March 13, 1997
Ms. Dorine H. Miller
Mr. Dennis Muse
Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 7-2
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Staff Comments to the Registration Statement on Form 10 of Goung Hei
Investment Co. file no. 0-21457
Ladies and Gentlemen:
I have filed the necessary copies of Amendment No. 1 to the Registration
Statement on Form 10 (the "Registration Statement") of Goung Hei Investment Co.,
Ltd. (the "Company"). I am enclosing a marked copy of the Registration Statement
with this letter for your review. All page references in this letter refer to
the marked copy of the Registration Statement. This letter responds to the
staff's comments of November 8, 1996.
Item 1. Description of Business
Background - Page 1
Comment 1. The Company has made revisions to the registration
statement in accordance with your comment. See pages 2-3.
Comment 2. The Company has made revisions to the registration
statement in accordance with your comment. See page 2.
Comment 3. The Company has made revisions to the registration
statement in accordance with your comment. See page 2.
Comment 4. The Company has made revisions to the registration
statement in accordance with your comment. See page 3.
Comment 5. The Company has made revisions to the registration
statement in accordance with your comment. See page 3.
<PAGE>
General, page 3
- ---------------
Comment 6. The Company has made revisions to the registration
statement in accordance with your comment. See page 4.
Products, Page 4
Comment 7. The Company has made revisions to the registration
statement in accordance with your comment. See page 4.
Comment 8. The Company has filed all appropriate agreements and
documents between the Company and its principal customers. See
Exhibit 10-2 and 10-3.
Customers, page 4
Comment 9.
Goung Lee Construction Co., Ltd. is the 3rd largest construction company in
Taiwan. It has formed technical cooperation agreement with Yokohawa Bridge
corp., of Japan and it produces bridges, high-rise buildings and other
general-purpose steel structures. It has received the Chinese National Standard
(CNS) certificate issued by Central Standard Bureau of Taiwan.
Goung Lee has completed the following constructions: China steel
corporation 2nd and 3rd phase expansion project, Kaohsiung. Taiwan Chemical
Corporation, Long-Der Power Plant Steelworks, E-lan, Tuntex Group Stainless
Steel Plant, Tainan, Tuntex Petro-Chemicals, Inc., Tainan, Da-Chin Automobile
Plant, Pingtung, Hong-Chung business plaza, Kaohsiung, Tuntex Group Oriental
Science Building, Taipei, Golden Sand International Building, taichung, Core
Pacific Construction CO., Chu-Wei building Taipei, Long-Yang plaza, Kaohsiung,
Kung-Kuan circle interchange steel briddge, Taipei, Taiwan highway bureau road
#5 steel bridge, Taipei.
Goung Lee has enjoyed consistent growth in revenues and profits. The
relative data and financial ratio analysis statement are listed below:
Table 1 The Comparison Data Among the First Three Largest Construction Company
of R.O.C. Unit: Ton
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Year 1994 year 1993 year 1992 year
Company Production Growth Rate Sales Growth Rate Growth rate Sales Growth rate Production Sales Production
(%) (%) (%) (%)
Goung Lee 39,771 86.71 36,245 73.80 20.45 20,854 44.83 17,684 14,399 21,301
Construction Co., Ltd
China Stee l75,447 3.50 71,049 (8.66) (42.72) 77,784 (38.15) 127,262 125,770 72,894
Constrution Co.
Chuen-Yuan 74,466 40.72 n/a n/a (13.61) 79,407 54.57 61,254 51,374 52,916
Construction Co.
</TABLE>
Table 2 Financial ratio Statement
FINANCIAL ANALYSIS ITEM 1995 1994
LIABILITY/TOTAL ASSETS 67.11 65.75
LONG-TERM CAPITAL/FIXED ASSETS 132.88 115.46
CURRENT RATIO 114.28 98.94
ACID RATIO 44.71 56.42
ACCOUNT & NOTE RECEIVABLE TURNOVER 4.55 4.24
INVENTORY TURNOVER 0.74 0.80
FIXED ASSET TURNOVER 0.86 0.56
TOTAL ASSET TURNOVER 0.38 0.31
GROSS PROFIT(%) 19.6 21.6
ASSET PROFIT RATIO(%) 5.75 4.42
EQUITY RATIO(%) 6.26 4.09
NET PROFIT(%) 4.96 3.75
E.P.S. 1.22 0.90
Goung Lee onstruction Co., Ltd owns valuable experience in marketing
(including dealing with the governmental agencies) while Qualyserve Construction
co., Ltd. has comparative advantage in bridge-building field. Both sides could
get profit through strategy alliance. According to the related statements (From
the related data above we know that both sales and net profit of Goung Lee has
improved for the last two years.) and investigation to Goung Lee Construction
Co., Ltd, we feel quite comfortable to undertake construction projects from this
company and make Goung Lee to be our principal customer.
Since 1994, the cooperative relationship between Goung Lee and us has been
well. The trading terms are acceptable and no unnormal events have happened. We
enjoyed the harmonic relationship with Goung Lee so far.
Item 2. Management's Discussion and Analysis or Plan of Operations
Results of Operations, page 6
Comment 10.
The Company has made revisions to the registration statement in accordance with
your comment. See pages 7 and 8.
Liquidity and Capital Resources
Comment 11. The Company has made revisions to the registration
statement in accordance with your comment. See page 9.
Comment 12. The Company has made revisions to the registration
statement in accordance with your comment. See page 9.
Comment 13. The Company has made revisions to the registration
statement in accordance with your comment. See page 9.
Comment 14. The Company has made revisions to the registration
statement in accordance with your comment. See page 8.
Item 4. Security Ownership of Certain Beneficial Owners and Management, page 9
Comment 15. The Company has made revisions to the registration
statement in accordance with your comment. See page 10.
Item 6. Executive Compensation, page 13
Comment 16. The Company has made revisions to the registration
statement in accordance with your comment. See page 14.
Item 7. Certain Relationships and Related Transactions, page 13
Comment 17. The Company has made revisions to the registration
statement in accordance with your comment. See page 14.
Item 9. Market for Common Equity and Related Shareholder matters, page 13
Comment 18. The Company has made revisions to the registration
statement in accordance with your comment. See page 14.
Item 10. Recent Sales of Unregistered Securities, page 13
Comment 19. All of the former shareholders of Qualyserve had access to
all of the information concerning the terms of the transaction
between the Company and Qualyserve, and the Company obtained
representations from each shareholders that he/she, was able to
fend for themselves, was a sophisticated investor, and understood
the risk for transactions of this type.
Accounting Comments
Selected Financial Data
Comment 20. The Company has made revisions to the Registration
Statement in accordance with your comment. See Page
Item 2. Management's Discussion and Analysis or Plan of Operations
Comment 21. The Company has made revisions to the registration
statement in accordance with your comment See Page
Comment 22. The Company has made revisions to the registration
statement in accordance with your comment. See pages 8
through 9.
Comment 23. The Company has made revisions to the registration
statement in accordance with your comment. See page 8.
Comment 24. The Company has made revisions to the registration
statement in accordance with your comment. See pages 9
through 10.
Comment 25. The Company has made revisions to the registration
statement in accordance with your comment. See page 10.
Financial Statements
General
Comment 26.
(1) As of December 31, 1995, the amount borrowed from shareholders is
US$15,488,815. Qualyserve Construction Co., Ltd., Kaohsiung has not paid
off this loan. On April 30, 1996, the shareholders and Mr. Lu Cui-Kang, the
representative of Goung Hei Investment Co., Ltd., (GoungHei) in West Samoa,
reached the contract that the advances from shareholders was going to be
converted to hold the stocks of equivalent value.
(2) The shareholders of Qualyserve Constructin Co., Ltd., Kaohsiung, taiwan
(QCC) has transferred 99.7% of their stockholders equity (19,846,000
shares) to West Samoa Goung Hei Investment Corporation. The amount is
US$13,449,007.(Net value)
(3) Company issued new 10,131,609 shares to Goung Hei's shareholders in
exchange for all of Goung Hei's common stock (the capital stock is
$30,000,000. $1 par value).
(4) To sum up, the Company shall become the owner of 100% of Goung Hei's
outstanding common stock and the Goung Hei shall become the owner of 99.7%
of Qualyserve construction Co., Ltd.
The Company acquired the 99.7% common stock of Qualyserve by exchanging
stock with Goung Hei. The pro forma combined statement is parent-subsidiary
combined statement but merger combined statement. So it is not suitable to adopt
general merger accounting method.
Goung Hei Investment Co., Ltd.
Comment 27. The Company has made revisions to the registration
statement in accordance with your comment. Please see the
Goung Hei Investment Co., Ltd. and Subsidiary Consolidated Pro
forma Balance Sheet.
Comment 28. The Company has made revisions to the registration
statement in accordance with your comment. Please see the
Goung Hei Investment Co., Ltd. and Subsidiary Consolidated
Pro forma Balance Sheet.
Comment 29. The Company has made revisions to the registration
statement in accordance with your comment. Please see the
Goung Hei Investment Co., Ltd. and Subsidiary Consolidated
Proforma Statement of Income and Consolidated Proforma
Statement of cash flow.
Comment 30. The Company has made revisions to the registration
statement in accordance with your comment. Please see the
Goung Hei Investment Co., Ltd. and Subsidiary Consolidated
Proforma Statement of changes in stockholders.
Comment 31. The Company has made revisions to the registration
statement in accordance with your comment. Please see the
Goung Hei Investment Co., Ltd. and Subsidiary Consolidated
Proforma Statement of changes in stockholders.
Comment 32. The Company has made revisions to the registration
statement in accordance with your comment. Please see the
Goung Hei Investment Co., Ltd. and Subsidiary Consolidated
Proforma Statement of cash flows.
Comment 33. The Company has made revisions to the registration
statement in accordance with your comment. The company has
made revisions to the mistakes of registration statement.
Please see the Goung Hei Investment Co., Ltd. and
subsidiarty consolidated Proforma statement of cash flows.
Comment 34. The Company has made revisions to the registration
statement in accordance with your comment. The company has
made revisions to the mistakes of registration statement.
Please see the Goung Hei Investment CO., Ltd. and Subsidiary
Consolidated Proforma Statement of changes in stockholders.
Comment 35. The Company has made revisions to the registration
statement in accordance with your comment. Please see the
Goung Hei Investment Co., Ltd. and Subsidiary Note to
Consolidated Proforma Statements note-2(K).
Comment 36. The Company has made revisions to the registration
statement in accordance with your comment. There is no
merger transaction between the Company and Qualyserve. The
Compay acquired the 99.7% common stock of Qualyserve by
exchanging stock with Goung Hei on May 6. The pro forma
combined statement is parent-subsidiary ombined statement
but merger combined statement. So it is not suitable to
adopt general merger accounting method.
Comment 37. The Company has made revisions to the registration
statement in accordance with your comment.There is no
deferred charge. The company has made revisions to the
mistakes of registration statement. Please see the Goung Hei
Investment Co., Ltd. and Subsidiary Note to Consolidated
Proforma Statements.
Comment 38. The Company has made revisions to the registration
statement in accordance with your comment. The company has
made revisions to the mistakes of registration statement.
Please se the Goung Hei Investment Co., Ltd. and Subsidiary
Note to Consolidated Proforma Statemenst note-2(e).
Comment 39. The Company has made revisions to the registration
statement in accordance with your comment. The company has
made revisions to the mistakes of registration statement.
Please see the Goung hei Investment Co., Ltd. and Subsidiary
Note to Consolidated Proforma Statements note-12.
Comment 40. The Company has made revisions to the registration
statement in accordance with your comment. Please see the
Goung Hei Investment Co., Ltd. and Subsidiary Note to
Consolidated Proforma Statements note-18.
Comment 41. The Company has made revisions to the registration
statement in accordance with your comment. The company has
made revisions to the mistakes of registration statement.
Please see note-2(h) to Goung Hei Investment Co., Ltd. and
Subsidiarty Consolidated Proforma Statements.
Comment 42. The Company has made revisions to the registration
statement in accordance with your comment. See Note 5.
Comment 43. The Company has made revisions to the registration
statement in accordance with your comment. Please refer to
the answer of question 25.
The Company has entered a contract of purhase of land and building in
order to meet the future needs for business. The Contract is summarized as
follows.
1. Location: Land-Chaocho section, Pingtung County(55,393oT) Buidling
#1148, Chaocho section, Pingtung County 12,468.86oT)
2.Contractor Kunli building Co., Ltd.
3. Contract price:US$42,707,554.23(Tax included)
4. Title of properties: Except titles of land#33 and #40-27 have not
transferred, titles for all the residual have been transferred.
5. Evaluation: The fair market value for the land and building is
evaluated. US$41,791,623.80
6. As of December 31, 1995, US$41,267.763.65 has been paid.
The value of the property was determined by property appraising center.
The fair value is determined by cost less accumulate depreciation and the
depreciation is provided on the straight line method.
Comment 44. The Company has made revisions to the registration
statement in accordance with your comment. See Note 8.
Qualyserve Construction, Co.
Comment 45. The Company has made revisions to the registration
statement in accordance with your comment.
Comment 46. The Company has made revisions to the registration
statement in accordance with your comment.
Comment 47. The Company has made revisions to the registration
statement in accordance with your comment. The company has
made revisions of registration statement according to SFAS
No. 121. Please see the Qualyserve construction Co., Ltd.
financial statements note-2(g), note-16.
Comment 48. The Company has made revisions to the registration
statement in accordance with your comment. The company has
made revisions to the mistakes of registration statement.
Please see the Notes to Qualyserve Construction Co.
financial statements.
Comment 49. The Company has made revisions to the registration
statement in accordance with your comment. The company has
made revisions to the mistakes of registration statement.
Please see the Qualyserve Construction, Co. financial
statements notes 2(k).
Comment 50. The Company has made revisions to the registration
statement in accordance with your comment. Please see the
Qualyserve construction Co., Ltd. financial statements note-
11, note-15
Comment 51. The Company has made revisions to the registration
statement in accordance with your comment.
The mechanics of the calculation of the weighted avergae
number of shares outstanding are below: Original shares
number is 5,200,000 and the new (November ) issued
14,700,000 share. So the weighted avergae number of shares
outstanding in December 31, 1995 is:
5,200,000 +14,700,000 *1/12=6,425,000 (shares)
Issuances of the company are all cash sales.
Comment 52. The Company has made revisions to the registration
statement in accordance with your comment. See Schedule II.
Item 14.
Comment 53. The Company has made revisions to the registration
statement in accordance with your comment. See page 18
Comment 54. The Company has made revisions to the registration
statement in accordance with your comment. See page 18.
Comment 55. See Exhibit ___
Please call Morgan F. Johnston, Esq. at (214) 401-0752 with any questions or
comments.
Sincerely,
/s/ Morgan F. Johnston
Morgan F. Johnston
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10/A-1
GENERAL FORM FOR REGISTRATION OF SECURITIES
Under Section 12(b) or (g) of The Securities Exchange
Act of 1934
GOUNG HEI INVESTMENT CO., LTD.
(Name of issuer in its charter)
Delaware 75-2254391
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
236 Zen Lin Road, Zen Wu County, Kaohsiung, Taiwan, R.O.C.
(Address of principal executive offices) (Zip code)
Issuer's telephone number: 8867-372-6088
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
none none
------------------------- -----------------------------
------------------------- -----------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.00001 par value
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
Background
Goung Hei Investment Co., Ltd. was originally incorporated as
Potentialistics, Inc. ("Potentialistics"), a wholly owned subsidiary of Texas
American Group, Inc. ("TAG"), a publicly-owned corporation, in Delaware on
October 12, 1988 as a "blind pool.". In April of 1989, TAG distributed 1,585,733
shares of its issued and outstanding common stock of Potentialistics to its
shareholders pursuant to an effective registration statement on Form S-18. The
amount distributed represented only five percent (5%) of the amount of common
stock outstanding. The remaining outstanding stock was owned by TAG. TAG sold
approximately 92% of the outstanding shares to a third party and Halter Capital
Corporation, a Texas corporation, subsequently purchased this control block from
such third party. Until the transaction with Goung Hei Investment Co., Ltd., a
West Samoa corporation ("Goung Hei") described below, management of Halter
Capital Corporation controlled and participated in the business operations of
Potentialistics. Potentialistics has had no substantial operations or
substantial assets since inception. Its business purpose was primarily to seek
and acquire or merge with all types of business ventures. At the time of its
organization, the authorized capital stock was 50,000,000 shares of common stock
(the "Common Stock"), par value $.00001 per share and 10,000,000 shares of
preferred stock (the "Preferred Stock"), par value $.00001 per share.
Prior to the transaction with Goung Hei, Potentialistics did not engage
in any business activities and the business purpose of Potentialistics was
primarily to seek out and obtain an acquisition or merger transaction whereby
its stockholders would benefit by owning an interest in a viable business
enterprise. Since Potentialistics had no operations or significant assets, its
principal potential for profits came solely from operations it would receive in
an acquisition or merger transaction. A merger or acquisition transaction with
Potentialistics would allow a privately held company to become a publicly held
corporation with a broad shareholder base without experiencing the substantial
time and filing requirements and financial expenditures imposed by federal and
state securities laws.
Potentialistics sought to effect a merger, exchange of capital stock,
asset acquisition or other similar business combination with an operating
business. The business objective of Potentialistics was to effect a business
combination with a business which Potentialistics believes has significant
growth potential. Potentialistics intended to utilize equity in affecting a
business combination. As Potentialistics had no income or business operations
from the date Tag distributed five percent of its stock to its shareholders,
Potentialistics eventually lacked the resources to continue to file its public
reports with the Securities and Exchange Commission ("SEC").As of April 30,
1991, Potentialistics ceased filing any reports with the Commission.
In connection with the transaction with Goung Hei described below,
Potentialistics amended its Articles of Incorporation to (1) effect a reverse
split of Potentialistics' issued and outstanding Common Stock on the basis that
each 15 shares then outstanding were converted into one share of Common Stock;
and (2) change the name of Potentialistics to Goung Hei Investment Co., Ltd.
Transaction with Goung Hei Investment Co., Ltd.
In June of 1996, Goung Hei obtained a controlling interest in
Potentialistics by acquiring 1,416,667 shares, or approximately 84%, of the then
issued and outstanding Common Stock of Potentialistics from Halter Capital
Corporation. Halter Capital Corporation retained a small ownership interest in
Potentialistics. All prior directors and officers of Potentialistics then
resigned and were replaced by nominess selected by Goung Hei. No members of
management who were involved with Potentialistics prior to the transaction with
Goung Hei currently have any control or participate in the business operations
of Potentialistics.
<PAGE>
As discussed above, the reason for entering into the transaction with
Goung Hei was that Potentialistics sought to obtain an acquisition or merger
transaction whereby its shareholders would benefit by owning an interest in a
viable business enterprise. Specifically, Potentialistics desired to enter into
a transaction with a company that either qualified, or would qualify, for
listing on the Nasdaq National or SmallCap Market. Upon analysis of Goung Hei's
business plans for Potentialistics (See "--Description of the Business"), it was
determined that Goung Hei had specific plans for Potentialistics to meet the
assets and net worth criteria to be listed on the Nasdaq National or SmallCap
Market. For these reasons, Potentialistics believed it could best enhance
shareholders' values by consummating the transaction with Goung Hei.
On June 10, 1996, Goung Hei caused Potentialistics to acquire
Qualyserve Construction Co., Ltd. ("Qualyserve"), a privately held company that
was incorporated in Taiwan. Potentialistics entered into a share exchange
agreement by and among Potentialistics, Qualyserve and certain shareholders of
Qualyserve whereby Potentialistics acquired 99.7% of the issued and outstanding
common stock of Qualyserve in exchange for an aggregate of 19,846,000 shares of
Common Stock. After the consummation of the transaction, the former Qualyserve
shareholders owned 96.25% of Potentialistics' common stock and the balance is
owned by the remaining shareholders. All references to the Company shall
hereinafter refer to the business of the company after the transaction with
Goung Hei, unless the context otherwise requires.
Restrictions on Shares held by Former Shareholders of Qualyserve
All of the shares of the Company's common stock owned by the former
shareholders of Qualyserve are "restricted securities" and under certain
circumstances may in the future be sold only in compliance with Rule 144 adopted
under the Securities Act of 1933, as amended. Rule 144 provides, among other
things, that persons holding restricted securities for a period of two years may
each sell in brokerage transactions every three months an amount equal to 1% of
the Company' outstanding shares or the weekly reported volume of trading during
the four calendar weeks preceding the filing of a notice of proposed sale,
whichever is greater. All of the shares held by former Qualyserve shareholders
are not eligible for resale pursuant to Rule 144 until June of 1998. No
prediction can be made as to the effect, if any, that sales of such shares or
the availability of such shares for sale will have on the Company's market
prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of common stock may be sold in the public market may
adversely affect prevailing market prices for the Company's shares and could
also impair the Company's ability to raise capital through the sale of its
equity securities.
Description of the Company's Current Business
General - Manufacturing and Industry of Taiwan.
- ----------------------------------------------
More than any other sector, industry (including manufacturing, mining,
construction and utilities) has driven the growth of Taiwan's economy. During
the nineties, manufacturing and industry has accounted for approximately 50% of
it gross domestic product, produced virtually all of its exports and employs
approximately 40% of its workforce. Manufacturing alone contributed
approximately 38% of the gross domestic product, the largest single contributor
in the entire economy and employs approximately 32% of its workforce.
Manufacturing is expected to remain Taiwan's primary focus in the near
future. While early on, Taiwan had problems with heavy industry as a result of
environmental difficulties, stumbling privatization efforts and a lessening of
international competitiveness due to increasing costs, such industries as steel
have the opportunity for tremendous growth due to the growth in the construction
industry (from a 1.3% share of gross domestic product in 1983 to approximately
5% in 1995). This growth is fueled by public sector infrastructure projects.
<PAGE>
The Company
The following description will refer to the Company's business after
its acquisition of Qualyserve. Except where otherwise indicated, all references
to share amounts of Common Stock reflect the one for 15 reverse split effected
pursuant to the Stock Purchase Agreement.
General
In recent decades, tremendous economic growth has in large means
ignited an immense flocking of people into urban areas. Since the urban land is
limited, it is a necessity to construct tall buildings to allow for the limited
area in which the people must occupy. However, Taiwan Island sits on the seismic
zone and the steel structure, for its high strength and rigidity, is now
commonly applied to the construction of the high-rise buildings. The steel
structure, usually in the form of being prefabricated, renders tremendous saving
in construction time and speeds up an early realization of capital return. Due
to the scarcity of labor, the steel structure, designed and manufactured by
automatic processing, presents a powerful competitive edge in the market.
Therefore, because of the short supply of domestic land and the broad awareness
of environment protection, the steel structure becomes the unique resolution for
the building industry.
Qualyserve Construction Co., Ltd., founded seven years ago, has
commanded a high reputation for solid performance. To closely cope with the
dramatic changes in the marketing environment, Qualyserve has a well developed
prospective operation plan aimed at a variety of expansion projects. Such
projects include the TPC's expansion program for TPC to add four new power
generation units to the power station, the new erection of a nuclear power
plant, and the enlargement of power production capacity in another nuclear power
plant. In addition, there are many construction projects for public utilities
sponsored by the government, such as the construction of Scientific Park in
Tainan City; the APROC Center, RTA, the Second Free Highway, the expansion plans
for CKS International Airport and Kaohsiung International Airport, and the
building of additional power plants and refuse resource plants.
Qualyserve is currently participating in TPC's expansion and CKS
International Airport. TPC's expansion on Tauchung supplies the electric power
for 2 million people live in Tauchung area. The expansion of CKS International
Airport is the second phase expansion project in Taoyuan, and CKS International
Airport is the biggest international airport in Taiwan, R.O.C.
Project Name Total Price Estimated % of completion
(construction) complete year on 12/31/95
TPC Power Plant US$8,63,728 1996 94.40%
Dust-collecting
Equipment, Tauchung
CKS Internation
Airport US$2,702,446 1996 12.56%
Similarly, big strides in the economic development of southeastern
Asian countries have witnessed the increasing demand for electricity in which
the steel structure is an essence for the construction of power plants. However,
in countries like Hongkong, Indonesia, Philippines, Thailand, Malaysia and
Vietnam, the steel industry is small in scale, unable to cope with the pace of
fast economic development and its production technique is not sufficient enough
to undertake the gigantic construction projects. Furthermore, the cost of
imported steel is not affordable. The best solution is to cooperate with the
constructors or equipment suppliers to create a joint venture in undertaking the
foreseeable steel structure business. For Taiwan alone, the productivity
available is 700,000 mt of steel structure in 1996; and the demand of steel
structure for the refuse resource plants EPA programs for the five years to come
is 500,000 mt, plus 400,000 mt for the power plant construction.
Products. The Company's principal business is to develop and acquire
leading steel technologies, including steel construction equipment and strip
roil & sheet. The future objective of the Company will be to provide materials
for aero-space and computer parts. Goung Hei, through its subsidiary, Qualyserve
Construction Co., Ltd., a corporation organized under the laws of Taiwan,
Republic of China, is in the business of manufacturing, reprocessing, designing,
and marketing steel products and related equipment.
<PAGE>
Depending on the size of the construction project, the length of time
from when the Company receives a contract until the Company completes its
obligations under such contract can range from one to three years.
There are several steps on the Production process:
1. Based on the design drawing of contract, the production management section
should prepare the steel material sheet to apply the material.
2. Apply the material from factory administration section.
3. Start the construction with molding lofting and cutting to satisfy the
size.
4. After the welding step in manufacture process.
5. Ater the welding process, the quantity assurance section completes a
"non-destruction" inspection.
6. Sand blasting and painting if the contract required.
7. Delivery of the fabricated products to building site.
8. Erect the fabricated products.
9. The supervisor of the construction project accepts after asserting that the
quality or quantity meets requirement.
10. After we sign the contract, the related department should be noticed.
Customers. The following three customers accounted for the following
percentages of the Company's sales in fiscal year 1995: Goung Lee Engineer Co.,
Ltd. (64.1%); Jou-Da Construction Co., Ltd. (13.75%); and Shung Ding Engineer
Co., Ltd. (5.27%). The following three customers accounted for the following
percentages of the Company's sales in fiscal year 1994: Chung Yuan Construction
Co., Ltd. (36.83%); Goung Lee Engineer Co., Ltd. (32.68%); and G-Yuan
Construction Co., Ltd. (7.01%). The loss of any of these customers could have a
material adverse effect on the Company.
Raw Materials and Manufacturing. The materials used in the Company's
operations include steel plates, steel materials, rolled sections and built-up
sections. The Company is dependent upon outside suppliers for all of its raw
material needs and, therefore, is subject to fluctuations in prices of raw
materials. In particular, the Company's results of operations are affected
significantly by increases in the market prices of steel plate. The Company
purchases its raw materials at market-based prices from numerous independent
suppliers. Prices of steel plate can be adversely affected by, among other
things, the price of iron mine and certain business trends. The Company
purchases these materials from various suppliers at market prices and believes
that the loss of any one of its suppliers would not have a material adverse
effect on the Company's business, financial condition and results of operations.
Properties. The Company conducts its operations from its main office
located at No. 366 Bor-Ay Rd., 8th Floor, Kaohsiung, Taiwan, Republic of China
under a three year lease with 14,400 square feet of office space. The production
facility is located in Kangshan, Kaohsiung, Taiwan and contains 360,000 square
feet.
Competition. The industry in which the Company operates is highly
competitive and includes a large number of both domestic and foreign
manufacturers. Certain of the Company's competitors have greater sales volumes
and greater financial resources than the Company.
The Company believes the following factors have enabled the Company to
compete effectively: (i) its low cost products that are attractively styled and
high quality; (ii) its ability to anticipate new markets and distribution
channels for its products; (iii) its continuing effort to improve its products;
(iv) its low cost production capabilities and stable, experienced work force;
(v) its strong commitment to customer service; and (vi) its experienced
management team.
<PAGE>
Environmental Laws. The Company believes that there are currently no
material costs of compliance with environmental laws.
Purchasing and Principal Suppliers Although the principal supplier of
the Company is China Steel Corp., Kaohsiung, Taiwan, Republic of China, the
Company maintains relationships with several principal suppliers due to quality
considerations and in order to benefit from the volume purchasing discount of
the material casts. Alternative suppliers with acceptable technology and quality
have been identified for all critical components.
Research and Development. The Company's research and development
objective and its implementation have ben guided by the Company's growth
strategies. The Company is committed to engaging the best available
manufacturing technology of the steel industry and also research and development
in precious metal. This research is expected to produce additional product
offerings, reduce the capital cost of maintenance of equipment and improve
efficiency of the production. Research and development is conducted primarily
through routine meetings held to solve the problems concerning the quality of
the product and the scheduling of projects.
Employees. The Company currently has 24 employees in its administrative
department and 12 employees in its production department on a full time basis.
These employees are primarily management and professional staff and are not
subject to any collective bargaining units. The relationship between management
and employees is considered excellent. The Company firmly believes in
labor-management interdependence for prosperity and in harmonious labor
relations. The Company continues to adopt the following measures: (i)
establishment of multi-channel labor communications, (ii) constantly improving
management-labor communications and harmonization, (iii) improvement of the work
place environment and (iv) ensure the effectiveness of the grievance and
counseling systems.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
Overview
Goung Hei Investment Co., Ltd. was originally incorporated as a West Samoa
Corporation on April 2, 1996.
The Company's principal business is to develop and acquire leading
steel technologies, including steel construction equipment and strip roil &
sheet. The future objective will be capable of providing materials for
aero-space and computer parts. The Company currently owns and operates
Qualyserve Construction Co., Ltd., Kaohsiung, Taiwan, Republic of China, which
forms the initial base for the growth of the Company. Qualyserve Construction
Co., Ltd. was incorporated on August 2,1989. It engages in manufacturing,
reprocessing, designing and marketing of structure steel products and related
equipment.
The Company's net sales include revenues from construction projects
(less return and discount), commission revenue and sales of materials.
Construction revenues represent 77% and 75% of the Company's net sales for the
years ended December 31, 1995 and 1994, respectively. As the Company enters into
construction contracts or agreements, revenues from such contracts or agreements
are accounted for on a percentage of completion method, based upon a ratio of
costs incurred to the total estimated costs. Losses are recorded when they are
incurred.
The Company's cost of goods sales include all direct manufacturing
costs, consignment process costs, warehousing and freight. Direct manufacturing
costs has accounted for a majority of the cost of sales. The Company has
expensed a substantial portion of its construction activities, capitalizing only
those expenditures that are incurred. Other operating expenses consist of sales
and marketing and general and administrative expenses.
Due to the adopton of percentage of completion method, the company's
operating results do not luctuate on a quarterly basis.
RESULT OF OPERATIONS
The following table sets forth, as a percentage of net sales, statement of
operations data for the periods indicated:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nine Months Ended Fiscal Year Ended
In US $ September 30, December 31,
1996 % 1995 % 1995 % 1994 %
Operation Revenue 13,575,625 100 9,752,886 100 19,986,136 100 11,246,701 100
Cost of Goods Sold 12,186,931 89.42 8,721,322 88.8 18,056,859 90.35 10,097,015 89.78
Gross profit 1,388,694 10.58 1,031,564 11.2 1,929,276 9.65 1,149,685 10.22
Operation Expenses 390,536 3.95 385,243 4.1 611,043 3.06 506,114 4.50
Incom from operations 998,158 6.63 646,321 7.1 1,318,233 6.60 643,572 5.72
Non-Operating Income 162,127 0.13 13,043 1.8 202,299 1.01 14,440 0.13
Non-Operating expenses 971,011 (3.48) 339,981 1.7 (633,296) (3.17) (98,249) (0.87)
Income before income tax 189,274 7.18 319,383 4.44 559,764 4.98
Provision for Income Tax 47,319 (0.82) 79,846 1.80 (336,574) (1.68) (151,802) (1.35)
income After income tax 141,955 2.46 239,537 5.37 550,662 2.75 407,962 3.63
Earning Per Share $0.003 $0.046 $0.09 $0.08
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
Net Sales
- ---------
As most construction companies, Qualyserve construction recognizes revenues
by adopting percentage of completion method at the end of the year, as the table
lists above.The marketing of the company performed quite well comparing with the
others in construction industry.
Net sales increase 39.2%. The major reason is the construction project
increased 9 cases.
Cost of Sales
- -------------
Qualyserve gross profit as a percentage of net sales increased 0.35% in the
nine months ended September 30, 1996. The change is a result of good control in
material and factory overhead costs.
Operating Expense
- -----------------
In comparison to the prior period, operating expense as a percentage of net
sales decreased 0.47%. The decreases were primarily due to reduction in the
workforce.
Fiscal Years Ended December 31, 1994 and 1995
Net Sales
In comparison to the prior year, the Company's net sales increased 44%.
In general, revenues have increased with the increase in the number of contracts
and expanding market of potential customers. The increase in net sales in fiscal
1995 was primary due to recognition of revenues from constrution, which included
Thermo-power plant in Taichon, Steel Construction-N.R.S, Parking lots of Marco
and Kaohsiung Finance and Tax Building.
Sales revenue: Sales revenue decreased $283,672.73. the difference results
from the cost of steel material raise $4,670,981.83 but th price of sales only
raise $4,387,309.10. The rate of sales price was less than the rate of cost and
the company increased the sales on steel material in the third and forth quarter
of 1995.
Construction revenue: Construction revenue increased $1,051,418. Due to the
increase on taking more projects in 1995 than in 1994, the constrauction revenue
increased compared with 1994. Though the total cost increased, the fixed cost
kept stable and the operation went normal. So the margin profit increased and
the total revenue increased, too.
Like all companies net profit margins of the company have been impacted and
will likely to continue to be impacted by general inflation as well as sudden
price changes in key materials and labor costs. As discussed the section about
Taiwan, inflation in Taiwan has been moderate for 1994-1995 and is not expected
to become a problem.
The increase on operating revenue is $779,509.60 from 1994 to 1995. The
changes were discussed as follows:
(1) Sales revenue: Sales revenue decreased $283,672.73. The difference
results from the cost of steel material raise $4,670,981.83 but the
price of sales only raise $4,387,309.10. The rising rate of sales
price was less than the rising rate of cost and the cocmpany increased
the sales on steel material in the third and forth quarter of 1995.
(2) Construction revenue: Construction revenue increased $1,051,418. Due
to the increase on taking more projects in 1995 than in 1994, the
construction revenue increased compared with 1994. Though the total
cost increased, the fixed cost kept stable and the operation went
normal. So the margin profit increased and the total revenue
increased, too.
<PAGE>
Cost of Sales
The Company's gross profit, as a percentage of net sales, decreased
9.7% in fiscal 1995 from 10.2% in fiscal 1994. The decrease was primarily due to
the increase in consignment processing cost and an increase in material cost
such as alternate sources of packaging. These costs increases resulted in lower
gross profit.
Operating Expenses
In comparison to the prior year, general and administrative expenses
increased by $105,000 in fiscal 1995 and increased as a percentage of net sales.
This increase was primarily due to the Company's growth.
Results of Operation:
Year ended December 31, 1995
Compared to December 31, 1994
Sales--Sales for 1995 were $19,986,136 compared to $11,246,701 for 1994, an
increase of 77.71%. the major reason is the construction projects for 1995
increase 9 cases compared to 1994. The extent and price of projects are
also more huge and higher than usual. The result of adopting "complete
percentage" is the increase on sales.
Gross profit--Gross profit for 1995 were $1,929,276 compared to $1,149,686 for
1994, an increase of 67.81%. Owing to the expansion on operation and the
fixed cost level is equivalent as 1994, the gross margin increase.
Operation Income--Operation income for 1995 were $ 1,318,234 compared to
$643,572 for 1994, and increase of 104.83%. Due to the operation expense is
under control and the gross profit increase, the operation income raise.
Non--Operation Income: Non-Operation incom for 1995 were ($430,997) compared to
($82,852) for 1994, an decrease of 420.2%. The interest expnse of loan for
purchasing property made the non-operation expense increase.
Net income after tax--Net income after tax: Net income after tax for 1995 were
$550,663 compared to $407,962 for 1994, an increase of 34.98%.
Results of Operation:
Year ended December 31, 1994
Compared to December 31, 1993
Sales--Sales for 1995 were $11,246,701 compared to $53,306,994 for 19943, an
increase of 10.21%. The major reason is the extent and high price of "TCT
power plant" project. So the sales increase.
Grossprofit--Gross profit for 1994 were $1,149,686 compared to $550,726 for
1993, an increase of 108.76%. Owing to the expansion on operation and the
fixed cost level is equivalent as 1993, the gross margin increase.
Operation Income--Operation income for 1994 were $643,572 compared to $45,080
for 1993, an increase of 132.76%. Due to the operation expense is under
control and the gross profit increase, the operation income raise.
Non--Operation Income: Non-Operation income for 1994 were ($83,808) compared to
($20,055) for 1993, an decrease of 317.88%. The interest expense of loan
for increasing capita resource made the non-operation expense increase.
Net income after tax--Net income after tax: Net incom after tax for 1994 were
$407,961 compared to $26,811 for 1993, an increase of 1421.60%.
Liquidity and Capital Resources
Since its formation in 1989, Qualyserve has financed its operations
primarily through its working capital, proceeds received from the issuance of
debt and the sale of stock. While the Company did not incur any debt or issue
any stock, Qualyserve, its subsidiary, had the following debt and stock
issuances:
The details of debt issuances of Qualyserve ended on June 30, 1995 and June
30, 1996 are illustrated as follows.
<PAGE>
BORROWINGS
September 30 September 30
Bank 1996 1995
Credit Loans (due June 28, 1997)
Interest Rate 9.275% $ 72,727
Usance loans, (due March 23, 1997)
Interest rate 9.68% 1,439,071
Usance loans, (due November 29, 1996)
Interest rate 9.275% 290,909
Usance loans (due February 17, 1997)
Interest rate 8.475% 1,436,329
Note (due January 27, 1997)
Interest rate 9.15% 363,636
Note (due January 20, 1997)
Interest rate 8.475% 545,454
Mortgage from Bank of Taiwan-Kang Shan
Bra. --Interest rate 8.95% 11,381,818
Credit Loan - Taiwan Cooperative Bank
Kang Shan Branch 363,636
Credit Loan - Business Band Chou-Ju
Branch --Interest rate 9.68% 1,818,181
Loan for House-Chung shing Bank
Yung Chi Branch --Interst rate 9.25% 789,762
Credit loan 3,145,488
Mortgage from Bank of Taiwan-Kang Shan Bra. 1,087,273
Total $18,501,523 4,232,761
Sales of stock:
Date Sort Issurance amount Issue Price Capital
1989/08 Set Up $0.36 $ 206,896
1990/11 Cash Stock 722,900 0.36 929,797
1991/01 Cash Stock 295,061 0.36 1,224,858
1991/08 Cash Stock 715,900 0.36 1,940,758
1995/12 Cash Stock 5,388,563 0.73 7,329,321
The Company's operating activities used cash for operations of $2,925,000 in
fiscal 1995 and $3,431,000 in the six month period ended June 30, 1996.
Liquidity analysis for 1994 and 1995:
1. Cash flow ratio for 1995 were -20.51% compared to 1.16% for 1994, an
decrease of 1868%. The cash outflow of operation activities was due to the
rapid growing on number and scale of projects in construction.
2. Cash flow properly ratio for 1995 were 0.57% compared to 19.79% for 1994,
an decrease of 97.12% . The cash outflow of operation activities was due to
the rapid growing on number and scale of projects in construction.
3. Cash reinvestment ratio for 1995 were -7.63% compared to 1.76% for 1994, an
decrease of 5335%. The cash outflow of operation activities was due to the
rapid growing on number and scale of projects in construction.
Accounts receivable increased $859,000 from December 31,1995 to June
30,1996 and inventories decreased $1,470,000 from December 31,1995 to June
30,1996. Accounts receivable have increased due to longer payment terms which
have been granted to distributors. The Company believes that these new terms
reflect normal practices in the industry. Inventories have increased due to
the increase of the construction project.
The decrease in trade payables from December 31 ,1995 to September 30,1996
was due to the repayment of certain payables with the proceeds from debt
discussed below. Accrued liabilities have increased as a result of increased
interest payable.
Sales revenue decreased $283,672.73. The difference results from the cost
of steel material raise $4,670,981.83 but the price of sales only rise
$4,387,309.10. The rate of sales price was less than the rate of cost and the
company increased the sales on steel material in the third and fourth quarter of
1995.
Construction revenue increased $1,051,418. Due to the increase on taking
more projects in 1995 than in 1994, the construction revenue increased compared
with 1994. Though the total cost increased, the fixed cost kept stable and the
operation went normal. So the margin profit increased and the total revenue
increased, too.
Like all companies net profit margins of the company have been impacted and
will key materials and labor costs. As discussed the section about Taiwan,
inflation in Taiwan has been moderate for 1994-1995 and is not expected to
become a problem.
In July 1995, the Company completed a $10,980,536 financing with bank
of Taiwan, the proceeds of which were used to purchase a land for building a new
plant in Pington. Interest and principal are payable quarterly for 32 periods
based upon an established formula. This subordinated note bears interest at
8.5%. This term will end on June 21, 2005.
The total price of this property is US $42,707,554 (tax included)
The sources of the capital:
Cash Stock in 1995 US$10,808,824
Payable to stockholders US15,659,347
*Long-term loan US$10,980,536
Capital owned by company US$3,819,056
Account payable US$1,439,791
TOTAL: US$42,707,554
*Note: The long-term loan was borrowed from Bank of Taiwan in 1995. The
interest rate is 8.5%. In th first and second year, there was no
principal payments but the interest was paid monthly. From October 21,
1997 to July 21, 2005, the principal is paid every three months.
<PAGE>
The latest three year's financial analysis sheet are as follows.
1995 1994 1993
# FINANCIAL RATE RATE RATE RATE
1 FIXED ASSET/TOTAL ASSETS 76% 24% 6%
2 NET WORTH/TOTAL ASSETS 24% 37% 22%
3 BANK LOAN/NET WORTH 129% 39% 6%
4 FIXED ASSET/NET WORTH 313% 64% 27%
5 FIXED ASSET (NET WORTH+
LONG-TERM LIABILITIES) 104% 64% 27%
6 CURRENT RATIO 89% 120% 120%
7 (CURRENT ASSET-INVENTORY)/
CURRENT LIABILITY 59% 116% 33%
8 ACID RATIO 59% 116% 31%
The preceding schedule shows an unfavorable shift in the composition of the
registrant's liquidity and capital resources during 1995; current ratio
decreased from 120% to 89% and quick ratio decreased from 116% to 59%, while net
worth decreased from 37% to 24% of total asset. Therefore, the quality of
working capital is not as liquid as in 1994.
Though th financial ratios became worse by purchasing this property, we
believe that our operation will become better and better in several years
because of the expansion plan. According to our prediction, the current ratio
and quick ratio could improve and achieve to normal level.
The reasons we decide to buy this property are
(1) Steel construction business is a long-term investment business. It needs
large capitals, excellent technology and intensive labors. A company owns
it's land or property could have a long-term development and make a
complete and detail planning.
(2) Land is very scarce and expensive in Taiwan. We think the value of this
property will be higher and higher in the future and according to the
latest appraisal report, the price really rise.
We will have a expansion plan on this property in 1998. In order to use
every assets as sufficient as possible in any periods, the property is utilized
as parts of our operation now.
1. Pre-assembly Yard:Some structure assembly line were made in this yard
2. Storage Yard: Fabricated steel and materials were storaged here.
3. Warehouse:We put the small pieces and component parts on the warehouse. The
expansion content are listed as follows:
1.Production amount
In order to satisfy the large needs of steel construction in the future, we
plan to increase 30,000 tons steel structure for equipment and bridges, 12,000
tons steel structute for buildings and 8,000 tons teel structure for factories
from 1998 to 2000.
2. Production equipment
The principal production equipment we need are electronic crane, stud
welding gun, electro-slag welder, overhead crane, hydraulic press, semiauto
cutting, overhead cranes, making bottom machine, auto submerged arc welder,
forklift and crane. the total cost of these equipment is US$14,545,455 and the
civil engineering fees ins US$7,272,727. We also need to spend US$10,909,090 to
build anotherplant in 1998 and 1999.
3. The total amount of the expansion plan
According to the above evaluation expense, this expansion plan should spend
US$32,727,272.
4.The sources of cash
The Company plan to issue cash stock of US$10,000,000 in 1998 for expansion
plan, replenishing our operation capital and reducing the operation cost.
In order to achieve automatic production, enhance the productivity and
product quality as to satisfy the buyers' requirements, we plan to expand the
plant building and purchase new equipment in 1997. The required period is three
months and the total required capital is US$82,000.
UNIT : US$
ITEM Capital Required
Gas Transferring Loop & Base 36,500
Application Fee for Temporary Power 29,000
Hanging Overhead Crane Expense 5,500
Other Equipment (Electronic Drill, Semiauto Cutting) 11,000
TOTAL 82,000
The Company believes that existing sources of liquidity will satisfy
its projected working capital and capital expenditure for at least the next 12
months.
<PAGE>
ITEM 3. PROPERTIES
Set forth below is certain information with respect to the Company's
principal properties. The Company believes that all of these properties are
adequately insured, in good condition and suitable for the uses described below.
<TABLE>
<CAPTION>
<S> <C> <C>
Approximate Size Lease Expiration
Location Primary Use (Square Feet) Owned/Leased Date
-------- ----------- ------------- ------------ ----
Office located at
Kaohsiung, Taiwan, Corporate Office 14,400 Lease December 2000
Republic of China
Plant located at
Kaohsiung, Taiwan, Manufacturing Plant 360,000 Lease December 2010
Republic of China
</TABLE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information table sets forth certain information
regarding the Common Stock owned on July 31, 1996 by (1) any person (including
any "group") who is known by the Company to own beneficially more than 5% of its
outstanding Common Stock, (2) each director and executive officer, and (3) all
executive officers and directors as a group.
The following information table sets forth certain information regarding
the Ccommon Stock owned on July 31, 1996 by (1) any person (including any
"group") who is known by the Company to own beneficially more than 5% of its
outstanding Common Stock, (2) each director and executive officer, and (3) all
executive officers and directors as a group.
<TABLE>
<CAPTION>
<S> <C>
Title of Class Name and Address of Amount and Nature of Percent of class
Beneficial Owner Beneficial Owner
- ----------------- -------------------- -------------------- ----------------
Common Stock Grand International* 6,720,000 56%
Development Corporation
Common Stock Great Kang Investment* 960,000 8%
Common Stock Chi-Kang Lu 720,000 6%
Common Stock Yen-Jung Chang 720,000 6%
Common Stock Executive Officers and 1,109,200 9.24%
Directors as a group
(8 persons)
</TABLE>
Footnote:
1. The chairman of Grand International Development Corporation is Chun Shin,
Wu. The representative of legal person, who execute both the investment
power and the sole voting power.
2. The chairman of Great Kang Investment Corporation is Jyu, Wu, and she
execute the investment power. The representative of legal person is Hsiung,
Lu who execute the sole voting power.
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Certain information about the directors and executive officers of the
Company is contained in the following table:
Name Age Position
Chun Shin, Wu 46 Chairman and Director
Chi-Kang, Lu 40 President, Chief
Executive Officer and Director
Yen-Jung, Chang 37 Director
Bor-Yang, Hwang 37 Director
Chung-Ching, Yen 38 Director
Hsien-Pao, Lin 61 Director
Jung-Tung, Hsiao 40 Director
Tsung-chun, Chiu 39 Chief Financial Officer
Hsiung, Lu 73 Director
Juo-lan, Shen 51 Director
Yi-shih, Lin 38 Director
All directors hold office until the next annual meeting of the shareholders of
the Company or until their successors have been elected and qualified. Officers
serve at the discretion of the Board of Directors. Additional information
regarding the directors and officers is set forth below.
Chun-Shin Wu, Chairman of Qualyserve Construction, has over fifteen years
experience in marketing and purchasing. Prior to joining Qualyserve Construction
Co., Ltd, he was the director of Ya-Hsin, Heng-Yao, Yao-Shen and Li-Yuan
Industrial Corp. Mr. Wu brings extensive experience to Qualyserve Construction
in marketing and purchasing. Graduated from Taiwan Provincial Gang-Shan
Agricultural Engineering Vocational School.
<PAGE>
Chi-Kang Lu, has extensive experience in planning, operation, control and
management of steel structure plant. Prior to joining the Board of Directors of
Goung Hei Investment Corp., he continuously worked in Goung Lee Engineering Co.,
Ltd since 1982. He began work as an engineer, promoted to manager of Engineering
Department, Vice President, then to President. When he was Vice President, he
assisted Mr. Lu Hsiung to build two steel structure plants in Gang Shan and Zen
Wu. He also brings a variety of experience to Goung Hei Investment Corp., in
purchasing and sales of products. Graduated from National Kaohsiung Institute of
Marine Technology-Department of Naval Architecture. 1982, Engineer of Goung Lee
Engineering Co., Ltd--in charge of constructing the drilling plate. 1985,
manager of the Engineering Department--in charge of steel structure in land.
1988, Vice Chairman of Goung Lee Engineering Co.,Ltd--assisted in establishing
Gang-Shan plant. 1993, President of Goung Lee Engineer Co.,Ltd--establish the
Zen-Wu plant.
Yen-Jeng Chang, brings almost fifteen years experience in financial management
and plan. Prior to joining Board of Directors of Goung Hei Investment Corp., she
was Vice Chairman and Controller of Goung Lee Engineering Co., Ltd since 1982.
Though her experience, she brings expertise to the Company in area of financial
management. Graduated from Senior Commercial School. From Graduation to 1982,
worked in Financial Department of Ganh-Shan Metal Co., Ltd. From 1982 to the
present, she works for Goung Lee Engineer Co., Ltd as Vice Chairman-Financial
Planning and Control.
Bor-Yan Hwang, has extensive years experience in the field of cold rolling.
Prior to joining Board of Directors of Goung Hei Investment Corp., he worked for
China Steel Corporation for more than seven years. He also acted as consultant
for Cold Rolling Mill Indonesia for three years. Mr. Hwang was also the Vice
President of the Production and Engineering Department in Ornasteel Corporation
between 1989 to 1994. He had been leading a team of highly experienced and
competent engineers and was directly involved in the formation of Ornasteel
Corporation, Malaysia. At present, Mr. Hwang Bor Yang is leading the management
team in Techsu Steel Corporation Sdn. Bhd. June, 1982, obtained Bachelor Degree
of Mechanical Engineering from National University of Jiao Tung, Taiwan. 1983 to
1985, China Steel --Engineer of operation and production department. 1983 to
1988, China Steel --Engineer in Indonesia. 1988 to 1989, China Steel --Engineer
of new expansion project in China Steel corporation. 1989 to 1994, Ornatube &
Ornasteel--Vice President in production and Ornasteel engineering department.
1994, Techsu Steel-managing director for the company.
<PAGE>
Chung-Ching Yen, has fifteen years experience in producing steel structure and
processing mechanics. Prior to joining Qualyserve Construction Co., Ltd, he was
in charge of production department of Chun-Yuan Steel Industrial Co., Ltd from
1981 to 1990. He has worked as Vice President of Qualyserve Construction Co.,
Ltd since 1990. He brings broad knowledge in variety of industries as well as
expertise. Graduated from Kuang-Wu Industrial College. From 1981 to 1990 he was
employed by Chun-Yuan Steel Industrial Co.-- in charge of production department.
Hsien-Pao Lin, worked as People Representative for over thirty years. Prior to
Board of Director of Goung Hei Investment Corp., he was Kaohsiung District
Councilman and Taiwan Provincial Councilman. He was also Chief Recorder of Party
Office of Taiwan Provincial Council and Chief Commissioner in Central Committee
of Chinese National Party. He has also been awarded the Second Prize from
Ministry of Interior. His experience provides the Company with valuable
experience in dealing with governmental agencies. Graduated from Taiwan
Provincial Tai-Nan High School and Shin-Chien Home Economics College. Chairman
of Rural Councilman Association. General whip of Agriculture & Fishery
Association. District Councilman of Kaohsiung hsien. Provincial councilman.
Chief recorder of party office of Taiwan Provincial Council. Chief Commissioner
in Central Committee.
Jung-Tung Hsiao, has 21 years experience in engineering construction and
production of steel structure. Prior to joining the Board of Directors of Goung
Hei Investment Corp , he was Vice President of Goung Lee Engineering Co., Ltd
from 1993 to the present. He had held a senior position for 12 years when he
worked for Evergreen and Chiang-Kang Industrial Corp. He bring his experience to
the Company in Engineering. Graduated from the Water & Soil Maintenance Engineer
Department of Tamkang College of Arts & Science . 1975 to 1982, Chinese Engineer
Consulting Co. 1982 to 1986, Chiang An Steel Engineer Co. 1986 to 1993,
Evergreen Heveen Metal Co. 1993 to 1996, Goung Lee Engineer Co.
Tsung-Chun Chiu, has extensive international experience in project development,
venture, and finance. He was special assistant to chairman of Qualyserve
Construction and vice president of Administrative Department in Goung Lee
Engineering Co., Ltd. between 1995-1996. He worked as financial manager of
Sam-Hsia Enterprise Corporation in 1995. He currently is the Vice President and
Chief Financial Officer for the Company. Mr. Chiu studied his Phd degree from
UCLA and he majored in business administration. Through his background he brings
to the Company expertise in areas of international finance, planning, control
and management. Master Degree of Management Science Engineer from National
University of Jiao Tung, Taiwan. From 1988 to 1994 he was the President of a
computer company . During 1995 Sam-Hsia Enterprise Corp--financial manager. 1995
to 1996, Goung Lee Engineer Co., Ltd.- Vice President. August 1996, Goung Hei
Investment Corp.--Vice President & Chief Financial Office.
<PAGE>
Hsiung Lu, has twenty years experience in engineering, material purchasing,
project planning and plant management. Prior to joining the Board of Directors
of Goung Hei Investment Corp., he was President of Goung Lee Engineering Co.,
Ltd from 1978 to 1988. During that period, he established Goung Lee Engineering
Co., Ltd and set up steel structure plant in Gang Shan. In 1993, he was elected
as chairman of Goung Lee. As the chairman of Goung Lee, he built a new steel
structure plant in Zen Wu. He has significant management experience in plant and
project planning. Administrator of China Engineering Co.,Ltd--in charge of
construction engineering. Established Goung Lee Co., Ltd. to engage in
shipbuilding.
Juo-Lan Shen, has twenty-five years experience in teaching. Prior to joining the
Board of Director of Goung Hei Investment Corp., she was elementary school
teacher. She also was Director of Womens League and assistant to Taiwan
Provincial Councilman. Graduated from Kaohsiung Girl's School. Director of
Fang-Shan Women's League Teacher of Ta-Tung Elementary School.
Yi-Shih Lin, graduated from Taipei Medical College, majoring in Dentistry. Prior
to joining the Board of Director of Goung Hei Investment Corp., he was a
dentist. He was also special assistant to Mr. Lin Hsien-Pao, Provincial
Councilman's office.
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The Company did not pay any compensation to its executive officers or
directors during the fiscal year ended December 31, 1995.
Furthermore, other than as stated below there are no plans to pay any officers
for the fiscal year 1996.
Name and Principal Position Salary(Annual pay) Bonus
1. Chi-Kang Lu, CEO and Director US$115,000 -
2. Tsung-chun Chiu, CFO and Director US$60,000 -
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 21, 1995, Mr. Chun-Shin Wu, a member of the Board of Directors of
Qualyserve, loaned Qualyserve the principal amount of $97,304.50 to be used as
working capital. The loan is without interest and is payable to Qualyserve.
On January 17, 1995, Mr. Jung-sheng Mah, a member of the Board of Directors of
Qualyserve, loaned the Company the principal amount of $186,727 to be used as
working capital. The loan is without interest and is payable Qualyserve.
On March 20, 1995, Mr. Chan-Ching Yen, a member of the Company's Board of
Directors of Qualyserve, loaned the Company the principal amount of $12,447 to
be used as working capital. The loan is without interest and is payable to
Qualyserve.
On July 31, 1995, Mr. Chin-Houg Tsai, a member of the Company's Board of
Directors of Qualyserve, loaned the Company the principal amount of $4,363,636
to be used as working capital. The loan is without interest and is payable to
Qualyserve.
Payable to stockholders current: advance from stockholders, with no
interest, no schedule for repayment. The use of transactions with related
parties is for operation capital.
Maximum amount Balance at
Year Related Parties during the Year Year end
- ---- --------------- --------------- ----------
1994 Chan, Chien-Hue $1,155,720.38 $ -
<PAGE>
ITEM 8. LEGAL PROCEEDINGS
The Company may from time to time defend various claims and legal
actions in the ordinary course of its operations. Management believes that there
are currently no such claims or actions that will have a material effect on the
Company's financial position or results of operations.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Common Stock was publicly traded in the over-the-counter market and
was listed in the "pink sheets" maintained by members of the National
Association of Securities Dealers, Inc. from April 1989 through 1990.
There were no bids on the Common Stock from that time until June of 1996.
The Common Stock began trading again on the over-the-counter market
maintained by members of the National Association of Securities Dealers, Inc. in
June of 1996. Since that date, J. Alexander Securities, the only market maker,
reports that it is quoting the stock at $.50 bid,$1.00 offered and no trades
have occurred since June of 1996. There are 4,856 shareholders of record of the
Company on December 23, 1996.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
In June of 1996, the Company acquired 97% of the issued and
outstanding shares of common stock of Qualyserve in exchange for an aggregate of
19,846,000 shares of Common Stock issued to the former shareholders of
Qualyserve pursuant to a share exchange agreement by and among the Company,
Qualyserve and the shareholders of Qualyserve.
The Company relied on Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act") in that such transactions did not involve a
public offering and were thus exempt from the registration requirements of the
Securities Act. Each investor was able to fend for himself in the transaction,
and each investor was furnished with information concerning the proposed
operations of the Company and had the opportunity to verify the information
supplied.
<PAGE>
ITEM 11. DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 50,000,000 shares of common stock,
par value $.00001 per share (the "Common Stock"). Each share of Common Stock is
entitled to one vote at all meetings of shareholders. The By-Laws of the Company
prohibit cumulative voting in the election of directors. All shares of Common
Stock are equal to each other with respect to liquidation rights and dividend
rights. In the event of liquidation, dissolution or winding up of the Company,
holders of the Common Stock will be entitled to receive, on a pro rata basis,
all assets of the Company remaining after satisfaction of all liabilities. There
are no preemptive rights to purchase additional shares of Common Stock.
Holders of Common Stock are entitled to receive dividends if and when
declared by the Board of Directors out of funds legally available therefore.
Preferred Stock
The Company's Certificate of Incorporation authorize 10,000,000 shares
of preferred stock, par value $.00001 per share (the "Preferred Stock"). The
Certificate of Incorporation also provides that Preferred Stock may be issued in
one or more series as may be determined from time to time by the Board of
Directors. All shares of any one series of Preferred Stock will be identical
except as to the date of issue and dates from which dividends on shares of the
series issued on different dates will cumulate, if cumulative. The Certificate
of Incorporation also grants the Board of Directors the power to authorize the
issuance of one or more series of Preferred Stock, and to fix by resolution or
resolutions providing for the issue of each such series the voting powers,
designations, preferences, and relative, participating, optional, redemption,
conversion, exchange or other special rights, qualifications, limitations or
restrictions of such series, and the number of shares in each series, to the
full extent now or hereafter permitted by law.
Anti-Takeover Provisions
The Company's Certificate of Incorporation and Section 203 of the
Delaware General Corporation Law (the "DGCL") contain certain provisions that
may make the acquisition of control of the Company by means of a tender offer,
open market purchase, proxy fight or otherwise more difficult.
Business Combinations. The Company is a Delaware corporation and is
subject to Section 203 of the DGCL. In general, subject to certain exceptions,
Section 203 of the DGCL prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless upon consummation of such transaction,
the interested stockholder owned 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding for purposes of
determining the number of shares outstanding those shares owned by (x) persons
who are directors and also officers and (y) employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer)
or unless the business combination is, or the transaction in which such person
became an interested stockholder was, approved in a prescribed manner. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or,
in the case of affiliates and associates of the issuer, did own within the last
three years) 15% or more of the corporation's voting stock other than a person
who owned such shares on December 23, 1987.
<PAGE>
Indemnification. The Certificate of Incorporation provides that the
Company shall advance expenses to and indemnify each director and officer of the
Company to the fullest extent permitted by law and will limit the liability of
directors to corporations and their stockholders for monetary damages in certain
circumstances.
ITEM 12. INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
The Certificate of Incorporation of the Company provides for the
indemnification of officers, directors, agents and employees of the Company to
the fullest extent permitted by the General Corporation Law of the State of
Delaware ("Delaware Code"). Pursuant to Section 145 of the Delaware Code, the
Company generally has the power to indemnify its present and former directors,
officers, employees and agents against expenses incurred by them in connection
with any suit to which they are, or are threatened to be made, a party by reason
of their serving in such positions so long as they acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, the best interests
of the Company, and with respect to any criminal action, they had no reasonable
cause to believe their conduct was unlawful. The Company has the power to
purchase and maintain insurance for such persons. The statute also expressly
provides that the power to indemnify authorized thereby is not exclusive of any
rights granted under any bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise.
The above discussion of the Company's Certificate of Incorporation and
of Section 145 of the Delaware Code is not intended to be exhaustive and is
qualified in its entirety by such Bylaws and the Delaware Code.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
<PAGE>
ITEM 13. FINANCIAL STATEMENTS
Index to Financial Statements
Interim Financial Statements of Goung Hei Investment Co., Inc. (Unaudited)
F-1 Compilation Report
F-2 Balance Sheets as of September 30, 1996
F-3 Consolidated statements of Income for the Nine Months Ended September
30, 1996
F-4 Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995
F-6 Statements of Changes in Shareholders' Equity (Deficit) for the Nine
Months Ended September 1996 (Deficit)
F-7 Notes to Financial Statements
Financial Statements of Qualyserve Construction Co., Ltd.(Audited)
F-1 Independent Auditors' Report
F-1 Balance Sheets as of December 31, 1995 and 1994
F-2 Statements of Income for the Years Ended December 31, 1995
and 1994
F-2 Statements of Shareholders' Equity (Deficit) for the Years Ended
December 31, 1995 and 1994
F-2 Statements of Cash Flows for the Years Ended December 31, 1995
and 1994
F-24 Notes to Financial Statements
Financial Statements of Potentialistics, Inc. (Audited)
F-37 Independent Auditors' Report
F-38 Balance Sheets as of December 31, 1995, 1994 and 1993
F-39 Statements of Operations for the Years Ended December 31,
1995, 1994 and 1993
F-40 Statements of Shareholders' Equity(Deficit) for the Years Ended
December 31, 1995, 1994 and 1993
F-41 Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993
F-42 Notes to Financial Statements
<PAGE>
Compilation Report
To the Stockholders
GOUNG HEI INVESTMENT CO., LTD.
The accompanying PRO FORMA consolidated financial statements of Goung
Hei Investment CO., Ltd. and it's subsidiary Qualyserve Construction
CO., Ltd. at the end of September 30,1996 are compiled by us. These
PRO FORMA consolidated financial statements include balance sheets,
the related statements of income, retained earnings, and cash flows
for the years then ended.
These PRO FORMA consolidated financial statements were compiled by
referring the pro forma stock-holding data of parent-subsidary which
were provided by the Company's management.
We don't audit or re-investigate the financial statements, so we could
not express any opinion or any guaranty on these financial statements.
----------------------------------
HORWATH & COMPANY
Certified Public Accountants
A member of Horwath International
Kaohsiung, Taiwan, R.O.C.
December 10, 1996
<PAGE>
GOUNG HEI INVESTMENT CO., LTD.AND SUBSIDIARY
CONSOLIDATED PROFORMA BALANCE SHEET
September 30,1996
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LIABILITIES i(R)
A S S E T S Amount % STOCKHOLDERS EQUITY Amount %
------------------------ -------------- ------- ------------------------------ -------------- -------
CURRENT ASSETS CURRENT LIABILITIES
SHORT-TERM LOANS(NOTE8) $4,148,126 6.99
CASH & CASH EQUIVALENTS
(NOTE4) $85,866 0.14 NOTES & ACCOUNTS PAYABLE 4,615,130 7.78
NOTES & ACCOUNTS
RECEIVABLE-ENT(NOTE5) 7,233,750 12.21 ACCRUED EXPENSES 239,462 0.40
OTHER RECEIVABLES 1,035,284 1.75 INCOME TAX-PAYABLE 47,319 0.08
INVENTORIES(NOTE6) 4,844,612 8.17 OTHER PAYABLES 87,690 0.15
PREPAYMENTS 264,224 0.45 ADVANCE FROM CUSTOMERS 1,920,859 3.24
PLEDGED TIME DEPOSIT (NOTE10)
(NOTE3) 536,953 0.91 LONG-TERM LOANS-CURRENT PORTION 1,055,862 1.78
-------------- ------- (NOTE9)
TOTAL CURRENT ASSETS $14,002,689 23.60 ------------- -------
-------------- ------- TOTAL CURRENT LIABILITIES $12,114,448 20.42
PROPERTY,PLANT & EQUIPMENT
(NOTE7) ------------- -------
COST $45,818,910 77.25
LESS: ACCUMULATED
DEPRECIATION(NOTE7) (662,345) (1.12) LONG-TERM LIABILITIES
-------------- ------- LONG-TERM LOANS(NOTE9) $15,825,410 26.68
NET PROPERTIES(NOTE7) $45,156,565 76.13 ------------- -------
-------------- ------- TOTAL LONG-TERM LIABILITIES $15,825,410 26.68
OTHER ASSETS ------------- -------
REFUNDABLE DEPOSITS $153,138 0.26 OTHER LIABILITIES
--------------- ------- GUARANTEE DEPOSIT RECEIVED 1,077,677 1.82
TOTAL OTHER ASSETS $153,138 0.26 PAYABLE TO STOCKHOLDERS - 2.00
--------------- ------- ------------- -------
TOTAL OTHER LIABILITIES 2,265,889 3.82
------------- -------
TOTAL LIABILITIES 30,205,747 50.93
------------- -------
MINORITY INTEREST $87,048 0.15
------------- -------
STOCKHOLDERS EQUITY
CAPITAL STOCK(NOTE11) 120 0.00
UNAPPROPRIATED EARNINGS
(NOTE12) 37,430 0.06
CAPITAL SURPLUS 28,891,235 48.71
EQUITY ADJUSTMENT ON
TRANSLATION 90,812 0.15
(NOTE2) ------------- -------
TOTAL STOCKHOLDERS EQUITY $29,019,597 48.93
------------- -------
TOTAL LIABILITIES &
TOTAL ASSETS $59,312,392 100.00 STOCKHOLDERS' EQUITY $59,312,072 100.00
============== ======= ============= =======
</TABLE>
<PAGE>
GOUNG HEI INVESTMENT CO., LTD.AND SUBSIDIARY
CONSOLIDATED PROFORMA STATEMENT OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30,1996
(EXPRESSED IN US DOLLARS)
I T E M S Amount %
------------------------------------- -------------- -------
OPERATING REVENUES $13,575,625 100.00
COST OF GOODS SOLD 12,186,931 89.77
------------- -------
GROSS PROFIT $1,388,694 10.23
OPERATION EXPENSES 390,536 2.88
-------------- -------
INCOME FROM OPERATIONS $998,158 7.35
NON-OPERATING INCOME 162,127 1.19
NON-OPERATING EXPENSES (971,011) (7.15)
--------------- -------
INCOME BEFORE INCOME TAX $189,274 1.39
PROVISION FOR INCOME TAX(NOTE15) 47,319 0.35
--------------- -------
COMBINED INCOME $141,955 1.05
MINORITY INTEREST INCOME (113) (0.00)
PURCHASED PREACQUISITION EARNINGS (104,412) (0.77)
--------------- -------
CONSLIDATED NET INCOME AFTER INCOME TAX $37,430 0.28
=============== =======
Earnings Per share of common stock: $0.003
Earnings per share(NOTE16) ===============
<PAGE>
GOUNG HEI INVESTMENT CO., LTD.AND SUBSIDIARY
CONSOLIDATED PROFORMA STATEMENT OF CASH FLOWS
For the years ended September 30, 1996
(Expressed In us Dollars)
Items 1996
- ---------------------------------------- --------------
1. Cash flows from operating activities
Net income $37,430
adjusted to
Bad debts 4,658
Depreciation 249,412
Increase in notes and accounts 1,165,046
receivable
Increase in other receivable (825,076)
Increase in inventories (343,310)
Increase in prepayments (133,706)
Increase in notes and accounts (1,052,660)
payable
Decrease in accrued expenses 63,264
Increase in income tax payable (205,233)
Increase in other payables (186,784)
Increase in advance from customers (130,184)
Purchased acquisition earning 104,412
Minority interest income 113
--------------
Cash used for operating ($1,252,618)
activities
--------------
2. Cash flows from investing activities
Acquisitions of properties ($2,703,129)
Increase in refundable deposits (121,372)
Increase in pledged time deposit (365,707)
--------------
Cash used for investing ($3,190,208)
activities --------------
<PAGE>
Items 1996
- ---------------------------------------- --------------
3. Cash flows from financing activities
Borrowing short-term loans ($2,480,419)
Borrowing long-term loans 5,900,736
Increase in payable to stockholders 794,754
current
Increase in guarantee deposit (12,655)
received --------------
Cash provided by financing $4,202,416
activities
--------------
4. Effect of exchange rate changes 90,812
on cash
--------------
5. Net increase in cash and cash ($149,898)
equivalents
6. Cash and Cash equivalents at 235,764
beginning of year
--------------
7. Cash and Cash equivalents at end $85,866
of year
==============
Interest paid in 9/30/1996 was approimately $914,440.Income tax paid in
9/30/1995 was $245,665. Non-affecting cash flows of investing and financing
activity in 9/30/1996 of $1,055,862 The non-cash activity related to the
company's investing and financing activity is described in note 9.
The accompanying notes are an integral part of these statements
<PAGE>
GOUNG HEI INVESTMENT CO., LTD. AND SUBSIDIARY
CONSOLIDATED PROFORMA STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY For the years ended September 30, 1996
(Expressed In United State Dollars)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CAPITAL ISSUED CAPITAL SURPLUS RETAINED EARNINGS
------- ------ ------------------- ---------------------------------------
STOCK Revaluation Increment Appropriated Unappropriated Equity Total
on on Stockholder's
Shares Amount Properties Other Total Earnings Earnings Total Translation Adjustment
Equity
------ ------ ------------- -------- ------------ --------- -------- ----- ----------- -----------
Balance at December
31, 1995 - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Cash stock(Note 11) 12,000,000 120 - 28,891,235 28,891,355 - - - - 28,891,355
Net income for 1995 - - - - - - 37,430 37,430 - 37,430
Effect of Foreign
Currency - - - - - - - - 90,812 90,812
Translation Changes ---------- ----- ------------- ----------- ---------- ------------ ------- ------- ------- ----------
Balance at September 12,000,000 $120 $ - $28,891,235 28,891,355 $ - $37,430 $37,430 $90,812 $29,019,597
30, 1995 ========== ==== ============= =========== ========== ============ ======= ======= ======= ==========
</TABLE>
<PAGE>
GOUNG HEI INVESTMENT CO., LTD.AND SUBSIDIARY
NOTES TO CONSOLIDATED PROFORMA FINANCIAL STATEMENTS
September 30, 1996
(Amounts Expressed In Us Dollars)
1. Introduction
Our corporation's principal business is to develop and acquire leading
steel technologics, including steel construction equipment and strip roil &
sheet, The future objective will be capable of providing materials for
aero-space and computer parts. We currently owns and operates Qualyserve
Construction Co.Ltd., Kanhsiung, Taiwan, Republic of China, Which forms the
initial base for the growth of the company. The Qualyserve construction
co.,Ltd. was incorporated on August 2,1989. It engages in manufacturing,
reprocessing, designing and marketing of structure steel products and
related equipment.
2. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company, which conform to
accounting principles generally accepted in the USA, are summarized as
follows:
(a) CLASSIFICATIONS OF CURRENT AND UNCURRENT ITEMS
The time period for classifying items as current or long-term is
operating cycle (usually about 1-2 years).
The threshold for classifying current or long-term items is operation
cycle, ranging from one year to two years.
(b) CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, all highly liquid debt
instruments purchased with a maturity of three months or less are treated as
cash equivalents.
(c) ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts are provided according to the
judgement of the management, which is sufficient to cover all possible bad
debt losses.
(d) INVENTORIES
Inventories are costing by each of the construction projects and stated
at weighted average cost.
At end of the years, the inventories are evaluated at lower of cost or
market price (LCM).
Construction in process represents net realized value.
<PAGE>
(e) PROPERTIES
Fixed assets are stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line method using the guideline
service lives prescribed by the government which approximately estimated
useful lives.
Major renewals and betterments are capitalized, while maintenance and
repairs are expensed currently.
Upon sale or disposal of properties, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss is credited
or charged to income.
(f) APPROPRIATED EARNINGS AND CAPTIAL SURPLUS
The Articles of Incorporation of the Company provide that 10% of its
annual net income should be set aside asappropriated earnings until the
accumulated surplus have equalled the company's paid-in capital. This
approprited eranings may be used to offset a deficit. Capital surplus shall
not be appropriated for uses other than for offsetting of deficit or
transferring to contributed capital.
(g) RECOGNIZED METHOD ON OPERATING REVENUES
Construction Revenues:
The Company recognizes the construction revenue by applying the
Completed-Contract Method while the contract will be completed within one
year; The other applys the Percentage of Completion Method.
Sales Revenues:
Revenues and gains are recognized as most of profit-making processes
have been achieved realized or can be realized.
(h) INCOME TAX
Income tax is provided based on estimated income tax currently payable.
Adjustments of tax liabilities of prior years are added to or deducted from
in the current year's tax provision.
The Company adopted SFAS 109, "Accounting for Income Tax," which requires
the Company to recognize deferred tax liabilities for influences result
from taxable temporary differences, to recognize deferred tax assets for
influences result from deductably temporary difference, loss deduction and
tax deduction, and to estimate allowance by evaluating the possibility of
realization of deferred tax assets.
<PAGE>
(i) PENSION PLAN
The company adopted SFAS 87 "Accounting for Pensions" which requires the
company to recognize accured pension costs. The date of September 30, 1996
is used as the measured date for actuarial purpose. The company disclosed
the minimum pension liabilities on balance sheets in September 30, 1996. The
company did not set up any pension plan until the year of 1995.
(j) THE EQUITY ADJUSTMENT ON TRANSLATION OF FOREIGN CURRENCY
Foreign currency financial report translation based on FASB Article
No.52. All the assets and debts are all followed the exchange rate on the
date of balance sheets. The equity of stockhialer's includes the initial
retained earnings according to the balance of the last final period and
carry forward. The rest woll be exchanged by the historical rate. The
dividend will be calculated by the rate of declare day. Fuuthermore, the
item of profit and loss will follow the rate of weighted average at that
period. About the exchange balance after calculation, it will be listed in
the equity adjustment in translation of foreign currency in order to be the
adjustment item for the stockholder equity.
(K) ACCOUNTING ARRANGEMENT FOR INTERIM FINANCIAL STATEMENT
It should be adjusted cost and expenditure before register account in
the end of fiscal year.In the Interim Report should also estimate this
adjusted amount and divide it into every interim period according to proper
basis.
3. ASSETS MORTGAGED OR PLEDGED
The following assets have been mortgaged or pledged as collateral's for
long-term and short-term loans.
Accounts 9/30/96
---------------------- --------------
Pledged time deposit $538,953
Land 32,910,865
Buildings 4,246,156
Notes Receivable 3,426,737
--------------
Total $41,122,711
==============
4. CASH AND CASH EQUIVALENTS
Accounts 9/30/96
------------------------- --------------
Cash on hand $7,550
Bank Deposit 78,316
--------------
Total $85,866
==============
<PAGE>
5. NOTES AND ACCOUNTS RECEIVABLE-NET
Accounts 9/30/96
------------------------- --------------
Notes receivable $3,426,737
Accounts receivable 3,912,442
--------------
Subtotal $7,339,179
Less:Allowance for doubtful
accounts (105,429)
--------------
Net Amount $7,233,750
==============
Our company's notes and accounts receivable derive from construction
pursuant to our operation terms usually 1 to 2 years
to form the basis for current and not current.
6. INVENTORIES
Accounts 9/30/96
------------------------- --------------
Materials $2,689,473
Construction in process 11,308,623
Less: Advance from
customers (9,153,484)
--------------
Net of inventories $4,844,612
==============
Summary of Construction in process:
<TABLE>
<CAPTION>
<S> <C>
9/30/96
----------------------------------------------------
Construction in Advance from
Items Process Customers Net
------------------------------- ---------------- ---------------- -------------
Thermo-power plant in Taichon $7,744,803 $6,401,777 $1,343,026
Bureau of Commodity Inspection 1,471,104 1,167,156 303,948
& Quarantine in Chizi
Kaohsiung Finance and Tax 35,815 10,976 24,839
Building
Steel Construction-N.R.S-m.s.s 1,128,460 895,418 233,042
Project for CHUNGHWA PICTURE
TUBES,LTD 691,054 651,939 39,115
TAL-SH IN TAINUN 114,439 114,439
SUN MOVIE CITY 122,948 26,218 96,730
------------ ------------ -----------
Total $11,308,623 $9,153,484 $2,155,139
============ ============ ===========
</TABLE>
<PAGE>
7. PROPERTY, PLANT AND EQUIPMENT
Cost 9/30/96
------------------------ --------------
Land $34,642,486
Building 4,194,049
Machinery and equipment 3,264,661
Transportation equipment 255,358
Furniture and fixtures 149,864
Miscellaneous equipment 114,837
Advance payments on land & 3,197,655
buildings purchases
--------------
sub-total $45,818,910
--------------
Accumlated depreciation
------------------------
Building $84,442
Machinery and equipment 369,072
Transportation equipment 74,883
Miscellaneous equipment 133,948
--------------
Sub-total $662,345
--------------
Net $45,156,565
==============
8. SHORT TERM LOANS
9/30/96
--------------
Credit loans,due in June 28,1997 - variable interest rate
(9.275% at September 30,1996),payable in monthly interest $72,727
Usance loans,due in March 23,1997 -variable interest rate
(9.68% at September 30,1996),payable in monthly interest 1,439,071
Usance loans,due in November 29,1996 -variable interest rate
(9.275% at September 30,1996),payable in monthly interest 290,909
Usance loans,due in February 17,1997 -variable interest rate
(8.475% at September 30,1996),payable in monthly interest 1,436,329
Note,due in January 27,1997 -variable interest rate
(9.15% at September 30,1996),payable in monthly interest 363,636
Note,due in January 20,1997 -variable interest rate
(8.475% at September 30,1996),payable in monthly interest 545,454
-----------
$4,148,126
<PAGE>
9. Long Term Loan and Long Term Liability Due Within One Year
<TABLE>
<CAPTION>
<S> <C>
9/30/96
--------------
A. Bank:
(1)Land and Building Mortage from Bank of Taiwan-Kang Shan Bra. $11,381,818
Rating:(US$1.00:NT$27.5 appr.)
Principal:US$12,618181(up to September,1996 US$11,381,818) Interest
Rate:Basic Loan Rate + 1% Monthly paid. First 2 year do not return the
principal but only interest. Principal paid every 3 months from Oct.
21,1997 to July 21st, 2005 by 32 payments. The interest rate on June
30,1996 is 8.95%
(2)Crehit Loan-Taiwan Cooperative Bank Kang Shan Branch 363,636
Principal:US$362,976
Interest Rate:Floating(September 30,1996 8.282%) Period: May 10,1996 to
May 10,1997 The Bank agree to amend the contract when expire.
(3)Credit Loan-Taiwan Business Band Chou-Ju Branch $1,818,181
Principal:US$1,814,882
Interest Rate:Floating(September 30,1996 9.68%) Period:March 14,1996 to
Dec 21,1996 The Bank agree to amend the contract when expire.
(4)Bank Note Loan-Taiwan Cooperative Bank Kang Shan Branch 436,364
Principal:US$435,571
Interest Rate:Floating(September 30,1996 8.271%) Period:May 10,1996 to
May 10,1997 The Bank agree to amend the contract when expire.
(5)Loan for House-Chung shing bank Yung Chi Branch 789,762
Principal:US$790,909
Interest Rate:Floating(September 30,1996 9.25%)
Period:August 9,1996 to August 9,2096
B. Other:
(6)Wha-Sia Renting Co., Ltd. 1,137,218
Loan for Machinery and Transpotation Equipment
Principal:US$1,516,291
Payment:Bank Note in accordance to the payment date.
Principal paid every three months from Feb.6,1996 to Feb.
2,1998 by 8 payments. The principal will be returned
NT$5,212,250 for each payment. Interest Rate: 90 days bank
note + 4.5% Monthly. The interest rate on September 30 1996 is
10.95%
(7)Wha-Sia Renting Co., Ltd. 449,455
Loan for Machinery Equipment
Principal:US$599,273
Payment:Bank Note in accordance to the payment date.
Principal paid every three months from March 12,1996 to
March 12,1998 by 8 payment. The pricipal will be returned
NT$2,060,000 for each payment.
Effective Interest Rate: 90 days bank note + 4.5% Monthly.
The interest rate on September 30,1996 is 10.%
<PAGE>
(8)Central Leasing Co., Ltd. 504,838
Principal:US$757,257(Sep.1996 US$504,838)
Payment: Principal paid by 6 payment
The interest rate is 10.59%
Total Long Term Liability $16,881,272
MINUS: Long Term Loans-current Portion (1,055,862)
-------------
Net Long Term Liability $15,825,410
=============
</TABLE>
10. ADVANCES FROM CUSTOMERS
<TABLE>
<CAPTION>
<S> <C> <C>
9/30/96
----------------------------------------------------
Advances from Construction in
Items Customers Process Net
------------------------------- ---------------- ----------------
----------------
Construction in Chunshi $133,843 $53,181 $80,662
Hospital
Flight stop Construction in 2,266,872 649,229 1,617,643
CKS airport, Taoyuan Taiwan
Projects of NRS MSS in 347,211 320,371 26,840
Malaysia
Remodeing of Taipei Bridge 1,007,174 974,597 32,577
Remodeing of Jungsa Building 40,168 19,959 20,209
Stair
Parking lot Markro 2,969,756 2,826,828 142,928
Supermarket in Nehu, Taipei
Taiwan
---------------- ---------------- ---------------
Total $6,765,024 $4,844,165 $1,920,859
================ ================ ===============
</TABLE>
<PAGE>
11. CAPITAL STOCK
(1) As of December 31,1995, the amount borrowed from
shareholders is US$15,488,815.Qualyserve Construction Co.,
Ltd.,Kaohsiung hae not paid off this loans.On April 30,1996,
the shareholders and Mr.Lu Cui-Kang, the representative of
Goung Hei Investment Co.,Ltd.reached the contract that the
advances from shareholders was going to be converted to hold
the stocks of equivalent value.
(2) The shareholders of Qualyserve Construction Co., Ltd.,
Kaohsiung, Taiwan (QCC) has transferred their stockholders
equity to Goung Hei Investment Corporation. The amount is
US$ 13,489,475.
(3) Company issued new 10,131,609 shares to Goung Hei's .
shreholders in exchange for all of Goung Hei's common stock
( the capital stock is $30,000,000. $1 par value) ,
(4) To sum up, the Company shall become the owner of 100%
of Goung Hei's outstanding common stock and the Goung Hei
shall become the owner of 99.7% of Qualyserve construction Co.,Ltd.
12. RETAINED EARNINGS
(1) The Articles of Incorporation of the Company provide that
10% of its annual net income to be set aside as appropriated
earnings until the accumulated reserve equals to the
Company's capital stock. This appropriated earnings may be used to
offset the deficit.
The net income, after setting aside the appropriated earnings, shall
be appropriated according to the results of stockholders
meeting.
<PAGE>
13. MISCELLANEOUS GAIN
Items 9/30/96
------------------------------ ----------------
Withhold from payable $30,896
25,574
----------------
Total $56,470
================
14. INTEREST EXPENSES
Items 9/30/96
------------------------------ ----------------
Interest expenses $1,278,076
Less: Interest capitalized (363,636)
----------------
Net $914,440
================
15. INCOME TAX
Items 9/30/96
------------------------------ ----------------
Provision for income tax $47,319
----------------
INCOME TAX $47,319
================
16. EARNING PER SHARE(EPS)
Items 9/30/96
------------------------------ ----------------
Net income $37,430
Weighted average
number of shares
outstanding 12,000,000
----------------
EARNINGS PER SHARE $0.003
================
<PAGE>
17. RELATED PARTY TRANSACTIONS
(A) Titles and relationship of related parties
Title Relationship with the Company
------------------------------ ----------------------------------
Chun-Shin Wu President of Board of Directors
of Qualyserve Construction
Chin-Hong Tsai Member of the Board of Directors
of Qualyserve Construction
Jung-Sheng Mah Member of the Board of Directors
of Qualyserve Construction
Chung-Ching Yen Member of the Board of Directors
of Qualyserve Construction
(B) Transaction with Related Parties
Payable to stockholders current: advance from stockholders,
with no interest.
Maximum amount Ending Balance as
Related Parties during the June of September 30, 1996
------------------------------ ---------------- ----------------------
Chun-Shin Wu $1,991,263 $565,354
Jung-Sheng Ma 1,722,996 -
Chung-Ching Yen 732,235 -
Chin-Houg Tsai 1,303,583 622,858
<PAGE>
18. CONTRACT
The our company's major construction contracts and detailed total costs are
listed below:
(1) September 30,1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Construction Name Agreement Price Estimated Completion Estimated Accumulated Method of
Total Cost Percentage C.year Profit&loss Subcription
- ---------------------------------------------------------------------------------------------------------------------------------
KuanLi-Taichuang 8,063,728 7,660,727 98.77% 1996 177,941 Percentage
Power Plant of C. Method
- ---------------------------------------------------------------------------------------------------------------------------------
Hsitsu Commerce 1,815,595 1,455,164 83.33% 1996 258,532 Percentage
Inspection Bureau of C. Method
- ---------------------------------------------------------------------------------------------------------------------------------
C.K.S Airport 2,702,446 2,181,040 24.71% 1996 110,369 Percentage
Terminals of C. Method
- ---------------------------------------------------------------------------------------------------------------------------------
Neihu Macro 3,095,051 2,870,024 91.60% 1996 197,878 Percentage
Parking Lot of C. Method
- --------------------------------------------------------------------------------------------------------------------------------
Taipei Bridge 1,021,648 947,369 95.67% 1996 68,222 Percentage
constrcection of C. Method
- --------------------------------------------------------------------------------------------------------------------------------
NRSi-DMSS 1,217,792 1,129,257 92.93% 1996 78,992 Percentage
construction f C. Method
- --------------------------------------------------------------------------------------------------------------------------------
C: Completion
</TABLE>
<PAGE>
Independent Auditor's Report
To the Stockholders
QUALYSERVE CONSTRUCTION CO., LTD.
We have audited the accompanying balance sheets of QUALYSERVE CONSTRUCTION CO.,
LTD. as of December 31, 1995 and 1994, and the related statements of income,
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our resposibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with USA's generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the fianacial statements are free of material
misstatements . An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of QUALYSERVE CONSTRUCTION CO.,
LTD. as of December 31, 1995 and 1995 and 1994 and the results of its operations
and its cash flows for the years then ended, in conformity with USA's generally
accepted accounting principles.
- ----------------------------------
HORWATH & COMPANY
Certified Public Accountants
A member of Horwath
International Kaohsiung, Taiwan, R.O.C.
April 15, 1996
<PAGE>
QUALYSERVE CONSTRUCTION Co., Ltd.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Expressed In United State Dollars)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1995 1994 1995 1994
------------ ----- ----------- ----- ---------- ----- ----------- -----
A S S E T S Amount % Amount % LIABILITIES AND Amount % Amount %
STOCKHOLDERS' EQUITY
- ------------------ ------------ ----- ----------- ----- -------------------------- ---------- ----- ----------- -----
CURRENT ASSETS CURRENT LIABILITIES
Short-term loans(Note 8) $6,628,544.95 11.75 $ 921,904.76 14.35
Cash and cash
equivalents $ 235,764.08 0.42 $ 437,091.89 6.80 Notes and accounts payable 5,667,790.41 10.05 1,768,916.11 27.53
(Notes 2 and 4) Accrued expenses 176,198.49 0.31 189,177.30 2.94
Notes and accounts 8,403,453.65 14.91 4,221,168.83 65.70 Income tax payable 252,552.11 0.45 150,005.87 2.33
receivable-Net
(Notes 2 and 5) Other payables 274,473.74 0.48 - -
Other receivable 210,207.97 0.37 28,623.29 0.45 Advance from customers 2,051,043.45 3.64 999,142.59 15.55
Inventories (Nete 10)
(Notes 2 and 6) 4,501,301.62 7.98 157,426.04 2.45 Long-term loans-current 343,141.76 0.61 - -
portion (Note 9) ------------ ----- ----------- ------
Prepayments 130,517.59 0.23 20,611.78 0.32
Pledged bank
deposit Total Current Liabilities $15,393,744.91 27.28 $4,029,146.63 62.71
(Notes 3) 171,245.80 0.30 - - ------------- ----- ------------ ------
------------ ---- ----------- -----
Total Current LONG TERM LIABILITIES
Assets $13,652,490.71 24.22$4,864,921.83 75.72 Long term loans (Note 9) $10,637,394.42 18.86 $ - -
------------- ----- ------------ ----- ------------- ----- ------------ ------
PROPERTY, PLANT AND EQUIPMENT
Cost $43,115,781.45 76.45$1,815,533.35 28.26 Total Longterm Liabilities $10,637,394.42 18.86 $ - -
Less:Accumulated (412,933.27)(0.73) (288,763.90)(4.49) ------------- ----- ------------ ------
depreciation OTHER LIABILITIES
------------- ----- ------------ ----- Guarantee deposit $ 1,090,341.54 1.93 $ - -
Net Properties $42,702,848.18 75.72$1,526,769.45 23.76 received
(Notes 2 and Payable to stockholders 15,642,095.04 27.75 - -
note7) ------------- ----- ------------ ----- current (Note 21)
INTANGIBLE ASSETS Pension liability
Deferred pension (Note 2.11) 10,745.50 0.03 - -
cost $ 10,745.50 0.02 $ - - ------------- ----- ------------ ------
------------- ----- ----------- ----- Total Other Liabilities $16,743,182.08 29.71 $ - -
------------- ----- ------------ ------
Total Intangible
Assets $ 10,745.50 0.02 $ - - Total Liabilities $42,774,321.41 75.84 $4,029,146.63 62.71
------------- ----- ----------- ----- ------------- ----- ------------ ------
OTHER ASSETS STOCKHOLDERS' EQUITY
Refundable Capital stock;$10
deposits $ 31,766.44 0.06 $ 33,009.56 0.51 par value (Note 13) $7,329,321.99 13.00 $1,940,758.94 30.21
Capital surplus(Note 2) 5,388,563.05 9.55 - 0.00
(Note 5) - - 120.65 0.01 Appropriated earnings
------------- ----- ----------- ----- (Note 2) 38,819.74 0.07 242.76 0.00
Total Other Unappropriated earnings
Assets $31,766.44 0.06 $ 33,130.21 0.52 (Note 16) 897,855.57 1.59 385,769.75 6.00
------------- ----- ---------- ----- Equity adjustment on
translation (Note 2) (31,030.93) (0.06) 68,903.41 1.07
----------- ----- ---------- ------
Total Stockholders'
Equity $13,623,529.42 24.16 $2,395,674.86 37.29
------------- ----- ------------ ------
TOTAL LIABILITIES AND
TOTAL ASSETS $56,397,850.83 100.00 $6,424,821.49 100.00 STOCKHOLDERS' EQUITY $56,397,850.83 100.00 $6,424,821.49 100.00
============= ====== ============ ====== ============= ====== ============ ======
</TABLE>
The accompanying notes are an integral part of the financial statements
( with auditor's report dated April 15,1996)
<PAGE>
QUALYSERVE CONSTRUCTION Co., Ltd.
STATEMENTS OF INCOME
For the years ended December 31, 1995 and 1994
(Expressed In United State Dollars)
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
------------------------ ------------------------
Amount % Amount %
-------------- -------- -------------- --------
Operation Revenues(Note 2) $19,986,136.09 100.00 $11,246,701.12 100.00
Cost of Goods Sold 18,056,859.50 90.35 10,097,015.13 89.78
------------- ------ -------------- ------
Gross profit 1,929,276.59 9.65 1,149,685.99 10.22
Operation expenses 611,042.63 3.06 506,113.79 4.50
------------- ------ -------------- ------
Income from operations 1,318,233.96 6.60 643,572.20 5.72
Non-operating income 202,299.48 1.01 14,440.70 0.13
Non-operating expenses (633,296.22) (3.17) (98,248.61) (0.87)
------------- ------ -------------- ------
Income before income tax 887,237.22 4.44 559,764.29 4.98
Provision for income tax (336,574.42) (1.68) (151,802.69) (1.35)
(Note 19)
------------- ------ -------------- ------
Net income after tax $550,662.80 2.75 $ 407,961.60 3.63
============= ====== ============== ======
Earnings per share of common stock:
Earnings per share (Notes 20) $0.09 $0.08
==== ====
</TABLE>
The accompanying notes are an integral part of the financial statements
(with auditor's report dated April 15, 1996)
<PAGE>
QUALYSERVE CONSTRUCTION Co., Ltd.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31,1995 and 1994
(Expressed In United State Dollars)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CAPITAL
STOCK
ISSUED CAPITAL SURPLUS RETAINED EARNINGS
---------- -------------------------------- ----------------------------
Equity
Revaluation Increment Appropriated Unappropriated Adjustment Total
on Stockholder's
Shares Amount on Properties Other Total Earnings Earnings Total Translation Equity
---------- ------------- ------ --------- ----------- ---------- ----------- --------- ------------- ------------
Balance at
December
31,1993 5,200,000 $1,940,758.94 $ - $ - $ - $ 242.76 $ (22,191.85)$(21,949.09) $39,733.12 $1,958,542.97
Net income
for 1994 407,961.60 407,961.60 - 407,961.60
Effect of
Foreign
Currency 29,170.29 29,170.29
Translation
Changes
---------- ------------ ------ ----------- ------------ -------- ---------- ---------- ------------- -----------
Balance at
December
31,1994 5,200,000 $1,940,758.94 $ - $ - $ - $ 242.76 $385,769.75 $386,012.51$ 68,903.41 2,395,674.86
Cash stock 14,700,000 5,388,563.05 - 5,388,563.05 5,388,563.05 - - - 10,777,126.10
Legal
surplus
divided - - - - - 38,576.98 (38,576.98) - - -
Net income
for 1995 - - - - - - 550,662.80 550,662.80 - 550,662.80
Effect of
Foreign
Currency (99,934.34) (99,934.34)
Translation
Changes
---------- ------------ ------ ------------ ------------ ---------- ---------- ---------- ------------ ----------
Balance at
December
31,1995 19,900,000 $7,329,321.99 $ - $5,388,563.05 $5,388,563.05$38,819.74$897,855.57 $936,675.31 $ (31,030.93)$13,623,529.42
========== ============ ====== ============ ============ ========= ========== =========== ============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements
(with auditor's report dated April 15,1996)
<PAGE>
GOUNG HEI INVESTMENT CO., LTD.AND SUBSIDIARY
CONSOLIDATED PROFORMA STATEMENT OF CASH FLOWS
For the years ended December 31, 1995 and 1994
(Expressed In us Dollars)
Items 1995 1994
- ---------------------------------------- ------------ --------------
1. Cash flows from operating activities
Net income $ 550,662.80 $ 407,961.60
adjustments to Reconcil Net Income to
Net Cash used in Operating Activities:
Bad debts 69,822.14 39,048.38
Depreciation 138,496.30 81,349.73
Amortization 117.99 3,184.98
(Gain) or loss on disposal of fixed 609.99 -
assets
Increase in notes and accounts (4,249,284.90) (3,273,852.03)
receivable
Increase in other receivable (181,584.68) (22,704.81)
Decrease (Increase) in inventories (4,343.875.58) 5,780,944.62
Decrease (Increase) in prepayments (109,905.81) 113,008.77
Increase in notes and accounts 3,898,874.30 64,875.43
payable
Decrease in accrued expenses (12,978.81) 44,777.82
Increase in income tax payable 102,546.24 145,936.67
Increase in other payables 274,473.74 -
Increase in advance from customers 1,051,990.86 (3,355,929.87)
Foreign exchange gain(loss) (114,313.70) 34,104.64
-------------- -------------
Cash outflows from operating ($2,924,349.12) $71,705.93
activities
-------------- -------------
2. Cash flows from investing activities
Acquisitions of fixed assets ($41,301,228.82) ($1,083,985.94)
Increase in refundable deposits (1,243.12) (620.38)
Increase in pledged bank deposit (171,245.80) -
-------------- -------------
Cash provided (used) by investing ($41,473,717.74) ($1,084,606.32)
activities
<PAGE>
Items 1995 1994
- ---------------------------------------- --------------- --------------
3. Cash flows from financing activities
------------------------------------
Borrowing short-term loans $5,706,640.19 $360,527.52
Borrowing long-term loans 10,980,536.18 -
Increase in payable to stockholders 15,642,095.04 -
current
Increase in guarantee deposit 1,090,341.54 -
Issuance of cash stock 10,777,126.10 -
received -------------- ------------
Cash provided by financing $44,196,739.05 $360,527.52
activities
-------------- ------------
4. Net increase(decreasein cash and cash ($201,327.81) ($652,372.87)
equivalents
5. Cash and Cash equivalents at 437,091.89 1,089,464.76
beginning of year
-------------- ------------
6. Cash and Cash equivalents at end $235,764.08 $437,091.89
of year ============== ============
Interest paid in 1995 and 1994 was approimately $484,285.19 and 102,524. Income
tax paid in 1995 and 1994 were approximately $226,651.46 and 6,659.67.
Non-affecting cash flows of investing and financing activity in 1995 of
$341,886.21.
The accompanying notes are an integral part of these statements
<PAGE>
QIALYSERVE CONSTRUCTION Co., Ltd.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Amounts Expressed In United State Dollars,
Except Where Otherwise Stated)
1. GENERAL & ORGANIZATION
Qualyserve Construction Co., Ltd. (the Company) was incorporated on August
2, 1989. The Company is engaged in manufacture, reporocess, design and Sale of
all Kinds of industrial construction and equipments. Main Business:
Manufacturing various sort of steel structure, they follow the specialties and
process of manufacture, maketing, construction in order to belong to an
independent manufacturing department.
2. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company, which conform to
accounting principles generally accepted in the USA, are summarized as follows:
(a) CLASSIFICATIONS OF CURRENT AND UNCURRENT ITEMS
The time period for classifying items as current or long-term
is operating cycle (usually about 1-2 years).
(b) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, all highly
liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
(c) ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts are provided according
to the judgement of the management, which is sufficient to cover
all possible bad debt losses.
(d) INVENTORIES
Inventories are costing by each of the construction projects
and stated at weighted average cost.
At end of the years, the inventories are evaluated at lower
of cost or market price (LCM).
Construction in process represents net value.
(e)DEFERRED CHARGES
Deferred charges are amortized by the straight-line method
over five years.
<PAGE>
(f) PROPERTIES
Fixed assets are stated at cost less accumulated depreciation. Depreciation
is provided on the straight line method using the guideline service lives
prescribed by the government which approximatcly estimated useful lives.
Major renewals and betterments are capitalized, while maintenance and
repairs are expensed currently.
Upon sale or disposal of properties, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss is
credited or charged to income.
(g) APPROPRIATED EARNINGS AND CAPITAL SURPLUS
The Articles of Incorporation of the Company provide that 10% of its annual
net income should be set aside as appropriated eranings until the
accumulated surplus have equaled the company's paid-in capital. This
appropriated earnings may be used to offset a deficit. Capital surplus
shall not be appropriated uses other than for offsetting of deficit or
transferring to contributed capital.
(h) RECOGNITION METHOD OF OPERATING REVENUES
Construction Revenue:
The Company recognizes the construction revenue by applying the
Completed-Contract Method while the contract will be completed within one
year; The other by applying the Percentage of Completion Method. Sales
revenue: Revenues and gains are recognized as most of profit-making
processes have been achieved realized or can be realized.
(i) INCOME TAX
The Company adopted SFAS 109, "Accounting for Income Tax," which requires
the Company to recognize deferred tax liabilities for influences result
from taxably temporary differences, to recognize deferred tax assets for
influences result from deductably temporary difference, loss deduction and
tax deduction, and to estimate allowance by evaluating the realizability of
deferred tax assets.
(j) PENSION PLAN
The company adopted SFAS 87 "Accounting for Pensions" which requires the
Company to recognize accured pension costs. The date of December 31, 1995
is used as the measured date for actuarial purpose. The Company disclosed
the minimum pension liabilities on balance sheet of December 31, 1995. The
company did not set up any pension plan until the year of 1995.
(k) THE EQUITY ADJUSTMENT ON TRANSLATION OF FOREIGN CURRENCY
Foreign currency financial report translation based on FASB Article No.52.
All the assets and debts are all followed the exchange rate on the date of
balance sheets. The equity of stockholder's includes the initial retained
earnings according to the balance of the last final preiod and carry
forward. The rest will be exchanged by the historical rate. The dividend
will be calculated by the rate of declare day. Futhermore, the item of
profit and loss will follow the rate of weighted average at that period.
About the exchange balance atter calculation, it will be losted in the
equity adjustment in translation of foreign currency in order to be the
adjustment item for the stockholder equity.
<PAGE>
(l)ACCOUNTING ARRANGEMENT FOR INTERIN FINANCIAL STATEMENT
It should be adjusted cost and expenditure before register account in the
end of fiscal year. In the Interim Report should also estimate this
adjusted amount and divide it into every interim period according to proper
basis.
3. ASSETS MORTGAGED OR PLEDGED
The following assets have been mortgaged or pledged as collaterals for
long-term and short-term loans.
Accounts 1995 1994
-------------------- -------------- --------------
Pledged time deposit $ 171,245.80 $ -
Land 32,018,313.73 -
Buildings 3,586,651.49 -
Notes Receivable 1,607,986.71 $439,878.28
-------------- ----------
Total $ 37,384,197.73 $439,878.28
============== ==========
4. CASH AND CASH EQUIVALENTS
December ,31
--------------------------------
Accounts 1995 1994
----------------- -------------- --------------
Cash on hand $ 7,712.08 $5,998.32
Bank Deposit 228,052.00 431,093.58
------------ ------------
Total $ 235,764.08 $ 437,091.90
============ ============
5. NOTES AND ACCOUNTS RECEIVABLE-NET
December ,31
--------------------------------
Accounts 1995 1994
-------------------- -------------- -------------
Notes receivable $3,102,668.45 $730,008.64
Accounts receivable 5,407,259.24 3,530,634.15
------------ ------------
Subtotal $8,509,927.69 $4,260,642.79
Less:Allowance for
doubtful accounts (106,474.04) (39,473.96)
------------ ------------
Net Amount $8,403,453.65 $4,221,168.83
============ ============
Our company's notes and accounts receivable derive from
construction pursuant to our operation terms usually 1 to 2
years to form the basis for current and not current.
6. INVENTORIES
December ,31
------------------------------
Accounts 1995 1994
------------------------- -------------- --------------
Materials $2,586,442.09 $ -
Construction in progress 13,540,785.02 402,462.37
------------- ------------
Subtotal $16,127,227.11 $ 402,462.37
Less: Advance from
customers (11,625,925.49) (245,036.33)
-------------- ------------
Net of inventories $ 4,501,301.62 $ 157,426.04
============== ============
<PAGE>
Summary of Constructions in progress:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,1995
------------------------------------
Construction in Advance from
Items Progress Customers Net
------------------------------- ---------------- ------------- --------------
Thermo-power plant in Taichon $7,475,508.45 $6,253,262.43 $1,222,246.02
Bureau of Commodity Inspection 717,786.15 608,867.46 108,918.69
& Quarantine in Chizi
Remodeling of Taipei Bridge 929,223.58 925,932.72 3,290.86
Kaohsiung Finance and Tax 26,341.83 11,084.91 15,256.92
Building
Steel Construction-N.R.S-m.s.s 1,037,730.11 752,919.57 284,810.54
Parking lot-Wanklong 2,705,489.72 2,666,674.29 38,815.43
Supermarket in Nehu
Project for CHUNGHWA PICTURE 628,547.78 407,184.11 221,363.67
TUBES, LTD.
Remolding of stairs in kingsa 20,157.40 - 20,157.40
Building
---------------- -------------- --------------
Total $13,540,785.02 $11,625,925.49 $1,914,859.53
================ ============== ==============
December 31,1995
------------------------------------
Construction in Advance from
Items Progress Customers Net
------------------------------- ---------------- -------------- --------------
Door-shapped lift-Valmet $357,789.06 $245,036.33 $112,752.73
pillar for Bureau of Commodity 44,673.31 - 44,673.31
inspection & Quarantine
---------------- -------------- --------------
Total $402,462.37 $245,036.33 $157,426.04
================ ============== ==============
</TABLE>
<PAGE>
7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
<S> <C>
December ,31
------------------------------
Cost 1995 1994
------------------------ -------------- --------------
Land $32,018,313.73 $ -
Buildings 3,586,651.49 -
Machinery and equipment 993,048.44 461,715.45
Transportation equipment 206,888.54 102,240.73
Miscellaneous equipment 265,006.76 186,695.07
Advance payments on equipment 6,208.85 -
purchases
Advance Payments on Land and 6,039,663.64 1,064,882.10
Buildings Purchases
-------------- -------------
Sub-total $43,115,781.45 $1,815,533.35
-------------- -------------
Accumlated depreciation
------------------------
Buildings $32,023.69 $ -
Machinery and equipment 188,076.20 129,711.89
Transportation equipment 78,908.70 67,048.76
Miscellaneous equipment 113,924.68 92,003.25
-------------- -------------
Sub-total $412,933.27 $ 288,763.90
-------------- -------------
Net $42,702,848.18 $1,526,769.45
============== =============
</TABLE>
8.SHORT-TERM LOANS
Dec. 31,1995
-------------------------------
Items Amount Interest rate
------------------------ -------------- --------------
Credit loans $2,378,338.82 8.65%-9.85%
Mortgaged loans 1,417,334.50 4.25%-9.25%
Usance loans 2,832,871.63 8.50%-10.01%
--------------
Total $6,628,544.95
==============
Dec. 31,1994
-------------------------------
Items Amount Interest rate
------------------------ -------------- -------------
Credit loans $571,428.57 8.75%
Mortgaged loans 350,476.19 9.00%
-----------
Total $921,904.76
===========
<PAGE>
9.LONG-TERM LOANS AND CURRENT PORTIONS OF LONG-TERM LOANS
December,31
--------------------------------
1995 1994
------------- -------------
Taiwan Bank Kangshan Branch,
Land and Building Mortgaged
Loan; Principal $ 299,000,000
, Loan Period Jun 21, 1995-
Jun 21,2005. Payments of
interest are to be made each
month. From Oct.21,1997 to Jun
21,2005, divide 32 periods
(3month per period), payments
of principal are to be made
each period.
The floating interest rate for
Dec 31,1995 is 8.5% $10,980,536.18 $ -
Less: Long-term loans-current
Portion (343,141.76) -
-------------- ------------
Long-term Loans: $10,637,394.42 $ -
============== ============
10. ADVANCES FROM CUSTOMERS
<TABLE>
<CAPTION>
<C> <C> <C>
December 31,1995
--------------------------------
Advance from Construction in
Items Coustomers Progress Net
------------------------------- ---------------- -------------- ------------
Construction in Chunshi 135,170.62 $53,707.93 $81,462.69
Hospital
Flight stop Construction in 2,274,686.42 332,212.27 1,942,474.15
CKS airport
Poject in malaysia 350,653.91 323,547.30 27,106.61
---------------- ---------------- --------------
Total $2,760,510.95 $709,467.50 $2,051,043.45
================ ================ ==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
December 31,1995
--------------------------------
Advance from Construction in
Items Customers Progress Net
------------------------- ---------------- ---------------- -------------
Thermo-power plant in Taichon $6,560,460.82 $5,508,559.96 $999,142.59
</TABLE>
<PAGE>
11. PENSION
Based on SFAS 87, the following should be disclosed :
A.Retirement Plan
a.The retirement plan is applied to all eligible full-time
employees.
b.Calculation of pension paid is summaried as follows:
* 2 points of pension are earned annually while
1 point of pension is earned every year for employees with
15 years or more of qualified service.
* The last service year, if it reaches 6 months or longer,
is computed as one year, otherwise as half year. The
maximum pension points can be earned are 45.
* Payment of pension is based on the years of qualified
service and the averaged amount of 6 month salaries right
before retirement.
B.Based on SFAS 87, as of year 1995, the company recognized
accrued pension costs by using the date of Dec. 31 1995 as
the measured date for actuarial purpose. The recognized amount
is $10,745.50 of deferred pension costs and pension obligation
on balance sheet of Dec 31,1995.
12. Net Sales- Export:
(1) In 1995 and 1996,the company's export sale income
did not reach 10% of the total amount of Profit and Loss
Statement
(2)In 1993,no export sale income.
13. CAPITAL STOCK
Date Description Increase Capital Total Capital
----------- ------------- ---------------- -------------
Aug 1989 Set up $ - $206,896.55
Nov 1990 Cash Stock 722,900.45 929,797.00
Jan 1991 Cash Stock 295,061.41 1,224,858.41
Aug 1991 Cash Stock 715,900.53 1,940,758.94
Dec 1995 Cash Stock 5,388,563.05 7,329,321.99
Par Value NT$10 authorized 19,900,000 shares capital stock is
NT$19,900,000 about USD7,329,321.99 in Dec.31,1995 and 5,200,000
shares capital stock is NT$52,000,000 about USD1,940,758.94 in
Dec.31,1994.
<PAGE>
14.Other Benefit Plans:
(1)All employees have labor insurance and national health
insurance including giving birth,injury,medical,
handicapped,aging and deathpayment pursuant to Laborers
Insurance Regulations.
(2)Proiding complete trainings to employees.
(3)Regular health examination.
(4)Regular employees' leisure activities and birthday party.
15.Post Retirement benefits other Pension
The following table provides information on the Plan status
at December 31,1995.
Accumulated Post Retirement Benefit Obligation
Retirees $10,470
Fully eligible active participants 10,750
-------
Plan assets 21,220
-------
Accumulated post retirement benefit
obligation in excess of Plan assets 21,220
Unrecognized gain(loss) -
Prior service cost -
Unrecognized transition obligation (10,470)
-------
Accrued post retirement benefit cost
in the balance sheet $10,750
=======
Post retirement benefits expense for 1996 included the follow
components:
Service cost $8,079
Interest cost 1,591
Amortization of unrecognized ner obligation at transition 1,415
-------
Post retirement benefits expense $11,085
=======
1.Discount rate : 7.5%
2.Rate of increase in compensation : 5.00%
16.RETAINED EARNINGS
The Articles of Incorporation of the Company provide that 10%
its annual net income should be set aside as appropriated earnings
until the accumulated reserve has equaled the Company's paid-in
capital stock. This appropriated earnings may be used to offset
a deficit.
The annual net income after setting aside the appropriated
earnings shall be appropriated or dispoed by the stockholders
meeting.
<PAGE>
17.MISCELLANEOUS GAIN
Items 1995 1994
----------------------- -------------- --------------
Sale of scrap $16,556.43 $12,616.87
Withhold from payable 155,430.85 -
Other 2,100.67 2.46
------------ ------------
Total $174,087.95 $12,619.33
============ ============
18. INTEREST EXPENSES
Items 1995 1994
------------------------- -------------- --------------
Interest expenses $692,701.23 $9,824.89
Less: Interest capitalized (111,886.12) -
-------------- -----------
Net $580,815.11 $9,824.89
============== ===========
19. INCOME TAX
Items 1995 1994
------------------------- -------------- --------------
Provision for income tax $333,069.86 $151,802.69
plus: Demand payments of 3,504.56 -
tax arrears
-------------- --------------
INCOME TAX $336,574.42 $151,802.69
============== ==============
(1) Differences between Provision for tax on financial
statements and tax payable on income tax return:
Items 1995 1994
--------------------- -------------- --------------
Tax based on lncome before $221,435.34 $139,562.78
tax
Permanent differences: 7,449.18 9,762.10
Over-declared bad debts 97,460.66 -
Decrease in interest expense 6,724.68 2,477.81
Other
-------------- --------------
Income tax for Current $333,069.86 $151,802.69
period
============== ==============
20.EARNINGS PER SHARE (EPS)
Items 1995 1994
----------------------- -------------- --------------
Net income NT$14,724,723 NT$10,784,465
(US$550,663) (US$407,961.60)
Weighted average
number of shares
outstanding 6,425,000 5,200,000
-------------- --------------
EARNINGS PER SHARE(NT$) NT$ 2.29 NT$ 2.07
Rate of exchange USD1:NT$26.74 USD1:NT$26.44
-------------- --------------
EARNINGS PER SHARE(USD) $0.09 $0.08
============== ==============
Weighted average number of shares Outstanding in 1995:
$ 5,200,000+ 14,700,000 *1/12 = 6,425,000 (shares)
<PAGE>
21. RELATED PARTY TRANSACTIONS
(a) Title and relationship of related parties
Title Relationship with the Company
------------------------- -----------------------------------
Wu, Chun-Shin President of the Board of Directors
Tsai, Chih-Hong Member of the Board of Direcotrs
Mah, Jung-Sheng Member of the Board of Direcotrs
Yen, Chung-Ching Member of the Board of Direcotrs
Chan, Chien-Hue Former President of the Board of
Directors
(b) Transaction with Related Parties
(1) Payable to stockholders current: advance from
stockholders, with no interest.
Related Partles Maximum amount during Balance at the year
1995 ended
----------------------- ------------------ -----------------
Wu, Chun-Shin 6,856,223.75 $6,307,376.33
Tsai, Chih-Houg 4,390,779.36 4,390,779.36
Mah, Jung-Sheng 9,730,352.36 3,690,703.62
Yen, Chung-Ching 3,600,943.76 1,253,235.73
Chan, Chien-Hue 1,110,049.76 -
The abovenamed Payable to stockholders current, the
liabilities use for capital to purchase land and factory
in Chao-Chou. They do not have agreement in return
deadline.
<PAGE>
22.Quarterly Data(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER ANNUAL
NET SALES 3,869 3,710 4,096 8,311 19,986
GROSS MARGIN 373 358 396 802 1,929
OPERATINT EXPENSES 152 96 150 213 611
EARNINGS FROM OPERATIONS 221 262 246 589 1,318
==================================================================
NET EARNINGS 220 169 35 127 551
==================================================================
MINORITY INTEREST IN EARNINGS 0
OF CONSOLIDATED SUBSIDIARICS 0
------------------------------------------------------------------
NET EARNINGS APPLICABLE TO 220 169 35 127 551
==================================================================
COMMON SHAREHOLDERS 0
==================================================================
PRIMARY EARNINGS PER COMMON SHARE 0.03 0.03 0.01 0.02 0.09
==================================================================
FULLY DILUTED EARNINGS PER COMMON SHARE 0.03 0.03 0.01 0.02 0.09
==================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 6,425 6,425 6,425 6,425 6,425
==================================================================
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER ANNUAL
NET SALES 2,218 2,609 2,214 4,206 11,247
GROSS MAEGIN 227 266 227 429 1,148
OPERATION EXPENSES 100 117 100 189 505
-------------------------------------------------------------------
EARNINGS FROM OPERATIONS 127 149 127 240 643
===================================================================
NET EARNINGS 67 67 137 137 408
===================================================================
PREFERRED STOCK DIVIDENDS
NET EARNINGS APPLICABLE
-------------------------------------------------------------------
TO COMMON SHAREHOLDERS 67 67 137 137 408
===================================================================
PRIMARY EARNINFGS PER COMMON SHARE 0.01 0.01 0.03 0.03 0.08
===================================================================
FULLY DILUTED EARNINGS PER COMMON SHARE 0.01 0.01 0.03 0.03 0.08
===================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 5,200 5,200 5,200 5,200 5,200
===================================================================
</TABLE>
<PAGE>
23. Contingent and commitment events
(A)Land contract
The Company has entered a contract of purchase of land and
building in order to meet the future needs for business. The
Contract is summarized as follows:
1.Location: Land-Chaocho section, Pingtung County(55,393T)
Building-#1148, Chaocho section, Pingtung County
(12,468.86T)
2.Contractor: Kunli building Co.,Ltd.
3.Contract price: US$ 42,707.554.23(Tax included)
4.Title of properties: Except titles of land#33 and #40-27
have not transfered, titles for all the
residual have been transferred.
5.Evaluation: The fair market value for the land and building
is evaluated US$ 41,791,623.80
6.As of December 31,1995, US$ 41,267,763.65 has been paid.
(B) Important construction contract
From December 31st,1994 to December 31st,1996, the Company's
Major construction contracts and detailed total costs are
listed below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(1)December 31st,1995
- -----------------------------------------------------------------------------------------------------------------------------------
Construction Name Agreement Price Estimated Completion Estimated Accumulated Method
Total Cost Percentage C. Year Profit & Loss of Subscription
- -----------------------------------------------------------------------------------------------------------------------------------
Kuanli-Taichuang Percentage of
Power Plant 8,063,728 7,878,459 94.40% 1996 174,902 C. Method
- -----------------------------------------------------------------------------------------------------------------------------------
Hsitsu Commerce Percentage of
Inspection Bureau 1,815,595 1,496,522 40.26% 1996 128,455 C. Method
- -----------------------------------------------------------------------------------------------------------------------------------
C.K.S. Airport Percentage of
Terminals 2,702,446 2,243,030 12.56% 1996 57,511 C. Method
- -----------------------------------------------------------------------------------------------------------------------------------
Neihu Macro Percentage of
Parking Lot 2,836,314 2,637,772 97.14% 1996 192,864 C. Method
- -----------------------------------------------------------------------------------------------------------------------------------
C: Completion
(2)December 31st,1994
- -----------------------------------------------------------------------------------------------------------------------------------
Construction Name Agreement Price Estimated Completion Estimated Accumulated Method
Total Cost Percentage C. Year Profit & Loss of Subscription
- -----------------------------------------------------------------------------------------------------------------------------------
Kuanli-Taichuang 8,063,728 7,878,459 66.32% 1996 174,902 Percentage of
C. Method
- -----------------------------------------------------------------------------------------------------------------------------------
Power Plant 313,830 313,830 94.91% 1996 56,077 Percentage of
Stylish Machinery C. Method
- -----------------------------------------------------------------------------------------------------------------------------------
C:Completion
</TABLE>
<PAGE>
(C)Others
(1) As of December 31, 1995 and 1994, Letters of Credit
were issued but not used are summaried as follmws:
December 31
-----------------------------------
Items 1995 1994
-------------------------- --------------- -------------
Letters of Credit-Overseas $549,946.00 -
Guarantee Deposit 54,995.00 -
Letters of Credit-local 15,288.99 -
24. Some accounts of financial statements, 1994 were reclassified in
order to compile the financial statements for 1995.
Goung Heu Investment Co.,Ltd
Valuation and Qualifying Accoutss
Schedule II
Description Beginning balance Charged to expenses
For Year Ended
December,31,1995
Total reserves for $39,473.96 $67,000.08
doubtful
accounts and obsolete inventory
For Year Ended
December,31,1994
Total reserves for doubtful - $39,473.96
accounts and obsolete inventory
For Year Ended
December,31,1993
Total reserves for doubtful - -
accounts and obsolete inventory
NOTE: Valuation and qualifying accounts were not individualy
significant; and, therefore,additions and deductions information
has not been provided in this schedule.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Potentialistics, Inc.
We have audited the accompanying balance sheets of Potentialistics, Inc. (a
Delaware corporation and a development stage enterprise) as of March 31, 1996,
December 31, 1995 and 1994 and the related statements of operations, changes in
shareholders' equity and cash flows for the three months and each of the years
then ended, respectively, and for the period October 12, 1988 (date of
inception) through March 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Potentialistics, Inc. (a
development stage enterprise) as of March 31, 1996, December 31, 1995 and 1994,
and the results of its operations and its cash flows for the three months and
each of the years then ended, respectively, and for the period October 12, 1988
(date of inception) through March 31, 1996, in conformity with generally
accepted accounting principles.
/s/ S.W. HATFIELD + ASSOCIATES
------------------------------
S. W. HATFIELD + ASSOCIATES
Dallas, Texas
May 8, 1996
<PAGE>
POTENTIALISTICS, INC.
(a development stage enterprise)
BALANCE SHEETS
March 31, 1996, December 31, 1995 and 1994
<TABLE>
<CAPTION>
March 31, December 31, December 31,
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
ASSETS $ - $ - $ -
========= ========= =========
LIABILITIES $ - $ - $ -
--------- --------- ---------
SHAREHOLDERS' EQUITY
Preferred stock - $0.00001 par value.
10,000,000 shares authorized; none
issued and outstanding - - -
Common stock - $0.00001 par value.
50,000,000 shares authorized.
25,003,314 issued and outstanding,
respectively 250 250 250
Contributed capital 2,694 2,694 2,694
Deficit accumulated during
the development stage (2,944) (2,944) (2,944)
--------- --------- ---------
Total shareholders' equity - - -
--------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ - $ - $ -
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
POTENTIALISTICS, INC.
(a development stage enterprise)
STATEMENTS OF OPERATIONS
Three months ended March 31, 1996
and years ended December 31, 1995 and 1994
and the period October 12, 1988 (date of inception)
through March 31, 1996
<TABLE>
<CAPTION>
Period from
October 12, 1988
Three months (date of inception)
ended Year ended Year ended through
March 31, December 31, December 31, March 31,
1996 1995 1994 1996
<S> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ -
----- ----- ----- -----
EXPENSES
Rent and management fees - - - 1,100
Other expenses - - - 1,711
Amortization of
organization costs - - - 133
----- ----- ----- -----
Total expenses - - - 2,944
----- ----- ----- -----
NET LOSS $ - $ - $ - $(2,944)
===== ===== ===== =====
Net loss per weighted-average
share of common stock
outstanding nil nil nil nil
Weighted-average number
of shares of common
stock outstanding 25,003,314 25,003,314 25,003,314 25,003,314
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
POTENTIALISTICS, INC.
(a development stage enterprise)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Three months ended March 31, 1996
and years ended December 31, 1995 and 1994
and the period October 12, 1988 (date of inception)
through March 31, 1996
<TABLE>
<CAPTION>
Deficit
accumulated
during the
Common Stock Contributed development
Shares Amount capital stage Total
<S> <C> <C> <C> <C> <C>
Issuance of stock at formation 25,000,000 $250 $ - $ - $ 250
Capital contributed to
support development - - 600 - 600
Net loss for the period - - - (606) (606)
----------- -------- -------- -------- -------
Balances at
December 31, 1988 25,000,000 250 600 (600) 244
Capital contributed to
support development 3,314 - 2,082 - 2,082
Net loss for the year - - - (569) (569)
----------- -------- --------- ------- -------
Balances at
December 31, 1989 25,003,314 250 2,682 (1,175) 1,757
Capital contributed to
support development - - 12 - 12
Net loss for the year - - - (1,697) (1,697)
----------- -------- --------- ------- -------
Balances at
December 31, 1990 25,003,314 250 2,682 (2,872) 72
Net loss for the year - - - (27) (27)
----------- -------- --------- ------- --------
Balances at
December 31, 1991 25,003,314 250 2,682 (2,899) 45
Net loss for the year - - - (27) (27)
----------- -------- --------- ------- --------
Balances at
December 31, 1992 25,003,314 $250 $2,682 $(2,926) $ 18
=========== ======== ========= ======= ========
</TABLE>
- Continued -
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
POTENTIALISTICS, INC.
(a development stage enterprise)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - CONTINUED
Three months ended March 31, 1996
and years ended December 31, 1995 and 1994
and the period October 12, 1988 (date of inception)
through March 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Deficit
accumulated
during the
Common Stock Contributed development
Shares Amount capital stage Total
Balances at
December 31, 1992 25,003,314 $250 $2,682 $(2,926) $ 18
Net loss for the year - - - (18) (18)
----------- ------- -------- --------- ---------
Balances at
December 31, 1993 25,003,314 250 2,682 (2,944) -
Net loss for the year - - - - -
----------- ------- -------- --------- ---------
Balances at
December 31, 1994 25,003,314 250 2,682 (2,944) -
Net loss for the year - - - - -
----------- ------- -------- --------- ---------
Balances at
December 31, 1995 25,003,314 250 2,682 (2,944) -
Net loss for the period - - - - -
----------- ------- -------- --------- ---------
Balances at
March 31, 1996 25,003,314 $250 $2,682 $(2,944) $ -
=========== ======= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
POTENTIALISTICS, INC.
(a development stage enterprise)
STATEMENTS OF CASH FLOWS
Three months ended March 31, 1996
and years ended December 31, 1995 and 1994
and the period October 12, 1988 (date of inception)
through March 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Period from
October 12, 1988
Three months (date of inception)
ended Year ended Year ended through
March 31,December 31,December 31,March 31,
1996 1995 1994 1996
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss for the period $ - $ - $ - $(2,944)
Adjustments to reconcile
net loss to net cash
provided by operating
activities
Payment of
organization costs - - - (133)
Amortization of
organization costs - - - 133
----- ----- ----- ------
Net cash used in operating activities - - - (2,944)
----- ----- ----- ------
CASH FLOWS FROM
INVESTING ACTIVITIES - - - -
----- ----- ----- ------
CASH FLOWS FROM
FINANCING ACTIVITIES
Issuance of common stock - - - 250
Capital contributed to
support development - - - 2,694
----- ----- ----- ------
Net cash used in financing activities - - - 2,944
----- ----- ----- ------
INCREASE IN CASH - - - -
Cash at beginning of period - - - -
----- ----- ----- ------
Cash at end of period $ - $ - $ - $ -
===== ===== ===== ======
SUPPLEMENTAL DISCLOSURE
OF INTEREST AND INCOME
TAXES PAID
Interest paid for the period $ - $ - $ - $ -
===== ===== ===== ======
Income taxes paid for the period $ - $ - $ - $ -
===== ===== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
POTENTIALISTICS, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
Potentialistics, Inc. (Company) was incorporated on October 12, 1988, under the
laws of the State of Delaware, as a wholly-owned subsidiary of Texas American
Group, Inc., a publicly-owned corporation (TAG). TAG caused the Company to
register 1,585,733 shares of its initial 25,000,000 issued and outstanding
shares of common stock with the Securities and Exchange Commission on Form S-18.
TAG then distributed the registered shares to TAG shareholders. The Company has
had no substantial operations or substantial assets since inception. The
business purpose of the Company is to seek out and obtain a merger, acquisition
or outright sale transaction whereby the Company's shareholders will benefit.
The Company has not engaged in any negotiations from inception and has not
undertaken any steps to initiate the search for a merger or acquisition
candidate.
The Company is considered in the development stage and, as such, has generated
no significant operating revenues and has incurred cumulative operating losses
of approximately $3,000.
The Company's majority shareholder has continued to maintain the corporate
status of the Company and provides all nominal working capital support on the
Company's behalf. Because of the Company's lack of operating assets, its
continuance is fully dependent upon the majority shareholder's continuing
support. The majority shareholder intends to continue the funding of nominal
necessary expenses to sustain the corporate entity.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Cash and cash equivalents
The Company considers all cash on hand and in banks, including accounts in
book overdraft positions, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when purchased, to be
cash and cash equivalents.
2. Income taxes
The Company files its own separate federal income tax return. The Company
has no net operating loss carryforwards available to offset financial
statement or tax return taxable income in future periods.
3. Loss per share
Loss per share is computed by dividing the net loss by the weighted-average
number of shares of common stock and common stock equivalents, if any,
outstanding during the year/period.
NOTE C - RELATED PARTY TRANSACTIONS
For the period October 12, 1988 (date of inception) through December 31, 1989,
TAG provided office space and management services to the Company for a monthly
fee. Total expenses under this arrangement aggregated $1,100 for the cumulative
period.
<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company's independent auditor for the fiscal years ended December
31, 1995, 1994 and 1993 was Scott Hatfield + Associates.
The accounting firm of S.W. Hatfield + Associates was dismissed on March
31, 1996 by the Company's Board of Directors. During the fiscal year ended
December 31, 1995, and the interim period subsequent to December 31, 1995, there
have been no disagreements with Scott Hatfield + Associates on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure or any reportable events. Registrant has requested that Scott
Hatfield + Associates furnish it with a letter addressed to the Securities and
Exchange Commission stating whether it agrees with the above statements.
Pursuant to the recommendation by the Board of Directors, the Company
engaged the accounting firm of Horwath & Co., CPAS. as independent auditors for
the Company, effective as of February 10, 1996. During the fiscal years ended
December 31, 1995 , 1994 and 1993 and the interim period subsequent to December
31, 1995, there have been no consultations with Horwath & Co., CPAS on any
matter of accounting principles to a specific transaction, either completed or
proposed, or the type of audit opinion that might be rendered on the Company's
financial statements.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) The financial statements filed as part of this Registration Statement
as Item 13 are listed in the Index to Financial Statements contained
therein.
(b) The following documents are filed as exhibits to this Registration
Statement:
2.1 Stock Purchase Agreement dated May 6, 1996 by and among the Company,
Goung Hei Investment Co., Ltd. and Halter Capital Corporation.*
2.2 Stock Exchange Agreement dated April 15, 1996 by and among the
Company, Goung Hei Investment Corporation and Qualyserve
Construction Co., Ltd. *
3.1 Articles of Incorporation of the Company, as amended to date. *
3.2 Bylaws of the Company.*
4.1 Specimen Common Stock Certificate.*
10.1 Leases for Properties.*
10.2 Contract for project, CKJ International Airport
10.3 Contract for project, Taichung Fossil Power Plant.
16.1 Accountants letter
* to be filed by amendment.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Company caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March , 1996 GOUNG HEI INVESTMENT CO., LTD.
----
/s/ Lu, Chi-Kang
By:______________________________________
Lu, Chi, Kang, Chief Executive Officer
Exhibit 10.2
CONTRACT FOR PROJECT
This Contract is entered into effect on this day, March 11,1995, by and bet3ween
Goung-Lee Construction Co., td. (hereinafter called "Party A") and Qualyserve
Construction CO., Ltd. (hereafter called "Party B"). Both parties agree as
follows:
1. Project title: Erection of Structural Stel of Passenger Terminal Project
II, CKS International Airport.
2. Work Scope: For details, refer to Price Quotation (suprsonic inspection
shall be conducted on steel plate with a thickness at/over 19mm).
3. Jobsite: Site of the Airport.
4. The contracted total price: NT$ 72,263,400(excluding 5%VAT), as detailed in
the price quotation.
5. Estimation on the accomplished works for payment.
1) Estimation on the accomplished works shall be conducted on th 25th day
of each month (if the day falls on a public holiday, the day shall be
advanced for 1 day) to verify the works accomplished over the past 30
days and the ratio to the scheduled progress. Payment shall be
released after having retained 10% of the amount. If inspection on the
works for estimation purpose cannot be finished by the 25th of the
month, no payment shall be made.
<PAGE>
2) At th time of the estimation, party B shall submit invoice at an
amount same as that for the estimation in conjunction with( ) Request
for inspection certifice by party A, ( ) delivery note (or hole
boring) and weighing list (or cutting list) certified by the in-charg
prsonnel of party A, and ( ) the Daily Status Report.
3) Party may give to party B a notice for suspension from the work or
defer the works commensurate with the progress in the related works
and status of rush work, or deduct payment under the estimation of the
accomplished works of the month till party B has made remedies by a
deadline.
Terms of payment:
1) Payment under the estimation of the accomplished works:
A. No payment shall be made when the accomplished works fail to
conform to the requirements for such estimation purpose and party
B fails to be make remedies by a deadline.
B. If the works conform to the requirements for estimation purpose,
party A shall mail a cheque maturing in 60 ays in favor of party
B to the address shown on the invoice on 10th of each month.
2) Deduction: Payment under estimation of the accomplished works shall be
subject to deduction of man-date ccost, compensation for loss of the
tools borrowed from party A and repair cost advanced by party A, for
which party A shall give papers in support of deductions.
3) The retained amount.
A. Fabrication
A) After the Owner and party A have accepted the entire works
(that is the entire oproject awarded by owner to party A),
completed the account statement and party B has finished
procedure for project warranty, the retained amount shall be
released o;n a lump-sum basis in the form of a cheque
maturing in 3 months.
B) Within one year after completion of the entire structures
and party B has satisfied the requirements for warranty, the
retained amount shall be released on a lump-sum basis in the
form of a cheque maturing in one month.
6. Work duration:
( ) refer to the attached work schedule.
( )in keeping with progress of party A's works
( ) refer to the attached price quotation for this project.
7. The liquidated damages.
1) If party B fails to complete the works in conformity with the
deadlin under the contract or work schedule of party A, penalty
shall be meted out for an amount equivalent to 0.3% of the
contracted total price, to be deducted from dye payment, or party
B or its gua4rantor shall be liable for compensation if the
amount of due payment is insufficient for deduction.
2) If the recieving inspection calls for excavation or demolition of
a part of the works, paty B shall not refuse to cmply with, make
repairs or restoration afterwardds without refusal to make
repairs or delay under the remedy in the first paragraph of
Article 493 of Civil Code. In case of discovery of any
discrepancies between the works and the requirements under
drawings/construction specification, the repairable portion shall
be repaired by a deadline; whereas the non-repairable or
remediable portion shall be dismantled for rework by a deadline;
otherwise, penalty shall be meted out for an amount quivalent to
0.3% of the contracted total price on a daily basis and party A
may continue to work on the project on behalf of party B at the
cost of party B.
<PAGE>
3) Party B shall be liable for compensation to party A for the
damage resulting from delay on the part of party B.
8. Engineering drawings
Engineering drawings, cosntruction specification and other annexes shall
be the integral part of the contract. In case of omissions, descrepancies,
or othe necessary technologies as required accordng to general practice of
the trade, party B shall comply with the interpretation of party A; whereas
party B shall not evade or request for extra compensation or for extension
to the work uration. In case of any omission in the engineering drawing,
party B shall refer it to party A and work out recommendations on
improvement of correction upon discovery; otherwise party B shall not
request for extension to work duration.
9. Change order:
(1) Party B shall comply with change order issued by party a which would
call for increase or decrease in project quantities. In case of nw
work items, unit price under the contract shall apply.
2) In case of change order issued by the Owner calling for decrease in
work items and/or increase in new work items and project quantities,
party B shall comply with the same without delay; otherwise party B
shall be solely responsible for the resultant damages.
10. Termination to the contract
When necessary, party A may give to party B a notice of termination to the
contract for any reasons;whereas party B shall unconditionally agree to the
termaination. For the accomplished works, payment shall be made according
to the contract unit price after receiving inspecton by party A.
11. Dissolution to the contract.
1) If party B is involved in any of the following circumstances, party A
may dissolve the contract; whereby party A may hire other contractor
to continue working on the project entirely or party, to which party B
and its guarantor shall have no objection but shal compensate party A
for the resultant damages/losses. if party B fails to compensate party
A, provisions under Article 32 shall govern.
<PAGE>
A. Party B fails to observe the date to start working on the protect
under notice to proceed without obtaining permission from party
A.
B. Party B. fails to maintain the work schedule or take slow motion
without compliance with instructions of party A.
C. Where certificate of registration for constructor is suspended by
the competent authorities.
D. Where party B violates pro;visions under the contract.
E. Where the capability of party B is insufficient to the extent
that it cannot be expected to fulfill the contractual
obligations.
F. Where party B has assigned this contract to othe rparty without
approval of party A, or the Owner points out that qualification
of party B fails to meet requirements under the contract between
party A and the Owner.
G. Where items under the contract call for negotiations between
party A and party B, and in case no resolution can be reached in
negotiations party A may at any time take back entire or part of
the project items; whereas party B shall not request for
compensation.
H. Where the responsible person of party B's firm is missing, or
under criminal punishment or dead, or the firm of party B becomes
bankrupt to the extent that party B cannot be expected to fulfill
the contractual obligations.
<PAGE>
I. Wher party B offrs rebate or any kind of gifts to government
officials, representatives, employees or other concerned
personnel in connection with payments under this contract.
2) In case of dissolution to the contract for the causes attributable to
the fault of party B, for which party A elects to continu working on
the project or hire other contractor for the works resuklting in loss
to party A, party A shall deduct such loss from the deferred payment
to party B, with remainder, if any, paid to party B. If the amount of
ddue payment is insufficient for deduction, party B and its guarantor
shall be liable for payment. In case of delay in performing the work
on the part of party B at the time of dissolution to the contract,
penalty shall be meted out accordingly.
3) In case of dissolution to the contract for the causes attributable to
the fault of party B, default penalty shall be imposed on party B for
an amount equivalent to 10% of the contracted total price that shall
be deductibe from due payment. If the amount of due payment is
insufficient, party B shall be liable for making it up.
12. Overtime for rush work.
If party B fails to maintain the work schedule to the extent that party A
deems it necessary for party B to work overtime, party A shall do so and
absorb the overtime pay. If party B fails to comply with requirement for
overtime, party A may take over the works and the costs hall be deducted
from payment under the estimation of the accomplished works and the
retained amount, if the said amounts are insufficient for deduction, party
B and its guarantor shall make it up.
13. Assign
1) prior to receiving inspection, the accomplished and the
non-accomplished works as well as the materials at Jobsite shall not
be resold or transferred to any third parties or use them for
hypothecation of collateral.
2) Except for the non-conforming materials that must be removed from
Jobsite soonest, no matrials, scaffolds, supports and machinery at
Jobsit may be removed from Jobsite without consent from Engineer of
party A.
14. Subcontracting
Except otherwise specified below, party B shall not have the project
subcontracted; otherwise party B shall be liable for compensating party A
for the resultant damages.
1) Where party A desginates certain structures which call for use of
special machinery for erection.
2) Where part of professional works requiring use of professionalism
benefiting party A after having obtained consent form party A.
15. Project progress
Prior to work, party B shall consider its own capability and experience
before working out work schedule, construction procedures, construction
methods, layots, personnel organization chart and plan for use of
construction equipment to be approved by party A.. Jobsite manager of party
B shall submit daily status report in 3 folds (according to format of party
A) to the construction supervisor of party A on the following date for his
signature; with a copy returned to party B. Part A has a right to adjust
projct progress, to which party B shall have no objection.
<PAGE>
16. Power of construction supervisor of party A.
1) Party A may assign construction supervisor to supervise the
construction works.
2) The construction supervisor shall perform the following misions within
the project scope:
A. To provide recommendations on improvement in the construction
works of party B
B. To exercise corrections and recommendations on negligence in
supervision on the part supervisor and workers of party B.
C. To give guidance and supervision over the design drawings and
construction specification
D. To conduct inspection on the construction works.
E. Construction of the project works which cannot be open to the
public shall be done only under supervision of Engineer of party
A.
F. In case of inferior materials and poor workmanship of the project
which fai to conform to the requi4rements, party B shall
dismantle them for rework at no cost to party A.
3) If party B is involved in such irregularities as bribery or threats to
the construction supervisor or the concerned personnel of party A,
party A shall take legal actions and bar party B from taking part in
the projects of party A for a period of time or permanently.
17. Construction supervisor of party B.
Party B shall assign experienced construction supervisor to be stationed at
Jobsite on a full time basis who shall be in charge of construction
management and work under direction of construction supervisor of party A.
If th construction supervisor of party B is incompetent, party A may demand
for replacement.
18. Materials provided by party A.
Party B shall take good care of materials provided by party A. For the
return of unused matrials, deduction in weight of scrap shall be based on
1% of weight of th finished products and return of materials shall be based
on CP defined by party A. In case of no CP, the returned material shall be
deemed as steel scrap.
<PAGE>
19. Materials and machinery provided by party B.
Except for the materials to be provided by party A according to the
contract, party B shall at its own cost furnish all the materials and
machinery. Materials shall be limited to the brand new ones for which party
B shall submit certificates of quality and price issued by the
manufacturer. When party Doubts about strength,, components of nature of
the materials and would like to have them tested, party B shall submit the
materials to the testing organization designated by party A for tests at
the cost of party B, and this provision shall also apply to the
accomplished works.
20. Receiving of th materials.
Party B shall receive materials from the designated place/warehouse
according to the agreed upon quantities, and party B shall not request
replacement of the received materials, but shall take good care of the
same; otherwise, party B shall be solely responsible for the shortage, or
damage so caused.
21. Compensation for damages to third parties.
Party B shall indemnify and hold aprty A harmless from and against any
claims for injuries/deaths or damage to any properties or interests of
third parties which are attributable to construction work on the part of
party B.
22. Partial use.
1) In case party A intends to make advance use the completed portion of
th project, party A may use the same after receiving inspection.
2) Party A may also make use of the unfinished works upon having obtained
consent from party B, provided that this shall not interfere in the
works of party B.
3) Party a shall be responsible for taking good care of the completed
works being used in advance.
23. Insurance.
Party B shall buy and keep group insurance policy for accidents covering
the values of the project as well as the materials and machinery at
Jobsite, and the assure amount shall not be less than NT$ 1 million per
person. Party B shall at its own cost buy labor insurance for its employees
for which party B shall submit photocoipy of labor insurance policies for
the first receipt of payment.
<PAGE>
24. Receiving inspection and taking over.
1) Upon a successful initial receiving inspection on the completed
project, party A shll conduct final receiving inspection; while party
B shall provide personnel and tolls for the inspection. If the results
in the receiving inspection indicate that the works fail to conform to
specification, party B shall make remedies to be completed by a
deadline; otherwise, party B shall compensate party A for the
resultant damages according to Artilce 7 and party A may make use of
the unpaid payments to make repairs. If the amount of such payments is
insufficient for repairs, party B and its guarantor shall make it up.
2) Regardless whether th design drawings have specified or not, party B
shall guarantee that the works shall conform to the requirements for
acceptance by the competent authorities. In case the results in the
recieving inspection reflect non-conformance requiring penalty or
rework, party B shakll bear the consequences and the costs. If party
Bfails to comply with the same, party A may suspend the process of
estimation of the accomplished works for payment or retain part of due
payment till party B has made satisfactory improvement.
3) Party B shall make timely remedies as required in the findings in the
initail and final receiving inspections; otherwise, it shall be deemed
as a delay and penalty shall be meted out according to article 7, to
which party B shall have no objection.
25. Jobsite saftey and sanitation.
1) party B shall comply with the rules of party A and shall observe the
reuirements under Law of Labor Safety & Sanitation.
2) Party shall observe requirements under Labor Standards Law in hiring
works for the project andd be solely responible for handling of the
occupational diseases and injuries and shall indemnify and hold party
A harmless from and against any claims for diaster damage
compensation, which may be deducted from due payments.
3) Party B shall provide such safety facilities as nets/ropes and assure
that the workers shall wear safety helmets, and th relevant costs are
included in the unit price under the contract, which is based on
NT$100 per each ton of steel frames.
26. Notices.
Exchange of documents relevant to the contract between parties shall be
persoally handed or via registered mail, which become the contract
documents. If the recipient has objection, he shall initiate coordination
with the sender in 7 days upon receipt; otherwise it shall be deemed as
tacit consent. Drawings, work schedule, minutes of coordinating meeting,
documents, target for rush work and penalty clauses issued by party a to
party B during construction shal be effect as that of the contract.
27. Warranty period:
Party B shall offer 1-year project warranty commencing from the date of a
successful receiving inspection. In case of discovery of defects or damage
of the works during warranty period which are attributable to poor
workmanship of party B, party B shall at its own cost mak repairs and renew
the recognizance for the warranty. In case of civil lawsuits or criminal
lawsuits of national compensation in connection with this project ater
expire of warranty period, party A shall pace claims against party b for
compensation.
<PAGE>
28. Jobsite management.
Party B shall take all measures to prevent such disasters as fire, floods
and othe rincidents at Jobsite and shall prohibit gambling and intrudrs, or
other irregularities. Party B shall indemnify and hold party A harmless
from and against any claims for compensation of diseased, injuries,
violation of laws on the part of its employees as well as injuries to any
third parties of damage to properties of any third parties resulting from
execution of the works.
29. Safety facilities.
In the course of construction, party B shall set up warning flags in red at
the prominent locations of the site and lamps shall be on at night or
proved fencing system around Jobsite; set up traffic signs, lines and other
signs as required by the Owner so as to assure safety. Party B shall take
preventive measures against any safety hazards to people, domestic animals
and public/private properties around the Jobsite and party B shall be
solely responsible for any accidents and the resultant damages.
<PAGE>
30. Safe-guarding for the works.
Prior to acceptance by the Owner, party B shall be responsible for
safe-keeping of the completed works and materials at Jobsite(including
those provided by party A and party B) and shall absorb any damage or loss.
31. Disaster control.
1) Within 24 hours upon occurrence of accidents or disasters resulting in
injuries/deaths or damages, party B shall report to party A.
2) Party B sahll be solely responsible for handling of damages or
compensation resulting from accidents or disasters
3) In case of injuries/deaths of employees of party B, party B shall be
solely responible for the consequences.
32. Guarantee.
Party B shall secure one or more private firms or companies as the
guarnators for th project. In case party B fails to fulfill the contractual
obligations or incapable of compensation to party A, the guarantors shall
waive ordains beneficial available under Article 743 of Civil Code and
severally liable for compensation to party A for all losses. If the
guarantor losses his qualification, party B shall at request of party A
replace the guarantor. Capital of the guarantor shall not be less than 15%
of th contracted total price. If the guarantor happens to be a company, the
corporate license of the cocmpany shall include a clause for guaranty
externally.
33. Coordination for construction projects.
In case party A hires other contractors performing other works or
installation or temporary facilities, party B shall initiate coordination
with the other contractors without failure; otherwise party B shall be
solely responsible for compensation (according to decision of party A) for
the loss resulting from mistakes, extension to the work duration and
accidents.
34. Clean-up at Jobsite.
Upon completion of the project, party B shall remove scraps, misc. articles
and temporary facilities from Jobsite.
35. Validity of the contract.
Validity of this contract shall commence from the date hereof and till
expire of warranty period that is after a successful receiving inspection
and account settlement.
36. Lawsuits.
In case of lawsuits in connection with this contract, both parties agree to
accept Kaohsiung District Court as the competent authority for the first
instances.
37. Seal specimen
Seals of party B shall be identical to seal speciman card as approved by
the government, which shall be affixed to the letters of party B. In cas
party B losses the seals, it shall put up advertisement announcing the loss
of seals which shall be published on two local daily newspapers designated
by party A for 3 days. Party B shall submit entire sheet of the newspapers
for 3 days and 2 sheets of seal specimen to party A for perusal.
<PAGE>
38. Revision and addendum.
These shall be done pursuant to provisions under Article 17 relevant to
subcontracting.
39. If party A makes advance payment for alternation to the works or the fees,
party B shall be charged for 10% overhead in addition to the reimbursement.
40. In case of relevant matters not specified thereunder, the general practice
in the trade shall prevail.
PARTY A:
Goung-lee Construction Co., Ltd.
Responsible person: LU, HSIUNG
Address: #236, Jen-lin Road, Wu Lin Village, Jen-wu Hsiang, Kaohsiung County
Tel: (07)372-6088
Business register certificate No,. 75938113
PARTY B:
Qualyserve Construction Co., Ltd.
Responsible person: C.H. Tsai
Address: 13, Lane 17, Chuwei N Street, Kangshan Township, Kaohsiung County
Tel:(07) 621-8245
THE GUARANTOR FOR PARTY B:
Name of the business:
Responsible person:
Address:
Exhibit 10.3
CONTRACT FOR PROJECT
This Contract is entered into effect on this day, April 1993, by and between
Goung-Lee Construction Co., Ltd. (hereinafter called "Party A") and Qualserve
Construction Co., Ltd.(hereafter called "Party B"). Both parties agre as
follows:
1. Project title: TPC Taichung ESP Steel Structure Units 5-8.
2. Jobsite: Taichung Fossil Power Plant
3. Project outline:
ITEM 3a: DE/CE Components
----------------
No. Group Item Weight Unit Amount
(Tons) price
1. 310 CE-SYSTEM 33.196 61,100 2,028,275
2. 312 CE-CARRIR BEAM 408.0 2,090 9,012,720
3. 313/315 DISTANCING/RAPIER EAR242/814 31,960 7,760,335
4. 310 FASTENING BUSHES 18.708 125,020 2,338,874
5. 330 CE-RAPIER W/O SHAFT 46.22 76,140 3,519,190
6. 331 CE-RAPIER SHAFT 24.914 59,030 1,480,673
7. 370 DE-HOLDING FRAME 320.916 27,730 8,899,000
8. 350 DE-FRAME FIELD 1-6 736.678 37,600 27,699,092
9. 350 WEDGES 4.645 281,812 1,309,016
10. 350 CASH IRON 39.245 80,370 3,154,120
11. 360 DE-SUPPORT 17.753 56,400 1,001,269
12. 380/381 DE-RAPPING W/O SHAFT 48.726 57,340 2,793,948
13. 381 DE-RAPPING SHAFT 26.112 94,000 2,454,528
14. 380 DE-GEARBOX 26.982 56,400 1,521,785
15. 256 GW-RAPPING SYSTEM 11.200 62,608 702,218
TOTAL 2006.109 TON NT$75,665,043
ITEM 6: HOPPER
------
No. Group Item Weight Unit Amount
(Tons) price
1. 210 HOPPER LOWER/UPPER 1126.8 30,860 34,773,048
2. 215 FLASHING IN HOPPER 142.8 29,898 4,269,434
TOTAL 1269.6 TONS NT$39,042,482
ITEM 10: INLET/OUTLET NOZZLE
-------------------
No. Group Item Weight Unit Amount
(Tons) price
1. 251/252 RAW/CLEAN GAS HOOD 460.8 29,285 33,494,528
2. 253 CASDISTR WALL 60.0 67,225 4,033,500
ITEM 16: CASING
------
No. Group Item Weight Unit Amount
(Tons) price
1. 232/233 INTERNAL BRACINGS 534.6 26,270 14,043,942
2. 231 SIDE WALL, UPPER PART 742 26,270 19,492,340
3. 225 HOPPER BEAM, LONG 192 28,936 5,555,712
4. 224 HOPPER BEAM, TRANSV. 246 31,646 7,784,916
TOTAL 714.6 TONS NT$46,876,916
<PAGE>
ITEM 20: DUCTWORK
--------
No. Group Item Weight Unit Amount
(tons) price
1. 411/412 RAW/CLEAN GAS DUCT 872 30,685 26,757,320
2. 122 UPPER STRUCTURE DUCT 276 27,975 7,721,100
3. 415 GUIDE VANS DUCT 73.6 27,625 2.,033,200
TOTAL 1221.6 TONS NT$36,511,620
GRAND TOTAL AMOUNT NT$215,624,083
4. The contracted total price:
1) Account shall be settled by having total weight on the parts list
multiplied by unit price for individual items.
2) The said unit price for individual items does not include 5% VAT.
5. Terms of payment: According to mode of payment of Taipower, party A shall
pay to party B by at-sight cheque within 7 days after party A has received
from Taipower the payment covering items to be fabricated and provided by
party B.
6. Work duraation: according to the terms between party A and Walther & CIE
7. The liquidation damages: according to th terms between party A and WCA
8. Rush work: when necessary, party A may demand party B for overtime work at
no cost to party A. If party B fails to comply with such demand, party A
may assume such overtime work at cost of party B which shall be deductible
from payments. If the amount of such payment is insufficient for deduction,
party B or its guarantor shall make it up.
9. Party B shall provide office facility and telephone for use by the
construction supervisors from party A or WCA who will be stationed at
Jobsite.
10. Party B may assign th experienced personnel in charge of delivery of
materials at the palce designated by Taipower.
11. Within 5 days after having delivered materials to jobsite, party B shall
submit debit not together with relevant papers to party A. Within 7 days
upon receipt of such debit note, party A shall proceed with procedures to
request payment from Taipower.
12. For relevant matters not specified hereunder, both parties may sign a
memorandum which shall have the same effect as the contract.
13. Distribu;tion of the contract:
This contract shall be produced in duplicate, ach for party A and party B
(each party shall glue duty stamps onto the contract), plus 2 photocopies
for party A. The contract shall include the following annexes:
1) TPC General Terms and bidding
2) TPC specification 1292-ms-50 dated Apr. 1992
3) WCA Specification for fabrication of steel structure, platwork,
internal and misc. equipment, dated Feb. 21, 1993.
<PAGE>
PARTY A:
Goung-lee Construction Co., Ltd.
Responsible person: LU, HSIUNG
Address:#236, Jen-liln Road, Wu Lin Village, Jen-wu Hsiang, Kaohsiung County
PARTY B:
Qualserve Construction Co., Ltd
Responsible person: C.H. Tsai
Address: 13, Land 17, Chuwei N. Street, Kangshan Township, Kaohsiung County
Exhibit 16.1
S.W. Hatfield + Associates
certified public accountants
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
We were provided a copy of Item 14.-"Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure", contained in this
Registration Statement under The Securities Act of 1933 of Goung Hei Investment
Corporation on this date.
We have no disagreements with any of the statements contained therein.
/s/ S.W. Hatfield + Associates
- ------------------------------
S.W. Hatfield + Associates
Dallas, Texas
March 12, 1997
