As filed with the Securities and Exchange Commission on May 1,
1998
Registration No. 333-47879
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
To
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Integrated Transportation Network Group Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
7514
(Primary Standard Industrial
Classification Code Number)
13-3993618
(I.R.S. Employer
Identification Number)
575 Lexington Avenue, Suite 410
New York, New York 10022
(212) 572-9612
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Corporation Service Company
1013 Centre Road
Wilmington, Delaware 19805-1297
Telephone: (800) 927-9800
(Name, address including zip code, and telephone number,
including area code, of agent for service)
Copies of Communications to:
Edward W. Kerson, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
(212) 969-3290
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the Registration Statement
becomes effective.
If any of the securities being registered on this form are
to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, check the following box.
If this form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering.
________________
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
________________
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
_______________
If delivery of the prospectus is expected to be made
pursuant to Rule 434, check the following box.
CALCULATION OF REGISTRATION FEE
Title of each class of
securities to be registered Common Stock, par value $.01 per
share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount to be registered 6,068,000 shares
Proposed maximum offering price per unit(1) $4.97
Proposed maximum aggregate offering price(1) $30,157,960
Amount of registration fee $8,896.60
(1) Estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(f)(2) under the Securities
Act of 1933.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
PROSPECTUS (Subject to Completion)
Dated May 1, 1998
6,068,000 Shares
INTEGRATED TRANSPORTATION
NETWORK GROUP INC.
Common Stock
Dawson Science Corporation ("Dawson"), upon the terms set
forth in this prospectus, intends to distribute to its
shareholders all the outstanding shares of common stock, par
value $.01 per share (the "Company Common Stock"), of its
wholly-owned subsidiary, Integrated Transportation Network Group
Inc. (the "Company"), on or about ___________, 1998. Each holder
of record of shares of common stock, par value $.001 per share,
of Dawson (the "Dawson Common Stock"), at the close of business
on ___________, 1998, will receive, for each four shares of
Dawson Common Stock, one share of Company Common Stock. In lieu
of issuing a fractional share to a holder, the Company will round
the number of shares issued to a holder to the next higher number
of shares, or, at the Company's option, pay the holder an amount
in cash equal to the product of that fraction and 400% of the
average of the low bid prices of a share of Dawson Common Stock
on the 20 trading days immediately preceding the distribution.
Immediately before the distribution to Dawson's
shareholders, Dawson will transfer to the Company all its assets,
including all its interest in Shenzhen Jinzhenghua Transport
Industrial Development Co., Ltd, and the Company will assume, and
agree to pay, perform and discharge, and indemnify and hold
Dawson harmless from and against, all Dawson's disclosed
liabilities and obligations.
Promptly following the distribution to Dawson's
shareholders, Dawson will seek to be dissolved.
See "The Reorganization".
All the assets and operations of the Company will be located
in China, and, as a consequence, the Company will be exposed to
risks particularly associated with doing business in China. See
"Risk Factors - Risks Relating to China".
Immediately after the distribution to Dawson's shareholders,
Wu Zhi Jian ("Mr. Wu"), the chairman of the board, members of his
immediate family and certain officers and directors of the
Company will beneficially own 47.6% of the outstanding shares of
Company Common Stock. As a consequence, Mr. Wu and such other
parties will be able to exercise substantial control in the
election of the Company's directors and all other material
decisions relating to the Company. See "Risk Factors - Control
by Mr. Wu and Certain Other Persons".
Prior to the distribution to Dawson's shareholders, there
has been no public market for the Company Common Stock, and there
can be no assurance an active market for the Company Common Stock
will develop or, if it develops, will continue. Application will
be made to list the Company Common Stock on the American Stock
Exchange or the NASDAQ under the symbol "ITN". However, there
can be no assurance the Company Common Stock will be approved for
listing on the American Stock Exchange, the NASDAQ or elsewhere.
See "Risk Factor - Limited Market; Volatility of Share Price".
The Company Common Stock involves a high degree of risk.
See "Risk Factors" beginning on page 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Dated __________, 1998
TABLE OF CONTENTS
Page
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . .3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . .5
The Reorganization . . . . . . . . . . . . . . . . . . . . . . 10
Enforceability of Civil Remedies . . . . . . . . . . . . . . . 11
Market for the Common Stock. . . . . . . . . . . . . . . . . . 12
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . 12
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 13
Selected Consolidated Financial Data . . . . . . . . . . . . . 14
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 15
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Management . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Certain Relationships and Related Transactions . . . . . . . . 32
Principal Shareholders . . . . . . . . . . . . . . . . . . . . 33
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . 34
Description of Capital Stock . . . . . . . . . . . . . . . . . 34
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Validity of Shares . . . . . . . . . . . . . . . . . . . . . . 45
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Available Information. . . . . . . . . . . . . . . . . . . . . 46
Index to Consolidated Financial Statements . . . . . . . . . .F-1
__________________________________
No dealer, salesperson or any other person has been
authorized to give any information or to make any representations
other than those contained in this prospectus in connection with
the offer made by this prospectus and, if given or made, such
information or representations must not be relied upon as having
been authorized by the Company. Neither the delivery of this
prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no
change in the affairs of the Company since the date of this
prospectus. This prospectus does not constitute an offer or
solicitation by anyone in any jurisdiction in which such an offer
or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to anyone
to whom it is unlawful to make such offer or solicitation.
Until __________, 1998, all dealers effecting transactions
in the Company Common Stock, whether or not participating in this
distribution, may be required to deliver a prospectus. This is
in addition to the obligation of dealers to deliver a prospectus
when acting as underwriters and with respect to their unsold
allotments or subscriptions.
The Company intends to furnish holders of the Company Common
Stock annual reports that include audited consolidated financial
statements, and may furnish them quarterly financial reports for
each of the first three quarters that contain unaudited
consolidated financial statements.
__________________________________
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and
should be read in conjunction with, the more detailed information
and financial statements and notes to the financial statements
appearing elsewhere in this prospectus, including information
under "Risk Factors". Except as otherwise noted, all information
in this prospectus assumes that (a) the transfer by Dawson
Science Corporation to Integrated Transportation Network Group
Inc. (the "Company") of all its assets, and the assumption by the
Company of all Dawson Science Corporation's disclosed
liabilities, has been effected, (b) the aggregate number of
shares of Company Common Stock distributed in the Reorganization
(as defined below) is 6,066,341 and (c) the aggregate number of
shares of Company Common Stock issuable by the Company upon
exercise or conversion of options, warrants and convertible
securities is 250,000. Unless the context otherwise indicates,
all references to the "Company" refer collectively to Integrated
Transportation Network Group Inc. and its predecessors and
subsidiaries. All monetary amounts in this prospectus are
presented in United States dollars, and the financial statements
in this prospectus have been prepared in accordance with United
States generally accepted accounting principles.
_________________________________
The Company
The Company, through its 92%-owned subsidiary, Shenzhen
Jinzhenghua Transport Industrial Development Co., Ltd.
("Jinzhenghua Transport"), primarily operates a group of
transportation related businesses (the "Transportation
Businesses"). The Transportation Businesses are comprised of the
automobile rental business (the "Rental Business"), the taxi
business (the "Taxi Business") and the automobile repair services
business (the "Repair Business"). All the Company's operations
are located in China. Jinzhenghua Transport also has been
developing a hotel in a resort town in Hunan Province, which is
scheduled to commence operations in early 1999.
In 1986, Wu Zhi Jian ("Mr. Wu") organized Shenzhen Zhenghua
Group Co. Ltd. (the "Zhenghua Group") to own and operate a
diversified group of businesses. In 1988, Jinzhenghua Transport,
an affiliate of the Zhenghua Group, established a transportation
business. The transportation business began with the acquisition
of taxi licenses in the first auction of such licenses in 1988 in
Shenzhen, China. Jinzhenghua Transport has continued to acquire
taxi licenses and expand its taxi business into other cities and
provinces.
In 1994, Jinzhenghua Transport expanded its transportation
business to include automobile repair services in Shenzhen.
In 1997, Jinzhenzhua Transport further expanded its
transportation business to include automobile rental services in
Jianxi Province, Guangdong Province and Chengdu Province.
The Company does not have any operating business, other than
the businesses operated through Jinzhenghua Transport.
See "Business".
The Reorganization
On March 19, 1997, Jinzhenghua Transport became a 92%-owned
subsidiary of Dawson Science Corporation ("Dawson"). In
connection with the transaction pursuant to which Dawson acquired
Jinzhenghua Transport, the prior owners of Jinzhenghua Transport
received, in exchange for their interests in Jinzhenghua
Transport, an aggregate of 10,000,000 shares of common stock, par
value $.001 per share, of Dawson ("Dawson Common Stock"), and
2,100,000 shares of convertible preferred stock, par value $.001
per share ("Dawson Preferred Stock"), of Dawson, and Mr. Wu
became the chairman of the board of directors of Dawson. The
2,100,000 shares of Dawson Preferred Stock were subsequently
converted into an aggregate of 10,500,000 shares of Dawson Common
Stock.
Later in 1997, the new management of Dawson, after
consulting with counsel and accountants, concluded that it would
be in the best interests of Dawson's shareholders to reorganize
Dawson in order to provide shareholders with shares in a new
Delaware corporation that would own Jinzhenghua Transport.
On May __, 1998, Dawson's board of directors and
shareholders approved a plan of reorganization that provides for
the distribution to Dawson's shareholders of all the outstanding
shares of common stock, par value $.01 per share, of the Company
(the "Company Common Stock") on or about , 1998.
In that connection, each holder of record shares of Dawson Common
Stock at the close of business on , 1998 will receive,
for each four shares of Dawson Common Stock, one share of Company
Common Stock. In lieu of issuing a fractional share to a holder,
the Company will round the number of shares issued to a holder to
the next higher number of shares, or, at the Company's option,
pay the holder an amount in cash equal to the product of that
fraction and 400% of the average low bid prices of a share of
Dawson Common Stock on the 20 trading days immediately preceding
the distribution. Immediately before the distribution to
Dawson's shareholders, Dawson will transfer to the Company all
its assets, including all its interest in Jinzhenghua Transport,
and the Company will assume, and agree to pay, perform and
discharge, and indemnify and hold Dawson harmless from and
against, all Dawson's disclosed liabilities and obligations.
Promptly following the distribution to Dawson's shareholders,
Dawson will wind-up its affairs and seek to be dissolved.
As a result of these transactions, shareholders of Dawson will
become shareholders of the Company, which will own the businesses
Dawson currently owns, and Dawson will cease to operate.
See "The Reorganization".
Summary Selected Consolidated Financial Data
(In thousands, except per share amounts)
Statement of Operations Data:
Year Ended December 31,
1995 1996 1997
Revenue, net . . . . . . . . $6,208 $9,211 $12,538
Total expenses . . . . . . . 2,910 4,091 5,858
Income before minority interest. . 3,146 4,720 6,223
Net income . . . . . . . . . . . . . 3,023 4,563 5,886
Pro forma earnings per common share:
Basic . . . . . . . . . . .50 .76 .97
Diluted . . . . . . . . . .50 .76 .97
Balance Sheet Data: At December 31, 1997
Revenue earning equipment. . . . . . . . .$31,488
Total assets . . . . . . . . . . . . . . . 55,954
Total liabilities. . . . . . . . . . . . . 24,206
Minority interest. . . . . . . . . . . . . 1,567
Total shareholders' equity . . . . . . . . 30,181
RISK FACTORS
The following risk factors should be considered carefully in
addition to the other information in this prospectus. This
prospectus contains forward-looking statements that involve risks
and uncertainties. Actual results could differ materially from
those discussed in this prospectus. Factors that could cause or
contribute to such differences include, but are not limited to,
those discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in
this prospectus.
Risks Relating to China
General
The economy of China differs from the economies of most
countries belonging to the Organization for Economic Co-operation
and Development in such respects as structure, government
involvement, level of development, growth rate, capital
reinvestment, allocation of resources, rate of inflation and
balance of payments position. Since 1949, the economy of China
has been a planned economy subject to one- and five- year state
plans adopted by central Chinese government authorities and
implemented, to a large extent, by provincial and local
authorities. These plans set out production and development
targets. Although the majority of productive assets in China are
still owned by the government, economic reform policies since
1978 have emphasized decentralization and the utilization of
market mechanisms in the development of the Chinese economy.
Such economic reform measures adopted by the Chinese government
may be inconsistent or ineffectual, and the Company may not be
able to benefit from all such reforms.
Since 1978, the Chinese government has been reforming, and
it is expected to continue to reform, China's economic systems.
Many of the reforms are unprecedented or experimental, and are
expected to be refined and improved. Various political, economic
and social factors, such as political changes, changes in the
rate of economic growth, unemployment or inflation or disparities
in per capita wealth between regions within China, also could
lead to further readjustment of the reform measures. This
refining and readjustment process may not always have a positive
effect on the operations of the Company. The Company's operating
results may be adversely affected by changes in China's
political, economic and social conditions and by changes in
policies of the Chinese government, such as changes in laws and
regulations (or the interpretation of laws and regulations),
measures that may be introduced to control inflation, changes in
the rate or method of taxation or the imposition of additional
restrictions on currency conversion. Although historically there
have been periods of political instability, and certain of the
reform measures have from time to time been readjusted, because
of the broad support for the reform process and because the
economic system in China has already undergone extensive changes
as a result of the success of such reforms, the Company believes
that the basic principles underlying the reforms will continue to
provide the framework for China's economic system.
The Chinese economy has experienced rapid growth in recent
years, with GNP increasing at an average annual rate of more than
11.0% between 1991 and 1997; the GNP growth rates in 1995, 1996
and 1997 were 10.5%, 9.7% and 8.8%, respectively. Such rapid
growth has been accompanied by imbalances in the Chinese economy,
especially with respect to inflation, which reached an annual
rate of 21.7% in 1994. The inflation rate decreased to 14.8% in
1995, 6.1% in 1996 and 2.0% in 1997.
Risks Related to the Legal System of China
The Chinese legal system is based on written statutes and is
a system, unlike common law systems, in which decided legal cases
have little precedential value. The Chinese system is similar to
civil law systems in this regard. In 1979, China began the
process of developing its legal system by undertaking to
promulgate a comprehensive system of laws. On December 29, 1993,
the National People's Congress promulgated the Company Law of The
People's Republic of China (the "Company Law"), which became
effective on July 1, 1994. In August 1994, pursuant to the
Company Law, the State Council issued the "PRC Special
Regulations on Overseas Offering and Listing of Shares by Joint
Stock Limited Companies" to regulate joint stock limited
companies that offer and list their shares overseas. The Company
Law, the rules and regulations promulgated under the Company Law
and legal prescriptions relating to Chinese companies provide the
core of the legal framework governing the corporate behavior of
companies, such as Jinzhenghua Transport, and their directors and
shareholders. Because these laws, regulations and legal
requirements are relatively recent, their interpretation and
enforcement involve significant uncertainty.
The Company is currently engaged in an expansion program,
the timing and cost of which will depend on numerous factors,
including the cost and availability of financing (including
foreign exchange), the ability of the Company to obtain and
maintain required business licenses or approvals from relevant
Chinese government authorities and changes in general economic
conditions in China. There can be no assurance the Company's
expansion program will not be adversely affected by any of these
factors or by factors commonly associated with expansion
programs.
Government Control of Currency Conversion and Exchange Rate
Risks
The Renminbi currently is not a freely convertible currency.
The State Administration for Foreign Exchange ("SAFE"), under the
authority of the People's Bank of China (the "PBOC"), controls
the conversion of Renminbi into foreign currency. Prior to
January 1, 1994, Renminbi could be converted to foreign currency
through designated banks or other authorized institutions at
official rates fixed daily by the SAFE. Renminbi also could be
converted at swap centers ("swap centers") open to Chinese
enterprises and foreign invested enterprises ("FIEs"), subject to
SAFE approval of each foreign currency trade, at exchange rates
negotiated by the parties for each transaction. Effective
January 1, 1994, a unitary exchange rate system was introduced in
China, replacing the dual-rate system previously in effect. In
connection with the creation of a unitary exchange rate, the
Chinese government announced the establishment of an inter-bank
foreign exchange market, the China Foreign Exchange Trading
System ("CFETS"), and the phasing out of the swap centers.
However, the swap centers have been retained as an interim
measure.
In general, under existing foreign exchange regulations,
domestic enterprises operating in China must price and sell their
goods and services in China in Renminbi. Any foreign exchange
reserves received by such enterprises must be sold to authorized
foreign exchange banks in China.
Jinzhenghua Transport intends to apply for the status of a
FIE. In the event it obtains FIE status, it will be able to
purchase foreign exchange for settlement of current transactions
(as defined in the applicable regulations) and pay dividends
without the prior approval of SAFE. There can be no assurance
that Jinzhenghua Transport will obtain FIE status, that the
current authorizations for FIEs to retain their foreign exchange
in the future to satisfy foreign exchange liabilities or to pay
dividends will not be limited or eliminated or that Jinzhenghua
Transport will be able to obtain sufficient foreign exchange to
pay dividends or satisfy its foreign exchange liabilities.
The value of the Renminbi is subject to changes in central
government policies and to international economic and political
developments affecting supply and demand in the CFETS market.
Over the last five years, the Renminbi has experienced a
devaluation against most major currencies. A significant
devaluation of the Renminbi occurred on January 1, 1994 in
connection with the adoption of the new unitary exchange rate.
On that date, the official exchange rate for conversion of
Renminbi to U.S. dollars changed from approximately RMB 5.8000 to
$1.00 to approximately RMB 8.7000 to $1.00, representing a
devaluation of approximately 50%. Since 1994, the official
exchange rate for the conversion of Renminbi to U.S. dollars has
been stable, and the Renminbi has appreciated slightly against
the U.S. dollar. However, there can be no assurance that the
exchange rate will not become volatile again or that there will
be no further devaluation of the Renminbi.
Risks Associated with Dawson
Under the plan of reorganization contemplated by this
prospectus, immediately before the distribution of Company Common
Stock to Dawson's shareholders, Dawson will transfer to the
Company all its assets, including all its interest in Jinzhenghua
Transport, and the Company will assume, and agree to pay, perform
and discharge, and indemnify and hold Dawson harmless from and
against, all Dawson's disclosed liabilities. Although the
Company will not assume any undisclosed liabilities, and although
current management is not aware of any such liabilities, or the
assertion of any such liabilities by third parties, there can be
no assurance such liabilities, which may have arisen from the
activities of Dawson or its predecessors, do not exist. If such
liabilities exist and the parties to whom Dawson or its
predecessors may be liable assert claims against Dawson or the
Company in respect of such liabilities, there can be no assurance
the Company would not be responsible for such liabilities, and,
if the Company were responsible for such liabilities, there can
be no assurance such liabilities would not materially and
adversely affect the Company.
Limited Operating History of Rental Business; Risks
Associated with a New Business
Jinzhenghua Transport has been engaged in the Rental
Business for less than a year, and therefore has only a limited
operating history in that business. Accordingly, the Rental
Business is subject to all risks associated with a new business,
and it is difficult to anticipate many of the factors that will
affect the Rental Business's operations. Although the Rental
Business has had earnings since its inception in August 1997,
there can be no assurance the Rental Business will achieve or
sustain growth in revenues or profitability, or even maintain
profitability, in the future.
Uncertain Ability to Achieve or Manage Rapid Growth
The Company intends to pursue a rapid growth strategy, the
success of which will depend upon a large number of factors, many
of which are beyond the Company's control, and there can be no
assurance the Company will successfully effect its growth
strategy. Factors that will affect the success of the Company's
growth strategy include risks relating to the market demand for
rental cars in China, risks relating to the Company's ability to
finance automobiles necessary for its business, risks relating to
the Company's ability to obtain and maintain appropriate
governmental permits, authorizations, licenses and approvals and
risks relating to the competitive environment in which the
Company operates. If the Company is unable successfully to
implement its growth strategy, its business, financial condition,
results of operations and prospects could be materially and
adversely affected.
Absence of Capital Commitments
The Transportation Businesses require substantial capital in
order to refinance existing indebtedness and to expand in the
manner contemplated. At December 31, 1997, $4,520,000 aggregate
principal amount of indebtedness was due and payable within one
year, $2,520,000 of which was due and payable within 120 days.
At present, the Company has no commitments from third parties to
refinance any of this indebtedness, and does not have sufficient
resources to repay such indebtedness without refinancing. In
addition, the Company has committed to purchase 732 new
automobiles for an aggregate of $11,462,000, and requires
approximately $1,330,000 to complete construction of the
Company's hotel project. The Company will seek to obtain capital
to finance these commitments and to support its growth strategy
from the sale of securities, borrowings, vendor financing
arrangements and operations. There can be no assurance the
Company will be successful in raising additional capital, or, if
it raises additional capital, the terms on which such capital
will be raised. To date, the Company has obtained a substantial
portion of its capital from affiliates, and $4,000,000 aggregate
principal amount of the Company's indebtedness to unaffiliated
third parties is personally guaranteed by Mr. Wu, whose guarantee
is secured by the pledge of an aggregate of 1,000,000 shares of
Company Common Stock. There can be no assurance such affiliates
will be willing or able to provide capital in the future, or that
Mr. Wu will be willing or able to guarantee the Company's
indebtedness in the future. If the Company does not obtain
sufficient capital to refinance its existing indebtedness, the
Company will be materially and adversely affected. Even if the
Company obtains sufficient capital to refinance its existing
indebtedness, the Company may not obtain sufficient capital to
expand as contemplated. See "Management's Discussion and
Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" and "Certain
Relationships and Related Transactions".
Control by Mr. Wu and Certain Other Persons
Immediately after the consummation of the transactions
contemplated by this prospectus, Mr. Wu, members of his immediate
family and certain officers and directors of the Company
(collectively, the "Related Shareholders") will beneficially own
an aggregate of 2,888,467 shares of Company Common Stock, or 47.6
% of the then outstanding shares of Company Common Stock
(2,288,110 of which, or 37.7% of the then outstanding shares, Mr.
Wu himself will beneficially own). As a consequence, Mr. Wu and
the Related Shareholders will be able to exercise substantial
control in the election of the Company's directors and all other
material decisions relating to the Company, including decisions
regarding acquisitions and dispositions, financings and corporate
governance. In that connection, Mr. Wu's guarantee of $4,000,000
aggregate principal amount of the Company's indebtedness is
secured by the pledge of an aggregate of 1,000,000 shares of Mr.
Wu's Company Common Stock. If all such shares are transferred to
the pledgees in order to satisfy any or all of Mr. Wu's
guarantees, Mr. Wu's ability to control the Company could be
materially and adversely affected. See "Certain Relationships
and Related Transactions" and "Principal Shareholders".
Potential Conflicts of Interest
The Company is one of many companies Mr. Wu directly or
indirectly controls. To date, the Company has depended on loans
from these affiliated companies, and on Mr. Wu's personal
guarantee of loans by others, to finance its growth. Although
the Company is seeking other sources of financing, any continued
dependence on these affiliated companies or Mr. Wu for financing
or otherwise would create a potential conflict of interest
between the Company and such affiliated companies. In addition,
because Mr. Wu controls the Company, and because his interests,
as the controlling person of various affiliated companies
(including affiliates that own minority interests in the
Company's subsidiaries) and as the guarantor of certain of the
Company's indebtedness, and the interests of the Company's other
shareholders are not the same, Mr. Wu could cause the Company to
take, or refrain from taking, actions that serve his interests
but not those of the Company's other shareholders, including the
exploitation of business opportunities in China and elsewhere.
See "Certain Relationships and Related Transactions" and
"Principal Shareholders".
Members of the Company's senior management also hold
positions with other companies, including affiliates of the
Company, and are not required to devote their services to the
Company on a full-time basis. The following table sets forth the
approximate percentage of business time the Company's executive
officers devoted to the Company in 1997:
Name Approximate Percentage of Business Time
Devoted to the Company in 1997*
Wu Zhi Jian 50%
Andrew Lee 50
Willy Wu 50
Peng Jun 100
Zhang Li Wei 100
Li Yong Yuan 80
Mona Ng 30
_______________________
* From the date the individual began devoting business time to
the Company.
Although there is no requirement that these individuals' other
employers permit these individuals to continue to devote to the
Company the percentages of their business time set forth above,
the Company expects such other employers to permit these
individuals to continue to devote these percentages of their
business time to the Company at least through June 30, 1999.
Holding Company Structure; Restrictions on the Payment of
Dividends
The Company has no direct business operations, other than
its ownership of Jinzhenghua Transport. While the Company has no
intention of paying dividends, should it decide in the future to
do so, as a holding company the Company's ability to pay
dividends and meet other obligations depends upon the receipt of
dividends or other payments from Jinzhenghua Transport and other
holdings and investments. In addition, Jinzhenghua Transport,
from time to time, may be subject to restrictions on its ability
to make distributions to the Company, including as a result of
restrictive covenants in loan agreements, restrictions on the
conversion of local currency into U.S. dollars or other hard
currency and other regulatory restrictions.
Service and Enforcement of Legal Process
Substantially all the Company's assets are located in China.
In addition, most of the directors and officers of the Company
are not residents of the United States, and all or a substantial
portion of the assets of such non-residents are located outside
the United States. As a result, it may be difficult for
investors to effect service of process upon such non-residents
within the United States or to enforce against them judgments
obtained in United States courts, including judgments predicated
upon the civil liability provisions of the securities laws of the
United States or any state. There is uncertainty as to whether
(i) courts in China would enforce judgments of United States
courts obtained against the Company or such non-residents
predicated on the civil liability provisions of the securities
laws of the United States or any state, or (ii) in original
actions brought in China, courts in China would enforce
liabilities against the Company or such non- residents predicated
upon the securities laws of the United States or any state. See
"Enforceability of Civil Remedies".
Limited Market; Volatility of Share Price
Although application will be made to list the Company Common
Stock on the American Stock Exchange or the NASDAQ, there can be
no assurance the Company Common Stock will be approved for
listing on the American Stock Exchange, the NASDAQ or elsewhere.
There has been only a limited market for the Dawson Common
Stock, and there can be no assurance a more active trading market
will develop and be sustained for the Company Common Stock.
Moreover, there has been significant volatility in the market
price for the Dawson Common Stock, and, in the future, there may
be significant volatility in the market price for the Company
Common Stock. Volatility in operating results of the Company,
changes in conditions in the Chinese or international economy or
other developments affecting the Company could cause the market
price of the Company Common Stock to fluctuate substantially.
See "Market for the Common Stock".
Shares Eligible for Future Sale
Upon the consummation of the transactions contemplated by
this prospectus, the Company will have 6,066,341 shares of
Company Common Stock outstanding (excluding shares issuable upon
exercise or conversion of options, warrants and convertible
securities and shares, if any, issued to round up fractional
shares). Of the 6,066,341 shares, an aggregate of 2,588,268
shares will be held by parties who may be deemed to be affiliates
of the Company. The shares held by affiliates may only be sold
in the public United States market pursuant to an effective
registration statement, or in accordance with Rule 144 under the
Securities Act of 1933 or another exemption from the registration
requirements of the Securities Act of 1933. Sales of substantial
amounts of Company Common Stock under Rule 144 or otherwise, or
even the potential for such sales, could depress the market price
of the Company Common Stock, and could impair the Company's
ability to raise capital through the sale of equity securities.
See "Shares Eligible for Future Sale".
THE REORGANIZATION
Background of the Reorganization
On March 19, 1997, Jinzhenghua Transport became a 92%-owned
subsidiary of Dawson. In connection with Dawson's acquisition of
Jinzhenghua Transport, the prior owners of Jinzhenghua Transport
received, in exchange for their interests in Jinzhenghua
Transport, an aggregate of 10,000,000 shares of Dawson Common
Stock and 2,100,000 shares of Dawson Preferred Stock (which were
subsequently converted into an aggregate of 10,500,000 shares of
Dawson Common Stock), and Mr. Wu became the chairman of the board
of directors of Dawson. See "Risk Factors Control by Mr. Wu".
Later in 1997, the new management of Dawson, after
consulting with counsel and accountants, concluded that
management might not be able to satisfy itself that Dawson's
books and records, including minute books, had been correctly
maintained and that all appropriate legal requirements relating
to issuances of securities, elections of officers and directors
and other corporate actions had been observed. As a consequence,
the new management of Dawson anticipated that, in the future,
Dawson could expect to encounter substantial difficulties in,
among other things, obtaining necessary financing for Jinzhenghua
Transport.
Accordingly, the new management of Dawson determined that it
would be in the best interests of Dawson's shareholders to
reorganize Dawson in order to provide shareholders with shares in
a new Delaware corporation that would own Jinzhenghua Transport,
but would not be subject to these anticipated difficulties.
The Reorganization
On May __, 1998, Dawson's board of directors and
shareholders approved a plan of reorganization that provides for
the distribution to Dawson's shareholders of all the outstanding
shares of Company Common Stock on or about ___________, 1998. In
that connection, although management has not been able to satisfy
itself that Dawson's books and records had been correctly
maintained in the past, management has no reason to believe its
current list of shareholders of record is inaccurate. In the
distribution, each holder of record of shares of Dawson Common
Stock at the close of business on ___________, 1998 will receive,
for each four shares of Dawson Common Stock, one share of Company
Common Stock. In lieu of issuing a fractional share to a holder,
the Company will round the number of shares issued to a holder to
the next higher number of shares, or, at the Company's option,
pay the holder an amount in cash equal to the product of that
fraction and 400% of the average low bid prices of a share of
Dawson Common Stock on the 20 trading days immediately preceding
the distribution. On or about __________, 1998, the Company will
issue to the Dawson shareholders of record at the close of
business on __________, 1998 certificates evidencing their shares
of Company Common Stock. Immediately before the distribution to
Dawson's shareholders, Dawson will transfer to the Company all
its assets, including all its interest in Jinzhenghua Transport,
and the Company will assume, and agree to pay, perform and
discharge, and indemnify and hold Dawson harmless from and
against, all Dawson's disclosed liabilities and obligations.
Promptly following the distribution to Dawson's
shareholders, Dawson will wind-up its affairs and seek to be
dissolved.
As a result of these transactions (the "Reorganization"),
shareholders of Dawson will become shareholders of the Company,
which will own the businesses Dawson currently owns, and Dawson
will cease to operate.
Tax Effects of the Reorganization
The following is a summary of certain anticipated material
United States federal income tax consequences of the
Reorganization. The summary represents the opinion of Proskauer
Rose LLP. The summary does not deal with all possible tax
consequences relating to the Reorganization. In particular, the
discussion does not address the tax consequences under state,
local and other national (i.e., non-United States) tax laws.
Accordingly, each prospective owner of Company Common Stock
should consult its own tax advisor regarding the particular tax
consequences of the Reorganization. The following discussion is
based upon laws and relevant interpretations of laws in effect as
of the date of this prospectus, all of which are subject to
change.
The Company has been advised by counsel that the
Reorganization will constitute a "reorganization" within the
meaning of section 368(a)(1)(F) of the United States Internal
Revenue Code of 1984 (the "Code"). Accordingly, for United
States federal income tax purposes, the Company will be treated
as a continuation of Dawson, and no gain or loss will be
recognized by Dawson, the Company or Dawson's shareholders upon
the Reorganization. Each Dawson shareholder's basis, for United
States federal income tax purposes, in the Company Common Stock
received in the Reorganization will be equal to that
shareholder's basis in the Dawson Common Stock with respect to
which the Company Common Stock is received, and each Dawson
shareholder's holding period, for United States federal income
tax purposes, in that Company Common Stock will include that
shareholder's holding period in that Dawson Common Stock.
ENFORCEABILITY OF CIVIL REMEDIES
All the assets of the Company's subsidiaries are located in
China. In addition, most of the directors and officers of the
Company are not residents of the United States, and all or a
substantial portion of the assets of such non-residents are
located outside the United States. As a result, it may be
difficult for investors to effect service of process upon such
non-residents within the United States or to enforce against them
judgments obtained in United States courts, including judgments
predicated upon the civil liability provisions of the securities
laws of the United States or any state.
The Company has been advised by its China counsel, Jun He
Law Offices, that there is uncertainty as to whether (i) courts
in China would enforce judgments of United States courts obtained
against the Company or such non-residents predicated on the civil
liability provisions of the securities laws of the United States
or any state, or (ii) in original actions brought in China, would
enforce liabilities against the Company or such non-residents
predicated upon the securities laws of the United States or any
state. The Company has been advised by its China counsel, Jun He
Law Offices, that there are no treaties between China and the
United States providing for the reciprocal enforcement of foreign
judgments. However, the judgment creditor of a legally effective
judgment of a foreign court may apply directly to courts in China
having jurisdiction over the case for recognition and
enforcement, or the foreign court that rendered the judgment may,
in accordance with the provisions of international treaties
applicable to both China and the country in which the foreign
court is located, or according to the principle of reciprocity,
request that the court in China recognize and enforce the foreign
judgment. A foreign judgment may be recognized and enforced by a
competent court in China, if the following conditions are
fulfilled: (i) the foreign judgment to be enforced is final and
conclusive; (ii) the jurisdiction of the court that rendered the
judgment is properly exercised and has not been precluded by law,
order or treaty; (iii) service of process in the relevant
proceedings in the foreign jurisdiction has been lawfully and
duly effected on the defendant/judgment debtor; and (iv) the
foreign judgment is not contrary to the basic principles of law
in the People's Republic of China or its sovereignty, security
and social and public interest. Enforcement of a foreign
judgment in China also may be limited or otherwise affected by
applicable bankruptcy, insolvency, liquidation, arrangement,
moratorium or similar laws relating to or affecting creditors'
rights generally and will be subject to a statutory limitation of
time within which proceedings may be brought.
MARKET FOR THE COMMON STOCK
The Dawson Common Stock has been traded in the
over-the-counter market under the NASDAQ symbol DWSC. The high
and low closing bid prices of the Dawson Common Stock as quoted
on NASDAQ during each calendar quarter of the past two years and
the first two quarters of the current year are set forth in the
following table. Prices represent quotations between dealers
without adjustments for retail markups, markdowns or commissions,
and may not represent actual transactions.
Year Calendar Quarter Low High
1996 First Quarter. . . . . $1.38 $4.75
Second Quarter . . . . .75 4.25
Third Quarter. . . . . .75 2.13
Fourth Quarter . . . . 1.50 4.00
1997 First Quarter. . . . . $1.44 $3.25
Second Quarter . . . . 2.38 9.94
Third Quarter. . . . . 5.38 7.94
Fourth Quarter . . . . 1.25 5.13
1998 First Quarter. . . . . $1.30 $3.38
Second Quarter (through
April 28) . . . . 2.03 2.38
On May __, 1998, the closing bid price of the Dawson Common
Stock as quoted on NASDAQ was $__________.
There are approximately 500 shareholders of record of the
Dawson Common Stock. Such record holders include a number of
holders who are nominees for an undetermined number of beneficial
owners; the Company does not know the number of beneficial owners
of the shares of Dawson Common Stock.
As a result of the Reorganization, each holder of record of
Dawson Common Stock at the close of business on ,
1998 will receive one share of Company Common Stock for each four
shares of Dawson Common Stock. Prior to the Reorganization,
there has been no public market for the Company Common Stock, and
there can be no assurance that an active market for the Company
Common Stock will develop or, if it develops, will continue. See
"Risk Factors Limited Market; Volatility of Share Prices".
Application will be made to list the Company Common Stock on
the American Stock Exchange or the NASDAQ under the symbol "ITN".
However, there can be no assurance the Company Common Stock will
be approved for listing on the American Stock Exchange, the
NASDAQ or elsewhere. See "Risk Factors - Limited Market;
Volatility of Share Prices".
DIVIDEND POLICY
The Company currently intends to retain its earnings to
support its future growth strategy and does not anticipate paying
any dividends on the Company Common Stock in the foreseeable
future. As a holding company, the ability of the Company to pay
dividends depends upon the receipt of dividends or other payments
from Jinzhenghua Transport. Any determination to pay dividends
in the future will be at the discretion of the Company's board of
directors and will depend upon the Company's results of
operations, financial condition, contractual restrictions and
other factors deemed relevant at that time by the Company's board
of directors. See "Risk Factors - Holding Company Structure;
Restrictions on the Payment Dividends" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources".
CAPITALIZATION
The following table sets forth the consolidated
capitalization of the Company at December 31, 1997. See
"Selected Consolidated Financial Data" and "Certain Relationships
and Related Transactions".
December 31, 1997
(In thousands, except
numbers of shares)
Debt:
Bank loans . . . . . . . . . . . . . . . . . . . . $ 3,776
Notes payable. . . . . . . . . . . . . . . . . . . . .4,320
Due to affiliates. . . . . . . . . . . . . . . . . . .6,220
Total debt. . . . . . . . . . . . . . . . . . . 14,316
Shareholders' equity:
Common Stock, par value $.01 per share:
50,000,000 shares authorized; 6,041,633 shares issued
and outstanding . . . . . . . . . . . . . . . . . . 60
Preferred Stock, par value $.01 per share:
5,000,000 shares authorized; no shares issued or
outstanding . . . . . . . . . . . . . . . . . . . . . 0
Additional paid-in capital . . . . . . . . . . . . . . 12,665
Retained earnings. . . . . . . . . . . . . . . . . . . 17,050
Foreign currency translation adjustments . . . . . . . . 406
Total shareholders' equity. . . . . . . . . . . . 20,181
Total capitalization . . . . . . . . . . . . 44,497
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data with
respect to the Company's financial position at December 31, 1997,
1996 and 1995 and its results of operations for the years ended
December 31, 1997, 1996 and 1995 have been derived from the
audited consolidated financial statements of the Company included
elsewhere in this prospectus. Particular reference is made to
Note 1 of such financial statements entitled "Basis of
Presentation and Reorganization". The selected consolidated
financial information with respect to the Company's financial
position at December 31, 1994 and 1993, and its results of
operations for the years ended December 31, 1994 and 1993, have
been derived from the Company's consolidated financial statements
for the years ended December 31, 1994 and 1993, which are not
included in this prospectus and, in the case of the year ended
December 31, 1993, are not audited. The selected consolidated
financial data presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
Year Ended December 31,
1993 1994 1995
Statement of Operations Data:
(In thousands, except per
share data)
Revenue, net. . . . . . . . . . . . .$3,188 $4,728 $6,208
Expenses:
Depreciation of revenue earning
equipment . . . . . . . . 759 1,133 1,357
Amortization of taxi licenses . . . 136 199 247
Other operating expenses. . . . . . 251 439 649
Interest expense, net of interest
income . . . . . . . . . . . . . . 620 641 657
Total expenses . . . . . . . . . 1,766 2,412 2,910
Income before provision for income tax
and minority interest . . . . . . . 1,422 2,316 3,298
Provision for income tax .. . . . . . 0 7 152
Income before minority interest. . . 1,422 2,309 3,146
Minority interest. . . . . . . . . . . . 71 100 123
Net income . . . . . . . . . . . . . 1,351 2,209 3,023
Pro forma earnings per common share:
Basic . . . . . . . . . . . . . . . .22 .37 .50
Diluted . . . . . . . . . . . . . . .22 .37 .50
Year Ended December 31,
1996 1997
Statement of Operations Data:
(In thousands, except per
share data)
Revenue, net. . . . . . . . . . . . .$9,211 $12,538
Expenses:
Depreciation of revenue earning
equipment . . . . . . . . 1,755 2,174
Amortization of taxi licenses . . . 264 266
Other operating expenses. . . . . . 1,468 2,692
Interest expense, net of interest
income . . . . . . . . . . . . . . 604 726
Total expenses . . . . . . . . . 4,091 5,858
Income before provision for income tax
and minority interest . . . . . . . 5,120 6,680
Provision for income tax .. . . . . . 400 457
Income before minority interest. . . 4,720 6,223
Minority interest. . . . . . . . . . . .157 337
Net income . . . . . . . . . . . . . 4,563 5,886
Pro forma earnings per common share:
Basic . . . . . . . . . . . . . . . .76 .97
Diluted . . . . . . . . . . . . . . .76 .97
December 31,
1993 1994 1995
Balance Sheet Data:
(In thousands)
Revenue earning equipment . . . . . $5,188 $8,938 $10,269
Taxi licenses. . .. . . . . . . . . 6,822 11,702 12,435
Total assets. . . . . . . . . . . . 12,671 23,717 27,111
Debt:
Bank loans. . . . . . . . . . . . 5,265 4,414 3,873
Notes payable . . . . . . . . . . 0 0 0
Due to affiliates . . . . . . . . 3,505 6,185 4,542
Total liabilities. . . . . . . . . 10,254 14,957 14,440
Total shareholders' equity . . . . 2,209 8,483 12,051
December 31,
1996 1997
Balance Sheet Data:
(In thousands)
Revenue earning equipment . . . . . $8,705 $31,488
Taxi licenses. . .. . . . . . . . . 12,200 12,093
Total assets. . . . . . . . . . . . 29,099 55,954
Debt:
Bank loans. . . . . . . . . . . . 4,082 3,776
Notes payable . . . . . . . . . . 0 4,320
Due to affiliates . . . . . . . . 1,517 6,220
Total liabilities. . . . . . . . . 11,475 24,206
Total shareholders' equity . . . . 16,760 30,181
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
General
The Transportation Businesses are comprised of the Rental
Business, the Taxi Business and the Repair Business. In addition
to its Transportation Businesses, the Company is developing a
hotel in Hunan Province, which is scheduled to commence
operations in early 1999.
On a consolidated basis, revenue, net, increased from
$6,208,000 in 1995 to $9,211,000 in 1996 to $12,538,000 in 1997.
Net income increased from $3,023,000 in 1995 to $4,563,000 in
1996 to $5,886,000 in 1997.
The Rental Business, which began operations in August 1997,
accounted for $2,636,000, or 21%, of the Company's total revenue,
net, in 1997. At September 30, 1997 and December 31, 1997, the
Rental Business had deployed 370 and 570 automobiles,
respectively. The Company's average purchase price for each
automobile deployed in the Rental Business during 1997 was
$19,600; the average depreciation and other operating expenses
for each such automobile during 1997 was $1,381; and the average
revenue, net, from each such automobile during 1997 was $5,608.
In 1997, the Rental Business contributed 27.2%, or $1,814,000, to
the Company's $6,680,000 of total income before provision for
income tax and minority interest.
The Taxi Business accounted for 96.5%, 83.8% and 67.2%,
respectively, of the Company's total revenue, net, in 1995, 1996
and 1997, respectively. At December 31, 1995, 1996 and 1997, the
Taxi Business had deployed 678, 678 and 728 taxi cabs,
respectively. The Company's average purchase price for each taxi
license and each automobile deployed in the Taxi Business during
1997 was $18,379 and $20,013, respectively; the depreciation,
amortization and other operating expenses for each such taxi
during 1997 was $3,758; and the average revenue, net, from each
such taxi during 1997 was $11,573. The Taxi Business contributed
$3,100,000, $4,349,000 and $5,161,000 to income before provision
for income tax and minority interest in 1995, 1996 and 1997,
respectively, representing 94.0%, 84.9% and 77.3%, respectively,
of the Company's total income before provision for income tax and
minority interest in 1995, 1996 and 1997.
The Repair Business accounted for 3.5%, 16.2% and 11.8% of
the Company's total revenue, net, and 6.0%, 15.1% and 9.6% of the
Company's total income before provision for income tax and
minority interest in 1995, 1996 and 1997, respectively.
The Company's only operations besides the Rental Business,
the Taxi Business and the Repair Business relate to the hotel
being developed in Hunan Province, in respect of which neither
revenue nor expenses were recorded through December 31, 1997.
In 1997, the Company's income before provision for income
tax and minority interest reflects $934,000 of accounting, legal
and other professional and advisory expenses that began to accrue
in mid-1997 and related primarily to the proposed Reorganization.
During 1995, 1996 and 1997, the Company had interest
expense, net of interest income, of $657,000, $604,000 and
$726,000, respectively, which reflected interest expense of
$673,000, $623,000 and $767,000, respectively, and interest
income of $16,000, $19,000 and $41,000, respectively.
At February 28, 1998, the Company had deployed a total of
1,218 automobiles in the Rental Business and 728 automobiles in
the Taxi Business.
The Company plans to continue to expand the Rental Business
as rapidly as the Company's capital resources permit. The
Company plans to continue to expand the Taxi Business through
selective acquisitions in certain cities. The Company plans to
expand the Repair Business as necessary to accommodate the
expansion of the Rental Business and Taxi Business.
The Company enjoys preferential tax treatment as a result of
its location in Shenzhen, a Special Economic Zone. Enterprises
in Shenzhen are subject to an income tax rate of 15%, compared
with the standard enterprise income tax rate in China of 33%. In
addition, enterprises in the transportation service industry have
a 100% income tax credit for the first year, and a 50% income tax
credit for the second and third years, in which they have a
profit.
1996 Compared With 1997
1996 Percentage of Percentage of
Revenue, Net 1997 Revenue, Net
Revenue, net . $9,211,000 100.0% $12,538,000 100.0%
Total expenses 4,091,000 44.4 5,858,000 46.7
Income before provision
for income tax and minority
interest. . . 5,120,000 55.6 6,680,000 53.3
Income before minority
interest. . . 4,720,000 51.2 6,223,000 49.6
Net income . . . 4,563,000 49.5 5,886,000 46.9
Revenue, net, was $12,538,000 in 1997, an increase of 36.1%
from $9,211,000 in 1996. The increase was primarily due to the
contribution of $2,636,000 in 1997 from the new Rental Business.
The Taxi, Rental and Repair Businesses contributed 67.2%, 21.0%
and 11.8%, respectively, to revenue, net, in 1997, compared
with 83.8%, 0% and 16.2%, respectively, in 1996. Revenue, net,
from the Taxi Business increased to $8,425,000 in 1997 from
$7,722,000 in 1996, a 9.1% increase. The increase was primarily
due to $151,000 of revenue from 50 additional taxi cabs in
Ganzhou, $180,000 of revenue from increases in night-shift taxi
driver activities, $262,000 of revenue from renewals of taxi
driver contracts and $110,000 of revenue from increases in
monthly rental payments from taxi drivers. Revenue, net, from
the Repair Business was $1,477,000 in 1997, an immaterial change
from $1,489,000 in 1996.
Total expenses were $5,858,000 in 1997, an increase of
$1,767,000, or 43.2%, from $4,091,000 in 1996. The increase, as
a percentage of revenue, net, was comprised of $419,000 of
depreciation of revenue earning equipment, $122,000 of net
interest expense, $2,000 of amortization of taxi licenses and
$1,224,000 of other operating expenses. The increase in
depreciation of revenue earning equipment was primarily due to
$385,000 of depreciation on rental cars related to the new Rental
Business. The increase in net interest expense was primarily due
to fees paid to banks for the extension of short-term loans and
an increase in interest-bearing debt. The increase in other
operating expenses was primarily due to $403,000 of expenses
related to the new Rental Business, which commenced operations in
August 1997, and $934,000 of accounting, legal and other
professional and advisory expenses that began to accrue in
mid-1997 and related primarily to the proposed Reorganization.
See "General" above. In addition, increases in direct fixed costs
and management expenses related to the Repair Business ($123,000)
and increases in operating costs due to expansion of the Taxi
Business ($95,000) were offset by efficiencies in office
expenses, rent and maintenance charges in the Taxi and Repair
Businesses. The Rental, Taxi and Repair Businesses contributed
15.1%, 82.2% and 2.7%, respectively, to total depreciation and
amortization in 1997, compared to 0%, 96.2% and 3.8%,
respectively, in 1996.
Income before provision for income tax and minority interest
was $6,680,000 in 1997, an increase of 30.5% from $5,120,000 in
1996. The Rental, Taxi and Repair Businesses contributed 27.2%,
77.3% and 9.6%, respectively, to total income before provision
for income tax and minority interest in 1997, compared with 0%,
84.9% and 15.1%, respectively, in 1996. The increase in income
before provision for income tax and minority interest is
primarily attributable to income from the Company's new Rental
Business, revenue generated from 50 additional taxi cabs in
Ganzhou, additional income generated by increases in night-shift
taxi driver activities, additional income from renewals of taxi
driver contracts and efficiencies in office expenses, rent and
maintenance charges in the Taxi and Repair Businesses. The
increase in income before provision for income tax and minority
interest was partially offset by increases in direct fixed costs
and management expenses associated with the Repair Business. The
decrease in income before provision for income tax and minority
interest as a percentage of revenue, net, was primarily the
result of parent-company accounting, legal and other professional
and advisory costs and expenses incident to the proposed
Reorganization and related matters beginning in mid-1997.
Provision for income tax was $457,000 in 1997 (6.8% of
income before provision for income tax and minority interest),
compared with $400,000 in 1996 (7.8% of income before provision
for income tax and minority interest). The increase was
primarily a result of increased taxable income.
Minority interest was $337,000 in 1997, an increase of
114.6% from $157,000 in 1996, which reflects the fact that the
Company entered into new joint venture projects in 1997.
As a result of the foregoing, net income was $5,886,000 in
1997, an increase of 29.0% from $4,563,000 in 1996.
1995 Compared With 1996
1996 Percentage of Percentage of
Revenue, Net 1997 Revenue, Net
Revenue, net . $6,208,000 100.0% $9,211,000 100.0%
Total expenses 2,910,000 46.9 4,091,000 44.4
Income before provision for
income tax and minority
interest. . 3,298,000 53.1 5,120,000 55.6
Income before minority
interest. . 3,146,000 50.7 4,720,000 51.2
Net income . . 3,023,000 48.7 4,563,000 49.5
Revenue, net, was $9,211,000 in 1996, an increase of 48.4%
from $6,208,000 in 1995. The increase was primarily due to
expansion in the Repair Business in Shenzhen. The Taxi and Repair
Businesses contributed 83.8% and 16.2%, respectively, to revenue,
net, in 1996, compared with 96.5% and 3.5%, respectively, in
1995. Revenue, net, from the Taxi Business increased 28.9% to
$7,722,000 in 1996 from $5,990,000 in 1995, primarily due to the
addition of 150 new taxis in November 1995. The additional taxis
generated $1,202,000 in additional revenue, $330,000 in
additional night-shift taxi driver activities and $200,000 in
additional monthly rental payments from taxi drivers. Revenue,
net, from the Repair Business increased to $1,489,000 in 1996
from $218,000 in 1995, primarily due to the expiration of a fixed
income guaranteed service contract by a car repair management
group (the "Third Party Contractor") and aggressive marketing
efforts resulting in new contracts with business customers.
Total expenses were $4,091,000 in 1996, an increase of
$1,181,000, or 40.6%, from $2,910,000 in 1995. The increase, as
a percentage of revenue, net, was primarily due to $398,000 of
additional depreciation of revenue earning equipment, $17,000 of
amortization of licenses associated with the Taxi Business and
$819,000 of other operating expenses related to the Taxi and
Repair Businesses, offset by a $53,000 decrease in interest
expense, net of interest income. The increase in depreciation of
revenue earning equipment was primarily due to $381,000 of
depreciation in the Taxi Business relating to the establishment
of a new subsidiary at the end of 1995. The increase in other
operating expenses includes $200,000 in the Taxi Business and
$675,000 in the Repair Business. The $200,000 increase in other
operating expenses in the Taxi Business was primarily a result of
an increase in wages and bonuses due to staff additions, a write-
off of certain assets and leasehold improvements, offset in part
by efficiencies in office expenses and a reduction in contracted
housing allowance, rent and maintenance charges. The increase in
other operating expenses of $679,000 in the Repair Business was
primarily due to the expiration of the service contract with the
Third Party Contractor, who had been responsible for such
expenses. The Taxi and Repair Businesses contributed 96.2% and
3.8%, respectively, to depreciation and amortization in 1996,
compared with 98.8% and 1.2%, respectively, in 1995.
Interest expense, net of interest income was $604,000 in
1996, a decrease of 8.1% from $657,000 in 1995. The decrease was
primarily a result of a decrease in interest-bearing debt.
Income before provision for income tax and minority interest
was $5,120,000 in 1996, an increase of 56.5% from $3,298,000 in
1995. The Taxi and Repair Businesses contributed 84.9% and
15.1%, respectively, to income before provision for income tax
and minority interest in 1996, compared with 94.0% and 6.0%,
respectively, in 1995. The increase, as a percentage of revenue,
net, was primarily a result of increased revenue, net, without
corresponding increases in depreciation and amortization,
efficiencies in office expenses associated with the Taxi Business
and a decrease in net interest expense, partially offset by
increases in expenses related to improved staffing and operations
required to support increased sales levels in the Repair
Business. Other income increased primarily as a result of
foreign currency translation gains, gains on disposal of fixed
assets and penalties received from taxi drivers.
Provision for income tax was $400,000 in 1996 (7.8% of
income before provision for income tax and minority interest),
compared with $152,000 in 1995 ( 4.6% of income before provision
for income tax and minority interest). The increase was
primarily a result of increased taxable income and an increased
tax rate associated with expiring tax holidays.
Minority interest was $157,000 in 1996, an increase of 27.6%
from $123,000 in 1995, which reflects the fact that the Company
entered into new joint venture projects in 1996.
As a result of the foregoing, net income was $4,563,000 in
1996, an increase of 50.9% from $3,023,000 in 1995.
Liquidity and Capital Resources
Generally, the Rental and Taxi Businesses are cash flow
businesses that do not require significant amounts of working
capital. Working capital for the Repair Business was initially
financed mainly by cash flow from the Taxi Business. In 1997,
the Company had net cash flow from operating activities of
$13,616,000.
The Company made capital expenditures in 1995, 1996 and 1997
of $4,215,000, $3,271,000 and $25,669,000, respectively, for the
acquisition of vehicles for its taxi and rental operations, the
acquisition of taxi licenses, the expansion of operations
generally and the development of the hotel project. The Company
has relied on cash flow from operations, borrowings and capital
contributions by the Zhenghua Group to finance these
expenditures.
During 1997, net cash used in financing activities totaled
$7,928,000, which consisted of $11,565,000 of repayment of
advances to the Zhenghua Group and $1,288,000 of repayment of
other debt, offset by $4,320,000 of borrowings pursuant to the
notes payable referred to in the next paragraph and $605,000 of
borrowings from banks.
At December 31, 1997, the Company had $24,206,000 aggregate
principal amount of indebtedness, (i) $3,776,000 of which was
comprised of bank loans, $3,576,000 of which the banks may
declare due and payable at any time after March 1999 and $200,000
of which the banks may declare due and payable at any time, (ii)
$4,320,000 of which is comprised of notes payable to others,
which currently are due and payable and $4,000,000 of which is
personally guaranteed by Mr. Wu (see "Certain Relationships and
Related Transactions"), and (iii) $6,220,000 of which was
comprised of debt to the Zhenghua Group, which has no stated
repayment terms, but which the Zhenghua Group and the Company
understand may be declared due and payable at any time upon
demand by the Zhenghua Group; the Zhenghua Group does not
presently intend to declare due and payable what the Company owes
it, until and unless the Company is able to refinance such
indebtedness. The bank loans bear interest at annual rates
ranging from 15.1% to 18.0%; of the $4,320,000 of notes payable,
$4,000,000 bear interest at an annual rate of 12% and $320,000
bear interest at an annual rate of 8%; and the debt to the
Zhenghua Group does not bear interest.
At present, the Company expects to make capital expenditures
in 1998 and thereafter primarily for the purchase of new
automobiles for the Rental Business, and, to a lesser extent, for
new automobiles for the Taxi Business and the completion of
construction of the Company's hotel project. At March 31, 1998,
the Company had committed to purchase 732 new automobiles for an
aggregate purchase price of $11,462,000. At March 31, 1998, the
estimated cost of completing construction of the hotel project
was approximately $1,330,000.
The Company will require additional capital to finance
capital expenditures, including the purchase of the 732 new
automobiles referred to above, and to refinance debt. At
present, the Company has no commitments from third parties to
finance such capital expenditures or to refinance any of its
existing indebtedness, and does not have sufficient resources to
finance such expenditures, or to repay such indebtedness without
refinancing. The Company will seek to obtain capital from the
sale of securities, borrowings, vendor financing arrangements and
operations. There can be no assurance the Company will be
successful in raising additional capital, or, if it raises
additional capital, the terms on which such capital will be
raised. To date, the Company has obtained a substantial portion
of its financing from the Zhenghua Group, and a substantial
portion of the Company's indebtedness to third parties is
guaranteed by Mr. Wu. There can be no assurance the Zhenghua
Group will be willing or able to provide capital in the future,
or that Mr. Wu will be willing or able to guarantee the Company's
indebtedness in the future. If the Company does not obtain
sufficient capital to refinance its existing indebtedness, the
Company will be materially and adversely affected. Even if the
Company obtains sufficient capital to refinance its existing
indebtedness, the Company may not obtain sufficient capital to
expand as contemplated. See "Risk Factors" and "Certain
Relationships and Related Transactions".
Effect of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards board
issued two new disclosure standards.
Statement of Financial Accounting Standards No. 130 ("SFAS
No. 130"), Reporting Comprehensive Income, 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
statement that is displayed with the same prominence as other
financial statements.
Statement of Financial Account Standards No. 131 ("SFAS No.
131"), Disclosures about Segments of an Enterprise and Related
Information, which 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 annual financial statements and requires
reporting of selected 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.
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.
Results of operations and financial position will be unaffected
by implementation of these new standards. The Company has not
determined whether either of these two standards will have a
material impact on its financial statement disclosure.
Year 2000 Compliance
The Company is modifying its computer systems to be Year
2000 compliant. The Company does not expect that the cost of
modifying such systems will be material. The Company believes it
will achieve Year 2000 compliance in advance of the year 2000,
and does not anticipate any material disruption in its operations
as a result of any failure by the Company to be in compliance.
BUSINESS
Overview
The Transportation Businesses are comprised of the Rental
Business, the Taxi Business and the Repair Business. The Company
also is developing a hotel in a resort town in Hunan Province,
which is scheduled to commence operations in early 1999.
The Rental Business began operations in August 1997 with the
purchase of 350 new automobiles and establishment of automobile
rental stations in Ganzhou, Guangzhou, Nanchang, Nanjing and
Xian. The Rental Business has licenses to operate, but is not
yet operating, in three other cities in southern China, and in
Beijing, Shanghai and Chengdu.
The Taxi Business operates 528 taxis in Shenzhen out of a
current citywide total of 7,800; the remaining taxi companies in
Shenzhen are state controlled. The Taxi Business also has an
aggregate of 150 taxis in two cities in Hunan Province and 50
taxis in Ganzhou, in Jiangxi Province.
The Repair Business currently has one station, which is
located in Shenzhen. The repair station offers a full range of
repair services and is equipped with hoists, an air compression
system and a body work and painting department.
The hotel the Company is developing, the Yin Du Hotel (the
"Hotel"), is expected to have 124 rooms, a restaurant, a disco
entertainment area, a variety of conference rooms and a retail
shop. The Company does not intend to expand the hotel business
beyond the Hotel.
Industry Overview and Competitive Environment
Automobile Rental Industry
In 1995, approximately 50,000 automobiles were privately
owned in China. At present, private ownership is beyond the
means of the vast majority of Chinese individuals. However,
automobile rentals may be within the grasp of many individuals.
More than 50 million driver's licenses are issued in China.
An estimated 10,000 cars are currently available for rent
throughout China. The Company believes Beijing Ford Automobile
Rental Co. Ltd., which was formed in 1992 and was the first
automobile rental company in Beijing, is currently China's
largest automobile rental company. The Company believes that
company's operations in Beijing have approximately 500
automobiles available for rent; in that company's smaller
locations outside Beijing, only a limited number of vehicles are
available for rent. The Company believes Shanghai Volkswagen
Automobile Co. Ltd., which is affiliated with Hertz Corporation,
and is the largest rental company in Shanghai, has approximately
300 automobiles available for rent. Most other car rental
organizations control only a few automobiles. Most car rental
organizations are based in only one city, and restrict or
prohibit travel by their customers between cities.
The Company believes several factors should encourage growth
in the car rental business in China:
* Substantial resources are being allocated to the
improvement of the highway and road infrastructure in
China. The number of primary and secondary roads in
China has grown rapidly in recent years.
* Government organizations, which are required to have
access to specified numbers of automobiles, often have
limited budgets, which restrict their ability to
purchase automobiles. Typically, these organizations
lease, rather than own, their automobiles.
* According to a government report, the number of
individuals with driver's licenses in China exceeded 50
million in 1996. Most licensed individuals are in the
higher income brackets, and do not own vehicles. The
Company believes many of these individuals have an
interest in travel and are likely to rent cars.
* The growing number of foreign tourists in China and
China-based foreigners should increase the demand for
rental cars.
Taxi Industry
An estimated 580,000 taxis presently operate throughout
China. Until 1988, all taxi companies in China were state-owned.
In 1988, Shenzhen first auctioned taxi licenses to private
institutions and corporations. The only cities in China that
presently have taxis that are not all state-owned are Shenzhen,
Beijing and Shanghai. Only four cities in China regulate the
total number of taxis allowed: Beijing (80,000), Shanghai
(30,000), Guangzhou (30,000) and Shenzhen (7,800).
Taxi regulations vary from city to city. Taxis require both
license plates and annual inspections. The one-time charge for
plates on domestic and foreign vehicles is 10% and 17%,
respectively, of the car's value. A one-time city capacity
expansion fee, ranging from $500 to $720, also is applied in most
cities.
Local regulating agencies in each city impose several layers
of taxes in connection with the operation of motor vehicles.
Cities also have road maintenance taxes that are levied on
residents and supplemented by tolls from transient vehicles.
Automobile taxes are levied on taxis once a year.
Taxis are required to have special plates, or "medallions",
for which the estimated cost is between $36,000, in smaller
cities, and $100,000, in major cities; these medallions are valid
for 50 years. A taxi medallion allows a driver to pick up
passengers in the city where the taxi is licensed. However,
drivers are not allowed to service customers originating from
other cities.
Positions as taxi drivers are competitively sought by
individuals seeking higher income levels.
Automotive Repair Industry
As the number of automobiles increases in China, the market
for repair, maintenance and inspection services also is expected
to increase.
Repair work generated by insurance companies must be
performed at designated repair shops. In each major city, the
number of repair shops so designated is limited. Similarly,
government regulations require annual inspections for automobiles
and more frequent inspections for taxis; such inspections must be
made by a government certified inspection station.
At present, the market for repair services is highly
fragmented, with substantially all repair services being
performed by small, individually operated repair shops.
Strategy
Rental Business
The Company's strategy is to create a Chinese nationwide
automobile rental system.
The Company intends to purchase as many automobiles for the
Rental Business as its capital resources permit. At present, a
total of 1,218 cars are deployed in the Rental Business in eight
cities. Rental cars are available in five different models. The
cars are located either at the headquarters in each city or at
strategically located satellite stations.
At present, all the Company's 1,218 cars deployed in the
Rental Business are under short-term leases. A majority of the
lessees are individual tourists and other foreigners located in
China, who pay an average rent of $1,500 per month. The Company
also plans to have long-term leases primarily with corporate and
governmental organizations, and to continue to have short-term
leases primarily with individuals. The average rent under a
long-term lease is expected to be $1,000 per month with a deposit
of approximately $3,600.
The Company will solicit individuals to enroll in membership
plans, in which members will pay an annual membership fee, which
will entitle them to discounts and waivers of deposits.
The Company plans to use a variety of marketing techniques
and media, including television, radio and print advertising,
direct selling, direct mail and public relations, and strategic
alliances with hotel chains, travel agencies and transportation
centers.
Taxi Business
The Company intends to expand its taxi fleet into the same
cities in which it will have automobile rental operations,
initially beginning with expansion into Wuhan, Chengdu, Beijing
and Shanghai. Although the Company does not currently own any
taxi licenses in these cities, the Company will attempt to
acquire licenses through acquisitions of companies that already
own licenses in these cities. Such acquisitions would be subject
to, among other things, certain governmental approvals. There
can be no assurance such acquisitions will be made, or, if they
are made, that the terms on which such acquisitions are made will
be favorable to the Company.
The Company controls certain costs by engaging taxi drivers
as independent contractors, rather than hiring them as employees.
As independent contractors, the drivers, rather than the Company,
are responsible for certain costs, including certain taxes, road
maintenance fees, insurance and repairs. See "Business
Operations - Taxi Business" below.
Repair Business
The Company intends to open automotive repair shops in
cities in which it operates the Rental Business and Taxi
Business. The Company believes these shops should benefit from
the growing use of automobiles in China, the fragmented market
for repair services in these cities and the repair services that
will be required for the growing number of cares in the Rental
Business and Taxi Business. The Company also believes that, by
providing repair services for the Rental Business and the Taxi
Business, the Company should be able to reduce repair,
maintenance and inspection expenses for its own automobiles and,
at the same time, provide repair, maintenance and inspection
services to others efficiently. In that connection, the Company
believes it should benefit from reductions in the purchase price
of spare parts because of bulk purchases of automobiles for the
Rental Business and Taxi Business.
In addition, the Company intends to work with a limited
group of major domestic Chinese automobile manufacturers to open
repair stations specializing in their automobiles.
Hotel
The Company intends to market the Hotel primarily to upscale
customers and to tourists who visit the nearby scenic
attractions. In addition, the Hotel will market its conference
facilities to businesses and other groups for meetings and
special events.
Business Operations
Rental Business
The Company began the Rental Business with 50 cars in August
1997 in the city of Ganzhou. At present, the Company has
deployed 1,218 automobiles in the Rental Business: 100 in
Ganzhou, 200 in Guangzhou, 100 in Nanchang, 70 in Xian, 100 in
Nanjing, 250 in Chengdu, 200 in Changsha and 198 in Yueyang. The
Company also has licenses to operate in Congxing, Guilin,
Beijing, Shanghai and Wuhan.
Generally, operations in each city are based in a 200 to 800
square meter rented space, which is supported by 100 to 200
square meters of satellite stations and a large rental lot. A
total of three to five employees in each city provide 24-hour
access to rental cars. Approximately one-third of the employees
are in sales and marketing, one-third in management and one-third
in operations. The Company has marketing agreements with several
hotels and airports.
The Company will be tailoring its Rental Business to three
main categories of customers:
Foreign Tourists and Foreigners Living in China. At
present, short-term leases to foreign tourists and foreigners
living in China account for 62% of the 1,218 cars deployed in the
Rental Business. The process for foreigners to obtain drivers
licenses in China has recently been simplified; tourists with the
proper identification and credit generally have access to cars
within 24-hours.
Corporations and Government Agencies. Corporations and
government agencies in China typically rent automobiles for most
of their transportation needs. At present, short-term leases to
corporations (both foreign and domestic) and government agencies
account for 32% of the 1,218 cars deployed in the Rental
Business.
Chinese Individuals. At present, short-term leases to
Chinese individuals account for 6% of the 1,218 cars deployed in
the Rental Business.
In a long-term lease, the Company plans to charge a deposit
ranging from $3,000 to $6,000 for each leased automobile. The
typical long-term lease is expected to be one year at a monthly
rental of approximately $1,000. Rent on corporate and government
long-term leases generally is expected to be less than rent on
long-term leases for individuals; corporate and government
customers often receive volume discounts. The Company will pay
for the insurance on the automobile and standard repairs
resulting from general wear and tear, which will not be included
in the basic fees. Automobiles under long-term leases that are
two years old are expected either to be sold in the used
automobile market, converted into taxis, traded back to the
manufacturer or sold to the lessee under an option to purchase
agreement.
Depending on the length of each short-term lease, deposits
up to $600 are required. Rental charges are based on the
distance traveled in segments of time. Generally, there is a 10%
discount for rentals over three days, a 15% discount for monthly
rentals and a 20% or greater discount for leases of three months
or longer.
Customers may reserve cars. If reservations are canceled
within the 24-hour period prior to the anticipated rental, the
Company retains 50% of the advanced deposit. Domestic
individuals who do not participate in the Company's Rental Card
Program are required to deposit cash or present a credit or debit
card for a deposit. Two forms of a pictured identification are
required. If an individual does not have a debit card for the
required deposit, the Company requires that the individual's
obligations be guaranteed by a local resident whose
identification and solvency can be confirmed. For tourists, the
Company checks the identification of the driver, including his or
her address, visa and any prior violations on his or her driver's
license.
The Company relies on insurance coverage as security against
damage. All automobile insurance contracts in China provide
"no-fault" coverage, with various deductible amounts typically
totaling the amount of the deposit. The lessee pays a daily
insurance charge.
The Company does not impose "drop charges" on customers who
return their cars to a Company rental location different from the
location in which the rental originated. However, a drop charge
is required for returning an automobile to a rental location not
owned by the Company (which are limited to locations where the
Company has entered into an agreement with an organization for
accepting returned automobiles).
The Rental Business has approximately 100 employees.
Taxi Business
Prior to 1988, all taxi licenses and operations were
state-owned. Shenzhen was the first Chinese city to sell taxi
licenses to private citizens. The Company has 528, or 6.8%, of
all the taxi licenses in Shenzhen. The Company is the largest
independent taxi organization in Shenzhen. The remaining taxi
companies in Shenzhen are controlled by the government; most have
fewer than 50 cabs.
Additionally, the Company has 150 taxis in two cities in
Hunan Province and 50 taxis in Ganzhou, in Jiangxi Province.
The Company's taxi headquarters, located in Shenzhen in a
modern two-floor office space with 2,000 square meters per floor,
has 30 employees. Computer operations, a cashier center for
collecting payments from drivers, a dispatch center, all
accounting and financial functions, a large meeting room for
bi-monthly meetings and departments for safety, mechanical
maintenance and public records are located at these headquarters.
The Company controls its Shenzhen fleet and communicates with its
fleets in other cities through its centralized control facility
in Shenzhen. The taxi operations outside Shenzhen have separate
accounting, administration and technical departments, although
Company-wide policies are promulgated and implemented through the
Shenzhen office.
The Company has a computerized phone reservation system,
which is staffed 24-hours a day. Continuous communication with
its taxis is maintained through the Company's central dispatch
system. This allows the Company to radio passenger locations to
its drivers and assign a taxi number to the passenger.
Reservations are generally made by passengers for long-distance
trips, such as trips to other cities or to the airport. The
Company does not charge its taxi drivers for referrals from the
reservation system. The Company offers its customers bottled
water for long trips and the availability of non-smoking taxis.
The Company's taxi drivers are organized by fleets of 100
drivers per fleet, partly for administration purposes and partly
to inspire a competitive spirit to foster the Company's demand
for high quality service. There are 50 cabs in each fleet with
two drivers per cab.
The Company has a structured training program for its taxi
drivers, with the objective of improving reliability and customer
service. All drivers are required to pass an initial training
program that involves procedures for customer courtesy, dress
codes, suggestions about personal care, the Company's reservation
and tracking systems and inspection and repair procedures.
Ongoing education is required for all drivers twice a month at
the Company's headquarters, and includes safety training,
security, new regulations and Company procedures, construction
and routing developments, customer courtesy tips and suggestions
for improvements in efficiency.
The Company attempts to provide an incentive to its drivers
by providing an annual "Most Excellent Driver Award", which is
awarded to the driver with the best record in terms of the least
number of accidents and tickets, honesty in reporting and
returning items lost by customers and favorable customer service
reports. The award recipients are given a sizable financial
reward and honored at the Company's annual dinner banquet. Each
year, the Company also provides permanent residence awards based
on merit to 10 drivers who are non-residents of Shenzhen.
A Company newsletter is regularly issued to all employees
and drivers focusing on performance achievements of the Company
as a whole, individual efforts and successes of its personnel, as
well as accident records and noteworthy penalties that
individuals may receive.
Since drivers are not hired as employees, the Company does
not extend full employee benefits, such as health insurance and
housing subsidies, to its drivers. The Company does provide
drivers clothing with the Company logo annually, new seat covers
as required, accommodations for visiting friends and relatives
and meals during Company meetings. Company sponsored events
include picnics, trips, banquets, health classes and lectures by
police and tradesmen about new mechanical techniques. The
Company believes those efforts provide a serious sense of pride
among its employees and taxi drivers.
The Company also implements a system of discipline and
penalties for drivers who digress from the Company's standards.
Financial penalties are imposed for missing Company meetings,
worsening accident records and violating traffic rules. In some
cases, the penalties that are levied on individual drivers also
are levied on the driver's peers and on management. Records of
performance, both favorable and unfavorable, are posted publicly
for all employees to view. Fines collected are added to the
Company's pool of capital supporting its reward programs.
Drivers are allowed to share the cost of leasing the taxi
with one or more associates so the taxi may run 24-hours a day.
Drivers in Shenzhen are required by the Transportation Department
to rest at regular intervals in order to assure alertness and
maximum safety. Primary and additional drivers are required to
be licensed by the local authorities and must pass both a
written and an oral test annually. Drivers usually work 12-hour
shifts and change at 7:00 a.m. and 7:00 p.m.
Drivers make an initial deposit with the Company for a
three-year lease of the car (the "Lease Payment"); the Lease
Payment generally ranges from approximately $10,000 to $13,000
(depending on whether the taxi is new or used); 20% of the Lease
Payment is refundable, depending upon the condition of the car
and the performance by the driver of obligations under the lease
agreement. The lease is renewable, for an identical Lease
Payment, for an additional four-year period. At the end of seven
years, the driver has the option to continue driving the car as a
taxi for the Company upon renewing the lease and making another
Lease Payment or to purchase the automobile for his own use for
the residual market value of the automobile.
During the term of the lease, a driver pays the Company
$____ a month as a management fee, regardless of mileage or the
number of customers served. In addition, taxi drivers pay the
Company approximately $____ a month for a variety of other items,
including a repair fund reserve, taxes to various regulatory
groups, insurance and a communications charge. Drivers also must
pay an average of $___ a month to the Company's repair shops to
supplement the repair reserve fund.
Taxi related costs the Company pays (supplemented by the
$___ collected from its drivers) include accident insurance,
insurance to benefit drivers in the event of the Company's
bankruptcy and certain taxes and inspection fees.
Once a driver enters into a lease with the Company, he has a
monthly appointment at the Company's headquarters for meter
monitoring and a monthly inspection at the Company's repair
shops. Taxi drivers are allowed to offer taxi services 24 hours
a day and to use the automobile for commuting purposes.
The following table sets forth the Company's average revenue
per taxi in 1997, and the components of such revenue:
Components of Revenue Per Taxi Amount
Rental fee . . . . . . . . . . . . . . . . . . . . . $10,157
Allocable portion of Lease Payment . . . . . . . . . 3,225
Night shift revenue. . . . . . . . . . . . . . . . . 1,306
$14,688
The Company estimates that the average Shenzhen driver earns
$___ a day in taxi fares from his taxi. The following table sets
forth the average operating expense per taxi in 1997, and the
components of such expense. The taxi driver pays all the
operating expenses.
Components of Operating Expense Per Taxi Amount
Insurance. . . . . . . . . . . . . . . . . . . . . $1,099
Road maintenance fee . . . . . . . . . . . . . . . 624
Traffic regulation fee . . . . . . . . . . . . . . 116
Motor vehicle tax. . . . . . . . . . . . . . . . . 29
Communication fee. . . . . . . . . . . . . . . . . 26
Personal income tax. . . . . . . . . . . . . . . . 145
$2,039
The Taxi Business has approximately 65 employees, in
addition to approximately 1,500 taxi drivers, who are not
employees.
Repair Business
The Company has a repair shop, which is located in Shenzhen.
The shop is based in a 2,800 square meter facility near the
Company's headquarters. This facility offers a full range of
repair services and is equipped with hoists, air compression
systems and a sizable body work and painting department.
Employees working two shifts are able to service
approximately 30 repair assignments simultaneously. Two senior
mechanics supervise the entire repair service staff, who are
assigned to four categories of repair operations:
* The most labor intensive repair services involve the
engine, the power train, the brakes and other
mechanical repairs. These services are handled by 25
individuals, including five mechanics.
* A staff of four automotive electrical system
specialists handles electrical problems with a wide
range of metering, gauging and sensor equipment.
* Six employees use bumping equipment, hydraulic tools
and finishing tools for repairing body damage.
* Five employees are assigned to the painting bin, where
paints of all colors and finishing surfaces are applied
to repaired metal components.
Approximately 50% of repair services revenues are generated
by engine and mechanical work, 40% body and painting work and 10%
by electrical systems repair. Prices for repair services are
based on the category of repair and the model of automobile; the
Company does not charge on the basis of time and parts.
Automobile repair relating to insurance claims must be
performed at designated repair stations. The Company has one of
only two city-wide designated repair stations for insurance
claims in Shenzhen. Insurance claims are a relatively consistent
source of business. When an accident occurs, the Company sends
an inspector to the accident scene to assess the damages with the
insurance company representative. By mutual agreement, a fee is
negotiated for the required repairs. Insurance business
generates a slightly higher profit margin than non-insurance
repair services. Revenue attributable to insurance claims in
1997 and 1996 was approximately 20% and 24%, respectively, of
Repair Business revenue.
Government regulation requires an annual inspection for all
automobiles registered in a city. An inspection of the vital
mechanical functions of an automobile must be made by a
government certified inspection station. The Company's repair
shop is so designated. The Company provides inspection services
at no charge to the Rental Business and Taxi Business.
Taxis have stringent inspection requirements. In addition
to the ordinary annual inspection, quarterly inspections of taxis
also are required. The Repair Business provides this service at
no charge to the Taxi Business. The Company also requires
monthly inspections of its taxis; drivers pay a $1 monthly charge
for these inspections. The Company charges only modest fees for
inspection services, because inspections generate maintenance and
other repair assignments.
The Company generally charges customers for parts at about
120% to 130% of cost plus the labor for installation.
In addition to repair services offered at its repair shop,
the Company offers road side repair services. The Company has
two tow trucks in Shenzhen and plans to increase its tow truck
fleet as part of its expansion. The charge for towing depends on
the towing distance. For towing within Shenzhen, the Company
charges a fixed rate of $42. Towing services for the Rental
Business are paid by the Company; towing services for the Taxi
Business are paid by the taxi drivers.
The Repair Business employs a total of 56 individuals:
three managers, 13 administrators, seven licensed mechanics, five
assistant mechanics and 28 licensed technicians.
Hotel
The Hotel will be located in Shimen in northwest Hunan
Province. The Hotel currently is scheduled to commence
operations in early 1999. Shimen is near the route from Beijing,
Shanghai and Guangzhou to Tao Hua Yuan, the largest national park
in Hunan Province with an estimated annual tourist population of
approximately 10,000,000. Shimen also is 150 kilometers from the
Three Gorges Dam and is adjacent to the Zhang Jia Je, a
well-known resort area.
The Hotel is designed to be the most upscale hotel in
Shimen. The rooms are currently planned to rent for
approximately $30 per room per night. The Hotel's restaurant is
expected to have 15 tables and 12 private rooms. The Hotel is
expected to have approximately 160 employees.
Seven individuals currently are employed in the development
of the Hotel. The construction of the mainframe structure of the
Hotel is complete. The next phase of development is the interior
design and decoration of the Hotel. The estimated cost of
completing the Hotel is approximately $1,330,000. To date,
development of the Hotel has cost approximately $2,787,000.
Description of Property
The Company leases two floors for its taxi headquarters,
which are located in a modern, seven-story building in Shenzhen
with 2,000 square meters per floor. The lease expires in 2001.
The annual rent under the lease is $6 per square meter per month.
The Company leases its facilities for the Rental Business in
each city in which it operates. The leases cover 200 to 800
square meters of office space in each location, 500 to 4,000
square meters of rental lot space in each location and 100 to 200
square meters of space in each satellite station. The leases
expire at various times over the next 5 years. The annual rent
under the leases ranges from $3 to $6 per square meter per month.
The Company owns its automobile repair shop in Shenzhen.
The shop occupies a 2,800 square foot facility.
The Hotel will be in the city of Shimen in northwest Hunan
Province. It is scheduled to commence operations in early 1999.
The Hotel is located on 6,666 square meters, on which the Hotel's
12,800 square meter, 12-story structure is built. The Hotel is
expected to have 124 rooms, a restaurant, a disco entertainment
area, a variety of conference rooms and a retail shop.
Legal Proceedings
The Company is not involved in any material legal
proceedings.
MANAGEMENT
Directors and Executive Officers
The following table sets forth information regarding the
directors and executive officers of the Company.
Name Age Positions
Wu Zhi Jian 38 Chairman of the Board, Director
Andrew Lee 49 President, Director
Willy Wu 36 Executive Vice President, Chief
Financial Officer
Peng Jun 27 Executive Vice President,
Treasurer, Director
Zhang Li Wei 38 Director
Li Yong Yuan 51 Director
Mona Ng 32 Secretary
Wu Zhi Jian has been the chairman and director of the
Company since February 1997. Mr. Wu founded Jinzhenghua
Transport in 1988. Mr. Wu is the chairman and founder of
Shenzhen Zhenghua Group Co. Ltd., which is a diversified group of
companies.
Andrew Lee has been the president and director of the
Company since 1997. Since 1997, Mr. Lee has been the co-chairman
and co-chief executive officer of Greater Alliance Corporation, a
company that provides financial services. Since 1992, Mr. Lee
has been the president and chief executive officer of First
Shanghai Corporation, a merchant bank, BOXX International
Corporation, a computer and electronics company, and TowerCom
Inc., a software company. Mr. Lee also is chairman of Valentine
USA Inc., a company that manufactures ladies' apparel. Mr. Lee
also is a director of Consygen Inc., a software development
company. Mr. Lee received graduate degrees in business
administration and electrical engineering at Columbia University.
Mr. Lee also holds a visiting professorship at Guangxi Institute
of Technology in Guangxi, China.
Willy Wu has been the executive vice president and chief
financial officer of the Company since January 1998. Since 1993,
Mr. Wu has been the vice president and treasurer of First
Shanghai Corporation, a merchant bank, and the chief financial
officer of Valentine USA Inc. and M.L.J. Fashions Inc., companies
that manufacture ladies' apparel. From 1985 to 1993, Mr. Wu was
employed as an accountant by KPMG Peat Marwick in the auditing
and the management consulting groups. Mr. Wu received a degree
in accounting and computer applications and information systems
from New York University Stern School of Business in 1985. Mr.
Wu is a certified public accountant in New York State.
Peng Jun has been the executive vice president, treasurer
and director of the Company since 1997. From 1994 to 1997, Mr.
Peng was standing director of the Board of Shenzhen Zhenghua
Group Co. Ltd. and chairman and general manager of Shenzhen Zheng
Hua Industrial Development Main Company. In 1994, Mr. Peng was
appointed vice general manager of Guo Run Taxi Service Company.
From 1991 to 1994, he was manager of Jun Peng Repair Shop.
Zhang Li Wei has been a director of the Company since March
1997. From 1995 to 1997, he was chief executive officer and a
director of Jinzhenghua Transport. From 1994 to 1995, he was a
director of the Shenzhen Zhenghua Group Co. Ltd. and chairman of
Zheng Hua Trading Company, and general manager of the Taxi
Business. From 1992 to 1994, Mr. Zhang was general manager of
Taolin Hotel in Changde.
Li Yong Yuan has been a director of the Company since 1997.
From 1994 to 1997, Mr. Li has been a standing director of
Jinzhenghua Transport and Shenzhen Zhenghua Group Co. Ltd. From
1993 to 1994, Mr. Li was assistant to the president and vice
general manager of Shenzhen Zheng Hua Industrial Development Main
Company. From 1988 to 1993, Mr. Li was standing vice general
manager of Shenzhen Zheng Hua Industrial Development Main
Company.
Mona Ng has been the secretary of the Company since February
1998. Since 1994, Ms. Ng has been the vice president and
secretary of First Shanghai Corporation, a merchant bank. In
October 1990, Ms. Ng co-founded Valentine USA Inc., a company
that manufactures ladies apparel. From 1988 to 1990, Ms. Ng was
employed as a loss control consultant in the commercial insurance
division of Cigna Corporation. Ms. Ng received a degree in
finance and economics from New York University Stern School of
Business in 1988.
Executive Compensation
In 1997, the Company did not provide compensation or other
benefits to any of its directors or executive officers.
At present, the Company has no agreements, plans or
arrangements under which its executive officers or other
significant employees are being, or in the future are to be,
compensated.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Historically, Shenzhen Zhenghua Group Co. Ltd. (the
"Zhenghua Group"), of which Mr. Wu is chairman and founder, has
provided a significant portion of the Company's financing.
During 1997, the Company received interest-free loans totaling
$24,182,000 from the Zhenghua Group, of which the Company repaid
a total of $12,644,000. Additionally, during 1997, the Zhenghua
Group relieved the Company of its obligation to repay $7,476,000
of the outstanding balance by contributing that amount to the
Company's capital. At December 31, 1997, the Company owed the
Zhenghua Group a total of $6,220,000. The loans have no stated
terms or repayment provisions. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations
Liquidity and Capital Resources".
In late 1997, the Company borrowed $3,500,000 aggregate
principal amount from Yeung Ming-Sum ("Mr. Yeung") and Neolite
Neon Co. Pty. Ltd. ("Neolite"). Mr. Yeung and Neolite loaned the
Company $2,000,000 and $1,500,000, respectively. Each loan bears
interest at the rate of 12% a year and matures 180 days after the
respective loan was made. After the due date of each loan and
prior to payment in full, the principal and interest on each loan
is convertible, at the lender's option, into the number of shares
of Company Common Stock determined by dividing the amount
required to be paid under the loan that the lender wishes to
convert by 50% of the average closing bid price of the Company
Common Stock on the five trading days immediately before the
conversion. The loans are secured by 35%, in the aggregate, of
the Company's ownership interest in Jinzhenghua Transport (20%
and 15% of the Company's ownership interest, in respect of the
loans from Mr. Yeung and Neolite, respectively). In addition,
Mr. Wu has guaranteed the Company's obligations under each loan,
and has pledged an aggregate of 875,000 shares of Company Common
Stock he owns to secure that guarantee, 500,000 of which are
pledged to secure the guarantee to Mr. Yeung and 375,000 of which
are pledged to secured the guarantee to Neolite. In addition, at
the time the loans were made, Mr. Wu transferred to the lenders
an aggregate of 43,750 shares of Company Common Stock, 25,000 of
which were transferred to Mr. Yeung and 18,750 of which were
transferred to Neolite. Each lender also has certain so-called
"piggy-back registration rights" with regard to the shares of
Company Common Stock referred to above. Except through their
beneficial ownership of shares of Company Common Stock, neither
Mr. Yeung nor Neolite is affiliated with the Company. See "Risk
Factors", "Management's Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and Capital
Resources" and "Principal Shareholders".
During 1997, Peng Jun ("Mr. Peng"), a director and executive
officer of the Company, was indebted to the Company at various
times in amounts up to $633,000. The indebtedness did not bear
interest. During 1997, Mr. Peng repaid the indebtedness in full.
Wu Qi Mei, Mr. Wu's mother, owns the 8% of Jinzhenghua
Transport that the Company does not own.
Zhenghua Group owns all the minority interests in the
Company's subsidiaries, other than (i) 25% of the hotel
subsidiary, which is owned by another affiliate of Mr. Wu; (ii)
15% of the hotel subsidiary, which is owned by an unaffiliated
party; and (iii) 30% of the car rental subsidiary that operates
in Jiangxi Province, which also is owned by an unaffiliated
party.
For information concerning the Reorganization, see "The
Reorganization".
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to
the Company Common Stock beneficially owned as of December 31,
1997 by (i) each person known by the Company to be the beneficial
owner of more than 5% of the shares of Company Common Stock, (ii)
each director individually, (iii) each executive officer
individually and (iv) all executive officers and directors as a
group.
Name and Address Amount and Nature of Percent
5% Shareholders Beneficial Ownership of Class
Wu Zhi Jian(1,2) 2,288,110 37.7%
Yeung Ming-Sum (3) 862,500 14.2
Flat B, 13/F, Block D
Wylie Court, 19 Wylie Path
Homantin, Kowloon
Hong Kong
Neolite Neon Co.
Pty. Ltd. (4) 393,750 6.5
225 Queen Street
Beaconsfield 2015
Sydney, Australia
Wu Qi Mei(1,5) 300,199 5.0
Other Executive Officers and Directors
Peng Jun(1) 240,158 4.0
Zhang Li Wei(1) 30,000 0.5
Li Yong Yuang(1) 30,000 0.5
Directors and executive
officers as a group
(four individuals) 2,588,268 42.7
____________________
(1) The party's address is 7/F, Business Bldg. No. 1
Suncang, Bao'an North Rd., Shenzhen City, People's Republic of
China.
(2) Mr. Wu is Wu Qui Mei's son. Mr. Wu may be deemed to
share dispositive power with Yeung Ming-Sum ("Mr. Yeung") and
with Neolite Neon Co. Pty. Ltd. ("Neolite") with respect to
500,000 shares and 375,000 shares, respectively, of Company
Common Stock pledged to them to secure Mr. Wu's guarantee of
certain Company indebtedness. He also may be deemed to share
dispositive power with a third lender to the Company with respect
to 125,000 shares of Company Common Stock pledged to secure his
guarantee of certain Company indebtedness. See "Certain
Relationships and Related Transactions".
(3) Includes 500,000 shares of Company Common Stock held in
pledge. See note 2 above.
(4) Includes 375,000 shares of Company Common Stock held in
pledge. See note 2 above.
(5) Ms. Wu is Mr. Wu's mother.
SHARES ELIGIBLE FOR FUTURE SALE
The 6,066,341 shares of Company Common Stock to be issued in
the Reorganization will be available for resale in the public
market without restriction or further registration under the
Securities Act, except for shares issued to affiliates of the
Company (in general, any person who has a control relationship
with the Company), which shares will be subject to the resale
limitations of Rule 144.
2,588,268 of the Company's 6,066,341 shares of Company
Common Stock will be issued to parties who may be deemed to be
affiliates. Under Rule 144 as currently in effect, an affiliate
is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Company Common Stock (60,663 shares
immediately after the Reorganization) or (ii) the average weekly
trading volume during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the
Commission. Sales pursuant to Rule 144 also are subject to
certain other requirements.
Sales of substantial amounts of Company Common Stock under
Rule 144 or otherwise, or even the potential of such sales, could
depress the market price of the Company Common Stock, and could
impair the Company's ability to raise capital through the sale of
its equity securities.
Prior to the Reorganization, there has been no public market
for the Company Common Stock and there can be no assurance that a
market will develop or be sustained following the Distribution.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of
50,000,000 shares of Company Common Stock having a par value of
$0.01 per share, and 5,000,000 shares of preferred stock having a
par value of $.01 per share.
The following is a description of all the material features
of the Company's capital stock, and the Company's certificate of
incorporation and bylaws. The description is qualified in its
entirety by the provisions of the certificate of incorporation
and bylaws and the Delaware General Corporation Law.
Common Stock
There are 6,066,341 shares of Company Common Stock
outstanding. The holders of Company Common Stock are entitled to
one vote for each share held of record on all matters voted upon
by shareholders and may not cumulate votes. Thus, the owners of
a majority of the Company Common Stock outstanding may elect all
the directors, if they choose to do so, and the owners of the
balance of the shares would not be able to elect any directors.
Subject to the rights of holders of any future series of
undesignated preferred stock that may be designated, each share
of outstanding Company Common Stock is entitled to participate
equally in any distribution of assets made to the shareholders in
liquidation, dissolution or winding-up of the Company and is
entitled to participate equally in dividends as and when declared
by the board of directors. There are no redemption, sinking
fund, conversion or preemptive rights with respect to the shares
of Company Common Stock. All shares of Company Common Stock have
equal rights and preferences.
Preferred Stock
The board of directors is authorized, without further
shareholder approval, to issue from time to time shares of
preferred stock in one or more series with such designations and
such powers, preferences and rights, and such qualifications,
limitations or restrictions (which may differ with respect to
each series) as the board may fix by resolution.
The board of directors is empowered to set the terms of such
shares (including terms with respect to redemption, sinking fund,
dividend, liquidation, preemptive, conversion and voting rights
and preferences). Accordingly, the board of directors, without
shareholder approval, may issue shares of preferred stock with
terms (including terms with respect to redemption, sinking fund,
dividend, liquidation, preemptive, conversion and voting rights
and preferences) that could adversely affect the voting power and
other rights of holders of the Company Common Stock.
The undesignated preferred stock may have the effect of
discouraging an attempt, through the acquisition of a substantial
number of shares of Company Common Stock, to acquire control of
the Company with a view to effecting a merger, sale or exchange
of assets or a similar transaction. For example, the board of
directors could issue such shares as a dividend to holders of
Company Common Stock or place such shares privately with
purchasers who may side with the board of directors in opposing a
takeover bid. The anti-takeover effects of the undesignated
preferred stock may deny shareholders the receipt of a premium on
their Company Common Stock and also may have a depressive effect
on the market price of the Company Common Stock.
Delaware Anti-Takeover Law and Certain Charter Provisions
The Company is subject to Section 203 of the Delaware
General Corporation Law ("Section 203"), which, subject to
certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested
shareholder for a period of three years following the date that
such shareholder became an interested shareholder, unless: (i)
prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which
resulted in the shareholder becoming an interested shareholder;
(ii) upon consummation of the transaction which resulted in the
shareholder becoming an interested shareholder, the interested
shareholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced
(for the purposes of determining the number of shares
outstanding, under Delaware law, those shares owned (x) by
persons who are directors and also officers, and (y) by employee
stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer are excluded
from the calculation), or (iii) on or subsequent to such date,
the business combination is approved by the board of directors
and authorized at an annual or special meeting of shareholders,
and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the
interested shareholder.
Section 203 defines a business combination to include: (i)
any merger or consolidation involving the corporation and the
interested shareholder; (ii) any sale, transfer, pledge or other
disposition of 10% or more of the assets of the corporation
involving the interested shareholder; (iii) subject to certain
exceptions, any transaction which results in the issuance or
transfer by the corporation of any stock of the corporation to
the interested shareholder; (iv) any transaction involving the
corporation which has the effect of increasing the proportionate
share of the stock of any class or series of the corporation
beneficially owned by the interested shareholder, or (v) the
receipt by the interested shareholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation. In general, Section 203
defines an interested shareholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock
of the corporation and any entity or person affiliated with or
controlling or controlled by such entity or person.
Anti-takeover Effect of Provisions of the Certificate of
Incorporation and Bylaws.
Certain provisions of the Company's certificate of
incorporation and Delaware law may have a significant effect in
delaying, deferring or preventing a change in control of the
Company and may adversely affect the voting and other rights of
other holders of Company Common Stock. In particular, the ability
of the board of directors to issue preferred stock without
further shareholder approval may have the effect of delaying,
deferring or preventing a change in control of the Company and
may adversely affect the voting and other rights of other holders
of Company Common Stock. In addition, the Company's certificate
of incorporation does not permit shareholders to vote
cumulatively for directors.
Transfer Agent and Registrar
The transfer agent and registrar for the Company Common
Stock is ______________.
COMPARISON OF DELAWARE AND NEVADA CORPORATION LAWS
As a result of the Reorganization, holders of Dawson Common
Stock, which is subject to the Nevada General Corporation Law
(the "Nevada Law"), will become holders of Company Common Stock,
which is subject to the Delaware General Corporation Law ( the
"GCL"). The Nevada Law is substantially similar to the GCL. The
following summarizes all the material differences between the
Nevada Law and the GCL.
Preemptive Rights
Under the Nevada Law applicable to corporations organized
prior to October 1, 1991 (as Dawson was), shareholders of Nevada
corporations are permitted to have preemptive rights to purchase
newly issued shares, unless prohibited in the certificate of
incorporation. Dawson's articles of incorporation do prohibit
such rights. Under the GLC, shareholders do not have preemptive
rights, unless there is a specific provision granting such rights
in the certificate of incorporation. The Company's certificate
of incorporation does not contain such a provision. Accordingly,
the Reorganization will not have a practical impact on
shareholders in terms of preemptive rights.
Examination of Books and Records
Under the Nevada Law, a person must be the holder of record
of, or the holder of record of voting certificates for, or have
been authorized in writing by the holders of, at least 15% of all
outstanding shares of a corporation in order to examine the books
of account and all financial records of a corporation. Under the
GLC, any shareholder with a proper purpose may demand inspection.
The Nevada Law does not apply to any corporation listed and
traded on any recognized stock exchange or that furnishes its
shareholders a detailed annual financial statement.
Dividends
Under the GCL, unless otherwise provided in the certificate
of incorporation, a corporation may declare and pay dividends out
of surplus, or, if no surplus exists, out of net profits for the
fiscal year in which the dividend is declared and/or the
preceding fiscal year (provided the amount of capital of the
corporation following the declaration and payment of the dividend
is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a
preference upon the distribution of assets). In addition, the
GCL provides that a corporation may redeem or repurchase its
shares only out of surplus.
The Nevada Law provides that no distribution (including
dividends on, or redemption or repurchase of, shares of capital
stock) may be made, if, after giving effect to the distribution,
the corporation would not be able to pay its debts as they become
due in the usual course of business, or the corporation's total
assets would be needed at the time of a liquidation to satisfy
the preferential rights of preferred shareholders.
Except pursuant to the Reorganization, neither Dawson nor
the Company currently intends to pay dividends or make any other
distributions on its capital stock. Nevertheless, the difference
between the GCL and the Nevada Law with respect to amounts
available for dividends or other distributions could affect
future dividends or other distributions, if any are declared.
Anti-Takeover Legislation
Both the GCL and the Nevada Law contain provisions
restricting the ability of a corporation to engage in business
combinations with an interested shareholder. Under the GCL,
except under certain circumstances, a corporation is not
permitted to engage in a business combination with any interested
shareholder for a three-year period following the date such
shareholder became an interested shareholder. The GCL defines an
interested shareholder generally as a person who owns 15% or more
of the outstanding shares of such corporation's voting stock.
Under the Nevada Law, except under certain circumstances
that vary from the exceptions under the GCL, business
combinations with interested shareholders are not permitted for a
three-year period following the date such shareholder became an
interested shareholder, the same period provided for under the
GCL. The Nevada Law defines an interested shareholder,
generally, as a person who owns 10% or more, rather than 15% or
more as provided under the GCL, of the outstanding shares of the
corporation's voting stock.
In addition, the Nevada Law generally disallows the exercise
of voting rights with respect to "control shares" of an "issuing
corporation" held by an "acquiring person", unless such voting
rights are conferred by a majority vote of the disinterested
shareholders. "Control shares" are the shares of an issuing
corporation acquired in connection with the acquisition of a
"controlling interest". "Controlling interest" is defined in
terms of threshold levels of voting ownership, which thresholds,
whenever crossed, trigger application of the voting prohibition
with respect to the newly acquired shares.
The Nevada Law also contains general provisions permitting
directors to (i) take action to protect the interests of the
corporation and its shareholders, including the adoption or
execution of plans affecting the holder(s) of a specified number
of shares or percentage of share ownership or voting power and
(ii) to resist a change or potential change in control of the
corporation, if the directors determine that the change or
potential change is opposed to or not in the best interest of the
corporation.
Indemnification of Directors and Officers and Advancement of
Expenses
The GCL and the Nevada Law have nearly identical provisions
regarding indemnification by a corporation of its officers,
directors, employees and agents, except Nevada Law provides
broader indemnification in connection with shareholder derivative
lawsuits.
The GLC and the Nevada Law differ in their provisions for
advancement of expenses incurred by an officer or director in
defending a civil or criminal action, suit or proceeding. The
GCL provides that expenses incurred by an officer or director in
defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in
advance of the final disposition of the action, suit or
proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount, if it is ultimately
determined that he is not entitled to be indemnified by the
corporation. Thus, a corporation has the discretion to decide
whether or not to advance expenses.
Under the Nevada Law, the articles of incorporation, bylaws
or an agreement made by the corporation may provide that the
corporation must advance expenses before the final disposition of
the action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount, if
it is ultimately determined that he is not entitled to be
indemnified by the corporation. Thus, a Nevada corporation may
have no discretion to decide whether or not to advance expenses.
Limitation on Personal Liability of Directors
Delaware corporations are permitted to adopt charter
provisions limiting, or even eliminating, the liability of a
director to a company and its shareholders for monetary damages
for breach of fiduciary duty as a director, provided that such
liability does not arise from certain proscribed conduct,
including breach of the duty of loyalty, acts or omissions not in
good faith or that involve intentional misconduct or a knowing
violation of law or liability to the corporation based on
unlawful dividends or distributions or improper personal benefit.
While the Nevada Law has a similar provision permitting the
adoption of provisions in the articles of incorporation limiting
personal liability, the Nevada provision differs in two respects.
First, the Nevada provision applies to both directors and
officers. Second, while the Delaware provision excepts from
limitation on liability a breach of the duty of loyalty, the
Nevada counterpart does not contain this exception. Thus, the
Nevada provision permits a corporation to limit the personal
liability of directors and officers for a breach of the duty of
loyalty.
The Company certificate of incorporation, like the Dawson
articles of incorporation, contains a provision limiting the
personal liability of directors. However, unlike the Company
certificate of incorporation, the Dawson articles of
incorporation also limit the liability of officers. Under the
laws of either state, the charter provision will not have any
effect on the availability of equitable remedies, such as an
injunction or recission based upon a breach of the duty of care,
or on liabilities that arise under certain federal statutes, such
as the securities laws.
Under the GCL, directors are jointly and severally liable to
a corporation for willful or negligent violations of statutory
provisions relating to the purchase or redemption of a
corporation's own shares or the payment of dividends for a period
of six years from the date of such unlawful act. A director who
was either absent or dissented from the taking of such action may
exonerate himself from liability by causing his dissent to be
entered in the corporation's minutes. Under the Nevada Law,
directors are jointly and severally liable to the corporation, if
they vote for or assent to acts that violate statutory provisions
relating to the purchase of a corporation's own shares, the
payment of dividends, the distribution of assets in liquidation
or any loans or guarantees made to a director, until the
repayment thereof. Under the Nevada Law, there is no express
standard of conduct that can protect a director from liability or
any express statute of limitations with respect to any such
illegal acts by a director, as there are under the GCL. Absent
directors are not liable, as long as they did not vote for or
assent to any of the illegal acts. The Nevada Law, unlike the
GCL, allows a director who was present at a meeting that approved
an illegal act to avoid liability, even if he does not register
his dissent in the minutes of the meeting, by voting against the
illegal act and registering his dissent at a later time in a
separate writing filed with the secretary of the meeting.
Amendment to Charter and Bylaws
The GCL and the Nevada Law require the approval of the
holders of a majority of all outstanding shares entitled to vote
(with each shareholder being entitled to one vote for each share
held) to approve proposed amendments to a corporation's charter.
Neither state requires shareholder approval for the board of
directors of a corporation to fix the voting powers, designation,
preferences, limitations, restrictions and rights of a class of
stock, provided that the corporation's charter documents grant
such power to its board of directors. The holders of the
outstanding shares of a particular class are entitled to vote as
a class on a proposed amendment, if the amendment would alter or
change the power, preferences or special rights of one or more
series of any class to affect the series adversely. The number
of authorized shares of any class of stock may be increased or
decreased (but not below the number of shares then outstanding)
by the affirmative vote of the holders of a majority of the stock
entitled to vote thereon (without a class vote), if so provided
in any amendment to the certificate of incorporation or
resolutions creating such class of stock.
Classified Board of Directors
The GCL permits any Delaware corporation to classify its
board of directors into as many as three classes with staggered
terms of office. The shareholders must elect only one class each
year and each class has a term of office at least one year but no
longer than three years. The Company's certificate of
incorporation does not provide for a staggered board.
The Nevada Law also permits corporations to classify boards
of directors, provided that at least one-fourth of the directors
are elected annually. The Dawson articles of incorporation do
not provide for a staggered board.
Cumulative Voting
Cumulative voting for directors entitles each shareholder to
cast a number of votes equal to the number of voting shares held
by such shareholder multiplied by the number of directors to be
elected and to cast all such votes for one nominee or distribute
such votes among up to as many candidates as there are positions
to be filled. Cumulative voting may enable a minority
shareholder or group of shareholders to elect at least one
representative to the board of directors, where such shareholders
would not be able to elect any directors without cumulative
voting.
The Nevada Law permits cumulative voting in the election of
directors, as long as certain procedures are followed. Although
the GCL does not explicitly grant cumulative voting, a Delaware
corporation may provide for cumulative voting in the
corporation's certificate of incorporation. Neither the Dawson
articles of incorporation nor the Company's certificate of
incorporation provide for cumulative voting.
Vacancies
Subject to the rights, if any, of any series of preferred
stock to elect directors and to fill vacancies on the board of
directors, vacancies during the year may be filled under the GCL
and the Nevada Law by the affirmative vote of a majority of the
remaining directors then in office, even if less than a quorum.
Any director appointed holds office for the remainder of the full
term of the class of directors in which the vacancy occurred.
Removal of Directors
Under GCL, the holders of a majority of voting shares of
each class entitled to vote at an election of directors may vote
to remove any director or the entire board, without cause, unless
(i) the board is a classified board, in which case directors may
be removed only for cause, or (ii) the corporation has
cumulative voting, in which case, if less than the entire board
is to be removed, no director may be removed without cause, if
the vote cast against his removal would be enough to elect him.
The Nevada Law requires at least two-thirds of the voting shares
or class entitled to vote at an election of directors to remove a
director. Furthermore, the Nevada Law does not make a
distinction between removals for cause and removals without
cause.
Under the GCL, a director of a corporation that does not
have a classified board or permit cumulative voting may be
removed, without cause, by the affirmative vote of a majority of
the outstanding shares entitled to vote at an election of
directors.
Actions by Written Consent of Shareholders
The Nevada Law and the GCL each provide that any action
required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting, if the holders of
outstanding stock having at least the minimum number of votes
that would be necessary to authorize or take such action at a
meeting consent to the action in writing. In addition, the GCL
requires the corporation to give prompt notice of the taking of
corporate action without a meeting by less than unanimous written
consent to those shareholders who did not consent in writing.
Shareholder Vote for Mergers and Other Corporate
Reorganizations
In general, both jurisdictions require authorization by an
absolute majority of outstanding shares entitled to vote, as well
as approval by the board of directors, with respect to the terms
of a merger or a sale of substantially all the assets of the
corporation. Neither jurisdiction requires approval by the
shareholders of a surviving corporation in a merger or
consolidation, as long as the surviving corporation issues no
more than 20% of its voting stock in the transaction.
Appraisal Rights; Dissenter's Rights
Both jurisdictions provide that shareholders have the right,
in some circumstances, to dissent from certain corporation
reorganizations and instead to demand payment of the fair cash
value of their shares. Under the GCL, unless a corporation's
certificate of incorporation provides otherwise, dissenters do
not have appraisal rights with respect to: (i) a merger or
consolidation by a corporation, the shares of which are either
listed on a national securities exchange, designated as a
National Market System Security on an inter-dealer quotation
system by the National Association of Securities Dealers, Inc. or
held of record by at least 2,000 shareholders, or (ii)
shareholders of a corporation surviving a merger, if no vote of
shareholders of the surviving corporation is required to approve
the merger.
The Nevada Law also limits dissenters rights when the shares
of the corporation are listed on a national securities exchange
or are held by at least 2,000 shareholders, unless the
shareholders are required to accept in exchange for their shares
anything other than cash or: (i) shares in the surviving
corporation, (ii) shares in another entity that is publicly
listed or held by more than 2,000 shareholders or (iii) any
combination of cash or shares in an entity described in (i) or
(ii).
TAXATION
The following is a summary of certain anticipated material
United States federal income tax and China tax consequences of
the ownership of the Company Common Stock. The summary
represents the opinion of Proskauer Rose LLP, insofar as it
relates to United States federal income tax law, and the Jun He
Law Offices, insofar as it relates to China tax law. The summary
does not deal with all possible tax consequences relating to the
ownership of the Company Common Stock and does not purport to
deal with the tax consequences applicable to all categories of
investors, some of which (such as dealers in securities,
insurance companies and tax-exempt entities) may be subject to
special rules. In particular, the discussion does not address
the tax consequences under state, local and other national (i.e.,
non-United States and non- China) tax laws. Accordingly, each
prospective owner of Company Common Stock should consult its own
tax advisor regarding the particular tax consequences to it of
the receipt and ownership of the Company Common Stock. The
following discussion is based upon laws and relevant
interpretations thereof in effect as of the date of this
prospectus, all of which are subject to change.
United States Federal Income Taxation
The following discussion addresses only the material United
States federal income tax consequences to a United States person
(i.e., a United States citizen or resident, a United States
corporation, or an estate or trust subject to United States
federal income tax on all of its income regardless of source)
owning Company Common Stock (a "U.S. Owner"). For taxable years
beginning after December 31, 1996, a trust is a United States
person only if (i) a court within the United States is able to
exercise primary supervision over its administration and (ii) one
or more United States persons have the authority to control all
of its substantial decisions.
A distribution with respect to the Company Common Stock made
to a U.S. Owner will be included in the owner's gross income as a
taxable dividend, to the extent of the Company's current or
accumulated earnings and profits as determined under United
States federal income tax principles. Any distributions in
excess of such earnings and profits of the Company will first be
treated, for United States federal income tax purposes, as a
nontaxable return of capital, to the extent of the United States
Investor's adjusted tax basis in the Company Common Stock, and
then as gain from the sale or exchange of a capital asset,
provided that the Company Common Stock constitutes a capital
asset in the hands of the U.S. Owner.
Subject to the discussion below, gain or loss on the sale or
exchange of the Company Common Stock will be treated as capital
gain or loss if the Company Common Stock is held as a capital
asset by the U.S. Owner. Such capital gain or loss will be
long-term capital gain or loss if the United States Investor has
held the Company Common Stock for more than one year at the time
of the sale or exchange, and, in the case of an individual, will
be taxed at the lowest rates applicable to capital gains if the
U.S. Owner has a holding period in the Company Common Stock of
more than eighteen months.
Various provisions of the Code impose special taxes in
certain circumstances on the shareholders of non-United States
corporations, and on the shareholders of United States
corporations that are shareholders of non-United States
corporations. The following is a summary of certain provisions
that could have an adverse impact on the owners of Company Common
Stock.
Personal Holding Company
Sections 541 through 547 of the Code relate to the
classification of certain corporations (including foreign
corporations) as a personal holding company ("PHC") and the
consequent taxation of such corporations on certain of their
taxable income, to the extent amounts at least equal to such
income are not distributed to their shareholders ("undistributed
PHC income"). A PHC is a corporation (i) more than 50% of the
value of the stock of which is owned, directly or indirectly
(including pursuant to certain rules attributing ownership from
related persons), by five or fewer individuals (without regard to
their citizenship or residence), and (ii) that receives 60% or
more of its gross income (in the case of a foreign corporation,
U.S.-related gross income), as specifically adjusted, from
certain passive sources, such as dividends, interest, royalties
or rents. (For this purpose, "U.S.-related gross income" means
the corporation's United States source income and certain types
of its foreign source income that are effectively connected with
the conduct of a United States trade or business.) If the
Company or Jinzhenghua Transport is classified as a PHC, a PHC
tax (which is in addition to the regular corporate tax) will be
levied at the rate of 39.6% on that corporation's undistributed
PHC income.
While the Company and Jinzhenghua Transport and its
subsidiaries will each satisfy the 50% PHC ownership test
immediately following the Reorganization, the Company does not
expect that any of them will have significant passive income and
thereby be a PHC.
Foreign Personal Holding Company
Sections 551 through 558 of the Code relate to a non-United
States corporation classified as a foreign personal holding
company ("FPHC") and include in the gross income of a United
States person that is a shareholder of such a corporation its
proportionate share of the undistributed income of the
corporation. A non-United States corporation will be classified
as a FPHC if (i) five or fewer individuals who are United States
citizens or residents own, directly or indirectly (including
pursuant to certain ownership attribution rules), more than 50%
of the corporation's stock (measured either by voting power or
value) (the "FPHC shareholder test") and (ii) the Company
receives 50% or more of its gross income (regardless of source),
as specifically adjusted, from certain passive sources such as
dividends and interest (the "FPHC income test"). If a
corporation is classified as a FPHC, a pro rata portion of its
undistributed income is taxable as a dividend to United States
persons (including United States corporations) that owned stock
of the corporation on the last day of the corporation's taxable
year, even if no distribution is actually made.
Although the Company believes that Jinzhenghua Transport and
its subsidiaries will not satisfy the FPHC shareholder test
immediately after the Reorganization, it is possible that
subsequent events could cause them to satisfy that test. In any
event, the Company does not expect Jinzhenghua Transport or any
of its subsidiaries to have significant passive income and
thereby satisfy the FPHC income test.
Controlled Foreign Corporation
Sections 951 through 964 and section 1248 of the Code relate
to controlled foreign corporations ("CFCs") and may operate to
cause certain undistributed income of such a corporation to be
included in the gross income of certain shareholders and to
convert into dividend income gains on dispositions of shares that
would otherwise qualify for capital gains treatment. The
imputation of undistributed income under section 951 applies only
if those United States persons (including United States
corporations) that individually own at least 10% of a non-United
States corporation's voting stock own, in the aggregate, more
than 50% (measured by voting power or value) of the shares of the
non-United States corporation. Ownership is measured by
reference to direct and indirect ownership (including pursuant to
certain ownership attribution rules). In addition, section 1248
of the Code provides that if a United States person disposes of
stock in a non-United States corporation and such person owned,
directly or indirectly (including pursuant to certain ownership
attribution rules), 10% or more of the voting shares of the
corporation at any time during the five- year period ending on
the date of disposition when the corporation was a CFC, any gain
from the sale or exchange of the shares will be treated as
ordinary income to the extent of the CFC's earnings and profits
during the period that the shareholder held the shares (with
certain adjustments). This rule also applies to a disposition by
a 10% United States shareholder of the stock of a United States
corporation formed or used principally for the holding of the
stock of a CFC.
Because 92% of the stock of Jinzhenghua Transport will be
owned by the Company immediately after the Reorganization,
Jinzhenghua Transport and its subsidiaries will be CFCs. The
Company, however, does not anticipate that Jinzhenghua Transport
or any of its subsidiaries will derive any significant amount of
the types of gross income that would be imputed to the Company.
The ordinary income treatment rule of section 1248 will be
applicable to gain derived by the Company on a disposition of the
stock of Jinzhenghua Transport. This rule may also be applicable
to gain derived by a 10% United States shareholder of the Company
on a disposition of Company stock. For purposes of applying
section 1248, the Company's period of ownership of Jinzhenghua
Transport stock will include Dawson's period of ownership of such
stock, and a shareholder's period of ownership of Company stock
will include its period of ownership of the Dawson stock with
respect to which the Company stock was received.
Passive Foreign Investment Company
Sections 1291 through 1298 relate to the tax treatment of
United States shareholders of a passive foreign investment
company ("PFIC"). A non-United States corporation is a PFIC if
75% or more of its gross income (including the pro rata share of
the gross income of any corporation (United States or foreign) in
which the non-United States corporation is considered to own 25%
or more of the shares by value) in a taxable year is passive
income (the "PFIC income test"). A non-United States corporation
is also a PFIC if at least 50% of its assets (averaged over the
year and generally determined based on value, and including the
pro rata share of the assets of any corporation of which the
non-United States corporation is considered to own 25% or more of
the shares by value) in a taxable year are held for the
production of, or produce, passive income (the "PFIC asset
test"). A non-United States corporation is not treated as a PFIC
with respect to any United States shareholder for any year during
which the corporation is a CFC and the United States shareholder
is a 10% shareholder.
If a non-United States corporation is a PFIC, each United
States shareholder of the corporation will (regardless of whether
the corporation remains a PFIC), in the absence of an election by
such United States shareholder to treat the corporation as a
"qualified electing fund" (the "QEF election"), or a
mark-to-market election, as discussed below, upon certain
distributions by the corporation and upon disposition of the
corporation shares at a gain, be liable to pay tax at the then
prevailing income tax rates on ordinary income plus interest on
the tax, as if the distribution or gain had been recognized
ratably over the taxpayer's holding period for the stock of the
corporation.
If a United States shareholder has made a QEF election for
all taxable years that such shareholder has held stock of the
corporation and the corporation was a PFIC, distributions and
gain will not be deemed to have been recognized ratably over the
United States Investor's holding period or subject to an interest
charge, and gain on the sale of stock of the corporation will be
characterized as capital gain. Instead, each United States
shareholder who has made a QEF election is required for each
taxable year in which the corporation is a PFIC to include in
income a pro rata share of the ordinary earnings of the
corporation, as ordinary income, and a pro rata share of the net
capital gain of the Company, as long-term capital gain,
regardless of whether the corporation has made any distributions
of such earnings or gain.
A United States shareholder of a PFIC the stock of which is
marketable (within the meaning of Section 1296(e) of the Code),
may make a mark-to-market election with respect to the stock of
the PFIC. Under the election, any excess of the fair market
value of the stock at the close of any tax year over the United
States shareholder's adjusted basis in the stock is included in
the United States shareholder's income as ordinary income. In
addition, the excess of the adjusted basis at the close of any
taxable year over the fair market value of the stock is
deductible against ordinary income, in an amount equal to the
lesser of the amount of such excess or the net mark-to-market
gains on the stock that the United States shareholder included in
income in previous years. If a United States shareholder makes a
mark-to-market election after the beginning of its holding
period, the United States shareholder does not avoid the interest
charge rule discussed above with respect to the inclusion of
ordinary income attributable to periods before the election.
Jinzhenghua Transport was not a PFIC in 1997 and currently
is not a PFIC. As long as the Company owns more than 50% of the
stock of Jinzhenghua Transport, that corporation and its
subsidiaries will be CFCs, and therefore cannot be PFICs with
respect to the Company. In any event, the Company does not
anticipate that Jinzhenghua Transport will have a significant
amount of passive income or passive assets and thereby satisfy
the PFIC income test or PFIC asset test.
United States Backup Withholding
A holder of Company Common Stock may be subject to "backup
withholding" at the rate of 31% with respect to dividends paid on
such stock if such dividends are paid by a paying agent, broker
or other intermediary in the United States or by a United States
broker or certain United States-related brokers to such holder
outside the United States. In addition, the proceeds of the
sale, exchange or redemption of Company Common Stock may be
subject to backup withholding, if such proceeds are paid by a
paying agent, broker or other intermediary in the United States.
Backup withholding may be avoided by the holder of Company
Common Stock if such holder (i) is a corporation or comes within
certain other exempt categories or (ii) provides a correct
taxpayer identification number, certifies that such holder is not
subject to backup withholding and otherwise complies with the
backup withholding rules. In addition, holders of Company Common
Stock who are not United States persons ("non-United States
holders") are generally exempt from backup withholding, although
such holders may be required to comply with certification and
identification procedures in order to prove their exemption.
Any amounts withheld under the backup withholding rules from
a payment to a holder will be refunded (or credited against the
holder's United States federal income tax liability, if any)
provided that amount withheld is claimed as federal taxes
withheld on the holder's United States federal income tax return
relating to the year in which the backup withholding occurred. A
holder who is not otherwise required to file a United States
income tax return must generally file a claim for refund (or, in
the case of non-United States holders, an income tax return) in
order to claim refunds of withheld amounts.
China Taxation
Taxation of the Sino-Foreign Joint Venture Enterprises
Under the Income Tax Law of the People's Republic of China
concerning Foreign Investment Enterprises and Foreign Enterprises
(the "Tax Law"), a Sino-foreign joint venture is subject to a
national tax on worldwide income at the rate of 30%. In
addition, a local surtax of 3% is levied by the local government,
resulting in a combined tax rate of 33%. In order to simplify
tax administration, national and local income taxes are assessed
and collected concurrently. Pursuant to the Tax Law, the
national tax rate is reduced to 15% for joint ventures
established in the Special Economic Zones of Hainan, Shantou,
Shenzhen, Xiamen and Zhuhai that are engaged in production or
business operations and in the Economic Technology Development
Zones ("ETDZs") set up in China's open coastal cities that are
production-oriented. Joint venture companies established in
coastal economic open zones or in the old urban districts of
cities where the Special Economic Zones or the ETDZs are located
are subject to the national tax rate of 24%, if they are
production-oriented, or the rate of 15%, if they are considered
within the scope of projects encouraged by the state, such as
energy and communications. The Tax Law does not impose
withholding taxes on dividends distributed by a joint venture
company.
The Tax Law and related regulations provide a number of tax
holidays and other preferential treatment for production-oriented
enterprises with foreign investment scheduled to operate for a
period of ten years or more. Such enterprises are eligible for a
total exemption for taxation for two years commencing from the
first profit-making year, and a 50% reduction in the subsequent
three years. Longer tax reduction periods are available for
"export-oriented enterprises (50% reduction in income tax but not
less than 10% for each year the venture exports 70% by value of
its production) and "technologically advanced enterprises" (50%
reduction in income tax but not less than 10% for an additional
three years after the expiration of the normal tax holiday
period). In addition, some local governments offer tax holidays
and reductions with respect to local income surtax. The Tax Law
also provides that if a foreign party reinvests its share of the
profits in the joint venture or in another joint venture project
in China with a term of operation of more than five years, it may
be eligible, on application, for a refund of 40% of the income
tax paid on the reinvested amount. A full refund may be applied
for and granted if an existing Investor invests or reinvests its
share of profits in a "technologically advanced enterprise" or an
"export-oriented enterprise" with a term of operation of more
than five years.
Joint ventures also are required to pay a Value Added Tax if
they are engaged in sales or provide processing, repair or
installation services within or import goods into China; a
Business Tax if they are engaged in service businesses or if they
transfer intangible assets or sell immovable properties within
China; and a Consumption Tax if they manufacture, subcontract for
processing work or import certain enumerated consumer goods (such
as tobacco, liquor, cosmetics, jewelry, fireworks and small motor
vehicles). The Value Added Tax, Business Tax and Consumption Tax
are essentially a turnover tax on imports, sales receipts and
service income.
The Value Added Tax has a general rate of 17% for most goods
and services and a special rate of 13% for certain enumerated
goods, including foodstuffs, printed matter, agricultural
supplies and certain public utilities for civilian uses. Certain
items such as farm produce, contraceptive products, equipment
used in science and research, compensatory trade manufacturing
equipment and charitable items are exempt from the Value Added
Tax. The Business Tax rate schedule groups taxable service into
nine categories and imposes the tax at 3% to 5% for most services
and 5% to 20% for entertainment services. The Consumption Tax
rate schedule groups taxable products into 25 categories and
imposes the tax at 14 rates ranging from 3% to 45%.
An FIE is exempt from the Value Added Tax on raw material
imported for production for exports, if the FIE is registered
before January 1, 1994. In addition to the Value Added Tax, the
Consumption Tax and the Business Tax, customs duties are levied
on most goods imported into China. In general, items imported by
joint ventures that are exempt from the Value Added Tax also are
exempt from customs duties, except imports of certain office
equipment and production equipment, even if the importation is
within the limitation of an FIE's total investment. Joint
ventures also may be liable for Land Appreciation Tax which
ranges from 30 to 60% on the gain on sale of land use rights,
buildings and their attached facilities. Finally, joint ventures
may be subject to Resources Tax on exploitation and production of
selected natural resources.
The Company's PRC joint ventures are subject to the Tax Law.
Pursuant to the Tax Law, Sino- foreign equity joint venture
enterprises generally are subject to an enterprises income tax at
an effective rate of 33%, which is comprised of a state tax of
30% and a local tax of 3%. As the Company's PRC joint ventures
are qualified as production oriented enterprises for an operating
period of ten years or more, the joint ventures are eligible for
two years of full exemption and a 50% reduction for the next
three years on enterprises income tax starting from the first
profit-making year.
The Company is a joint venture established in Shenzhen, an
ETDZ. Because the Company qualifies as an FIE, its income tax
rate is reduced to 15% and it is exempt from the local tax of 3%.
The Company also will be eligible for two years of full
exemption and a 50% reduction for the next three years on
enterprises income tax starting from the first profit-making year
based on the reduced tax rate.
Generally, a joint venture will qualify as an FIE if the
foreign investor's investment in the registered capital of the
joint venture either alone or together with other foreign
investors, constitutes at least 25% of the total registered
capital of the joint venture. Because the Company's Chinese joint
ventures qualify or will qualify under the Tax Law, dividends and
profit distributions received by the Company from its joint
ventures will be exempt from any income tax, including any
withholding tax.
Income received by the Company from sources in China, such
as dividends (other than dividends from FIEs), interest, rent and
royalties will be subject to a withholding tax of 20%. The 20%
withholding tax rate will be reduced to 10% if the income is
received from sources in the Special Economic Zones, the Coastal
Open cities, the Pudong New Area in Shanghai and the Coastal Open
Economic Zones.
In the event the Company transfers its interest in its
Chinese joint ventures, the amount received in excess of its
original capital contribution would be subject to withholding tax
at the rate of 20%. The disposition may be subject to certain
taxes, including, but not limited to, the Business Tax of 5% of
the Company's interest and a stamp duty of 0.05% on the transfer
value.
In the event the Company's joint venture is liquidated, the
portion of the balance of its assets or remaining property, after
deducting undistributed profits, various funds and liquidation
expenses, that exceeds the Company's paid-in capital would be
income from liquidation, which would be subject to income tax at
the rate the Company would be subject to under the Tax Law and
related regulations.
VALIDITY OF SHARES
The validity of the shares of Company Common Stock being
distributed in the Reorganization is being passed upon for the
Company by Proskauer Rose LLP, New York, New York.
EXPERTS
The financial statements of the Company included in this
prospectus have been audited by BDO Binder, independent certified
public accountants, to the extent and for the periods set forth
in their report appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of said firm
as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934 (the "Exchange Act") and in
accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). All
reports, proxy statements, and other information filed by the
Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, Suite
1300, New York, New York 10048, and the Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained by mail at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The
Commission maintains a web site that contains reports, proxy and
information statements, and other information regarding
registrants that file electronically with the Commission with a
web site address of http://www.sec.gov.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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
Notes to consolidated financial statements F-7 - F-21
THE FOLLOWING IS THE FORM OF OPINION BDO BINDER WILL BE IN A
POSITION TO ISSUE UPON THE COMPLETION OF THE TRANSACTION
DESCRIBED IN NOTE 1, "BASIS OF PRESENTATION AND REORGANIZATION."
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Integrated Transportation Network Group Inc.
New York, New York
We have audited the accompanying consolidated balance sheets
of Integrated Transportation Network Group Inc. and subsidiaries
("ITN") as of December 31, 1996 and 1997, and the related
consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three- year period ended
December 31, 1997. These financial statements are the
responsibility of ITN's management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with United States
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 financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Integrated Transportation Network Group
Inc. and subsidiaries as of December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997, in
conformity with United States generally accepted accounting
principles.
BDO Binder
Hong Kong
January 30, 1998 (except for Note 9(a), which is as of March 31,
1998, and Note 1, which is as of __________ 1998) <PAGE>
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(US dollars in thousands)
December 31,
1996 1997
Assets
Cash and cash equivalents . . . . . . . $1,259 $4,723
Trade receivables, net of allowance of
$15 and $67, respectively 96 719
Other assets . . . . . . . . . . . . . . 787 366
Inventories . . . . . . . . . . . . . . 29 97
Property and equipment, net (Note 2) . . 1,168 1,363
Revenue earning equipment, net (Note 3). 8,705 31,488
Taxi licenses, net (Note 4). . . . . . . 12,200 12,093
Construction-in-progress (Note 5). . . . 2,766 2,321
Organization costs, net. . . . . . . . . 161 847
Deposit (Note 6) . . . . . . . . . . . . 1,928 1,937
$29,099 $55,954
Liabilities and Shareholders' Equity
Liabilities:
Bank loans (Note 8) . . . . . . . . . . $4,082 $3,776
Notes payable (Note 9). . . . . . . . . - 4,320
Trade payables. . . . . . . . . . . . . 186 1,619
Other payables (Note 7) . . . . . . . . 2,572 3,522
Due to directors. . . . . . . . . . . . - 286
Due to affiliates (Note 10). . . . . . 1,517 6,220
Due to minority shareholder (Note 10) . 381 19
Deferred revenue (Note 11) . . . . . . 2,153 2,983
Accrued expenses. . . . . . . . . . . . 17 476
Income tax payable. . . . . . . . . . . 492 883
Deferred income taxes (Note 12) . . . . 75 102
Total liabilities . . . . . . . . . . 11,475 24,206
Minority interest. . . . . . . . . . . . 864 1,567
Commitments and contingencies (Note 13)
Shareholders' equity:
Common Stock, $.01 par value - authorized
50,000,000 shares; issued and outstanding
6,041,573 shares at December 31, 1997. . - 60
Additional paid-in capital. . . . . . . . 5,249 12,665
Retained earnings . . . . . . . . . . . . 11,164 17,050
Foreign currency translation adjustments. 347 406
Total shareholders' equity . . . . . . 16,760 30,181
$29,099 $55,954
See accompanying notes to consolidated financial statements.
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(US dollars in thousands except per share amounts)
Year ended December 31,
1995 1996 1997
Revenue, net . . . . . . . . $6,208 $9,211 $12,538
Expenses:
Depreciation of revenue
earning equipment . .. . . . 1,357 1,755 2,174
Amortization of taxi licenses . 247 264 266
Other operating expenses. . . . 649 1,468 2,692
Interest expense, net of
interest income. . . . . . . . 657 604 726
Total expenses . . . . . . . 2,910 4,091 5,858
Income before provision for income
tax and minority interest. . . . 3,298 5,120 6,680
Provision for income tax (Note 12) 152 400 457
Income before minority interest . 3,146 4,720 6,223
Minority interest . . . . . . . . 123 157 337
Net income . . . . . . . . . . . $3,023 $4,563 $5,886
Pro forma earnings per common share
(Note 14):
Basic . . . . . . . . . . . . . $.50 $.76 $.97
Diluted . . . . . . . . . . . . .50 .76 .97
Weighted average common shares
outstanding (Note 14):
Basic . . . . . . . . . . . . . 6,042 6,042 6,042
Diluted . . . . . . . . . . . . 6,042 6,042 6,132
See accompanying notes to consolidated financial statements.<PAGE>
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(US dollars in thousands except per share amounts)
Years ended December 31, 1995, 1996 and 1997
Common Stock Additional
paid-in Retained
Shares Amount capital earnings
Balance, December 31,
1994. . . . . . . . . . - - $4,731 $3,578
Contribution of capital. - - 411 -
Foreign currency
translation
adjustments . . . . . - - - -
Net income . . . . . . . - - - 3,023
Balance, December 31,
1995 . . . . . . . . . - - 5,142 6,601
Contribution of capital. - - 107 -
Foreign currency
translation
adjustments . . . . . - - - -
Net income . . . . . . . - - - 4,563
Balance, December 31,
1996 . . . . . . . . . - - 5,249 11,164
Contribution of capital
(Notes 10 and 16). . . - - 7,476 -
Reorganization,
March 1997 (Note 1). . 6,041,573 60 (60) -
Foreign currency
translation
adjustments. . . . . . - - - 59
Net income . . . . . . . - - - 5,886
Balance, December 31,
1997 . . . . . . . . . 6,041,573 $60 $12,665 $17,050
Total
Translation shareholders'
adjustments equity
$174 $8,483
- 411
134 134
- 3,023
308 12,051
- 107
39 39
- 4,563
347 16,760
- 7,476
- -
59 59
- 5,886
$406 $30,181
See accompanying notes to consolidated financial statements.
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 16)
(US dollars in thousands)
Year ended December 31,
1995 1996 1997
Cash flows from operating
activities:
Net income. . . . . . . . . . . . $3,023 $4,563 $5,886
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization of
property, equipment and revenue
earning equipment . . . . . . . . 1,422 1,884 2,617
Amortization of taxi licenses. . . 247 264 266
Minority interest. . . . . . . . . 339 244 703
Amortization of organization costs 36 35 50
Deferred income tax. . . . . . . . 19 56 27
Exchange adjustment. . . . . . . . (43) (18) (10)
Changes in assets and liabilities:
Increase in trade and other
receivables . . . . . . . . . . (164) (428) (204)
Increase in inventories . . . . - (29) (68)
(Decrease) increase in trade
and other payables . . . . . . 552 (200) 2,669
(Decrease) increase in accrued
expenses . . . . . . . . . . . (7) 17 459
Increase in income tax payable . 124 361 391
(Decrease) increase in deferred
income . . . . . . . . . . . . 979 (764) 830
Net cash provided by operating
activities . . . . . . . . 6,527 5,985 13,616
Cash flows from investing activities:
Acquisition of property and
equipment . . . . . . . . . . . (273) (608) (1,489)
Proceeds from sale of property and
equipment . . . . . . . . . . . 188 94 -
Organization costs. . . . . . . . . (25) (51) (735)
Net cash used in investing
activities. . . . . . . . . . (110) (565) (2,224)
Cash flows from financing activities:
Borrowing on bank loans . . . . . . - 200 605
Repayments of debt. . . . . . . . . (604) - (926)
Repayments of amount due to
affiliates. . . . . . . . . . . . (5,263) (5,210) (11,565)
Amount due from (to) minority
shareholder . . . . . . . . . . . - 20 (362)
Proceeds from notes payable . . . . - - 4,320
Net cash used in financing
activities . . . . . . . . . (5,867) (4,990) (7,928)
Net increase in cash and cash
equivalents . . . . . . . . . . . . 550 430 3,464
Cash and cash equivalents, beginning
of year . . . . . . . . . . . . . . 279 829 1,259
Cash and cash equivalents, end of
year . . . . . . . . . . . . . . . $829 $1,259 $4,723
See accompanying notes to consolidated financial statements.
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation and Reorganization
On January 25, 1998, a controlling shareholder of Dawson
Science Corporation ("Dawson") formed a new Delaware corporation,
Integrated Transportation Network Group Inc. ("ITN" or the
"Company"). Subsequently, that controlling shareholder
contributed all the outstanding shares in ITN to Dawson. Dawson
will cause this new wholly-owned subsidiary to acquire all the
equity in Dawson's 92%-owned Chinese subsidiary, Shenzhen
Jinzhenghua Transport Industrial Development Co. Ltd.
("Jinzhenghua Transport" or "Jinzhenghua"). Upon the
effectiveness of a registration statement being filed with the
Securities Exchange Commission, Dawson will effect a plan of
reorganization, and the shares of ITN will be distributed pro
rata to the common shareholders of Dawson. The accompanying
financial statements give effect to this reorganization as if it
had occurred as of the earliest date reported and all references
to the number of shares outstanding and per share amounts have
been restated for all periods to reflect this.
Reverse Acquisition
On March 19, 1997, Dawson exchanged 10,000,000 shares of its
Common Stock and 2,100,000 shares of its convertible preferred
stock, which was converted into 10,500,000 shares of Common Stock
on May __, 1998, for 92% of the outstanding common shares of
Jinzhenghua Transport (the "Exchange").
The Jinzhenghua Transport acquisition and the exchange of
Common Stock with the former Jinzhenghua Transport shareholders
resulted in those former shareholders obtaining a majority voting
interest in Dawson. Generally accepted accounting principles
require that the company whose shareholders retain the majority
interest in a combined business be treated as the acquirer for
accounting purposes. As a consequence, the Jinzhenghua Transport
acquisition has been accounted for as a "reverse acquisition" for
financial reporting purposes and Jinzhenghua Transport is deemed
to have acquired a 92% interest in Dawson, as of the date of the
acquisition. The reverse acquisition process utilizes the capital
structure of Dawson and the assets and liabilities of Jinzhenghua
Transport are recorded at predecessor cost.
Jinzhenghua Transport is the continuing operating entity for
financial reporting purposes, and the financial statements prior
to March 19, 1997 represent Jinzhenghua Transport's financial
position and results of operations. The assets, liabilities and
results of operations of Dawson are included as of March 19,
1997. Although Jinzhenghua Transport is deemed to be the
acquiring corporation for financial accounting and reporting
purposes, the legal status of Dawson as the surviving corporation
did not change.
Reorganization of Jinzhenghua Transport
Jinzhenghua Transport was registered as a privately owned
limited liability company under the laws of the People's Republic
of China ("PRC") on December 26, 1994. During the week from March
18 through 25, 1997, Jinzhenghua Transport was reorganized by
combining with the majority of equity interest of seven
subsidiaries of Shenzhen Transport Zhenghua Group Co. Ltd.
("Zhenghua"), which was owned by substantially the same owners of
Jinzhenghua Transport. The seven subsidiaries are as follows:
Jinzhenghua's
Subsidiary Industry equity interest
Shenzhen Aorun Taxi Co. Ltd. Taxi leasing 97%
Shenzhen Guorun Taxi Co. Ltd. Taxi leasing 95
Shenzhen Anrun Taxi Co. Ltd. Taxi leasing 97
Shenzhen Yunhua Taxi Co. Ltd. Taxi leasing 97
Shimen Zhenghua Taxi Co. Ltd. Taxi leasing 98
Shenzhen Junpeng Auto Repair Plant Auto repair 100
Shimen Yindu Hotel Co. Ltd. Hotel 56
Subsequent to the aforementioned reorganization, Jinzhenghua
Transport has established new subsidiaries as follows:
Jinzhenghua's
Subsidiary Industry equity interest
Guangzhou Jinzhenghua
Transportation Co. Ltd. Car rental 100%
Jiangxi Gannan Jinzhenghua
Transportation Co. Ltd Car rental 70
Yueyang Jinzhenghua Transportation
Co. Ltd. Car rental 90
Shanxi Jinzhenghua Transportation
Co. Ltd. Car rental 100
Nanchang Jinzhenghua Transportation
Co. Ltd. Car rental 100
Jiangsu Jinzhenghua Automobile
Lease Co. Car rental 100
Hunan Jinzhenghua Automobile
Lease Co. Ltd. Car rental 75
Businesses
The Company mainly conducts taxi leasing, car rental, and
auto repair businesses in the PRC and has a hotel under
construction which is located in the Hunan Province in China.
Basis of Accounting
The consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the
United States of America.
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and its subsidiaries. All material intercompany
transactions have been eliminated. The consolidated financial
statements are presented in U.S. dollars.
Foreign Currency Translation and Transactions
The financial position and results of operations of the
Company's foreign subsidiaries are determined using local
currency as the functional currency. Assets and liabilities of
these subsidiaries are translated at the exchange rate in effect
at each year-end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. Translation
adjustments arising from the use of differing 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
other income (expense).
Revenue Recognition
Taxi leasing and car rental revenue is recognized when rents
(net of business tax) are due. Nonrefundable deposit revenue is
deferred and recognized on a straight-line basis over the term of
the relevant taxi lease. Revenue from car repair services is
recognized when services are rendered.
Inventories
Inventories, which consist primarily of transportation
equipment spare parts, are stated at the lower of cost (first-in,
first-out method) or market.
Revenue Earning Equipment, Property and Equipment and
Depreciation
Revenue earning equipment, property and equipment are stated
at cost. Depreciation is computed by utilizing the straight-line
method over the estimated useful lives of the assets as follows:
Estimated
useful life
(in years)
Revenue earning equipment
Taxi vehicles and rental cars . . . 6-10
Repair shop equipment . . . . . . . 5-10
Property and equipment
Land usage rights . . . . . . . . . 20-40
Furniture and fixtures. . . . . . . 5-10
Transportation equipment . . . . . 6-10
Other equipment . . . . . . . . . . 5-10
Maintenance, repairs and minor renewals are charged directly
to expense as incurred. Additions and betterments to property
and equipment are capitalized. When assets are disposed of, the
related cost and accumulated depreciation thereon are removed
from the accounts and any resulting gain or loss is included in
operations.
Taxi Licenses
Taxi licenses are stated at cost. Amortization is computed
utilizing the straight-line method over the taxi license term of
50 years.
Organization Costs
Organization costs represent costs incurred in connection
with the setting up of the Company and its subsidiaries in order
to operate on a commercial basis. Such costs are capitalized and
amortized over a period of five years from the date of
commencement of business.
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.
The Company does not provide taxes on unremitted earnings of
its Chinese subsidiaries since the Company's intention is to
reinvest these earnings. Jinzhenghua has unremitted retained
earnings at December 31, 1997 of approximately $17,984.
Pro Forma Earnings Per Common Share
In 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share". Statement 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
dilutive 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
appropriate, restated to conform to the Statement 128
requirements.
Fair Value of Financial Instruments
The carrying amounts of certain financial instruments,
including cash, accounts receivable and payables approximate fair
value as of December 31, 1995, 1996 and 1997 because of the
relatively short-term maturity of these instruments. The carrying
value of debts approximates fair value as of December 31, 1995,
1996 and 1997 based upon the borrowing rates currently available
to the Company for bank loans with similar terms and average
maturities. Fair value of the amounts due to or from affiliates
cannot be readily determined because of the nature of the terms.
Accounting for Stock-Based Compensation
In connection with its adoption of SFAS No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), the Company will
adopt the intrinsic value method of accounting for employee stock
options, and disclose the pro forma impact on net income and
earnings per share as if the fair value-based method had been
applied. Through December 31, 1997, no such stock options had
been granted. For equity instruments, including stock options
issued to non-employees, including directors, the fair value of
the equity instruments issued or the fair value of the
consideration received, whichever is more readily determinable,
is used to determine the value of services or goods received and
the corresponding charge to operations.
New Accounting Standards Not Yet Adopted
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income", 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 statement that is
displayed with the same prominence as other financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", which 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.
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.
Use of Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect 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 tax asset valuation
allowance. Actual results could differ from those estimates and
other estimates.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of:
December 31,
1996 1997
(US dollars in thousands)
Land usage rights. . . . . . . . . . . $416 $416
Furniture and fixtures . . . . . . . . 9 11
Transportation equipment . . . . . . . 705 1,324
Other equipment. . . . . . . . . . . . 400 434
1,530 2,185
Less: Accumulated depreciation and
amortization . . . . . . . . . 362 822
$1,168 $1,363
Depreciation and amortization charged to operations was $65, $128
and $443 in 1995, 1996 and 1997, respectively.
NOTE 3 - REVENUE EARNING EQUIPMENT
Revenue earning equipment consists of:
December 31,
1996 1997
(US dollars in thousands)
Taxi vehicles. . . . . . . . $13,681 $14,570
Rental cars. . . . . . . . . - 24,067
Repair shop equipment. . . . 199 200
13,880 38,837
Less: Accumulated
depreciation . . . . . . 5,175 7,349
$8,705 $31,488
Depreciation charged to operations was $1,357, $1,756 and
$2,174 in 1995, 1996 and 1997, respectively.
NOTE 4 - TAXI LICENSES
December 31,
1996 1997
(US dollars in thousands)
Taxi licenses, at cost . . . . $13,218 $13,381
Less: Accumulated
amortization . . . . . . . 1,018 1,288
$12,200 $12,093
Amortization charged to operations was $247, $264 and $266
in 1995, 1996 and 1997, respectively.
NOTE 5 - CONSTRUCTION-IN-PROGRESS
Construction-in-progress represents a hotel project located
in the Hunan Province, PRC. The construction-in-progress is
stated at cost. All direct costs relating to the construction of
the hotel are capitalized as long-term assets. No interest has
been capitalized.
NOTE 6 - DEPOSIT
The deposit paid is for the acquisition of real estate that
is situated in Shenzhen, PRC. The sales and purchase agreement of
the property was initially signed by an affiliate and the deposit
thereof was subsequently contributed to Jinzhenghua Transport as
additional paid-in capital. Construction work on the property has
not yet been completed.
NOTE 7 - OTHER PAYABLES
December 31,
1996 1997
(US dollars in thousands)
Current portion:
Deposits from rental car
customers . . . . . . . . . . - $332
Others. . . . . . . . . . . . . 666 1,101
666 1,433
Long-term portion:
Deposits from taxi drivers. . . 967 1,042
Taxi car maintenance fund . . . 168 273
Due to Traffic Authority. . . . 771 774
1,906 2,089
$2,572 $3,522
NOTE 8 - BANK LOANS
All the lending banks are Chinese. Except for $200 of U.S.
dollar loans, all loans are denominated in RMB. Bank loans
consist of the following:
<PAGE>
Year ended December 31, 1996
(US dollars in thousands)
Interest
Principal rate Maturity Collateral
$1,497 14.0% 3/99 150 taxi vehicles
1,192 14.0 3/99 50 taxi licenses
1,193 14.0 3/99 50 taxi licenses
200 15.1 4/97 and renewed Properties of
affiliates
$4,082
Year ended December 31, 1996
(US dollars in thousands)
Interest
Principal rate Maturity Collateral
$200 16.2% 4/98 Properties of
affiliates
605 18.0 3/99 50 taxi vehicles
1,369 15.1 3/99 150 taxi vehicles
1,197 15.1 3/99 50 taxi licenses
405 15.1 3/99 50 taxi licenses
$3,776
NOTE 9 - NOTES PAYABLE
Notes payable consist of the following:
Year ended December 31, 1996
(US dollars in thousands)
Interest
Principal rate Maturity Collateral
320 8.0% 4/2/98 (a)
500 12.0 3/18/98 (b)
1,500 12.0 3/29/98 (b)
2,000 12.0 5/2/98 (b)
$4,320
______________
(a) On July 3, 1997, the Company entered into a financing
agreement which provides for borrowings of up to $1,000.
Advances are payable monthly. The loan is collateralized by
the Company's inventory, equipment and machinery, existing
or acquired. The balance outstanding at December 31, 1997
was $320.
Under the terms of the agreement, if the Company did not
file a registration statement with the Securities and
Exchange Commission declared effective by October 2,
1997, 16,436 shares of common stock were due the lender as
liquidated damages. As of December 31, 1997, these shares
had not been issued but the liability for such issuance has
been included in accrued expenses at December 31, 1997. The
Company issued those shares as liquidated damages as of
March 31, 1998.
(b) On September 19, September 30 and November 3, 1997, the
Company issued convertible promissory notes to three
entities. Interest accrues at 12% per annum and is payable
monthly. At any time after the maturity date and prior to
repayment of all amounts due, the notes, at the option
of the holders, may be converted into shares of the
Company's Common Stock equal to an amount determined by
formula, as defined, in the agreement. The notes are
collateralized by 1,000,000 shares of common stock pledged
personally by a principal shareholder.
NOTE 10 - RELATED PARTY TRANSACTIONS
(a) The amount due to a minority shareholder of the hotel
project was $381 as of December 31, 1996 and 1997 as the
minority shareholder contributed excessive amounts over its
necessary share of contributed capital in the form of land
usage rights. The amount did not bear any interest and also
did not have clearly defined terms of repayment. In late
1997, the Company advanced $362 to a minority shareholder in
Jiangxi Gannan Transportation Co. Ltd. The advance does not
bear any interest and did not clearly specify terms of
repayment.
(b) The Company, from time to time, received funding from or
provided funding to Zhenghua and Mr. Peng Jun, a family
member of a major shareholder. All advances are noninterest
bearing and are without stated terms of repayment. The
following is a summary of the balance of the amounts due to
affiliates:
December 31,
1996 1997
(US dollars in thousands)
Zhenghua
Beginning balance . . . . . . . . . $4,790 $2,150
Acquisition of revenue earning
equipment . . . . . . . . . . . - 24,067
Acquisition of taxi licenses. . . - 115
Exchange difference . . . . . . . 11 8
Construction cost . . . . . . . . 2,302 (455)
Repayments of advances . . . . . (5,210) (11,565)
Expenses paid on behalf of
Zhenghua (net). . . . . . . . . . - (624)
Jinzhenghua expenses paid by
Zhenghua (net) . . . . . . . . . 257 -
Transferred to additional paid
in capital. . . . . . . . . . . - (7,476)
Ending balance. . . . . . . . . . 2,150 6,220
Peng Jun
Beginning balance . . . . . . . . (248) (633)
Repayment . . . . . . . . . . . - 633
Fund advance. . . . . . . . . . (385) -
Ending balance. . . . . . . . . . (633) -
$1,517 $6,220
NOTE 11 - DEFERRED REVENUE
December 31,
1996 1997
(US dollars in thousands)
Deferred revenue. . . . . . . . $2,153 $2,983
Less: Current portion. . . . . 791 1,235
$1,362 $1,748
Deferred revenue, represents non-utilized portion of
non-refundable deposit revenue collected from contractual taxi
drivers, is to be recognized as revenue over unexpired taxi lease
terms.
NOTE 12 - INCOME TAXES
The standard enterprise income tax rate in China is 33% of
which 30% is attributed to central government and 3% to
provincial government. Enterprises in Shenzhen, a Special
Economic Zone, receive a special income tax incentive program in
which they are charged a lower income tax rate of 15% in
accordance with Shenzhen municipal government regulations. In
addition, enterprises in the transportation service industry
enjoy another special income tax incentive program composed of
100% income tax credit for first year and 50% income tax credit
for the next two years starting from the first profit taking
year. Certain other provincial governments have also stipulated
similar incentive programs. The Company's subsidiaries are in
different stages of enjoying the aforementioned types of income
tax incentive programs. Accordingly, the provision for income
taxes consists of the following:
<PAGE>
Year ended December 31,
1995 1996 1997
(US dollars in thousands)
Current income taxes . . . . . . $133 $344 $430
Deferred income taxes. . . . . . 19 56 27
$152 $400 $457
As a result of implementing these income tax incentive
programs, the effective income tax rate for the Company is
different from the standard income tax rate. The following
reconciliation shows the differences between the effective and
standard rates.
Year ended December 31,
1995 1996 1997
(US dollars in thousands)
Standard income tax rate . . . . 33.0% 33.0% 33.0%
Usage of temporary difference. . (.5) (1.4) (1.3)
Result of income tax incentive
programs . . . . . . . . . . . (27.9) (23.8) (25.8)
Effective income tax rate. . . . 4.6% 7.8% 5.9%
The types of temporary differences between the tax bases of
assets and liabilities and their financial reporting amounts that
give rise to the net deferred tax assets and liabilities and
their approximate tax effects are as follows:
Year ended December 31,
1996 1997
US dollars in thousands)
Bad debt reserves . . . . . . . $ (1) $ (8)
Depreciation and amortization. . 76 110
$75 $102
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
Minimum lease payments under operating leases with
noncancellable lease terms in excess of one year are as follows:
Year ended
December 31, Operating leases
(US dollars in thousands)
1998 $224
1999 137
2000 107
2001 63
$531
Rent expense for the years ended December 31, 1995, 1996 and
1997 was $137, $104 and $177, respectively.
Contractual Obligations
The Company has contracted with a building contractor in
1996 to construct the group's hotel in Hunan, PRC. The budgeted
costs of the whole project are estimated to be $4,073.
Consulting Agreements
As described in 9(a), the Company entered into an agreement
with a financial consultant to provide prospective offshore
purchases of the Company's securities offerings. The Company
agreed to pay a fee of 5% of the gross securities sold in
addition to issuing 25 warrants to purchase shares of Common
Stock of Dawson per $2,500 of financing secured to buy the
Company's Common Stock for a period of five years from the
closing date of the first sale at a strike price of 120% of the
market price at the time of closing. The agreement has expired.
On September 1, 1997, the Company entered into a consulting
agreement with a financial institution to provide business
development services for $12 monthly. Options to purchase
250,000 shares of the Company's common stock at an exercise price
of $50.00 per share were also granted and expire on September 30,
2002. The agreement has been terminated; the options have not
been cancelled.
NOTE 14 - PRO FORMA EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted pro forma earnings per share:
December 31,
1995 1996 1997
(US dollars in thousands
except per share amounts)
Numerator:
Net income, numerator for basic
earnings per share - income
available to common
shareholders . . . . . . . . . 3,023 4,563 5,886
Effect of diluted securities:
Interest on convertible debt
after tax. . . . . . . . . . . - - 63
Numerator for diluted earnings
per share - income available to
common shareholders after
assumed conversions . . . . . $3,023 $4,563 $5,949
Denominator:
Denominator for basic earnings
per share - weighted average
shares . . . . . . . . . . . . 6,042 6,042 6,042
Effect of dilutive securities:
Convertible debt . . . . . . . - - 90
Dilutive potential common shares:
Denominator for dilutive
earnings per share - adjusted
weighted average shares and
assumed conversions . . . . . 6,042 6,042 6,132
Pro forma basic earnings per
share . . . . . . . . . . . . . $.50 $.76 $.97
Pro forma diluted earnings per
share . . . . . . . . . . . . . $.50 $.76 $.97
NOTE 15- FUTURE RENTAL INCOME
Rental income from taxi drivers under noncancellable taxi lease
terms in excess of one year is as follows:
Year ending (US dollars in
December 31, thousands)
1998 $10,926
1999 4,951
2000 3,482
2001 2,070
2002 19
Thereafter 36
$21,484
NOTE 16 - STATEMENTS OF CASH FLOWS
Supplemental Disclosures of Cash Flow Information
Year ended December 31,
1995 1996 1997
(US dollars in thousands)
Cash paid for:
Interest. . . . . . . . $657 $604 $587
Taxes . . . . . . . . . 9 - 39
Supplemental Schedule of Noncash Investing and Financing
Activities
Year ended December 31,
1995 1996 1997
(US dollars in thousands)
Acquisition of revenue earning
equipment from affiliates . . $2,668 $361 $24,067
Acquisition of taxi licenses. . 811 - 115
Construction-in-progress
financed by affiliates . . . . 463 2,302 (455)
Additional paid-in capital
contributed by shareholder . . - - 7,476
NOTE 17 - SEGMENT INFORMATION
The Company's operations are comprised of taxi, car rental,
and auto repair businesses and a hotel project in Guangdong,
Hunan and other provinces in China. The industrial and
geographical information regarding revenue, cost of sales,
operating income, total assets, addition of long-term assets,
depreciation and amortization for the years ended December 31,
1995, 1996 and 1997 are as follows:
Industrial Segments
Year ended December 31, 1995
Car Car
Taxi rental repairs Other Total
(US dollars in thousands)
Revenue, net . . . . . . $5,990 $- $218 $- $6,208
Income before income tax
and minority interest . 3,100 - 198 - 3,298
Total assets as at
December 31, 1995 . . . 26,473 - 147 491 27,111
Additions of productive
long-term assets. . . . 3,752 - - 463 4,215
Depreciation and
amortization. . . . . . 1,649 - 20 - 1,669
Year ended December 31, 1996
Car Car
Taxi rental repairs Other Total
(US dollars in thousands)
Revenue, net . . . . . . $7,722 $- $1,489 $- $9,211
Income before income tax
and minority interest . 4,349 - 771 - 5,120
Total assets as at
December 31, 1996 . . . 25,120 - 692 3,287 29,099
Additions of productive
long-term assets. . . . 141 - 463 2,667 3,271
Depreciation and
amortization. . . . . . 2,066 - 81 1 2,148
Year ended December 31, 1997
Car Car
Taxi rental repairs Other Total
(US dollars in thousands)
Revenue, net . . . . . . $8,425 $2,636 $1,477 - $12,538
Income before income tax
and minority interest . 5,161 1,814 639 (934) 6,680
Total assets as at
December 31, 1997 . . . 27,630 24,772 791 2,761 55,954
Additions of productive
long-term assets. . . . 1,580 24,085 4 - 25,669
Depreciation and
amortization. . . . . . 2,370 434 78 1 2,883
Geographical Segments
Year ended December 31, 1995
Guangdong Hunan Others Total
(US dollars in thousands)
Revenue, net . . . . . $6,132 $76 $- $6,208
Income before income
tax and minority
interest . . . . . . 3,298 - - 3,298
Total assets . . . . . 23,014 4,097 - 27,111
Year ended December 31, 1996
Guangdong Hunan Others Total
(US dollars in thousands)
Revenue, net . . . . . $7,983 $1,228 - $9,211
Income before income
tax and minority
interest. . . . . . . 4,553 567 - 5,120
Total assets . . . . . 22,671 6,428 - 29,099
Year ended December 31, 1997
(US dollars in thousands)
Guangdong Hunan Others Total
Revenue, net . . . . . $9,525 $1,344 $1,669 $12,538
Income before income
tax and minority
interest. . . . . . . 5,858 647 175 6,680
Total assets . . . . .. 28,590 14,436 12,928 55,954
Part II INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses and
costs expected to be incurred by the Company in connection with
the issuance and distribution of the securities being registered
under this registration statement. Except for the SEC filing
fee, all expenses have been estimated and are subject to future
contingencies.
SEC registration fee . . . . . . . . . . . . $8,896.60
Legal fees and expenses. . . . . . . . . . . *
Printing and engraving expenses. . . . . . . *
Accounting fees and expenses . . . . . . . . *
Blue sky fees and expenses . . . . . . . . . *
Transfer agent and registrar fees and
expenses . . . . . . . . . . . . . . . . . *
Miscellaneous. . . . . . . . . . . . . . . . *
Total . . . . . . . . . . . . . . . . . . $ *
________________
* To be filed by amendment
Item 14. Indemnification of Directors and Officers.
Article 6 of the Company's by-laws provide that the Company
shall indemnify each person who is or was an officer or director
of the corporation to the fullest extent permitted under section
145 of the Delaware General Corporation Law.
In addition, Article Sixth of the Company's certificate of
incorporation provides that no director shall be personally
liable for any breach of fiduciary duty. Article Sixth does not
eliminate a director's liability (i) for a breach of his or her
duty of loyalty to the Company or its shareholders, (ii) for acts
of or omissions of such director not in good faith or which
involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law,
or (iv) for any transactions from which the director derived an
improper personal benefit.
Section 145 of the General Corporation Law of the State of
Delaware permits a corporation to indemnify its directors and
officers against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or
proceeding brought by third parties, if such directors or
officers acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or
proceeding had no reason to believe their conduct was unlawful.
In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in
connection with the defense or settlement of an action or a suit,
and only with respect to a matter as to which they shall have
acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interest of the corporation,
except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to
the extent that the court in which the action or suit was brought
shall determine upon application that the defendant officers or
directors are reasonably entitled to indemnify for such expenses
despite such adjudication of liability.
Section 102(b)(7) of the General Corporation Law of the
State of Delaware provides that a corporation may eliminate or
limit the personal liability of a director of the Corporation or
its shareholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach
of the director's duty of loyalty to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of
the State of Delaware, or (iv) for any transaction from which the
director derived an improper personal benefit. No such provision
shall eliminate or limit the liability of a director for any act
or omission occurring prior to the date when such provision
becomes effective.
Item 15. Recent Sales of Unregistered Securities
In early 1998, the Company issued 100 shares of Company
Common Stock to Wu Zhi Jian for nominal consideration in a
private placement exempt from the registration requirements of
the Securities Act of 1933 by virtue of section 4(2) of that Act.
Those 100 shares were subsequently contributed to Dawson Science
Corporation for nominal consideration. The 100 shares were
subsequently converted into 6,066,341 shares pursuant to an
amendment to the Company's certificate of incorporation.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
2.1 Agreement and Plan of Reorganization.*
3.1 Certificate of Incorporation of the Company, as
Amended.*
3.2 By-Laws of the Company.
5.1 Opinion of Proskauer Rose LLP**
8.1 Opinion of Proskauer Rose LLP**
8.2 Opinion of Jun He Law Offices**
10.1 Letter of Agreement, dated March 19, 1997 between
Dawson Science Corporation and Shenzhen City Zhenghua Traffic and
Transportation Main Company, Ltd.
10.2 Letter Agreement, dated June 27, 1997 between Dawson
Science Corporation and Wharton Capital Partners Ltd.
10.3 Consulting Agreement, dated February 11, 1998 between
Dawson Science Corporation and R.I.P. Consultants.*
10.4 Contract for Chinese Foreign Equity Joint Venture,
dated October 8, 1997 between Dawson Science Corporation and Wu
Qui Mei (Shenzhen Jinzhenghua Transport Industrial Development
Co. Ltd.).
10.5 Regulations for Chinese Foreign Equity Joint Venture,
dated October 8, 1997 between Dawson Science Corporation and
Shenzhen Jinzhenghua Transport Industrial Development Co. Ltd.
10.6 Business Loan and Security Agreement, dated November 3,
1997 between Dawson Science Corporation and Yeung Ming-Sum.
10.7 Business Loan and Security Agreement, dated September
19, 1997 between Dawson Science Corporation and Yeung Shu-kin.
10.8 Business Loan and Security Agreement, dated September
30, 1997 between Dawson Science Corporation and Neolite Neon Co.
Pty. Ltd.
10.9 Grid Promissory Note, dated July 3, 1997 payable to
Wharton Capital Partners, Ltd.
21.1 List of Subsidiaries (incorporated by reference to Note
1 to the financial statements in the prospectus that is a part of
this registration statement).
23.1 Consent of BDO Binder.*
23.2 Consent of Proskauer Rose LLP (to be included in
opinions to be filed as exhibits 5.1 and 8.1).**
23.3 Consent of Jun He Law Offices (to be included in
opinion to be filed as exhibit 8.2).**
24.1 Power of Attorney (set forth on signature page of this
registration statement).
27.1 Financial Data Schedule.
____________
* Filed herewith
** To be filed by amendment
(b) Financial Statement Schedules
All financial statement schedules for the Company are
omitted because either they are not applicable or the required
information is shown in the financial statements or notes
thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
provisions described in Item 14, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the undersigned registrant certifies that it has duly caused
Amendment No. 1 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 1st day of May, 1998.
By: /s/ Andrew Lee
Andrew Lee
Pursuant to the requirements of the Securities Act of 1933,
Amendment No. 1 to this Registration Statement has been signed by
the following persons in the capacities and on the date
indicated.
Signatures Title Date
/s/ Wu Zhi Jian
Wu Zhi Jian Chairman of the Board, May 1, 1998
Director
(Principal Executive Officer)
/s/ Andrew Lee
Andrew Lee President and Director May 1, 1998
/s/ Willy Wu
Willy Wu Executive Vice President, May 1, 1998
Chief Financial Officer
(Principal Accounting Officer)
/s/ Peng Jun*
Peng Jun Executive Vice President, May 1, 1998
Treasurer, Director
/s/ Zhang Li Wei*
Zhang Li Wei Director May 1, 1998
/s/ Li Yong Yuan*
Li Yong Yuan Director May 1, 1998
/s/ Andrew Lee*
Andrew Lee, Attorney-in-Fact
* Original powers of attorney authorizing Andrew Lee and Wu
Zhi Jian, or either of them, to sign the Registration Statement
and any amendments thereto on behalf of the above-named directors
and officers of the Company have been previously filed.
EXHIBIT INDEX
2.1 Agreement and Plan of Reorganization.*
3.1 Certificate of Incorporation of the Company, as
Amended.*
3.2 By-Laws of the Company.
5.1 Opinion of Proskauer Rose LLP**
8.1 Opinion of Proskauer Rose LLP**
8.2 Opinion of Jun He Law Offices**
10.1 Letter of Agreement, dated March 19, 1997 between
Dawson Science Corporation and Shenzhen City Zhenghua Traffic and
Transportation Main Company, Ltd.
10.2 Letter Agreement, dated June 27, 1997 between Dawson
Science Corporation and Wharton Capital Partners Ltd.
10.3 Consulting Agreement, dated February 11, 1998 between
Dawson Science Corporation and R.I.P. Consultants.*
10.4 Contract for Chinese Foreign Equity Joint Venture,
dated October 8, 1997 between Dawson Science Corporation and Wu
Qui Mei (Shenzhen Jinzhenghua Transport Industrial Development
Co. Ltd.).
10.5 Regulations for Chinese Foreign Equity Joint Venture,
dated October 8, 1997 between Dawson Science Corporation and
Shenzhen Jinzhenghua Transport Industrial Development Co. Ltd.
10.6 Business Loan and Security Agreement, dated November 3,
1997 between Dawson Science Corporation and Yeung Ming-Sum.
10.7 Business Loan and Security Agreement, dated September
19, 1997 between Dawson Science Corporation and Yeung Shu-kin.
10.8 Business Loan and Security Agreement, dated September
30, 1997 between Dawson Science Corporation and Neolite Neon Co.
Pty. Ltd.
10.9 Grid Promissory Note, dated July 3, 1997 payable to
Wharton Capital Partners, Ltd.
21.1 List of Subsidiaries (incorporated by reference to Note
1 to the financial statements in the prospectus that is a part of
this registration statement).
23.1 Consent of BDO Binder.*
23.2 Consent of Proskauer Rose LLP (to be included in
opinions to be filed as exhibits 5.1 and 8.1).**
23.3 Consent of Jun He Law Offices (to be included in
opinion to be filed as exhibit 8.2).**
24.1 Power of Attorney (set forth on signature page of this
registration statement).
27.1 Financial Data Schedule.
____________
* Filed herewith
** To be filed by amendment
Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
Dated May , 1998
The parties to this agreement and plan of
reorganization are Integrated Transportation Network Group Inc.,
a Delaware corporation ("ITN"), and Dawson Science Corporation, a
Nevada corporation ("Dawson").
The parties wish to provide for (a) the contribution by
Dawson to ITN of all Dawson's assets, (b) the assumption by ITN
of certain of Dawson's liabilities and obligations and (c) the
distribution by Dawson to its shareholders of all the outstanding
capital stock of ITN.
Accordingly, the parties agree as follows:
1. Contribution and Assumption. Simultaneously with
the execution and delivery of this agreement, (a) Dawson is
hereby transferring to ITN, and ITN is acquiring from Dawson,
free and clear of all claims, liens, security interests and other
encumbrances, all Dawson's assets and properties, tangible and
intangible, including, without limitation, all rights under
agreements, and (b) ITN is hereby assuming and agreeing to pay,
perform and discharge, and indemnify and hold Dawson harmless
from and against, all Dawson's liabilities and obligations,
actual and contingent, including liabilities and obligations
under agreements, in each case that are reflected on, or
expressly referred to in, Dawson's balance sheet at March 31,
1998 and the notes to that balance sheet (which is attached to
this agreement as schedule 1) (including the notes, the "Balance
Sheet"), and all liabilities, and obligations that have arisen in
the ordinary course of business since the date of the Balance
Sheet (it being understood and agreed that ITN shall have no
liability or obligation, and Dawson shall indemnify and hold ITN
harmless from and against, all Dawson's liabilities and
obligations that are not reflected on, or expressly referred to
in, the Balance Sheet or that have not arisen in the ordinary
course of business since the date of the Balance Sheet).
2. Distribution and Winding-Up
2.1 Distribution. As promptly as practicable after
the execution and delivery of this agreement, Dawson shall take
all action necessary to distribute to holders of record of shares
of its common stock at the close of business on May ____, 1998
one share of common stock of ITN for each four shares of common
stock of Dawson held of record by them at that time.
2.2 Fractional Shares. In lieu of issuing any
fractional shares of common stock of ITN pursuant to section 2.1,
the number of shares of common stock of ITN to be distributed to
a holder of record of shares of common stock of Dawson pursuant
to section 2.1 shall be rounded to the next higher integral
number of shares of common stock of ITN, or, at ITN's option, ITN
shall pay the holder an amount in cash equal to the product of
that fraction and $_____ (which equals 400% of the average low
bid prices of a share of common stock of Dawson on the 20 trading
days immediately preceding the date of this agreement).
2.3 Winding-Up. Promptly after carrying out the
provisions of sections 2.1 and 2.2, Dawson shall wind-up its
affairs and seek to be dissolved.
3. Representations and Warranties
3.1 Representations and Warranties of Dawson. Dawson
represents and warrants to ITN as follows:
3.1.1. Existence and Power. Dawson is a corporation
validly existing and in good standing under the law of the state
of Nevada and has the full power and authority to enter into and
perform this agreement.
3.1.2. Authorization. The execution, delivery and
performance of this agreement by Dawson have been duly authorized
by all necessary action, and this agreement constitutes the valid
and binding obligation of Dawson enforceable against it in
accordance with its terms, except to the extent enforceability
may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights in general and subject to general principles of
equity (regardless of whether enforceability is considered in a
proceeding in equity or at law).
3.1.3. Consents of Third Parties. The execution,
delivery and performance of this agreement by Dawson will not:
(a) violate or conflict with its articles of incorporation or by-
laws; (b) conflict with, or result in the breach, termination or
acceleration of, or constitute a default under, any lease,
agreement, commitment or other instrument to which Dawson is a
party or by which it or its properties are bound; or
(c) constitute a violation of any law, regulation, order, writ,
judgment, injunction or decree applicable to Dawson or any of its
properties or require any governmental consent or approval, other
than those set forth on schedule 3.1.3.
3.1.4. Litigation. There is no judicial or
administrative action or proceeding pending or, to the best of
Dawson's knowledge, threatened, nor, to the best of Dawson's
knowledge, is there any governmental investigation pending or
threatened, that questions the validity of this agreement or any
action taken or to be taken by Dawson in connection with this
agreement. Except as set forth on schedule 3.1.4, there is no
litigation or proceeding pending or, to the best of Dawson's
knowledge, threatened, nor, to the best of Dawson's knowledge, is
there any governmental investigation pending or threatened nor is
there any order, injunction or decree outstanding against Dawson.
3.2. Representations and Warranties of ITN. ITN
represents and warrants to Dawson as follows:
3.2.1. Existence and Power. ITN is a corporation
validly existing and in good standing under the law of the state
of Delaware and has the full power and authority to enter into
and perform this agreement.
3.2.2. Authorization. The execution, delivery and
performance of this agreement by ITN have been duly authorized by
all necessary action, and this agreement constitutes the valid
and binding obligation of ITN enforceable against ITN in
accordance with its terms, except to the extent enforceability
may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights in general and subject to general principles of
equity (regardless of whether enforceability is considered in a
proceeding in equity or at law).
3.2.3. Consents of Third Parties. The execution,
delivery and performance of this agreement by ITN will not: (a)
violate or conflict with its certificate of incorporation or by-
laws; (b) conflict with, or result in the breach, termination or
acceleration of, or constitute a default under, any lease,
agreement, commitment or other instrument to which ITN is a party
or by which it or its properties are bound; or (c) constitute a
violation of any law, regulation, order, writ, judgment,
injunction or decree applicable to ITN or any of its properties
or require any governmental consent or approval, other than those
set forth on schedule 3.2.3.
3.2.4. Litigation. There is no judicial or
administrative action or proceeding pending or, to the best of
ITN's knowledge, threatened, nor, to the best of ITN's knowledge,
is there any governmental investigation pending or threatened,
that questions the validity of this agreement or any action taken
or to be taken by ITN in connection with this agreement. Except
as set forth on schedule 3.2.4, there is no litigation or
proceeding pending or, to the best of ITN's knowledge,
threatened, nor, to the best of ITN's knowledge, is there any
governmental investigation pending or threatened nor is there any
order, injunction or decree outstanding against ITN.
4. Indemnification
4.1. By ITN. Subject to this section 4, ITN shall
indemnify and hold Dawson harmless from and against all losses,
liabilities, damages and expenses (including reasonable
attorneys' fees) resulting from any breach of warranty or
agreement or any misrepresentation by ITN under this agreement.
4.2. By Dawson. Subject to this section 4, Dawson
shall indemnify and hold ITN harmless from and against all
losses, liabilities, damages and expenses (including reasonable
attorneys' fees) resulting from any breach of warranty or
agreement or any misrepresentation by Dawson under this
agreement.
4.3. No Other Representations. Except as specifically
set forth in this agreement, neither ITN nor Dawson has made, nor
shall either have liability for, any representation or warranty,
express or implied, in connection with the transactions
contemplated by this agreement. The parties agree that the
remedies provided in this section 4 are the exclusive remedies
for breach of warranty and misrepresentation under this
agreement.
4.4. Survival. The representations and warranties in
this agreement shall survive the execution and delivery of this
agreement.
4.5. Defense of Claims by Third Parties. If any claim
is made against any person or entity that, if sustained, would
give rise to a liability of a party for breach of warranty or
misrepresentation under this agreement, ITN and its counsel, at
ITN's sole expense, shall control the defense and settlement of
the claim, and shall do so in a manner intended to minimize each
party's liability.
5. Miscellaneous
5.1 Governing Law. This agreement shall be governed
by and construed in accordance with the law of the state of New
York applicable to agreements made and to be performed wholly in
the state of New York.
5.2. Notices. All notices and other communications
under this agreement shall be in writing and may be given by any
of the following methods: (a) personal delivery; (b) facsimile
transmission; (c) registered or certified mail, postage prepaid,
return receipt requested; or (d) overnight delivery services.
Notices shall be sent to the appropriate party at its address or
facsimile number given below (or at such other address or
facsimile number for that party as shall be specified by notice
given under this section 5.2):
if to either party, to that party at:
c/o Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Fax: (212) 969-2900
Attention: Edward W. Kerson, Esq.
All such notices and communications shall be deemed received upon
(a) actual receipt by the addressee, (b) actual delivery to the
appropriate address or (c) in the case of a facsimile
transmission, upon transmission by the sender and issuance by the
transmitting machine of a confirmation slip confirming the number
of pages constituting the notice have been transmitted without
error. In the case of notices sent by facsimile transmission,
the sender shall contemporaneously mail a copy of the notice to
the addressee at the address provided for above. However, such
mailing shall in no way alter the time at which the facsimile
notice is deemed received.
5.3. Further Assurances. From time to time, each party
shall take such action and execute and deliver such documents as
the other may reasonably request to carry out the transactions
contemplated by this agreement.
5.4. Counterparts. This agreement may be executed in
counterparts, each of which shall be considered an original, but
both of which together shall constitute the same instrument.
5.5 Separability. If any provision of this agreement
is invalid or unenforceable, the balance of this agreement shall
remain in effect, and if any provision is inapplicable to any
person or circumstance, it shall nevertheless remain applicable
to all other persons and circumstances.
5.6. Entire Agreement. This agreement contains a
complete statement of all the arrangements between the parties
with respect to its subject matter, supersedes all existing
agreements between them with respect to that subject matter, may
not be changed or terminated orally and any amendment or
modification must be in writing and signed by the party to be
charged.
INTEGRATED TRANSPORTATION NETWORK GROUP
INC.
By:__________________________________
DAWSON SCIENCE CORPORATION
By:__________________________________
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
The undersigned incorporator, in order to form a
corporation under the General Corporation Law of Delaware,
certifies as follows:
FIRST: The name of the corporation is Integrated
Transportation Network Group Inc.
SECOND: The registered office of the corporation is
to be located at 1013 Centre Road, Wilmington, Delaware, 19805-
1297, New Castle County. The name of its registered agent at
that address is Corporation Service Company
THIRD: The purpose of the corporation is to engage
in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The corporation shall have the authority to
issue 100 shares of common stock, par value $0.01 per share.
FIFTH: The name and mailing address of the
incorporator are as follows:
Edward W. Kerson, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
SIXTH: A director of this corporation shall not be
personally liable to the corporation or its stockholders for
monetary damages for the breach of any fiduciary duty as a
director, except in the case of (a) any breach of the director's
duty of loyalty to the corporation or its stockholders, (b) acts
or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (c) under section 174
of the General Corporation Law of the State of Delaware or (d)
for any transaction from which the director derives an improper
personal benefit. Any repeal or modification of this Article by
the stockholders of the corporation shall not adversely affect
any right or protection of a director of the corporation existing
at the time of such repeal or modification with respect to acts
or omissions occurring prior to such repeal or modification.
SEVENTH: Unless, and except to the extent that, the
by-laws of the corporation shall so require, the election of
directors of the corporation need not be by written ballot.
EIGHTH: The corporation hereby confers the power to
adopt, amend or repeal bylaws of the corporation upon the
directors.
IN WITNESS WHEREOF, I have hereunto set my hand this
5th day of January, 1998.
/s/ Edward W. Kerson
----------------------------
Edward W. Kerson
Sole Incorporator
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
Pursuant to section 242 of the Delaware General
Corporation Law
The undersigned, Zhi-Jian Wu, chairman of the board of
Integrated Transportation Network Group Inc., a Delaware
corporation, certifies as follows:
1. Article FOURTH of the certificate of incorporation
of the corporation is amended to read in its entirety as follows:
"FOURTH: The corporation shall have authority to
issue 55,000,000 shares, consisting of 50,000,000
shares of common stock, par value $.01 per share,
and 5,000,000 shares of preferred stock, par value
$.01 per share. The board of directors may
authorize the issuance from time to time of
preferred stock in one or more series and with
such designations, preferences, relative,
participating, optional and other special rights,
and qualifications, limitations or restrictions
(which may differ with respect to each series) as
the board may fix by resolution."
2. This amendment was duly adopted in accordance with
section 242 of the Delaware General Corporation Law.
May __, 1998
------------------------
Zhi-Jian Wu
Chairman of the Board
Exhibit 10.3
CONSULTING AGREEMENT
This Agreement is made effective as of February 11, 1998, by and
between Dawson Science Corp., of 575 Lexington Ave, New York
City, New York 10022, and R.I.P. CONSULTANTS, of 86 Trinity
Place, New York, New York 10007.
In this Agreement, the party who is contracting to receive
services shall be referred to as "Dawson", and the party who will
be providing the services shall be referred to as ""R.I.P."".
"R.I.P." has a background in Over 80 years of experience in Wall
Street both in the brokerage field and on the American Stock
Exchange and is willing to provide services to Dawson based on
this background.
Dawson desires to have services provided by "R.I.P.".
Therefore, the parties agree as follows:
1. DESCRIPTION OF SERVICES. Beginning on February 11, 1998,
"R.I.P." will provide the following services, (collectively, the
"Services"): on a best effort basis we will
(1) - "R.I.P. will be consultants to "Dawson" on all matters
that will pertain to their growth in the United States.
(2) - Review all materials prepared by "Dawson" for listing
on the American Stock Exchange.
(3) - Help in the selection of appropriate attorneys and
accountants.
(4) - Facilitating the time it takes for listing on the
exchange by acting as "Dawson" agents.
(5) - Interview and make the determination of which
specialist to house "Dawson" stock.
(6) - Give all-around financial advice concerning the stock
exchange.
(7) - After listing, informing all "R.I.P." clients (325
broker dealers) to buy and try to support "Dawson" because we
feel it is a "good buy".
(8) - If need be, "R.I.P." will lend "Dawson" the right to
use their name to increase their credibility in the financial
community.
(9) - Identify and determine the interest of potential
investors, who would consider investing in "Dawson".
(10) - We will meet with potential investors and include
assisting scheduling meetings and presentations for "Dawson".
(11) - Give all around advice to "Dawson" based on our
knowledge and skills learned from over 80 years of professional
service both in the brokerage and exchange business.
2. PERFORMANCE OF SERVICES. The manner in which the Services
are to be performed and the specific hours to be worked by
"R.I.P." shall be determined by "R.I.P.". Dawson will rely on
"R.I.P." to work as many hours as may be reasonably necessary to
fulfill "R.I.P."'s obligations under this Agreement.
3. PAYMENT. Dawson will pay a fee to "R.I.P." for the Services
in the amount of $108,000.00. This fee shall be payable in two
parts:
The first part will be that Dawson will pay to "R.I.P." 30,000
shares of company stock upon signing this contract, (As a
retainer fee for services to be performed for listing, picking
the right Specialist, and supporting the stock)
The second part will be that Dawson will give R.I.P. $9000 a
month effective 4 months after successfully being listing on the
American Sock Exchange, for all other services contained in this
contract. Upon termination of this Agreement, payments under
this paragraph shall cease; provided, however, that "R.I.P."
shall be entitled to payments for periods or partial periods that
occurred prior to the date of termination and for which "R.I.P."
has not yet been paid,.
4. COMMISSION PAYMENTS. Dawson will make commission payments
to "R.I.P." based on 3.00% of any monies raised. For the
purposes of this Agreement, any monies raised means Any funding
that is raised by either investors or agents that is brought in
by "R.I.P." for the benefit of "Dawson." and that commission
will be in the form of 1 1/2% in stock, and 1 1/2% in cash.
a. Accounting. Dawson shall maintain records in
sufficient detail for purposes of determining the amount of
the commission. Dawson shall provide to "R.I.P." a written
accounting that sets forth the manner in which the
commission payment was calculated.
5. TERM/TERMINATION. This Agreement may be terminated by
either party upon 30 days written notice to the other party.
6. RELATIONSHIP OF PARTIES. It is understood by the parties
that "R.I.P." is an independent contractor with respect to
Dawson, and not an employee of Dawson. Dawson will not provide
fringe benefits, including health insurance benefits, paid
vacation, or any other employee benefit, for the benefit of
"R.I.P.".
7. EMPLOYEES. "R.I.P."'s employees, if any, who perform
services for Dawson under this Agreement shall also be bound by
the provisions of this Agreement. At the request of Dawson,
"R.I.P." shall provide adequate evidence that such persons are
"R.I.P."'s employees.
8. ASSIGNMENT. "R.I.P."'s obligations under this Agreement may
not be assigned or transferred to any other person, firm, or
corporation without the prior written consent of Dawson.
9. CONFIDENTIALITY. "R.I.P." recognizes that Dawson has and
will have the following information:
- costs
- future plans
- business affairs
- trade secrets
and other proprietary information (collectively, "Information")
which are valuable, special and unique assets of Dawson.
"R.I.P." agrees that "R.I.P." will not at any time or in any
manner, either directly or indirectly, use any Information for
"R.I.P."'s own benefit, or divulge, disclose, or communicate in
any manner any Information to any third party without the prior
written consent of Dawson. "R.I.P." will protect the Information
and treat it as strictly confidential. A violation of this
paragraph shall be a material violation of this Agreement.
10. CONFIDENTIALITY AFTER TERMINATION. The confidentiality
provisions of this Agreement shall remain in full force and
effect after the termination of this Agreement.
11. RETURN OF RECORDS. Upon termination of this Agreement,
"R.I.P." shall deliver all records, notes, data, memoranda,
models, and equipment of any nature that are in "R.I.P."'s
possession or under "R.I.P."'s control and that are Dawson's
property or relate to Dawson's business.
12. NOTICES. All notices required or permitted under this
Agreement shall be in writing and shall be deemed delivered when
delivered in person or deposited in the United States mail,
postage prepaid, addressed as follows:
If for Dawson:
Dawson Science Corp.
Mr. Wu, Zhi-jian or Mr. Andrew Lee
575 Lexington Ave
New York City, New York 10022
If for "R.I.P.":
R.I.P. CONSULTANTS
Mr. Roy Lerman
Chairman of the Board
86 Trinity Place
New York, New York 10007
Such address may be changed from time to time by either party by
providing written notice to the other in the manner set forth
above.
13. ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties and there are no other promises or
conditions in any other agreement whether oral or written. This
Agreement supersedes any prior written or oral agreements between
the parties.
14. AMENDMENT. This Agreement may be modified or amended if
the amendment is made in writing and is signed by both partes.
15. SEVERABILITY. If any provision of this Agreement shall be
held to be invalid or unenforceable for any reason, the remaining
provisions shall continue to be valid and enforceable. If a
court finds that any provision of this Agreement is invalid or
unenforceable, but that by limiting such provision it would
become valid and enforceable, then such provision shall be deemed
to be written, construed, and enforced as so limited.
16. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to
enforce any provision of this Agreement shall not be construed as
a waiver or limitation of that party's right to subsequently
enforce and compel strict compliance with every provision of this
Agreement.
17. APPLICABLE LAW. This Agreement shall be governed by the
laws of the State of New York.
Party receiving services:
Dawson Science Corp.
By: /s/ Wu Zhi-jian
Mr. Wu, Zhi-jian
President
Party providing services:
R.I.P. CONSULTANTS
By: /s/ Roy Lerman 2/13/98
Roy Lerman
Chairman of the Board
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Integrated Transportation Network Group Inc.
New York, New York
We hereby consent to the use in the Prospectus
constituting a part of this Registration Statement of our report
dated January 30, 1998 (except for Note 9(a), which is as of
March 31, 1998 and Note 1 which is as of , 1998), relating
to the consolidated financial statements of Integrated
Transportation Network Group Inc. and Subsidiaries, which is
contained in that Prospectus.
We also consent to the reference to us under the
caption "Experts" in the Prospectus.
/s/ BDO Binder
BDO Binder
May 1, 1998
