of all issued and outstanding
shares in CMS against this outstanding balance and the maturity date of the
note has been extended until November 30, 2002. However, if the Company
makes all of the foregoing payments on a timely basis and has not otherwise
defaulted on the loan, the maturity date for the remaining unpaid principal
balance will be extended until June 30, 2003. In addition, management is
negotiating with the Company's major shareholders to convert a portion of
the Company's indebtedness to them into equity in order to improve the
Company's working capital position.
Operationally, management's plans include continuing actions to cut or
curb non-essential expenses and focusing on improving the sales of Autec.
No asurance can be given that the Company will be successful in extending
or modifying its line of credit beyond June 30, 2003 or that the Company
will be able to return to profitable operations.
Looking for alternatives, the Company is currently seeking global financing
agreement with a major international bank to replace existing credit lines
in U.S. and Hong Kong. No assurance can be given that the alternative
funding source will be available.
41
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.
Revenue Recognition
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.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
F-9
42
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 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
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
subsidiaries 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.
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.
Impairment of Long-lived Assets
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 No. 121) establishes 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.
F-10
43
Rebates and Credits Receivable
As a common practice in the computer parts distribution business, CMS's
major vendor periodically updates its price list for all of its products
and provides certain incentive programs to attract its authorized
distributors to sell more of its products. As a result of changes in
price list (usually decreases in prices), CMS 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 its vendor through
submitting the necessary application forms. In general, once the vendor
approves these applications the amounts of these rebates and credits will
be deducted from CMS's accounts payable to its vendor and decrease the cost
of goods sold or inventory correspondingly.
Investments
The Company has made investments in equity securities of other entities
(which are privately held companies) in various industries for which its
investment in these companies represents less than 20% of the voting stock
of the investee and for which the Company does not otherwise exert
significant influence. Because these investments do not have readily
determinable fair values, they are recorded at cost and periodically
reviewed for impairment. During 2001, the Company realized a gain of
approximately $879,000 from a partial sale of one of its investment that
had a carrying value of approximately $31,000.
Research and Development Expense
Research and development expenses are expensed when incurred. The Company
incurred research and development expense of $339,380, $689,056 and
$1,184,687 in 1999, 2000 and 2001.
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, reserve for
obsolete inventory, and the deferred income tax asset allowance. Actual
results could differ materially 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.
F-11
44
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.
The following table sets forth the computation of basic and diluted earnings
per share:
Year ended December 31 1999 2000 2001
-------------------------------------------------------------------------------
Net income (loss) applicable
to common shares 660,721 1,099,160 (2,542,424)
Basic weighted average number of
common shares outstanding 9,800,665 10,703,929 10,863,186
Stock options and warrants 780,741 550,093 ---
Diluted weighted average number of
common shares outstanding 10,581,406 11,254,022 10,863,186
Basic earnings (loss) per share $0.07 $0.10 ($0.23)
Diluted earnings (loss) per share $0.06 $0.10 ($0.23)
Stock options and warrants to purchase 1,729,000 shares of common stock were
outstanding during 2001, but were not included in the computation of diluted
earnings per share because their effect would be antidilutive.
Stock-based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS No. 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 non-employees 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.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
Statement of Financial Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("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.
Historically, the Company has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. Accordingly, the
adoption of the new standard on January 1, 2001 did not have a material
affect on the financial statements.
F-12
45
New Accounting Standards Not Adopted Yet
In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, "Business Combinations" ("SFAS No. 141"), and No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142").
SFAS No. 141 requires the use of the purchase method of accounting and
prohibits the use of the pooling-of-interests method of accounting for
business combinations initiated after June 30, 2001. SFAS No. 141 also
requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS No.
141 applies to all business combinations initiated after June 30, 2001 and
for purchase business combinations completed on or after July 1, 2001. It
also requires, upon adoption of SFAS No. 142, companies to reclassify the
carrying amounts of intangible assets and goodwill based on the criteria in
SFAS No. 141. The Company does not expect that the adoption of SFAS No. 141
will have a material impact on its consolidated financial statements.
SFAS No. 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS No. 142 requires that the Company identify reporting units
for the purposes of assessing potential future impairments of goodwill,
reassess the useful lives of other existing recognized intangible assets,
and cease amortization of intangible assets with an indefinite useful life.
An intangible asset with an indefinite useful life should be tested for
impairment in accordance with the guidance in SFAS No. 142. SFAS No. 142 is
required to be applied in fiscal years beginning after December 15, 2001 to
all goodwill and other intangible assets recognized at that date, regardless
of when those assets were initially recognized. SFAS No. 142 requires
companies to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS No. 142.
The Company's previous business combinations were accounted for using both
the pooling-of-interests and purchase methods. The pooling-of-interests
method does not result in the recognition of acquired goodwill or other
intangible assets. As a result, the adoption of SFAS 141 and 142 will not
affect the results of past transactions accounted for under the pooling-of-
interests method. However, all future business combinations will be
accounted for the purchase method, which may result in the recongnition of
goodwill and other intangible assets, some of which will be recognized
through operations, either by amortization or impairment charges, in the
future. For purchase business combinations completed prior to December 31,
2001, the net carrying amount of goodwill is $1,949,417. Amortization
expense of goodwill for the years ended December 31, 2000 and 2001 was
$598,210 and $636,907 respectively. Currently, the Company is
assessing but has not yet determined how the adoption of SFAS 141
and SFAS 142 will impact its financial position and results of operations.
In June 2001, Financial Accounting Standard Board issued Statement of
Financial Accounting Standards, No. 143, "Accounting for Asset Retirement
Obligations," ("SFAS No. 143"). FAS No. 143 is effective for fiscal years
beginning after June 15, 2002. SFAS No. 143 requires that any legal
obligation related to the retirement of long-lived assets be quantified and
recorded as a liability with the associated asset retirement cost
capitalized on the balance sheet in the period it is incurred when a
reasonable estimate of the fair value of the liability can be made.
F-13
46
In August 2001, Financial Accounting Standard Board issued Statement of
Financial Accounting Standards, No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," ("SFAS No. 144"). SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001. SFAS No. 144 provides a
single, comprehensive accounting model for impairment and disposal of
long-lived assets and discontinued operations.
The Company expects that SFAS No. 143 and SFAS No. 144 will be adopted on
their effective dates and that the adoption will not result in any material
effects on its financial statements.
Reclassifications
Certain reclassifications have been made to the prior year consolidated
financial statements to conform with the 2001 presentation.
F-14
47
Notes to Consolidated Financial Statements
Note 1. Inventory
Inventory consists of:
December 31,
----------------------------
2000 2001
------------ -------------
Service parts $ 1,505,715 $ 1,633,919
Work in progress 558,406 329,730
Finished goods 15,546,998 20,528,669
Reserve for obsolete inventory (619,504) (799,775)
------------- -------------
$ 16,991,615 $ 21,692,543
============= =============
Note 2. Property, Plant and Equipment
Property, plant and equipment consists of:
December 31,
-------------------------------
2000 2001
-------------- --------------
Furniture, fixtures and equipment $ 730,967 $ 3,239,717
Vehicles 100,748 35,053
Computer equipment 179,961 18,421
Leasehold improvements 567,700 569,421
-------------- --------------
1,579,376 3,862,612
Accumulated depreciation and amortization (862,992) (1,181,594)
-------------- --------------
Property, plant and equipment, net $ 716,384 $ 2,681,018
============== ==============
48
Note 3. Income Taxes
Income (loss) before income taxes consists of following:
Years ended December 31,
------------------------------------------------
1999 2000 2001
------------- -------------- -------------
United States $ 1,008,125 $ 363,198 $ (3,375,563)
China - - (859,981)
Japan 4,431 12,948 (186,388)
Hong Kong - 1,587,999 1,825,408
------------ ------------ -----------
Total current 1,012,556 1,964,145 (2,596,524)
------------ ------------ ----------
The income tax provision (benefit) is as follows:
Years ended December 31,
------------------------------------------------
1999 2000 2001
------------- -------------- ------------
Current
Domestic
Federal $ 362,671 $ 294,677 $ (500,000)
State - 103,889 6,400
Foreign
Japan 612 592 469
Hong Kong - 308,974 307,298
------------ ------------ -----------
Total current 363,283 708,132 (185,833)
------------ ------------ -----------
Deferred
Domestic
Federal - - -
State - - -
Foreign
Japan - - -
Hong Kong - (76,575) (22,293)
------------ ------------ -----------
Total deferred - (76,575) (22,293)
------------ ------------ -----------
Total $ 363,283 $ 631,557 $ (208,126)
============ ============ ===========
F-15
49
The difference between the effective income tax rate and the expected
federal statutory rate is as follows:
Years ended December 31,
--------------------------
1999 2000 2001
------ ------ ------
Federal statutory rate 34.0% 34.0% (34.0)%
State taxes, net of federal benefit 5.8 5.8 (5.8)
Changes in valuation allowance (2.0) (5.1) 24.8
Impact from permanent differences (2.0) 15.0 11.9
Foreign subsidiaries rate reduction - (16.2) (2.8)
Other - (1.3) (2.5)
------ ------ ------
Effective income tax rate 35.8 % 32.2 % (8.4)%
====== ====== ======
Net deferred tax assets consist of the following:
December 31,
----------------------
2000 2001
---------- ----------
Domestic (U.S.)
Accrued expenses $ 28,000 $ -
State taxes 37,421 2,176
Accumulated depreciation 65,175 91,843
Allowance for doubtful accounts 122,663 131,993
Accrued vacation 49,091 58,121
Inventory reserves 23,020 40,933
Uniform capitalization - section 263A - 71,360
Net operating loss carryforward 5,539 551,652
Valuation allowance (330,909) (948,078)
--------- ---------
Net deferred tax assets - -
Foreign (Japan)
Deferred tax assets:
Net operating loss carryforward 157,191 -
Valuation allowance (93,990) -
--------- ---------
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) (4,097)
--------- ---------
(26,425) (4,097)
--------- ---------
Net deferred tax assets (liabilities) $ 36,776 $ (4,097)
========= =========
A valuation allowance has been provided at December 31, 2000 and 2001 for
that portion of the net deferred tax asset which management cannot determine,
with reasonable certainty, that the benefit will be realized.
At December 31, 2001, the Company had net operating loss carry forwards
of approximately $2.7 million for federal income tax purposes and $1.3
million for state income tax purposes. The $2.7 million of net operating
loss will expire through 2022 federal income tax purposes.
F-16
50
Note 4. Notes Payable
Note Payable to A Bank in the U.S.
In 2002, 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 (5.25% at December
31, 2001). The outstanding balance at December 31, 2001 was $4,000,000.
Outstanding interest and principal was originally payable 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, 2001 the Company had not repaid the bank for
amounts due under the line of credit and, therefore, was in default.
On July 24, 2002, the Company entered into a loan modification and extension
agreement with the bank. Pursuant to the terms of the new agreement, monthly
interest only payments are to be made through maturity, $50,000 is due by
September 15, 2002 and no less than $1,000,000 is due on November 30, 2002,
and maturity date of the note has been extended to November 30, 2002.
However, if the Company makes all of the foregoing payments on a timely basis
and has not otherwise defaulted on the loan, the maturity date for the
remaining unpaid principal balance will be extended until June 30, 2003.
In exchange for agreeing to the modification, the Company granted to the bank
a security interest in the 65% of all issued and outstanding common stock of
CMS, subordinated the loans due to the Company's shareholders (See Note 6),
and issued two warrants to the bank each of which grants the bank the right
to purchase 250,000 shares of the Company's common stock at a per share price
of $1.00. If the Company either pays off the entire $3.9 million outstanding
balance (at July 24, 2002), or pledges 90% of all issued and outstanding CMS
shares that the Company owns by December 31, 2002, one of the warrants may be
cancelled.
Note Payable to IBM
In 2000, the company's 90% owned Hong Kong based subsidiary, CMS,
entered into a revolving credit arrangement with International
Business Machines Corp ("IBM") for the purposes of financing CMS'
purchases from IBM. The facility was originally set to expire in
2001 but has been extended until October 31, 2002. Advances under
the loan arrangement are secured by CMS' receivables and certain
of its other assets, as well as by a guaranty provided by the Company,
with interest at a variable rate of prime (as determined by the Hong
Kong and Shanghai Banking Corporation) plus 2% (11.5% at December 31,
2001) with a floor of 9%. At December 31, 2000 and 2001, outstanding
borrowings totaled $2,000,000 and $5,000,000, respectively. The
arrangement also provides restrictions on CMS' ability to transfer
funds to the Company or any other subsidiaries without IBM's written
consent. At December 31, 2000 and 2001, CMS's net assets subject to
this restriction were $6,815,003 and $6,346,680.
F-17
51
Note 5. Long Term Debt
December 31,
---------------------------
2000 2001
------------ ------------
Note payable with a foreign (Japan) bank, $ 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, 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, 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 254,801 229,125
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, matures in
September 2009.
Note payable to a U.S. Bank, collateralized 165,476 146,076
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, matures in
September 2008.
----------- ------------
777,003 375,201
Current portion (155,980) (46,901)
----------- ------------
$ 621,023 $ 328,300
=========== ============
52
The aggregate maturities of notes and loans payable are as follows:
Year ending December 31, Amount
------------------------- -------------
2002 $ 46,901
2003 48,812
2004 50,801
2005 52,870
2006 55,024
Thereafter 120,793
-------------
$ 375,201
=============
The note payable by Autec to the Small Business Administration and a U.S.
bank includes various covenants. As of December 31, 2001 Autec was in
compliance with the loan covenants.
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 $6 million. Funding of the acquisition was 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.
F-18
53
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 was being
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 had an option to acquire the remaining 30% of equity interest in CMS
in exchange for 360,000 shares 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
===========
54
Note 7. Commitments and Contingencies
The Company has committed to the Chinese government to contribute total
registered capital of $10 million to the Ningbo facility within a three-year
time period from May 2001 through May 2004.
In February 2001, the Company issued a press release that it unilaterally
sever relationship with Worldwide Wireless Networks, Inc. (WWN).
Afterwards the company entered into a verbal settlement with WWN to
cancel all agreements, including the exchange of shares of common stock
between the companies. This settlement agreement was reduced to writing by
WWN and signed by the Company's President. WWN has not signed and has not
complied with the settlement agreement up to the reporting date.
The Company is a party to legal actions that have arisen in the normal
course of business. These action include the following:
F-19
55
+
On November 14, 2001, a complaint was filed by Oppenheimer Wolff &
Donnelly LLP in the Orange County Superior Court, Santa Ana, California
against the Company for fees allegedly owed by the Company. The Company
intends to vigorously defend this claim because the amount invoiced was
deemed excessive comparing to the quality of services rendered. The estimated
liability including interest, costs and statutory attorney's fees was
approximately $100,000. At December 31, 2001 the Company has recorded
liabilites for this amount. In 2002, a non-binding arbitration was initiated
and the Company is waiting for the final decision from the arbitrators.
On April 16, 2002, a complaint was filed by Danton Mak Esq. in the
Superior Court of Los Angeles against Autec Power Systems, Inc. for
fees allegedly owed by Autec. The matter has been submitted to binding
arbitration schedule for hearing in April 2002. An estimated liability
of $136,000 has been recorded at December 31, 2001. In July 2002 this
matter has been settled by the stipulation of four equal payments of
$27,500 due on June 1, July 1, August 1 and September 1, 2002.
On April 24, 2002 a complaint was filed against the Company in the Orange
County Superior Court, Santa Ana, California by Mason Tarkeshian for fees
alleged to be due on an acquisition which was not consummated. The
complaint seeks for damage of approximately $2 million where as the Company
believes that the complaint is without merit and will be resolved in favor
of the Company. The Company tendered this case to the insurance carrier for
settlement and has not accrued any liabilities for this matter as of
December 31, 2001. In 2002, this complaint was settled by the Company's
insurance carrier and the Company. The Company's portion of contribution to
the settlement was to issue a warrant to purchase 25,000 shares of common
stock of Bridge at $0.55 per share. The Company issued that warrant in 2002
and is awaiting the receipt of a specific and general release.
On October 1, 2001 a complaint was filed by a trustee in U.S. Bankruptcy
Court against the Company for alleged transfer of assets, technology, trade
secrets, confidential information, business opportunities from Allied Web,
Inc, a corporation owned by the Company's former President, which filed for
liquidation under Federal Bankruptcy laws on April 6, 2000. At December 31,
2001, management of the Company was unable to assess the possibility of
incurring future liability and estimate the reasonable amount of the
contingent liability. Therefore, the Company did not record any accrued
liability for this matter. In July 2002, this case was settled by the
Company's insurance carrier and the Company in principal.
The Company is awaiting for the finalized documents to be signed soon.
On December 12, 2001, a former shareholder of Autec Power Systems has filed
a complaint in Ventura County Superior Court against the controlling
shareholder of Autec, Mr. Winston Gu and Bridge Technology, Inc. alleging
that the complaint did not receive sufficient exchange of shares in this
acquisition by Bridge Technology, Inc. The Company believes that the
complaint without merit and will defend it vigorously. At December 31,
2001, management of the Company was unable to assess the possibility of
incurring future liability and estimate the reasonable amount of
contingent liability. Therefore, the Company did not record any accrued
liability for this matter at December 31, 2001. As of July 24, 2002, the
Company is unable to predict any consequence about this matter.
56
Operating Lease Commitments
The Company signed an operating lease for a building from an entity owned by
certain shareholders. 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.
Autec leases facilities under an operating lease from a company owned by a
major 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 an entity owned by certain shareholders, for a
portion of the facility for a monthly payment of $4,125. The term of the
sublease was for 10 years.
Bridge Technology Ningbo Co., Ltd. ("Ningbo") leases a manufacturing
facility in the City of Ningbo, Zhejiang Province of China. This lease
requires a monthly payment of $12,513 through December 2005.
F-20
57
The following table represents the consolidated rental commitments at
December 31, 2001.
Year ending December 31, Amount
-------------------------- -------------
2002 $ 660,332
2003 674,349
2004 692,971
2005 699,552
2006 570,826
Thereafter 5,048,651
-------------
$ 8,346,681
=============
Total rental expense for the year ended December 31, 1999, 2000 and 2001,
was $392,334, $595,934 and $556,756, respectively.
Note 8. Related Party Transactions
On December 31, 2001, the Company reached an agreement with a member of
board of directors of the Company, under which the Company sold 85% of
its equity interest in Newcorp Technology Co. Ltd. ("Newcorp") (which
was a wholly owned subsidiary of the Company before December 31, 2001)
in exchange for 65,000 shares of the Company's common stock held by the
director. Because there was a negative equity of approximately $381,284
in Newcorp, the Company accounted for this transaction by recognizing
$381,284 in additional paid-in capital and placing no value on the 65,000
shares of treasury stock. After this transaction, the Company owns a 15%
equity interest in Newcorp valued at zero cost. Consequently, the
consolidated statement of operations contains the results of operations
in Newcorp through December 31, 2001, the date of disposal. At December
31, 2001, the Company had a net receivable due from Newcorp of $340,000,
which has been presented as a contra account within shareholders' equity.
At December 31, 2001, the Company provided for 100% reserve for a share-
holder loan receivable of $225,000 and related interest receivable of
approximately $37,550. The total provision of $262,550 was included in
other income (expense) in the consolidated statements of operations.
During 2001, the Company borrowed $1,000,000 from an entity owned by an
officer and shareholder at a variable interest rate (5.0% at December 31, 2001)
and maturing in September 2011. During 2001, the Company repaid $10,021 of
principal and $9,185 of interest on this loan. As of December 31, 2001,
principal of $989,979 and accrued interest of $0 were outstanding. Future
commitments for principal payments are as follows: $75,118 in 2002, $79,950
in 2003, $85,092 in 2004, $90,566 in 2005, $96,391 in 2006, and $562,862
thereafter.
Autec purchases products from a vendor where a brother of the Company's
Chairman of the Board of Directors is the General Manager of that entity.
As of December 31, 2000 and 2001, respectively, the Company had $0 and
$788,398 of accounts payable to this vendor. During 1999, 2000 and 2001,
respectively, the Company purchased approximately $2,043,000, $257,000
and $1,560,000 from this vendor.
F-21
58
In the ordinary course of business, Newcorp Japan had in transactions
with Digital Stream Corporation ("DSC"). Newcorp Japan had an officer who is
also a director and major shareholder in DSC. DSC leases office space to
Newcorp Japan.
Transactions with DSC were as follows:
Year Ended December 31,
-------------------------------------
1999 2000 2001
----------- ----------- ----------
Purchases $ 52,851 $ - $ -
Rent 11,749 11,132 -
----------- ----------- ----------
During the years ended December 31, 1999, 2000 and 2001, Autec was
reimbursed for certain operating and overhead expenses attributable to an
entity, owned by one of the Company's major shareholders. The amount of
$28,107, $21,932 and $22,143 represented the unreimbursed expense due from
the related party as of December 31, 1999, 2000 and 2001, respectively.
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 2000, the Company paid $18,900 in consulting fees to an entity owned
by the CFO of the Company prior to the CFO becoming a full time employee
of the Company.
During 2000, $2.9 million was loaned to the Company, at an interest rate of
9.5%, due on demand from shareholders and entities owned by shareholders and
officers, for the purchase of CMS. During 2001, an additional $30,000 was
loaned to the Company by a shareholder at an interest rate of 9.5%, due on
demand. Principal of $100,000 and $700,000 and interest of $152,859 and
$322,066 were paid during 2000 and 2001, respectively. At December 31, 2000
and 2001, respectively, there was an accrued interest payable of $88,919 and
$0 and a total interest expense of $241,778 and $233,148.
F-22
59
Note 9. Shareholders' Equity
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, officers and directors. Accordingly, a non-employee director
compensation cost of $34,500 was recognized and included in general and
administrative expense 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.
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
============ ============
F-23
60
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. The entire value of
$190,000 was written off in the fourth quarter of 2001 and included in
general and administrative expense.
2001
On December 31, 2001, the Company sold 85% of its equity interest in Newcorp
Technology Co. Ltd. in exchange for 65,000 shares of the Company's common
stock, which is accounted for as treasury stock at December 31, 2001.
During 2001, three officers decided to reduce their compensation aggregating
$93,590, which was accounted for as additional paid-in-capital.
Note 10. Stock Options and 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.
61
Warrants activities in the Company for 1999, 2000 and 2001 were summarized
as follows:
Weighted
Average
Exercise Vesting Expiration
Shares Price Period Date
---------- -------- ------- ----------
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
Warrants granted 15,000 3.00 None 04/26/03
--------- --------
Outstanding at December 31, 2001 1,729,000 $2.78
========= ========
F-24
62
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.
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.
In April 2001, the Company granted 15,000 warrants to an advisory board
member with an exercise price of $3.00 and vesting immediately.
The Company follows APB No. 25 and related interpretations to account for
stock options granted to employees. During 1999, 2000 and 2001, the Company
did not recognize any compensation costs for options granted to employees as
the exercise 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 $36,334, $6,247
and $0 stock compensation expense for the warrants granted to non-employees
in 1999, 2000 and 2001, respectively.
63
The assumptions used in the Black Scholes option pricing model in 1999, 2000
and 2001 were as follows:
December 31,
-----------------------------------------
1999 2000 2001
------------ -------------- -----------
Discount rate - bond yield rate 5.86% - 6.03% 6.18% - 6.34% 4.14%
Volatility 25.0% - 47.0% 104.58% 101.22%
Expected life 2 - 5 years 2 - 3 years 2 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. The fair value of the total warrants
granted was $225,381.
In 2001 using the Black-Scholes option pricing model, the Company determined
that warrants granted had no fair value.
F-25
64
Had the Company determined compensation cost based on the fair value at the
grant date for its options and 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,
------------------------------------
1999 2000 2001
--------- --------- ---------
Net income (loss)
As reported $ 660,721 $1,099,160 $(2,542,424)
Pro forma $ 552,621 $ 876,360 $(2,542,424)
Basic earnings (loss) per share
As reported $ 0.07 $ 0.10 $ (0.23)
Pro forma $ 0.06 $ 0.08 $ (0.23)
Diluted earnings (loss) per share
As reported $ 0.06 $ 0.10 $ (0.23)
Pro forma $ 0.05 $ 0.08 $ (0.23)
The following table summarizes information about Warrants outstanding
as of December 31, 2001:
Warrants Outstanding and Exercisable
--------------------------------------
Weighted
Average Weighted
Remaining Average
Exercise Number Contractual Exercise
Price Outstanding Life Price
-------- ------------- ------------------------
$ 1.75 349,000 2.08 years $ 1.75
$ 1.87 600,000 1.00 years $ 1.87
$ 2.00 105,000 0.96 years $ 2.00
$ 3.00 125,000 2.00 years $ 3.00
$ 3.00 60,000 1.17 years $ 3.00
$ 3.50 95,000 2.08 years $ 3.50
$ 4.50 10,000 1.00 years $ 4.50
$ 5.00 385,000 2.28 years $ 5.00
--------- ------
1,729,000 $ 2.78
========= ======
65
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,
----------------------------------
1999 2000 2001
------ ------ ------
Customer A 12 % 6 % 2 %
Customer B 24 3 4
Customer C 11 - 3
Customer D 9 10 1
Customer E - 11 24
---------------------------------------------------------
56 % 30 % 34 %
=========================================================
F-26
66
Three customers accounted for approximately 19% of consolidated accounts
receivable in 2001. 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.
One vendor accounted for approximately 98% of total purchases in CMS
during the year ended December 31, 2001. Four vendors accounted for
approximately 36 % of consolidated total purchase during the year ended
December 31, 2000, including two vendors who 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.
One major vendor in CMS accounted for 21% and 67% of consolidated accounts
payable at December 31, 2000 and 2001. 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
$18,388, $10,617 and $10,582 in 1999, 2000 and 2001, respectively.
67
Note 13. Segment Information
Industry segments:
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
----
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 and
amortization expense 138,812 706,921 12,171 857,904
------------- ------------ ---------- -----------
2001
----
Assets $ 12,618,313 $ 27,931,273 $ 15,113 $ 40,664,699
Revenue 16,119,826 125,900,473 - 142,020,299
Operating loss before
income taxes and minority
interest (2,270,621) (325,903) - (2,596,524)
Depreciation and
amortization expense 310,281 735,580 - 1,045,861
------------ ---------- --------- ---------
F-27
68
Geographic segments:
1999 United States Asia Other Total
---- ------------ ---------- ------- ----------
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 643,325 73,059 - 716,384
Revenue 47,899,565 72,709,064 310,145 120,918,774
2001
----
Long lived assets 553,638 2,127,380 - 2,681,018
Revenue 35,640,020 106,380,279 - 142,020,299
Note 14. Subsequent Event
None.
F-28
69
Bridge Technology, Inc. and Non-Restricted Subsidiares
The following condensed financial statements present the accounts of Bridge
Technology, Inc. without consolidating its majority owned subsidiary CMS
Schedule I - Condensed Financial Statements
Balance Sheet
December 31,
-------------------------
2000 2001
--------- ------------
Assets
Cash and cash equivalents $ 3,839,660 $ 1,963,910
Accounts receivable 9,341,640 5,329,928
Inventory 3,353,097 3,349,825
Other current assets 1,165,980 550,359
---------- ------------
Total current assets 17,700,377 10,194,022
Plant, property and equipment 650,770 2,630,891
Investment in CMS 6,133,503 7,512,013
Goodwill and other intangibles 2,776,324 1,949,417
Other long-term assets 359,897 264,914
---------- -----------
Total assets $27,620,871 $22,551,257
Liabilities
Note payable to bank $ 4,000,000 $ 4,000,000
Note payable, current portion 155,980 46,901
Related party loan,
current portion - 75,118
Accounts payable 9,429,755 6,154,149
Accrued liabilities 1,131,744 1,574,748
Shareholders' loan 2,800,000 2,130,000
---------- -----------
Total current liabilities 17,517,479 13,980,916
Related party loan, net of
current portion - 914,861
Long term note payable 621,023 328,300
---------- -----------
Total liabilities 18,138,502 15,224,077
Minority interest (14,276) (14,290)
Shareholders' equity
Common stock 108,632 108,632
Additional paid-in capital 9,308,139 9,783,013
Teasury stock (2,000) (2,000)
Note receivable from a
shareholder (225,000) (340,000)
Retained earnings
(accumulated deficit) 354,745 (2,187,679)
Transalntion adjustment (47,871) (20,496)
----------- -----------
Total shareholders' equity 9,496,645 7,341,470
----------- -----------
Total liabilities and
shareholders' equity $27,620,871 $22,551,257
========== ===========
F-29
70
Bridge Technology, Inc. and Non-Restricted Subsidiaries
Schedule I - Condensed Financial Statements
Statement of Operations and Comprehensive Income (Loss)
Years ended December 31,
--------------------------------
2000 2001
------------ ------------
Revenue, net $ 52,620,948 $ 38,115,756
Cost of goods sold 43,916,995 35,012,178
------------ ------------
Gross profit 8,703,953 3,103,578
Research and development expenses 689,056 1,184,687
Selling, general and administrative
expenses 7,169,698 6,526,108
------------ ------------
Income from operations 845,199 (4,607,217)
Other income (expense)
Interest, net (418,187) (458,383)
Other 27,590 27,183
Gain on sale of investment - 879,035
Provision for note receivable
from a related party - (262,550)
Share of income in CMS 990,624 1,386,363
----------- -------------
Income before income taxes 1,445,226 (3,035,569)
Income tax provision (benefit) 398,894 (493,131)
----------- -------------
Net income before minority
interest 1,046,332 (2,542,438)
Minority intest (loss) (52,828) (14)
----------- ------------
Net income (loss) attributed to
common shares $ 1,099,160 $(2,542,424)
=========== ===========
F-30
71
Bridge Technology, Inc. and Non-Restricted Subsidiaries
Schedule I - Condensed Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Years ended December 31,
------------------------------
2000 2001
------------ ------------
Cash flows from operating activities
Net income (loss) $ 1,099,160 $ (2,542,424)
Adjustments to reconcile net income
(loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 830,050 998,982
Share of income in CMS (990,624) (1,386,363)
Provision for related party loan
receivable - 262,550
Gain on sale of investment - (879,035)
Write-off of intangible - 190,000
Compensation due to warrants
issued 6,247 -
Tax refund receivable - 500,000
Foregiveness of officers'
compensation - 93,590
Minority interest (52,828) (14)
Changes in operating assets and liabilities,
net of business acquired:
Trade receivables (3,622,758) 4,011,712
Inventory (195,664) 1,003,272
Other assets (912,307) 141,909
Accounts payable 4,102,304 (2,894,322)
Accured liabilities (44,456) 443,215
------------ -------------
Net cash provided by (used in)
operating activities 219,124 (56,928)
------------ -------------
72
Cash flows from investing activities
Proceeds from sale of investment - 910,180
Purchase of property, plant
and equipment (98,859) (2,342,196)
Proceeds from disposal of
fixed assets 34,891 -
Due from related party - (340,211)
Acquisition of CMS (6,000,000) -
------------ -------------
Net cash used in investing
activities (6,063,968) (1,772,227)
------------ -------------
Cash flows from financing activities
Proceeds from note payable
to bank 4,000,000 -
Repayments on loans payable (198,700) (401,802)
Proceeds from related party
loan - 1,000,000
Repayment on related party
loan - (10,021)
Proceeds from shareholder
loans 2,800,000 30,000
Repayment on shareholder
loans (700,000)
Related party receivable 25,000 -
Proceeds from exercise
of warrants 54,250 -
Stock subscription collected 75,000 -
------------ ------------
Net cash provided by financing
activities 6,755,550 (81,823)
------------ ------------
Effect of exchange rate
changes on cash 28,925 35,228
------------ ------------
Net increase (decrease) in cash
and cash equivalents 939,631 (1,875,750)
Cash and cash equivalents,
beginning of year 2,900,029 3,839,660
------------ ------------
Cash and cash equivalents,
end of year $ 3,839,660 $ 1,963,910
============ ============
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-31
73
Schedule II - Valuation and Qualifying Accounts
for the Years Ended December 31, 1999, 2000 and 2001
Amount
Beginning Charged
Ending
Description Balance to Expense Deductions Balance
--------- ---------- ---------- ---------
Allowance for doubtful accounts
Fiscal 1999 $ 106,498 $ 6,413 $ - $ 112,911
Fiscal 2000 $ 112,911 $ 382,693 $ 29,948 $ 465,656
Fiscal 2001 $ 465,656 $ 106,584 $ 264,134 $ 308,106
Reserve for inventory obsolescence
Fiscal 1999 $ 208,865 $ - $ 40,764 $ 168,101
Fiscal 2000 $ 168,101 $ 451,403 $ - $ 619,504
Fiscal 2001 $ 619,504 $ 180,270 $ - $ 799,774
F-32
74
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. 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 Executive Officer (1) 1999
James Djen 48 CEO and President 1997
John T. Gauthier 74 Chief Financial Officer 1997
Mr. Gu had served as Chief Executive Officer from December 1999 to January
2001. He also serves as a Director since 1997 and Chairman since December 1999.
James Djen was appointed President in January 1999, Managing Director in
January 2000 and Chief Executive Officer in January 2001. He also serves
as a member of the Board of Directors since 1997.
John T. Gauthier was appointed Chief Financial Officer/Secretary/Treasurer
since 1997. He also serves a member of the Board of Directors.
75
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,
the 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.
76
ITEM 11. EXECUTIVE COMPENSATION.
The following table shows all cash compensation for services rendered
during the last five fiscal years ended December 31, 2001 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 2001 120,000
Chairman 2000 120,000 50,000 @ $1.875
1999 75,000 200,000 25,000 @ $5.00
1998 60,000 200,000
J. Djen 2001 120,000
CEO and 2000 120,000 50,000 @ $1.875
President 1999 120,000 0 0 0 0 0 25,000 @ $5.00
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 2001 120,000
Former 2000 120,000 50,000 @ $1.875
President 1999 120,000 0 0 0 0 0 25,000 @ $5.00
1998 141,667 0 0 0 0 0 100,000 @ $1.75
1997 41,666 0 0 0 0 0 0
R. Fox 2001 120,000
General 2000 120,000 15,000 @ $1.875
Manager 1999 125,000 0 0 0 0 0 15,000 @ $5.00
PTI 1998 123,637 0 0 0 0 0 30,000 @ $3.50
Enclosures 1997 73,839 0 0 0 0 0 30,000 @ $2.00
John T. 2001 120,000
Gauthier 2000 120,000 50,000 @ $1.875
Chief 1999 60,000 25,000 @ $5.00
Financial 1998 36,000
Officer
Option Exercise and Holdings
The following table sets forth the information concerning each exercise of a
stock option during the fiscal year ended December 31, 2001 by each of the
named Executive Officers and the number and value of unexercised options at
December 31, 2001.
Number of Value Number of Shares Underlying
Shares on Realized Unexercised Options at 12/31/2001
Exercise Exercisable/Unexercisable
Name
Winston Gu 0 $0 105,000/0
James Djen 0 $0 146,000/0
John Gauthier 0 $0 100,000/0
John Harwer 0 $0 125,000/0
No Director of Executive Officer exercised any options during the fiscal year
ended December 31, 2001.
Option Exercises
During the fiscal year, none of the Executive Officers identified in the
Summary Compensation Table exercised any stock options, and,as of
December 31, 2001, none held any in-the-money options.
77
ITEM 12. 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) 2,238,334 20.6 Common
12601 Monarch Street
Garden Grove, CA 92841
James Djen (1) 700,420 6.4 Common
12601 Monarch Street
Garden Grove, CA 92841
John T. Gauthier (1) 99,540 0.9 Common
12601 Monarch Street
Garden Grove, CA 92841
Hideki Watanabe (1) 185,000 1.7 Common
4-14-2 Nagatsuda, Midori-Ku
Yokohama-Shi, Kanagawa-Ken, Japan
Alan Sheen (5) 440,000 4.0 Common
440 Cloverleaf Dr.
Baldwin Park, CA 91706
Fusahiko Hasegawa 20,000 0.2 Common
Yokohama Business Park
East Tower 9F, 134, Goudo-Chuodogawa-ku
Yokohama-Shi, Kanagawa, Japan
COMMON
All Officers & Directors (2) 3,683,294 33.9 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.
(4) Include shares owned by wife Hwe-Mei Cheng
(5) Include shares owned by wife Hui-Ying Sheen
78
ITEM 13. 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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 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 10-KSB 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)
79
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 (Nevada)
E. Autec Power Systems, Inc. (California)
F. CMS Technology Ltd. (Hong Kong)
G. Bridge Technology Ningbo Co. Ltd. (China)
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
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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: James Djen
----------------------
James Djen, CEO & President
Date: March 31, 2002
----------------------
By: John T. Gauthier
----------------------
John T. Gauthier, CFO
Date: March 31, 2002
----------------------
81
Pursuant to the requirements of the Exchange Act, the 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, Chairman
Date: March 31, 2002
----------------------
By: John T. Gauthier
----------------------
John T. Gauthier, CFO
Date: March 31, 2002
----------------------
By: James Djen
----------------------
James Djen, CEO & President
Date: March 31, 2002
----------------------
82