SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
COMMISSION FILE NUMBER: 0-26029
ASIAN STAR DEVELOPMENT, INC.
----------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 88-0866395
----------------------- ------------------------------------
(STATE OF ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
ROOM 930, BLOCK B, EAST WING
NEW WORLD OFFICE BUILDING
TSIMSHATSUI, KOWLOON, HONG KONG
----------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(852) 2721-0936
--------------------------------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(D) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X
THERE ARE 15,711,015 SHARES OF COMMON STOCK OUTSTANDING AS OF SEPTEMBER 30, 2000
<PAGE>
ASIAN STAR DEVELOPMENT, INC.
--------------------------------------------------------------------------------
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
--------------------------------------------------------------------------------
<PAGE>
ASIAN STAR DEVELOPMENT, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C> <C>
PART 1 FINANCIAL INFORMATION
ITEM 1 CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets as of December 31, 1999 and September 30, 2000 F - 1
Consolidated Condensed Statements of Operations for the Three and
Nine Months Ended September 30, 1999 and 2000 F - 2
Consolidated Condensed Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 2000 F - 3
Notes to Consolidated Condensed Financial Statements F - 4 to F - 10
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
</TABLE>
<PAGE>
ASIAN STAR DEVELOPMENT, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
(AUDITED) (UNAUDITED)
ASSETS NOTES
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents 5,628 240,877
Prepayments 133,059 218,702
Inventories 2 3,905 1,274,076
Other assets 4 43,690 483,524
------------- -------------
Total current assets 186,282 2,217,179
Goodwill 3 - 82,635
Investment 4 - 9,953,501
Land usage rights 5 469,814 -
Land improvement 5 4,274,312 1,876,701
Construction in progress 5 1,656,970 721,924
Property and equipment, net 1,363,294 2,629,474
------------- -------------
Total assets 7,950,672 17,481,414
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Due to a shareholder 714,204 668,188
Accounts payable 542,821 2,089,021
Other payables 159,150 321,331
Accrued expenses 180,890 182,123
------------- -------------
Total current liabilities 1,597,065 3,260,663
COMMITMENTS AND CONTINGENCIES 6
SHAREHOLDERS' EQUITY
Common stock, $0.001 par value:
25,000,000 shares authorized, 15,711,015 shares 12,956 15,711
issued and outstanding as of September 30, 2000 and
12,955,530 shares issued and outstanding as of
December 31, 1999
Additional paid-in capital 7 8,510,311 18,465,718
Accumulated deficit (2,169,660) (4,260,678)
------------- -------------
Total shareholders' equity 6,353,607 14,220,751
------------- -------------
Total liabilities and shareholders' equity 7,950,672 17,481,414
============= =============
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
ASIAN STAR DEVELOPMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
------------- ------------ ------------- -------------
NOTE (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue, net $ 22,643 $ 337,074 $ 41,926 $ 962,332
Cost of sales (22,965) (253,757) (40,603) (929,445)
------------- ------------ ------------- -------------
Gross profit / (loss) (322) 83,317 1,323 32,887
Selling, general and
administrative expenses (102,016) (458,155) (361,493) (866,071)
Other income/(loss), net 8 1,458 (1,677,196) 53,370 (1,257,834)
------------- ------------ ------------- -------------
Loss before income tax (100,880) (2,052,034) (306,800) (2,091,018)
Income tax provision 9 - - - -
------------- ------------ ------------- -------------
Net loss $ (100,880) $(2,052,034) $ (306,800) $(2,091,018)
============= ============ ============= =============
Net loss per common share -
basic and diluted (0.008) (0.131) (0.024) (0.151)
------------- ------------ ------------- -------------
Basic and diluted weighted average
number of common shares outstanding 12,955,530 15,711,015 12,955,530 13,825,339
============= ============ ============= =============
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
ASIAN STAR DEVELOPMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
1999 2000
---------------- ---------------
<S> <C> <C> <C>
NOTE (UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(306,800) $(2,091,018)
Adjustments to reconcile net loss to
net cash provided by/(used in) operating activities
Depreciation and amortisation 50,419 128,043
Recognition of deferred expense 112,500 -
Loss/(Gain) on disposal of subsidiaries 8 (53,370) 1,257,834
Changes in operating assets and liabilities:
Prepayments 111,296 (85,643)
Inventories 21,459 (1,270,171)
Other assets (44,992) (439,834)
Accounts payable (36,477) 1,546,200
Other payables 149,562 162,181
Accrued expenses (86,514) 1,233
---------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES (82,917) (791,175)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for investment - (665,501)
Payments for capitalized overhead costs in connection with
construction (188,907) (9,379)
Purchases of construction materials and fixed assets (155,388) (959,266)
Proceeds from disposal of subsidiaries 26,162 2,481,586
---------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (318,133) 847,440
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock subscription 91,980 225,000
Advance from/(repayment to) a shareholder 241,981 (46,016)
---------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 333,961 178,984
---------------- ---------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (67,089) 235,249
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 71,690 5,628
---------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,601 $ 240,877
================ ===============
SUPPLEMENTAL DISCLOSURE OF SIGNIFICANT NON CASH INVESTING AND
FINANCING ACTIVITIES
Issuance of 2,313,625 common stock for acquiring equity
interest in an investment (Note 4) $ - $ 9,288,000
================ ===============
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
F-3
<PAGE>
ASIAN STAR DEVELOPMENT, INC.
Notes to Consolidated Condensed Financial Statements
NOTE 1 - BASIS OF PRESENTATION
---------------------------------------
The accompanying consolidated financial statements as of December 31, 1999 and
September 30, 2000 and for the three and nine months ended September 30, 1999
and 2000, of Asian Star Development, Inc and its subsidiaries (the "Company")
have been prepared in accordance with accounting principles generally accepted
in the United States and with instructions to Form 10-Q and Regulation S-X. All
significant inter-company balances have been eliminated in consolidation. The
balance sheet as of December 31, 1999 was derived from audited financial
statements included in the Company's Form 10-K for the year ended December 31,
1999 (the "Form 10-K"). The financial statements at September 30, 2000 and for
the three and nine months ended September 30, 1999 and 2000 have not been
audited by independent accountants. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to requirements of the Securities and Exchange Commission. However, the Company
believes that the disclosures included in the accompanying interim financial
statements and footnotes are adequate to make the information presented not
misleading. These interim financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Company's
Form 10-K.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
reported amounts of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities. Actual results could differ
from these estimates.
The consolidated financial statements are reported in US Dollars("$").
In the opinion of management, all normally recurring adjustments necessary to
present fairly the financial position as of September 30, 2000, results of
operations and cash flows for the three and nine months ended September 30, 1999
and 2000, have been made. However, these results are not necessarily indicative
of the operating results for any other interim period or for the full year.
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-4
<PAGE>
ASIAN STAR DEVELOPMENT, INC.
Notes to Consolidated Condensed Financial Statements
NOTE 2 - INVENTORIES
-----------------------------
Inventories comprise primarily of souvenir held for sales and are stated at
lower of cost or market value. Market value will be determined using replacement
cost in accordance with the relevant industry standard. In June 2000, the
Company's newly established subsidiary, Asian Star Technology Development
Limited ("ASTD"), was appointed as an agent for the Chinese Academy of Space
Technology for all international commercial activities. ASTD launched marketing
programs for sales of highly coveted China Space Souvenir Products.
NOTE 3 - GOODWILL
--------------------------
In January 2000, the Company acquired 100% of the equity interest of two Hong
Kong companies owned by an officer of the Company. Goodwill represents the
excess of consideration given over the fair value of the net assets of the
acquired companies at the date of acquisition. The carrying amount of goodwill
is amortised over a period of 10 years on a straight-line basis. Details of the
acquisition are as follows:
Consideration * $ 445,162
Less: Fair value of net assets acquired (358,179)
---------
Goodwill 86,983
Less: amortisation during the period (4,348)
----------
$ 82,635
==========
* The Company issued 261,860 of the Company's Restricted Common Stock valued at
$1.7 per share as consideration
NOTE 4 - INVESTMENT IN HARMONIC HALL INVESTMENT
--------------------------------------------------------
On March 28, 2000, the Company entered into agreements with Harmonic Hall
Investment Holdings Ltd, ("HHI"), whereby the Company acquired approximately 52%
of the outstanding common stock of HHI for 2,313,625 shares of the Company's
Restricted Common Stock at par value $.001 and cash of $665,501. The
consummation date of the transaction was in April 2000.
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-5
<PAGE>
ASIAN STAR DEVELOPMENT, INC.
Notes to Consolidated Condensed Financial Statements
As of June 30, 2000, the Company paid cash of $665,501 and issued 2,313,625
shares of the Company's Common Stock at a fair value of $9,288,000. The fair
value of Restricted Common Stock was determined based on the average trading
share prices quoted on the stock exchange.
In addition to the above, the Company had advanced a sum of approximately
$323,000 to HHI for its working capital. The advance has no specific terms of
repayment and is recorded as other assets.
Following the purchase, management of the Company has not been able to exercise
significant influence over the operation of HHI or obtain financial statements
of HHI as of June 30, 2000. In August 2000, the Company retained a legal counsel
in Hong Kong to prepare and file a writ in Court against HHI for breach of the
agreements. On September 26, 2000, the Company filed an action in the High Court
of the Hong Kong Special Administrative Region seeking rescission of the
agreements. The action seeks return of all monies paid, and all shares issued by
the Company in the transaction, together with damages. Accordingly, the
financial statements of HHI have not been included in the consolidated financial
statements. No provision has been made for any diminution in value of the
investment.
NOTE 5 - DISPOSAL OF LAND USAGE RIGHTS/LAND IMPROVEMENT/CONSTRUCTION IN PROGRESS
--------------------------------------------------------------------------------
The Company disposed of its 100% equity interest in the Shilong Town Hall
project to Dongguan Shilong Properties Limited in July 2000. Details of the
disposal are as follows:
Consideration received $ 1,453,066
Less: Book value of net assets disposed (3,180,639)
---------------
Loss on disposal $ 1,727,573
===============
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-6
<PAGE>
ASIAN STAR DEVELOPMENT, INC.
Notes to Consolidated Condensed Financial Statements
NOTE 6 - COMMITMENTS AND CONTINGENCIES
-----------------------------------------------
Based on the joint venture contract and agreement, the Company entered into a
project in China as of September 30, 2000. Details of the current status of the
project are as follows:
Total Investment
Per Project Costs Years Remaining to
Per Agreement Incurred Complete the Project Per
Project or Contract to Date Agreement or Contract
--------------------------------------------------------------------------------
(unaudited)
Maple City 38,000,000 2,517,461 No time limit
========== =========
Details of other projects are summarized in Note 10.
FINANCING RESOURCE DEPENDENCY
The operating activities of the above project was substantially financed by one
of the Company's directors through either capital infusion or loans, and funds
raised.
Management believes that the completion of the project on a timely basis will
depend significantly on additional funding available to the Company through debt
and/or equity financing in the near future. There will be no assurance that such
financing will be available, or if so, at terms beneficial for the Company. No
development of the project was made during the last quarter.
NOTE 7 - COMMON STOCK, ADDITIONAL PAID-IN CAPITAL
----------------------------------------------------------
There was no share of Common Stock issued during the three months ended
September 30, 2000. Details of shares of Common Stock movements for the period
December 31, 1999 to September 30, 2000 are as follows:
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
ASIAN STAR DEVELOPMENT, INC.
Notes to Consolidated Condensed Financial Statements
Additional
Common Stock Paid in
No. of shares Amount Capital
<S> <C> <C> <C>
As of December 31, 1999 12,955,530 $12,956 $ 8,510,311
Common Stock issued for option exercised 50,000 50 62,450
Purchase of a cafeteria 261,860 262 444,900
------------------ ---------------- -------------------
As of March 31, 2000 13,267,390 13,268 9,017,661
Common Stock issued for option exercised 130,000 130 162,370
Acquisition of HHI * 2,313,625 2,313 9,285,687
------------------ ---------------- -------------------
As of September 30, 2000 15,711,015 $15,711 $18,465,718
================== ================ ===================
* 2,313,625 shares of Restricted Common Stock were issued to acquire the equity interest of HHI as detailed
in Note 4.
</TABLE>
NOTE 8 - OTHER LOSS
---------------------------
Other loss comprises mainly of the loss on disposal of the Company's 100% equity
interest in the Shilong Town Project as detailed in Note 5.
NOTE 9 - INCOME TAXES
----------------------------
The Company has no taxable profits for the period ended September 30, 2000.
The Company accounts for income taxes using the liability method, which requires
an entity to recognise deferred tax liabilities and assets. A full valuation
allowance will be provided due to the uncertainty that deferred tax benefits
will be realised.
NOTE 10 - OTHER PROJECTS
--------------------------------
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-8
<PAGE>
ASIAN STAR DEVELOPMENT, INC.
Notes to Consolidated Condensed Financial Statements
A) SUPERPORT PROJECT
On January 25, 2000, the Company entered into an agreement to acquire an
existing to LPG cylinder manufacturing plant and an associated LPG bottling
plant in the State of Kelantan, Malaysia. The Project also includes an exclusive
right to install a deep-water port for tankers. The total project cost is
estimated to be $2.3 billion. The agreement is currently under review by the
Foreign Investment Consulate of Malaysian Government and is seeking its
approval. The Company has no firm capital commitment for this project.
Management considers that upon obtaining the approval, other financiers to fund
the project costs in various phases will be sought.
B) "6-12" CONVENIENCE STORE CHAIN
According to a letter of intent entered into in September 1998, the Company
planned to acquire 100% of total issued and outstanding shares of two PRC
corporations through a 75% owned newly-established Hong Kong subsidiary. This
plan has been subsequently changed as only one PRC corporation will be acquired.
The Company has no firm commitment for this project. Before China's WTO
accession, there are still restrictions for the Company to directly operate
chain stores. No cost has been incurred on this project as of September 30,
2000.
C) JIANGMEN GOLD CROWN HARDWARE AND LOCK MANUFACTORY CO LIMITED
In September 2000, one of the Company's subsidiary, Honking International
Limited, signed a contract with the Employee Union of Jiangmen Gold Crown
Hardware And Lock Manufactory Co. Limited ("JGC") whereby the Company will
acquire 30% of the equity interest in JGC in exchange for 279,400 shares of the
Company's Restricted Common Stock at a value of US$4 per share. The contract
also grants the Company an option to acquire an additional 50% of JGC shares.
The contract has yet been approved by Jiangmen city government.
NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS
------------------------------------------
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, or SFAS 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS 133 establishes new
standards of accounting and reporting for derivative
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-9
<PAGE>
ASIAN STAR DEVELOPMENT, INC.
Notes to Consolidated Condensed Financial Statements
instruments and hedging activities. SFAS 133 requires that all derivatives be
recognized at fair value in the statement of financial position, and that the
corresponding gains or losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of hedging
relationship that exists. We do not currently hold derivative instruments or
engage in hedging activities.
In July 1999, the FASB issued Statement of Financial Accounting Standards No.
137, or SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB No. 133. SFAS 137 deferred
the effective date of SFAS 133 until the first fiscal quarter beginning after
June 15, 2000.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, or SAB 101, Revenue Recognition in Financial
Statements. SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
In June 2000, the SEC issued SAB 101B which defers the implementation of SAB 101
to no later than the fourth quarter of fiscal years beginning after December 15,
1999. We do not expect the adoption of SAB 101 to have a material effect on our
financial position or results of operations.
In March 2000, the Financial Accounting Standards Board, or FASB, issued FASB
Interpretation No. 44, or FIN 44, Accounting for Certain Transactions Involving
Stock Compensation and Interpretation of APB Opinion No. 25. FIN 44 clarifies
the application of Opinion 25 for (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a non-compensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
Management believes that the impact of FIN 44 will not have a material effect on
the financial position or results of operations of the Company.
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-10
<PAGE>
ASIAN STAR DEVELOPMENT, INC.
Management's Discussion and Analysis
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; NEED FOR ADDITIONAL CAPITAL
There is limited historical financial information about the Company upon which
to base an evaluation of the Company's performance or to make a decision
regarding an investment in shares of Company's Common Stock. The Company has an
accumulated deficit of $4,260,678 as of September 30, 2000. The Company's cash
and cash equivalents increased from $5,628 at December 31, 1999 to $240,877 at
September 30, 2000.
RECENT DEVELOPMENTS
A) LAWSUIT
On March 28, 2000, the Company entered into agreements with Harmonic Hall
Investment Holdings Ltd, ("HHI"), whereby the Company acquired approximately 52%
of the outstanding common stock of HHI for 2,313,625 shares of the Company's
Restricted Common Stock at par value $.001 and cash of $665,501. The
consummation date of the transaction was in April 2000.
As of June 30, 2000, the Company paid cash of $665,501 and issued 2,313,625
shares of the Company's Common Stock at a fair value of $9,288,000 which have
been accounted for as an investment in the accounts at cost. The fair value of
Restricted Common Stock was determined based on the average trading share prices
quoted on the stock exchange.
In addition to the above, the Company had advanced a sum of approximately
US$323,000 to HHI for its working capital. The advance has no specific terms of
repayment and is recorded as other assets.
Following the purchase, management of the Company has not been able to exercise
significant influence over the operation of HHI or obtain financial statements
of HHI as of June 30, 2000. In August 2000, the Company retained a legal counsel
in Hong Kong to prepare and file a writ in Court against HHI for breach of the
agreements. On September 26, 2000, the Company filed as action in the High Court
of the Hong Kong Special Administrative Region seeking rescission of the
agreements. The action seeks return of all monies paid, and all shares issued by
the Company in the transaction, together with damages. Accordingly, the
financial statements of HHI have not been
<PAGE>
included in the consolidated financial statements. Management considers that it
is uncertain to determine the outcome of the lawsuit and is unable to estimate
the loss, if any. No provision has been made for any diminution in value of the
investment.
B) DISPOSAL OF INVESTMENTS
The Company disposed of its 100% equity interest in the Shilong Town Hall
project to Dongguan Shilong Properties Limited in July 2000 at a loss of
$1,727,573.
C) VARIOUS PROJECTS
i) In September 2000, one of the Company's subsidiary, Honking International
Limited, signed a contract with the Employee Union of Jiangmen Gold Crown
Hardware And Lock Manufactory Co. Limited ("JGC") whereby the Company will
acquire 30% of the equity interest in JGC in exchange for 279,400 shares of
the Company's Restricted Common Stock at a value of $4 per share. The
contract also grants the Company an option to acquire an additional 50% of
JGC shares. The contract has not yet been approved by Jiangmen city
government.
ii) The Company has participated in various activities for promoting the return
of China's first space shuttle. A variety of souvenir products in relation
to this event has been held for sales.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
Revenue and operating expenses
Revenue from the operation of Ocean Wealth Restaurant, Shilong Water World and
Asian Star Technology Development Limited increased from $22,643 for the three
months ended September 30, 1999 to $337,074 for the three months ended September
30, 2000. The increase was mainly due to revenue generated from the cafeteria
business and the management fee received from contracting Shilong Water World to
a third party.
Selling, general and administrative expenses comprised mainly salary,
depreciation expenses, commission and promotional expenses increased from
$102,016 for the three months ended September 30, 1999 to $458,155 for the 3
months ended September 30, 2000 as a result of the running costs of the
cafeteria.
<PAGE>
OTHER LOSS
During the quarter ended September 30, 2000, the Company disposed of its
investment in Shilong Town Hall project resulting from a loss of $1,727,573.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
REVENUE AND OPERATING EXPENSES
Revenue from the operation of the Ocean Wealth Restaurant, Shilong Water World
and Asian Star Technology Development Limited for the nine months ended
September 30, 2000 and 1999 amounted to $962,332 and $41,926 respectively. The
increase was mainly due to revenue generated from the cafeteria business and the
management fee received from contracting Shilong Water World to a third party.
Included in the selling, general and administrative expenses are mainly salary,
commission, depreciation and promotional expenses. The increase was mainly due
to running costs of the cafeteria.
Payments for overheads, representing accumulated indirect costs which are
related to projects, decreased from $188,907 for the nine months ended September
30, 1999 to $9,379 for the nine months ended September 30, 2000. Payments for
construction materials and fixed assets in relation to Water Park increased from
$155,388 for the nine months ended September 30, 1999 to $959,266 for the nine
months ended September 30, 2000.
OTHER LOSS
Other loss comprised mainly:
1. a gain on disposal of 80% equity interest in Dongguan Dragon Villa and
Dongguan Dragon Entertainment Center Limited of $417,138 in March 2000.
2. a loss of disposal of 100% equity interest in Shilong Town Hall project of
$1,727,573.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company had generated positive cash flows of $235,249 for the nine months
ended September 30, 2000
<PAGE>
mainly due to issuance of its equity securities in conjunction with the options
exercised, disposal of subsidiaries and advances from a shareholder. Due to the
infant stage of its operations, substantial ongoing investment in properties and
development efforts, and expenditures incurred to build the appropriate
infrastructure to support expected future growth, together with the operation of
a cafeteria and further investment, the Company has been substantially
dependent on shareholder loan financing.
As of September 30, 2000, the Company's total assets and total liabilities were
$17,481,414 and $3,260,663 respectively.
The Company's investment portfolio comprised the following as of September 30,
2000:
<TABLE>
<CAPTION>
Project / Subsidiary Business Nature
------------------------------------- ---------------------------------------------
<S> <C>
Maple City Property Development
Ocean Wealth Restaurant Cafeteria Business
Dongguan Shilong Water World Water Park
Asian Star Technology Development Ltd Merchandising and International agent for the
Chinese Academy of Space Technology
</TABLE>
FINANCIAL POSITIONS AS OF SEPTEMBER 30, 2000 AS COMPARED TO DECEMBER 31, 1999
INVENTORY
Inventory as of December 31, 1999 and September 30, 2000 increased from $3,905
to $1,274,076. The increase was mainly the result of highly coveted China Space
souvenir products held for sales by one of the company's subsidiary, Asian Star
Technology Development Limited, which was appointed as an agent for the Chinese
Academy of Space Technology for all international commercial activities.
LAND USAGE RIGHTS, LAND IMPROVEMENT AND CONSTRUCTION IN PROGRESS
Total costs incurred for land usage rights, land improvement and construction in
progress as of December 31, 1999 and September 30, 2000 decreased from
$6,401,096 to $2,598,625 was mainly due to disposals of the Dongguan Dragon
Villa, Dongguan Dragon Entertainment Centre and Shilong City Hall project during
the period.
<PAGE>
INVESTMENT
Investment as of September 30, 2000 consists of an investment in Harmonic Hall
Investment Holdings Ltd. ("HHI"), whereby the Company acquired approximately 52%
of the outstanding common stock of HHI for 2,313,625 shares of the Company's
Restricted Common Stock at fair value of $9,288,000 and cash of $665,501.
ACCOUNTS PAYABLE
Accounts payable as of December 31, 1999 and September 30, 2000 increased from
$542,821 to $2,089,021 was mainly due to significant increase in inventory from
suppliers.
COMMON STOCK AND PAID IN CAPITAL
During the period, the Company issued 130,000 additional shares of Restricted
Common Stock to non-employees at a share price of $1.25 per share pursuant to
the share option exercised. In addition, 2,313,625 shares of Restricted Common
Stock were issued to acquire the equity interest of HHI.
