REVISION DATE: DECEMBER 23 98
THIS DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901(D) OF REGULATION S-T
U.S. SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549
Amended Form 10-SB
AMENDMENT # 2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(g) of
The Securities Exchange Act of 1934
BRIDGE TECHNOLOGY, INC.
(Name of Small Business Issuer in its Charter) July 31, 1998
NEVADA 59-3065437
(State or other Jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
12601 Monarch, Garden Grove, CALIFORNIA 92601
Address of principal executive offices) (Zip code)
Issuer's telephone number: 714-891-6508
Issuer's facsimile number: 714-890-8590
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
(Title of Class)
Common Stock
Exhibit B-index Appears at Page 33
<PAGE>
TABLE OF CONTENTS PAGE
Item 1. Description of Business 3
Item 2. Management's Discussion and Analysis or Plan of Operation. 6
Item 3. Description of Property. 15
Item 4. Security ownership of Certain Beneficial Owners and
Management. 15
Item 5. Directors, Executive officers, Promoters and Control Persons.18
Item 6. Executive Compensation. 18
Item 7. Certain Relationships and Related Transactions. 18
Item 8. Legal Proceedings. 19
Item 9. Market for Common Equity and Related Stockholder Matters. 19
Item 10. Recent Sale of Unregistered Securities. 20
Item 11. Description of Securities. 21
Item 12. Indemnification of Directors and Officers. 21
Item 13. Financial Statements. 22
Item 14. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. 45
Item 15. Financial Statements and Exhibits. 46
<PAGE>
ITEM 1. Description of Business.
The Company is in the business of manufacturing, buying, assembling,
testing, packaging, marketing and selling computer peripherals related
products and computer system enhancements products. The Company
established operating divisions and subsidiaries under several separate
business names. Each of these operating entities is focused on a specific
product and sales channel.
Through in-house development, joint ventures, licensing and
acquisition of leading edge technologies and companies, the Company will
endeavor to deploy such new and leading edge technologies to create
products desired by Personal Computer OEMs, Value Added Resellers and
System Integrators. The Company will sell these products both directly as
well as through selected Distributors and Manufacturer's Representative
organizations. The Company currently employs 7 professionals and 3
administrative personnel domestically, and 3 professional and 1
administrative person overseas.
BRIDGE R&D, INC.
The Company, through its subsidiary, Bridge R&D, Inc. (hereinafter
referred to as BRD), has established 4 divisions: Newcorp Technology (USA)
division, DataStor division, ADTX division and EEMB Batteries division.
These divisions will utilize the experience of existing and newly hired
professionals in the distribution channels to distribute its innovative
products. The Company will continue to expand the number of OEM customers
and Systems Integrators to rapidly increase unit sales. The Company will
also introduce additional new products to increase its sales revenues
through the existing distribution channels.
NEWCORP TECHNOLOGY(USA)
Newcorp Technology (USA) division of BRD plans to capitalize on
several new products it intends to introduce in the near future. These
products integrate several upcoming PC and energy related technologies to
create an innovative solution for mobile computer users. Newcorp is
actively pursuing the acquisition and licensing of new technologies from
several major high technology companies, principally in Japan and USA. The
mission of Newcorp is to innovate by identifying, evaluating and selecting
technologies that provide new products with substantial added value. The
division plans to develop, license or acquire products that it is able to
sell through its existing sales channels. Newcorp is also in discussions
with several companies offering products that complement and/or enhance
the company's core products. The Company plans to invest in several such
products and/or technologies, both hardware and software. The Company
commenced discussions with several potential licensing or acquisition
candidates in hopes to negotiate firm contracts.
Since the Company executed non-disclosure agreements with several
major high technology companies, it is not permitted to disclose the
nature of these new technologies and products for potential licensing
until respective license agreements are in fact signed. However, there can
be no assurance that any additional licensing agreements or technology
acquisitions will be completed by the Company.
DATASTOR
DataStor division identifies, designs, manufactures, assembles, tests
and distributes metal and plastic enclosures, brackets and enhancement
kits for a variety of computer platforms. Some are produced under specific
contracts by several manufacturers. DataStor business unit also sells
external peripheral kits consisting of enclosures and power supplies,
mounting brackets for various peripheral devices, and complete kits for
integration of various peripherals into PC systems. DataStor supplies over
60 different mass storage products, including enclosures for 1 to 7
drives, drive mounting brackets, and fixed and removable mounting bracket
kits. DataStor business unit also procures, markets, sells and supports a
family of medium size RAID-ready enclosures and subsystems through
selected distribution channels.
DataStor customers include INGRAM Micro, NECX, Tech Data and other
National and International distributors who further sell to the second
tier distributors and Systems Integrators. Other customers are Master
Resellers who sell to second and third-tier OEMs, Value Added Resellers
and System Integrators. DataStor is dedicated to maintaining its market
position as an industry leader in making cutting edge technology available
to customers. DataStor dedicates its staff compliment toward constantly
researching and developing new product lines and solutions. Part of the
profits expected to be generated by DataStor and Newcorp divisions will be
used to expand DataStor product line. Additionally, part of the DataStor
profits will fund R&D projects in the Newcorp Technology Japan.
ADTX USA
The Company established the ADTX USA division under the leadership of
Mr. Bill Long, Senior Engineer. The Company established a close
relationship with Advanced Technology and Systems Co., Ltd. (hereinafter
referred to as "ADTX"), which allows the Company to organize and manage
the ADTX operations on a contractual basis, initially in North America,
South America and Europe. ADTX manages the RAID business including
procurement, marketing, sales and support for a family of high performance
RAID systems. These RAID systems are designed and manufactured by ADTX
Japan, an IBM Japan Joint Venture company. ADTX Japan cooperates with the
Company to establish ADTX USA. ADTX USA division has commenced delivering
evaluation orders for these unique systems in July 1998. ADTX USA is
executing its marketing and promotional plan that combines advertising,
trade shows and media articles to generate customer demand for these
highly technical products. The Company also started selling ADTX RAID
systems to international customers, targeting first European System
Integrators and Vars. The Company believes that Mr. Long's unique
experience in this market will allow the ADTX division to position itself
for growth at a rapid pace. Mr. Long signed a five-year employment
contract with Bridge R&D, Inc.
RAID is an abbreviation for "Redundant Array of Independent Drives".
The latest forecast of RAID market by a market research firm, Datatrend,
projects the worldwide RAID market to reach $13 billion in 1998 and grow
20% annually. Compared to current data backup methods which use a
separate magnetic tape drive, the RAID subsystem replaces a single hard
disk drive inside the computer with a redundant array of hard disk drives.
The data is stored on such RAID system in a manner that distributes and
duplicates such data across several disk drives in a pre-determined
pattern. Depending on the application, appropriate pattern can be
selected by the user to provide faster data access and also simultaneously
allow uninterrupted operation and continued data access in case of a
defective or faulty disk drive. Compared to a hard disk drive, the
magnetic tape drive and magnetic tape provide only a sequential storage
media that does not provide data redundancy, only data backup and
recovery. In case of a single hard disk drive failure, the computer is not
usable until the user either replaces the failed disk drive and reloads
the operating system and the data from the last tape backup, or until the
crashed disk is repaired, reformatted and the operating system application
programs and the data are reloaded. This usually means that certain amount
of data is lost and has to be re-entered again. This process costs both
time and money, and the delay in computer availability usually creates
further losses. Additionally, while the old data is being reconstructed,
the newly incoming data cannot be entered and processed, which causes an
increase in data entry backlog and usually brings additional errors and
problems. Tape data transfer is also comparatively slow, and the tape
drive is an additional peripheral to maintain that requires additional
Interrupt Level and Device Address inside the computer, additional
controller card and software, all of which mean added overhead and costs.
The Company believes that decreasing disk drive costs per Gigabyte of
capacity and disk controller costs are ushering in better and more cost
effective solutions using RAID which in turn will increase RAID acceptance
and market share. Accelerating this is the higher cost of downtime and
recovery from hard disk crash. These factors make a customer's decision
to buy RAID ever easier to justify.
ADTX RAID systems use SCSI and SCSI-2 ultra-wide and fast interface,
and their performance is on the leading edge of current technology. ADTX
plans to introduce LVD-2 and Fibre-Channel models in the future. Due to
superior data transfer rate for large sequential data blocks offered by
ADTX "G" series and "R" series RAID systems, ADTX USA marketing and sales
efforts are focused on Digital Video applications, and applications
requiring transfers of large blocks of data. ADTX currently provides
leading price/performance in this market segment.
ADTX USA sells the RAID systems fully configured through selected
Distributors, Value Added Resellers and System Integrators. ADTX USA is
also offering these systems to selected private label OEM customers. ADTX
USA commenced shipping all five RAID system models in September 1998.
RAID systems business is very competitive, and ADTX USA positions its
products as high performance products, and prices most models to compete
not on price, but rather on price/performance basis. ADTX USA does not
depend on any single major customer, and no customer comprises more than
5% of ADTX USA sales. ADTX USA is in a process of developing several
patentable and copyrightable products. ADTX USA dedicated approximately
10% of its available time to new products development. However, there can
be no assurance that any of these products will generate any significant
sales or profits for ADTX USA. ADTX USA intends to file several patents
and copyrights to protect the results of its intellectual property
developments.
Other than normal regulatory agency approvals such as UL, CSA, FCC,
CE, etc., ADTX USA products do not require any specific government
approvals, nor are these products regulated by any governmental
regulations. Furthermore, ADTX Japan secures all the required products
safety and radiation compliance approvals prior to ADTX USA selling any
such products. ADTX products are not subject to any environmental laws,
and ADTX products are not creating any pollution or have any other
negative impact on the environment.
NEWCORP TECHNOLOGY LIMITED (JAPAN)
The Company acquired Newcorp Technology Japan, Ltd., a Tokyo, Japan
based R&D and technology sales company. The Company plans to capitalize on
Newcorp Technology Japan relationships to procure unique new technologies
and contacts, through which the Company expects to generate additional
sales and profits in computer enhancements and communications related
business. Newcorp Technology Japan is actively pursuing the acquisition
and licensing of new hardware and software technologies from several high
technology R&D companies worldwide.
EEMB BATTERIES
The Company signed a three year exclusive sales agreement with EEMB
China, and immediately established the EEMB Batteries (USA) division with
an objective of procuring, marketing and selling a family of batteries and
battery packs, principally to US based OEMs. EEMB Batteries also plans to
sell batteries and battery packs to private label customers and to major
NoteBook enhancement resellers. The Company believes that with the
continued proliferation of portable devices, wireless devices, wireless
remote controllers and other wireless appliances, the market demand for
quality batteries will grow at an increasingly rapid pace. Newcorp
Technology Japan expects to acquire licenses for certain proposed battery
management related technologies, which the Company expects to exploit and
generate sales for the current line of its EEMB batteries and battery
packs. In addition the Company expects to develop and patent new battery
techniques to meet Newcorp Technology Japan's developing technologies.
NOTEBOOK ENHANCEMENTS
The Company management also has Board approval to invest $40,000 in
ITS, a California company that specializes in the design, development,
marketing and sales on Notebook Hard disk enclosures (caddies). The
Company sells these NoteBook hard disk enclosures to ITS, who resells them
to OEM and VAR customers. The Company will place a candidate on ITS Board
of Directors concurrent with this investment.
Competition.
The manufacture and distribution of computer peripheral equipment is
intensely competitive. The Company competes with numerous other
companies, including several major manufacturers and distributors. Some
of the Company's competitors have greater financial and other resources
than the Company. Consequently, such entities may begin to develop,
manufacture, market and distribute systems, which are substantially
similar or superior to the Company's products. There is no assurance that
the Company will be able to continue to develop and sell products that
have competitive advantage in the market.
Item 2. Management's Discussion and Analysis or Plan of Operation
INTRODUCTION
The discussion and analysis below, and through this Form 10-SB
Registration Statement, contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. Actual results could differ
materially from those projected or suggested in the forward-looking
statements as a result of, among other factors, the factors set forth
under the caption "Cautionary Statement" and Risk Factors below:
The following discussion and analysis should be read in conjunction
with the Financial Statements and notes thereof appear elsewhere in this
report.
The Company first organized as LAAND CORPORATION under the laws of
the State of Nevada on April 15, 1969 to acquire and develop land in the
State of Nevada. On November 12, 1990 the Company merged with LAND
ACQUISITION AND NEVADA DEVELOPMENT CORPORATION, a subsidiary of the
Company organized under the laws of Nevada on November 7, 1990 and the
original LAAND CORPORATION was dissolved.
The Company amended and restated the Articles of Incorporation on
December 15, 1994 following the cancellation of the February 1991 merger
with Falcon Aviation Inc. wherein Falcon Aviation Inc. relinquished any
claim it may have to the former Land Acquisition and Nevada Development
Corporation.
From inception the Company was unsuccessful it its real estate
business, accumulating losses in excess of $280,000, and the Company
operations ceased in 1972. Prior management kept the Company inactive.
Although it pursued acquisition candidates from time to time no companies
were acquired primarily due to the ultimate unavailability of audited
financial statements from the acquisition candidate.
In March 1997 Cayman Computer Alliance Corporation (CCAC) purchased
control of the Company from prior management in a private transaction
The shareholders, at the Company's annual meeting on April 16, 1997,
approved a Common Stock reverse stock split of one share for two shares.
The Company issued one new share for two original shares of the Company's
common stock; authorized Preferred Stock, stipulating that Directors of
the Company were to fix the terms, and authorizing the change of the
Company's name to Bridge Technology, Inc. The Articles of Incorporation
were amended and restated in August 1997 to reflect these amendments.
On April 21, 1997 the Company sold 500 shares of 6% Convertible
Accumulative and Redeemable Preferred Stock, $1.00 stated value, totaling
$50,000 to five "accredited investors" as defined in Rule 501(a) under the
Securities Act. No underwriter was employed in connection with such
issuances and no underwriting discounts or commissions were paid in
connection with such issuance. The issuance of Preferred Stock to such
five holders of the Company's outstanding Preferred Stock was exempt from
the registration requirements of the Securities Act of 1933 as amended
(the "Securities Act") pursuant to Section 3 (a)(9) and/or 4(2) thereof.
In September 1998 the five holders converted their Preferred Shares into
the Common Stock of the Company.
From April 21, 1997 to December 31, 1997 the Company sold, in a
private placement, 3,250,000 shares of common stock for $1,625,000 to
sixteen "accredited investors" as defined in Rule 501(a) under the
Securities Act. No underwriter was employed in connection with such
issuance and no underwriting discount or commissions were paid in
connections with such issuance. The issuance of Common Stock to such 16
holders of the Company's outstanding Common Stock was exempt from the
registration requirements of the "Securities Act" pursuant to Section
3(a)(9) and/or 4(2) thereof.
In August 1998 the Company sold for cash 50,000 shares of its common
stock to a prospective employee and member of senior management, Bill Long
an "accredited investor" for $25,000. This issuance was exempt from the
registration requirements of the Securities Act of 1933, as amended
pursuant to Section 3 (a)(9) and/or 4(2) thereof.
In June 1997, the Company acquired the name and assets of DataStor
from Allied Web, Inc., a Company controlled by John J. Harwer, together
with the services of John J. Harwer who is experienced in the management
of worldwide technical operations in the computer enhancements and
computer peripherals industry. The purchase price of $191,640. was
considered fair and equitable although the Company did not seek a
valuation opinion from an independent source. Also in June 1997 the
Company incorporated BRIDGE R & D, Inc., as it's wholly-owned subsidiary
for the purpose of organizing several operating divisions under a separate
entity. BRIDGE R & D's goal is to select, develop, market and sell
computer peripheral products, computer component products and computer
enhancement products.
On September 1, 1997 the Company acquired all of the outstanding
shares of NEWCORP TECHNOLOGY LIMITED, a Tokyo, Japan based Research and
Development Corporation organized under the laws of Japan. The purchase
price paid was $100,000 payable by the issuance of 200,000 shares of
BRIDGE TECHNOLOGY, Inc. common stock
On January 30, 1998 the Company acquired 150,000 shares of PTI
Enclosures, Inc. ("PTI") at $1.00 per share and totaling $150,000, which, in
the
interest of conserving cash, was resold in August 1998 for $150,000.
Subsequently the Company continued to pursue its interest in PTI by
soliciting
the individual shareholders of PTI for an equal exchange of shares valued at
$1.00 per share. 100% of the shareholders responded positively and closing
was
set for December 14, 1998. PTI is a privately held California company
specializing in the design, development, production and sales of mass
storage
peripheral enclosures and power supplies to major OEM customers.
The Company will continue to aggressively pursue additional key
strategic investments, licensing and acquisitions in computer and
electronics related field with an emphasis on components, computer
enhancement and peripheral enhancement products.
Results of Operations for Fiscal Years ended 12/31/1996 and 1997
Net Sales increased 100% from $2,200,000 in fiscal 1996 to $4,400,000
in fiscal 1997. Products and services mix for the fiscal year 1997 has
changed substantially in comparison to prior year billings principally due
to the development of new core business by the Company in United States
and Japan
Gross Profit increased 124% from $280,635 in fiscal 1996 to $627,398
in fiscal 1997 principally as a result of augmented sales volume. Gross
profit as a percentage of net sales increased from 12.7% to 14% mainly due
to the sales of certain popular computer accessories which carry higher
profit margins.
Selling and Administrative expenses increased 137% from $330,000 in
fiscal 1996 to $760,000 in fiscal 1997 and increased as percentage of
sales from 14.5% to 17%. The increase in SG&A expenses is principally
attributed to the substantial increase in business from 1996 to 1997, and
the related indirect expenses required to support the sales volume
increase, principally indirect salaries and marketing expenses.
Net loss increase 237% from $46,868 in fiscal 1996 to $158,022 in
fiscal 1997. Net losses from 1996 and 1997 are essentially attributed to
various startup costs associated with the substantial increase in business
sales such as the setup of the organization and sundry related expenses to
enable the Company to expand rapidly in the near future.
Effects of Inflation.
The Company believes that inflation has not had a material effect on
its' net sales and results of operations.
Results of Operations Six Months Ended June 30, 1998 as Compared to the
Six Months Ended June 30, 1997.
Net sales of $1,812,000 million for the six months ended June 30,
1998 decreased by $173,511 (8.7%) over net sales of $1,985,511 for the six
months ended June 30, 1997 period. This decrease was due to the combined
effects, from an decrease in sales volume in hard disks and from continued
competitive pricing policies.
Gross profit for the six months ended June 30, 1998 was $211,519, a
31.7% increase, when compared to $160,551 for the six months ended June
30, 1997 reflecting a growth in sales volume in terms of units. Gross
profit as a percentage of net sales increased from 8.1% for the six months
ended June 30, 1997 to 11.7% for the six months ended June 30, 1998.
Selling, general and administrative expenses increased by $227,331 to
$511,694 in the six months ended June 30, 1998 compared to $284,669 for
the six months ended June 30, 1997. As a percentage of revenue, SG&A
expenses increased from 14.3% in the six months ended June 30, 1997 to
28.2% in the six months ended June 30, 1998. The difference is due to
primarily higher sales volume in the six months ended June 30, 1998
associated with higher selling expense and to a $34,000 increase in
consulting fees, a $24,000 increase in depreciation expense, and an
increase in marketing, travel and other expenses.
Loss from operations increased from $124,118 in the six months ended
June 30, 1997 to $300,175 in the six months ended June 30, 1998,
principally reflecting higher selling, general and administrative expenses
in the six months ended June 30, 1998. Operating loss as a percentage of
net sales increased from 6.3% in six months ended June 30, 1997 to 16.6%
in the six months ended June 30, 1998.
Other expenses increased by $96,837 to $19,102 in the six months
ended June 30, 1998 when compared to other income of $115,939 for the six
months ended June 30, 1997. The difference was due to the other income of
$124,306 that was no longer in existence in the six months ended June 30,
1998.
Net loss increased to $319,277, or $0.14 per share for the six months
ended June 30, 1998 compared to $8,179, or $0.01 per six months ended June
30, 1997.
Liquidity and Capital Resources
Since current management acquired control of the Company in early
1997, the Company has financed its operations with internal generated cash
and with the private placement of its securities totaling in excess of
$1,600,000 to a limited number of accredited investors with knowledge of
the Company's operations and plans to expand. The private placement
commenced in June 1997 and was completed on or about June 30, 1998.
The Company's capital requirements have been and will continue to be
significant and its cash requirements have been sufficient to cover its
cash flow from operations. At June 30, 1998, the Company had a working
capital surplus of $903,786 and cash and cash equivalents of $118,683
compared to a working capital surplus of $1,196,757 and cash and cash
equivalents of $55,032 at June 30, 1997. Since inception, the Company has
satisfied its working capital requirements through revenues generated from
operations, the issuance of equity and debt securities, and loans.
Net cash used in operating activities in the six months ended June
30, 1998 was $599,081, as compared to $304,176 in the six months ended
June 30, 1997 the difference is mainly due to net loss and increase in
inventory, decrease in accounts payable and accrued liabilities, and
changes in other operating activities.
Net cash used in investing activities in the six months ended June
30, 1998 was $173,823 for the purchase of fixed assets and the purchase of
PTI stock, as compared to $89,739 for the purchase of fixed assets in six
months ended June 30, 1997.
Net cash provided by financing activities in the six months ended
June 30, 1998 was $875,691 as compared to $281,613 in the six months ended
June 30, 1997. This reflects the issuance of stock in private placements.
The Company believes that it can fund the growth of its core business
with internally generated cash flow in addition to its substantial cash
reserves from the private sale of its common stock.
Effects of Fluctuation in Foreign Exchange Rates
The Company continues to buy products and services from foreign
suppliers. The Company contracts for such products and services in U.S.
dollars, thus eliminating the possible effect of currency fluctuations.
The Company's wholly owned subsidiary, Newcorp Technology (Japan), was
subject to such currency fluctuations and subsequently suffered losses due
mainly to the decline of Japanese yen from 106 Yen/dollar to present rate
of 138.29 Yen/dollar. In May, 1998, Newcorp Japan changed its sales
contracts with its OEM customers from Japanese Yen to U.S. dollars in
order to eliminate future material effect of currency fluctuations on its
net sales and results of operations.
FLUCTUATIONS IN QUARTERLY RESULTS
Quarterly results may be adversely affected in the future by a
variety of factors, including the possible costs of obtaining capital, the
delay in moving to leased facilities presently under construction, as well
as the release of new products and promotions taking place within the
quarter. The Company plans to fund research and development and to
increase working capital requirements for the new products. To the extent
that such expenses proceed, or are not subsequently followed by, increased
revenues, the Company's business, operating results and financial
condition will be adversely affected.
YEAR 2000 ISSUE
Many computer systems experience problems handling dates beyond the
year 1999. Therefore, some computer hardware and software will need to be
modified prior to the year 2000 in order to remain functional. The
Company is assessing both the internal readiness of its computer systems
and compliance of its computer products and software sold to customer's
for handling the year 2000. The Company expects to implement successfully
the systems programming changes necessary to address year 2000 issues, and
does not believe that the cost of such actions will have a material effect
on the Company's results of operations or financial condition. There can
be no assurance; however, that there will not be a delay in, or increased
costs associated with the implementation of such changes, and the
inability to implement such changes could have an adverse effect on future
results of operations.
CAUTIONARY STATEMENTS AND RISK FACTORS
Limited Operating History; History of Losses and Accumulated
Deficits. While the Company has been in existence since 1969, its
operations between 1975 and 1997 were limited to the exploration of
acquisition opportunities. Bridge Technology Inc. and its subsidiary
Bridge R & D Inc. have only been in operation since June 1, 1997. For the
period from June 1, 1997 to December 31, 1997 the Company incurred a net
loss of $8,929 and the six months ended June 30, 1998 the Company had a
net loss of $320,777. At June 30, 1998, the Company's accumulated deficit
was $909.927. The ability of the Company to obtain and sustain
profitability will depend, in part, upon the successful marketing of
existing products and the successful and timely introduction of new
products. There can be no assurance that the Company will be able to
generate and sustain net sales or profitability in the future.
Importance of New Product Development to Growth.
The Company's ability to develop and successfully introduce new
products will be a significant factor in the Company's ability to grow and
remain competitive. Development of new product lines is risk intensive.
New product development often requires long-term forecasting of market
trends, the development and implementation of new designs, compliance with
extensive governmental regulatory requirements and a substantial capital
commitment. There are a number of manufacturing and design risks inherent
in engineering high cost custom built prototypes upon which development
and contracting decisions are often made, into commercial products able to
be manufactured in large quantities at acceptable cost. Also, the
computer peripheral industry is characterized by rapid technological
change. As technological changes occur in the marketplace, the Company
may have to modify its products in order to keep pace with these changes
and developments. The introduction of products embodying new
technologies, or the emergence of new industry standards, may render
existing products, or products under development, obsolete or
unmarketable. Any failure by the Company to anticipate or respond in a
cost-effective and timely manner, to government requirements, market
trends' or customer requirements, or any significant delays in product
development or introduction, could have a material adverse effect on the
Company's business, operating results and financial condition.
Need For Additional Financing.
Based on its current operating plan, the Company anticipates further
capital will be required during the next twelve months to satisfy the
Company's expected increased working capital and research and development
requirements for its planned new products. The Company is currently
exploring alternative to fulfill these requirements. No assurance can be
given that additional financing will be available when needed or that, if
available, it will be on terms favorable to the Company or its
stockholders. If needed funds are not available, the Company may be
required to curtail its operations, which could have a material adverse
effect on the Company's business, operating results and financial
condition. If additional funds are raised through the issuance of equity
securities, additional dilution to stockholders may occur.
Expansion through Undetermined Acquisitions and Joint Ventures.
The Company intends to expand its product lines and domestic and
international markets, in part, through acquisitions. The Company's
ability to expand successfully through acquisitions will depend upon the
availability of suitable acquisition candidates at prices acceptable to
the Company, the Company's ability to consummate such transactions and the
availability of financing on terms acceptable to the Company. There can
be no assurance that the Company will be successful in completing
acquisitions. Such transactions involve numerous risks, including
possible adverse short-term effects on the Company's operating results or
the market price of the Common Stock. These acquisitions and joint
ventures may not be subject to approval or review by the Company's
stockholders. The Company does not expect that it will obtain an
appraisal by any independent appraisers with respect to any such
acquisition. Certain of the Company's future acquisitions may also give
rise to an obligation by the Company to make contingent payments or to
satisfy certain repurchase obligations, which payments could have an
adverse financial effect on the Company. In addition, integrating
acquired businesses may result in a loss of customers or product lines of
the acquired businesses and also requires significant management attention
and may place significant demands on the Company's operations, information
systems and financial resources. The failure effectively to integrate
acquired businesses with the Company's operations could adversely affect
the Company. In addition, the Company competes for acquisition
opportunities with companies which have significantly greater financial
and management resources than those of the Company. There can be no
assurance that suitable acquisition opportunities will be identified, that
any such transactions can be consummated, or that, if acquired, such new
businesses can be integrated successfully and profitably into the
Company's operations. Moreover, there can be no assurance that the
Company's historic rate of growth will continue, that the Company will
continue to successfully expand, or that growth or expansion will result
in profitability.
Rapid Expansion of the Company's Business.
From inception (June 1, 1997) through June 30, 1998, the Company has
experienced rapid growth in revenues and geographic scope of operations.
Any future growth may place a significant strain on management and on the
Company's financial resources and information processing systems. The
failure to recruit additional staff and key personnel, to have sufficient
financial resources, to maintain or upgrade these financial reporting
systems, or to respond effectively to difficulties encountered ruing
expansion could have a material adverse effect on the Company's business,
operating results and financial condition.
Reliance on International Sales and Distributors and General Risks of
International Operations.
For the six-month period ended June 30, 1998, international sales
have accounted for approximately 57% of the Company's net sales, and the
Company expects that international sales may increase as a percentage of
sales in the future. Consequently, the Company is subject to the risks of
conducting business internationally, including unexpected changes in, or
impositions of, legislative or regulatory requirements; fluctuations in
the US dollar which could materially adversely affect US dollar revenues;
tariffs and other barriers and restrictions; potentially adverse taxes;
and the burdens of complying with a variety of international laws and
communications standards. The Company's international sales involve
potentially longer payment cycles and the Company may experience greater
difficulty collecting accounts receivable. The Company currently depends
on third party distributors for substantially all of its international
sales. At June 30, 1998, the Company's international receivables
accounted for 19% of the Company's accounts receivable, and international
sales were approximately $1,050,743 or 58%, of the Company's total sales
for the six-month period ended June 30, 1998. Certain of the company's
third party distributors may also act as resellers for competitors of the
Company and could devote greater effort and resources to marketing
competitive products. The loss of or other significant reduction in sales
to, certain of these third party distributors could have a material
adverse effect on the Company's business and results of operations. The
Company is also subject to general geopolitical risks, such as political
and economic instability and changes in diplomatic and trade
relationships, especially Japan and China, in connection with its
international operations. There can be no assurance that these risks of
conducting business internationally will not have a material adverse
effect on the Company's business. Further any failure by the Company to
predict or plan for changes in the international arena could have a
material adverse effect on the Company's business, operating results and
financial condition.
Dependence on Key Personnel.
The Company's future performance will depend significantly upon its
management, including Co-Chairman of the Board Tetsuji Aoyagi, Co-Chairman
of the Board and Chief Executive Office, John J. Harwer, President James
Djen, Director of Engineering, ADTX Senior Engineer Bill Long, and certain
other key employees of the Company. The loss of service of one or more of
these persons could have a material adverse effect on the Company's
business and operations. The Company has entered into Employment
Agreements with John J. Harwer and Bill Long, the Company's Director of
Engineering and ADTX Senior Engineer pursuant to which they each have
agreed to render services to the Company for a period of five years. The
Company does not maintain any insurance on the lives of its senior
management. In addition, the Company's success will be dependent upon its
ability to recruit and retain qualified personnel. Any failure by the
Company to retain and attract key personnel could have a material adverse
effect on the Company's business, operating results, and financial
condition.
Limited Proprietary Protection.
The Company's success and ability to compete is dependent in part
upon its proprietary technology. The Company's proprietary technology is
not protected by any patents. Consequently, the Company relies primarily
on trademark, trade secret and copyright laws to protect its technology.
Also, the Company has implemented a policy that most senior and technical
employees and third-party developers sign nondisclosure agreements.
However, there can be no assurance that such precautions will provide
meaningful protection from competition or that competitors will not be
able to develop similar or superior technology independently. Also, the
Company has no license agreements with the end users of its products, so
it may be possible for unauthorized third parties to copy the Company's
products or to reverse engineer or otherwise obtain and use information
that the Company regards as proprietary. If litigation is necessary in
the future, to enforce the Company's intellectual property rights, to
protect the Company's trade secrets or to determine the validity and scope
of the proprietary rights of others, such litigation could result in
substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, operating results and financial
condition. Ultimately, the Company may be unable, for financial or other
reasons, to enforce its rights under intellectual property laws. In
addition, the laws of certain countries in which the Company's products
are or may be distributed may not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States.
The Company believes that its products do not infringe upon any valid
existing proprietary rights of third parties. Although the Company has
received no communication from third parties alleging the infringement of
proprietary rights of such parties, there can be no assurance that third
parties will not assert infringement claims in the future. Any such third
party claims, whether or not meritorious, could result in costly
litigation or require the Company to enter into royalty or licensing
agreements. There can be no assurance that the Company would prevail in
any such litigation or that any such licenses would be available on
acceptable terms, if at all. If the Company were found to have infringed
upon the proprietary rights of third parties, it could be required to pay
damages, cease sales of the infringing products and redesign or
discontinue such products, any of which alternatives, individually or
collectively could have a material adverse effect on the Company's
business, operating results and financial condition.
Limitation of Liability and Indemnification.
The Company's Amended and Restated Certificate of Incorporation
limits, to the maximum extent permitted by the Nevada General Corporation
Law ("Nevada Law), the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director, and provides
that the Company shall indemnify its officers and directors and may
indemnify its employees and other agents to the fullest extent permitted
by law. The Company has entered into indemnification agreements with its
directors and executive officers which may require the Company, among
other things, to indemnify such directors or executive officers against
liabilities that arise by reason of their status or service as directors
or officers (other than liabilities arising from willful misconduct of a
culpable nature) and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified. The
Company has not purchased director's and officer's liability insurance.
Nevada Law provides that a corporation may indemnify a director, officer,
employee or agent made, or threatened to be, a party to an action by
reason of the fact that he was a director, officer, employee or agent of
the corporation or was serving at the request of the corporation against
expenses actually and reasonably incurred in connection with such action
if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interest of the corporation, and, with respect
of any criminal action or proceeding, if he had no reasonable cause to
believe his conduct was unlawful. Nevada Law does not permit a
corporation to eliminate a director's duty of care, and the provisions of
the Company's Amended and Restated Certificate of Incorporation have no
effect on the availability of equitable remedies, such as injunction or
rescission, for a director's breach of the duty of care.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE
SECURITIES ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS
CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISION, OR OTHERWISE,
THE COMPANY HAS BEEN INFORMED THAT IN THE OPINION OF THE SECURITIES AND
EXCHANGE COMMISSION SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS
EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
Product Liability.
Although the Company has not experienced any product liability claims
to date, the sale and support of products by the Company may entail the
risk of such claims, and there can be no assurance that the Company will
not be subject to such claims in the future. A successful product
liability claim or claim arising as a result of use of the Company's
products brought against the Company, or negative publicity attendant to
any such claim, could have a material adverse effect upon the Company's
business, operating results and financial condition. The Company intends
to procure product liability insurance with coverage limits of $1,000,000
per occurrence and $1,000,000 per year. While the Company believes that
these amounts are sufficient, there can be no assurance that amounts are
adequate insurance coverage, there can be no assurance that the amount of
insurance will be adequate to satisfy claims made against the Company in
the future, or that the Company will be able to obtain insurance in the
future at satisfactory rates or in adequate amounts.
Safe Harbor Statement.
Statements which are not historical facts, including statements about
the Company's confidence and strategies and its expectations about new and
existing products, technologies and opportunities, market and industry
segment growth, demand and acceptance of new and existing products are
forward looking statements that involve risks and uncertainties. These
include, but are not limited to, product demand and market acceptance
risks, the impact of competitive products and pricing; the results of
financing efforts; the loss of any significant customers of any business;
the effect of the Company's accounting policies; the effects of economic
conditions and trade, legal, social, and economic risks, such as import,
licensing, and, trade restrictions; the results of the Company's business
plan and the impact on the Company of its relationship with its lenders.
Several of the matters discussed in this document contain forward-
looking statements that involve risks and uncertainties. Factors
associated with the forward-looking statements, which could cause actual
results to differ materially from those projected or forecast in the
statements, appear below. In addition to other information contained in
this document, readers should carefully consider the following cautionary
statements and risks factors.
Statements of Financial Accounting Standards No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities (SFAS No. 125) issued by the Financial Accounting Standards
Board (FASB) is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and
is to be applied prospectively. Earlier or retroactive application is not
permitted. The new standards provide accounting and reporting standards
for transfer and servicing of financial assets and extinguishments of
liabilities. The Company does not expect adoption to have a material
effect on its financial position or results of operation.
Statement of Financial Accounting Standards No. 128, (SFAS No. 128),
"earnings Per Share", issued by the Financial Accounting Standards Board
(FASB) is effective for financial statements issued for the period ending
after December 315, 1997, including interim periods. The SAFS 128 requires
restatement of all periods EPS data presented. The new standard also
requires a reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS
computation. The Company has not determined the effect of its EPS
calculation from the adoption of this statement.
Statement of Financial Accounting Standards No. 129 (SFAS No. 129),
"Disclosure of Information about Capital Structure", issued by the
Financial Accounting Standards Board (FASB) is effective for financial
statements issued ending after December 15, 1997. The new standard
reinstates various securities disclosure requirements previously in effect
under Accounting Principles Board Opinion No. 15, which has been
superseded by SFAS No. 129. The Company does not expect adoption of SFAS
No. 129 to have any material effect, if any on its financial position of
operations.
Statement of Financial Accounting Standards No. 130 (SFAS No. 130),
"Reporting Comprehensive Income", issued by the Financial Accounting
Standards Board (FASB) is effective for financial statements issued ending
after December 15, 1997. Earlier application is permitted. SFAS No. 130
establishes certain standards for reporting of comprehensive income and
its components in a full set of general-purpose financial statements. The
Company has not determined the effect on its financial position or results
of operations, if any, from the adoption of this statement.
Statement of Financial Accounting Standards No. 131 (SFAS No. 131),
"Disclosure about Segments of an Enterprise and Related Information",
issued by the Financial Accounting Standards Board (FASB) is effective for
financial statements with fiscal year beginning after December 15, 1997.
The new standard requires that public business enterprises report certain
financial information about operating segments of interim periods issued
to shareholders. It also requires that public business enterprise report
certain information about their products and services, the geographic
areas in which they operate and their major customers. The Company has
not determined the effect on its financial position or results of
operations, if any, from the adoption of this statement.
Speculative Nature of Company's Proposed Plan.
The success of the Company's proposed plan of operation will depend
to a great extent on it management with limited financial resources.
Present funding is expected to be sufficient to sustain the Company's
present operation through June 1999. If profitable business is not
developed quickly, the Company will need outside financing to continue its
operations. There is no assurance that outside financing will be available
to the Company, and if such financing were available that the terms of
such proposed financing would be acceptable to the Company.
Lack of Market Research or Marketing Organization.
The Company has determined on its own that a market demand exists for
the Company's contemplated business. The Company does not have a separate
marketing organization. Present management will market the Company's
products and services on a division basis as they are developed. Even if
demand identified for computer peripheral concepts to be developed by the
Company, there is no assurance the Company will be successful in business.
Lack of Diversification. The Company's proposed operations, even if
successful, will in all likelihood be limited in nature until the Company
obtains additional financing expected to be required in calendar year
2000. The Company's inability to diversify its activities into a number of
areas may subject the Company to economic fluctuations within a particular
specific field, and therefore increase the risks associated with the
Company's operations.
Regulation.
Although the Company will be subject to regulation under the
Securities Exchange Act of 1934, management believes the Company will not
be subject to regulation under the Investment Company Act of 1940, insofar
as the Company will not be engaged in the business of investing or trading
in securities. In the event the Company engages in business combinations
which result in the Company holding passive investment interests in a
number of entities, the Company could be subject to regulation under the
Investment Company Act of 1940. In such event, the Company would be
required to register as an investment company and could be expected to
incur significant registration and compliance costs. The Company has
obtained no formal determination from the Securities and Exchange
Commission as to the status of the Company under the Investment Company
Act of 1940 and, consequently, any violation of such Act would subject the
Company to material adverse consequences.
Lack of Control by Management.
Management of the Company, except for John J. Harwer, Co-Chairman &
Chief Executive Officer and Bill Long Director of Engineering and General
Manager of the ADTX USA division consists of employees "At will".
Therefore, if the Company is not successful, management may be replaced by
the shareholders. Removal of one or more present officers and directors
of the Company and a corresponding reduction in, or elimination of, their
participation in the future affairs of the Company, would have a negative
effect on the business prospects of the Company.
Item 3. Description of Property.
The Company has minimal properties and at this time has no agreements
to acquire any properties. The Company's corporate offices, and the
offices of its subsidiary Bridge R&D, Inc., are located in sublet
facilities at 12601 Monarch Street, Garden Grove, CA. 92841. The Company
is expecting to move into 10,000 square feet of office and warehouse space
to house its corporate and operating divisions at 12601 Monarch Street,
Garden Grove, CA. 92641.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The table below lists the beneficial ownership of the Company's
voting securities by each person known by the Company to be the beneficial
owner of more than 5% of such securities, as well as the securities of the
Company beneficially owned by all directors and officers of the Company.
Unless otherwise indicated, the shareholders listed possess sole voting
and investment power with respect to the shares shown.
Name and Address of Preferred Common %
Title of Class
Beneficial Owner Shares Shares Ownership
- -----------------------------------------------------------------------
James Djen
12601 Monarch Street 100,000 2.5 Common
Garden Grove, CA 92705
John T. Gauthier (1)
10532 Walker St. #B 0 0 Common
Cypress, CA 90630
John J. Harwer (1)
12601 Monarch Street 700,000 14.6 Common
Garden Grove, CA 92841
Tetsuji Aoyagi (1)
2-12-38, Aobadai, Aoba-Ku 200,000 4.9 Common
Yokohama-Shi, Kanagawa-Ken, Japan
Robert Walling, Esq.
3 Park Plaza, Ste. 1735 0 0 Common
Irvine, CA 92714
Hideki Watanabe (1)
4-14-2 Nagatsuda, Midori-Ku 200,000 4.9 Common
Yokohama-Shi, Kanagawa-Ken, Japan
Cayman Computer
Alliance Corporation
4 Park Plaza 16th Fl. 413,206 10.1 Common
Irvine, CA 92623
COMMON
All Officers & 1,200,000 25.53 Common
Directors as a Group (2)
(1) Officer and/or Director of the Company.
(2) The balance of the Company's outstanding Common Shares are held by
more than 1700 persons.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The directors and officers of the Company are as follows:
Name Age Position
John J. Harwer 51 CEO & Co-Chairman of the Board
Tetsuji Aoyagi 45 Co-Chairman of the Board
James Djen 44 President and Director
John T. Gauthier 70 CFO & Director
Robert Walling, Esq. 53 Director
Hideki Watanabe 48 Director
The above listed directors will serve until the next annual meeting of the
shareholders or until their death, resignation, retirement, removal, or
disqualification, or until their successors have been duly elected and
qualified. Vacancies in the existing Board of Directors are filled by
majority vote of the remaining Directors. Officers of the Company serve
at the will of the Board of Directors. There is no family relationship
between executive Officers and Directors of the Company.
RESUMES:
James Djen is President and a Director of the Company since November
2, 1998. From January 1994 to date he is the President and Chairman of
the Board of PTI Enclosures, Inc. a computer peripheral manufacturing
company that the Company owns a 10% interest and is in the process of
attempting to acquire additional shares up to 80%. From June 1985 to 1994
he was a Director and Executive Vice President of CMS Enhancement, a New
York, Stock Exchange firm. Mr. Djen was granted a Bachelor of Science
Degree in Electrical Engineering from National Taiwan University in 1977;
a Master of Science Degree in Electrical Engineering from Connecticut's
Bridgeport University in 1978 and a Master of Science Degree in Electrical
Engineering in 1981 from California State University. Mr. Djen will
devote full time to the Company.
John J. Harwer is Chief Executive Officer of the Company since June
1997 and Co-Chairman of the Board of Directors since April 1998. From
January 1996 to May 1997, Mr. Harwer owned and managed a computer
distribution company, Allied Web Inc. with $35 million in 1996 annual
sales. From May 1994 to April 1996, he was a majority owner of SimmSun,
Inc. a supplier of computer memory and components to the various domestic
and international companies. From January 1990 to May 1994, he was Vice
President of Operations and New Product Development for CMS Enhancements,
a $200 million NYSE computer peripheral company. From 1971 through 1989,
he held senior engineering, marketing and management positions with
several companies in the computer industry including Hewlett-Packard,
Raytheon, Gerber Scientific, PICKER NUCLEAR, GENRAD, Calcomp, etc.. Mr.
Harwer also served as technology consultant to Burroughs (UNISYS), SHARP
USA, GRAPHTEC, HOUSTON INSTRUMENTS, AMTEC and others. He received his
master of Computer Science degree from Charles University, Prague,
Czechoslovakia in 1971. He took graduate studies in Communications at
Northeastern University, Boston, Massachusetts, in addition to two years
of legal training focused on Contracts and Intellectual Property. Later
while working full time he studied law at night with focus on Contracts
and Intellectual Property. He also took advanced studies in Fault Tolerant
Computing and Data Security at UCLA. He also attended MBA courses at
graduate night school of Business at Cal State Fullerton. He has conducted
and participated in numerous management and technology seminars and
conferences. Mr. Harwer devotes full time to the operations of the
Company.
Tetsuji Aoyagi is the Co-Chairman of the Board of Directors of the
Company since April 1998. He is also the President, Chief Executive
Officer and Director of Digital Stream Corporation, a Tokyo, Japan based
R&D company. Mr. Aoyagi has over 17 years experience in Research and
Development of high technology products, especially in the field of
Optical Media Storage and Human Interface field. From 1980 until 1984 he
worked at Thompson Research and Development Corporation, where he was
responsible for all the consumer product developments as a special
Scientific Adviser to the President. In 1985 he founded MOST Corporation
in Los Angeles, California, where he was responsible for 3.5 inch Magneto-
optical disc drive. Mr. Aoyagi became the General Manager and was
responsible for marketing of this Magneto-Optical drive to OEM accounts
until 1987. In1987 he founded Digital Stream Corporation in Yokohama,
Japan where he is responsible for corporate management. Mr. Aoyagi also
served as the Chairman of the Board of Data Stream cooperation, a Joint
Venture organized by the Singapore Government and Creative Technology. Mr.
Aoyagi received his M.Sc. Degree in Optics in 1974 from the State
University of Pennsylvania at Edinboro. Mr. Aoyagi devotes as much time as
possible concurrent with his other responsibilities.
John T. Gauthier is the Chief Financial Officer and Director of the
Company, and he was the Chairman of the Board of Directors from March 1997
until April 1998. He is also the Secretary-Treasurer, Chief Financial
Officer and Director of the Exell Corporation since June 1995. Since 1984
he is the President of Cottesloe Capital Corporation, a due diligence
consulting firm to small businesses. He was Chairman of the Board and
Executive Vice President of Americare International Inc., a small
capitalization public company in the medical field, from January 1990 to
December 1993. Mr. Gauthier was President and Chairman of the Board of
Bond Street Capital Corporation, a small New York-based investment banking
firm, from September 1986 to October 1988. For twelve years Mr. Gauthier
was President and Chairman of the Board of Datronic Engineers Inc., a
small capitalization public company engaged in the design, furnishing and
installation of long range telecommunications systems internationally. For
six years he was Director of Finance and Administration for Northrop
Corporation's subsidiary: Page Communications Engineers, a leading
international telecommunications company. He was a former management
consultant to the Executive Director of the International Monetary Fund of
the World Bank. He was also a Founder and Director of the Free State Bank
and Trust Company in Potomac, Maryland. Mr. Gauthier received a Bachelor
of Science Degree in Finance from Fordham University in 1953 and completed
the MBA program at the Graduate School of Business, George Washington
University in 1957. Mr. Gauthier also completed two years of legal
training at the Georgetown University Law Center in 1959. Mr. Gauthier
devotes as much time as is necessary as the CFO of the Company.
Robert Walling, Esq., is a Director since March 1997. From 1973 until
1975 he was with the legal department of Bank of America, San Francisco,
California. From 1988 until he was a partner at Friedman, Peterson,
Walling & Lau, a Law practice devoted to mortgage banking, real estate,
corporate and tax law. From 1995 Mr. Walling has been in private practice
in Newport Beach, California specializing in mortgage banking, real
estate, corporate law and tax law. Mr. Walling received LLM degree in
taxation from New York University of Law. He also received Juris Doctor
degree from University of California, Hastings College of Law, and
Bachelor of Arts from University of California. Mr. Walling is a Judge Pro
Tem at Harbor Municipal court.Mr. Walling will devote as much time to the
company as may reasonably be required.
Hideki Watanabe is a Director of the Company since April 1998. Mr.
Watanabe is also the current President of NEWCORP TECHNOLOGY LIMITED, a
Tokyo, Japan based electronics technology R&D and sales company that was
acquired by Bridge in September 1997. He graduated from Nihon Physical
Education College in 1972. From 1972 until 1982 he worked for Wakou-Shoji.
From 1983 until 1984 he was the President of Seiei Corporation. In 1995 he
co-founded and became the President of Newcorp Technology Limited, where
he is responsible for international sales and marketing of high technology
products for the company. Mr. Watanabe devotes full time to the Company's
operations in Japan.
Karen Chiu is the designated Controller of the Company, effective
January 1, 1999. Ms. Chiu is the Controller of PTI Enclosures, Inc. since
1994. She acquired her Bachelor of Business Administration Degree from
Providence College in Taiwan in 1975 and her Master of Business
Administration from the University of Missouri in 1978. Ms. Chiu is
expected to devote full time to the Company.
Richard Fox is General Manager of PTI Enclosures, Inc. since 1990.
Mr. Fox worked in various executive capacities over the past ten years,
from President of Sigma Sales 1980 to 1990 and General Manager and Vice
President of operations for Plessey Peripheral Systems 1980 to 1985. Mr.
Fox was awarded a Bachelor's Degree in Electrical Engineering from Utah
State University in 1969 and a Masters Degree in Business Administration
from Iowa University in 1972. Mr. Fox is expected to devote full time to
PTI's operations.
Conflicts of Interest.
Certain members of the Company's management are associated with other
firms involved in a range of business activities. Consequently, there are
potential inherent conflicts of interest in their acting as Officers and
Directors of the Company. Insofar as these officers and directors are
engaged in other business activities, management anticipates they will
devote less than full time to the Company's affairs. The officers and
directors of the Company are now and may in the future become
shareholders, Officers or Directors of other companies that may be formed
for the purpose of engaging in business activities similar to those
conducted by the Company. Accordingly, additional direct conflicts of
interest may arise in the future with respect to such individuals acting
on behalf of the Company or other entities. Moreover, additional
conflicts of interest may arise with respect to opportunities which come
to the attention of such individuals in the performance of their duties or
otherwise. The Company does currently have a right of first refusal
pertaining to opportunities that come to management's attention insofar as
such opportunities may relate to the Company' s proposed business
operations.
The Officers and Directors are, so long as they are Officers or
Directors of the Company, subject to the restriction that all
opportunities contemplated by the Company's plan of operation which come
to their attention, either in the performance of their duties or in any
other manner, will be considered opportunities of, and be made available
to the Company and the companies that they are affiliated with on an equal
basis. A breach of this requirement will be a breach of the fiduciary
duties of the Officer or Director. If the Company or the companies in
which the Officers and Directors are affiliated with both desire to take
advantage of an opportunity, then said Officers and Directors would
abstain from negotiating and voting upon the opportunity. However, all
directors may still individually take advantage of opportunities if the
Company should decline to do so. Except as set forth above, the Company
has not adopted any other conflict of interest policy with respect to such
transactions. Investment Company Act of 1940 Although the Company will be
subject to regulation under the Securities Act of 1934 and the Securities
Exchange Act of 1934, management believes the Company will not be subject
to regulation under the Investment Company Act of 1940 insofar as the
Company will not be engaged in the business of investing or trading in
securities in the event the Company engages in business combinations which
result in the Company holding passive investment interests in a number of
entities, the Company could be subject to regulation under the Investment
Company Act of 1940. In such event, the Company would be required to
register as an investment company and could be expected to incur
significant registration and compliance costs. The Company has obtained no
formal determination from the Securities and Exchange Commission as to the
status of the Company under the Investment Company Act of 1940 and,
consequently, any violation of such Act would subject the Company to
material adverse consequences. The Company's Board of Directors
unanimously approved a resolution stating that it is the Company's desire
to be exempt from the Investment Company Act of 1940 via Regulation 3a-2
thereto.
Item 6. Executive Compensation.
The Company has entered into a five-year employment contract with
John J. Harwer effective June 1, 1997 as its CEO at an
annual salary of $200,000, with Mr. Harwer having the election to take up
to 50% of his salary in Common Stock of the Company at fair market value
at the time of the election. To date no compensation has been taken in
common stock. Should Mr. Harwer ever make this election additional
compensation will be recorded for the difference between fair value and
book value of stock issued under salary. In 1997 Mr. Harwer received
$56,000.03 representing less than 31% of his remuneration per employment
contract. Mr. Harwer agreed to waive the balance due including unpaid
fringe benefits for the year 1997. No other officers or Directors receive
any compensation for their respective services rendered to the Company,
and none have received such compensation in the past.
No retirement, pension, profit sharing or insurance programs or other
similar programs have been adopted by the Company for the benefit of its
employees, except for the Company's Incentive Stock Option Plan.
Item 7. Certain Relationships and Related Transactions.
There have been no other related party transactions, or any other
transactions or relationships required to be disclosed pursuant to Item
404 of Regulation except as disclosed in the Notes to the financial
statements.
Item 8. Legal Proceedings.
There is no litigation pending or threatened by or against the
Company.
Item 9. Market Price for Common Equity and Related Stockholder Matters.
There is no trading market for the Company's Common Stock at present
and there has been no trading market for at least the past 10 years.
Management has not undertaken any discussions, preliminary or otherwise,
with any prospective market maker concerning the participation of such
market maker in the market for the Company's securities except that the
Company has recently received tentative approval for the stock symbol BRDG
from the OTC Bulletin Board. Management does not intend to initiate any
such discussions until such time as the Company has become a fully
reporting company, on a voluntary basis, with the SEC and has filed all
the Financial Statements and disclosure documents. There is no assurance
that a trading market will ever develop or, if such a market does in fact
develop, that it will continue.
a. Market Price. The Company's Common Stock is not quoted at the
present time. Effective August 11, 1993 the Securities and Exchange
Commission adopted Rule 15g-9, which established the definition of a
"penny stock", for purposes relevant to the Company, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt,
the rules require: (i) that a broker or dealer approve a person's account
for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement to the transaction, setting forth
the identity and quantity of the penny stock to be purchased. In order to
approve a person's account for transactions in penny stocks, the broker or
dealer must (i) obtain financial information and investment experience and
objectives of the person; and (ii) make a reasonable determination that
the transactions in penny stocks are suitable for that person and that
person has sufficient knowledge and experience in financial matters to be
capable of evaluating the risks of transactions in penny stocks. The
broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prepared by the Commission relating to the
penny stock market, which, in highlight form, (i) sets forth the basis on
which the broker or dealer made the suitability determination; and (ii)
that the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny
stock in both public offering and in secondary trading, and about
commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and the rights and
remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing
recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
The Company eventually expects to qualify for listing on the NASDAQ
National Market System upon completion of its operation for the fiscal
year ending December 31, 1999. In the interim, and after the Company has
become a reporting company with the SEC, the Company expects to be listed
on the OTC Bulletin Board, the electronic inter-dealer quotation system
operated by the NASD for securities not quoted on NASDAQ under the symbol
BRDG. Management's plans are to develop the Company to a level which will
allow the Company's securities to be traded within the aforesaid
limitations. However, there can be no assurances that the Company will
ever qualify its securities for listing on NASDAQ or some national
exchange, or be able to maintain the maintenance criteria necessary to
insure continued listing. The failure of the Company to qualify its
securities or to meet the relevant maintenance criteria after such
qualification in the future, may result in the discontinuance of the
inclusion of the Company's securities on a National Exchange. In such
events, trading, if any, of the Company's securities may then continue in
the non-NASDAQ Over-the- Counter (OTC) Bulletin Board. As a result a
shareholder may find it more difficult to dispose of, or to obtain
accurate quotations as to the market value, of the Company's securities.
b. Shareholders. There are more than 1,700 shareholders of record of
the Company's Common Stock.
c. Dividends. The Company has not paid any dividends to date on the
Common Stock and has no plans to do so in the immediate future.
Item 10. Recent Sales of Unregistered Securities.
The Company sold 500 shares of Preferred Stock to five "accredited
investors"
for $100.00 cash per share
in April, 1997 which were ultimately converted into 100,000 shares of
common stock of the Company in September 1998. In addition the Company
sold 3,250,000 shares of its Common Stock in a Private Placement for cash
to the following 17 "accredited investors" for $0.50 per share for a
total of $1,625,000. No underwriters were used in the Private Placement
and no commissions were paid, either directly or indirectly to anyone, and
no discounts were given to any investor.
COMMON STOCK
DATE: NAME: SHARES: PRICE/SHARE: TOTAL:
06/30/1997 Harwer, John J. 100,000 $0.50 $50,000
09/23/1997 Harwer, John J. 300,000 0.50 150,000
12/31/1997 Harwer, John J. 300,000 0.50 150,000
06/30/1997 Cheng, Edwin 150,000 0.50 75,000
09/23/1997 Liu Han Hsing 60,000 0.50 30,000
09/23/1997 Hiroshi Watanabe 60,000 0.50 30,000
07/18/1997 Golden Excel 200,000 0.50 100,000
12/31/1997 Perimeter Holding Ltd 200,000 0.50 100,000
12/31/1997 Liu Han Huei 50,000 0.50 25,000
12/31/1997 Fan Hung Ta 130,000 0.50 65,000
12/31/1997 Djen, James 300,000 0.50 150,000
12/31/1997 DoTop Lo 50,000 0.50 25,000
12/31/1997 Cayman Computer Corp. 400,000 0.50 200,000
12/31/1997 Winston Gu 70,000 0.50 35,000
12/31/1997 Chin Lan Lee 30,000 0.50 15,000
12/31/1997 Watanabe, Hideki 150,000 0.50 75,000
12/31/1997 Watanabe, Hiroshi 150,000 0.50 75,000
12/31/1997 Aoyagi, Tetsuji 300,000 0.50 150,000
12/31/1997 Gheude, Michel 200,000 0.50 100,000
TOTAL SHARES SUBSCRIBED: 3,250,000 0.50 $1,625,000
NOTE: As of November 13, 1998 all subscriptions have been paid in cash.
In addition in connection with the acquisition of NEWCORP TECHNOLOGY LTD.,
the Company issued 100,000 shares of restricted common stock to the
following individuals: Hideki Watanabe 50,000 shares, Hiroshi Watanabe
50,000 shares. The Company also issued 50,000 shares of its common stock
to Bill Long for $25,000 cash in connection with his employment as Senior
Engineer of the ADTX division of the Company. Some of the shares of
Common Stock of the Company previously issued during the period from 1969
through December 31, 1970 have been issued for investment purposes in a
"private transaction" and are "restricted" shares as defined in Rule 144
under the Securities Act of 1934, as amended (the "Act"). These shares may
not be offered for public sale except under Rule 144, or otherwise,
pursuant to the Act. As of the date of this report and except for recent
sales of securities, all of the restricted shares issued and outstanding
of the Company's Common Stock are eligible for sale under Rule 144 or Rule
145 promulgated under the Securities Act of 1934, as amended, subject to
certain limitations included in the said Rules.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has satisfied a one year holding period, under certain
circumstances, may sell within any three-month period a number of shares
which does not exceed the greater of one percent of the then outstanding
Common Stock or the average weekly trading volume during the four calendar
weeks prior to such sale. Rule 145 also permits, under certain
circumstances, the sale of shares without any quantity limitation by a
person who has satisfied a three-year holding period and who is not, and
has not been for the preceding three months, an affiliate of the Company.
Any sales made under Rule 144 or Rule 145 could have a depressive effect
on any market of the Company's shares that may develop.
Item 11. Description of Securities.
The Company is authorized to issue 10, 000, 000 shares of Common
Stock, par value $0.01 per share and 500 shares of Preferred Stock, stated
value $1.00 per share and hereby registers 756,240 shares of Common Stock
previously issued by the Company and the underlying 100,000 shares of
Common Stock issued in the conversion of the Preferred Stock. In March
1997, the Company's Board of Directors authorized a reverse split of the
Company's issued and outstanding common stock, whereby one share of Common
Stock was issued for every two shares of Common Stock issued and
outstanding. See enclosed "Financial Statements." Thereafter in April
1997, the Company sold 500 shares of Preferred Stock at $1.00 stated value
per share for $50,000 to five "accredited investors", the Preferred Shares
were converted into 100,000 shares of common stock in September 1998. Each
share of Preferred Stock is convertible into 200 shares of Common Stock.
The Preferred Stock accrues a 6% dividend per annum on a quarterly basis.
The Company's presently 4,256,420 shares of Common Stock issued and
outstanding are held by approximately 1700 of record.
Common Stock.
All shares of Common Stock have equal voting rights and, when validly
issued and outstanding, are entitled to one vote per share in all matters
to be voted upon by shareholders. The shares of Common Stock have no
preemptive, subscription, conversion or redemption rights and may be
issued only as fully paid and non-assessable shares. Cumulative voting in
the election of directors is not permitted, which means that the holders
of a majority of the issued and outstanding shares of Common Stock
represented at any meeting at which a quorum is present will be able to
elect the entire Board of Directors if they so choose and, in such event,
the holders of the remaining shares of Common Stock will not be able to
elect any Directors. In the event of liquidation of the Company, each
shareholder is entitled to receive a proportionate share of the Company's
assets available for distribution to shareholders after the payment of
liabilities and after distribution in full of preferential amounts, if
any. All shares of the Company's Common Stock issued and outstanding are
fully-paid and non-assessable. Holders of the Common Stock are entitled
to a pro-rata share in dividends and distributions with respect to the
Common Stock, as may be declared by the Board of Directors out of funds
legally available therefor.
Preferred Shares.
Shares of Preferred Stock may be issued from time to time in one or
more Series as may be determined by the Board of Directors. The voting
powers and preferences, the relative rights of each such Series and the
qualifications, limitations and restrictions thereof shall be established
by the Board of Directors, except that no holder of Preferred Stock shall
have preemptive rights. At present the Company has 500 preferred shares
authorized and none outstanding.
Warrants.
The Company has authorized the issuance of up to 1,000,000 Warrants
to purchase the common stock of the Company. These Warrants may be issued
from time to time in one or more classes and at various redeemable prices
as may be determined by the Board of Directors.
Item 12. Indemnification of Directors and Officers.
Article 9 of the Articles of incorporation of the Company, as
amended, sets forth certain indemnification rights. The Articles of
incorporation of the Company provide that the Company shall possess and
may exercise all powers of indemnification of officers, directors,
employees, agents and other persons and all powers and authority
incidental thereto. The Company's Board of Directors is authorized and
empowered to exercise all of the Company's powers of indemnification
without shareholder action. The assets of the Company could be used or
attached to satisfy any such liabilities subject to such indemnification.
See: "Cautionary Statements and Risk Factors".
Item 13. Financial Statements
<PAGE>
Bridge Technology, Inc. and Subsidiaries
-----------------------
Report on Audited Consolidated Financial Statements
For the Years Ended December 31, 1996 and 1997
-----------------------
<PAGE>
Bridge Technology, Inc. and Subsidiaries
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements
Balance Sheets F-3
Statements of Operations F-4
Statements of Shareholders' Equity F-5
Statements of Cash Flows F-6
Summary of Accounting Policies F-7
Notes to Financial Statements F-11
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Shareholders of
Bridge Technology, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Bridge
Technology, Inc. (a Nevada corporation) and subsidiaries as of December
31, 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for the year ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bridge
Technology, Inc. and subsidiaries as of December 31, 1997 and the results
of their operations and their cash flows for the year ended December 31,
1997 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Los Angeles, California
June 15, 1998
F-2
<PAGE>
Bridge Technology, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1997
- --------------------------------------------------------------------------
<S> <C>
ASSETS
Current assets:
Cash $ 55,032
Accounts receivable (Note 6) 1,614,622
Subscription receivable (Note 7) 1,150,000
Other receivables (Note 6) 96,941
Inventory 98,717
Other current assets 21,085
- -------------------------------------------------------------------------
Total current assets 3,036,397
- -------------------------------------------------------------------------
Property and equipment, net (Note 1) 94,085
Trademark, net of amortization of $4,550 3,800
Insurance receivable 21,903
Deferred income tax 54,580
Other assets 24,900
- --------------------------------------------------------------------------
Total assets $ 3,235,665
=========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable (Note 6) $ 1,506,014
Notes payable (Note 4) --
Accrued liabilities 16,857
Loans payable (Notes 3 and 6) 302,115
Other liabilities (including $2,176 income tax payable) 14,654
- -------------------------------------------------------------------------
Total current liabilities 1,839,640
- -------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 10)
SHAREHOLDERS' EQUITY (Notes 6 and 7):
Convertible, cumulative and redeemable preferred stock, $1 stated
value per share, 500 shares authorized and outstanding,
redeemable at $50,000 50,000
Common stock; par value $0.01 per share, authorized 10,000,000
shares, 856,240 shares outstanding at December 31, 1996,
1,606,240 shares outstanding at December 31, 1997 16,062
Additional paid-in capital 742,560
Stock subscribed 1,150,000
Accumulated deficit (559,154)
Translation adjustment (3,443)
- -------------------------------------------------------------------------
Total shareholders' equity 1,396,025
- -------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 3,235,665
=========================================================================
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-3
<PAGE>
Bridge Technology, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended 12/31/1996 12/31/1997
- --------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Net sales (Notes 6 and 8) $ 2,213,330 $ 4,414,001
Cost of sales 1,932,695 3,786,603
- -------------------------------------------------------------------------
Gross profit 280,635 627,398
Selling, general and administrative expense 322,763 764,120
- -------------------------------------------------------------------------
Loss from operations (42,128) (136,722)
Other income (expense):
Interest (expense) income, net (5,333) (10,943)
Other income (expense) 1,269 (36,635)
- -------------------------------------------------------------------------
Loss before income taxes (46,192) (184,300)
Income taxes provision (Note 2) 644 (27,778)
- -------------------------------------------------------------------------
Net loss (46,836) (156,522)
Dividends applicable to preferred stock -- (1,500)
- -------------------------------------------------------------------------
Net loss applicable to common shares $ (46,836) $ (158,022)
=========================================================================
Weighted average number of common stock outstanding 856,240 1,160,624
=========================================================================
Basic earnings per share $ (0.05) $ (0.14)
=========================================================================
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-4
<PAGE>
Bridge Technology, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
For the Years Ended December 31, 1995, 1996, and 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------- ----------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
- -------------------------------------------------------------------------
- -
<S> <C> <C> <C> <C> <C> <C>
Balance, Jan. 1, 1996 -- $ -- 856,240 $8,562 $375,060 $(354,298)
(unaudited)
Translation adjustment -- -- -- -- -- --
(unaudited)
Net loss (unaudited) -- -- -- -- -- (46,836)
- -------------------------------------------------------------------------
Balance 12/31/1996 -- -- 856,240 8,562 375,060 (401,132)
Issuance of preferred
stock on April 1, 1997 500 50,000 -- -- -- --
(Note 7)
Issuance of common stock
(Note 7) -- -- 750,000 7,500 367,500 --
Stock subscribed -- -- -- -- -- --
Net loss -- -- -- -- -- (156,522)
Dividends paid -- -- -- -- -- (1,500)
Translation adjustment -- -- -- -- -- --
- ----------------------------------------------------------------------
BALANCE 12/31/1997 500 $50,000 1,606,240 $16,062 $742,560 $(559,154)
</TABLE>
<TABLE>
<CAPTION>
Stock Translation
Subscription Adjustment Total
- -----------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE 1/1/1996 $ -- $ (1,102) $ 28,222
(unaudited)
Translation adjustment -- (5,830) (5,830)
(unaudited)
Net loss (unaudited) -- -- (46,836)
- -----------------------------------------------------------------------
BALANCE 122/31/1996 -- (6,934) (24,444)
Issuance of preferred
stock on April 1, 1997 -- -- 50,000
(Note 7)
Issuance of common stock
(Note 7) -- -- 375,000
Stock subscribed 1,150,000 -- 1,150,000
Net loss -- -- (156,522)
Dividends paid -- -- (1,500)
Translation adjustment -- 3,491 3,491
- -----------------------------------------------------------------------
BALANCE 12/31/1997 $ 1,150,000 (3,443) $ 1,396,025
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-5
<PAGE>
Bridge Technology, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease ) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Year end 12/31/ 1996 1997
- -----------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (46,836) $(158,022)
Adjustments to reconcile net loss
to net cash provided by
(used in) operating activities:
Depreciation and amortization 5,055 41,972
Provision for doubtful accounts (1,195) 1,645
Loss on disposal of fixed assets 423 --
Increase (decrease) from changes in operating
assets and liabilities:
Trade receivables (393,519) (946,555)
Inventory -- (98,717)
Other receivables (39,414) (54,936)
Prepaid and other assets (2,571) (18,304)
Other assets -- (101,383)
Accounts payable and accrued liabilities 576,289 825,169
Other liabilities 586 3,770
- -----------------------------------------------------------------------
Net cash provided by
(used in) operating activities 98,818 (505,361)
- -----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property,
plant and equipment (40,279) (92,993)
Intangible assets -- (7,800)
Proceeds from sale of property,
plant and equipment 487 --
- -----------------------------------------------------------------------
Net cash used in investing activities (39,792) (100,793)
- -----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on loans payable 165,500 479,476
Payments on loans payable -- (380,793)
Payments on notes payable
and related interest -- (52,227)
Net proceeds from issuance
of preferred stock -- 50,000
Net proceeds from issuance
of common stock -- 375,000
- -----------------------------------------------------------------------
Net cash provided by
financing activities 165,500 471,546
- -----------------------------------------------------------------------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (24,348) (35,519)
- -----------------------------------------------------------------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 200,178 (170,217)
CASH AND CASH EQUIVALENTS,
beginning of year 25,071 225,249
- -----------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
end of year $ 225,249 $ 55,032
=======================================================================
CASH PAID DURING THE YEAR FOR
Interest 1,781 33,051
Income taxes $ 663 $ 570
=======================================================================
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
F-6
<PAGE>
Bridge Technology, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease ) in Cash and Cash Equivalents
In November 1997, the Company issued 100,000 shares of common stock to
acquire 100% ownership of Newcorp Technology Limited located in Japan.
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-7
<PAGE>
Bridge Technology, Inc. and Subsidiaries
Summary of Accounting Policies
BASIS OF PRESENTATION
Bridge Technology, Inc. (formerly "Land Acquisition and Nevada Development
Corporation (the "Company") was organized under the laws of the State of
Nevada on April 15, 1969 to conduct real estate business. The Company was
unsuccessful in its real estate business accumulating losses in excess of
$280,000 and operations ceased in 1972 and prior management kept the
Company inactive.
During April 1997, Cayman Computer Alliance Corporation purchased control
of the Company from prior management in a private transaction. After this
transaction, the name of Land Acquisition and Nevada Development
Corporation was changed into Bridge Technology, Inc. At present, the
Company is located in California and is primarily engaged in development
and distribution of various hardware, software, and peripheral products
used in computer systems and sales to value added resellers and system
integrators.
On November 1, 1997, the Company exchanged 100,000 shares of its common
stock for 100% of issued and outstanding common shares of Newcorp
Technology Limited, a research and development corporation organized under
the laws of Japan. This transaction was accounted for as a pooling of
interest transaction.
As of December 31, 1997 the Company has two wholly-owned subsidiaries. The
domestic one was formed in April 1997 and commenced operation on June 1,
1997 with the name of Bridge R&D, Inc. The other is Newcorp Technology
Limited, which started operation in Japan on January 19, 1995.
UNAUDITED INFORMATION
The information for the year ended December 31, 1996 is unaudited.
BASIS OF ACCOUNTING
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
which include the accounts of the Company and its subsidiaries. All
significant inter-company accounts and transactions have been eliminated
in consolidation. The consolidated financial statements are presented in
U.S. dollars.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
During the normal course of business, the Company extends unsecured credit
to its customers who are located in various geographical areas. Typically
credit terms require payment made by thirtieth day following the sale. The
Company evaluates and monitors the creditworthiness of each customer on a
case-by-case basis. The Company provides an allowance for doubtful
accounts based on its continuing evaluation of its customers' credit risk.
The Company does not require collateral from its customers. The Company
maintains its cash accounts at credit worthy financial institutions.
F-8
<PAGE>
Bridge Technology, Inc. and Subsidiaries
Summary of Accounting Policies
INVENTORIES
Inventories consist principally of microcomputer component parts and are
stated at the lower of cost (first-in, first-out) or market.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial position and results of operations of the Company's foreign
subsidiary are determined using local currency as the functional currency.
Assets and liabilities of the subsidiary are translated at the prevailing
exchange rate in effect at each year end. Contributed capital accounts are
translated using the historical rate of exchange when capital is injected.
Income statement accounts are translated at the average rate of exchange
during the year. Translation adjustments arising from the use of different
exchange rates from period to period are included in the cumulative
translation adjustment account in shareholders' equity. Gains and losses
resulting from foreign currency transactions are included in operations.
The exchange rates as of December 31, 1996 and 1997 are $1 = 116.07 yen
and 132.40 yen, respectively. The average rate of exchange during 1996 and
1997 are $1 = 108.7611 yen and 121.6015 yen, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed primarily utilizing the straight-line method
over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
Estimated Useful
Life (in Years)
----------------
<S> <C>
Computer equipment 7
Furniture, fixtures and equipment 7
Vehicles 5
</TABLE>
Maintenance, repairs and minor renewals are charged directly to expense as
incurred. Additions and betterment to property and equipment are
capitalized. When assets are disposed of, the related cost and accumulated
depreciation thereon are removed from the accounts and any resulting gain
or loss is included in the income statements.
REVENUE RECOGNITION
The Company recognizes revenue when the risk of loss for the product sold
passes to the customer and any right of return can be quantified, which is
generally when goods are shipped.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, trade accounts receivable, notes receivable,
trade accounts payable and accrued payable are reasonable estimates of
their fair value because of the short maturity of these items. The
carrying amounts of the Company's credit facilities approximate fair value
because the interest rates on these instruments are subject to change with
market interest rate.
F-9
<PAGE>
Bridge Technology, Inc. and Subsidiaries
Summary of Accounting Policies
USE OF ESTIMATES
The preparation of financial statements in conformity with US generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Among the more significant estimates included
in these financial statements are the estimated allowance for doubtful
accounts receivable and the deferred income tax asset allowance. Actual
results could differ from those estimates.
INCOME TAXES
The Company accounts for income taxes using the liability method, which
requires an entity to recognize deferred tax liabilities and assets.
Deferred income taxes are recognized based on the differences between the
tax bases of assets and liabilities and their reported amounts in the
financial statements which will result in taxable or deductible amounts in
future years. Further, the effects of enacted tax laws or rate changes are
included as part of deferred tax expenses or benefits in the period that
covers the enactment date. A valuation allowance is recognized if it is
more likely than not that some portion, or all of, a deferred tax asset
will not be realized.
EARNINGS PER SHARE
In 1997, Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No.
128). SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any diluted
effects of options, warrants, and convertible securities. Diluted earnings
per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have
been presented and, where applicable, restated to confirm to the
requirements of SFAS No. 128.
NEW ACCOUNTING PRONOUNCEMENTS NOT ADOPTED YET
In June 1997, Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS No. 130), which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as components
of comprehensive income be reported in a financial statements that is
displayed with the same prominence as other financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS No. 131)
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," establishes standards for the way that public enterprises
report information about operating segments in interim financial
statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. (SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance.
F-10
<PAGE>
Bridge Technology, Inc. and Subsidiaries
Summary of Accounting Policies
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Due to the recent issuance
of these standards, management has been unable to fully evaluate the
impact, if any, they may have on future financial statement disclosures.
F-11
<PAGE>
Bridge Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1. PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment consists of:
<TABLE>
<CAPTION>
December 31, 1997
- -----------------------------------------------------------------------
<S> <C>
Furniture, fixtures and equipment $ 44,380
Vehicles 34,856
Computer equipment 53,909
- -----------------------------------------------------------------------
Subtotal 133,145
Accumulated depreciation and amortization (39,060)
- -----------------------------------------------------------------------
Property, plant and equipment, net $ 94,085
=======================================================================
</TABLE>
NOTE 2. INCOME TAXES
The provision for taxes on income is as follows:
<TABLE>
<CAPTION>
December 31, 1996 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Current
Federal $ -- $ --
State 1,600
Japan 644 576
- -----------------------------------------------------------------------
Total current 644 2,176
- -----------------------------------------------------------------------
Deferred
Federal -- --
State -- --
Japan -- (29,954)
- -----------------------------------------------------------------------
Total deferred -- (29,954)
- -----------------------------------------------------------------------
Total $ 644 $(27,778)
=======================================================================
</TABLE>
F-12
<PAGE>
Bridge Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Net deferred tax assets consist of the following and the Company has
provided for U.S. tax purposes valuation allowances to offset the benefit
of any net operating loss carry-forwards or deductible temporary
differences.
<TABLE>
<CAPTION>
December 31, 1997
- ------------------------------------------------------------------------
<S> <C>
Domestic (U.S.)
Deferred tax assets:
Net operating loss carry-forwards $ 9,405
- ------------------------------------------------------------------------
Total deferred tax assets 9,405
Valuation allowance (9,405)
- ------------------------------------------------------------------------
Net deferred tax assets --
Foreign (Japan)
Deferred tax assets:
Net operating loss carry-forward 49,480
Accrued liabilities 5,100
- ------------------------------------------------------------------------
Net deferred tax assets $ 54,580
========================================================================
</TABLE>
A 100% valuation allowance was provided at December 31, 1997 for the U.S.
company, since the Company cannot determine at this time, with reasonable
certainty, that the net deferred tax assets will be realized. No valuation
allowance was provided at December 31, 1997 for the foreign (Japan)
deferred tax assets.
At December 31, 1997, the Company has available net operating loss
carryforwards of approximately $62,700 for U.S. income tax purposes which
expire in varying amounts through 2012. Section 382 of the 1986 Internal
Revenue code imposes limitations on the use of net operating losses
following certain changes in ownership. Such a change occurred during
April 1997. The annual limitation imposed by Section 382 is approximately
zero. The net operating losses affected by Section 382 is approximately
$3,600 of the $62,700 available net operating losses. The remaining
$59,100 of net operating loss carryforwards are not affected by this
limitation.
NOTE 3. BANK LOANS
Bank loans consist of short-term borrowings occurred in Japan. As of
December 31, 1997 and 1996, the average interest rates are 1.86% and
1.875% per annum, respectively. Short-term bank borrowings as of December
31, 1997 were guaranteed by the Chief Executive Officer of Newcorp
Technology Limited, a Japanese wholly-owned subsidiary of the Company.
F-13
<PAGE>
Bridge Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 4. NOTES PAYABLE
In the fall of 1990, the Company issued a total of $30,000 demand notes
with interest at 12% per annum to four individual shareholders in order to
finance legal, consulting and accounting expenses in connection with a
merger that occurred in 1990. As of December 31, 1996, the total
accumulated unpaid interest expenses amounted to $22,227. These notes and
related interest were paid using the proceeds received by the Company from
new issuance of preferred stock and common stock during the year ended
December 31, 1997.
NOTE 5. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company shares office space with a related party on a monthly basis.
The U.S. based wholly-owned subsidiary leases the office building from an
independent party on a monthly basis. The Company does not plan to renew
its lease.
Future minimum rental payments are as follows:
<TABLE>
<CAPTION>
Year ending December 31, Amount
- -----------------------------------------------------------------------
<S> <C>
1998 $ 35,273
1999 9,063
- -----------------------------------------------------------------------
$ 44,337
=======================================================================
</TABLE>
Total rental expense for each year ended December 31, 1996 and 1997, was
$15,469 (unaudited) and $29,777, respectively.
The Company entered into a five-year employee contract with an officer of
the Company and its U.S. based subsidiary. The annual base salary started
at $200,000 commencing June 1, 1997 and shall increase by 10% of the
amount paid in the prior year on each anniversary thereafter. The officer
has the right of receiving up to fifty percent of his base salary on an
annual basis in the form of common stock of the Company at fair market
value. The employment contract is automatically renewable after the five-
year period is ended for unlimited additional terms of three years each.
However, in 1997 the officer decided to waive his compensation by 50%.
NOTE 6. RELATED-PARTY TRANSACTIONS
In the ordinary course of business, the Company engaged in transactions
with Allied Web, Inc. The President of the Company and major shareholder
is also the owner and President of Allied Web, Inc. Sales to and purchases
from Allied Web, Inc. for the year ended December 31, 1997 amounted to
$1,068,628 and $1,061,373 respectively. The Company also has a receivable
in the amount of $35,000 due from Allied Web, Inc. for advances to its
President.
F-14
<PAGE>
Bridge Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Company purchased certain operating assets (principally computer
equipment, furniture and fixture, vehicles, and inventory) from a related
party in June, 1997. The purchase was recorded by using net book value of
$191,640.
Included in the accompanying consolidated cash flow statements are
repayment of $52,227 to related parties for notes payable and
corresponding accumulated interest during year ended December 31, 1997. On
November 13, 1996, the Company's foreign subsidiary borrowed $165,500 from
one of its directors at an interest rate of 4% per annum. The loan was
completely repaid on June 20, 1997.
The Company entered into a consulting services agreement on a month to
month basis, effective July 1, 1997 with Cottlesloe Capital Corporation
for $3,000 per month. John T. Gauthier, the Company's treasurer and CFO,
is a principal of Cottlesloe Capital Corporation.
In the ordinary course of business, the Company's wholly-owned foreign
subsidiary engaged in transactions with Digital Stream Corporation ("DSC")
and Seiei Limited ("SL"). The Company's foreign subsidiary has a director
and/or major shareholder in both DSC and SL. DSC leases office space to
the Company's foreign subsidiary and is entrusted with the Company's
foreign subsidiary's administrative affairs until December, 1996.
<TABLE>
<CAPTION>
Year ending December 31, 1996 1997
- ------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Seiei Limited ("SL):
Sales $ 18,941 $ --
Digital Stream Corporation ("DSC"):
Purchases $475,814 $ 6,168
Rent 15,469 9,377
Administration fee 16,550 --
========================================================================
</TABLE>
NOTE 7. SHAREHOLDERS' EQUITY
In April, 1997 the Company issued 500 shares of preferred stock which has
a stated value of $1 per share, for net proceeds of $50,000. Among these
500 shares of preferred stock, 150 shares were issued to an officer. The
preferred stock is convertible at 1 share of preferred stock to 200 shares
of common stock, with quarterly dividend accumulated at 6% per annum, and
redeemable at the Company's option for $100 per share at any time after
December 31, 1998.
In April, 1997 the Company affected a two for one reverse stock split.
Consequently, 1,512,368 shares of common stock outstanding were exchanged
for 756,420 shares of common stock. The weighted average number of common
shares outstanding and earnings per share for the years ended December 31,
1996 and 1997 have been retroactively restated.
In June 1997, the Company issued 750,000 shares of common stock for $.50
per share. Among the 750,000 shares of common stock issued, 400,000 shares
were issued to an officer.
F-15
<PAGE>
Bridge Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
In November, 1997, the Company issued 100,000 shares of common stock to
acquire 100% of Newcorp Technology Limited, a research and development
corporation organized under the laws of Japan. The transaction was
accounted for as a pooling of interest transaction, therefore, the
statement of operation for the years ended December 31, 1996 and 1997 have
been retroactively restated to include all activities of Newcorp
Technology Limited. The results of operation of the Companies before the
acquisition took place are as follows:
<TABLE>
<CAPTION>
Net
Income
Revenue (Loss)
- -----------------------------------------------------------------------
<S> <C> <C>
BRIDGE TECHNOLOGY, INC.
December 31, 1996 $ -- $ (3,600)
January 1 to October 31, 1997 1,258,162 (27,405)
NEWCORP TECHNOLOGY, LTD
December 31, 1996 (unaudited) 2,213,330 (43,236)
January 1 to October 31, 1997 2,289,531 (31,401)
=======================================================================
</TABLE>
On December 31, 1997, the Company received fifteen subscriptions of common
stock for a total of 2,500,000 shares for $.50 per share. Among the
2,500,000 shares of common stock subscribed 300,000 shares were subscribed
for by an officer. Subsequent to December 31, 1997, the Company received
$1,150,000 of the subscription receivable and issued 2,300,000 shares of
common stock subscribed.
NOTE 8. MAJOR CUSTOMER
The Company had one customer which accounted for 13% of the Company's non-
related party sales for the year ended December 31, 1997.
NOTE 9. STOCK OPTION BONUS PLAN
In April, 1997 the Company established an incentive stock option plan to
grant a total of one million shares of common stock to designated
employees and executive officers of the Company. The exercise price of the
option shall not be less than the fair market price of the Company's
common stock at the date the option was granted. Other detailed terms of
the option plan are subject to the further decisions of the Board of
Directors of the Company. No options have been granted to date.
F-16
<PAGE>
Bridge Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of May 7, 1998, the Company plans on moving its facility to a new
location with the intention of signing a new lease. The move is expected
to be in August of 1998. Terms of the new lease are not determined yet.
On July 8, 1998 the Board of Directors has approved in principal a
proposal for a top management Bonus Plan (the Plan) payable in common
stock warrants. The Board plans to direct the issue of the annual bonus
warrants based on a minimum yearly increase of 100% in the Company's
annual sales and net earnings, with the number and actual price of the
warrants to be fixed on the date of actual warrant awarded. The Board
recommended that 500,000 warrants be set aside for this Bonus Plan and
that the Plan be presented to the shareholders for ratification and
approval at the next shareholders meeting.
NOTE 10. SUBSEQUENT EVENTS
As of May 7, 1998, the Company plans moving its facility to a new location
with the intention of signing a new lease. The move originally expected to
be in August of 1998 has been delayed due to construction scheduling until
on or about December 31, 1998. The lease terms are not yet determined.
On July 8, 1998 the Board of Directors has approved in principal a proposal
for top management Bonus Plan (the Plan) payable in common stock warrants.
The Board plans to direct the issue of the annual bonus warrants based on a
minimum yearly increase of 100% in the Company's annual sales and net
earnings, with the number of shares to be fixed on the date of the actual
warrant awarded. The Board recommended that 500,000 warrants be set aside
for this Bonus Plan and that the Plan be presented to the shareholders for
ratification and approval at the next shareholders meeting.
<TABLE>
<S> <C> <C>
December 31, June 30,
1997 1998
(Audited) (Unaudited)
Assets:
Current assets:
Cash $ 55,032 $ 132,041
Accounts receivable 1,614,622 1,656,672
Subscription receivable 1,150,000 500,000
Other receivables 96,941 56,880
Inventory 98,717 286,753
Other current assets 21,085 97,451
Total current assets 3,036,397 2,729,797
Property and equipment, net 94,085 108,007
Trademark, net of amortization
of $4,550 and $7,800 3,800 550
Insurance receivable 21,903 --
Deferred income tax 54,580 --
Investment in PTI -- 150,000
Other assets 24,900 31,000
Total assets $3,235,665 $3,019,354
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,506,014 $ 1,369,337
Accrued liabilities 16,857 9,012
Loans payable 302,115 271,169
Dividends payable -- 2,250
Other liabilities 14,654 76,493
Total current liabilities 1,839,640 1,728,261
Loans payable, less current maturities -- 144,624
Commitments and Contingencies
Shareholders' equity
Convertible, cumulative and redeemable
preferred stock, $1 stated value per share,
500 shares authorized and outstanding,
redeemable at $50,000 50,000 50,000
Common stock; par value $0.01 per share,
authorized 10,000,000 shares, 1,606,240
shares outstanding at December 31, 1997,
3,106,240 shares outstanding at June 30,
1998 16,062 31,062
Additional paid-in capital 742,560 1,477,560
Stock subscribed 1,150,000 500,000
Accumulated deficit (559,154) (880,681)
Translation adjustment (3,443) (31,472)
Total shareholders' equity 1,396,025 1,146,469
Total liabilities and shareholders' equity $3,235,665 $3,019,354
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
<TABLE>
<S> <C> <C>
Six Months Six Months
Ended June Ended June
30, 1997 30, 1998
(Unaudited) (Unaudited)
Net sales $1,985,511 $1,811,608
Cost of sales 1,824,960 1,600,089
Gross profit 160,551 211,519
Selling, general and administrative expense 284,669 511,694
Loss from operations (124,118) (300,175)
Other income (expense):
Interest (expense) income, net (8,367) (13,730)
Other income (expense) 124,306 (5,372)
Loss before income taxes (8,179) (319,277)
Income taxes provision - -
Net loss (8,179) (319,277)
Dividends applicable to preferred stock (750) (2,250)
Net loss applicable to common shares $(8,929) $(321,527)
Weighted average number of
common stock Outstanding 865,812 2,356,440
Loss per share $(0.01) $(0.14)
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
<TABLE>
<S> <C> <C>
Six Months Six Months
Ended June Ended June
30, 1997 30, 1998
(Unaudited) (Unaudited)
Cash flows from operating activities
Net loss $(8,929) $(321,527)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 10,038 11,652
Provision for doubtful accounts 1,222 --
Increase (decrease) from changes in operating
Assets and liabilities:
Trade receivables 115,049 (41,941)
Inventory (67,540) (188,036)
Other receivables (29,102) 40,061
Prepaid and other assets (4,251) (76,366)
Other assets -- 70,383
Accounts payable and accrued liabilities (326,520) (144,522)
Other liabilities 5,857 64,089
Net cash provided by (used in)
operating activities (304,176) (586,207)
Cash flows from investing activities
Purchase of property, plant and equipment (81,931) (23,324)
Investment in PTI (7,808) (150,000)
Net cash used in investing activities (89,739) (173,324)
Cash flows from financing activities
Borrowings on loans payable 136,613 144,624
Payments on loans payable -- (30,946)
Payments on notes payable and related interest (30,000) --
Net proceeds from issuance of preferred stock 50,000 --
Net proceeds from issuance of common stock 125,000 750,000
Net cash provided by financing activities 281,613 863,678
Effect of exchange rate changes on cash (1,347) (28,138)
Net increase (decrease) in cash
and cash Equivalents (113,649) 77,009
Cash and cash equivalents, beginning of year 225,249 55,032
Cash and cash equivalents, end of year $111,600 $132,041
Supplemental information:
Cash paid during the year for:
Interest $ 8,367 $ 13,730
Income taxes -- --
</TABLE>
Supplemental disclosure of non-cash activities:
The company recorded subscription receivable of $500,000 and stock
subscribed of $500,000 as of June 30, 1998. See accompanying summary of
accounting policies and notes to consolidated financial statements.
Organization and Business
Bridge Technology, Inc. (the Company) was organized under the laws of the
State of Nevada on April 15, 1969. The Company is located in California
and is primarily engaged in development and distribution of various
hardware, software, and peripheral products used in computer systems and
sales to value added resellers and system integrators. The Company has
two wholly owned subsidiaries. The domestic one was formed in April 1997
and commenced operation on June 1, 1997 with the name of Bridge R&D, Inc.
The other is Newcorp Technology Limited, which started operation in Japan
on January 19, 1995.
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for fair presentation have been included. Operating
results for the six months period ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
annual report on Form 10-KSB for the year ended December 31, 1997.
Note 2. Income Taxes
As of December 31, 1997, for federal income tax purposes, the Company had
approximately $63,000 in net operating loss carry-forwards expiring
through
2001. The annual utilization of the operating loss carry-forward may be
significantly limited due to the adverse resolution, if any, with respect
to the loss carryover provisions of Internal Revenue Code Section 382 in
connection with certain stock issuances by the Company.
Note 3. - Shareholders' Equity
On December 31, 1997, the Company completed fifteen subscriptions of
common stock for a total of 2,500,000 shares for $.50 per share. Among
the 2,500,000 shares of common stock subscribed, 300,000 shares were
subscribed for by an officer. During the first six months of 1998, the
Company issued 1,500,000 shares of common stock out of the above 2,500,000
shares subscribed.
Note 4. Subsequent Events
On July 8, 1998 the Board of Directors has approved in principal a
proposal for a top management Bonus Plan (the Plan) payable in common
stock warrants. The Board plans to direct the issue of the annual bonus
warrants based on a minimum yearly increase of 100% in the Company's
annual sales and net earnings, with the number and actual price of the
warrants to be fixed on the date of actual warrant awarded. The Board
recommended that 500,000 warrants be set aside for this Bonus Plan and
that the Plan be presented to the shareholders for ratification and
approval at the next shareholders meeting.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Except for historical information contained herein, the matters set forth
in this report are forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Act of 1995.
These forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially. The Company disclaims
any obligations to update these forward-looking statements.
Six Months Ended June 30, 1998 as Compared to the Six Months Ended June
30, 1997
Net sales of $1,812,000 for the six months ended June 30, 1998 decreased
by $173,511 (8.7%) over net sales of $1,985,511 for the six months ended
June 30, 1997. This decrease was due to the combined effects from changes
in sales volume of CD-ROM drives and hard disk drives, and from continued
competitive pricing policies.
Gross profit for the six months ended June 300, 1998 was $211,519, a 31.7%
increase, compared to $160,551 for the six months ended June 30, 1997.
This increase reflected a growth in sales of units with relative higher
margin. Gross profit as a percentage of net sales increased from 8.1% for
the six months ended June 30, 1997 to 11.7% for the six months ended June
30, 1998.
Selling, general and administrative expenses increased by $227,331 to
$511,694 in the six months ended June 30, 1998 compared to $284,669 for
the six months ended June 30, 1997. As a percentage of revenue, SG&A
expenses increased from 14.3% in the six months ended June 30, 1997 to
28.2% in the six months ended June 30, 1998. The difference is due to
increase in selling expense, a $34,000 increase in consulting fees, a
$24,000 increase in depreciation expense, and an increase in marketing,
travel and other expenses.
Loss from operations increased from $124,118 in the six months ended June
30, 1997 to $300,175 in the six months ended June 30, 1998, principally
reflecting higher selling, general and administrative expenses in the six
months ended June 30, 1998. Operating loss as a percentage of net sales
increased from 6.3% in six months ended June 30, 1997 to 16.6% in the six
months ended June 30, 1998.
Other expenses increased by $96,837 to $19,102 in the six months ended
June 30, 1998 when compared to other income of $115,939 for the six months
ended June 30, 1997. The difference was due to the other income of
$124,306 that was no longer in existence in the six months ended June 30,
1998.
Net loss increased to $321,527, or $0.14 per share for the six months
ended June 30, 1998 compared to $8,929, or $0.01 per share for the six
months ended June 30, 1997.
Liquidity and Capital Resources
Since current management acquired control of the Company in early 1997,
the Company has financed its operations with internally generated cash and
with the private placement of its securities totaling in excess of
$1,600,000 to a limited number of accredited investors with knowledge of
the Company's operations and plans to expand. The private placement
commenced in June 1997 and was completed on or about June 30, 1998.
The Company's capital requirements have been and will continue to be
significant and its cash requirements have been sufficient to cover its
cash flow from operations. At June 30, 1998, the Company had a working
capital surplus of $1,001,536 and cash and cash equivalents of $132,041
compared to a working capital surplus of $1,196,757 and cash and cash
equivalents of $55,032 at June 30, 1997. Since restarting operation, the
Company has satisfied its working capital requirements through the
issuance of equity and obtaining necessary bank loans.
Net cash used in operating activities in the six months ended June 30,
1998 was $586,207 compared to $304,176 in the six months ended June 30,
1997. The difference was mainly due to net loss and cash used to purchase
inventory, repayments in accounts payable and accrued liabilities, and
changes in other operating activities.
Net cash used in investing activities in the six months ended June 30,
1998 was $173,324 for the purchase of fixed assets and the purchase of
common stock in PTI Enclosures, Inc. compared to $89,739 for the purchase
of fixed assets in six months ended June 30, 1997.
Net cash provided by financing activities in the six months ended June 30,
1998 was $863,678 compared to $281,613 in the six months ended June 30,
1997. This reflects the issuance of common stock in private placements and
obtaining necessary bank loans in the Company's overseas subsidiary.
The Company believes that it can fund the growth of its core business with
internally generated cash flow in addition to its substantial cash
reserves from the private sale of its common stock.
Effects of Inflation
The Company believes that inflation has not had a material effect on its
net sales and results of operations.
Effects of Fluctuation in Foreign Exchange Rates
The Company continues to buy products and services from foreign suppliers.
The Company contracts for such products and services in U.S. dollars, thus
eliminating the possible effect of currency fluctuations. The Company's
wholly-owned subsidiary, Newcorp Technology (Japan), was subject to such
currency fluctuations and subsequently suffered losses due mainly to the
decline of Japanese yen from 106 Yen/dollar to the high of 140 Yen per
dollar, and the present rate of 138.29 Yen/dollar. In May, 1998, Newcorp
Japan changed its sales contracts with its OEM customers from Japanese Yen
to U.S. dollars in order to eliminate future material effect of currency
fluctuations on its net sales and results of operations.
Year 2000 Effect
The Company's accounting software currently does not utilize a four digit
year field, however, the Company has been assured by the manufacturer of
its accounting software that all necessary modifications for the year 2000
have been or will be made and tested timely.
Bridge Technology, Inc. and Subsidiaries
Consolidated Balance Sheets
F-2
Bridge Technology, Inc. and Subsidiaries
Consolidated Statements of Operations
Bridge Technology, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
F-6
Bridge Technology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Item 14. Changes in and Disagreements With Accountants on Accounting and
Financial
Disclosure.
The Company has engaged BDO Seidman, LLP, an international accounting
and
consulting firm, for its current audit and there are no disagreements with
the findings
of said accounting firm. The Company's previous accountants were engaged
for the year
ended December 31, 1990, the date of its reporting last audited statements
and there
were no disagreements with the findings.
Item 14. Changes in and Disagreements With Accountants on Accounting and
Financial
Disclosure.
The Company has engaged BDO Seidman, LLP, an international accounting
and
consulting firm, for its current audit and there are no disagreements with
the findings
of said accounting firm. The Company's previous accountants were engaged
for the year
ended December 31, 1990, the date of its reporting last audited statements
and there
were no disagreements with the findings.
BRIDGE TECHNOLOGY, INC.
FORM 10-SB
SEC FILE NO. 0-24767
ITEM 15. INDEX OF EXHIBITS
_____________________________________________________________
- - Exhibit 3 (i) Articles of Incorporation
- - Exhibit 3 (ii) By-laws
- - Exhibit 4 Determination of Shareholder Preferences
- - Exhibit 10 Material Contracts
A) Purchase of Assets of Allied Web Agreement
B) Newcorp Japan Stock Exchange Agreement
C) John Harwer Employment Agreement
D) EEMB China Agreement
- - Exhibit 21 Subsidiaries of the Registrant
- - Exhibit 27 Financial Data Schedules
- Audited financial statements for one year ending December 31,
1997
- Unaudited financial statements for 6 months ending June 30, 1998
- - Exhibit 99 Additional contracts
- - Incentive Stock Option Plan
Only Exhibit 10 B) is being submitted with this second amendment Form 10-SB
filing. All other exhibits are incorporated by reference to the first Form
10-SB amended filing dated November 16, 1998.
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-END] JUN-30-1998
[CASH] 118,683
[SECURITIES] 0
[RECEIVABLES] 2,056,672
[ALLOWANCES] 0
[INVENTORY] 286,753
[CURRENT-ASSETS] 2,616,439
[PP&E] 108,007
[DEPRECIATION] 0
[TOTAL-ASSETS] 2,905,972
[CURRENT-LIABILITIES] 1,712,653
[BONDS] 144,624
[PREFERRED-MANDATORY] 0
[PREFERRED] 50,000
[COMMON] 31,062
[OTHER-SE] 967,633
[TOTAL-LIABILITY-AND-EQUITY] 2,905,972
[SALES] 1,811,608
[TOTAL-REVENUES] 1,811,608
[CGS] 1,600,089
[TOTAL-COSTS] 511,694
[OTHER-EXPENSES] 5,372
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 13,730
[INCOME-PRETAX] (319,277)
[INCOME-TAX] 0
[INCOME-CONTINUING] (319,277)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] (1,500)
[NET-INCOME] (320,777)
[EPS-PRIMARY] (0.14)
[EPS-DILUTED] (0.14)
</TABLE>
