SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT
SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
S.W. LAM, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 62-1563911
- --------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
Unit 302-303A, 3rd Floor, Fu Hang Industrial Building
No. 1 Hok Yuen Street East, Kowloon, Hong Kong
-----------------------------------------------------
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (852) 2766 3688
Securities to be registered pursuant to 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 pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
-----------------------------
(Title of class)
<PAGE>
The Company operates through its various subsidiaries, all of which are
located outside of the United States. Unless otherwise indicated or the context
otherwise requires, the term Company refers collectively to S.W. Lam, Inc. and
its subsidiaries. All references to China or the PRC are to the Peoples'
Republic of China. The Company's financial statements are presented in United
States Dollars ("US$"). The Company's sales are principally in Hong Kong Dollars
("HK$") and Renminbi ("Rmb"). At December 20, 1996, the prevailing exchange rate
of US$ into HK$ and Rmb was US$1.00 = HK$7.733 and US$1.00 = Rmb 8.297.
ITEM 1. BUSINESS.
S.W. Lam, Inc. (the "Company"), a Nevada corporation, through its
subsidiaries, is engaged in the design, manufacturing and marketing of gold and
silver jewelry, gold and silver decorative items, and diamond and color stone
jewelry and decorative products. All of the Company's operations are located in
Hong Kong and the People's Republic of China (the "PRC").
HISTORY AND DEVELOPMENT OF THE COMPANY
The Company's business began with the formation by Lam Sai Wing ("Mr. Lam")
of an unincorporated sole proprietorship to manufacture and market jewelry at
facilities in Dongguan, PRC (the "Dongguan Facility") in 1983. Subsequently, in
1987, Shenzhen Hang Fung Jewellery Factory, a sole proprietorship formed by Mr.
Lam, established a modern manufacturing facility in Shenzhen, PRC (the "Shenzhen
Facility"). In 1990, Beijing Hang Fung Jewellery Factory, a sole proprietorship
formed by Mr. Lam, entered into a sino-foreign joint venture to manufacture and
market jewelry in Beijing, PRC (the "Beijing Facility"). In 1991, Mr. Lam
transferred operations of the Dongguan Facilities to a third party.
In November of 1994, Mr. Lam incorporated Hang Fung Jewellery Company
Limited ("Hang Fung Jewellery") in Hong Kong and transferred operations of the
Shenzhen Facility and the Beijing Facility to Hang Fung. In October of 1995, Mr.
Lam and his wife, Lam Chan Yam Fai, Jane ("Ms. Chan"), transferred ownership of
Hang Fung and Kai Hang Jewellery Company Limited, a Hong Kong corporation
engaged in jewelry marketing and owned by Mr. Lam and Ms. Chan ("Kai Hang
Jewellery"), to Quality Prince Limited, a holding company organized in the
British Virgin Islands and owned by Mr. Lam and Ms. Chan ("Quality Price")(Hang
Fung Jewellery and Kai Hang Jewellery are collectively referred to herein as the
"Hang Fung Group").
In December of 1996, the Hang Fung Group completed a "reverse acquisition"
with S.W. Lam, Inc. pursuant to which the companies comprising the Hang Fung
Group, representing all of the jewelry manufacturing and marketing operations
controlled by Mr. Lam and Ms. Chan, became wholly owned subsidiaries of the
Company. S.W. Lam, Inc. was originally incorporated in the State of Tennessee
under the name New Wine, Inc. ("New Wine"). New Wine was formed in April of 1994
to develop, finance and produce record albums, cassette tapes and compact discs
and videotape and television productions for domestic distribution and foreign
licensing; to operate a music publishing firm; and, to engage generally in the
business of providing personal business management services for professional
entertainers. New Wine completed an offering of common stock in January of 1995
selling 225,000 shares for $45,000 pursuant to Rule 504 under the Securities Act
of 1933, as amended (the "Act"). The operations of New Wine proved unsuccessful
and New Wine began efforts to acquire or combine with an operating business.
Pursuant to discussions with the Hang Fung Group, New Wine reincorporated in the
State of Nevada and changed its name to S.W. Lam, Inc. in October of 1996. In
December of 1996, New Wine entered into an agreement with the shareholders of
Quality Prince, Mr. Lam and Ms. Chan, pursuant to which New Wine agreed to issue
10,500,000 shares of common stock and 100,000 shares of Series A Preferred Stock
in exchange for 100% of the issued and outstanding shares of Quality Prince (the
"Exchange"). Following the Exchange, management of the Hang Fung Group assumed
control of management of the Company and the Company, through its subsidiaries,
the Hang Fung Group, is continuing the operations of the Hang Fung Group.
2
<PAGE>
OVERVIEW
The Company's operations include the manufacturing and sale of gold and
silver jewelry and ornamental items in the PRC and Hong Kong.
Because of regulatory issues relating to operations and the marketing of
gold and silver in the PRC, the Company's production and marketing activities in
the PRC are conducted pursuant to a series of agreements with entities having
operations or appropriate licenses in the PRC. The principal agreements in that
regard are (1) a sub- contracting agreement with Shenzhen Crafts Hang Fung
Jewellery Factory ("Shenzhen Crafts") pursuant to which gold and silver products
are produced for export, (2) an agreement with Yiu Ping Gold and Silver
Manufacturing Factory ("Yiu Ping") pursuant to which Yiu Ping sells gold and
silver products on the Company's behalf in the PRC, (3) an Agreement for
Jewellery Assembling with China Jewellery Import & Export Co. ("China
Jewellery") pursuant to which China Jewellery is responsible for the assembly of
gold and silver assembly operations at facilities jointly operated with the
Company in Beijing, and (4) a Sales Agency Agreement with China Jewellery
pursuant to which China Jewellery acts as the Company's agent in selling jewelry
in the PRC in exchange for an agency fee and the Company acts as China
Jewellery's agent in selling jewelry in Hong Kong in exchange for an agency fee.
Shenzhen Crafts, Yiu Ping and China Jewellery are each state-owned
enterprises organized under the laws of the PRC and holding requisite licenses
to import, export and sell gold and silver products in the PRC.
The Company presently markets its products primarily in Hong Kong and the
PRC. The Company plans to expand its business in the near term by (1) expanding
the marketing of its products to include the Middle East and Europe, and (2)
expanding production and marketing capabilities in the PRC through the
construction and relocation of its current manufacturing operations in Beijing
to an expanded modern manufacturing facility presently under construction
adjacent to the existing manufacturing operations in Beijing.
PRODUCTS
The Company's products consist of a broad array of gold and silver jewelry
products, gold and silver decorative items, semi-precious stone jewelry and
other decorative products. Examples of the Company's products include, but are
not limited to, bracelets, chains, charms, rings, earrings, ornamental plaques,
serving sets and decorative pieces.
The Company classifies its products in four distinct segments: (1) fine
gold products, consisting of jewelry and ornamental products crafted from 24
carat gold, (2) other gold products, consisting of a broad array of lesser value
electro-form casted fine gold jewelry including jewelry incorporating
semi-precious stones, (3) non-gold/silver ornamental products, consisting of
serving sets, plaques and other decorative or ornamental items crafted from
materials other than gold or silver, and (4) silver products, consisting of a
broad array of jewelry and decorative or ornamental items otherwise falling
within one of the other product segments but crafted from silver. The Company's
products range in wholesale price from approximately $10 to over $100,000. The
mean selling price of the Company's products is between $200 and $220.
The following table illustrates the typical range and average wholesale
price of the Company's products by segment:
<TABLE>
<CAPTION>
WHOLESALE AVERAGE
PRICE RANGE WHOLESALE PRICE
------------- ---------------
<S> <C> <C>
Fine gold products................... $20 to $1,000 $300
Other gold products.................. $10 to $1,000 $500
Ornamental products.................. $50 to $1,000 $500
Silver products...................... $2 to $100 $10
</TABLE>
3
<PAGE>
For the two years ended March 31, 1996, sales by segment and major product
line and as a percentage of sales (including subcontracting fees) were as
follows:
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
Amount Percent Amount Percent
($'000) ($'000)
<S> <C> <C> <C> <C>
Fine gold products
Bracelets........................... $ 3,762 14 % $3,368 14%
Chains.............................. 3,619 13 3,269 14
Rings............................... 4,501 17 4,302 18
Earrings............................ 1,926 7 1,690 7
Ornamental.......................... 5,000 19 4,206 18
Other gold products
Bracelets........................... 333 1 189 1
Chains.............................. 502 2 282 2
Rings............................... 1,326 5 726 3
Earrings............................ 982 3 532 2
Other............................... 191 1 142 1
Silver products
Bracelets........................... 1,420 5 1,389 6
Chains.............................. 1,438 5 1,427 6
Rings............................... 946 4 921 4
Earrings............................ 485 2 471 2
Ornamental.......................... 437 2 466 2
</TABLE>
PRODUCT DESIGN AND DEVELOPMENT
The Company maintains an in-house product design and development team in
its Hong Kong offices consisting of approximately 10 staff members. The
Company's product design staff continuously monitors jewelry trends and consumer
preferences and is engaged in ongoing efforts to design new products consistent
with such trends and preferences. After conceiving of a new product, the
Company's design staff will produce detailed drawings and molds for use in
actual production. The Company's design staff currently produces approximately
100 new products annually.
PURCHASING
The principal materials in the manufacture and assembly of the Company's
products are gold, silver and color stones which typically represent
approximately 50% to 70% of the total costs of producing the Company's gold
products and 30% to 50% of the total costs of producing the Company's silver
products.
The Company purchases gold primarily from suppliers in South Africa and
Hong Kong. Silver purchases are primarily from suppliers in Hong Kong. Color
stones are purchased primarily from suppliers in Burma and Thailand.
The Company maintains no long term contractual arrangements to purchase
materials. Although purchases of raw materials are made from a relatively small
number of suppliers, the Company believes there are numerous alternative sources
for all materials and products, and that the failure of any principal supplier
would not have a material adverse effect on operations or the Company's
financial condition. To date, the Company has not experienced any difficulty in
securing product.
The Company does not presently engage in any hedging activities with
respect to possible fluctuations in the prices of raw materials. The Company
believes that the risk of not engaging in such activities is minimal, since
historically the Company has been able to adjust prices as material fluctuations
have occurred.
4
<PAGE>
MANUFACTURING AND ASSEMBLY
The Company's principal manufacturing and assembly operations are
undertaken at facilities located in Shenzhen and Beijing, PRC pursuant to
agreements with Shenzhen Crafts and China Jewellery.
The Company's largest manufacturing operations take place at the Company's
Beijing Facility which is jointly operated with China Jewellery. Pursuant to an
Agreement for Jewellery Assembling entered into in November of 1994, formalizing
existing manufacturing operations which commenced in 1992, China Jewellery has
provided the use of the existing Beijing Facility as well as a labor supply,
water, electricity and other support services and the Company has provided
equipment, tools, technical expertise and materials necessary to carry on
jewelry manufacturing operations. Under the agreement, China Jewellery is
responsible for actual jewelry assembly and manufacturing and the Company
provides raw materials and technical expertise. The Company pays assembling fees
to China Jewellery in an amount equal to HK$1.00 per gram for fine gold jewelry,
HK$3.00 per gram for karat-gold jewelry and HK$0.60 per gram for silver jewelry
and gem assembling. The Agreement also provides that China Jewellery may perform
jewelry manufacturing and assembly operations for other parties using the
Beijing Facility provided that such operations do not interfere with the
manufacturing and assembly operations and requirements of the Company and
provided that such products are manufactured exclusively for domestic
consumption within the PRC. The Company is entitled to receive a fee from China
Jewellery with respect to all jewelry manufactured for third parties at the
Beijing Facility with the amount of such fees to be determined on a case-by-case
basis. The Agreement for Jewellery Assembling with China Jewellery expires in
November of 2004.
The Company also carries on jewelry manufacturing and assembly operations
at its Shenzhen Facility pursuant to an agreement with Shenzhen Craft which is
substantially similar to the manufacturing arrangement with China Jewellery
except on a smaller scale and except that the Shenzhen Facility is used
exclusively for manufacturing products for the Company. Shenzhen Craft is paid
manufacturing fees in an amount equal to approximately $2,000 per month . The
agreement with Shenzhen Craft expires in December of 2010.
Actual manufacturing and assembly operations are performed by skilled
workers under the supervision of a team of technicians. Before actual
manufacturing or assembly commences, product specifications are established,
product design is undertaken and raw materials are purchased and inspected. The
manufacturing and assembly process is tailored to the specifications of the
items being manufactured. Chain jewelry manufacturing begins with the melting of
gold or silver into bars which are rolled and elongated on a press. The process
is repeated a number of times until the bar is reduced to wire of approximately
20mm. The wire is then stretched to produce a finer wire which is then cut and
strung to form chains. The chains are then cut, sized and graded. Manufacturing
of other jewelry items, including ornaments which may be attached to chains,
typically begins with the construction of a metal prototype. A mold is then
formed around the model. Molds are, in turn, used to produce wax models and
hardened plastic molds. For solid gold or silver pieces, casting is then
performed by filling or injecting molds with melted gold or silver which has
been mixed with appropriate alloys to achieve the desired level of purity. As an
alternative to the traditional casting method, the Company casts "electro-form"
jewelry utilizing a proprietary technique to bond gold to an underlying jewelry
form. The plaster mold is then removed and the constituent jewelry parts are
cleaned, assembled, soldered and pre-polished. Designs or impressions are
affixed to appropriate component parts by stamping, cutting or grinding.
Component parts are shaped and assembled to specifications in accordance with
the product design. Virtually all final assembly is performed by hand at row
tables at which all necessary tools to perform fine assembly operations are
available.
In addition to manufacturing undertaken to fill the Company's product
requirements and manufacturing undertaken by China Jewellery at the Company's
Beijing Facility, the Company provides contract jewelry manufacturing for
certain customers who provide all product specifications and raw materials. The
Company is paid negotiated subcontracting fees for manufacturing such products.
The Company presently has adequate facilities and support staff to
manufacture and assemble approximately 150,000 pieces of jewelry annually.
Manufacturing capacity is expected to increase to approximately 300,000 pieces
annually upon moving into the Company's new facilities in Beijing.
5
<PAGE>
QUALITY CONTROL
Strict quality control procedures are followed before and throughout the
manufacturing process to assure that products are manufactured with the highest
degree of precision in compliance with the Company's design specifications.
Before the commencement of manufacturing, all raw materials undergo a thorough
inspection to assure that stones purchased are of the right type, quality and
quantity. Trained technicians monitor and the test the purity of all gold to
assure the karat accuracy of all gold produced. Quality checks are carried out
on all products at each stage of production to ensure that the products meet the
Company's quality standards. To ensure the quality of all jewelry produced, all
production workers receive production and quality control training and quality
control supervisor are present and oversee all production operations and,
finally, all finished goods are checked by the Company's quality control team
before shipment to customers.
INVENTORY POLICY AND CONTROL
The Company manufactures products in accordance with customer purchase
orders and sales forecasts of management. The Company's production schedule is
closely monitored by the production management team. The Company's policy is to
manufacture and maintain approximately 20 to 30 days' stocks in inventory to
ensure customer's delivery schedules are met.
Raw materials are normally purchased based on production schedules and are
generally ordered 7 to 14 days before the production commences. At the assembly
line, workers are provided only the raw materials required for assembly of
scheduled production. Materials are weighed before and after each production run
and all production workers are required to account for any losses of stones or
gold or silver over prescribed limits.
Stocks of raw materials and finished products are stored in secure areas in
the Company's Hong Kong offices, access to which is restricted to authorized
personnel.
SALES AND MARKETING
Marketing of the Company's products is carried out by the Company's
internal sales and marketing force for all products sold outside of the PRC and
by China Jewellery and Yiu Ping for all products sold within the PRC.
The Company's internal sales staff is located in the Company's offices in
Hong Kong and carries out sales and marketing activities under the guidance of
senior management which oversees the sales staff and overall marketing strategy.
The Company's sales staff is responsible for establishing and maintaining
relations with independent sales representatives and customers as well as
marketing the Company's products to potential customers. The Company's senior
management and marketing staff regularly attends major jewelry fairs in Hong
Kong to promote the Company's products and new customers. Additionally, the
Company periodically advertises in jewelry magazines and makes direct mailings
of new product catalogues.
Marketing of products within the PRC is conducted exclusively through China
Jewellery and Yiu Ping as agents for the Company. Both China Jewellery and Yiu
Ping possess the requisite licenses to market gold and silver within the PRC.
Pursuant to a Sales Agency Agreement with China Jewellery, China Jewellery
handles substantially all aspects of marketing the Company's products in the PRC
in exchange for an agency fee in the amount of fifteen percent (15%) of the
sales price of fashion jewelry, ten percent (10%) of the sales price of silver
and karat gold jewelry and Rmb 1.00 per gram on fine gold jewelry. The Company,
in turn, acts as agent for China Jewellery with respect to sales of China
Jewellery products in Hong Kong, for which the Company is entitled to agency
fees in the same amounts payable by the Company to China Jewellery. The Sales
Agency Agreement with China Jewellery expires in November of 2004.
The Company also sells jewelry in the PRC through Yiu Ping pursuant to an
agreement which is similar to the Sales Agency Agreement with China Jewellery.
Pursuant to such agreement, the Company pays agency fees to Yiu Ping consisting
of approximately 3% to 5% of the sales price of jewelry sold.
6
<PAGE>
During the year ended March 31, 1996, the Company's sales and
subcontracting fees were approximately $6.7 million, or 25%, in the PRC, $13.4
million, or 50%, in Hong Kong, $2.2 million, or 8% in Europe and $4.6 million,
or 17%, elsewhere in Southeast Asia.
The Company's presently intends to seek and hire additional sales and
marketing personnel in order to expand the Company's marketing efforts in the
Middle East and Europe.
CUSTOMERS
The Company's customers consist principally of a combination of wholesale
distributors and jewelry retailers in the PRC, Hong Kong, Europe and Southeast
Asia. At December 20, 1996, the Company had approximately 20 regular customers
and its products were sold in approximately 2,200 retail outlets in the PRC and
Hong Kong. The Company's five largest customers accounted for approximately 50%
of net sales during the fiscal year ended March 31, 1996. The Company has no
long term contracts with any customers. However, each of the Company's five
largest customers has been a customer of the Company since at least 1990.
COMPETITION
The jewelry industry is highly fragmented, with little significant brand
name recognition or consumer loyalty. Selection is generally a function of
design appeal, perceived high value and quality in relation to price.
While may competitors in the wholesale jewelry manufacturing and
distribution business may have a wider selection of products or greater
financial resources, the Company believes its competitive position is enhanced
by the Company's broad customer base, experienced management team and the
Company's close relationship with its customers and vendors. Therefore, although
the competition is intense, the Company believes that it is well positioned to
compete in the jewelry industry.
EMPLOYEES
As of December 20, 1996, the Company had approximately 1,080 employees,
including 5 executive officers, 20 other management personnel, 40 persons in
administration, 947 persons in manufacturing and production and 68 persons in
sales and marketing. Of the Company's employees, approximately 80 are located in
Hong Kong with the remaining employees being located in the PRC. None of the
Company's employees is governed by collective bargaining agreements and the
Company considers its relations with its employees to be satisfactory.
FACILITIES
The Company operates three distinct facilities in Hong Kong and the PRC.
The Company's executive offices are located at Unit 302-303A and Unit 410,
Fu Hang Industrial Building, 1 Hok Yuen Street East, Hunghom, Hong Kong. Such
facility consists of approximately 11,000 square feet of office space. Unit
302-303A is leased from Ms. Chan, an officer and director of the Company, for
HK$1.35 million per year pursuant to a lease expiring March 31, 1998. Unit 410
is leased from an unaffiliated third party for HK$300,000 per annum pursuant to
a lease expiring September 19, 1998. Such office space also houses certain
marketing, product design and high quality gold production operations.
The Company's principal production operations are located in facilities
located in Shenzhen and Beijing, PRC. The Shenzhen facility consists of a modern
five story building of approximately 20,000 square feet. Three floors of the
Shenzhen facility house manufacturing operations with one floor being utilized
for administrative and office space and one floor serving as staff quarters for
employees. The Company leases the physical facility from Shenzhen City Highway
Construction Co., Ltd. for a term of 20 years expiring January, 2007. Monthly
lease payments on such facility are $6,420.
7
<PAGE>
The Company's operations in Beijing are presently housed in a five story
60,000 square foot facility consisting of three floors of manufacturing space,
one floor of office and administrative space and one floor of staff quarters.
The existing facilities in Beijing are held pursuant to a 20 year lease expiring
2010 with China Jewellery and providing for monthly lease payments of $14,990.
Adjacent to the Beijing facility is a 5,000 square foot building which serves as
the facility's power plant. A 14-story building is presently under construction
adjacent to the Company's facility in Beijing. Upon completion, the Company will
lease 3 floors of the new building (approximately 100,000 square feet) and move
all of its Beijing operations to the new building. The Company expects to move
into the new building by approximately June of 1997 and will sign a 20 year
lease on such premises at an anticipated monthly rental rate, including
management fees, of $22,500.
The Company believes that its existing facilities and facilities under
construction will be adequate to support the Company's operations for the
foreseeable future.
ITEM 2. FINANCIAL INFORMATION.
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables present selected historical combined financial data of
the Hang Fung Group derived from the combined financial statements of the Hang
Fung Group which appear elsewhere herein. The Hang Fung Group was acquired by
the Company in December of 1996 in a transaction accounted for as a "reverse
acquisition." The operations of the Company prior to acquisition of the Hang
Fung Group have been discontinued and the Company's operations presently consist
solely of the operations of the Hang Fung Group. The pro forma financial data
gives effect to the acquisition of the Hang Fung Group as if such acquisition
had occurred as of the beginning of the earliest period presented and the
termination of the Company prior operations had occurred at such time. The
following data should be read in conjunction with the combined financial
statements of the Hang Fung Group, the financial statements of New Wine, Inc.
and the pro forma combined financial statements included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
---------------------------------------------------- ------------------
INCOME STATEMENT DATA: 1992 1993 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $ 7,549 $ 10,568 $ 13,197 $ 18,478 $ 19,348 $ 9,190 $ 12,058
Subcontracting fees........... 2,689 2,786 3,481 4,902 7,520 3,379 3,103
------- -------- -------- -------- -------- ------- --------
Total revenues.............. 10,238 13,354 16,678 23,380 26,868 12,569 15,161
Gross profit.................. 2,866 3,668 4,585 7,004 8,046 3,717 4,460
Operating income.............. 1,764 1,870 2,262 4,609 5,372 2,165 2,817
Other income (expense), net... (162) (169) (185) (274) (329) (17) (98)
Income before taxes........... 1,602 1,701 2,077 4,335 5,043 2,148 2,719
Net income.................... $ 936 $ 1,032 $ 1,311 $ 2,863 $ 3,393 $ 1,498 $ 2,007
======= ======= ======= ======= ======= ======= =======
Net income per share (1)...... $ 0.08 $ 0.09 $ 0.11 $ 0.24 $ 0.28 $ 0.12 $ 0.17
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1995 1996 1996
------- ------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................ $ 3,024 $ 613 $ 1,724
Total assets................... 17,517 15,676 17,678
Long-term debt, less
current portion............... 299 879 873
Stockholders' equity (2)....... 4,531 3,038 5,067
</TABLE>
- -----------------------------
(1) Net income per share is computed assuming the issuance of shares in
connection with the acquisition of the Hang Fung Group by the Company as of
the beginning of each period presented (i.e. 12,000,000 shares
outstanding).
(2) Stockholders' equity at March 31, 1996 reflects the payment of a dividend
in the amount of $5,000,000 by the Hang Fung Group prior to the acquisition
of the Hang Fung Group by the Company.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements, the combined financial statements of the Hang Fung Group
and the pro forma financial information appearing elsewhere herein.
Prior to December of 1996, the Company's was engaged in limited operations
relating to the production and distribution of record albums, cassette tapes and
compact discs and videotape and television productions for domestic distribution
and foreign licensing; operation of a music publishing firm; and, generally, the
business of providing personal business management services for professional
entertainers. In December of 1996, the Company acquired the Hang Fung Group and
entered into the jewelry manufacturing and distribution business. The
acquisition of the Hang Fung Group has been accounted for using the purchase
method of accounting with the transaction being accounted for as a "reverse
acquisition." The Company does not consider the operations prior to the
acquisition of the Hang Fung Group to be material to an understanding of the
Company. Accordingly, this discussion will relate the operations of the Hang
Fung Group for all periods presented, excluding the former operations of New
Wine, Inc.
Hang Fung's historical operations have consisted of designing, assembling,
merchandising and distributing a full line of gold and silver jewelry products
and other ornamental products on a wholesale basis in Hong Kong, China, Europe
and Southeast Asia. Revenues from such operations are generated through the
manufacturing and wholesaling of the Company's jewelry products and through fees
payable to the Company by its business partners in the PRC, China Jewellery, for
marketing services outside of China and for use of the Company's manufacturing
facilities in the production of jewelry by China Jewellery.
The primary cost of operating the Company's jewelry business is the raw
material cost of jewelry. The Company assembles or manufactures all of the
jewelry which it sells, other than sales made as agent for China Jewellery. The
Company constantly compares price and quality of jewelry raw materials and
finished products to assure that it is obtaining the best price and quality
available. The cost of such products varies with currency fluctuations and other
factors beyond the Company's control. While any fluctuations in the Company's
price of acquiring raw materials may adversely affect the Company's profit
margins, the Company has historically been able to pass such cost fluctuations
on to its customers. See "Business - Purchasing."
The Company's other significant operating expenses are marketing costs,
including participation in advertising programs, customer support, inventory and
quality control, jewelry design and general corporate overhead.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Combined Statements of Income expressed as a percentage of total
revenues.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
1994 1995 1996 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total revenues............... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................ 72.5 70.0 70.1 70.4 70.6
---- ---- ---- ---- -----
Gross profit................. 27.5 30.0 29.9 29.6 29.4
Operating expenses........... 13.9 10.2 10.0 12.3 10.8
---- ---- ---- ---- -----
Income from operations....... 13.6 19.7 20.0 17.2 18.6
Other income (expense)....... (1.1) (1.2) (1.2) (0.1) (0.6)
---- ---- ---- ---- ----
Income before income taxes... 12.5 18.5 18.8 17.1 18.0
Income taxes................. (4.6) (6.3) (6.2) (5.2) (4.8)
---- ---- ---- ---- ----
Net income................... 7.9 12.2 12.6 11.9 13.2
==== ==== ==== ==== ====
</TABLE>
9
<PAGE>
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1995
REVENUES AND GROSS PROFIT. Operating revenues increased by 20.6% to $15.2
million in the six months ended September 30, 1996 as compared to the first half
of fiscal 1996. Sales of Company products were up 31.2% to $12.1 million during
the first half of fiscal 1997 as compared to $9.2 million in sales during the
first half of fiscal 1996. The increase in sales was partially offset by a 8.2%
decrease in subcontracting fees to $3.1 million during the first half of fiscal
1997 from $3.4 million during the first half of the prior year. The increase in
sales was attributable to growing demand for electro-form jewelry and gold card
ornaments as well as increased demand in the PRC resulting from a recovery in
the PRC economy. The decrease in subcontracting fees was attributable to
increased utilization of the Company's manufacturing facilities for manufacture
of Company sold products as opposed to products manufactured on a sub-contract
basis or manufactured at such facilities for sale by China Jewellery.
Geographically, sales in Hong Kong were up during the first half of fiscal 1997,
increasing approximately 50.8% to $7.6 million from $5.0 million in fiscal 1996,
sales in the PRC were up during the first half of fiscal 1997, increasing
approximately 0.5% to $3.79 million from $3.77 million in fiscal 1996, sales in
Europe were down during the first half of fiscal 1997, decreasing approximately
20% to $1.2 million from $1.5 million in fiscal 1996, and sales in Southeast
Asia were up during the first half of fiscal 1997, increasing approximately 14%
to $2.6 million from $2.2 million in fiscal 1996.
Gross profits increased by 20.0% to $4.5 million in the first half of
fiscal 1997 from $3.7 million during the six months ended September 30, 1995.
The increase in gross profits was attributable to increased sales during the
period which were partially offset by a reduction in subcontracting fees and
gross margins. Gross margins were down marginally during the period to 29.4%
from 29.6%. However, excluding subcontracting fees, profit margins improved on
sales of Company products during the period as a result of increased demand and
accompanying higher profit margins for electro-form jewelry.
OPERATING EXPENSES. Operating expenses totaled $1.6 million during the
first half of fiscal 1997, an increase of 5.9% from operating expenses for the
same period in fiscal 1995. The increase in operating expenses during the period
was primarily attributable to increased marketing expenses associated with
higher sales volume and the impact of inflation in certain expenses in Hong Kong
and China.
OTHER INCOME/EXPENSE. Other income/expense during the period consisted of
gains/losses from trading of fashion jewelry, interest income and interest
expense. Net other expense totaled $98,000 during the period as compared to
$17,000 in 1996. The increase in net other expense during the period was
attributable to increased interest expense associated with higher production and
sales and capital leases of equipment.
INCOME TAXES. Income taxes increased by 9.5% from approximately $650,000 in
the first half of fiscal 1996 to $712,000 during the six months ended September
30, 1996. The increase in income taxes during the period was attributable to the
increase in the taxable earnings of the Company.
YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995
REVENUES AND GROSS PROFIT. Operating revenues increased by 14.9% to $26.9
million during the fiscal year ended March 31, 1996 as compared to $23.4 million
during fiscal 1995. Sales of Company products were up 4.7% to $19.3 million
during fiscal 1996 as compared to $18.5 million in sales during fiscal 1995. The
Company also reported a 53.4% increase in subcontracting fees to $7.5 million
during fiscal 1996 from $4.9 million during the prior year. The increase in
sales was attributable to increased sales of electro-form items and gold card
ornaments as well as market expansion in Europe. The increase in subcontracting
fees was attributable to increased demand for gold products which resulted in
the addition of new sub-contract manufacturing customers and an increase in
manufacturing by China Jewellery at the Company's facilities on behalf of its
customers. Geographically, sales in Hong Kong were up during fiscal 1996,
increasing approximately 43.6% to $13.4 million from $9.4 million in fiscal
1995, sales in the PRC were down during fiscal 1996, decreasing approximately
4.2% to $6.7 million from $7.0 million in fiscal 1995, sales in Europe were down
during fiscal 1996, decreasing approximately 23.4% to $2.15 million from $2.8
million
10
<PAGE>
in fiscal 1995, and sales in Southeast Asia were up during fiscal 1996,
increasing approximately 8.5% to $4.6 million from $4.2 million in fiscal 1995.
Gross profits increased by 14.9% to $8.0 million in fiscal 1996 from $7.0
million during fiscal 1995. The increase in gross profits was attributable to
increased sales during the period and an improvement in gross margins. Gross
margins were up during the period to 30.0% from 27.5%.
OPERATING EXPENSES. Operating expenses totaled $2.7 million during fiscal
1996, an increase of 11.6% from fiscal 1995. The increase in operating expenses
during the period was primarily attributable to increased marketing expenses
associated with increased sales and expenses for expansion in overseas markets.
OTHER INCOME/EXPENSE. Other income/expense during the period consisted of
gains/losses from trading of fashion jewelry, interest income and interest
expense. Net other expense totaled $329,000 during the period as compared to
$274,000 in 1995. The increase in net other expense during the period was
attributable to interest expense associated with capital leases of new
equipment.
INCOME TAXES. Income taxes increased by 12.1% from approximately $1.5
million in fiscal 1995 to $1.7 million during fiscal 1996. The increase in
income taxes during the period was attributable to the increase in the taxable
earnings of the Company.
YEAR ENDED MARCH 31, 1995 COMPARED TO YEAR ENDED MARCH 31, 1994
REVENUES AND GROSS PROFIT. Operating revenues increased by 40.2% to $23.4
million during the fiscal year ended March 31, 1995 as compared to $16.7 million
during fiscal 1994. Sales of Company products were up 40.0% to $18.5 million
during fiscal 1995 as compared to $13.2 million in sales during fiscal 1994. The
Company also reported a 40.8% increase in subcontracting fees to $4.9 million
during fiscal 1995 from $3.5 million during the prior year. The increase in
sales was attributable to the development of lower priced but higher margin
electro-form jewelry which experienced strong acceptance among younger
consumers. The increase in subcontracting fees was attributable to strong demand
for moderately priced electro-form gold jewelry which resulted in increased
subcontract manufacturing work being performed for the Company's customers and
by China Jewellery at the Company's facilities on behalf of its customers.
Geographically, sales in Hong Kong were up during fiscal 1995, increasing
approximately 40.0% to $9.4 million from $6.7 million in fiscal 1994, sales in
the PRC were up during fiscal 1995, increasing approximately 40.0% to $7.0
million from $5.0 million in fiscal 1994, sales in Europe were up during fiscal
1995, increasing approximately 40% to $2.8 million from $2 million in fiscal
1994, and sales in Southeast Asia were up during fiscal 1995, increasing
approximately 40% to $4.2 million from $3 million in fiscal 1994.
Gross profits increased by 52.8% to $7.0 million in fiscal 1995 from $4.6
million during fiscal 1994. The increase in gross profits was attributable to
increased sales during the period which were partially offset by a minimal
reduction in gross margins. Gross margins were down marginally during the period
to 29.9% from 30.0%. However, excluding subcontracting fees, profit margins
decreased on sales of Company products during the period as a result of
promotional pricing of newly developed products to establish market share for
those new products.
OPERATING EXPENSES. Operating expenses totaled $2.4 million during fiscal
1995, an increase of 3.1% from operating expenses in fiscal 19945. The increase
in operating expenses during the period was primarily attributable to increased
marketing expenses associated with increased sales.
OTHER INCOME/EXPENSE. Other income/expense during the period consisted of
gain/loss from trading of fashion jewelry, interest income and interest expense.
Net other expense totaled $274,000 during the period as compared to $185,000 in
1994. The increase in net other expense during the period was attributable to
increased interest expense associated with increased capital leases of
equipment.
INCOME TAXES. Income taxes increased by 92.2% from approximately $0.8
million in fiscal 1994 to $1.5 million during fiscal 1995. The increase in
income taxes during the period was attributable to the increase in the taxable
earnings of the Company.
11
<PAGE>
TRENDS AND CONTINGENCIES
Future operating results are expected to be impacted by the ongoing
expansion of manufacturing operations in Beijing. Expanded modern manufacturing
facilities are presently being constructed which are expected to increase the
Company's overall manufacturing capacity by approximately 100%. Completion of
such facilities is presently anticipated by September of 1997. In conjunction
with the expansion of manufacturing capacity, the Company is presently planning
to expand its marketing efforts into the Middle East and Europe during 1997. The
expansion of manufacturing operations and marketing efforts will entail certain
increased operating costs, including one-time costs associated with such new
operations, which may adversely impact operating margins in the short-term.
However, management believes that such expansion will improve operating
efficiency adding to revenues, net income and net margins in the coming years.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had cash balances totaling $47,000 and a
working capital balance of $1.7 million. This compares to a cash balance of
$244,000 and working capital of $0.6 million at March 31, 1996.
The Company's primary liquidity needs are to fund accounts receivable and
inventories as well as to fund the Company's planned expansion. The Company has
historically funded its operations through a combination of internally generated
cash and short-term borrowings under bank lines of credit. The Company's
expansion plans have been funded by bank loan facilities and internally
generated cash. In December of 1996, the Company raised approximately $1.0
million from a sale of common stock to fund certain costs associated with
construction of the Beijing facility and working capital requirements. The
Company is presently evaluating other possible efforts to raise additional
capital but has no commitments in that regard.
The Company's accounts receivable increased to $3.9 million at September
30, 1996 as compared to approximately $3.0 million, or 11.1% of fiscal 1996
revenues, at March 31, 1996 and approximately $5.6 million, or 23.8% of fiscal
1995 revenues, at March 31, 1995. The increase in accounts receivable during the
first six months of fiscal 1997 was attributable to increased sales levels. The
decrease in accounts receivable, in aggregate and as a percentage of revenues,
from fiscal 1995 to fiscal 1996 was attributable to increased sales of jewelry
on a cash or short-term credit basis.
At September 30, 1996, the Company had no material capital commitments
other than those necessary to support its existing operations and to carry out
planned expansion of its Beijing operations. The total cost of establishment of
the new manufacturing facilities in Beijing is expected to be less than
$1,000,000. None of such costs had been paid as of September 30, 1996. The cost
of such facility is expected to be financed through internally generated cash.
The Company has no other material commitments to expend capital resources
outside of ordinary operating expenses. However, the Company intends to use
available funds as needed to expand its jewelry distribution operations into the
Middle East and Europe.
At September 30, 1996, the Company's capital resources consisted of various
bank credit facilities and certain capital leases, in addition to funds on hand.
The Company's bank credit facilities consist of a combination of term loans,
lines of credit, letters of credit, bank guarantees, overdraft, revolving and
similar credit facilities generally utilized in the jewelry industry. The
Company's bank credit facilities are used to fund purchases of raw materials and
inventory and to finance accounts receivable and overdrafts. Such facilities are
consistent with credit facilities generally available to operators in the
jewelry industry in terms of interest rates and fees, collateral, repayment
terms, and renewal. The Company's total available bank credit facilities at
September 30, 1996 were approximately $3.3 million of which approximately $3
million had been used at such date. Management believes that such bank credit
facilities are adequate to meet the Company's bank credit needs for at least the
next 12 months and that such facilities can be readily renewed or replaced as
they come due.
12
<PAGE>
At September 30, 1996, the Company also had a number of capital leases and
operating leases pursuant to which the Company holds various facilities and
equipment. At September 30, 1996, the Company's capital lease obligations
totaled $908,000 of which $93,000 was attributable to current lease obligations.
Obligations under operating leases require minimum annual rental payments by the
Company of approximately $9,000 in fiscal 1997.
The Company believes that the available trade credit, bank credit
facilities, funds on hand and funds generated from operations, will be
sufficient to satisfy the Company's anticipated working capital requirements for
at least the next 12 months.
SEASONALITY
The jewelry business is highly seasonal, with the third and fourth calendar
quarters (second and third fiscal quarters), which includes the Christmas
shopping season, historically contributing the highest sales. Seasonality cannot
be predicted or counted upon, and the results of any interim period are not
necessarily indicative of the results that might be expected during a full
fiscal year.
The following table sets forth the Company's unaudited net sales for the
periods indicated (dollar amounts are in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
----------------------------------------------------
1994 1995 1996
--------------- --------------- ----------------
Amount % Amount % Amount %
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
1st Quarter (4/1-6/30) $ 3,719 22.3 $ 5,097 21.8 $ 5,961 22.3
2nd Quarter (7/1-9/30) 4,170 25.0 5,868 25.1 6,608 25.2
3rd Quarter (10/31-12/31) 4,820 28.9 6,804 29.1 7,684 28.6
4th Quarter (1/1-3/31) 3,969 23.8 5,611 24.0 6,615 23.9
------- ----- ------- ----- ------- -----
Total $16,678 100.0 $23,380 100.0 $26,868 100.0
======= ===== ======= ===== ======= =====
</TABLE>
INFLATION
Inflation has historically not had a material effect on the Company's
operations. When the price of gold or other raw materials has increased, these
costs historically have been passed on to the customer. Furthermore, as the
Company does not have either long-term supply contracts or long-term contracts
with customers, prices are quoted based on the prevailing prices for
semi-precious gemstones or metals. Accordingly, the Company does not believe
inflation will have a material effect on its future operations.
ITEM 3. PROPERTIES.
All of the Company's material properties are described in Item 1. above.
13
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
COMMON STOCK
The following table is furnished as of December 20, 1996, to indicate
beneficial ownership of shares of the Company's Common Stock by (1) each
shareholder of the Company who is known by the Company to be a beneficial owner
of more than 5% of the Company's Common Stock, (2) each director and named
officer of the Company, individually, and (3) all officers and directors of the
Company as a group. The information set out in the following table was supplied
by such persons.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER (1) OWNED PERCENT
- --------------------------------------------------- ------------ ----------
<S> <C> <C>
Good Day Holdings, Ltd (2)........................... 6,600,000(2) 55.0%
Unit 302-303A, 3rd Floor, Fu Hang Industrial Bldg.
No. 1 Hok Yuen Street East, Kowloon, Hong Kong
Lam Mo Wan........................................... 1,800,000 15.0%
Unit 302-303A, 3rd Floor, Fu Hang Industrial Bldg.
No. 1 Hok Yuen Street East, Kowloon, Hong Kong
Chan Wai Sum......................................... 1,800,000 15.0%
Unit 302-303A, 3rd Floor, Fu Hang Industrial Bldg.
No. 1 Hok Yuen Street East, Kowloon, Hong Kong
Lam Sai Wing (2)..................................... 6,600,000(2) 55.0%
Chan Yam Fai, Jane................................... 300,000 2.5%
Ng Yee Mei........................................... -0- -
Cheng Wa On.......................................... -0- -
All officers and directors
as a group (4 persons)............................. 6,900,000(2) 57.5%
</TABLE>
- -----------------------------
(1) Unless otherwise noted, each person or group identified possesses sole
voting and investment power with respect to the shares shown opposite the
name of such person or group.
(2) Good Day Holdings Ltd. is controlled 100% by Lam Sai Wing, an officer and
director of the Company. Accordingly, Mr. Lam may be deemed to be the
beneficial owner of the shares held by Good Day Holdings Ltd.
PREFERRED STOCK
SERIES A PREFERRED STOCK. The following table is furnished as of December
20, 1996 to indicate beneficial ownership of the Company's Series A Preferred
Stock by each shareholder of the Company who is known by the Company to be a
beneficial owner of more than 5% of the Company's Series A Preferred Stock.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER (1) OWNED PERCENT
- --------------------------------------------------- ------------ ----------
<S> <C> <C>
Good Day Holdings Ltd.............................. 100,000(2) 100.0%
Unit 302-303A, 3rd Floor, Fu Hang Industrial Bldg.
No. 1 Hok Yuen Street East, Kowloon, Hong Kong
Lam Sai Wing....................................... 100,000(2) 100.0%
</TABLE>
- -----------------------------
(1) Unless otherwise noted, each person or group identified possesses sole
voting and investment power with respect to the shares shown opposite the
name of such person or group.
(2) Good Day Holdings Ltd. is controlled 100% by Lam Sai Wing, an officer and
director of the Company. Accordingly, Mr. Lam may be deemed to be the
beneficial owner of the shares held by Good Day Holdings Ltd.
14
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
IDENTIFICATION OF DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT
EMPLOYEES
The following table sets forth certain information regarding the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- --------------------------------------------
<S> <C> <C>
Lam Sai Wing........ 41 Chairman, Chief Executive Officer and President
Chan Yam Fai, Jane.. 33 Vice President, Chief Financial Officer and Director
Ng Yee Mei.......... 34 Vice President and Director
Cheng Wa On......... 34 Director
</TABLE>
TERMS OF OFFICE
The directors of the Company hold office until the next annual meeting of
stockholders of the Company or until their successors in office are elected and
duly qualified. All officers serve at the discretion of the Board of Directors
except as set forth in employment agreements.
FAMILY RELATIONSHIPS
Lam Sai Wing and Chan Yam Fai, Jane are husband and wife.
BUSINESS EXPERIENCE
LAM SAI WING has served as Chairman of the Board, Chief Executive Officer
and President of the Company since the Exchange in December of 1996 and of the
Company's predecessor and operating subsidiaries, the Hang Fung Group since
founding the Hang Fung Group in 1986.
CHAN YAM FAI, JANE has served as Vice President, Chief Financial Officer
and a Director of the Company since the Exchange in December of 1996 and of the
Hang Fung Group since 1990.
NG YEE MEI has served as Vice President and a Director of the Company since
the Exchange in December of 1996 and of the Hang Fung Group since 1991.
CHENG WA ON has served as a Director of the Company since the Exchange in
December of 1996. Mr. Cheng has been employed by the Hang Fung Group as Export
Manager since 1986.
15
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION TABLE
The following table sets forth information as to the compensation paid or
accrued to each officer and director receiving compensation of at least $100,000
and the Chief Executive Officer for the three years ended March 31, 1996:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) COMPENSATION
- --------------------------- ---- ------- ----- -------------- ------------
<S> <C> <C> <C> <C> <C>
Lam Sai Wing 1996 $55,000 $-0- $15,000 $-0-
Chief Executive Officer, 1995 45,000 -0- 15,000 -0-
Chairman of the Board 1994 40,000 -0- 15,000 -0-
and President
</TABLE>
- -----------------------------
(1) Mr. Lam assumed the positions indicated, including the position of Chief
Executive Officer, following the Exchange in December of 1996. The
compensation indicated represents amounts paid by the Hang Fung Group
during each of the years indicated. Mr. Claude Smith served as Chief
Executive Officer of the Company during each of the years indicated and up
until the Exchange in December of 1996 at which time Mr. Lam assumed the
position of Chief Executive Officer.
(2) Mr. Lam's other annual compensation consists of a housing allowance,
vacation pay and other fringe benefits.
DIRECTOR'S COMPENSATION
No compensation has been paid to any directors for service in such capacity
in the past and no such compensation is presently payable to directors. At such
time as the Board of Directors deems appropriate, the Company intends to adopt
an appropriate policy to compensate non-employee directors in order to attract
and retain the services of qualified non-employee directors.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Lam Sai Wing and Chan Yam Fai,
Jane. Each of these agreements expires December 31, 2003. The employment
agreements provide for a base salary and bonus of HK$420,000 annually for Mr.
Lam and HK$280,000 for Ms. Chan including a housing allowance and participation
in all other benefit plans adopted by the Company.
PENSION PLAN
The Company's subsidiaries in Hong Kong have adopted a voluntary defined
contribution pension plan (the "Plan") for its employees in Hong Kong. The Plan
generally covers all employees of the Company's operating subsidiaries
(excluding contract workers in the PRC) who have completed three months of
service with the Company. Employees electing to participate in the Plan defer,
in the form of a contribution to the Plan, an amount equal to five percent (5%)
of their monthly salary and the Company makes a matching contribution on behalf
of each participating employee.
Participating employees are always fully vested with respect to
contributions made by them to the Plan and earnings or increases thereon.
Employees become vested in contributions made by the Company ratably over ten
years.
16
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company's predecessor and subsidiary, Hang Fung Group, has, from time
to time entered into transactions with officers and directors of the Company and
companies controlled by officers and directors of the Company.
During the fiscal years ended March 31, 1995 and 1996, the Hang Fung Group
reported sales of $112,000 and $83,000, respectively, to Hang Fung Jewellery
Co., Inc. ("HFJCI"). Prior to October 1, 1996, HFJCI was beneficially owned by
Lam Sai Wing and was engaged in marketing of products of the Hang Fung Group in
the United States. Effective October 1, 1996, Mr. Lam disposed of all of his
holdings in HFJCI to an unrelated party.
During the fiscal years ended March 31, 1995 and 1996, the Hang Fung Group
paid rental payments totaling $174,000 and $199,000, respectively, to Chan Yam
Fai, Jane in connection with the lease of the Company's principal executive
offices in Hong Kong.
The Hang Fung Group has from time to time advanced funds to Lam Sai Wing.
Receivables from Mr. Lam totaled $1,056,000 at March 31, 1996 and $398,000 at
September 30, 1996. Such loans are unsecured, non-interest bearing and without
pre-determined repayment terms.
Lam Sai Wing and Chan Yam Fai, Jane have personally guaranteed the existing
banking facilities of the Hang Fung Group and have pledged certain real estate
as collateral to secure such banking facilities.
With the exception of the non-interest bearing loans to Lam Sai Wing, all
of the above transactions are believed by management to be on terms at least as
favorable to the Company as may have been obtained from unaffiliated third
parties. The Company has no present policy governing related party transactions
but intends to implement a policy such that all future and ongoing transactions
between the Company and its directors, officers, principal stockholders or
affiliates will be on terms no less favorable to the Company than may be
obtained from unaffiliated from third parties, and any such transactions will be
approved by a majority of disinterest directors of the Company.
ITEM 8. LEGAL PROCEEDS.
The Company is from time to time a party to lawsuits incidental to its
business. The Company and its management are not presently aware of any pending
or threatened proceedings which, individually or in the aggregate, are believed
to be material.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
There is no established public trading market for the Company's Common
Stock. The Common Stock trades on a sporadic basis in the over-the-counter
market. While the Company intends commence trading of its shares on the NASD
Electronic Bulletin Board, there is no assurance that a trading market will
develop or that any such market which may develop will be sustained.
HOLDERS
At December 20, 1996, there were approximately 103 record holders of the
Company's Common Stock.
17
<PAGE>
DIVIDENDS
While the Hang Fung Group paid a one-time dividend of $5 million during
fiscal 1996, prior to the Exchange, the Company has not paid any dividends since
its inception and presently anticipates that all earnings, if any, will be
retained for development of the Company's business and that no dividends on the
shares of Common Stock will be declared in the foreseeable future. Any future
dividends will be subject to the discretion of the Company's Board of Directors
and will depend upon, among other things, future earnings, the operating and
financial condition of the Company, its capital requirements, general business
conditions and other pertinent facts. Therefore, there can be no assurance that
any dividends on the Common Stock will be paid in the future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
Since its inception in April of 1994, the Company sold the following
unregistered securities without the use of underwriters and without the payment
of any discounts or commissions:
(1) In April of 1994, the Company issued an aggregate of 1,275,000
shares of common stock to the founders of the Company for $114,631 in cash
and professional services valued at $175,500.
(2) In September of 1995, the Company issued an aggregate of 225,000
shares of common stock for $45,000 in cash to various investors.
(3) In December of 1996, the Company issued an aggregate of 10,500,000
shares of common stock and 100,000 shares of Series A Preferred Stock to
the then shareholders of the Hang Fung Group in exchange for all of the
issued and outstanding shares of the Hang Fung Group.
The issuance of the above securities to the founding shareholders and to
the shareholders of the Hang Fung Group were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act based on the limited number of purchasers and based on
representations from the purchasers that they were acquiring for investment only
and not with a view to or for sale and restrictive legends were affixed to the
share certificates issued in such transactions. The issuance of the securities
referred to in (2) above was deemed to be exempt from registration under the
Securities Act in reliance on Rule 504 of the Securities Act based on the
limited size of the offering and the filing of a Form D.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
COMMON STOCK
GENERAL. The Company is authorized to issue 25,000,000 shares of Common
Stock, $.001 par value per share ("Common Stock"). At December 20, 1996, there
were 12,000,000 shares issued and outstanding. All shares of Common Stock
outstanding are validly issued, fully paid and non-assessable.
VOTING RIGHTS. Each share of Common Stock entitles the holder thereof to
one vote, either in person or by proxy, at meetings of shareholders. The holders
are not permitted to vote their shares cumulatively. The voting rights of the
holders of Common Stock are subject to the rights of the outstanding Series A
Preferred Shares which, as a class, is entitled to thirty-percent voting control
of the Company. Accordingly, the holders of Common Stock and Series A Preferred
Shares holding, in the aggregate, more than fifty percent (50%) of the total
voting rights can elect all of the directors of the Company.
DIVIDEND POLICY. All shares of Common Stock are entitled to participate
ratably in dividends when and as declared by the Company's Board of Directors
out of the funds legally available therefor and subject to the rights, if any,
of the holders of outstanding shares of preferred stock. Any such dividends may
be paid in cash, property or additional shares of Common Stock. The Company has
not paid any dividends since its inception and presently anticipates that all
earnings, if any, will be retained for development of the Company's business and
that no dividends on the shares of Common Stock will be declared in the
foreseeable future. Any future dividends will be subject to
18
<PAGE>
the discretion of the Company's Board of Directors and will depend upon, among
other things, future earnings, the operating and financial condition of the
Company, its capital requirements, general business conditions and other
pertinent facts. Therefore, there can be no assurance that any dividends on the
Common Stock will be paid in the future.
MISCELLANEOUS RIGHTS AND PROVISIONS. Holders of Common Stock have no
preemptive or other subscription rights, conversion rights, redemption or
sinking fund provisions. In the event of the dissolution, whether voluntary or
involuntary, of the Company, each share of Common Stock is entitled to share
ratably in any assets available for distribution to holders of the equity of the
Company after satisfaction of all liabilities and payment of the applicable
liquidation preference of any outstanding shares of Preferred Stock.
PREFERRED STOCK
The Company has 25,000,000 authorized shares of preferred stock, $0.001 par
value. The Board of Directors has the authority, without action by the
shareholders, to create one or more series of preferred stock and to determine
the dividend rights, dividend rate, rights and terms of redemption, liquidation
preferences, sinking fund terms, conversion and voting rights of any such
series, the number of shares constituting any such series and the designation
thereof and the price therefor.
Series A Preferred Shares. Pursuant to the authority granted in the
Company's Articles of Incorporation, the Board of Directors has authorized a
series of preferred stock designated as Series A Preferred Stock (the "Series A
Preferred Shares"). A total of 100,000 Series A Preferred Shares were authorized
and issued entitling the holders thereof to a liquidation preference of $.001
per share and to thirty percent voting control, as a class, of the Company in
all matters voted on by shareholders. Except to the extent declared by the Board
of Directors from time to time, if ever, no dividends are payable with respect
to the Series A Preferred Shares. With the exception of the foregoing, the
holders of the Series A Preferred Shares have no preferences or rights in excess
of those generally available to the holders of Common Stock.
TRANSFER AGENT AND REGISTRAR.
The transfer agent and registrar for the Company's Common Stock is OTC
Stock Transfer, Inc., 231 East 2100 South, Salt Lake City, Utah 84115.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation provide that the Company shall
indemnify its directors and officers against any damages arising out of their
actions as agents of the Company except in cases where such directors or
officers are adjudged to be liable for negligence or misconduct. Additionally,
the Company's Bylaws provide that the Company shall, to the fullest extent
permitted by Nevada law, indemnify its directors, officers, employees or agents
against any expense, liability or loss by reason of their status or service as
directors, officers, employees or agents of the Company. Section 78.751 of the
Nevada Revised Statutes provides that a corporation may indemnify directors,
officers, employees and agents against all liability, judgments, and expenses
actually incurred by reason of his service in such capacity provided that he
acted in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted and the Company is not aware of any threatened
litigation or proceeding that may result in a claim for such indemnification.
19
<PAGE>
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 15 below for a list of financial statements included herewith.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Following the acquisition of Hang Fung Jewellery Company Limited and Kai
Hang Jewellery Company Limited by the Company, on December 20, 1996, the
Company's Board of Directors selected Arthur Andersen to serve as its new
independent accountants and dismissed Albright, Persing & Associates, Ltd.,
Certified Public Accountants, of Reno, Nevada which previously served as the
independent accountants for the Company.
Albright, Persing & Associates' reports on the financial statements of the
Company for the fiscal years ended December 31, 1994 and 1995 contain no adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles. In connection with its
audits for fiscal years 1994 and 1995 and through December 20, 1996, there were
no disagreements with Albright, Persing & Associates on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of Albright,
Persing & Associates would have caused them to make reference thereto in its
reports on the financial statements for such years.
Arthur Andersen served as the principal accounting firm for Hang Fung
Jewellery Company Limited and Kai Hang Jewellery Company Limited with respect to
the financial statements of such companies for fiscal years ended March 31,
1994, 1995 and 1996.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
THE HANG FUNG GROUP
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................ F-1
Combined Statements of Operations for the Years Ended March 31,
1996, 1995 and 1994................................................... F-2
Combined Balance Sheets as of March 31, 1996 and 1995................... F-3
Combined Statements of Cash Flows for the Years Ended March 31,
1996, 1995 and 1994................................................... F-4
Combined Statements of Changes in Equity for the Years Ended March
31, 1996, 1995 and 1994............................................... F-5
Notes to Combined Financial Statements.................................. F-6
Combined Balance Sheet as of September 30, 1996 (unaudited)............. F-17
Combined Statements of Operations for the Three and Six Months
Ended September 30, 1996 and 1995 (unaudited)......................... F-18
Combined Statements of Cash Flows for the Six Months Ended
September 30, 1996 and 1995 (unaudited)............................... F-19
Notes to Combined Financial Statements (unaudited)...................... F-20
</TABLE>
20
<PAGE>
NEW WINE, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................ F-21
Balance Sheets as of June 30, 1996 and December 31, 1995 and 1994....... F-22
Income Statements for the Six Months Ended June 30, 1996 and the
Years Ended December 31, 1995 and 1994 and for the Period from
Inception (April 12, 1994) to June 30, 1996........................... F-23
Statements of Cash Flows for the Six Months Ended June 30, 1996 and
the Years Ended December 31, 1995 and 1994 and for the Period from
Inception (April 12, 1994) to June 30, 1996........................... F-24
Statements of Stockholders' Equity for the Six Months Ended June 30,
1996 and the Years Ended December 31, 1995 and 1994 and for the
Period from Inception (April 12, 1994) to June 30, 1996............... F-25
Notes to Financial Statements........................................... F-26
Balance Sheet as of September 30, 1996 (unaudited)...................... F-30
Income Statements for the Three and Nine Months Ended September 30,
1996 and 1995 (unaudited)............................................. F-31
Statements of Cash Flows for the Nine Months Ended September 30,
1996 and 1995 (unaudited)............................................. F-32
Notes to Financial Statements (unaudited)............................... F-33
PRO FORMA COMBINED FINANCIAL INFORMATION
Introduction to Pro Forma Combined Financial Information................ F-34
Pro Forma Unaudited Combined Balance Sheet.............................. F-35
Notes to Pro Forma Unaudited Financial Information...................... F-36
</TABLE>
(B) EXHIBITS
EXHIBIT NO. DESCRIPTION
2.1 Acquisition Agreement between S.W. Lam, Inc. and the shareholders
of Hang Fung Jewellery Company Limited and Kai Hang Jewellery
Company Limited
3.1 Articles of Incorporation
3.2 Bylaws
4.1 Certificate of Designation for Series A Preferred Stock
10.1 Employment Agreement with Lam Sai Wing dated January 1, 1994
10.2 Employment Agreement with Chan Yam Fai, Jane dated January 1,
1994
10.3 Sales Agency Agreement between Hang Fung Jewellery Co., Ltd. and
China Jewellery Import & Export Co.
10.4 Agreement for Jewellery Assembling between Hang Fung Jewellery
Co., Ltd. and China Jewellery Import & Export Co.
10.5 Sales Cooperation Agreement between Hang Fung Jewellery Co., Ltd.
and China Jewellery Import & Export Co.
10.6 Confirmation Agreement between Hang Fung Jewellery Co., Ltd. and
China Jewellery Import & Export Co.
10.7 Lease Agreement between Chan Yam Fai, Jane and Hang Fung
Jewellery Co., Ltd. re: executive offices
21.1 Subsidiaries
27.1 Financial Data Schedules
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
S.W. LAM, INC.
(Registrant)
Date: January 15, 1997 By: /s/ Lam Sai Wing
-----------------------
Lam Sai Wing, President
22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of New Wine, Inc.:
We have audited the accompanying combined balance sheets of the companies as
described in Note 2 to the accompanying combined financial statements (the
"Group") as of March 31, 1995 and 1996, and the related combined statements of
operations, cash flows and changes in equity for the years ended March 31, 1994,
1995 and 1996. These financial statements are the responsibility of the
management of the Group. 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
in the United States of America. 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of the Group as of
March 31, 1995 and 1996, and the results of its operations and its cash flows
for the years ended March 31, 1994, 1995 and 1996, in conformity with generally
accepted accounting principles in the United States of America.
/s/ Arthur Andersen & Co.
-------------------------
Arthur Andersen & Co.
Hong Kong,
October 26, 1996.
F-1
<PAGE>
THE HANG FUNG GROUP
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(Expressed in United States dollars)
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- -----
$'000 $'000 $'000
<S> <C> <C> <C>
Revenues
Net sales 13,197 18,478 19,348
Subcontracting fees 3,481 4,902 7,520
------- ------ -------
Total revenues 16,678 23,380 26,868
Cost of sales and services (12,093) (16,376) (18,822)
------- ------ -------
Gross profit 4,585 7,004 8,046
Selling, general and administrative
expenses (2,323) (2,395) (2,674)
------- ------ ------
Operating income 2,262 4,609 5,372
Interest expenses (224) (346) (403)
Interest income 11 17 11
Other income, net 28 55 63
------- ------ ------
Income before income taxes 2,077 4,335 5,043
Provision for income taxes (766) (1,472) (1,650)
------- ------ -------
Net income 1,311 2,863 3,393
======= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
THE HANG FUNG GROUP
COMBINED BALANCE SHEETS
AS OF MARCH 31, 1995 AND 1996
(Expressed in United States dollars)
<TABLE>
<CAPTION>
1995 1996
------- -------
$'000 $'000
<S> <C> <C>
ASSETS
Current assets:
Cash 400 244
Accounts receivable, net 5,562 2,989
Inventories 8,248 8,069
Prepayments and other current assets 14 14
Due from a director 1,487 1,056
------ ------
Total current assets 15,711 12,372
Property, plant and equipment, net 1,806 3,304
------ ------
Total assets 17,517 15,676
====== ======
LIABILITIES AND EQUITY
Current liabilities:
Short-term bank borrowings 2,025 1,616
Long-term bank loans, current portion 968 381
Capital lease obligations, current portion 2 50
Accounts payable 187 1,353
Accrued expenses 172 329
Deposit from customers 6,990 4,016
Income taxes payable 2,343 4,014
------ ------
Total current liabilities 12,687 11,759
Long-term bank loans, non-current portion 286 851
Capital lease obligations,
non-current portion - 28
Deferred income taxes 13 -
------ ------
Total liabilities 12,986 12,638
------ ------
Equity:
Capital 1 66
Retained earnings 4,474 2,867
Cumulative translation adjustments 56 105
------ ------
Total equity 4,531 3,038
------ ------
Total liabilities and equity 17,517 15,676
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
THE HANG FUNG GROUP
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(Expressed in United States dollars)
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
$'000 $'000 $'000
<S> <C> <C> <C>
Cash flows from operating activities:
Net income 1,311 2,863 3,393
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities -
Depreciation of property, plant and equipment 207 373 678
Provision for bad and doubtful debts 124 202 114
Provision for deferred income taxes 2 (5) (13)
(Increase) Decrease in operating assets -
Accounts receivable (1,552) (1,773) 2,455
Inventories (1,637) 490 179
Prepayments and other current assets 9 (4) -
Due from a director (3,304) (1,440) 431
Increase (Decrease) in operating liabilities-
Accounts payable (703) (6) 1,166
Accrued expenses 73 50 157
Deposit from customers 4,137 (904) (2,974)
Income taxes payable 707 1,515 1,671
------ ------ ------
Net cash (used in) provided by operating
activities (626) 1,361 7,257
------ ------ ------
Cash flows from investing activities:
Additions to property, plant and equipment (728) (1,297) (2,090)
----- ------ ------
Net cash used in investing activities (728) (1,297) (2,090)
----- ------ ------
Cash flows from financing activities:
Issuance of common stock - - 65
Payment of dividends - - (5,000)
Net increase (decrease) in short-term bank
borrowings 842 (57) (409)
Repayment of capital lease obligations (36) (24) (27)
Additions of long-term bank loans 1,074 129 1,257
Repayment of long-term bank loans (292) (418) (1,279)
------ ------ ------
Net cash provided by (used in) financing
activities 1,588 (370) (5,393)
------ ------ ------
Effect of exchange rate changes on cash 1 89 70
------ ------ ------
Net increase (decrease) in cash 235 (217) (156)
Cash, as of beginning of year 382 617 400
------ ------ ------
Cash, as of end of year 617 400 244
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
THE HANG FUNG GROUP
COMBINED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(Expressed in United States dollars)
<TABLE>
<CAPTION>
Cumulative
Retained Translation
Capital Earnings Adjustments
------- -------- -----------
$'000 $'000 $'000
<S> <C> <C> <C>
Balance as of March 31, 1993 1 300 -
Net income - 1,311 -
Translation adjustments - - (31)
----- ------ ---
Balance as of March 31, 1994 1 1,611 (31)
Net income - 2,863 -
Translation adjustments - - 87
----- ------ ---
Balance as of March 31, 1995 1 4,474 56
Issuance of common stock 65 - -
Net income - 3,393 -
Dividends - (5,000) -
Translation adjustments - - 49
----- ------ ---
Balance as of March 31, 1996 66 2,867 105
===== ====== ===
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
THE HANG FUNG GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(Amounts expressed in United States dollars unless otherwise stated)
1. ORGANIZATION AND OPERATIONS
The Hang Fung Group (the "Group") composed of companies/entities owned and
controlled by Mr. Lam Sai Wing and Ms. Chan Yam Fai, husband and wife. During
the years ended March 31, 1994, 1995 and 1996, the Group had the following
companies/entities:
<TABLE>
<CAPTION>
Place of
Name of company/entity Incorporation Principal activities
- ----------------------------------- ---------------- -----------------------------
<S> <C> <C>
Hang Fung Jewellery Co., Limited Hong Kong Manufacturing and selling of
("HFJCL") (Note a) jewellery products
Kai Hang Jewellery Co., Limited Hong Kong Selling of jewellery products
("KHJCL") (Note a)
Hang Fung Jewellery Company Hong Kong Dormant
("HFJC") (Note a)
Hang Fung Manufacturing Company Hong Kong Dormant
("HFMC") (Note a)
Beijing Huarong Jewellery Co., Ltd. The People's Dormant
("BHJCL") (Note b) Republic of
China ("PRC")
</TABLE>
- -----------------------------
Notes:
a. HFJCL took over the businesses previously undertaken by HFJC (effective
September 1995) and HFMC (effective November 1994). HFJCL and KHJCL were
jointly owned by Mr. Lam Sai Wing and Ms. Chan Yam Fai. HFJC was an
unincorporated sole-proprietorship entity owned by Mr. Lam Sai Wing. HFMC
was an unincorporated sole-proprietorship entity owned by Ms. Chan Yam Fai.
b. BHJCL is a contractual joint venture incorporated in the PRC to be operated
for 20 years up to 2013. It was registered to engage in the manufacturing
and trading of jewellery products. However, the Company has not commenced
operation since incorporation.
F-6
<PAGE>
1. ORGANIZATION AND OPERATIONS (Continued)
The Group is principally engaged in the production and selling of jewellery
products to customers in Hong Kong, the PRC and other parts of the world.
The Group's production and selling activities in the PRC are mainly operated
through arrangements with China National Pearl, Diamond, Gem and Jewellery
Import and Export Corporation ("CNPIEC"), a PRC state-owned enterprise, which is
one of the few entities authorized to trade gold and silver products in the PRC.
During the year ended March 31, 1996, approximately 45% of the Group's sales and
approximately 53% of the Group's subcontracting fees resulted from its business
conducted in the PRC under this arrangement. The key transactions with CNPIEC
were as follows:
a. Under a subcontracting agfeement dated November 18, 1994 and subsequent
supplemental agreement entered into between HFJCL and CNPIEC, HFJCL has
operated a plant in Beijing, the PRC ("the Beijing Plant") to produce
jewellery products for sales to customers outside the PRC.
b. The Beijing Plant also provides subcontracting services to PRC customers at
the instruction and on behalf of CNPIEC, and shares a portion of the
subcontracting fees received by CNPIEC. During the years ended March 31,
1994, 1995 and 1996, HFJCL's share of these subcontracting fees amounted to
approximately $3,113,000, $3,566,000 and $3,966,000, repectively.
c. Under an agency agreement and a co-operative selling agreement both dated
November 18, 1994 and a subsequent supplemental agreement for these two
agreements entered into between HFJCL and CNPIEC, HFJCL has appointed
CNPIEC as its agent for sales of its gold and silver products in the PRC.
In return, HFJCL pays to CNPIEC an agency fee determined on a fixed
percentage of the sales proceeds collected by CNPIEC. During the years
ended March 31, 1994, 1995 and 1996, agency fees paid to CNPIEC amounted to
approximately $207,000, $196,000 and $88,000, respectively.
d. Other transactions with CNPIEC were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
$'000 $'000 $'000
<S> <C> <C> <C>
Purchases of gold and silver
from CNPIEC 3,714 2,961 2,461
Management fees paid to 87 115 84
CNPIEC ===== ===== =====
</TABLE>
e. Pursuant to an agreement between HFJCL and CNPIEC, CNPIEC has agreed to
undertake and pay for all of HFJCL's PRC tax liabilities, including
value-added tax, if any, relating to HFJCL's operations under the
above-mentioned activities.
F-7
<PAGE>
1. ORGANIZATION AND OPERATIONS (Continued)
Under an agreement dated December 1, 1994, HFJCL has appointed Yiu Ping Gold and
Silver Manufacturing Factory ("YPGSMF"), another PRC state-owned enterprise
which is licensed to sell gold and silver products in the PRC, as its agent for
sales of its gold and silver products in the PRC. In return, HFJCL pays to
YPGSMF an agency fee determined on a fixed percentage of the sales effected by
YPGSMF. During the years ended March 31, 1994, 1995 and 1996, agency fees paid
to YPGSMF amounted to approximately $34,000, $35,000 and $48,000, respectively.
In addition, HFJCL also entered into a subcontracting agreement with Shenzhen
Crafts Hang Fung Jewellery Factory ("SCHFJF"), another PRC state-owned
enterprise, for the production of HFJCL's gold and silver products in Shenzhen,
the PRC, for shipments out of the PRC. During the years ended March 31, 1994,
1995 and 1996, subcontracting fees paid to SCHFJF amounted to approximately
$263,000, $240,000 and $240,000, respectively.
2. BASIS OF PRESENTATION
The combined financial statements include the financial statements of the
following companies/entities, which are all owned and controlled by Mr. Lam Sai
Wing and Ms. Chan Yam Fai:
o Hang Fung Jewellery Co., Limited
o Kai Hang Jewellery Co., Limited
o Hang Fung Jewellery Company
o Hang Fung Manufacturing Company
o Beijing Huarong Jewellery Co., Ltd.
Significant transactions and balances among the companies/entities have been
eliminated on combination.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The combined financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America. Significant
accounting policies are summarized below:
a. Revenues
Revenues comprise (i) the net invoiced value of goods supplied to
customers, which are recognized upon delivery of goods, passage of title to
customers and the expiration of any right of return, and (ii)
subcontracting fees which are recognized when the subcontracting service is
rendered.
F-8
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. Income taxes
Income taxes are provided under the provisions of Statement of Financial
Accounting Standards No. 109, which requires recognition of deferred tax
assets and liabilities for expected future tax consequences of events that
have been included in the financial statements or tax returns. Deferred
income taxes are provided using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities.
c. Inventories
Inventories are stated at the lower of cost, on a first-in first-out basis,
or market. Costs of finished goods include direct materials, direct labor
and an attributable portion of production overheads.
d. Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation for
financial reporting purposes is provided using the straight-line method
over the asset's estimated useful life after taking into account the
estimated residual value. The estimated useful lives are as follows:
Leasehold land 70 years
Building 20 years
Machinery and equipment 5 - 10 years
Motor vehicles 5 years
Furniture, fixtures and office equipment 5 years
Machinery and equipment held under capital leases are depreciated on the
same basis as described above.
e. Foreign currency translation
The translation of the financial statements of group companies into United
States dollars is performed for balance sheet accounts using closing
exchange rates in effect at the balance sheet date and for revenue and
expense accounts using an average exchange rate during each reporting
period. The gains or losses resulting from translation are included in
equity separately as cumulative translation adjustments. Aggregate (loss)
gain from foreign currency transactions included in the results of
operations were ($1,721), $3,463 and $942 for the year ended March 31,
1994, 1995 and 1996, respectively.
F-9
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from
those estimates.
4. PROVISION FOR INCOME TAXES
The group companies are subject to income taxes on an entity basis on income
arising in or derived from the tax jurisdiction in which they operate.
Companies/entities operating in Hong Kong are subject to Hong Kong profits tax
at rates ranging from 15% to 16.5%, and companies/entities operating in the PRC
are subject to PRC income taxes at a rate of 33%.
The components of provision for income taxes are:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
$'000 $'000 $'000
<S> <C> <C> <C>
Provision for current tax
- Hong Kong 70 39 21
- The PRC 694 1,438 1,642
Provision for (Write-back of)
deferred tax 2 (5) (13)
--- ----- -----
766 1,472 1,650
=== ===== =====
</TABLE>
The reconciliation of the statutory income tax rate to the effective income tax
rate as stated in the combined statements of operations is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Weighted average statutory
tax rate 32.3% 32.3% 32.3%
Permanent differences arising
from non-deductible items 4.6% 1.7% 0.4%
----- ----- -----
Effective income tax rate 36.9% 34.0% 32.7%
===== ===== =====
</TABLE>
F-10
<PAGE>
5. ACCOUNTS RECEIVABLES
Accounts receivable comprised:
1995 1996
------ ------
$'000 $'000
Trade receivables 5,896 3,441
Less: Allowance for doubtful accounts (334) (452)
----- -----
Accounts receivable, net 5,562 2,989
===== =====
6. INVENTORIES
Inventories comprised:
1995 1996
------ ------
$'000 $'000
Raw materials 1,530 2,784
Finished goods 3,153 3,317
Consigned finished goods 3,565 1,968
----- -----
8,248 8,069
===== =====
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised:
1995 1996
------ ------
$'000 $'000
Leasehold land and building 255 255
Machinery and equipment 1,721 3,737
Motor vehicles 184 88
Furniture, fixtures and office equipment 555 312
----- ------
2,715 4,392
Less: Accumulated depreciation (909) (1,088)
----- ------
1,806 3,304
===== ======
Certain machinery and equipment with a net book value of approximately $22,000
and $131,000 as of March 31, 1995 and 1996, respectively, were held under
capital leases.
F-11
<PAGE>
8. SHORT-TERM BANK BORROWINGS
Short-term bank borrowings comprised :
1995 1996
------ ------
$'000 $'000
Bank overdraft 1,836 518
Import trust receipt loans 189 1,098
----- -----
2,025 1,616
===== =====
Short-term bank borrowings were secured by mortgages over certain real estate
properties owned by Mr. Lam Sai Wing and Ms. Chan Yam Fai, and personal
guarantees given by Mr. Lam Sai Wing and Ms. Chan Yam Fai. Interest on these
borrowings was charged at Hong Kong prime lending rate plus 1.5% to 3%, which
was 10% to 11.5% per annum as of March 31, 1996.
Supplemental information with respect to the short-term bank borrowings was:
1995 1996
------ ------
$'000 $'000
Maximum amount outstanding 2,065 2,025
Average amount outstanding 1,856 1,443
Weighted average interest rate per annum 11.9% 10.5%
===== =====
9. ACCRUED EXPENSES
Accrued expenses comprised:
1995 1996
------ ------
$'000 $'000
Accruals for operating expenses
- Employee salaries 84 122
- Others 88 207
--- ---
172 329
=== ===
10. LONG-TERM BANK LOANS
Long-term bank loans were secured by mortgages over the Group's real estate
property (leasehold land and building), mortgages over real estate properties
owned by Mr. Lam Sai Wing and Ms. Chan Yam Fai, and personal guarantees given by
Mr. Lam Sai Wing and Ms. Chan Yam Fai. They bear average interest rates of
approximately 10.5% per annum.
F-12
<PAGE>
10. LONG-TERM BANK LOANS (Continued)
Aggregate maturities of long-term bank loans are as follows:
1996
------
$'000
Year ending March 31,
1997 381
1998 88
1999 98
2000 108
2001 121
Thereafter 436
-----
1,232
=====
11. CAPITAL LEASE OBLIGATIONS
Future minimum lease payments under the capital leases together with the present
value of the minimum lease payments are as follows:
1995 1996
------ ------
$'000 $'000
Payable during the following period:
Within one year 3 59
Over one year but not exceeding two years - 29
----- ----
Total minimum lease payments 3 88
Less: Amount representing future interest (1) (10)
----- ----
Present value of minimum lease payments 2 78
Less: Current portion (2) (50)
----- ----
Non-current portion - 28
===== =====
12. SUPPLEMENTAL DISCLOSURE TO COMBINED STATEMENTS OF CASH FLOWS
1994 1995 1996
------ ------ ------
$'000 $'000 $'000
Cash paid for interest expenses 224 347 392
Cash received from interest income 11 17 11
=== === ===
Capital lease obligations of Nil, Nil and approximately $103,000 were incepted
during the years ended March 31, 1994, 1995 and 1996 when the Group entered into
leases for new machinery and equipment.
F-13
<PAGE>
13. PENSION SCHEME
The Group's employees in the PRC are all hired on a contractual basis and
consequently the Group has no obligation for pension liabilities of these
employees.
The Group has arranged a voluntary defined contribution pension scheme for its
employees in Hong Kong. Seven out of the approximately eighty employees have
joined the scheme and the aggregate amounts of the Group's contribution to the
scheme for the years ended March 31, 1994, 1995 and 1996 were approximately
$10,000, $7,000 and $2,000, respectively.
14. LEASE COMMITMENTS
The Group leases various staff quarters, factory premises and warehouses under
non-cancelable operating leases which expire at various dates through 1997.
Rental expenses for the years ended March 31, 1994, 1995 and 1996 were
approximately $181,000, $213,000 and $257,000, respectively.
Future minimum rental payments as of March 31, 1996, under agreements classified
as operating leases with noncancelable terms in excess of one year and payable
within next year, are approximately $9,000.
15. OPERATING RISKS
a. Dependence
Gold and silver products are restricted commodities in the PRC and special
authorization is required to trade gold and silver products in the PRC. The
PRC government has only granted a few licences to PRC state-owned
enterprises to trade gold and silver products. The Group's present
operations in the PRC are conducted through various agreements with three
PRC state-owned enterprises as described in Note 1. Any changes in any of
these strategic relationships would have a material adverse effect on the
revenue and profitability of the Group and would potentially limit the
Group's ability to continue to conduct business in the PRC.
b. Concentration
The Group's sales and subcontracting services are made to customers on an
open account basis and generally no collateral is required. Details of
individual customers accounting for more than 10% of the Group's total
revenues are as follows:
Percentage of total revnues
--------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
CNPIEC 14.4% 18.0% 14.5%
Tai Seng Ho Silver & Gold
Jewellery Co., Ltd. - - 27.1%
=============== =============== ===============
F-14
<PAGE>
15. OPERATING RISKS (Cont'd)
b. Concentration of credit risk and major customers (Continued)
Concentration of accounts receivable as of March 31, 1995 and 1996 is as
follows:
Percentage of accounts
receivable
-----------------------------------
1 9 9 5 1 9 9 6
--------------- ---------------
Five largest accounts receivable 47.1% 32.3%
=============== ===============
TheGroup performs ongoing credit evaluation of each customer's financial
condition and maintains reserves for potential credit losses and such
losses, in the aggregate, have not exceeded management's expectations.
c. Concentration of suppliers
Details of individual suppliers accounting for more than 10% of the Group's
purchases are as follows:
Percentage of purchases
--------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
CNPIEC 30.0% 21.3% 13.2%
Heraeus Ltd. 27.3% 36.5% 32.7%
=============== =============== ===============
d. Country risk
The Group's operations are conducted in Hong Kong and the PRC. As a result,
the Group's business, financial condition and results of operations may be
influenced by the political, economic and legal environments in Hong Kong
and the PRC, and by the general state of the Hong Kong and the PRC
economies.
On July 1, 1997, sovereignty over Hong Kong will be transferred from the
United Kingdom to the PRC, and Hong Kong will become a Special
Administrative Region of the PRC (an "SAR"). As provided in the
Sino-British Joint Declaration relating to Hong Kong and the Basic Law of
the Hong Kong SAR of the PRC, the Hong Kong SAR will have full economic
autonomy and its own legislative, legal and judicial systems for fifty
years. The Group's management does not believe that the transfer of
sovereignty over Hong Kong will have an adverse impact on the Group's
financial and operating environments. There can be no assurance, however,
that changes in political or other conditions will not result in such an
adverse impact.
The Group's operations in the PRC are subject to special considerations and
significant risks not typically associated with companies operating in
North American and Western European. These include risks associated with,
among others, the political, economic and legal environments and foreign
currency exchange. The Group's results may be adversely affected by changes
in the political and social conditions in the PRC, and by changes in
governmental policies with respect to laws and regulations, inflationary
measures, currency conversion and remittance abroad, and rates and methods
of taxation, among other things. In addition, a portion of the Group's
revenue is denominated in Renminbi ("Rmb") which must be converted into
other currencies before remittance outside the PRC. Both the conversion of
Renminbi into foreign currencies and the remittance of foreign currencies
abroad require approvals of the PRC government.
F-15
<PAGE>
16. RELATED PARTY TRANSACTIONS
a. The Group entered into the following transactions with related parties:
1 9 9 4 1 9 9 5 1 9 9 6
--------- --------- ---------
$'000 $'000 $'000
Sales to a related company
- - Hang Fung Jewellery
Co., Inc. ("HFJCI") 201 112 83
Rental paid to Ms. Chan Yam Fai 149 174 199
Salaries paid to
- - Mr. Lam Sai Wing 40 45 55
- - Ms. Chan Yam Fai 40 45 55
==== ==== ====
Prior to [October 1, 1996], HFJCI was beneficially owned by Mr. Lam Sai
Wing and was principally engaged in the provision of marketing service for
HFJCL in the United States of America. Effective from [October 1, 1996],
Mr. Lam Sai Wing disposed all of his shareholdings in HFJCI to an unrelated
party.
b. The amounts due from Mr. Lam Sai Wing of approximately $1,487,000 and
$1,056,000 as of March 31, 1995 and 1996, respectively, were unsecured,
non-interest bearing and without pre-determined repayment terms.
c. The Group's banking facilities were secured by, among others, mortgages
over real estate properties owned by Mr. Lam Sai Wing and Ms. Chan Yam Fai
and personal guarantees given by Mr. Lam Sai Wing and Ms. Chan Yam Fai.
17. OTHER SUPPLEMENTAL INFORMATION
1994 1995 1996
------ ------ ------
$'000 $'000 $'000
Depreciation of fixed assets
- - owned assets 196 362 663
- - assets held under capital leases 11 11 15
Provision for bad and doubtful debts 124 202 114
==== ==== ====
F-16
<PAGE>
THE HANG FUNG GROUP
COMBINED BALANCE SHEETS (UNAUDITED)
(AMOUNTS EXPRESSED IN UNITED STATES $`000)
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
------------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 47 $ 244
Accounts receivable, net 3,873 2,989
Inventories 9,110 8,069
Prepayments and other current assets 34 14
Due from directors 398 1,056
------- -------
Total current assets 13,462 12,372
Property plant and equipment, net 4,216 3,304
------- -------
Total assets $17,678 $15,676
======= =======
LIABILITIES AND EQUITY
Current liabilities:
Short-term bank borrowings $ 1,418 $ 1,616
Current portion of long-term debt 310 381
Current portion of lease obligations 93 50
Accounts payable 1,277 1,353
Accrued expenses 247 329
Deposits 4,014 4,016
Income taxes payable 4,379 4,014
-------- -------
Total current liabilities 11,738 11,759
Long-term loans 815 851
Capital lease obligations 31 28
Deferred income taxes 27 -
-------- -------
Total liabilities 12,611 12,638
-------- -------
Shareholders equity
Common Stock, $.001 par value 66 66
Retained earnings 4,874 2,867
Cumulative translation adjustments 127 105
------- -------
Total shareholders equity 5,067 3,038
------- -------
Total liabilities and shareholders equity $17,678 $15,676
======= =======
</TABLE>
See accompanying notes to condensed combined financial statements
F-17
<PAGE>
THE HANG FUNG GROUP
COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30
(AMOUNTS EXPRESSED IN UNITED STATES $`000)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $6,413 $4,874 $12,058 $ 9,190
Subcontracting fee 1,585 1,734 3,103 3,379
------ ------ ------- ------
Total revenues 7,998 6,608 15,161 12,569
Cost of sales and services 5,722 4,659 10,701 8,852
----- ------ ------- -------
Gross profit 2,276 1,949 4,460 3,717
Selling, general and administrative
expenses 824 832 1,643 1,552
----- ------ ------- -------
Operating income 1,452 1,117 2,817 2,165
Interest income (expense), net (77) (29) (133) (45)
Other income, net 17 8 35 28
----- ------ ------- -------
Income before taxes 1,392 1,096 2,719 2,148
Provision for income taxes 360 330 712 650
----- ------ ------- -------
Net income $1,032 $ 766 $ 2,007 $ 1,498
====== ====== ======= =======
</TABLE>
See accompanying notes to condensed combined financial statements
F-18
<PAGE>
THE HANG FUNG GROUP
COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS $`000)
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,007 $ 1,498
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities
Depreciation of property, plant and
equipment 228 339
Provision for bad and doubtful debts 57 57
Provision for deferred income taxes 27 (7)
(Increase) decrease in operating assets
Account receivable (884) 1,228
Inventories (1,041) 90
Prepayments and other current assets (20) -
Due from a director 658 216
Increase (decrease) in operating liabilities
Accounts payable (76) 583
Accrued expenses (82) 79
Deposit from customers (2) (1,487)
Income taxes payable 365 836
-------- -------
Net cash provided by (used in)
operating activities 1,237 3,434
-------- -------
Cash flows from investing activities:
Additions to property, plant and
equipment (1,148) (1,045)
--------- --------
Net cash used in investing activities (1,148) (1,045)
-------- --------
Cash flows from financing activities:
Issuance of common stock - 33
Payment of dividends - (2,600)
Net increase (decrease) in short-term
bank borrowings (198) (205)
Repayment of capital lease obligations (3) (14)
Additions of long-term bank loans 539 629
Repayment of long-term bank loans (646) (640)
------- --------
Net cash provided by (used in)
financing activities (308) (2,797)
------- --------
Effect of exchange rate changes on cash 22 35
------- --------
Net increase (decrease) in cash (197) (373)
Beginning cash balance 244 400
------- --------
Ending cash balance $ 47 $ 28
======= ========
</TABLE>
See accompanying notes to condensed combined financial statements
F-19
<PAGE>
THE HANG FUNG GROUP
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. INTERIM FINANCIAL PRESENTATION
The March 31, 1996 balance sheet data was derived from audited financial
statements of the Hang Fung Group but does not include all disclosures
required by generally accepted accounting principles. The interim financial
statements and notes thereto should be read in conjunction with the
financial statements and notes for the year ended March 31, 1996. In the
opinion of management, the interim financial statements reflect all
adjustments of normal recurring nature necessary for a fair presentation of
the results for the interim periods presented.
2. CURRENCY PRESENTATION AND FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated at period and
exchange rates, while revenues and expenses are translated at average
exchange rates during the period. Adjustments arising from translating
foreign currency financial statements are reported as a separate component
of stockholders' equity. Gains and losses from foreign currency
translations are included in income. Aggregate net foreign currency gains
or losses were immaterial for all periods.
The financial statements of the Company are maintained, and its financial
statements are expressed, in Hong Kong dollars. The translations of HK
dollar amounts into US dollars are for convenience only and have been made
at the rate of HK$7.73 to US$1, the approximate free rate of exchange at
September 30, 1996. Such translations should not be construed as
representations that the Hong Kong dollar amount could be converted into US
dollars, at that rate or any other rate.
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
New Wine, Inc.
We have audited the accompanying balance sheets of New Wine, Inc. (a
development stage Company) as of June 30, 1996, December 31, 1995 and 1994, and
the related statements of income, stockholders' equity and cash flows for the
period ended June 30, 1996, December 31, 1995 and 1994 and for the period from
inception (April 12, 1994) to June 30, 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 New Wine, Inc. (a
development stage Company) as of June 30, 1996, December 31, 1995 and 1994, and
the results of its operations and its cash flows for the years ended June 30,
1996, December 31, 1995 and 1994 and for the period from inception (April 12,
1994) to June 30, 1996 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
that raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to this matter are to raise additional capital and
acquire any and all types of assets, properties and businesses, which management
expects will result in profitable operations for the Company. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts and classification of liabilities that
might result from the outcome of these uncertainties.
/s/ Albright, Persing & Associates, Ltd.
- ----------------------------------------
Albright, Persing & Associates, Ltd.
Reno, Nevada
August 2, 1996
F-21
<PAGE>
NEW WINE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
JUNE 30, 1996, DECEMBER 31, 1995 AND 1994
(SEE INDEPENDENT AUDITORS' REPORT)
ASSETS
<TABLE>
<CAPTION>
Years Ended
----------------------------------------
June 30, December 31, December 31,
1996 1995 1994
--------- ------------ ------------
<S> <C> <C> <C>
Current Assets
Cash $ - $ 60 $ 2,454
--------- --------- ---------
Other Assets
Deferred tax asset, net of
valuation allowance (Note 4) - - -
--------- --------- ---------
- - -
--------- --------- ---------
Total Assets $ - $ 60 $ 2,454
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY/DEFICIT
Stockholders' Equity/Deficit
Common stock, par value $.01/share
authorized 3,000,000 shares,
issued and outstanding 1,500,000
shares at June 30, 1996, December
31, 1995, and 1,275,000 at December
31, 1994 $ 15,000 $ 15,000 $ 12,750
Additional paid-in-capital 320,131 320,131 277,381
Deficit accumulated during the
development stage (335,131) (335,071) (274,261)
--------- --------- ---------
- 60 15,870
Less: Subscriptions receivable - - (13,416)
--------- --------- ----------
Total Liabilities and Stockholders'
Equity $ - $ 60 $ 2,454
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
NEW WINE, INC.
(A DEVELOPMENT STAGE COMPANY)
INCOME STATEMENT
FOR THE YEARS ENDED JUNE 30, 1996, DECEMBER 31, 1995 AND 1994
AND INCEPTION (APRIL 12, 1994) TO JUNE 30, 1996
(SEE INDEPENDENT AUDITORS' REPORT)
<TABLE>
<CAPTION>
Cumulative
Years Ended During
June 30, December 31 Development
1996 1995 1994 Stage
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net Sales $ - $ - $ - $ -
---------- ---------- ---------- ----------
Cost of Goods Sold - - - -
---------- ---------- ---------- ----------
Gross Profit - - - -
---------- ---------- ---------- ----------
Costs and expenses
Advertising - 4,755 856 5,611
Auto expenses - 3,419 407 3,826
Bank Charges - 122 32 154
Contributions (donations) - 219 - 219
Dues and subscriptions - 38 250 288
Insurance - 672 - 672
Maintenance - 1,757 - 1,757
Miscellaneous 24 159 97 280
Office expense 16 4,149 673 4,838
Outside labor - 163 - 163
Professional Services - 22,741 270,126 292,867
Rent - 15,470 1,030 16,500
Studio time - 22 150 172
Taxes and licenses - 798 - 798
Telephone - 4,579 390 4,969
Travel 20 767 250 1,037
Utilities - 1,004 - 1,004
---------- ---------- ---------- ----------
60 60,834 274,261 335,155
Net Loss Before Debt
Forgiveness Income (60) (60,834) (274,261) (335,155)
Debt Forgiveness Income
(Note 5) - 24 - 24
---------- ---------- ---------- ----------
Net (loss) before
income taxes (60) (60,810) (274,261) (335,131)
Income Taxes (Note 4) - - - -
---------- ---------- ---------- ----------
Net (loss) $ (60) $ (60,810) $ (274,261) $ (335,131)
========== ========== ========== ==========
Net income (loss) per common share
Continuing operations $ (.00) $ (.05) $ (.22) $ (.24)
========== ========== ========== ==========
Weighted average shares
outstanding $1,500,000 $1,343,425 $1,275,000 $1,382,746
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
NEW WINE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996, DECEMBER 31, 1995 AND 1994
AND INCEPTION (APRIL 12, 1994) TO JUNE 30, 1996
(SEE INDEPENDENT AUDITORS' REPORT)
<TABLE>
<CAPTION>
Cumulative
Years Ended During
June 30, December 31 Development
1996 1995 1994 Stage
------ --------- --------- -----------
<S> <C> <C> <C> <C>
Cash Flows from/(for) Operating Activities:
Continuing operations
Net income (loss) $(60) $(60,810) $(274,261) $(335,155)
---- -------- --------- ---------
Noncash items included in net income
(loss)
Stock issued for professional
services rendered - - 269,565 269,565
Changes in assets and liabilities:
Increase in deferred tax asset (9) (9,122) (41,139) (50,270)
Increase in valuation allowance 9 9,122 41,139 50,270
---- -------- --------- ---------
Net Adjustments - - 269,565 269,565
---- -------- --------- ---------
Cash (Used) by Operating
Activities (60) (60,810) (4,696) (65,666)
---- -------- --------- ---------
Cash Flows from/(for) Financing Activities:
Proceeds from stockholder advances - 45,000 7,150 52,150
Decrease in stock subscriptions receivable - 13,416 - 13,416
---- -------- --------- ---------
Cash Provided by Investing
Activities - 58,416 7,150 65,566
---- -------- --------- ---------
Net change in cash (60) (2,394) 2,454 0
Cash at beginning of period 60 2,454 - -
---- -------- --------- ---------
Cash at end of period $ 0 $ 60 $ 2,454 $ 0
==== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
NEW WINE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY/DEFICIT
FOR THE YEARS ENDED JUNE 30, 1996, DECEMBER 31, 1995 AND 1994
AND INCEPTION (APRIL 12, 1994) TO JUNE 30, 1996
(SEE INDEPENDENT AUDITORS' REPORT)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage Total
--------- -------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Issuance of shares of common stock on
April 12, 1994, for professional
services rendered 877,500 $ 8,775 $166,725 $ - $ 175,500
Issuance of shares of common stock on
April 12, 1994 for cash 397,500 3,975 110,656 - 114,631
Net loss for 1994 - - - (274,261) (274,261)
--------- ------- ------- --------- ----------
Balance - December 31, 1994 1,275,000 12,750 277,381 (274,261) 15,870
Issuance of shares of common stock on
September 11, 1995 for cash 225,000 2,250 42,750 - 45,000
Net loss for 1995 - - - (60,810) (60,810)
--------- ------- ------- --------- ---------
Balance - December 31, 1995 1,500,000 $15,000 $320,131 $(335,071) $ 60
Net loss for the six months ended
June 30, 1996 - - - (60) (60)
--------- ------- -------- --------- ---------
Balance - June 30, 1996 1,500,000 $15,000 $320,131 $(335,131) $ -
========= ======= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
NEW WINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 12, 1994) TO JUNE 30, 1996
(SEE INDEPENDENT AUDITORS' REPORT)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS ACTIVITY
This summary of significant accounting policies of New Wine, Inc. (the
Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management, which is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements.
Business Activity
The Company, a Tennessee corporation located in Broken Bow, Oklahoma, was
incorporated on April 12, 1994, and is currently in the development stage. The
sole purpose for organizing the Company was to provide a shell corporation for
possible future mergers with privately-held companies seeking to go public.
Noncash Securities Issuance
Shares of common stock issued for other than cash have been assigned
amounts equivalent to the fair value of the services received in exchange.
Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting.
Income (Loss) per Share
The computation of income (loss) per share of common stock is based on the
weighted average number of shares outstanding during the periods presented.
Statement of Cash Flows
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents for purposes of the
statement of cash flows.
F-26
<PAGE>
NEW WINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 12, 1994) TO JUNE 30, 1996
(SEE INDEPENDENT AUDITORS' REPORT)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS ACTIVITY -
Continued
Income Taxes
Effective January 1, 1993, New Wine, Inc. adopted SFAS No. 109, "Accounting
for Incomes Taxes," which requires a liability approach to financial accounting
and reporting for incomes taxes. The differences between the financial statement
and tax bases of assets and liabilities is determined annually. Deferred income
tax assets and liabilities are computed for those differences that have future
tax consequences using the currently enacted tax laws and rates that apply to
the periods in which they are expected to affect taxable income. Valuation
allowances are established, if necessary, to reduce deferred tax asset accounts
to the amounts that will more likely than not be realized. Income tax expense is
the current tax payable or refundable for the period, plus or minus the net
change in the deferred tax asset and liability accounts.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect (1) the reported amounts of assets and liabilities, (2)
disclosure of contingent assets and liabilities at the date of the financial
statements, and (3) reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 - BASIS OF PRESENTATION AND CONSIDERATIONS RELATED TO CONTINUED EXISTENCE
The Company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
incurred net losses of $335,131 for the period from inception (April 12, 1994)
to June 30, 1996. This factor, among others, raises substantial doubt as to the
Company's ability to obtain additional long-term debt and/or equity financing
and achieve profitable operations. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence. In the interim period,
management is still seeking additional investment capital to support its
entrance into a new business venture and provide the capital needed to operate.
F-27
<PAGE>
NEW WINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 12, 1994) TO JUNE 30, 1996
(See Independent Auditor's Report)
NOTE 4 - DEVELOPMENT STAGE COMPANY
The Company is a development stage company as defined in Financial
Accounting Standards Board Statement No. 7. It has yet to commence full-scale
operations. From inception through the date of these financial statements, the
Company did not have any revenues or earnings. At the current time, the Company
has no assets or liabilities.
If a public market develops for the Company's shares, certain
privately-held companies or business opportunities may be interested in merging
with the Company because the Company's securities would be publicly traded,
thereby allowing the privately-held company to become publicly traded through
the merger.
At the current time, the Company has no agreement, understanding or
arrangement to acquire or participate in any specific business opportunity nor
has it identified any opportunities for investigation. The Company's potential
future success depends upon its management and its continuing search for a
business opportunity.
NOTE 4 - INCOME TAXES
Deferred income taxes arise from temporary differences resulting from
income and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or noncurrent,
depending on the classification of the assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are not related
to an asset or liability are classified as current or noncurrent depending on
the periods in which the temporary differences are expected to reverse.
Amounts for deferred tax assets are as follows:
<TABLE>
<CAPTION>
Year Ended
----------------------------------
June 30, December 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Deferred tax asset, net of
valuation allowance of $50,270
in 1996, $50,261 in 1995 and
$41,139 in 1994 $ - $ - $ -
===== ===== =====
</TABLE>
F-28
<PAGE>
NEW WINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTIONS (APRIL 12, 1994) TO JUNE 30, 1996
(See Independent Auditor's Report)
NOTE 4 - INCOME TAXES - Continued
The following temporary differences gave rise to the deferred tax asset at
June 30, 1996, December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Year Ended
June 30, December 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Tax benefit of net operating loss
carryforward $ 9 $ 9,122 $ 41,139
Valuation allowance for judgement of
realizability of net operating loss
carryforward in future years (9) (9,122) (41,139)
</TABLE>
Because the Company has not generated taxable income since its inception,
no provision for income taxes has been made.
The Company can carry forward its $335,131 net operating loss as follows:
Year Ended
December 31,
------------
2009.........................$274,261
2010......................... 60,810
2011......................... 60
--------
$335,131
NOTE 5 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 1995, the principal shareholder of the
corporation loaned money to the corporation. While most of the monies loaned to
the corporation were repaid, $24 of the loan balance remained. On December 31,
1995, the shareholder forgave the remaining debt due and accordingly, the
corporation has recorded this as debt-forgiveness income.
F-29
<PAGE>
NEW WINE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Current Assets
Cash $ - $ 60
--------- ---------
Other Assets
- -
--------- ---------
Total Assets $ - $ 60
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY/DEFICIT
Stockholders's Equity/Deficit
Common stock, par value, $.01
per share; authorized 3,000,000
shares, issued and outstanding
1,500,000 shares $ 15,000 $ 15,000
Additional paid-in capital 320,131 320,131
Deficit accumulated during
the development stage (335,131) (335,071)
-------- --------
- 60
-------- --------
Total Liabilities and Stockholders'
Equity $ - $ 60
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-30
<PAGE>
NEW WINE, INC.
(A DEVELOPMENT STAGE COMPANY)
INCOME STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1996 1995 1996 1995
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 0 $ 0 $ - $ -
---------- ---------- ---------- ----------
Cost of Goods Sold 0 0 - -
---------- ---------- ---------- ----------
Gross Profit 0 0 - -
---------- ---------- ---------- ----------
Selling, General and
Administrative expenses 0 15,209 60 45,626
---------- ---------- ---------- ----------
Net Loss Before Debt
Forgiveness Income 0 (15,209) (60) (45,626)
Debt Forgiveness Income 0 6 - 18
---------- ---------- ---------- ----------
Net (loss) before
income taxes 0 (15,203) (60) (45,608)
Income Taxes 0 0 - -
---------- ---------- ---------- ----------
Net (loss) $ 0 $ (15,203) $ (60) $45,608)
========== ========== ========== ==========
Net income (loss) per
common share $ 0 $ (0.01) $ (.00) $ (.03)
========== ========== ========== ==========
Weighted average
shares outstanding 1,500,000 1,500,000 1,500,000 1,500,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-31
<PAGE>
NEW WINE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
September 30,
-----------------
1996 1995
---- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(60) $(45,608)
---- --------
Noncash items included in net income
(loss)
Changes in assets and liabilities:
Increase in deferred tax asset (9) (9,122)
Increase in valuation allowance 9 9,122
---- --------
Net Adjustments - -
---- --------
Cash (Used) by Operating
Activities (60) (45,608)
---- --------
Cash Flows from/(for) Financing Activities:
Proceeds from stockholder advances - 45,000
Decrease in stock subscription receivable - 13,416
---- --------
Cash provided by Financing Activities - 58,416
---- --------
Net change in cash (60) 12,808
Cash at beginning of period 60 2,454
---- --------
Cash at end of period $ - $ 15,262
==== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-32
<PAGE>
NEW WINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
1. Interim Financial Presentation
The interim financial statements are prepared pursuant to the requirements
for reporting on Form 10-Q. The December 31, 1995 balance sheet data was
derived from audited fianancial statements but does not include all
disclosures required by generally accepted accounting principles. The
interim financial statements and notes thereto should be read in conjuntion
with the audited financial statements and footnotes thereto for the year
ended December 31, 1995. In the opinin of managment, the interim finanial
statements reflect all adjustments of a normal recurring nature necessary
for a fair statement of the results for the interim periods presented.
F-33
<PAGE>
S.W. LAM, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
reflects the December, 1996 acquisition by S.W. Lam, Inc. (formerly New Wine,
Inc.) (the "Company") of 100% of the stock of Quality Prince Limited and
Subsidiaries ("Quality Prince") in exchange for the issuance of 10,500,000
shares of common stock and 100,000 shares of Series A preferred stock. Quality
Prince is a British Virgin Island corporation whose principal subsidiaries (the
"Hang Fung Group") are engaged in the manufacture and sale of jewelry. The Hang
Fung Group's operations are located in Hong Kong and the People's Republic of
China ("PRC").
The pro forma balance sheet data at September 30, 1996 assumes the
acquisition of Quality Prince as of September 30, 1996. Pro forma statement for
operations data is not presented herewith as the operating results of the
Company on a pro forma basis for both the year ended March 31, 1996 and the six
months ended September 30, 1996, assuming consummation of the acquisition as of
April 1, 1995, would have been substantially identical to the operating results
reported by the Hang Fung Group during these periods. Pro forma earnings per
share assuming completion of the acquisition as of April 1, 1995 were $.28 for
the year ended March 31, 1996 and $.17 for the six months ended September 30,
1996 based on 12,000,000 shares outstanding following the acquisition.
The historical financial information of Quality Prince as of and for the
period ended September 30, 1996 have been derived from the financial statements
of the Hang Fung Group included elsewhere herein and such information with
respect to the Company has been derived from the financial statements of the
Company for such period. The pro forma financial information should be read in
conjunction with the accompanying notes thereto and with the financial
statements of the Company and Quality Prince.
The pro forma condensed combined financial information does not purport to
be indicative of the financial position or operating results which would be
achieved had the acquisition of Quality Prince been consummated as of the dates
indicated and should not be construed as representative of future financial
position or operating results. In management's opinion, all adjustments
necessary to reflect the effects of the transactions described have been made.
F-34
<PAGE>
S.W. LAM, INC.
PRO-FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 1996
(Amounts in United States $`000)
(Unaudited)
<TABLE>
<CAPTION>
S. W. The Hang Proforma Proforma
Lam, Inc. Fung Group Adjustments Combined
--------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 0 $ 47 $ - $ 47
Accounts receivable 0 3,873 - 3,873
Inventories 0 9,110 - 9,110
Other 0 432 - 432
----- ------- ------ -------
Total current assets 0 13,462 - 13,462
Property, net 0 4,216 - 4,216
----- ------- ------ --------
Total assets $ 0 $17,678 $ - $17,678
===== ======= ====== =======
Current liabilities:
Income tax payable $ 0 $ 4,379 $ - $ 4,379
Deposits 0 4,014 - 4,014
Short-term bank borrowings 0 1,418 - 1,418
Accounts payable 0 1,277 - 1,277
Other 0 650 - 650
----- ------- ------ -------
Total current liabilities 0 11,738 - 11,738
Long-term bank loans 0 815 - 815
Capital lease obligations 0 31 - 31
Deferred income taxes 0 27 - 27
Shareholders' equity:
Common stock 15 66 (69)(1) 12
Preferred stock 0 0 1 (1) 1
Additional paid-in capital 320 0 68 (1) 53
(335)(2)
Retained earnings (deficit) (335) 4,874 335 (2) 4,874
Cumulative translation
adjustments 0 127 - 127
----- ------- ------ -------
Total shareholders' equity 0 5,067 0 5,067
----- ------- ------ -------
Total liabilities and
shareholders' equity $ 0 $17,678 $ 0 $17,678
===== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of this proforma
condensed combined balance sheet.
F-35
<PAGE>
S.W. LAM, INC.
NOTES TO CONDENSED COMBINED FINANCIAL INFORMATION
The proforma adjustments were made under the assumption that the proforma
combined financial information has been prepared using the purchase method as a
reverse acquisition whereby the company issuing its shares to effect a business
combination is determined to be the acquiree in the business combination.
Accordingly, The Hang Fung Group is deemed to be the acquirer and the assets of
the company deemed to be acquired, S.W. Lam, Inc., are required to be adjusted
to fair value on acquisition. As S.W. Lam had no assets, no fair value
adjustments are required.
1. To record the issue of 10,500,000 shares of common stock and 100,000 shares
of Series A preferred stock in exchange for the entire issued share capital
of Quality Prince Limited.
2. To eliminate the deficit of S.W. Lam, Inc.
F-36
ACQUISITION AGREEMENT
AGREEMENT, dated as of ___________, 1996, but effective as of _________,
1996 by and between S.W. Lam, Inc. a Nevada corporation (hereinafter "S.W.
LAM"), and all of the shareholders (hereinafter "Shareholders") of Quality
Prince Limited (hereinafter "Quality"), the controlling shareholders of Hang
Fung Jewellery Company Limited and Kai Hang Jewellery Company Limited
(hereinafter referred to collectively as "Hang Fung" or the "Hang Fung Group.")
RECITALS
WHEREAS, the Shareholders own or control in their respective capacities and
have the right to sell, transfer and exchange all of the capital stock of
Quality;
WHEREAS, S.W. LAM, wishes to acquire all of the issued and outstanding
capital stock of Quality in exchange for 10,500,000 shares of S.W. LAM common
stock, par value $.001 per share (hereinafter referred to as the S.W. LAM Common
Stock") representing approximately 87.5% of the issued and outstanding shares of
S.W. LAM immediately following the exchange, and 100,000 shares of Class A
Preferred Stock with a superior voting right as a class always equivalent to 30%
of the total vote (hereinafter called "Class A Preferred Stock") on all
corporate matters of S.W. LAM;
WHEREAS, the Shareholders wish to exchange their shares of Quality for S.W.
LAM Common Stock and Class A Preferred Stock;
NOW THEREFORE, in consideration of the premises herein contained, and the
mutual covenants hereinafter set forth, the parties hereto have agreed, and by
these presents, do hereby contract as follows:
1
<PAGE>
I. EXCHANGE OF SECURITIES
Subject to the terms and conditions hereinafter set forth, at the time of
the closing referred to in Article V hereof (hereinafter the "Closing Date"),
S.W. LAM will issue and deliver to the Shareholders, 10,500,000 shares of S.W.
LAM's Common Stock, and 100,000 shares of Class A Preferred Stock as designated
in the Shareholder Ownership Schedule (further described below), in exchange for
which the Shareholders will deliver, to S.W. LAM all of the issued and
outstanding stock of Quality. Immediately following the exchange, the
Shareholders will own approximately 87.50% of the issued and outstanding shares
of S.W. LAM; and Quality will own 100% of the Class B shares of each member of
the Hang Fung Group.
II. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders represent and warrant to S.W. LAM, all of which
representations and warranties shall be true and complete at the Closing Date,
and shall survive the Closing Date for a period for three (3) years except those
set forth in subsection 6 which shall survive the later of twelve months from
the Closing Date, or twelve months from the date the accounts receivable become
due and payable, that:
1. Organization. Both Quality and each member of the Hang Fung Group are
corporations duly organized the validly existing and in good standing under the
laws of the jurisdiction of their incorporation and each has the corporate power
to own its property and carry on its businesses and activities as and where they
are now being conducted. Certified copies of the Memorandum and Articles of
Association of each member of the Hang Fung Group are attached hereto as Exhibit
1 and constitute true and correct copies of the Memorandum and Articles of
Association of each company and include all amendments thereto to the date
hereof.
2
<PAGE>
2. Capital Stock
(a) Quality Prince Limited. The authorized capital stock Quality
Prince Limited consist of US$50,000 consisting of one class of
common stock, US$1.00 per value each, of which 70 shares are
authorized have been validly issued each are now outstanding.
(b) Hang Fung Jewellery Company Limited. The authorized capital stock
of Hang Fung Jewellery Company Limited consists of HK$500,000
divided into two classes: non-voting Class A shares, HK$1.00 par
value each, of which two shares are authorized and have been
validly issued and are now outstanding; and Class B voting
shares, HK$1.00 par value each, of which 499,998 shares are
authorized and 2 shares have been validly issued and are now
outstanding.
(c) Kai Hang Jewellery Company Limited. The authorized capital stock
of Kai Hang Jewellery Company Limited consists of HK$11,000
divided into two classes: non-voting Class A shares, HK$1.00 par
value each of which 10,000 shares are authorized and have been
validly issued and are now outstanding; voting Class B voting
shares, HK$1.00 par value each, of which 1,000 shares are
authorized and 2 shares have been validly issued and are now
outstanding.
(d) Shareholder Ownership Schedule. The Shareholders represent and
warrant that all of the Shareholders of Quality, and their
respective number of shares owned is correctly designated in the
Shareholder Ownership Schedule attached hereto and incorporated
herein. These shareholders collectively own 100% of the capital
stock of Quality. Further more the 10,500,000 S.W. LAM common
shares, and the S.W. LAM Class A Preferred stock to be exchanged
is to be allocated according to the designations on the
Shareholder Ownership Schedule.
3
<PAGE>
3. Authority. The Shareholders have the full power and authority to
exchange the shares of the capital stock of Quality upon the term and conditions
provided for in this Agreement, and all such shares have been validly issued,
are fully paid and non-assessable, and are free and clear of any and all liens
or other encumbrances.
4. Financials. The combined financial statements audited by Arthur Andersen
& Co., Certified Public Accountants, at and for the year ended March 31, 1996,
attached hereto as Exhibit 2, are true and correct statements as of the date
thereof of the financial condition of Quality and each member of the Hang Fung
Group and of their assets and liabilities prepared in accordance with generally
accepted accounting principles consistently applied. From March 31, 1996, and
until the Closing Date, no dividends or distributions of capital, surplus or
profits shall be paid or declared by Quality or any other member of the Hang
Fung Group nor will there be any redemption of any member's outstanding shares
or otherwise, other than in the ordinary course of business, nor has any
additional debt or equity securities been issued by Quality or any other member
of the Hang Fung Group, nor have any agreements or commitments been entered into
for the issuance of any such securities.
5. Inventories. The inventories of the Hang Fung Group as shown in Exhibit
2, and as specifically set forth in separate schedules dated as of March 31,
1996, and September 30, 1996 and attached hereto as Exhibit 3 are valued at the
lower of cost or net realizable value.
6. Accounts Receivable. The accounts receivable of the Hang Fung Group
shown in Exhibit 2, and detailed on a separate schedule as of September 30,
1996, specifically set forth in Exhibit 4, or those which are due and payable
after the Closing Date shall be valid and collectible pursuant to their terms,
and can reasonably be anticipated to be paid within 12 months after the Closing
Date or the date when the accounts receivable are due and payable.
4
<PAGE>
7. Other transactions. Since March 31, 1996, neither Quality nor any other
member of the Hang Fung Group has engaged in any transaction other than
transactions in the normal course of the operations of their businesses, except
as specifically authorized by S.W. LAM in writing. Since March 31, 1996 no
member of the Hang Fung Group has sold, assigned, or transferred any patent
rights formulas, trademarks trade names copyrights licenses or other intangible
assets.
8. Litigation. Neither Quality nor any other member of the Hang Fung Group
is involved in any pending or threatened litigation which would materially
affect the consolidated financial condition as shown by the respective balance
sheets of March 31, 1996, shown on Exhibit 2 hereto, which has not been provided
for on such balance sheets, or referred to in such balance sheets or footnotes
attached thereto, or disclosed to S.W. LAM in writing.
9. Title. Quality and each member of the Hang Fung Group has and will have
at the Closing Date, good and marketable title to all of their property and
assets shown on Exhibit 2 hereto, free and clear of any and all liens or
encumbrances or restrictions, except as shown on Exhibit 2 hereto, except for
taxes and assessments due and payable after the Closing Date, or easements or
minor restrictions which do not materially effect the present value or use of
such real property. Additionally, Quality and each member of the Hang Fung Group
have and will have at the Closing Date, good and marketable title to all of the
property and assets shown on Exhibit 2 hereto, free and clear of any and all
liens, encumbrances or restrictions, except as shown on Exhibit 2 hereto, except
for taxes and assessments due and payable after the Closing Date or easements or
minor restrictions which do not materially affect the present value or use of
such real property.
5
<PAGE>
10. Compliance with Securities Law. In connection with their acquisition of
shares of S.W. LAM, each of the Shareholders hereby make the representations and
warranties set forth in Article V, and such are incorporated herein.
11. Taxes. Quality and each member of the Hang Fung Group have filed all
federal state or their equivalent income tax returns in each state, country or
jurisdiction where they are qualified doing business, or incorporated and have
filed all franchise tax returns or their equivalent which are required to be
filed under applicable law and each member of the Hang Fung Group have paid all
taxes as shown on such returns as such taxes have become due and payable and
have paid all assessments received thereon that have become due.
12. Brokers/Finder's Fees. Neither Quality nor any member of the Hang Fung
Group have retained or otherwise utilized the services of any broker or finder
in connection with the transaction contemplated by this agreement. Furthermore,
neither Quality nor any member of the Hang Fung Group has done any act to give
rise to any valid claim(s) against S.W. LAM for a brokerage commission, finder's
fee or similar charge.
13. Subsequent Actions. Between the date hereof and the Closing Date, both
Quality and each member of the Hang Fung Group shall conduct their business as
in the same manner in which they had theretofore been conducted and the
Shareholders will not permit Quality or any other member of the Hang Fung Group
to (1) enter into any contract, etc., other than in the ordinary course of
business, or (2) declare or make any distribution of any kind to the
Shareholders without first obtaining the written consent of S.W. LAM.
6
<PAGE>
III. REPRESENTATIONS AND WARRANTIES OF S.W. LAM
S.W. LAM represents and warrants to the Shareholders, all of which
representations and warranties shall be true as of the Closing Date, and shall
survive the Closing Date for a period of three (3) years that :
1. Organization. S.W. LAM is a corporation duly organized and validly
existing and in good standing under the laws of the State of Nevada and has the
corporate powers to own its properties and carry on its business as now being
conducted and has authorized 50,000,000 capital stock consisting of 25,000,000
shares of Common Stock, $.001 par value per share, and 25,000,000 Preferred
stock also having a $.001 par value. 1,500,000 shares of Common Stock are issued
and outstanding as of the date hereof and there does not now exist nor will
there exist at the Closing Date any agreement or commitment to issue any such
securities. As of the Closing Date, there shall be 1,500,000 issued and
outstanding shares of Common Stock, $.001 par value and as of such date, there
shall be no other debt or equity securities of S.W. LAM outstanding and no
agreement or commitment by S.W. LAM to issue any such securities. True and
correct copies of S.W. LAM's Articles of Incorporation and Bylaws as amended
through the date hereof, are attached hereto as Exhibit 5 and no amendment shall
occur through the Closing Date.
2. Authorization. S.W. LAM has the corporate power to execute and perform
this Agreement and to deliver the stock required to be delivered to the
Shareholders hereunder. The execution and delivery of this Agreement, and the
issuance of the stock required hereunder will have been duly authorized by all
necessary corporate actions and neither the execution and delivery of this
Agreement, the issuance of the stock, nor the performance, observance or
compliance with the terms and provisions of this Agreement will violate any
7
<PAGE>
provision of law, an order of any court or other government agency, the Articles
of Incorporation or Bylaws of S.W. LAM, or any indenture, agreement or other
instrument to which S.W. LAM is a party, or by which S.W. LAM is bound or by
which any of its property is bound.
3. Common Stock. The shares of S.W. LAM's Common Stock deliverable
hereunder will upon delivery in accordance with the terms hereof, be duly
authorized, validly issued, fully paid and non-assessable, and free and clear of
any and all liens, claims or other encumbrances. Such shares will be restricted
and cannot be sold or exchanged except pursuant to registration or an exemption
therefrom.
4. Financials. The financial statements prepared by Albright, Persing &
Associates, Ltd., Certified Public Accountants, for the year ending June 30,
1996, attached hereto as Exhibit 7 constitute true and correct statements as of
such date of the financial condition of S.W. LAM and of its assets, liabilities
and income prepared in accordance with generally accepted accounting principles
consistently applied. From June 30, 1996, and until the Closing Date, no
dividend or distribution of capital, surplus, or profit have been paid or
declared by S.W. LAM in redemption of any of its outstanding shares or
otherwise.
5. Material Liabilities. Except as previously described to the shareholders
in writing, S.W. LAM has no material liabilities of any nature except:
(a) Liabilities reflected or reserved for in the S.W. LAM financial
statements attached hereto;
(b) Liabilities incurred by S.W. LAM subsequent to the date of the
latest statement of financial condition submitted as part of the
S.W. LAM financial statements but incurred in the ordinary course
8
<PAGE>
of business and consistent with past practice and disclosed in
writing to the shareholders.
As used in this section, "material" means amounts of $5,000 or more.
6. Subsequent Actions. Since June 30, 1996, S.W. LAM has not engaged in any
transaction other than transactions in the normal course of the operations of
its business, except as specifically authorized by the Shareholders in writing.
Except as previously disclosed to the Shareholders in writing, there has not
been since June 30, 1996, nor shall there be through and including the Closing
Date any of the follow:
(a) Any event, condition or state of facts, which individually or in
the aggregate, has resulted in any known adverse material change
in condition (financial or otherwise) of the assets, liabilities,
prospects or business taken as a whole;
(b) Any declaration, setting aside payment, directly or indirectly,
or a distribution of assets in the nature of dividends or a
partial liquidation, pro rata or otherwise;
(c) Any damages, destruction, loss or other casualty, whether or not
covered by insurance, or any strike, work stoppage, slowdown, or
other labor trouble materially adversely affecting the business
or properties considered as a whole;
(d) Any material change in the method of record keeping employed;
(e) Any issuance or sale of any capital stock, bond debentures, notes
or other securities;
(f) Any discharge or satisfaction of any lien or encumbrance or the
payment of any obligation or liability, accrued, absolute or
contingent, in excess of $5,000 in the aggregate other than
liabilities shown in the latest S.W. LAM financial statements and
liabilities arising out of obligations incurred since June 30,
1996, in the ordinary course of business or disclosed in writing
to the Shareholders prior to the execution of this agreement.
9
<PAGE>
(g) Any amendment or termination or receipt of notice of any proposed
amendment or termination of any material contract, franchise,
agreement, plan lease, license or permit to which S.W. LAM is a
party or by which it may be bound which materially affects or
will affect its business as presently conducted.
(h) Any mortgage, pledge or subjection of any lien, charge, option or
other encumbrance upon any of the property or assets, tangible or
intangible of S.W. LAM.
(i) Any sale, assignment, transfer or agreement to sell, assign, or
transfer any of the assets of S.W. LAM, or the making of any
commitment or the incurring of any material liability, or the
cancellation or compromise or agreement to cancel or compromise
any of the debts or claims of either such entity;
(j) Any sale, assignment, transfer or agreement to sell, assign, or
transfer any trademark or trade name, or application therefore,
or computer software or hardware or other proprietary
information; or
(k) Any other material transaction or event by S.W. LAM other than in
the ordinary course of business.
7. Litigation S.W. LAM is not involved in any pending or threatened
litigation which would materially adversely affect its financial condition as
shown by its balance sheet as of June 30, 1996, attached hereto as Exhibit 7,
which has not been provided for on such balance sheet, or referred to in the
footnotes of such balance sheet or described in Exhibit 7 hereto.
8. Representations. No representation, warranty or covenant of S.W. LAM
made in this agreement or any certificate or other document furnished or to be
furnished by S.W. LAM pursuant to this agreement contains or will contain a
10
<PAGE>
material misstatement of fact, omit or will omit a material fact necessary to
make the statements contained therein or herein not misleading. No officer or
director of S.W. LAM has knowledge of any act or matter which may have a
material adverse effect upon S.W. LAM or its securities.
9. SEC Reports. The 1,500,000 issued and outstanding shares of S.W. LAM
were issued pursuant to an exemption from registration under Rule 504 of the
Securities Act of 1933.
10. Compliance with Securities Laws. In connection with its acquisition of
Quality, S.W. LAM also make the representations and warranties in Article V and
such are incorporated herein.
11. Contracts. During the period commencing with date hereof and ending
with the closing date, S.W. LAM will not enter into any such agreement, contract
or commitment, or be subject of any such approval, consent order, registration,
authorization, license permit, or the application without the prior written
consent of the Shareholders. Except as previously disclosed to the Shareholders
in writing, S.W. LAM is not a party to any of the following :
(a) Collectively bargaining agreements involving its employees;
(b) Bonus, deferred compensation, pension, profit sharing, stock option,
stock purchase, incentive or retirement plans or other employee
benefit arrangement;
(c) Employment agreement, contracts or commitments not terminable at will
without penalty, with or between S.W. LAM and a director, officer or
employee of S.W. LAM;
(d) Agreements of guaranty or indemnification to any person or entity;
11
<PAGE>
(e) Agreements, contracts or commitments containing any covenant limiting
the right of S.W. LAM to engage in any line of business or compete
with any person or entity;
(f) Agreements, contracts or commitments to which it is a party or by
which it is bound evidencing or providing for loans to others;
(g) Agreements, contracts or commitments relating to material future
payments;
(h) Agreements, contracts or commitments relating to a merger,
recapitalization, reorganization or the acquisition of assets or
capital stock of any business enterprise;
(i) Government or government agency or authority approvals, consents,
orders registrations, authorizations, licenses and permits, and
applications, with respect thereto which are material to its business
and operations;
(j) Agreements, contracts or commitments which may require consent by any
other person or entity in connection with the consummation of the
transactions contemplated hereby either to prevent a breach or to
continue the effectiveness thereof;
12. Board Approval. Subject to the terms and condition hereof, the board of
directors of S.W. LAM has duly approved this agreement and its execution and the
carrying out of the transactions contemplated herein and represents that
shareholder approval is not necessary in conjunction with the execution and
carrying out of the transactions contemplated herein, or has been obtained if
required.
13. Other negotiations. Prior to the Closing Date, S.W. LAM shall not
negotiate or directly or indirectly solicit or propose to enter into any
negotiations which have as their sole purpose the sale of the S.W. LAM common
stock or all or any material portion of the assets of, or make a tender offer,
merger or other acquisition proposal involving S.W. LAM, or its assets, with any
person or entity other than the Shareholders.
12
<PAGE>
14. Interim operations. S.W. LAM agree except as other wise consented to or
approved by the Shareholder in writing that prior to the closing date it will:
(a) Operate its business substantially as now operated and only in the
ordinary course and that it will use its best efforts to preserve its
relationships with persons having business dealings with it;
(b) Maintain all of its properties in customary repair, order and
condition, reasonable wear and tear excepted;
(c) Maintain its books, accounts, and records in the usual, regular and
ordinary manner and in accordance with generally accepted accounting
principles of the United States applied on a consistent basis;
(d) Timely file all federal, state, local tax returns and reports
including without limitation, income, excise, ad valorem, and other
taxes with respect to their business and properties, and to pay all
taxes or assessments, except taxes being contested in good faith by
appropriate proceedings, as they become due;
(e) Maintain insurance upon its properties in accordance with current
practice;
(f) Comply in all material respect with all laws, regulations rules
ordinances applicable to it and to the conduct of its business; and
(g) Comply with any contracts, agreements, commitments, mortgages and
similar instruments to which it is a party.
15. Brokers/Finder's fees. S.W. LAM has not retained or otherwise utilized
the services of any broker or finder in connection with the transaction
13
<PAGE>
contemplated by this agreement, nor has done anything to give rise to any valid
claim(s) against the Shareholders for a brokerage commission, finder's fee or
similar charge in connection with this transaction.
IV. CONDITIONS TO THE OBLIGATIONS OF S.W. LAM
The obligations of S.W. LAM hereunder shall be subject to the conditions
that:
1. Error or Misstatement. S.W. LAM shall not have discovered any material
error or misstatement in any of the representations and warranties made by the
Shareholders and all the terms and conditions of this Agreement to be performed
and complied with by the Shareholders on or prior to the Closing Date shall have
been performed and complied with;
2. Legal Opinions. S.W. LAM shall have received the opinion of Messrs.
Vanderkam and Sanders, legal counsel for Quality and each member of the Hang
Fung Group to the effect that (a) each is duly organized and validly existing
under the laws of the jurisdiction of its incorporation and has the power and
authority to own its properties and to carry on its respective business wherever
the same may be located and operated as of the Closing Date, and (b) the
Agreement has been duly executed, and when delivered by the Shareholders is
enforceable in accordance with its terms, subject to the general principles of
equity and the valid exercise of police power. In rendering such opinion,
Vanderkam and Sanders may rely on opinions of counsel licensed to practice law
in applicable jurisdictions where Vanderkam and Sanders is not so licensed.
V. CONDITIONS TO THE OBLIGATIONS OF THE SHAREHOLDERS
The obligations of the Shareholders hereunder are subject to the conditions
that:
1. Representations. All representations or warranties of S.W. LAM shall be
true and correct as of the date made and as of the Closing Date, and all other
terms and conditions of this agreement to performed and complied with by S.W.
14
<PAGE>
LAM on or prior to the Closing Date shall have been performed and complied by
the Closing Date;
2. Changes. There shall have been no substantial adverse changes in the
conditions, financial, business or otherwise of S.W. LAM from June 30, 1996 to
the Closing Date, and between such dates the business and assets of S.W. LAM
shall not have been materially adversely affected as the result of any fire,
explosion, earthquake, flood, accident, strike, lockout, combination or workmen,
environmental concerns, taking over of any such assets by any governmental
authorities, riot, activities or armed forces, or acts of God or of the public
enemies.
3. Legal Opinion. The Shareholders shall have received the opinion of
_____________, counsel for S.W. LAM, to the effect that (a) S.W. LAM is a
corporation duly organized and validly existing under the laws of the State of
Nevada, and has the power to own and operate its properties wherever the same
shall be located as of the Closing Date; (b) the execution delivery and
performance of S.W. LAM has been duly authorized by all necessary corporate
action and such constitutes a legal, valid and binding obligation of S.W. LAM
and is enforceable in accordance with its terms; (c) the stock to be delivered
to the Shareholders pursuant to the terms of this Agreement has been validly
issued, is fully paid and non-assessable; and (d) the exchange of the stock
herein contemplated does not require the registration of the S.W. LAM's Common
Stock pursuant to any Federal law dealing with the issuance, sale, transfer,
and/or exchange of corporate securities.
V. CLOSING
1. Closing Date. The closing shall take place at 10:00 A.M. Central
Standard Time, on December ___, 1996, at the offices of Vanderkam & Sanders,
Houston, Texas, or at such other time and place as the parties hereto shall
15
<PAGE>
agree upon. The Agreement shall be effective as of the close of business on the
Closing Date.
2. Actions at Closing. At the closing, S.W. LAM and the Shareholders will
each deliver, or cause to be delivered to the other, the securities to be
exchanged in accordance with Section 1 of this Agreement and each party shall
pay any and all Federal and State taxes required to be paid in connection with
the issuance and the delivery of such. In addition, the following transactions
will take place.
(a) S.W. LAM will deliver to the Shareholders:
(i) Duly certified copies all corporate resolutions and other
corporate proceedings taken by S.W. LAM to authorize the
execution, delivery and performance of this Agreement.
(ii) The opinion of ____________, counsel for S.W. LAM, as provided in
Article IV of this Agreement.
(iii)A Certificate executed by a principal officer of S.W. LAM
attesting to the fact that all of the representations and
warranties of S.W. LAM are true and correct as of the Closing
Date, and that all of the conditions to the obligations of the
Shareholders to performed by S.W. LAM have been performed as of
the Closing Date.
(iv) A Certificate of Incumbency and Signatures of the officers of
S.W. LAM dated as of the date of this Agreement.
(v) The written resignations of all directors and such officers and
auditors of S.W. LAM as are requested by the Shareholders, which
resignations shall contain an acknowledgment from each resignee
that they have no claims against S.W. LAM for loss of office or
otherwise.
16
<PAGE>
(vi) All registration certificates, statutory books, minutes books and
common seals of S.W. LAM, all accounts books and all documents of
title relating to S.W. LAM's assets (unless already in the
possession of the Shareholders) as are required by the
Shareholders.
(vii)Stock certificates in an aggregate amount of 10,500,000 of S.W.
LAM common stock, $.001 par value and stock Certificates in an
aggregate amount of 100,000 shares of Class A preferred Stock, as
set forth in Article I and as designated in the Shareholder
Ownership Schedule.
(b) The Shareholders will deliver to S.W. LAM:
(i) The opinion of Vanderkam and Sanders, counsel for the
Shareholders, as provided for in Article IV hereof.
(ii) A certificate of corporate good standing from the jurisdiction of
incorporation as a recent date for Quality and each other member
of the Hang Fung Group.
(iii)A certificate of the Shareholders signed by each Shareholder that
each of representations and warranties of the Shareholders are
true and correct as of the Closing Date and that all of the
conditions to the obligations of S.W. LAM to be performed by the
Shareholders have been performed as of the Closing Date.
(iv) All of the outstanding common share certificates of Quality, duly
endorsed to S.W. LAM.
VI. COMPLIANCE WITH SECURITIES LAWS
1. Shareholder representations. Each Shareholder acknowledges that the
shares of S.W. LAM to be delivered to each Shareholder pursuant to this
agreement have not been registered under the Securities Act of 1993 as amended,
referred to in this agreement as the "Securities Act," or the laws of any other
jurisdiction, and that therefore the stock is not fully transferable except as
17
<PAGE>
permitted under various exemptions, if any contained in the act and the rules of
the Securities and Exchange Commission interpreting the act. The provisions
contained in this paragraph are intended to ensure compliance with the
Securities Act. Under US law, S.W. LAM Common Stock cannot be sold or
transferred by the Shareholder unless they are subsequently registered under
applicable law or an exemption from registration is available. S.W. LAM is not
required to register or assist in the registration of the S.W. LAM Common Stock
or to make any exemption from registration available. Each Shareholder
represents and warrants to S.W. LAM that:
(a) the Shareholder is acquiring the shares of S.W. LAM common stock under
this agreement for the Shareholder's own account for investment, and
not for the purpose of resale or any other distribution of such
shares.
(b) the Shareholder has no present intention of disposing of all or any
part of such shares at any particular time, for any particular price
or on the happening of any particular circumstances.
(c) the Shareholder has such knowledge and experience in financial and
business matters that the Shareholder is capable of evaluating the
merits and risks of an investment in S.W. LAM.
(d) the Shareholder acknowledges that S.W. LAM is relying on the truth and
accuracy of these warranties and representations in issuing the shares
without first registering the shares under the Securities Act.
(e) none of the shares of S.W. LAM capital stock to be issued to the
Shareholder pursuant to this agreement, will be offered, sold,
assigned, pledged, transferred, or otherwise disposed of except after
full compliance with all of the applicable provisions of the
Securities Act and the rules and regulations of the Securities and
Exchange Commission under the Securities Act.
18
<PAGE>
(f) the Shareholder agrees not to sell or otherwise dispose of any of the
shares of S.W. LAM's common stock received pursuant to this agreement
unless the Shareholder: (i) has delivered to S.W. LAM a written legal
opinion in form and substance satisfactory to counsel for S.W. LAM to
the effect that the disposition is permissible under the terms of the
Securities Act and regulations interpreting the act; (ii) has complied
with the registration and prospectus requirements of the Securities
Act relating to such disposition; or (iii) has presented S.W. LAM
satisfactory evidence that such a disposition is exempt from
registration under the act.
(g) the Shareholder understands, and agrees that S.W. LAM shall place a
stop transfer order against transfers of shares until one of the
conditions set forth in this paragraph have been met.
(h) the certificates evidencing the shares that the Shareholder will
receive under this agreement will contain the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT, THE SECURITIES MAY
NOT BE SOLD OR OFFERED FOR SALE UNLESS A REGISTRATION STATEMENT UNDER THE
FEDERAL SECURITIES ACT OF 1933, AS AMENDED IS IN EFFECT FOR THE SECURITIES, OR
AN EXEMPTION FROM REGISTRATION REQUIREMENTS OF SUCH ACT IS IN FACT APPLICABLE TO
SUCH OFFER OR SALE, AND SUCH EXEMPTION IS EVIDENCED BY AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER.
2. Representations of S.W. LAM. S.W. LAM acknowledges that the shares of
Quality to be delivered pursuant to this agreement have not been registered
under the Securities Act or the laws of any other jurisdiction, and that
therefore the stock is not fully transferable except as permitted under various
19
<PAGE>
exemptions, if any contained in the act and the rules of the Securities and
Exchange Commission interpreting the act. The provisions contained in this
paragraph are intended to ensure compliance with the Securities Act. Under US
law, Quality Common Stock cannot be sold or transferred by S.W. LAM unless it is
subsequently registered under applicable law or an exemption from registration
is available. Quality is not required to register or assist in the registration
of the Quality Common Stock or to make any exemption from registration
available. S.W. LAM represents and warrants to the Shareholders of Quality that:
(a) it is acquiring the shares of Quality common stock under this
agreement for its own account for investment, and not for the purpose
of resale or any other distribution of such shares.
(b) it has no present intention of disposing of all or any part of such
shares at any particular time, for any particular price or on the
happening of any particular circumstances.
(c) it has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of an investment
in Quality.
(d) it acknowledge that Quality and the Shareholders are relying on the
truth and accuracy of these warranties and representations in issuing
the shares without first registering the shares under the Securities
Act.
(e) none of the shares of Quality capital stock to be issued to S.W. LAM
pursuant to this agreement, will be offered, sold, assigned, pledged,
transferred, or otherwise disposed of except after full compliance
with all of the applicable provisions of the Securities Act and the
rules and regulations of the Securities and Exchange Commission under
the Securities Act.
20
<PAGE>
(f) it agrees not to sell or otherwise dispose of any of the shares of
Quality common stock received pursuant to this agreement unless (i) it
has delivered to Quality a written legal opinion in form and substance
satisfactory to counsel for Quality to the effect that the disposition
is permissible under the terms of the Securities Act and regulations
interpreting the act; (ii) it has complied with the registration and
prospectus requirements of the Securities Act relating to such
disposition; or (ii) it has presented Quality satisfactory evidence
that such a disposition is exempt from registration under the act.
(g) it understands and agrees that Quality will place a stop transfer
order against transfers of shares until one of the conditions set
forth in this paragraph has been met.
(h) the certificates, evidencing the shares that S.W. LAM will receive
under this agreement will contain the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT. THE SECURITIES MAY
NOT BE SOLD OR OFFERED FOR SALE UNLESS A REGISTRATION STATEMENT UNDER THE
FEDERAL SECURITIES ACT OF 1933, AS AMENDED IS IN EFFECT FOR THE SECURITIES, OR
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS IN FACT
APPLICABLE TO SUCH OFFER OR SALE, AND SUCH EXEMPTION IS EVIDENCED BY AN OPINION
OF COUNSEL SATISFACTORY TO THE ISSUER.
VII. DISSOLUTION OF THE BOARD OF DIRECTORS
Upon completion of the acquisition, the existing Board of Directors of S.W.
LAM will be dissolved or resign and a new board shall be constituted by Quality.
VIII. ACCESS TOT HE PROPERTIES AND BOOKS
The Shareholders hereby grant to S.W. LAM and its duly authorized
representatives during normal business hours between the date hereof and the
Closing Date, the right of full and complete access to the properties of Quality
21
<PAGE>
and each member of the Hang Fung Group, full opportunity to examine their books
and records. A similar access to S.W. LAM's properties, books and records in
granted to the Shareholders, and their duly authorized representatives.
IX. CONFIDENTIAL MATTERS
1. Covenants. S.W. LAM acknowledges and agrees that during, and as a result
of any discussions furnishing of documents, their own investigation and
otherwise, that it will have access to certain confidential information (as
hereinafter defined.) Therefore, S.W. LAM agrees for itself and for each of its
officers, directors, employees agents, representatives and affiliates:
(a) To keep secret and confidential and not to use directly or indirectly
for its own benefit or the benefit of others or to the detriment of
the Shareholders or Quality or any other members of the Hang Fung
Group, each and every item of the Confidential Information, and to use
the Confidential Information solely for the purpose of evaluating the
transactions described herein;
(b) To restrict access to the Confidential Information to those of its
officers, directors, employees, agents, representatives, consultants,
financial advisors, and potential investors who, in the performance of
its or their duties, reasonably require access to the Confidential
Information;
(c) To the best of its ability ensure that its officers, directors,
employees, agents, representatives, consultants, financial advisors,
and potential investors and potential lenders who obtain access to the
Confidential Information maintain the secrecy and confidentiality
thereof and do not use directly or indirectly any such Confidential
Information for its or their own benefit or the benefit of others or
disclose any of the Confidential Information to any person or entity
not entitled to the same pursuant to the terms hereof or any written
consent of the Shareholders and Quality; and
22
<PAGE>
(d) To use the Confidential Information for no other purposes than those
specifically authorized hereunder.
2. Definition. For purposes of this agreement "Confidential Information"
shall include but not limited to (a) all subsequent, prior and derivative drafts
hereof, and all information contained or described in the exhibits and schedules
attached hereto; (b) the identity of the Shareholders or the members of the Hang
Fung Group; (c) the nature, structure and terms of the transactions described
herein and contemplated hereby and any arrangement related thereto; (d) all
information pertaining to or related to, or arising out of or in connection
with, any of the foregoing, regardless of the source of such information,
projections, financial margins, or any other information relating to the
transactions described herein and the Shareholders or Quality or any other
member of the Hang Fung Group including but not limited to customer lists, trade
secrets, computer programs, products being developed, marketed and distributed
by the Shareholders or Quality or any member of the Hang Fung Group engineering,
technical and scientific data, tapes, designs, skills, procedures, formulations,
methods, drawings, facilities, information and know-how, and other confidential
information regarding the Shareholders or Quality or any other member of the
Hang Fung Group.
3. Dissemination. S.W. LAM further agree that they will deliver to the
Shareholders and their counsel for their approval all proposed press releases,
reports or forms to be filed with the Securities and Exchange Commission and
other statements disclosures or reports, regarding the transactions or matters
described herein, contemplated hereby or related hereto.
23
<PAGE>
4. Survival. The provisions of this article and the agreements of S.W. LAM
as set forth in this Article shall apply whether or not the Shareholders
actually acquire controlling interest of S.W. LAM and accordingly, shall
continue to apply after termination, of the discussions regarding these
acquisitions for whatever reasons and shall have no termination or expiration
date.
5. Injunctive Relief. S.W. LAM agrees that disclosure of any Confidential
Information would cause immediate and irreparable harm to the Shareholders,
Quality and any other member of the Hang Fung Group for which damages would not
constitute adequate compensation and that in the event that S.W. LAM has violate
or is about to violate any provision of this agreement, either the Shareholders,
Quality, or any other member of the Hang Fung Group may bring an action for and
obtain injunctive relief in any court having jurisdiction over S.W. LAM or their
assets without providing a bond or other security. The Shareholders and/or
Quality, or any other member of the Hang Fung Group may recover their attorneys
fees and other costs of successfully enforcing this agreement or their rights
hereunder or in recovering damages for the breach thereof.
X. COSTS AND EXPENSES
Each party hereto shall pay its own expenses and costs incident to the
preparation of this Agreement and to the consummation of the transaction
contemplated herein.
XI. MISCELLANEOUS
1. Choice of Law. This Agreement shall be controlled, construed and
enforced in accordance with the laws of the State of Nevada.
2. Assignment. This Agreement shall not be assignable by either party
without the prior written consent of the other.
24
<PAGE>
3. Headings. All paragraph headings herein are inserted for the parties
convenience in identifying the provisions of this Agreement, and shall not
affect the construction or interpretation of the provisions of this Agreement.
4. Entire Agreement. This Agreement sets forth the entire understanding
between the parties, there being no terms, conditions, warranties or
representations other than those contained herein, and no amendments hereto
shall be valid unless made in writing and signed by the parties hereto.
5. Binding Successors. This Agreement shall be binding upon and shall inure
to the benefit of the heirs, executors, administrators and assigns of all
parties.
6. Notices. All notices, requests, instructions, or other documents to be
given hereunder shall be in writing and sent by registered mail:
If to Shareholders: Lam Sai Wing
Chan Yam Fai, Jane
Unit 302-303A, 3rd Floor
Fu Hang Industrial Building
No. 1 Hok Yuen Street East
Hung Hom, Kowloon, Hong Kong
If to S.W. LAM S.W. Lam, Inc.
2440 South Progress Drive
Salt Lake City, Utah 84119
with copies to : Messrs. Vanderkam & Sanders
440 Louisiana, Suite 475
Houston, Texas 77002
7. Signatures. For purposes of this Agreement only, facsimile signatures
shall be considered original signatures.
8. Multiple Counterparts. This agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be original, and all of which taken
together shall constitute one and the same agreement.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date and year first above written.
S.W. Lam, Inc.
--------------------------
By:
-----------------------
President
SHAREHOLDERS OF
QUALITY PRINCE LTD.
/s/ illegible
----------------------------
Lam Sai Wing
/s/ illegible
----------------------------
Chan Yam Fai, Jane
26
<PAGE>
Country:
-----------------
On December ____, 1996, before me the undersigned authority personally appeared
Lam Sai Wing who, after being sworn, on oath did state that he was executing
this agreement upon such authority, and for the considerations therein stated.
--------------------------
Notary Public
[SEAL]
Country:
-----------------
On December ____, 1996, before me the undersigned authority personally appeared
Chan Yam Fai, Jane, who, after being sworn, on oath did state that she was
executing this agreement upon such authority, and for the considerations therein
stated.
--------------------------
Notary Public
[SEAL]
STATE OF
COUNTRY OF
On December ____, 1996 personally appeared before me, a Notary Public,
________________, who acknowledged that he executed the above document, and that
he is the ____________ of S.W. Lam Inc., duly authorized to execute this
document on its behalf.
--------------------------
Notary Public
[SEAL]
27
ARTICLES OF INCORPORATION
OF
S.W. LAM, INC.
The undersigned natural persons of the age of eighteen (18) years or more
acting as incorporator of a corporation under the Nevada Revised Civil Statute
78, hereby adopts the following Articles of Incorporation:
ARTICLE I
NAME
The name of the corporation (hereinafter called "Corporation") is S.W. Lam,
Inc.
ARTICLE II
PERIOD OF DURATION
The period of duration of the Corporation is perpetual.
ARTICLE III
PURPOSES AND POWERS
The purpose for which this Corporation is organized is to engage in the
business of investing in investments of all forms and nature and to engage in
any and all other lawful business.
ARTICLE IV
CAPITALIZATION
The total number of shares of stock which the Corporation shall have the
authority to issue is fifty million (50,000,000) shares, consisting of
twenty-five million (25,000,000) shares of Common Stock having a par value of
$.001 per share and twenty-five million (25,000,000) shares of Preferred Stock
having a par value of $.001 per share.
A. Preferred Stock
The Board of Directors is authorized, subject to the limitations
prescribed by law and the provisions of this Article, to provide for
page 1
<PAGE>
the issuance of the shares of Preferred Stock in series, and by filing
a certificate pursuant to the applicable law of the State of Nevada,
to establish from time to time the number of shares to be included in
each such series and to fix the designation, powers, preferences and
rights of the shares of each such series and the qualifications,
limitations or restrictions thereof.
1. The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:
a. The number of shares constituting that series and the
distinctive designation of that series;
b. The dividend rate on the shares of that series, whether
dividends shall be cumulative, and if so, from which date or
dates, and the relative rights of priority, if any, of
payment of dividends on shares of that series;
c. Whether that series shall have voting rights, in addition to
the voting rights provided by law, and if so, the terms of
such voting rights;
d. Whether that series shall have conversion privileges and, if
so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such
events as the Board of Directors shall determine;
e. Whether or not the shares of that series shall be redeemable
and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall
be redeemable and the amount per share payable in case of
redemption, which amount may vary under different conditions
and at different redemption dates;
f. Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series and, if so,
page 2
<PAGE>
the terms and amount of such sinking fund;
g. The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, and the relative rights of priority,
if any, of payment of shares of that series; and
h. Any other relative rights, preferences and limitations of
that series.
2. Dividends on outstanding shares of Preferred Stock shall be paid
or declared and set apart for payment, before any dividends shall
be paid or declared and set apart for payment on Common Stock
with respect to the same dividend period.
3. If upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the assets available for
distribution to holders of shares of Preferred Stock of all
series shall be insufficient to pay such holders the full
preferential amount to which they are entitled, then such assets
shall be distributed ratably among the shares of all series of
Preferred Stock in accordance with the respective preferential
amounts (including unpaid cumulative dividends, if any) payable
with respect thereto.
4. Unless otherwise provided in any resolution of the Board of
Directors providing for the issuance of any particular series of
Preferred Stock, no holder of Preferred Stock shall have any
pre-emptive right as such holder to subscribe for, purchase or
receive any part of any new or additional issue of capital stock
of any class or series, including unissued and treasury stock, or
obligations or other securities convertible into or exchangeable
for capital stock of any class or series, or warrants or other
instruments evidencing rights or options to subscribe for,
purchase or receive any capital stock of any class or series,
whether now or hereafter authorized and whether issued for cash
or other consideration or by way of dividend.
page 3
<PAGE>
B. Common Stock
1. Subject to the prior and superior rights of the Preferred Stock
and on the conditions set forth in the foregoing parts of this
Article or in any resolution of the Board of Directors providing
for the issuance of any particular series of Preferred Stock, and
not otherwise, such dividends (payable in cash, stock or
otherwise) as may be determined by the Board of Directors may be
declared and paid on the Common Stock from time to time out of
any funds legally available therefor.
2. Except as otherwise provided by law, by this Certificate of
Incorporation or by the resolution or resolutions of the Board of
Directors providing for the issue of any series of the Preferred
Stock, the Common Stock shall have the exclusive right to vote
for the election of directors and for all other purposes, each
holder of the Common Stock being entitled to one vote for each
share held.
3. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, and after the
holders of the Preferred Stock of each series shall have been
paid in full the amount to which they respectively shall be
entitled, or a sum sufficient for such payments in assets of the
Corporation shall be distributed pro rata to the holders of the
Common Stock in accordance with their respective rights and
interests, to the exclusion of the holders of the Preferred
Stock.
ARTICLE V
REGISTERED OFFICE AND AGENT
The name and address of the corporation's registered agent and address is
The Corporation Trust Company of Nevada, One, East First Street, Reno, Nevada
89501.
page 4
<PAGE>
ARTICLE VI
DIRECTORS
The Corporation shall be governed by a Board of Directors consisting of
such number of directors as shall be fixed the Corporation's bylaws. The number
of directors constituting the initial board of directors of the corporation is
one and the name and address of the director is as follows:
NAME ADDRESS
- --------------- -------------------------
Hank Vanderkam 440 Louisiana, Suite 475
Houston, Texas 77002
ARTICLE VII
DENIAL OF PREEMPTIVE RIGHTS
There shall be no preemptive right to acquire unissued and/or treasury
shares of the stock of the Corporation.
ARTICLE VIII
LIABILITY OF OFFICERS AND DIRECTORS
A director or officer of the Corporation shall not be liable to the
Corporation or its shareholders for damages for breach of fiduciary duty as a
director or officer unless the act or omission involves intentional misconduct,
fraud, a knowing violation of law or the payment of an unlawful dividend in
violation of NRS 78.300.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall indemnify any and all persons who may serve or who
have served at any time as directors or officers or who, at the request of the
Board of Directors of the Corporation, may serve or at any time have served as
directors or officers of another corporation in which the Corporation at such
time owned or may own shares of stock or of which it was or may be a creditor,
and their respective heirs, administrators, successors and assigns, against any
and all expenses, including amounts paid upon judgments, counsel fees and
amounts paid in settlement (before or after suit is commenced), actually and
page 5
<PAGE>
necessarily by such persons in connection with the defense or settlement of any
claim, action, suit or proceeding in which they, or any of them, are made
parties, or a party, or which may be asserted against them or any of them, by
reason of being or having been directors or officers of the Corporation, or of
such other corporation, except in relation to matters as to which any such
director or officer of the Corporation, or of such other corporation or former
director or officer or person shall be adjudged in any action, suit or
proceeding to be liable for his own negligence or misconduct in the performance
of his duty. Such indemnification shall be in addition to any other rights to
which those indemnified may be entitled under any law, by law, agreement, vote
of shareholder or otherwise.
DATED this 10th day of October, 1996.
Incorporator:
/s/ William Erwin
------------------------
William Erwin
CT Corporation System
811 Dallas Ave.
Houston, Texas 77002
STATE OF TEXAS }
}
COUNTY OF HARRIS }
On October 4, 1996, personally appeared before me, a Notary Public, William
Erwin, who acknowledged that he executed the above document in his capacity as
duly authorized agent of the C T Corporation System and Incorporator S.W. Lam,
Inc.
/s/ Ann Siebert
------------------------
Notary Public
Certificate of Acceptance of Appointment of Resident Agent
The Corporation Trust Company of Nevada hereby accepts appointment as
Resident Agent for the above named corporation.
Dated: October 10, 1996
Corporation Trust Company of Nevada
/s/ illegible
- ---------------------------
By: K. S. Hood
Title: Assistant Secretary
page 6
BYLAWS
OF
S.W. LAM, INC.
ARTICLE I
OFFICES
1.01 REGISTERED OFFICE AND AGENT
The registered office of the Corporation shall be maintained at The
Corporation Trust Company in Nevada, One East First Street, Reno, Nevada 89501
in the State of Nevada. The registered office or the registered agent, or both,
may be changed by resolution of the Board of Directors, upon filing the
statement required by law.
1.02 PRINCIPAL OFFICE
The principal office of the Corporation shall be at Unit 302-303A, 3rd
Floor, Fu Hang Industrial Building, No. 1 Hok Yuen Street East, Kowloon, Hong
Kong provided that the Board of Directors shall have power to change the
location of the principal office in its discretion.
1.03 OTHER OFFICES
The Corporation may also maintain other offices at such places within or
without the State of Nevada as the Board of Directors may from time to time
appoint or as the business of the Corporation may require.
ARTICLE II
SHAREHOLDERS
2.01 PLACE OF MEETING
All meetings of shareholders, both regular and special, shall be held
either at the registered office of the Corporation, or at such other place as
shall be designated in the notice of the meeting.
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2.02 ANNUAL MEETING
The annual meeting of shareholders for the election of directors and for
the transaction of all other business which may come before the meeting shall be
held within 180 days after the end of each fiscal year, on the date and at the
hour specified in the notice of meeting as determined by the Board of Directors.
If the election of directors shall not be held on the day above designated
for the annual meeting, the Board of Directors shall cause the election to be
held as soon thereafter as conveniently may be at a special meeting of the
shareholders called for the purpose of holding such election.
The annual meeting of shareholders may be held for any other purpose in
addition to the election of director which may be specified in a notice of such
meeting. The meeting may be called by resolution of the Board of Directors or by
a writing filed with the secretary signed either by a majority of the directors
or by shareholders owning a majority in amount of the entire capital stock of
the Corporation issued and outstanding and entitled to vote at any such meeting.
2.03 NOTICE OF SHAREHOLDERS' MEETING
A written or printed notice stating the place, day and hour of the meeting,
and in case of a special meeting, the purpose or purposes for which the meeting
is called, shall be delivered not less than ten (10) nor more than sixty (60)
days before the date of the meeting, either personally or by mail, by or at the
direction of the president, secretary or the officer or person calling the
meeting, to each shareholders of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
share transfer books of the Corporation, with postage thereon prepaid.
2.04 VOTING OF SHARES
Each outstanding share, regardless of class, shall be entitled to one vote
on each matter submitted to a vote at a meeting of shareholders, except to the
extent that the voting rights of the shares of any class or classes are limited
or denied by the Articles of Incorporation or by law.
Treasury shares, shares of its own stock owned by another corporation the
majority of the voting stock of which is owned or controlled by this
Corporation, and shares of its own stock held by this Corporation in a fiduciary
capacity shall not be voted, directly or indirectly, at any meeting, and shall
not be counted in determining the total number of outstanding shares at any
given time.
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A shareholder may vote either in person or by proxy executed in writing by
the shareholder or by his duly authorized attorney-in-fact. No proxy shall be
valid after eleven (11) months from the date of its execution unless otherwise
provided in the proxy. Each proxy shall be revocable unless expressly provided
therein to be irrevocable, and in no event shall it remain irrevocable for a
period of more than eleven (11) months.
At each election for directors, every shareholder entitled to vote at such
election shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are directors to be elected and
for whose election he has a right to vote, or if authorized by the Articles of
Incorporation, to cumulate his votes by giving one candidate as many votes as
the number of such directors multiplied by the number of his shares shall equal,
or by distributing such votes on the same principal among any number of such
candidates. Any shareholder who intends to cumulate his votes as herein
authorized shall give written notice of such intention to the secretary of the
Corporation on or before the day preceding the election at which such
shareholder intends to cumulate his votes.
2.05 CLOSING TRANSFER BOOKS AND FIXING RECORD DATE
For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may provide
that the share transfer books shall be closed for a stated period not exceeding
sixty (60) days. If the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten (10) days immediately
preceding such meeting. In lieu of closing the stock transfer books, the ByLaws
or, in the absence of an applicable ByLaw, the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
not later than sixty (60) days and, in case of a meeting of shareholders, not
earlier than ten (10) days, prior to the date on which the particular action
requiring such determination of shareholders is to be taken. If the share
transfer books are not closed and no record date is fixed for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
or shareholders entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the Board
of Directors declaring such dividend is adopted, as the case may be, shall be
the record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof, except where the determination has been made through the closing of
share transfer books and the stated period of closing has expired.
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2.06 QUORUM OF SHAREHOLDERS
Unless otherwise provided in the Articles of Incorporation, the holders of
a majority of the shares entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of shareholders, but in no event shall a
quorum consist of the holders of less than one-third (1/3) of the shares
entitled to vote and thus represented at such meeting. The vote of the holders
of a majority of the shares entitled to vote and thus represented at a meeting
at which a quorum is present shall be the act of the shareholders' meeting,
unless the vote of a greater number is required by law, the Articles of
Incorporation or the ByLaws.
2.07 VOTING LISTS
The officer or agent having charge of the share transfer books for the
shares of the Corporation shall make, at least ten (10) days before each meeting
of shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten (10) days prior to such meeting, shall be kept on file at the registered
office of the Corporation and shall be subject to inspection by any shareholders
at any time during usual business hours. Such list shall also be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any shareholder during the whole time of the meeting. The original
share transfer books shall be prima-facie evidence as to who are the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
2.08 ACTION BY CONSENT OF SHAREHOLDERS
In lieu of a formal meeting, action may be taken by written consent of such
number of the shareholders as is required by either State law or the
Corporation's Bylaws for passage of such corporate action.
ARTICLE III
DIRECTORS
3.01 BOARD OF DIRECTORS
The business and affairs of the Corporation shall be managed by a Board of
Directors. Directors need not be residents of the State of Nevada or
shareholders in the Corporation.
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3.02 NUMBER AND ELECTION OF DIRECTORS
The number of directors shall be not less than three (3) nor more than nine
(9). The number of directors constituting the board shall be fixed from time to
time by the Directors provided that the number may be increased or decreased
from time to time by an amendment to these ByLaws, but no decrease shall have
the effect of shortening the term of any incumbent director. At each annual
election the shareholders shall elect directors to hold office until the next
succeeding annual meeting.
3.03 VACANCIES
Any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of the remaining directors, though less than a quorum of the
Board. A director elected to fill a vacancy shall be elected for the unexpired
term of his predecessor in office. Any directorship to be filled by reason of an
increase in the number of directors shall be filled by election at an annual
meeting or at a special meeting of shareholders called for that purpose.
3.04 QUORUM OF DIRECTORS
A majority of the Board of Directors shall constitute a quorum for the
transaction of business. The act of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors.
3.05 ANNUAL MEETING OF DIRECTORS
Within thirty (30) days after each annual meeting of shareholders, the
Board of Directors elected at such meeting shall hold an annual meeting at which
they shall elect officers and transact such other business as shall come before
the meeting.
3.06 REGULAR MEETING OF DIRECTORS
A regular meeting of the Board of Directors may be held at such time as
shall be determined from time to time by resolution of the Board of Directors.
3.07 SPECIAL MEETINGS OF DIRECTORS
The secretary shall call a special meeting of the Board of Directors
whenever requested to do so by the President or by two directors. Such special
meeting shall be held at the time specified in the notice of meeting.
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3.08 PLACE OF DIRECTORS MEETINGS
All meetings of the Board of Directors (annual, regular or special) shall
be held either at the principal office of the Corporation or at such other
place, either within or without the State of Nevada, as shall be specified in
the notice of meeting.
3.09 NOTICE OF DIRECTORS MEETINGS
All meetings of the Board of Directors (annual, regular or special) shall
be held upon five (5) days written notice stating the date, place and hour of
meeting delivered to each director either personally or by mail or at the
direction of the president or the secretary or the officer or person calling the
meeting.
In any case where all of the directors execute a waiver of notice of the
time and place of meeting, no notice thereof shall be required, and any such
meeting (whether annual, regular or special) shall be held at the time and at
the place (either within or without the State of Nevada) specified in the waiver
of notice. Attendance of a director at any meeting shall constitute a waiver of
notice of such meeting, except where the directors attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any annual,
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
3.10 COMPENSATION
Directors, as such, shall not receive any stated salary for their services,
but by resolution of the Board of Directors a fixed sum and expenses of
attendance, if any, may be allowed for attendance at each annual, regular or
special meeting of the Board, provided, that nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
3.11 ACTION BY CONSENT OF DIRECTORS
In lieu of a formal meeting, action may be taken by written consent of such
number of the directors as is required by either State law or the Corporation's
Bylaws for passage of such corporate action.
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3.12 COMMITEES
The board of directors may, by resolution passed by a majority of the whole
board, designate an executive committee and one or more other committees, each
committee to consist of one or more of the directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
Any such committee, to the extent provided in the resolution of the board
of directors, shall have and may exercise all the powers and authority of the
board of directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to making, altering or repealing any bylaw of the
Corporation; electing or appointing any director, or removing any officer or
director; submitting to shareholders any action that requires shareholders'
approval; or amending or repealing any resolution theretofore adopted by the
board which by its terms is amendable or repealable only by the board. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and report the same to the board of
directors when required.
ARTICLE IV
OFFICERS
4.01 OFFICERS ELECTION
The officers of the Corporation shall consist of a president, one or more
vice presidents, a secretary, and a treasurer. All such officers shall be
elected at the annual meeting of the Board of Directors provided for in Article
III, Section 5. If any office is not filled at such annual meeting, it may be
filled at any subsequent regular or special meeting of the Board. The Board of
Directors at such annual meeting, or at any subsequent regular or special
meeting may also elect or appoint such other officers and assistant officers and
agents as may be deemed necessary. Any two or more offices may be held by the
same person, except the offices of president and secretary.
All officers and assistant officers shall be elected to serve until the
next annual meeting of directors (following the next annual meeting of
shareholders) or until their successors are elected; provided, that any officer
or assistant officer elected or appointed by the Board of Directors may be
removed with or without cause at any regular or special meeting of the Board
whenever in the judgment of the Board of Directors the best interests of the
Corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Any agent appointed
shall serve for such term, not longer than the next annual meeting of the Board
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of Directors, as shall be specified, subject to like right of removal by the
Board of Directors.
4.02 VACANCIES
If any office becomes vacant for any reason, the vacancy may be filled by
the Board of Directors.
4.03 POWER OF OFFICERS
Each officer shall have, subject to these ByLaws, in addition to the duties
and powers specifically set forth herein, such powers and duties as are commonly
incident to his office and such duties and powers as the Board of Directors
shall from time to time designate. All officers shall perform their duties
subject to the directions and under the supervision of the Board of Directors.
The president may secure the fidelity of any and all officers by bond or
otherwise.
4.04 PRESIDENT
The president or such other person as the Board of Directors may appoint,
shall be the chief executive officer of the Corporation. He shall preside at all
meetings of the directors and shareholders. He shall see that all orders and
resolutions of the Board are carried out, subject however, to the right of the
directors to delegate specific powers, except such as may be by statute
exclusively conferred on the president, to any other officers of the
Corporation.
He or any vice president shall execute bonds, mortgages and other
instruments requiring a seal, in the name of the Corporation, and, when
authorized by the Board, he or any vice president may affix the seal to any
instrument requiring the same, and the seal when so affixed shall be attested by
the signature of either the secretary or an assistant secretary. He or any vice
president shall sign certificates of stock.
The president shall be ex-officio a member of all standing committees.
He shall submit a report of the operations of the Corporation for the year
to the directors at their meeting next preceding the annual meeting of the
shareholders and to the shareholders at their annual meeting.
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4.05 VICE PRESIDENT
The vice president shall, in the absence or disability of the president,
perform the duties and exercise the powers of the president, and they shall
perform such other duties as the Board of Directors shall prescribe.
4.06. SECRETARY AND ASSISTANT SECRETARIES
The secretary shall attend all meetings of the Board and all meetings of
the shareholders and shall record all votes and the minutes of all proceedings
and shall perform like duties for the standing committees when required. He
shall give or cause to be given notice of all meetings of the shareholders and
all meetings of the Board of Directors and shall perform such other duties as
may be prescribed by the Board. He shall keep in safe custody the seal of the
Corporation, and when authorized by the Board, affix the same to any instrument
requiring it, and when so affixed, it shall be attested by his signature or by
the signature of an assistant secretary.
The assistant secretary shall, in the absence or disability of the
secretary, perform the duties and exercise the powers of the secretary, and they
shall perform such other duties as the Board of Directors shall prescribe.
In the absence of the secretary or an assistant secretary, the minutes of
all meetings of the Board and shareholders shall be recorded by such person as
shall be designated by the president or by the Board of Directors.
4.07 TREASURER AND ASSISTANT TREASURERS
The treasurer shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors.
The treasurer shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements. He
shall keep and maintain the Corporation's books of account and shall render to
the president and directors an account of all of his transactions as treasurer
and of the financial condition of the Corporation and exhibit his books, records
and accounts to the president or directors at any time. He shall disburse funds
for capital expenditures as authorized by the Board of Directors and in
accordance with the orders of the president, and present to the president for
his attention any requests for disbursing funds if in the judgment of the
treasurer any such request is not properly authorized. He shall perform such
other duties as may be directed by the Board of Directors or by the president.
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If required by the Board of Directors, he shall give the Corporation a bond
in such sum and with such surety or sureties as shall be satisfactory to the
Board for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
The assistant treasurers in the order of their seniority shall, in the
absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer, and they shall perform such other duties as the Board
of Directors shall prescribe.
ARTICLE V
CERTIFICATES OF STOCK: TRANSFER, ETC.
5.01 CERTIFICATES OF STOCK
The certificates for shares of stock of the Corporation shall be numbered
and shall be entered in the Corporation as they are issued. They shall exhibit
the holder's name and number of shares and shall be signed by the president or a
vice president and the secretary or an assistant secretary or if the Board of
Directors determines, by any one of the afore named officers and shall be sealed
with the seal of the Corporation or a facsimile thereof. If the Corporation has
a transfer agent or a registrar, other than the Corporation itself or an
employee of the Corporation, the signatures of any such officer may be
facsimile. In case any officer or officers who shall have signed or whose
facsimile signature or signatures shall have been used on any such certificate
or certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before said certificate or
certificates shall have been issued, such certificate may nevertheless be issued
by the Corporation with the same effect as though the person or persons who
signed such certificates or whose facsimile signature or signatures shall have
been used thereon had been such officer or officers at the date of its issuance.
Certificates shall be in such form as shall in conformity to law be prescribed
from time to time by the Board of Directors.
The Corporation may appoint from time to time transfer agents and
registrars, who shall perform their duties under the supervision of the
secretary.
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5.02 TRANSFERS OF SHARES
Upon surrender to the Corporation or the transfer agent of the Corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction upon its books.
5.03 REGISTERED SHAREHOLDERS
The Corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof and, accordingly shall
not be bound to recognize any equitable or other claim to or interest in such
share on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by law.
5.04 LOST CERTIFICATE
The Board of Directors may direct a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost. When
authorizing such issue of a new certificate or certificates, the Board of
Directors in its discretion and as a condition precedent to the issuance
thereof, may require the owner of such lost or destroyed certificate or
certificates or his legal representative to advertise the same in such manner as
it shall require or to give the corporation a bond with surety and in form
satisfactory to the Corporation (which bond shall also name the Corporation's
transfer agents and registrars, if any, as obligees) in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
or other obligees with respect to the certificate alleged to have been lost or
destroyed, or to advertise and also give such bond.
ARTICLE VI
DIVIDEND
6.01 DECLARATION
The Board of Directors may declare at any annual, regular or special
meeting of the Board and the Corporation may pay, dividends on the outstanding
shares in cash, property or in the shares of the Corporation to the extent
permitted by, and subject to the provisions of, the laws of the State of Nevada.
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6.02 RESERVES
Before payment of any dividend there may be set aside out of any funds of
the Corporation available for dividends such sum or sums as the directors from
time to time in their absolute discretion think proper as a reserve fund to meet
contingencies or for equalizing dividends or for repairing or maintaining any
property of the Corporation or for such other purpose as the directors shall
think conducive to the interest of the Corporation, and the directors may
abolish any such reserve in the manner in which it was created.
ARTICLE VII
MISCELLANEOUS
7.01 INFORMAL ACTION
Any action required to be taken or which may be taken at a meeting of the
shareholders, directors or members of the executive committee, may be taken
without a meeting if a consent in writing setting forth the action so taken
shall be signed by such number of the shareholders, directors, or members of the
executive committee as is required by law, as the case may be, entitled to vote
with respect to the subject matter thereof, and such consent shall have the same
force and effect as a vote of the shareholders, directors, or members of the
executive committee, as the case may be, at a meeting of said body.
7.02 SEAL
The corporate seal shall be circular in form and shall contain the name of
the Corporation, the year of its incorporation and the words "State of Nevada",
and "CORPORATE SEAL". The seal may be used by causing it or a facsimile to be
impressed or affixed or in any other manner reproduced. The corporate seal may
be altered by order of the Board of Directors at any time.
7.03 CHECKS
All checks or demands for money and notes of the Corporation shall be
signed by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
7.04 FISCAL YEAR
The fiscal year of the Corporation shall begin on the 1st day of April in
each and every year.
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7.05 DIRECTORS ANNUAL STATEMENT
The Board of Directors shall present at each annual meeting of shareholders
a full and clear statement of the business and condition of the Corporation.
7.06 AMENDMENTS
These ByLaws may be altered, amended or repealed in whole or in part by the
affirmative vote of the Board of Directors.
ARTICLE VIII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Every person who was or is a party to, or is threatened to be made a party
to, or is involved in any action, suit or proceedings, whether civil, criminal,.
administrative or investigative, by reason of the fact that he or a person to
whom he is the legal representative is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a director
or officer of another corporation, or as its representative in a partnership,
joint venture, trust or other enterprise, shall be indemnified and held
harmless, to the fullest extent legally permissible under the laws of the State
of Nevada, against all expenses, liability and loss, including attorney's fees,
judgements, fines and amounts paid or to be paid in settlement, reasonably
incurred or suffered by him in connection therewith, all pursuant to Section
78.151 of the Nevada Revised Statutes. Such right of indemnification shall be a
contract right which may be enforced in any manner desired by such person.
This indemnification is intended to provide at all times the fullest
indemnification permitted by the laws of the State of Nevada and the corporation
may purchase and maintain insurance on behalf of any person who is or was
serving at the request of the corporation as a director or officer of another
corporation, or as its representative in a partnership, joint venture, trust or
other enterprise against any liability asserted against such person and incurred
in any such capacity or arising out of such status, whether or not the
corporation would have the power to indemnify such person.
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S.W. LAM, INC.
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF A SERIES OF 100,000 SHARES OF PREFERRED STOCK,
$.001 PAR VALUE, DESIGNATED
"SERIES A PREFERRED STOCK"
S.W. Lam, Inc., a Nevada Corporation (the "Corporation"), by way of this
Certificate of Designation, Preferences and Rights (as it may hereafter be
amended, modified or supplemented upon vote of the Board of Directors of the
Corporation and approval of all holders of Series A Preferred Stock, as such
term is hereinafter defined, this ("Certificate") certifies that, pursuant to
the authority expressly vested in the Board of Directors by the Corporation's
Articles of Incorporation, and in accordance with the provisions of Section
78.195 of the Nevada Revised Statutes, the Board of Directors of the Corporation
has duly adopted the following resolutions creating a series of its Preferred
Stock designated as Series A Preferred Stock:
RESOLVED, that pursuant to the authority expressly granted to and vested in
the Board of Directors of the Corporation by the provisions of the Articles
of Incorporation of the Corporation, as amended, this Board of Directors
hereby creates a series of Preferred Stock, $.001 par value, and this Board
of Directors hereby fixes the designation and the voting power, preferences
and rights, and the qualifications, limitations or restrictions thereof, of
the shares of such series (in addition to the powers, preferences and
rights, and the qualifications, limitations or restrictions thereon, set
forth in the Articles of Incorporation, as amended, which are applicable to
all series of Preferred Stock of the Corporation) as follows:
One hundred thousand (100,000) shares of Preferred Stock, par value $.001
per share, of the Corporation are hereby constituted as a series of
Preferred Stock designated as Series A Preferred Stock (the "Series A
Preferred Stock") with the voting powers and the preferences and rights
hereinafter set forth:
SECTION 1. DIVIDENDS. The holders of shares of Series A Preferred Stock
(the "Preferred Shares") shall be entitled to receive out of the assets of the
Corporation legally available for dividends such dividends in cash, stock or
property as the board of directors shall, in its discretion, declare from time
to time.
SECTION 2. LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution or winding up of the affairs of the Corporation, whether voluntary
or involuntary, the holders of the Preferred Shares shall be entitled to be paid
first out of the assets of the Corporation available for distribution to holders
of the Corporation's capital stock of all classes an amount equal to $.001 per
share of Series A Preferred Stock, and no more, before any distribution shall be
made to the holders of the Common Stock or any other class of capital stock or
series thereof ranking junior to the Preferred Shares with respect to the
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distribution of assets. If the assets of the Corporation shall be insufficient
to permit the payment in full to the holders of the Preferred Shares of the
amounts thus distributable, then the entire assets of the Corporation available
for such distribution shall be distributed ratably among the holders of the
Preferred Shares in proportion to the full preferential amount each such holder
is otherwise entitled to receive.
SECTION 3. VOTING RIGHTS. The holders of the Series A Preferred Stock
shall, as a class, be entitled to such number of votes as shall constitute
thirty percent (30%) of the total eligible votes in all matters voted on by the
shareholders of the Corporation an shall be further entitled to such voting
rights as may be expressly required by law. Without the approval of holders of a
majority of the outstanding Preferred Shares, the Corporation shall not (a)
authorize, create or issue any shares of any class or series ranking senior to
the Preferred Shares as to liquidation rights, (b) amend, alter or repeal, by
any means, the Certificate of Incorporation if the powers, preferences, or
special rights of the Preferred Shares would be adversely affected, or (c)
become subject to any restriction on the Preferred Shares, other than
restrictions arising solely under the General Corporation Law of the State of
Nevada or existing under the Certificate of Incorporation as in effect on
October 10, 1996.
SECTION 4. RIGHTS OTHERWISE IDENTICAL. In all other respects, each share of
the Series A Preferred Stock and the share of any other series, if any, shall
have identical rights and privileges in every respect.
IN WITNESS WHEREOF, S.W. Lam, Inc. has caused this Certificate to be duly
executed and attested effective as of the day of October, 1996.
S.W. LAM, INC.
/s/ Hank Vanderkam
--------------------------
By: Hank Vanderkam
Name: Hank Vanderkam
Title: President
ATTEST:
/s/ Michele Hanlon
- -----------------------
Michele Hanlon
Secretary
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STATE OF TEXAS }
}
COUNTY OF HARRIS }
I, ANDREA BENSON, a Notary Public, do hereby certify that on this 10TH day
of October, 1996, personally appeared before me HANK VANDERKAM, who, being by me
first duly sworn declared that he is the PRESIDENT of S.W. LAM, INC., that he
signed the foregoing document as PRESIDENT of the corporation, and that the
statements therein contained are true and correct.
/s/ illegible
-----------------------------
Andrea Benson
Notary Public in and for the
State of Texas
Andrea V. Benson
-----------------------------
Printed Name of Notary Public
My Commission Expires: 9/12/99
-3-
EMPLOYMENT CONTRACT
(Translation)
Parties to the Contract :
A. Hang Fung Jewellery Co., Ltd., its business address is at Unit 302-303A,
3/F., Fu Hang Industrial Building, 1 Hok Yuen Street East, Hung Hom.
("Party A")
B. Mr. Lam Sai Wing, H.K. I.D. No. D526157(1).
1. Title and Period of Employment
Title : Director
Commencement of Employment : January 1, 1994
Employment period : 10 years
2. Terms of Contract
Mr. Lam is responsible for the internal and external management,
operations and stratagic planning of the Company.
3. Remuneration
- Salary per annum is HK$420,000.00
- Increment rate is 30% per annum
4. Annual Leave and Welfare
- Public holidays.
- Annual leave of 14 days.
- Housing allowance.
- Other welfare scheme determined by the Board of Directors.
-1-
<PAGE>
Signed and Agreed by:
- ----------------------------- ------------------------------------
Hang Fung Jewellery Co., Ltd. Mr. Lam Sai Wing
Date : January 1, 1994
-2-
EMPLOYMENT CONTRACT
(Translation)
Parties to the Contract :
A. Hang Fung Jewellery Co., Ltd., its business address is at Unit 302-303A,
3/F., Fu Hang Industrial Building, 1 Hok Yuen Street East, Hung Hom.
("Party A")
B. Mrs. Lam Chan Yam Fai, H.K.I.D. No. G293329(1)
1. Title and Period of Employment
Title : Director
Commencement of Employment : January 1, 1994
Employment period : 10 years
2. Terms of Contract
Mrs. Lam Chan Yam Fai is responsible for the internal and external
management, operations and stratagic planning of the Company.
3. Remuneration
- Salary per annum is HK$280,000.00
- Increment rate is 30% per annum
4. Annual Leave and Welfare
- Public holidays.
- Annual leave of 14 days.
- Housing allowance.
- Other welfare scheme determined by the Board of Directors.
-1-
<PAGE>
Signed and Agreed by:
- ----------------------------- --------------------------------------
Hang Fung Jewellery Co., Ltd. Mrs. Lam Chan Yam Fai
Date : January 1, 1994
-2-
SALES AGENCY AGREEMENT
(TRANSLATION)
Party A: China Jewellery Import & Export Co.
Party B: Hang Fung Jewellery Co., Ltd.
As the two parties had very successful cooperation in the past years, both
parties agreed to jointly develop domestic and international market and to
further expand their business cooperation. Through friendly consultation, the
following Sales Agency Agreement is worked out:
1. Agency services
(1) Party A appoints Party B as its agent for selling (wholesale or
retail) its gold, silver and karat-gold jewellery in Hong Kong.
(2) Party B appoints Party A as its agent for selling (wholesale or
retail) its gold, silver and karat-gold Jewllery in China.
(3) Party B appoints Party A as it agent for selling the gold, silver and
karat-gold jewellery it assembles and which are approved to be sold in
China.
2. Responsibilities of Both Parties
(1) Party A
- Handling the import procedures and documentary work for each lot
of jewelry to be sold by Party A as the agent for Party B
- Handling the procedures and documentary work for selling Party
B's products in China
- Promotion and business coordination
- For the goods Party B appointed Party A to sell and which are
approved to be sold in China, Party A shall be responsible for
providing invoices and all other required documents
- Providing market information in China to Party B
Party B shall assist Party A to establish sales network in China and
provide labor, management and sales techniques.
(2) Party B
Regarding the sales that Party B act as Party A's agent, Party B shall
be responsible for the following:
-1-
<PAGE>
- Handling related customs procedures for each lot of jewellery
that Party B acts Party A's agent to sell
- Promotion and business coordination
- Providing market information in Hong Kong to Party A
3. Undertaking of Party A
(1) Party A is a legitimate company incorporated in China.
(2) Party A is approved to conduct gold and silver jewellery business, and
import & export gold and silver jewellery in China. It is also
approved to act as an agent for the above-mentioned jewellery import &
export business.
(3) Party A has the power to enter into this agreement.
4. Prices of the Products
The prices of the products will be determined by both parties based on
market situation.
5. Agency fees
(1) For Party A's products appointed to Party B to sell, Party A shall pay
the following agency fees to Party B:
Silver and karat-gold jewellery 10% of sales revenue
Fine gold jewellery RMB 1.00 per gram
(2) For Party B's products appointed to Party A to sell, Party B shall pay
the following agency fees to Party A:
Fashion jewellery 15% of sales revenue
Silver and karat-gold jewellery 10% of sales revenue
Fine gold jewellery RMB 1.00 per gram
(3) Both parties shall be responsible for the respective taxes regarding
the agency fees.
6. Tenure of Agency
(1) This agreement shall have a tenure of 10 years.
(2) Should either one party ceased its business or declared bankruptcy, or
due to force majeure, this agreement shall be terminated.
8. Governing Laws
The interpretation and execution of this agreement shall be governed by the
laws of the People's Republic of China.
-2-
<PAGE>
9. Settlement of Disputes
Any disputes arising between Party A and Party B shall be settled through
friendly consultation between the two parties. In case no settlement can be
reached through consultation, either party shall have the right to submit
the dispute to the China Council For Promotion of International Trade for
arbitration. Arbitration shall be carried out in Beijing. The arbitrage
award shall be final and binding upon both parties.
10. This Agreement is written in Chinese and have two copies. Both copies shall
be equally binding.
11. This Agreement shall come into force after signing by both parties.
Signed on November 18, 1994
-3-
AGREEMENT FOR JEWELLERY ASSEMBLING
(TRANSLATION)
Party A: China Jewellery Import & Export Co.
Party B: Hang Fung Jewellery Co., Ltd.
Since 1992, both parties had successful cooperation in assembling of gold,
silver and karat-gold jewelry. Through friendly consultation, both parties have
renewed their original agreement and have worked out the following agreement.
1. Responsibilities of Both Parties
1.1 Party A
Provide factory premises, water & electricity supply, labor and other
supporting facilities, transportation and declaration for import &
export of equipment, machinery, materials and products; assist Party B
in applying for required legal documents.
1.2 Party B
Provide the equipment, tools, and materials to the assembling and
processing plant, Yi Lan Jewellery Factory, in Beijing for jewellery
assembling. The total value of the equipment and material contributed
shall be HK$25,000,000. Party B shall have the ownership right of all
the equipment and material it provided and has the right to
re-allocate, use or withdraw these equipment and material.
1.3 Party B shall send its technical staff to Yi Lan Jewellery Factory to
give advice in aspects of technology, production and management.
2. Scope of Operations
2.1 Assembling of imported materials which are provided by Party B.
2.2 Provided it does not interfere the normal operations of Yi Lan
Jewellery Factory, Party A may be subcontracted by other local
customers to assemble jewellery using domestic materials.
3. Assembling of Imported Material for Re-export
3.1 Party B shall have the ownership right for the material it provided
for assembling. Party B shall also have the ownership right for the
assembled semi-product and final products.
3.2 Assembling fees
Party B shall pay to Party A assembling fees based on the following
schedule:
-1-
<PAGE>
Fine gold jewellery HK$1.00/gram
Karat-gold jewellery HK$3.00/gram
Silver jewellery (gem assembling) HK$0.60/gram
3.3 Incoming material and delivery date
- Party B will provide sufficient material to Party A for
assembling based on the quantity specified in this agreement.
- Party A guarantees to deliver the assembled goods according to
the terms of each individual order.
3.4 Payment of assembling fees
(1) Format of payment - Telegraphic transfer
(2) Time of payment - Within one month from the date of statement
3.5 Assembling With Imported Material
Party A may appoint Yi Lan Jewellery Factory to assemble the gold and
silver it imports. If the final products are exported through Party B,
jewelry made with 10% of the imported material may be sold in the
domestic market.
4. Assembling of Domestic Material
4.1 Party B agreed that Party A may perform assembling work with domestic
material for other local customers provided that it does not interfere
the normal operations of Yi Lan Jewellery Factory.
4.2 (1) Party B agrees that Party A may perform assembling work of
gold, silver and karat-gold jewelry for other customers in China.
(2) Party B shall assist Party A in business negotiation with
customers. Party B may negotiate with customers in the name of
Party A regarding product price, quantity and style and other
issues.
(3) Party A shall be responsible for the civil liabilities, if any,
regarding the above-mentioned business. If any loss or damages
incurred due to Party B's fault, Party B shall compensate Party A
for all the losses.
4.3 Regarding the jewelry assembled as subcontracted by other customers,
Party A may also be act as their agent to sell the products in
domestic market.
4.4 Payment of Fees
(1) For the assembling work subcontracted to Party A by other local
customers, Party A agrees to pay fees to Party B as the fees for
using Party B's equipment and technology. The actual fees
standard shall be determined by both parties later.
(2) For the assembling work secured by Party B on behalf of Party A,
the assembling fees to be charged shall be determined by both
parties depending on the terms of each particular order.
-2-
<PAGE>
5. Guaranteed Assembling Income
5.1 Party B guarantees that it shall provide sufficient material for Party
A to assemble so that Party A can get at least HK$2 million of
assembling fees in 1992 and at least HK$4 million in the following
year. From the third year onwards, the total assembling fees Party A
would earn shall increase by 10% every year.
6. Warranties by Party A
6.1 For the purpose of the assembling work stipulated in this agreement,
Party A hereby warrants that:-
(1) Party A is a legal entity incorporated in the People's Republic
of China according to relevant laws.
(2) Party A has the right to conduct import and export business of
gold and silver jewelry in China and has the right to carry out
assembling work for gold and silver jewelry with imported
material.
7. Tenure
7.1 This agreement shall have a tenure of 10 years. Upon expiry of the
tenure, unless one party proposes in writing to discharge this
agreement, this agreement shall continue to be valid and binding upon
both parties.
7.2 Termination of tenure before expiry
Should either one party ceased its business or declared bankruptcy, or
due to force majeure, this agreement shall be terminated.
8. Governing Laws
The interpretation and execution of this agreement shall be governed by the
laws of the People's Republic of China.
9. Settlement of Disputes
Any disputes arising between Party A and Party B shall be settled through
friendly consultation between the two parties. In case no settlement can be
reached through consultation, either party shall have the right to submit
the dispute to the China Council For Promotion of International Trade for
arbitration. Arbitration shall be carried out in Beijing. The arbitrage
award shall be final and binding upon both parties.
10. This Agreement is written in Chinese and have two copies. Both copies shall
be equally binding.
11. This Agreement shall come into force after signing by both parties. Should
any registration or approval process be required, Party A shall be
responsible for handling these matters.
Signed by Party A and Party B November 18, 1994
-3-
SALES COOPERATION AGREEMENT
(Translation)
Party A: China Jewellery Import & Export Co.
Party B: Hang Fung Jewellery Co., Ltd.
WHEREAS
(1) Party A has the legitimate right to import, export and sell gold, silver
and karat-gold jewelry in China. It intends to expand its business through
cooperation with Party B.
(2) Party B has well-developed relationship with many jewelry manufacturers,
wholesalers and retailers in China. It has also extensive experience,
technology and customer network in gold, silver and karat-gold jewelry.
(3) Party B has many years' experience in production of gold, silver and
karat-gold jewelry and has many products suitable for selling in the China
market. It intends to expand its market in China through cooperation with
Party A.
(4) Party B hopes to sell its assembled products which are approved to sell in
domestic market through the cooperation with Party A.
(5) Party A and Party B have signed a "Sales Agency Agreement" on November 18,
1994. This Sales Cooperation Agreement further stipulates the rights and
obligations of both parties based on the Sales Agency Agreement.
Through friendly consultation, both parties have worked out the following
agreement regarding the establishment of distribution network for gold, silver,
and karat-gold jewelry in China.
1. Cooperation Project
Party B shall assist Party a to establish distribution network for selling
gold, silver and karat-gold jewelry in China. Party B shall also provide
labor, management and sales techniques to facilitate the selling of the
products.
2. Responsibilities of Both Parties
RESPONSIBILITIES OF PARTY A
(1) Regarding the cooperative project, based on the decision after
consultation between both parties, Party A shall provide all documents
necessary for the establishment of sales outlets and for the selling
of gold, silver and karat-gold jewelry.
(2) To coordinate and assist Party B in handling all necessary procedures.
-1-
<PAGE>
(3) To provide invoices and other documents related to tax and commerce
issue regarding the domestic sale of gold, silver and karat-gold
jewelry stipulated in this agreement.
(4) For the activities carried out by Party B which are after consultation
with Party A and as assistance to Party A or acting on behalf of Party
A in accordance with this Cooperation Agreement, Party A shall be
responsible for any civil liabilities incurred. If any loss or damages
incurred due to Party B's fault, Party B shall compensate Party A for
all the losses.
RESPONSIBILITIES OF PARTY B
(1) Through its well-developed business relationship in China and its
extensive experience in gold and silver jewelry, Party B shall
establish a distribution and sales network for Party A selling Party
A's jewelry and the jewelry products it acts as an agent to sell.
(2) After the establishment of the distribution and sales network, Party A
shall assign expertise and recruit local sales people to assist Party
A to sell the jewelry products.
(3) To provide sales, marketing and management techniques for Party A to
assist Party A to sell the jewelry products. Through discussion
between both parties, Party B shall assist Party A to carry out
promotional activities for gold, silver and karat-gold jewelry.
3. Warranties by Party A
For this Cooperation Agreement, Party A hereby warrants that:
(1) Party A is a legal entity incorporated in the People's Republic of
China according to relevant laws.
(2) Party A has the right to conduct import and export business of gold
and silver jewelry in China and has the right to sell these products
in China. Party A also has the right to be entrusted or act as an
agent for the above-mentioned import and export business of gold and
silver jewelry.
(3) Party A has the legal authority to execute this Agreement.
4. Compensation
Both parties agree that, as compensation for Party B's assistance to Party
A in selling the gold, silver and karat-gold jewelry, for Party B's gold,
silver, and karat-gold jewelry products (including those which are approved
to sell in China) which are entrusted to Party A to sell, Party A shall not
charge for additional fees except for the sales agency fees as stipulated
in Clause 5.2(1) of the "Sales Agency Agreement".
-2-
<PAGE>
5. Cooperation Tenure
(1) This Cooperation Agreement shall have a tenure of 10 years. Any party
who intends to extend the tenure shall have to propose in writing to
the other party one month prior to the expiry of the cooperation
tenure.
(2) Should either one party ceased its business or declared bankruptcy, or
due to force majeure, this agreement shall be terminated.
6. Governing Laws
The interpretation and execution of this agreement shall be governed by the
laws of the People's Republic of China.
7. Settlement of Disputes
Any disputes arising between Party A and Party B shall be settled through
friendly consultation between the two parties. In case no settlement can be
reached through consultation, either party shall have the right to submit
the dispute to the China Council For Promotion of International Trade for
arbitration. Arbitration shall be carried out in Beijing in Chinese
language. The arbitrage award shall be final and binding upon both parties.
8. This Agreement is written in Chinese and have two copies. Both copies shall
be equally binding.
9. This Agreement shall come into force after signing by both parties.
Signed by Party A and Party B
Date: November 18, 1994
Beijing, China
-3-
CONFIRMATION AGREEMENT
1. According to Section 5 of the Agreement for Jewellery Assembling signed by
China Jewellery Import & Export Co. and Hang Fung Jewellery Co., Ltd. on
November 18, 1994, "Party B undertakes and warrants that it will provide
sufficient material for Party A to assemble so that Party A can get at
least HK$2 million of assembling fees in 1992 and at least HK$4 million
within the following year. From the third year onwards, the total
assembling fees Party A earns will increase by 10% every year."
China Jewellery Import & Export Co. hereby confirms that it will not claim
any of the above-mentioned guaranteed assembling fees from Hang Fung until
further agreement between both parties.
2. Regarding the following three agreements signed by China Jewellery Import &
Export Co. and Hang Fung Jewellery Co., Ltd. on November 18, 1994:-
(1) Agreement for Jewellery Assembling
(2) Sales Agency Agreement
(3) Sales Cooperation Agreement
China Jewellery Import & Export Co. hereby confirms that it will bear all
the tax liabilities arisen from the execution of these agreements.
3. According to Section 5(2) of the Sales Agency Agreement signed by China
Jewellery Import & Export Co. and Hang Fung Jewellery Co., Ltd. on November
18, 1994, it is stated that "For Party B's products appointed Party A to
sell, Party B will pay the following agency fees to Party A: Fashion
jewellery - 15% of sales revenue; silver and karat-gold jewellery - 10% of
sales revenue; fine gold jewellery - RMB1.00 per gram"
Both parties agree to amend this clause as follows:-
"For Party B's jewellery products and its assembled jewellery products
which are approved to sell in the domestic market and which are appointed
to Party A to sell, Party B will pay the following agency fees to Party A:
Fashion jewellery - 15% of sales income received by Party A on behalf of
Party B; karat gold jewellery - 10% of sales income received by Party A on
behalf of Party B; fine gold jewellery - RMB1.00 per gram of gold, on sales
income received by Party A on behalf of Party B."
This Confirmation Agreement will be effective from October 1, 1992.
Signed by
China Jewellery Import Export Co.
Hang Fung Jewellery Co., Ltd.
LEASE AGREEMENT
LANDLORD (LESSOR) MRS. LAM CHAN YAM FAI
------------------------------------------------
TENANT (LESSEE) HANG FUNG JEWELLERY CO., LTD.
------------------------------------------------
UNIT 302-303A FU HANG INDUSTRIAL BLDG.
------------------------------------------------
HOUSE IN 1 HOK YUEN ST. EAST, HUNGHOM, KOWLOON
------------------------------------------------
NO. ------------------------------------------------
TERM FIVE (5) YEARS
------------------------------------------------
RENT HK$1,350,000.00 PER YEAR
------------------------------------------------
COMMENCING 1ST APRIL 1993
------------------------------------------------
EXPIRES 31ST MARCH 1998
------------------------------------------------
-1-
<PAGE>
LEASE AGREMENT
An Agreement made this First day of April , one thousand nine hundred and
ninety-three between Mrs. Lam Chan Yam Fai (hereinafter called the "Landlord")
of the one part and HANG FUNG JEWELLERY CO., LTD. of Unit 302-303A, Fu Hang
Industrial Building, No. 1, Hok Yuen Street East, Hunghom, Kowloon. (hereinafter
called the "Tenant") of the other part.
IT IS HEREBY MUTUALLY AGREED as follows, that is to say:
1.--The Landlord shall let and the Tenant shall take ALL that messuage or
tenement and dwelling house situated at Kowloon and known as No. 302 - 303A Fu
Hang Industrial Building, No. 1, Hok Yuen Street East, Hunghom, Kowloon. built
on a portion of Section A Lot No. 113 together with the out-offices, easements
and appurtenances thereunto belonging or appertaining for the term of 5 year(s)
from the First (1st) of April One thousand nine hundred and NINETY-THREE (93) at
the yearly rent of Dollars ONE MILLION THREE HUNDRED FIFTY THOUSAND ONLY.
(HK$1,350,000.00) * * * * payable in equal Calendar monthly payments of Dollars
* * * * * * * * * * * each on the first day of each and every Calendar month
which includes all rates, taxes, assessments, charges and impositions now or
hereafter to be rated, taxed assessed, charged or imposed by the Government of
Hong Kong or other lawful authority for or in respect of the said premises or
any part thereof.
2.--TheTenant shall pay the said rent to the Landlord at the times and in
manner aforesaid without any deduction whatsoever and shall also well and truly
pay all rates, taxes, assessment, charges and impositions as are before
mentioned (the Crown Lessee's rent alone excepted).
3.--The Landlord shall keep the roofs and all exterior walls of the said
premises in a proper tenantable state or repair and amendment at his own cost.
-2-
<PAGE>
4.--The Tenant shall, at all times during his tenancy, keep in good repair
and condition at his own cost the Windows, Jalousies, Fire Grates, Locks, Bolts,
Bars, and all interior portions of the said house and premises and at the
expiration of the said term deliver up the said premises in a good, clean,
tenantable and proper state of repair and amendment, damages done by typhoon,
fire or white-ants, ordinary wear and tear not attributable to the negligence of
the Tenant excepted.
5.--The Tenant shall not store Gunpowder, Saltpetre, Kerosene or other
Explosive or Combustible Substance in any part of the said premises, and shall
be answerable and responsible for the consequence of any breach of local
Ordinances by lessee, tenant, or inmate.
6.--The Tenant shall not underlet or part with the said premises to any
other person or make any alterations or additions, to the said premises, without
having first obtained the written licence and consent of the Landlord thereto,
but such consent shall not be unreasonably withheld by him.
7.--The Tenant shall not use the said Messuage for any other purpose than
that of a Dwelling House/Storage/Office/Showroom and shall not do or suffer, or
permit to be done any act or thing which may become a nuisance, or cause
annoyance to persons occupying the house adjoining or contiguous to the said
Messuage or Dwelling House.
8.--The Tenant shall not place or leave in the Entrances or any of the
passages of the premises used in common with other tenants of the Landlord, any
boxes, furniture or rubbish or otherwise incumbar the same.
9.--The Tenant shall not use nor permit to be used any balconies included
in the said premises to be let, for the purpose of washing, drying or airing
-3-
<PAGE>
clothes, or goods of any description.
10.--The Tenant shall not erect any aerial on the exterior or roof of the
said premises without first obtaining the written consent of the Landlord.
Should such consent have been obtained, work must be carried out under the
supervision of a representative of the Landlord.
11.--The Tenant shall do nothing in contravention to the stipulations of
the Crown Lease under which the Landlord holds the said premises, and shall be
deemed to hold the same subject to power of the Crown thereby reserved.
12.--The Tenant shall at all times during the said term at the expense of
the Tenant keep the lavatories and water apparatus thereof when used exclusively
by the Tenant and the servants or workmen of The Tenant in good clean and
tenantable state and in proper repair and condition to the satisfaction of the
Medical Department or Urban Council, or other Government Authority concerned.
13.--The Tenant shall pay on demand to the LANDLORD the cost incurred by
the Landlord in cleansing and clearing any of the drains choked or stopped up
owing to careless use by the Tenant or his servants.
14.--The Tenant shall pay all charges in respect of gas, electric light and
power which shall be consumed or supplied on or to the premises hereby agreed to
be let and also shall pay if applicable a due proportion of the Water Rate (Say
at $ per month). Separate Meter.
15.--It is agreed that the monthly charges for the disposal of garbage,
caretakers expenses and general maintenance ($ 1,500.00 ) are to be borne by the
Tenant this payment is subject to adjustment when and if necessary.
16.--It is agreed that the Stamp Duty for this Lease Agreement is to be
shared equally by both parties.
-4-
<PAGE>
17.--Three months before the expiration of this Lease Agreement the
Landlord will have the right to show the flat to the intending Tenants, provided
that this is done during reasonable hours.
18.--Provided always and these presents are upon this express condition,
that if the rent hereby reserved or any part thereof shall be unpaid for the
space of fifteen days next after any of the days on which the same ought to have
been paid (although no formal or legal demand shall have been made thereof) or
in case of the breach or non-performance of any of the stipulations and
agreements herein contained on the part of the Tenant to be kept done or
performed, then and from thenceforth and in either of such cases it shall be
lawful for the Landlord to enter into and upon the said premises or any part
thereof in the name of the whole to re-enter and the same to have again
re-possess and enjoy as in his former estate, and as if these presents had not
been made and executed.
19.--The Tenant hereby expressly declares that at the expiration or sooner
determination of this Lease Agreement the Tenant will not invoke or seek to
avail himself of any protection which may or shall hereafter be afforded by any
ordinance or regulation of the Colony of Hong Kong protecting tenant or lessee
from eviction but will promptly and punctually quit and deliver up possession of
the said premises at the expiration of this Lease Agreement or sooner
determination as aforesaid.
20.--The Tenant hereby expressly agrees to waive any notice to quit
required by the Tenancy (Notice of Termination) Ordinance (Cap. 335) for the
determination of the tenancy hereby granted and the parties hereto agree jointly
to apply to the Secretary for Home Affairs for the ratification of such
agreement.
21.--Upon the signing of this Lease Agreement the Tenant is required to pay
-5-
<PAGE>
the Landlord deposit the sum of Dollars HK$100,000.00 to secure the due
performance and observance of the terms and conditions herein contained. The
said sum will be refunded without interest to the Tenant after he has cleared
all rates, rents, bills of gas, electricity, water, etc., before departure and
observed and performed all his terms and conditions herein stated.
22.--Any notice to the Lessee shall be sufficiently served if left
addressed to him at the said premises or sent to him at his last known address
in Hong Kong by ordinary or registered post and any notice to the lessor shall
be sufficiently served if delivered to him personally or sent to him at this
last known address by ordinary or registered post.
RECEIVED the day and year first above written of and from the Tenant the
sum of DOLLARS ONE HUNDRED THOUSAND ONLY (HK$100,000.00) only being the deposit
money hereinbefore expressed to be paid by the Tenant to the Landlord.
WITNESS:
AS WITNESS the hands of the said parties the day and year first above written.
MRS. LAM CHAN YAM FAI HANG FUNG JEWELLERY CO., LTD.
/s/ illegible /s/ illegible
- -------------------------------- ----------------------------------
(Landlord) (Tenant)
WITNESS to the signature of the WITNESS to the signature of the
above named above named
/s/ illegible /s/ illegible
- -------------------------------- ----------------------------------
-6-
S.W. LAM, INC.
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Name Jurisdiction
- ----------------------------------- -----------------------
<S> <C>
Quality Prince Limited British Virgin Islands
Hang Fung Jewellery Company Limited Hong Kong
Kai Hang Jewellery Company Limited Hong Kong
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001030860
<NAME> S. W. Lam, Inc.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-mos 6-mos
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1997
<PERIOD-START> APR-01-1995 APR-01-1996
<PERIOD-END> MAR-31-1996 SEP-30-1996
<CASH> 244 47
<SECURITIES> 0 0
<RECEIVABLES> 3,441 3,873
<ALLOWANCES> 452 0
<INVENTORY> 8,069 9,110
<CURRENT-ASSETS> 12,372 13,462
<PP&E> 4,392 4,216
<DEPRECIATION> 1,088 0
<TOTAL-ASSETS> 15,676 17,678
<CURRENT-LIABILITIES> 11,759 11,738
<BONDS> 851 815
0 0
1 1
<COMMON> 12 12
<OTHER-SE> 3,025 5,054
<TOTAL-LIABILITY-AND-EQUITY> 15,676 17,678
<SALES> 26,868 15,161
<TOTAL-REVENUES> 26,942 15,196
<CGS> 18,822 10,701
<TOTAL-COSTS> 18,822 10,701
<OTHER-EXPENSES> 2,674 1,643
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 403 133
<INCOME-PRETAX> 5,043 2,719
<INCOME-TAX> 1,650 712
<INCOME-CONTINUING> 3,393 2,007
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,393 2,007
<EPS-PRIMARY> .28 .17
<EPS-DILUTED> .28 .17
</TABLE>
