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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: _______
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3993618
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
575 Lexington Avenue, Suite 410, New York, NY 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 840-8866
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01
Title of class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such stock as quoted
on the National Association of Securities Dealers, Inc.'s OTC Bulletin Board as
of April 6, 1999, was approximately $30,059,051. The number of shares of common
stock outstanding at that date was 12,467,945 shares, $.01 par value.
Documents Incorporated By Reference
Part Item
1. Integrated Transportation Network Group Inc. III 10,11,12,13
Definitive Proxy Statement with respect to
its Annual Meeting of Stockholders to
be held on May 28, 1999.
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CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1955
ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-K, INCLUDING, WITHOUT LIMITATION, STATEMENTS SET
FORTH UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" REGARDING THE COMPANY'S FUTURE FINANCIAL POSITION,
BUSINESS STRATEGY, BUDGETS, PROJECT COSTS AND PLANS AND OBJECTIVES OF MANAGEMENT
FOR FUTURE OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. IN ADDITION,
FORWARD-LOOKING STATEMENTS GENERALLY CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "INTEND,"
"ESTIMATE," "ANTICIPATE" OR "BELIEVE" OR THE NEGATIVE THEREOF OR VARIATIONS
THEREON OR SIMILAR TERMINOLOGY. ALTHOUGH THE COMPANY BELIEVES THAT THE
EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS WILL PROVE TO HAVE
BEEN CORRECT, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE
HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN THE RISK
FACTORS SET FORTH IN ITEM 7 BELOW (THE "RISK FACTORS") AS WELL AS THOSE
DISCUSSED ELSEWHERE HEREIN.
PART I
INTEGRATED TRANSPORTATION NETWORK GROUP, INC.
ITEM 1. BUSINESS
OVERVIEW
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"). The Company
also has been developing a hotel, which is scheduled to commence operations in
year 2000 (the "Hotel Business"). All the Company's operations are located in
China and operated through Jinzhenghua Transport. All of the Company's revenues
and profits are attributable to its businesses in China.
The Company succeeded to the assets and certain liabilities of Dawson
Science Corporation ("Dawson"), the Company's former parent company, pursuant to
a reorganization consummated on or about June 30, 1998. On March 19, 1997,
Dawson acquired a 92% interest in Jinzhenghua Transport. In connection with such
acquisition, 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, of
Dawson ("Dawson Preferred Stock"), and Wu Zhi Jian, Chairman of the Company,
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 its
counsel and accountants at that time, 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 92% of
Jinzhenghua Transport.
On June 25, 1998, Dawson's board of directors and shareholders,
approved a plan of reorganization that provided for the distribution on or about
June 30, 1998 to Dawson's shareholders of all the outstanding shares of common
stock, par value $.01 per share, of the Company (the "Company Common Stock")
(the "Reorganization"), in exchange for which, Dawson transferred all of its
assets to the Company and the Company assumed the disclosed liabilities of
Dawson. In connection with the Reorganization, each holder of record of Dawson
Common Stock at the close of business on June 30, 1998 received, 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 rounded the number of shares
issued to a holder to the next higher number of shares, or, at the Company's
option, paid the holder an amount in cash equal to the product of such fraction
and 400% of the average low bid prices of a share of Dawson Common
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Stock during the 20 trading days immediately preceding the distribution. In
connection with the distribution to Dawson's shareholders, as noted above Dawson
transferred to the Company all its assets, including all its interest in
Jinzhenghua Transport, and the Company assumed, and agreed 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 wound-up its affairs. It is anticipated that
Dawson will be dissolved.
The Company's transportation businesses 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, Jinzhenghua Transport further expanded its Transportation
Business to include automobile rental services in the Provinces of Jiangxi,
Guangdong, Jiangsu and Shaanxi. The Rental Business began operations in August
1997 with the purchase of 350 new automobiles and establishment, during 1997, of
automobile rental stations in Ganzhou, Guangzhou, Nanchang, Nanjing and Xian.
As of December 31, 1998, the Rental Business had increased its fleet to
1,218 automobiles of which 650 cars had been deployed in the rental operations
and the remaining 568 cars had not yet been placed in service. The Rental
Business is currently servicing the cities of Ganzhou in the Jiangxi Province,
Guangzhou in the Guangdong Province, Nanchang in the Jianxi Province, Nanjing in
the Jiangsu Province, Xian in the Shaanxi Province, Yueyang in the Hunan
Province, Changsha in the Hunan Province, and Nanning in the Guangxi Province of
China. The Company recently established rental operations in Nanning, Guangxi,
with a fleet of 50 cars, which the Company expects to expand to 100 automobiles
in the near future. As of March 31, 1999, the total rental fleet consisted of
1,168 automobiles (with 750 in actual rental operations and 418 vehicles which
have not yet been placed in service). During the first quarter of 1999, 50
automobiles were moved from the non-operating rental fleet to establish a new
taxi unit in the city of Yueyang of the Hunan Province. The Rental Business also
possesses additional licenses which authorize it to establish rental operations
in certain other cities and provinces in China.
The Taxi Business had a fleet of 728 automobiles as of December 31,
1998, of which 528 taxis were deployed in the city of Shenzhen of the Guangdong
Province out of a current citywide total of 7,800. All of the remaining taxi
companies in Shenzhen are state controlled. The Taxi Business also has 150 taxis
in the city of Shimen of the Hunan Province and 50 taxis in the city of Ganzhou
of the Jiangxi Province. With the addition of another 50 taxis during the first
quarter of 1999 in the city of Yueyang in the Hunan Province, the total taxi
fleet increased to 778 autos as of March 31, 1999.
The Repair Business currently has one station, which is located in
Shenzhen, Guangdong Province. 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, several
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
According to China Consumer News, China produced 1.63 million vehicles
in 1998, up 4.49% from 1.56 million vehicles produced in 1997. 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. The
Company believes that the disparity between the number of available automobiles
in China and the number of licensed drivers is creating a strong demand for
rental cars among the more affluent Chinese middle class.
There are only an estimated 10,000 cars available for rent in China, to
serve a population of 1.3 billion, of whom more than 50 million have been issued
driver's licenses. The Company believes that automobile rentals are available in
each of China's 192 large and medium sized cities. Most of the companies
involved in automobile rentals control only a few automobiles that are
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aging and poorly maintained. Furthermore, they generally are based only in one
city with restrictions or outright prohibitions against extensive intercity
travel. Among them, two of the largest car rental operations in China are
Beijing Ford Automobile Rental Co. Ltd. and Shanghai Volkswagen Automobile Co.
Ltd. Beijing Ford Automobile Rental Co. Ltd., formed in 1992, was the first
automobile rental company in Beijing and has approximately 500 automobiles
available for rent. Shanghai Volkswagen Automobile Co. Ltd., which is affiliated
with Hertz Corporation, is the largest rental company in Shanghai and has
approximately 300 automobiles available for rent. Both of these organizations
have limited operations outside of the cities in which they are based.
The Company believes several factors could encourage growth in the car
rental business in China:
- The highway and road infrastructure in China is a
main priority of the State Council and significant
national and international resources are being
deployed for its improvement. Primary and secondary
roads in China (ranked by grade) now represent 33% of
all roads. . High-grade primary and secondary roads
grew from 26.8% of China's roads in 1991 to 33.4% in
1995. China's 9th Five-Year Plan calls for four major
expressway trunks to link the North and South, East
and West.
- 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
Until 1988, all taxi companies in China were state-owned. In 1988,
Shenzhen first auctioned taxi licenses to private institutions and corporations.
At present, there are 78 taxi companies in Shenzhen, only five of which are
privately owned. Each city regulates the total number of taxis allowed to
operate in that city. The number of taxis allowed to operate in each of the
listed cities is as follows: Beijing (80,000), Shanghai (30,000), Guangzhou
(16,000) and Shenzhen (8,000).
Although the taxi business is not a new industry in China, most taxi
companies are state-controlled, not efficiently operated and burdened with
excessive overhead. Most taxi companies are local and do not have the benefits
of an extensive national network.
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 varies among different localities. A one-time city capacity
expansion fee is also 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 also are required to have special plates, or "medallions", for
which the historical cost varies in each city. In Shenzhen, a medallion costs
approximately $60,250 and in Guangzhou, it costs approximately $26,500; 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
The Company believes that, as the number of automobiles increases in
China, the market for repair, maintenance and inspection services also will
increase.
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China's automobile industry is growing at a rapid rate. In 1998, China
produced approximately 1.63 million automobiles compared to 1.56 million in 1997
and 1.46 million in 1996. Automobile production is expected to increase 3% to 6%
to around 1.7 million in 1999. Nearly all of the automobiles produced in China
are sold in China. According to the latest statistics released by the State
Administration of Machinery Industry, virtually all of the 1.6 million units
produced in 1998 were sold within China. Total automobile production in the year
2000 is projected to approach 3 million vehicles. One-half of this production is
expected to be sedans. All of these automobiles, in addition to considerable
imports sold in China, will need repair services, which the Company believes
should have a positive impact upon the Repair Business.
In China, repair work generated by insurance companies must be
performed at designated repair shops. The Company has one of only two citywide
designated repair stations for insurance claims in Shenzhen. There are also
government regulations which require annual inspections for automobiles and more
frequent inspections for taxis; such inspections must be made by a government
certified inspection station. The Company's repair station is government
certified.
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 Rental Business objective is to create a nationwide
automobile rental system in China.
The Company intends to purchase as many automobiles for the Rental
Business as its capital resources permit. At December 31, 1998, the Rental
Business had acquired a total of 1,218 cars, of which 650 had been placed in
service. The remaining 568 cars have not yet been placed in service, as the
Company does not currently have the funds necessary (approximately $3,400,000)
to pay the expenses of placing the cars in service. As of March 31, 1999, the
total rental fleet was reduced to 1,168 vehicles, as 50 of the vehicles (not yet
deployed in the Rental Business) were added to the taxi fleet to provide taxi
services in the city of Yueyang of the Hunan Province. The Company intends to
place all of the remaining cars in service in the Rental Business as and when it
has funds available to do so. See Item 7. "Management Discussion & Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." Rental cars are available in eleven different models. The cars are
located either at the headquarters in each city or at strategically located
satellite stations.
At present, 10% of the Company's 750 automobiles deployed in the Rental
Business are under short-term leases (less than one month). A majority of the
lessees are individual tourists and other foreigners located in China. The
Company plans to have long-term leases primarily with corporate and governmental
organizations, and to continue to have short-term leases primarily with
individuals. Long-term lease customers account for 90% of the total Rental
Business revenue.
The Company plans to use a variety of marketing techniques and media in
an effort to expand the Rental Business, 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 cities that have the
potential for economic growth and additional taxi licenses available. For those
cities that have limited taxi licenses, 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.
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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 cars 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, efficiently provide repair, maintenance and inspection services to
others. The Company also 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
Upon completion, scheduled in the year 2000, 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 100 cars in August 1997 in
the city of Ganzhou. As of December 31, 1998, the Rental Business had acquired
an aggregate of 1,218 automobiles, of which 650 had been placed in services as
follows: 100 in Ganzhou, 200 in Guangzhou, 100 in Nanchang, 100 in Nanjing, 70
in Xian, and 80 in Yueyang. The Company also has licenses to operate in other
cities, including Changsha, Nanning, Leiyang, Zhenzhou and Chengdu. The Rental
Business generated $12.6 million in revenue during 1998, representing 56.4% of
the Company's total revenue in 1998.
Generally, Rental Business 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 eight employees in each
city provide 24-hour access to rental automobiles. 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 tailors its Rental Business to three main categories of
customers:
Foreign Tourists and Foreigners Living in China. Short-term leases are
popular among foreign tourists and foreigners living in China. 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
business-related transportation needs.
Chinese Individuals. Chinese individuals rent automobiles for special
occasions, such as weddings and vacation travels.
In a long-term lease, the Company charges a deposit ranging from $1,800
to $3,000 for each leased automobile. The typical long-term lease is one year at
a monthly rental of approximately $1,200 to $1,800. 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. Upon expiration of long-term leases,
automobiles that are two or three 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.
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Depending on the length of each short-term lease, the Company charges a
deposit ranging from $600 to 1,000. The basic rental fee per day for the
short-term lease ranges from $36 to $60 depending on the model of the car.
Rental charges are based on the distance traveled and 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 six months or
longer.
Customers may reserve automobiles. 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
cost of the insurance is incorporated into the rental fee.
The Company does not impose "drop charges" on customers who return
their cars to a Company rental location different from the location where 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 60 employees.
See Note 17, "Segment Information," to the consolidated financial
statements included in Part IV of this Report for financial information
concerning the Company's segments.
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 6.6%, of all the taxi licenses in Shenzhen. The Company
is one of only five independent taxi organizations in Shenzhen, and is the
largest of these five. The remaining taxi companies in Shenzhen are controlled
by the government; most have fewer than 50 cabs. The Taxi Business generated
$8.3 million in revenue during 1998, representing 37.2% of the Company's total
revenue in 1998.
Additionally, the Company has 150 taxis in Shimen, Hunan Province and
50 taxis in Ganzhou, Jiangxi Province. As of March 31, 1999, the Company also
had 50 taxis in Yueyang, Hunan province.
The Company's taxi headquarters, located in Shenzhen in a modern
two-floor office space with 2,000 square meters per floor, has 51 employees.
Computer operations, a cashier center for collecting payments from drivers, a
dispatch center, all accounting and financial functions, a large meeting room
for bimonthly 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
taxis in each fleet with two drivers per taxi.
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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 annually provide drivers clothing with the Company
logo, 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 technological advances. 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 sign a contract with the Company for a four-year lease of the
car. For the lease of a new car, the taxi driver pays an initial deposit of
$2,400 as security deposit plus a lease premium of $12,000. For the lease of a
used car, the taxi driver will pay an initial deposit of $2,400 as security
deposit plus a lease premium of $9,600. The lease premium is part of the tax
revenue of the Company and is allocated over the term of the lease. The contract
is renewable, for an identical lease payment, for an additional four-year
period.
In addition, during the term of the lease, a driver pays the Company
approximately $800 a month as a rental fee pursuant to a lease agreement,
regardless of mileage or the number of customers served. The rental fee is the
principal revenue the Company receives from the Taxi Business in addition to the
allocable portion of the lease premium. In addition, taxi drivers pay the
Company approximately $205 a month for a variety of other items, including a
repair fund reserve, taxes to various regulatory groups, insurance and a
communication charge. Drivers also must pay an average of $6 a month to the
Company's repair shops to supplement the repair reserve fund. A driver is
responsible for paying an additional night time rental fee if the driver has
associates driving the taxi during the night shift. At present, most drivers
have associates driving during the night shift.
Taxi related costs that the Company pays (supplemented by the
approximately $205 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
appointment for an inspection at the Company's repair shop. April, September and
December are the Company's Safety Inspection Months for all the taxis. The
Company provides special inspections of all the taxis. Taxi drivers are allowed
to offer taxi services 24 hours a day and to use the automobile for commuting
purposes.
8
<PAGE> 9
The following table sets forth the Company's average revenue per taxi
in 1998, and the components of such revenue:
<TABLE>
<CAPTION>
Components of 1998 Revenue Per Taxi Amount
----------------------------------- ------
<S> <C>
Rental fee $ 8,854
Allocable portion of Lease Premium 1,641
Night shift rental fee 816
Others 115
-------
Total $11,426
</TABLE>
The following table sets forth the average operating expense per taxi
in 1998, and the components of such expense. The taxi driver pays all the
operating expenses.
<TABLE>
<CAPTION>
Components of 1998 Operating Expense Per Taxi Amount
--------------------------------------------- ------
<S> <C>
Insurance $1,190
Car Maintenance 570
Road maintenance fee 70
Traffic regulation fee 115
Motor vehicle tax 20
Communication fee 45
Operating Tax 450
------
Total $2,460
</TABLE>
The Taxi Business has approximately 51 employees, in addition to
approximately 1,000 taxi drivers, who are not employees.
See Note 17, "Segment Information," to the consolidated financial
statements included in Part IV of this report for financial information
concerning the Company's segments.
Repair Business
The Company has a repair shop, which is located in Shenzhen. The shop
is based in a 908 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. The Repair
Business generated $1.43 million in revenue during 1998, representing 6.4% of
the Company's total revenue in 1998.
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 three automotive electrical system specialists
handles electrical problems with a wide range of metering,
gauging and sensor equipment.
- Four employees handle the use of a variety of equipment,
hydraulic tools and finishing tools for repairing body damage.
- Three 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% by 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.
9
<PAGE> 10
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.
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 minimal
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 about 130% to 140% of cost of
parts 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 $48. 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 35 individuals, including five
managers, thirteen administrators, and ten licensed mechanics.
See Note 17, "Segment Information," to the consolidated financial
statements included in Part IV of this report for financial information
concerning the Company's segments.
Hotel
The Hotel will be located in Shimen in northwest Hunan Province. The
Hotel currently is planned to commence operations in year 2000. 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 is also 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 both public and private dining rooms. The
Hotel is expected to have approximately 200 employees, including 20
administrative managers.
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 $4 million.
To date, development of the Hotel has cost approximately $2.2 million already.
Approximately $1.8 million of additional expenditures will be required to
complete the hotel construction project.
10
<PAGE> 11
EXECUTIVE OFFICERS
The following table sets forth information regarding the executive
officers of the Company at December 31, 1998.
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Wu Zhi Jian 38 Chairman of the Board
Andrew Lee 49 President
Willy Wu 36 Executive Vice President, Chief Financial Officer
Peng Jun 27 Executive Vice President, Treasurer
Mona Ng 32 Secretary
</TABLE>
Wu Zhi Jian has been the chairman and director of the Company since
January 1998. 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 of the Company since 1998. 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 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 and treasurer 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.
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.
Each of the Company's executive officers serves at the pleasure of the
Board of Directors and the term of his/her office shall be until his/her
successor is duly elected and qualified.
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,
Shenhen, 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
11
<PAGE> 12
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 schedules 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 tax 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 wok 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 the 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 a standard 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 service industry enterprises for an operating
period of ten years or more, the joint ventures are eligible for one year of
full exemption, starting from the first profit-making year, and a 50% reduction
for the next two years on enterprises income tax.
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
one year of full exemption, starting from the first profit-making year, and a
50% reduction for the next two years on enterprises income tax 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 venture will be exempt from
any income tax, including withholding tax.
12
<PAGE> 13
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 form 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.
ITEM 2. PROPERTIES
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 908 square meter facility.
The Hotel will be in the city of Shimen in northwest Hunan Province. It
is planned to commence operations in the year 2000. 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, several conference rooms and a retail shop.
ITEM 3. LEGAL PROCEEDINGS
In late 1997, the United States Securities and Exchange Commission
commenced an informal inquiry relating to public disclosures in 1997 by Dawson
Science Corporation ("Dawson"), the Company's former parent company. The public
disclosures involved, among other things, press releases relating to the
acquisition of Shenzhen Jinzhenghua Transport Industrial Development Co., Ltd.,
the value of Dawson's assets, Dawson's financial prospects and Dawson's
anticipated revenues and earnings (collectively, the "Public Disclosures"). The
Company engaged counsel in connection with the inquiry. The outcome of such
inquiry could materially and adversely affect the Company.
On August 28, 1998, David Weightman, a stockholder of the Company,
filed a class action complaint in the United States District Court for the
Southern District of New York naming the Company, Dawson, and their respective
executive officers and directors as defendants. The complaint alleges that the
Public Disclosures omitted or misrepresented material facts. The plaintiff seeks
unspecified damages on behalf of himself and all other persons who purchased
shares of Dawson common stock between March 25, 1997 and December 30, 1997,
together with interest and costs, including attorney fees, under sections 10(b)
and 20(a) of the Securities and Exchange Act of 1934 and Rule 10(b)(5)
thereunder.
The Company currently is engaged in settlement discussions with respect
to the class action referred to above. Based on these discussions, the Company
has established a liability and recorded a related expense in the amount of $1.5
million in respect of the class action. There can be no assurance, however, that
the settlement discussions will result in a final settlement, or that the
liability of a final settlement will be limited to $1.5 million. If these
settlement discussions are not the basis for a final settlement, the liability
with respect to the class action could materially exceed $1.5 million.
13
<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 25, 1998, prior to the Reorganization, the sole stockholder of the
Company approved an amendment to the Company's Certificate of Incorporation to
increase from 100 to 55,000,000 the number of authorized shares of capital stock
of the Company and approved the transactions contemplated by the Reorganization.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
RECORD HOLDERS
As of April 6, 1999, there were 105 record holders of the Company's
Common Stock. This number does not include those stockholders holding stock in
"nominee" or "street" name.
MARKET INFORMATION
The Company's Common Stock has been quoted on the National Association
of Securities Dealers, Inc.'s OTC Bulletin Board ("OTC Bulletin Board") under
the symbol ITNG since the Reorganization on June 30, 1998. Prior to the
Reorganization, there was no trading market for the Company's Common Stock.
Accordingly, no quotations for the Company's Common Stock were available during
fiscal 1997 or the first quarter of fiscal 1998. However, the Common Stock of
the Company's predecessor, Dawson, was traded on the OTC Bulletin Board under
the symbol DWSC. As a result of the Reorganization, each holder of record of
Dawson Common Stock at the close of business on June 30, 1998 received one share
of Company Common Stock for each four shares of Dawson Common Stock (the
"split"). The table sets forth the high and low closing bid prices of (i) the
Dawson Common Stock as quoted on the OTC Bulletin Board (on a post-split
adjusted basis) during each calendar quarter of 1997 and the first two quarters
of 1998 and (ii) the Company Common Stock for the third and fourth quarters of
1998. The following over-the-counter market quotations reflect inter-dealer
prices, without retail mark-up, mark-down, or commission, and may not
necessarily represent actual transactions. There is a limited trading market for
the Company's Common Stock.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Year Ended 1998 Year Ended 1997
- ------------------------------------------------------------------------------------------------------
Quoted Bid Quoted Bid
- ------------------------------------------------------------------------------------------------------
High Low High Low
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $ .85 $ .33 .81 .36
- ------------------------------------------------------------------------------------------------------
Second Quarter .74 .47 1.24 .60
- ------------------------------------------------------------------------------------------------------
Third Quarter 11.00 1.38 1.99 1.35
- ------------------------------------------------------------------------------------------------------
Fourth Quarter 2.50 .88 1.28 .31
- ------------------------------------------------------------------------------------------------------
</TABLE>
DIVIDENDS
It is the Company's current policy to retain any future earnings to
finance the continuing development of its business. The company has not paid any
dividends since the initial public offering of its stock.
Under the laws of People's Republic of China ("PRC Laws"), there are
certain restrictions on the ability of Jinzhenghua Transport to pay dividends to
the Company. In order for Jinzhenghua Transport to be able to pay dividends to
the Company, the Company must contribute to the capital of Jinzhenghua Transport
the remaining $8.9 million (in cash or assets) it is obligated to pay under
Jinzhenghua Transport's organizational documents, Jinzhenghua Transport must
maintain a foreign currency transaction account, and it must obtain the foreign
exchange necessary to pay the dividends. Currently, Jinzhenghua Transport has a
foreign currency transaction account. However, the Company has not yet
contributed the required $8.9 million in capital to Jinzhenghua Transport.
Accordingly, Jinzhenghua Transport's ability to pay dividends to the Company is
currently restricted. The Company intends to contribute the remaining $8.9
million in capital to Jinzhenghua Transport prior to December 26,1999. See Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for a description of the Company's
obligation to contribute capital to Jinzhenghua Transport.
14
<PAGE> 15
RECENT SALES OF UNREGISTERED SECURITIES
On December 11, 1998, the Company issued (i) 2,228,571 shares of Common
Stock at a per share price of $1.75 and (ii) immediately exercisable warrants to
purchase 334,286 shares of Common Stock for a term of 5 years, at a per share
exercise price of $2.00, in cancellation of $3,900,000 of indebtedness of
Jinzhenghua Transport. The shares of Common Stock and Warrants were issued in
transactions exempt from Section 5 of the Act, pursuant to Rule 506. Each of the
holders of the indebtedness and the recipient of the Warrants were non-U.S.
residents and "accredited investors." There was no general solicitation.
On December 11, 1998, the Company raised $600,000, (before deducting a
cash finder's fee of approximately $60,000) through the private sale of 228,571
shares of common stock at a price of $2.625 per share. As additional finder's
compensation, the Company issued immediately exercisable warrants to purchase
360,000 shares of common stock for a five year term at an exercise price of
$2.00. The shares were sold to Yeung Shu Kin a non-U.S. resident and an
"accredited investor." The finder's warrants were also issued to a non-U.S.
resident and an "accredited investor." The shares of Common Stock and Warrants
were sold in transactions exempt from Section 5 of the Act, pursuant to Rule
506. There was no general solicitation.
On December 23, 1998 the Company raised $1,000,000, before deducting a
finder's fee of approximately $100,000, through the private sale of (i) 380,952
shares of common stock at a price of $2.625 per share and (ii) immediately
exercisable warrants to purchase 500,000 shares of common stock for a five year
term at an exercise price of $2.00. As additional finder's compensation, the
Company issued immediately exercisable warrants to purchase 200,000 shares of
common stock for a five year term at an exercise price of $2.00 per share. The
shares of Common Stock and Warrants were sold in transactions exempt from
Section 5 of the Act, pursuant to Rule 506. The shares and investor warrants
were sold to Kwok Kee Billy Yung, a non-U.S. resident and an "accredited
investor." The finder's warrants were also issued to a non-U.S. resident and
"accredited investor." There was no general solicitation.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial information
and should be read in conjunction with the Consolidated Financial Statements of
the Company and the related notes thereto and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in this
report.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Years Ended December 31
(in thousands)(1)
- -------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
- -------------------------------------------------------------------------------------
Revenues $4,728 $6,208 $9,211 $12,538 $22,343
- -------------------------------------------------------------------------------------
Net Income 2,209 3,023 4,563 5,886 7,869
- -------------------------------------------------------------------------------------
Net Income per Common Share - .37 .50 .76 .97 1.04
Diluted
- -------------------------------------------------------------------------------------
</TABLE>
(1) The Income Statement data represents the historical performance of the
Company and is not necessarily indicative of the Company's future results of
operations. Some of the factors which could cause future results of operations
to differ materially from the historical operating results are discussed under
"Item 7. Management's Discussion & Analysis of Financial Condition and Results
of Operations - Risk Factors."
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Years Ended December 31
(in thousands except per share data)
- ----------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
- ----------------------------------------------------------------------------------------------
Total Assets 23,111 27,111 29,099 55,954 68,657
- ----------------------------------------------------------------------------------------------
Short-Term Debt 10,599 8,415 5,599 14,316 2,871
- ----------------------------------------------------------------------------------------------
Stockholders' Equity 8,483 12,051 16,760 30,181 48,781
- ----------------------------------------------------------------------------------------------
</TABLE>
See Item 1, "Business--Overview" for a description of the Company's
Reorganization.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
General
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"). The Company
does not have any operating business other than the businesses operated through
Jinzhenghua Transport. The Company has also been developing a hotel business,
which is planned to commence operations in year 2000. All of the Company's
revenue and profits are attributable to Jinzhenghua Transport's businesses in
China. All the Company's operations are located in China. The Company maintains
executive offices in both New York City (USA) and Shenzhen (China).
For a description of the Company's reorganization in June 1998, see
Item 1, "Business - Overview".
The Company's transportation businesses 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, Jinzhenghua Transport further expanded its transportation
business to include automobile rental services in the Provinces of Jiangxi,
Guangdong, Jiangsu and Shaanxi. 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 during 1997.
During the fourth quarter of 1998, the Company raised an aggregate of
approximately $1,600,000 through the sale of an aggregate 609,523 shares of
Common Stock, at the share price of $2.625, and warrants to purchase 500,000
shares of Common Stock. In addition, the company issued 2,228,571 shares of
Common Stock and warrants to purchase 334,286 shares of Common Stock, all in
satisfaction of approximately $3,900,000 in indebtedness of Jinzhenghua
Transport.
On a consolidated basis, revenue, net, increased $9,805,000 from
$12,538,000 in 1997 to $22,343,000 in 1998. Net income increased $1,983,000 from
$5,886,000 in 1997 to $7,869,000 in 1998.
The Rental Business, which began operations in August 1997, accounted
for $2,636,000, or 21.0%, of the Company's total revenue, net, in 1997 and
$12,600,000, or 56.4%, of the Company's total revenue, net, in 1998. At both
December 1997 and 1998, the Rental Business had acquired 1,218 automobiles. Of
the aggregate 1,218 automobiles acquired by the Rental Business, 50 were
transferred to the Taxi Business and 1,168 are currently owned by the Rental
Business, of which 750 have been placed in service and the remaining 418 have
not yet been placed in service as the Company does not currently have available
the funds necessary (approximately $2,500,000) to pay the expenses related to
placing the cars in service (license fees, taxes, and levies). The Company
intends to place these cars in service as and when it has funds available to do
so. See Item 7. "Management's Discussion & Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources." 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, minority interest and cumulative effect of
change in accounting principle in 1997 and 70.3%, or $9,274,000, to the
Company's $13,184,000 in income before provision for income tax, minority
interest and cumulative effect of change in accounting principle (and excluding
the $1,500,000 provision for class action settlement) in 1998. See Note 17,
"Segment Information," to the consolidated financial statements included in Part
IV of this report for financial information concerning the Company's segments.
The Taxi Business accounted for $8,318,000, or 37.2% of the Company's
total revenue, net, in 1998. At both December 1997 and 1998, the Taxi Business
had deployed 728 taxis . The Taxi Business contributed $5,161,000 to income
before provision for income tax, minority interest and cumulative effect of
change in accounting principle in 1997 and $5,058,000 to the
16
<PAGE> 17
Company's income before provision for income tax, minority interest and
cumulative effect of change in accounting principle (and excluding the
$1,500,000 provision for class action settlement) in 1998, representing 77.3%
and 38.4 respectively. See Note 17, "Segment Information," to the consolidated
financial statements included in Part IV of this report for financial
information concerning the Company's segments.
The Repair Business accounted for $1,425,000, or 6.4% of the Company's
total revenue, net and $464,000, or 3.5% of the Company's income before
provision for income tax, minority interest and cumulative effect of change in
accounting principle (and excluding the $1,500,000 provision for class action
settlement) in 1998. During the current year, revenue, net, from the Repair
Business was $1,425,000, compared with $1,477,000 in 1997, a decrease of
$52,000, or 3.5%. This decrease was attributable to a minor decrease in business
in 1998, compared to 1997. Taxi cab licenses are renewable every four years. The
Company expects income from taxi cab inspections to fluctuate based on the
number of licenses to be renewed in a given year. See Note 17, "Segment
Information," to the consolidated financial statements included in Part IV of
this report for financial information concerning the Company's segments.
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 in
1998. All expenditures related to the hotel before and during the year ended
December 31, 1998 have been capitalized and recorded as construction in
progress.
During 1997 and 1998, the Company's income before provision for income
tax, minority interest and cumulative effect of change in accounting principle
reflects $822,000 and $750,000 respectively, of accounting, legal and other
professional and advisory expenses that related primarily to the Company's
reorganization.
During 1998, the Company had interest expense, net of interest income,
of $660,000 which reflected interest expense of $675,000 and interest income of
15,000.
The Company had entered into two agreements to purchase an aggregate of
5,000 automobiles for an aggregate purchase price of approximately $78,811,000.
One contract, which was for 2,000 cars for an aggregate purchase price of
$31,336,000, has been terminated by the Company without liability or penalty.
The other purchase contract was for 3,000 cars for an aggregate purchase price
of $47,475,000.
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. However, the Company
currently does not have sufficient capital to expand its businesses. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
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 of 33%. In addition, Shenzhen enterprises in the transportation
service industry have a 100% income tax credit for the first year in which they
have a profit and a 50% income tax credit for the second and third years.
Various other localities in China provide similar tax incentives. As the Company
matures, fewer tax incentives are and will be available to the Company.
Therefore, the Company's effective tax rate is expected to increase in future
periods which will increase income tax expense as a percentage of taxable
income.
17
<PAGE> 18
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, Percentage of December 31, Percentage of
1998 Revenue, Net 1997 Revenue, Net
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenue, net $22,343,000 100.0% $12,538,000 100.0
Total operating expenses 8,499,000 38.0 5,132,000 40.9
Total expenses(1) 11,633,000 52.1 5,858,000 46.7
Income before provision for income tax,
minority interest and cumulative effect of
change in accounting principle(2) 11,684,000 52.3 6,680,000 53.3
Income before minority interest and
cumulative effect of change in accounting
principle(2) 9,774,000 43.7 6,223,000 49.6
Net income(1) 7,869,000 35.2 5,886,000 46.9
</TABLE>
(1) Includes in 1998 $2,474,000 in expenses, comprised of a
$1,500,000 provision for settlement of class action lawsuit
and $974,000, representing the cumulative effect of a change
in accounting principle related to the write off of
organization costs and excludes income taxes.
(2) Includes in 1998 a $1,500,000 provision for settlement of
class action lawsuit.
Revenue, net was $22,343,000 in 1998, an increase of 78.2% from
$12,538,000 in 1997. The increase was primarily due to increased revenue from
the Rental Business of $9,964,000. The Taxi, Rental and Repair Businesses
contributed $8,318,000 (37.2%), $12,600,000 (56.4%) and $1,425,000 (6.4%),
respectively, to revenue, net, in 1998, compared with $8,425,000 (67.2%),
$2,636,000 (21.0%), and $1,477,000 (11.8%), respectively, in 1997. Revenue, net,
from the Taxi Business decreased from $8,425,000 in 1997 to $8,318,000 in 1998,
a 1.3% decrease. Revenue, net, for the Repair Business was $1,425,000 in 1998,
compared to $1,477,000 in the 1997 period, a 3.5% decrease.
Total expenses (excluding income taxes) were $11,633,000 in 1998, an
increase of $5,775,000 or 98.6% from $5,858,000 in 1997. During 1998, total
expenses as a percentage of revenue, net, increased to 52.1%, compared to 46.7%
in 1997. The increase in the amount of total expenses was comprised primarily of
a $1,543,000 increase in depreciation of revenue earning equipment, a 1,823,000
increase in other operating expenses, a $1,500,000 provision for class action
settlement, and a one time charge of $974,000 associated with the cumulative
effect of a change in accounting principle related to write off of organization
costs.
Operating expenses were $8,499,000 in 1998, an increase of $3,367,000
or 65.6% from $5,132,000 in 1997. During 1998, operating expenses as a
percentage of revenue, net, decreased to 38.0%, compared to 40.9% in 1997. The
increase in operating expenses was comprised primarily of a $1,543,000 increase
in depreciation of revenue earning equipment and a 1,823,000 increase in other
operating expenses.
Depreciation and Amortization Expense. During 1998, Depreciation and
amortization expense was $4,234,000, compared with $2,883,000 in 1997, an
increase of $1,351,000. During 1998, the depreciation and amortization expense
associated with the Rental Business, Taxi Business, and Repair Business was
$2,087,000, 2,068,000, and 78,000, respectively. Depreciation and amortization
expense, as a percentage of revenue, net, decreased during 1998, to 19.0%,
compared to 23.0% during 1997. The decrease in depreciation expense as a
percentage of revenue, net, was due primarily to the expansion of the Rental
Business which has lower depreciation, as a percentage of revenue, than the Taxi
Business. The increase in the amount of depreciation and amortization was
primarily due to a $1,600,000 increase in depreciation on new rental cars.
Other Operating Expenses. Other operating expenses includes traffic
regulation fees, road maintenance fees, insurance, salaries, rent, costs of
materials, depreciation (non-revenue earning equipment) and other general and
administrative expenses. During 1998, other operating expenses were $4,515,000,
compared with $2,692,000 during 1997, an increase of $1,823,000. During 1998,
other operating expenses, as a percentage of revenue, net, decreased to 20.2%,
compared with 21.5% for 1997. The decrease in operating expenses as a percentage
of revenue, net, was due primarily to cost control measurers implemented in the
Taxi Business and expansion of the Rental Business (which has lower operating
costs, as a percentage of revenue, than the Taxi Business). The increase in the
amount of other operating expenses was primarily due to a $971,000 increase in
expenses related to the new Rental Car Business, $245,000 in losses due to
disposal of revenue earning equipment by the Taxi Business, and a bad debt write
off of $240,000 by the Repair Business.
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<PAGE> 19
Income before provision for income tax, minority interest and
cumulative effective of change in accounting principle was $11,684,000 in 1998,
an increase of 74.9% from $6,680,000 in 1997. Before deducting $3,112,000
(consisting of $1,412,000 in general and administrative expenses, $1,500,000
provision for class action settlement, and $200,000 in interest expense) and
$934,000 of expenses of the parent company (unconsolidated) during 1998 and
1997, respectively, the Rental, Taxi and Repair Businesses contributed
$9,274,000, $5,058,000, and $464,000, respectively, to total income before
provision for income tax, minority interest and cumulative effect of change in
accounting principle in 1998, compared with $1,814,000, $5,161,000, and
$639,000, respectively, in 1997. The increase in income before provision for
income tax, minority interest and cumulative effect of change in accounting
principle is primarily attributable to increased income from the Company's
Rental Business, partially offset by a $1,500,000 provision for settlement of
class action lawsuit and increases in accounting, legal and other professional
and advisory expenses related to the Reorganization.
Provision for income tax was $1,910,000 in 1998 (14.5% of income before
provision for income tax, minority interest and cumulative effect of change in
accounting principle (and excluding the $1,500,000 provision for settlement of
class action), compared with $457,000 in 1997 (6.8% of income before provision
for income tax and minority interest). The increase was primarily a result of
increased taxable income.
Minority interest was $931,000 in 1998, compared with $337,000 in 1997,
which reflects the fact that the Company entered into new joint venture projects
in 1997, which have generated increased income during 1998.
As a result of the foregoing, net income was $7,869,000 in 1998,
compared with $5,886,000 in 1997.
For the year ended December 31, 1998, excluding the $1.5 million
provision for class action settlement, $975,000 in expense related to the change
in accounting principle regarding write off of organization costs, and $750,000
in professional fees related to the Reorganization, the Company's net income was
$11,093,000, an increase of $5,207,000 or 88.5%, compared to net income of
$5,886,000 in 1997.
1997 Compared With 1996
<TABLE>
<CAPTION>
Percentage of Percentage of
1997 Revenue, Net 1996 Revenue, Net
----------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Revenue, net $12,538,000 100.0% $9,211,000 100.0%
Operating Expenses 5,132,000 40.9 3,487,000 37.9
Total expenses(1) 5,858,000 46.7 4,091,000 44.4
Income before provision for income tax,
minority interest and cumulative
effect of change in accounting principle 6,680,000 53.3 5,120,000 55.6
Income before minority interest and
cumulative effect of change in
accounting principle 6,223,000 49.6 4,720,000 51.2
Net income 5,886,000 46.9 4,563,000 49.5
</TABLE>
(1) Excludes income taxes.
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 started in August 1997. 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.
19
<PAGE> 20
Total expenses (excluding income taxes) were $5,858,000 in 1997, an
increase of $1,767,000, or 43.2%, from $4,091,000 in 1996. The increase, was
primarily attributable to a $419,000 increase in depreciation of revenue earning
equipment, a $122,000 increase in net interest expense, and a $1,224,000
increase in 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 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, minority interest and
cumulative effect of change in accounting principle was $6,680,000 in 1997
(53.3% of revenue, net), an increase of 30.5% from $5,120,000 in 1996 (55.6% of
revenue net). The Rental, Taxi and Repair Businesses contributed 27.2%, 77.3%
and 9.6%, respectively, to total income before provision for income tax,
minority interest and cumulative effect of change in accounting principle in
1997, compared with 0%, 84.9% and 15.1%, respectively, in 1996. The increase in
income before provision for income tax, minority interest and cumulative effect
of change in accounting principle 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,
minority interest and cumulative effect of change in accounting principle 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, minority interest and cumulative effect of change in accounting
principle 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 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 Company having 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.
LIQUIDITY AND CAPITAL RESOURCES
Generally, the Rental and Taxi Businesses are cash flow businesses that
do not require significant amounts of working capital; but they are capital
intensive and require substantial capital expenditures for revenue producing
equipment. Working capital for the Repair Business was initially financed mainly
by cash flow from the Taxi Business.
At December 31, 1998, the Company had trade receivables ($105,000) and
cash and cash equivalents ($4,910,000) aggregating $5,015,000. The Company's
liabilities due within a year aggregated $8,549,000. Accordingly, at December
31, 1998, the Company's liabilities due within a year exceeded cash and cash
equivalents and receivables by $3,534,000, compared with $12,157,000, at
December 31, 1997. This was primarily attributable to an overall decrease in
liabilities due within a year of approximately $9,050,000, consisting primarily
of decreases in bank loans ($1.4 million), notes payable (4.0 million) and due
to affiliates ($6.1 million), partially offset by increased accrued expenses and
income taxes ($3.1 million).
As the Company's financial resources permit, the Company intends to
make capital expenditures, primarily for the purchase of new automobiles for the
Taxi and Rental Business and the completion of construction of the Company's
hotel project. At December 31, 1998, the Company had committed to purchase an
aggregate 3,000 new automobiles for an aggregate purchase price of $47,475,000
(in respect of which deposit in the amount of approximately $11.7 Million was
made as of December 31, 1998 (the "Auto Purchase Contract"). The Company had
also entered into an agreement to purchase 300 taxis for approximately $4.0
million. Subsequent to December 31, 1998, the Company paid approximately
$4,000,000 in full satisfaction of the purchase
20
<PAGE> 21
price for the 300 new cars for the Taxi Business, of which 100 have been
delivered to the Company. The Company currently does not have sufficient capital
to fulfill its obligations under the Auto Purchase Contract. In April, 1999, the
Company and the auto supplier agreed to extend until September, 1999 the time
for performance of the Company's obligations under the Auto Purchase Contract.
If the Company is unable to obtain financing to fund the balance of the purchase
price by September, 1999, the Company could be subject to damages/penalties
under the Auto Purchase Contract, but the parties have agreed to limit any
damages/penalties to $1.8 million.
At December 31, 1998, the estimated cost of completing construction of
the hotel project was approximately $4.0 million. The Company has suspended
construction of the hotel project, as the Company does not currently have
sufficient capital to fund the construction of such project. The Company intends
to resume construction on the hotel project at such time as the Company has
sufficient capital to do so.
The Company has defaulted on payment of existing indebtedness in the
aggregate principal amount of $320,000 which was due and payable in April 1998.
The Company is currently negotiating to restructure this debt. In addition, the
Company has existing indebtedness in the aggregate principal amount of
approximately $2.7 million, which was due and payable in March, 1999. The
Company was unable to pay by the due date the amount due with respect to this
indebtedness. The Company has negotiated an agreement to extend the time for
payment for this $2.7 million in indebtedness to April, 2000.
As described under Item 3, "Legal Proceedings," based on settlement
discussions with respect to the class action lawsuit against the Company,
liability and recorded a related expense in the amount of $1.5 million in
respect of such lawsuit. If these discussions do not form the basis for any
final settlement, the liability arising out of the class action could materially
exceed $1.5 million. The Company expects to satisfy any amounts owing pursuant
to any settlement through issuance of shares of common stock. If, however, the
Company is required to pay any settlement in cash, there could be a material
adverse effect on the Company's financial condition.
Pursuant to Jinzhenghua Transport's organizational documents, the
Company and the minority owners of Jinzhenghua Transport are obligated to
contribute $9.2 Million and $800,000 (in cash or assets), respectively, to the
capital of Jinzhenghua Transport. In particular, the Company was obligated to
make its capital contribution to Jinzhenghua Transport in two equal installments
of $4.6 Million, the first of which was due October 30, 1998 and the second of
which will be due December 26, 1999. The minority owners were obligated to
contribute $340,000 by October 30, 1998 and the balance by December 26, 1999. To
date, the Company has contributed approximately $300,000 of its aggregate $9.2
Million obligation to the capital of Jinzhenghua Transport. Accordingly, the
Company has not performed on its obligation to contribute $4.2 Million to
Jinzhenghua Transport by October 30, 1998. The minority owners also did not
perform on their obligations to contribute the aggregate $340,000 by October 30,
1998. The Company and the minority owners may amend the organizational documents
of Jinzhenghua Transport to extend the time for payment of the required capital
contributions, subject to government approval. In April, 1999, subsequent to the
due date (October 30, 1998) of the Company's required capital contribution of
$4.6 million, Jinzhenghua Transport passed the annual inspection conducted by
the relevant Chinese licensing authority. This annual inspection forms part of
the annual renewal process of the business license which expires December 26,
1999. The Company believes that it will be able to reach an agreement with the
minority owners to extend the time for payment and that the relevant government
authority will approve such extension of time. The Company understands that, in
general, as a matter of practice, the relevant Chinese licensing authority
routinely approves agreements to extend the time for payment of the required
capital contribution, and that the licensing authority does not generally
cancel business licenses for failing to make the required capital contribution
by the due date.
If the Company is unable to obtain an extension of time that is
approved by the government, Jinzhenghua Transport's business license could be
cancelled by the government, which would materially and adversely affect the
Company. In any event, the Company expects that it will be required to make the
remaining capital contribution to Jinzhenghua Transport ($8.9 Million) by
December 26, 1999. Although there can be no assurance, the Company believes that
it will be able to raise sufficient capital from additional financings to
contribute the remaining balance of $8.9 Million to the capital of Jinzhenghua
Transport by December 26, 1999. If the Company is unable to make the required
contribution by December 26, 1999, the government may cancel Jinzhenghua
Transport's business license, which would materially and adversely affect the
Company.
21
<PAGE> 22
The Company believes that through a combination of cash flow from
operations and proceeds from potential financings, the Company will be able to
remedy the shortfall of cash relative to liabilities due within a year and
finance capital expenditures, including the purchase of some new automobiles. At
present, the Company has no commitments from third parties to finance capital
expenditures or to refinance any of its existing indebtedness, and does not have
sufficient resources to finance planned capital expenditures or to repay such
indebtedness without refinancing. The Company expects to generate significant
cash flow from operations and will seek to obtain capital from the sale of
securities, borrowings, and vendor financing arrangements. 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.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
coded to accept only two-digits entries in the date code field and cannot
distinguish dates after the year 2000. These date code fields will need to
distinguish "Year 2000" dates from earlier dates and, as a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with "Year 2000" requirements.
The Company believes that its computerized systems are Year 2000
compliant.
If the Company's computerized systems are not in fact Year 2000
compliant, the failure of the Company to make its systems Year 2000 compliant in
a timely manner will have a material adverse effect on the Company.
The Company relies upon various vendors, utility companies,
telecommunications service companies, delivery service companies and other
service providers, which are outside of the Company's control. The failure of
such service providers to make their systems Year 2000 compliant could have a
material adverse effect on the Company's financial condition and results of
operations. The Company has not yet determined the extent to which the computer
systems of such service providers are Year 2000 compliant, if at all. The
failure of the Company's vendors to make their systems Year 2000 compliant in a
timely manner will have a material adverse effect on the Company.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 1 to the consolidated financial statements included in Part IV
of this report entitled "Organization and Summary of Significant Accounting
Policies - New Accounting Standards Not Yet Adopted."
RISK FACTORS
This Report contains forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Report
should be read as being applicable to all forward looking statements wherever
they appear in this Report. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
difference include those discussed below, as well as those discussed elsewhere
in this Report.
22
<PAGE> 23
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, 1997 and 1998 were 10.5%, 9.7%, 8.8%
and 7.8%, 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, 2.0% in 1997, and -0.8% in 1998.
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. See Item 7, "Risk Factors - Potential Revocation of
Business License". 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.
23
<PAGE> 24
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.
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 is an FIE. Jinzhenghua Transport has obtained a
foreign currency account with a designated bank and is able to exchange foreign
currency for settlement of foreign currency transactions (as defined in the
applicable regulations) and, subject to satisfaction of certain conditions, may
pay dividends. However, the Company has not made certain capital contributions
to Jinzhenghua Transport necessary to enable Jinzhenghua Transport to pay
dividends to the Company. Accordingly, Jinzhenghua Transport's ability to pay
dividends to the Company is currently restricted. See Item 5, "Market for
Registrant's Common Equity and Related Stockholder Matters - Dividends." There
can be no assurance that Jinzhenghua Transport will be able to maintain 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.
24
<PAGE> 25
Risks Associated with Dawson
Under the plan of reorganization, immediately before the distribution
of Company Common Stock to Dawson's shareholders, Dawson transferred to the
Company all its assets, including all its interest in Jinzhenghua Transport, and
the Company assumed, and agreed to pay, perform and discharge, and indemnify and
hold Dawson harmless from and against, all Dawson's disclosed liabilities.
Although the Company did not assume any undisclosed liabilities, and although,
except for the matters described under Item 3, Legal Proceedings, 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 held 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 two years, 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, 1998, $2.8 million aggregate principal amount of indebtedness was
due and payable within one year. 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 3,000 new automobiles for an
aggregate of $47,475,000, and requires approximately $1,800,000 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. 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 Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."
25
<PAGE> 26
Control by Mr. Wu and Certain Other Persons
Mr. Wu, members of his immediate family and certain officers and
directors of the Company (collectively, the "Related Shareholders") beneficially
own an aggregate of 3,146,933 shares of Company Common Stock, or 25.2% of the
currently outstanding shares of Company Common Stock (2,906,813 of which, or
23.3% of the current outstanding shares, Mr. Wu himself beneficially owns). 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.
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 and guarantees 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.
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 1998:
<TABLE>
<CAPTION>
Name Approximate Percentage of Business Time
---- Devoted to the Company in 1998*
---------------------------------------
<S> <C>
Wu Zhi Jian 50%
Andrew Lee 50
Willy Wu 50
Peng Jun 80
Zhang Li Wei 80
Li Yong Yuan 100
Mona Ng 30
</TABLE>
* 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 December 31, 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. See Item 5, "Market for Registrant's
Common Equity and Related Stockholder Matters" for a description of the
restrictions on the Company's ability to pay dividends.
26
<PAGE> 27
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 Item 7, "Management's
Discussion & Analysis of Financial Condition and Results of Operations - Risk
Factors-Enforceability of Civil Remedies".
Limited Market; Volatility of Share Price
In February, 1999, the Company submitted an application to list its
common stock on the American Stock Exchange ("AMEX"). There can be no assurance
the Company's Common Stock will be approved for listing on AMEX or elsewhere.
There has been only a limited market for the Company 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 Company Common Stock. Volatility in
operating results of the Company, sales of even relatively small blocks of the
Company Common Stock, 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 Item 7,
"Management's Discussion & Analysis of Financial Condition and Results of
Operations - Risk Factors-Market for the Common Stock".
Shares Eligible for Future Sale
The Company currently has 12,467,945 shares of Company Common Stock
outstanding (excluding shares issuable upon exercise or conversion of options,
warrants and convertible securities. In addition, there are an aggregate of
5,406,752 shares of Common Stock reserved for issuance upon exercise of
outstanding options and warrants and conversion of outstanding convertible
securities. There are currently outstanding options to purchase an aggregate
2,210,000 shares of Common Stock. The Company intends to register within 30 days
on a Form S-8 Registration Statement the shares underlying the options. Of the
12,467,945 shares currently outstanding, an aggregate of 5,370,884 shares are
held by parties who may be deemed to be affiliates of the Company and an
aggregate of 5,013,475 shares constitute "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933. 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. The Company intends to file within approximately
90 days a Registration Statement registering under the Securities Act of 1933
approximately 10,262,761 shares of Common Stock, including 2,749,286 shares
issuable upon exercise of outstanding warrants and conversion of outstanding
convertible securities. Sales of relatively small blocks 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 substantially, and could impair the
Company's ability to raise capital through the sale of securities.
ITEM 7A. QUANTITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
27
<PAGE> 28
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 is an FIE. Jinzhenghua Transport has obtained a
foreign currency account with a designated bank and is able to exchange foreign
currency for settlement of foreign currency transactions (as defined in the
applicable regulations) and, subject to satisfaction of certain conditions, may
pay dividends. However, the Company has not made certain capital contributions
to Jinzhenghua Transport necessary to enable Jinzhenghua Transport to pay
dividends to the Company. Accordingly, Jinzhenghua Transport's ability to pay
dividends to the Company is currently restricted. See Item 5, "Market for
Registrant's Common Equity and Related Stockholder Matters - Dividends." There
can be no assurance that Jinzhenghua Transport will be able to maintain 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.
Currently, the exchange rate for conversion of Renminbi to U.S. Dollars
is RMB 8.278 to $1.00. The Financial position and results of operations of
Jinzhenghua Transport are determined using Renminbi. Assets and liabilities are
translated at the exchange rate in effect at each year or period end. Income
statement amounts are translated at the average rate of exchange prevailing
during the year. Any significant devaluation of the Renminbi relative to U.S.
dollars would materially and adversely affect the Company's reported earnings
and assets as reported in U.S. dollars.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
28
<PAGE> 29
INTEGRATED TRANSPORTATION
NETWORK GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
29
<PAGE> 30
INTEGRATED TRANSPORTATION
NETWORK GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
30
<PAGE> 31
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 32
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets 33
Statements of operations 34
Statements of shareholders' equity 35
Statements of cash flows 36
Notes to consolidated financial statements 37-63
</TABLE>
31
<PAGE> 32
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,
1997 and 1998, 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, 1998. These financial statements are the
responsibility of ITN's management. Our responsibility is to express an opinion
on the 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, 1997 and
1998, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1998, in conformity with
United States generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1998, ITN changed its method of accounting for organization costs.
BDO International
Hong Kong
April 12, 1999
32
<PAGE> 33
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(US DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, 1997 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,723 $ 4,910
Trade receivables, net of allowance of $67 and $-0-, respectively 719 105
Prepayments and other assets (Note 6) 366 17,077
Inventories (Note 9) 97 38
Property and equipment, net (Notes 2 and 9) 1,363 1,136
Revenue-earning equipment, net (Notes 3 and 8) 31,488 29,379
Taxi licenses, net (Notes 4 and 8) 12,093 11,814
Construction-in-progress (Note 5) 2,321 2,263
Organization costs, net 847 -
Deposit (Note 12) 1,937 1,935
- ---------------------------------------------------------------------------------------------------------------------
$55,954 $68,657
=====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Bank loans (Note 8) $ 3,776 $ 2,402
Notes payable (Note 9) 4,320 320
Trade payables 1,619 1,167
Other payables (Note 7) 3,522 5,160
Due to directors 286 71
Due to affiliate, Zhenghua (Note 10(b)) 6,220 149
Due to minority shareholders, net (Note 10(a)) 19 19
Deferred revenue 2,983 3,001
Accrued expenses 476 1,770
Income tax payable 883 2,651
Deferred income taxes (Note 11) 102 247
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 24,206 16,957
- ---------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST 1,567 2,919
- ---------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 12 AND 13)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value - authorized 50,000,000 shares; issued and 60 104
outstanding 6,041,573 shares at December 31, 1997 and 10,435,030 shares at
December 31, 1998
Additional paid-in capital 12,665 23,385
Retained earnings 17,050 24,919
Accumulated other comprehensive income - foreign currency translation 406 373
adjustments
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 30,181 48,781
- ---------------------------------------------------------------------------------------------------------------------
$55,954 $68,657
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 34
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(US DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year ended December 31, 1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE, NET $ 9,211 $12,538 $22,343
- ---------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Depreciation of revenue-earning equipment 1,755 2,174 3,717
Amortization of taxi licenses 264 266 267
Other operating expenses 1,468 2,692 4,515
- ---------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 3,487 5,132 8,499
- ---------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 5,724 7,406 13,844
OTHER EXPENSES:
Interest expense, net of interest income (604) (726) (660)
Provision for class action lawsuit (Note 12 and 19) - - (1,500)
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAX, MINORITY 5,120 6,680 11,684
INTEREST AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE
PROVISION FOR INCOME TAX (NOTE 11) 400 457 1,910
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST AND CUMULATIVE 4,720 6,223 9,774
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
MINORITY INTEREST 157 337 931
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN 4,563 5,886 8,843
ACCOUNTING PRINCIPLE
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE - - - 974
WRITE-OFF OF ORGANIZATION COSTS (NOTE 1 and 19)
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME 4,563 5,886 7,869
OTHER COMPREHENSIVE INCOME (LOSS), FOREIGN CURRENCY 39 59 (33)
TRANSLATION ADJUSTMENTS
- ---------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 4,602 $ 5,945 $ 7,836
=====================================================================================================================
NET INCOME PER COMMON SHARE (NOTE 14):
Before cumulative effect of change in accounting principle:
Basic $ .76 $ .97 $ 1.21
Diluted .76 .97 1.17
After cumulative effect of change in accounting principle:
Basic $ .76 $ .97 $ 1.07
Diluted .76 .97 1.04
=====================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (NOTE 14):
Basic 6,042 6,042 7,321
Diluted 6,042 6,132 7,648
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 35
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(US DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Years ended December 31, 1996, 1997 and 1998
- ---------------------------------------------------------------------------------------------------------------------
Additional Retained Accumulated Total
paid-in earnings other shareholders'
capital comprehensive equity
income -
foreign
currency
translation
adjustments
Common stock
Shares Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 - $ - $ 5,142 $ 6,601 $ 308 $12,051
Contribution of capital - - 107 - - 107
Foreign currency translation - - - - 39 39
adjustments
Net income - - - 4,563 - 4,563
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 - - 5,249 11,164 347 16,760
Contribution of capital (Notes 10 - - 7,476 - - 7,476
and 16)
Reorganization-March 1997 (Note 1) 6,041,573 60 (60) - - -
Foreign currency translation - - - - 59 59
adjustments
Net income - - - 5,886 - 5,886
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 6,041,573 60 12,665 17,050 406 30,181
Issuance of shares for consulting 7,500 - 33 - - 33
services (Note 12)
Issuance of shares for liquidated 17,268 1 163 - - 164
damages under financing agreement
(Note 9(a))
Issuance of shares with respect to 1,324,345 13 4,227 - - 4,240
conversion of promissory notes
(Note 9(b))
Issuance of shares in connection 206,250 2 673 - - 675
with private placement during May
1998, net of issuance costs
(Note 13(a))
Issuance of shares in connection 609,523 6 1,434 - - 1,440
with private placement during
December 1998, net of issuance
costs (Note 13(b))
Conversion of debt to equity 2,228,571 22 3,878 - - 3,900
(Note 13(c))
Receipt of promissory note from - - 312 - - 312
minority shareholder (Note 13(d))
Foreign currency translation - - - - (33) (33)
adjustments
Net income - - - 7,869 - 7,869
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 10,435,030 $104 $23,385 $24,919 $ 373 $48,781
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE> 36
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US DOLLARS IN THOUSANDS)
(NOTE 16)
<TABLE>
<CAPTION>
Year ended December 31, 1996 1997 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,563 $ 5,886 $ 7,869
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property, equipment and 1,884 2,617 3,967
revenue-earning equipment
Amortization of taxi licenses 264 266 267
Minority interest 244 703 1,352
Amortization and write off of organization costs 35 50 974
Deferred income tax 56 27 145
Exchange adjustment (18) (10) 15
Loss on disposal of fixed assets - - 275
Changes in assets and liabilities:
(Increase) decrease in trade and other receivables (428) (204) 375
(Increase) decrease in inventories (29) (68) 58
(Decrease) increase in trade and other payables (200) 2,669 679
Increase in accrued expenses 17 459 1,560
Increase in income tax payable 361 391 1,768
(Decrease) increase in deferred income (764) 830 18
- --------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,985 13,616 19,322
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, equipment and revenue-earning equipment (608) (1,489) (2,028)
Proceeds from sale of property, equipment and revenue-earning 94 - -
equipment
Organization costs (51) (735) (127)
Prepayment for acquisition of revenue-earning equipment - - (15,704)
- --------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (565) (2,224) (17,859)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on bank loans 200 605 -
Repayments of bank loans - (926) (1,169)
Repayments of amount due to affiliates (5,210) (11,565) (2,457)
Amount due from (to) minority shareholder 20 (362) -
Proceeds from notes payable - 4,320 -
Proceeds from issuance of common stock, net - - 2,350
- --------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (4,990) (7,928) (1,276)
- --------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 430 3,464 187
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 829 1,259 4,723
- --------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,259 $ 4,723 $ 4,910
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 37
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION AND Basis of Presentation and Reorganization
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
On January 25, 1998, the 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 caused this new wholly-owned
subsidiary to acquire the assets and
disclosed liabilities of Dawson, including
all the equity in Dawson's 92%-owned
Chinese subsidiary, Shenzhen Jinzhenghua
Transport Industrial Development Co. Ltd.
("Jinzhenghua Transport" or
"Jinzhenghua"). Upon the effectiveness on
June 29, 1998 of a registration statement
filed with the Securities and Exchange
Commission, Dawson effected a plan of
reorganization, and the shares of ITN were
distributed pro rata to the common
shareholders of Dawson. In the
distribution, each holder of record of
shares of Dawson common stock at the close
of business on June 30, 1998 received, for
each four shares of Dawson common stock,
one share of the Company's common stock.
The accompanying consolidated 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 June
29, 1998) for 92% of the equity of
Jinzhenghua Transport (the "Exchange").
37
<PAGE> 38
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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
acquiror 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.
General and administrative expenses of
$822 and $1,412, interest expense of $112
and $200 and provision for class action
lawsuit of $-0- and $1,500 were incurred
in the United States during the nine and
one-half months ended December 31, 1997
and the year ended December 31, 1998,
respectively. 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
March 1997, Jinzhenghua Transport was
reorganized by combining with the majority
of equity interests 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:
38
<PAGE> 39
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Subsidiary Industry Jinzhenghua's
equity interest
------------------------------------------------------------------------------------
<S> <C> <C>
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 Co. Ltd. Auto repair 100
Shimen Yindu Hotel Co. Ltd. Hotel 56
====================================================================================
</TABLE>
Subsequent to the aforementioned
reorganization, Jinzhenghua Transport has
established new subsidiaries as follows:
<TABLE>
<CAPTION>
Subsidiary Industry Jinzhenghua's
equity interest
--------------------------------------------------------------------------------
<S> <C> <C>
Guangzhou Jinzhenghua Transportation Car rental 98%
Co. Ltd.
Jiangxi Gannan Jinzhenghua Car rental 70
Transportation Co. Ltd
Yueyang Jinzhenghua Transportation Co. Car rental 90
Ltd.
Shaanxi Jinzhenghua Transportation Co. Car rental 100
Ltd.
Nanchang Jinzhenghua Transportation Co. Car rental 98
Ltd.
Jiangsu Jinzhenghua Automobile Lease Co. Car rental 100
Hunan Jinzhenghua Automobile Lease Co. Car rental 75
Ltd.
Henan Jinzhenghua Automobile Lease Co. Car rental 51
Ltd.
Changde Jinzhenghua Automobile Lease Car rental 75
Co. Ltd.
Guangxi Jinzhenghua Automobile Lease Car rental 80
Co. Ltd.
================================================================================
</TABLE>
39
<PAGE> 40
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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,
PRC.
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 Company's foreign subsidiaries use
Renminbi yuan ("RMB"), 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
as a component of shareholders' equity as
"Accumulated other comprehensive income -
foreign currency translation adjustments".
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.
40
<PAGE> 41
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Inventories
Inventories, which consist primarily of
transportation equipment spare parts and
consumable stores, 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:
<TABLE>
<CAPTION>
Estimated useful
life (in years)
--------------------------------------------------------------------------------
<S> <C>
Revenue - earning equipment:
Taxi vehicles and rental cars 6-8
Repair shop equipment 5-10
Property and equipment:
Land usage rights 40
Furniture and fixtures 5-10
Transportation equipment 6-10
Other equipment 5-10
================================================================================
</TABLE>
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.
41
<PAGE> 42
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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.
The Company has been capitalizing such
costs and they were being amortized over a
period of five years from the date of
commencement of commercial operation.
During the year ended December 31, 1998,
the Company adopted the provisions of
AICPA Statement of Position 98-5,
"Reporting on the Costs of Start-up
Activities" ("SOP 98-5") which requires
that costs of start-up activities,
including organization costs, be expensed
as incurred. In accordance with SOP 98-5,
the unamortized balance of capitalized
organization costs of $847 at January 1,
1998 and additional organization costs of
$127 incurred during 1998 were charged to
expense as the cumulative effect of a
change in accounting principle. The effect
of this change in accounting principle was
to decrease net income for the year ended
December 31, 1998 by $974.
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, 1998 of $28,965.
42
<PAGE> 43
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Deferred Revenue
Deferred revenue, which represents the
non-utilized portion of non-refundable
deposit revenue collected from contractual
taxi drivers, is recognized as revenue
over unexpired taxi lease terms.
Net Income Per Common Share
In 1997, the Financial Accounting
Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS")
No. 128, "Earnings per Share". SFAS No.
128 replaced the calculation of primary
and fully diluted earnings per share with
basic and diluted earnings per share.
Unlike primary earnings per share, basic
earnings per share excludes any 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 net income per share
amounts for all periods have been
presented and, where appropriate, restated
to conform to SFAS No. 128 requirements.
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.
43
<PAGE> 44
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Fair Value of Financial Instruments
The carrying amounts of certain financial
instruments, including cash, trade
receivables and trade and other payables
approximate fair value as of December 31,
1997 and 1998 because of the relatively
short-term maturity of these instruments.
The carrying value of notes payable
approximates fair value as of December 31,
1997 and 1998 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", 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, 1998, 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.
Comprehensive Income
As of January 1, 1998, the Company adopted
SFAS No. 130 ("Reporting Comprehensive
Income"). The adoption of this statement
had no impact on the Company's net income
or shareholders' equity. SFAS No. 130
establishes new rules for the reporting
and display of comprehensive income and
its components. Comprehensive income is
comprised of net income and all changes to
shareholders' equity, except those due to
investments by owners (changes in paid-in
capital) and distributions to owners
(dividends).
SFAS No. 130 requires foreign currency
translation adjustments which, prior to
adoption, were reported separately in
shareholders' equity, to be included in
other comprehensive income. Amounts for
all periods have been presented and, where
appropriate, reclassified to conform to
SFAS No. 130 requirements.
44
<PAGE> 45
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Segment Information
On January 1, 1998, the Company adopted
SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information",
which supersedes SFAS No. 14, "Financial
Reporting Segments of a Business
Enterprise", and establishes standards for
the way that public enterprises report
information about operating segments in
financial statements. 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.
New Accounting Standards Not Yet Adopted
In February 1998, SFAS No. 132,
"Employer's Disclosures about Pensions and
Other Postretirement Benefits" amended the
disclosure requirements for pensions and
other postretirement benefits. The Company
does not expect the adoption to have
significant change on the Company's
financial statement disclosures.
In June 1998, the FASB issued SFAS No.
133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS
No. 133 requires companies to recognize
all derivatives contracts as either assets
or liabilities in the balance sheet and to
measure them at fair value. If certain
conditions are met, a derivative may be
specifically designated as a hedge, the
objective of which is to match the timing
of gain or loss recognition on the hedging
derivative with the recognition of (i) the
changes in the fair value of the hedged
asset or liability that are attributable
to the hedged risk or (ii) the earnings
effect of the hedged forecasted
transaction. For a derivative not
designated as a hedging instrument, the
gain or loss is recognized in income in
the period of change. SFAS No. 133 is
effective for all fiscal quarters of
fiscal years beginning after June 15,
1999.
45
<PAGE> 46
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Historically, the Company has not entered
into derivatives contracts either to hedge
existing risks or for speculative
purposes. Accordingly, the Company does
not expect adoption of the new standard on
January 1, 2000 to affect its financial
statements.
2. PROPERTY AND
EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consists of:
December 31, 1997 1998
--------------------------------------------------------------------------------
<S> <C> <C>
Land usage rights $ 362 $ 362
Furniture and fixtures 11 3
Transportation equipment 1,324 1,088
Other equipment 488 579
--------------------------------------------------------------------------------
2,185 2,032
Less: Accumulated depreciation and (822) (896)
amortization
--------------------------------------------------------------------------------
$ 1,363 $ 1,136
================================================================================
</TABLE>
Depreciation and amortization charged to
operations was $128, $443 and $250 in
1996, 1997 and 1998, respectively.
3. REVENUE-EARNING
EQUIPMENT
<TABLE>
<CAPTION>
Revenue-earning equipment consists of:
December 31, 1997 1998
--------------------------------------------------------------------------------
<S> <C> <C>
Taxi vehicles $14,570 $14,824
Rental cars 24,067 24,230
Repair shop equipment 200 206
--------------------------------------------------------------------------------
38,837 39,260
Less: Accumulated depreciation (7,349) (9,881)
--------------------------------------------------------------------------------
$31,488 $29,379
================================================================================
</TABLE>
Depreciation charged to operations was
$1,756, $2,174 and $3,717 in 1996, 1997
and 1998, respectively.
46
<PAGE> 47
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
4. TAXI LICENSES The Company has a total of 728 taxi
licenses as of December 31, 1998, all of
which were acquired through public
auction. Taxi licenses consist of:
<TABLE>
<CAPTION>
December 31, 1997 1998
--------------------------------------------------------------------------------
<S> <C> <C>
Taxi licenses, at cost $13,381 $13,368
Less: Accumulated amortization (1,288) (1,554)
--------------------------------------------------------------------------------
$12,093 $11,814
================================================================================
</TABLE>
Amortization charged to operations was
$264, $266 and $267 in 1996, 1997 and
1998, respectively.
5. CONSTRUCTION-IN-PROGRESS Construction-in-progress represents a
hotel project located in the Hunan
Province, PRC. The construction work of
the hotel has been temporarily suspended.
Management considers that the construction
work will be continued in the near future
and no provision for loss as a result of
such suspension is anticipated. 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.
6. PREPAYMENTS AND OTHER Prepayments and other assets includes
ASSETS deposits paid totaling $11,476 for the
acquisition of 3,000 automobiles
for car rental purposes (Note 12) and
$4,228 for the acquisition of 300 cars for
taxi replacement purposes.
47
<PAGE> 48
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
7. OTHER PAYABLES
<TABLE>
<CAPTION>
December 31, 1997 1998
----------------------------------------------------------------------------------
<S> <C> <C>
Deposit from rental car customers $ 332 $ 435
Deposits from taxi drivers 1,042 1,420
Taxi car maintenance fund 273 188
Due to Traffic Authority 774 652
Receipts in advance from taxi drivers 436 1,726
Other, including car suppliers, 665 739
value-added tax and insurance
----------------------------------------------------------------------------------
$ 3,522 $ 5,160
==================================================================================
</TABLE>
8. BANK LOANS The Company obtained various lines of
credit from creditworthy commercial banks
in China to finance its operations. These
loans were secured by certain of the
Company's assets. All the lending banks
are Chinese. Except for $200 of US dollar
loans at December 31, 1997, all loans are
denominated in RMB. Bank loans consist of
the following:
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------------------------
Principal Interest rate Maturity Collateral
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 200 16.2% 4/98 Properties of affiliates
605 18.0 3/99 50 taxi vehicles
2,971 15.1 3/99 150 taxi vehicles and 100
taxi licenses
--------------------------------------------------------------------------------
$ 3,776
================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------------------------
Principal Interest rate Maturity Collateral
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$2,402 15.1% 4/00 150 taxi vehicles and 100
taxi licenses
================================================================================
</TABLE>
48
<PAGE> 49
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
9. NOTES PAYABLE Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------------------------
Principal Interest rate Maturity Collateral
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 320 8.0% 4/02/98 (a)
500 12.0 3/18/98 (b)
1,500 12.0 3/29/98 (b)
2,000 12.0 5/02/98 (b)
--------------------------------------------------------------------------------
$4,320
================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------------------------
Principal Interest rate Maturity Collateral
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$320 8.0% 4/02/98 (in default) (a)
================================================================================
</TABLE>
(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 and December 31,
1998 was $320. The note was due
April 2, 1998 and is in default.
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, certain 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 was included in
accrued expenses at December 31,
1997. The Company issued 17,268
shares as liquidated damages on
March 31, 1998.
49
<PAGE> 50
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(b) On September 19, September 30 and
November 3, 1997, the Company
issued convertible promissory
notes to three entities. Interest
accrued at 12% per annum and was
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, were convertible into
shares of the Company's common
stock equal to an amount
determined by formula, as defined,
in the agreement. The notes were
collateralized by 1,000,000 shares
of common stock pledged personally
by a principal shareholder. On
March 31, 1998, upon default under
these notes due to non-payment of
interest and principal, the
holders opted to convert such debt
($4,000) and accrued interest
($240) into shares of the
Company's common stock.
Accordingly, under the terms of
the three agreements, 1,324,345
shares of common stock were issued
in settlement of such obligations.
10. RELATED PARTY (a) The amount due to minority
TRANSACTIONS shareholders represents the net
balance due to two minority
shareholders.
The amount due to a minority
shareholder of the hotel project
was $381 as of December 31, 1997
and 1998, 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.
50
<PAGE> 51
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(b) The Company, from time to time,
receives funding from or provides
funding to Zhenghua (see Note 12).
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 Zhenghua:
<TABLE>
<CAPTION>
December 31, 1997 1998
-------------------------------------------------------------------------
<S> <C> <C>
Beginning balance $ 2,150 $ 6,220
Acquisition of revenue earning equipment 24,067 -
Acquisition of taxi licenses 115 -
Exchange difference 8 (8)
Construction costs, hotel (455) (56)
Repayments of advances (11,565) (2,220)
Expenses paid on behalf of Zhenghua (net) (624) -
Transferred to additional paid-in capital (7,476) -
Property and equipment transferred to - (87)
Zhenghua
Conversion of debt to equity (Note 13(c)) - (3,900)
Bank loan undertaken by Zhenghua - 200
-------------------------------------------------------------------------
Ending balance $ 6,220 $ 149
=========================================================================
</TABLE>
(c) Other assets include advances to
directors, Mr. Peng Jun and Ms. Wu
Qi Mei, in the amount of $188 at
December 31, 1998. All advances do
not bear interest and do not have
any clearly defined terms of
repayment. A $312 promissory note
from a minority shareholder (Note
13(d)) is also included in other
assets.
51
<PAGE> 52
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
11. 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 in Shenzhen enjoy another special
income tax incentive program composed of a
100% income tax credit for the first year
and a 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:
<TABLE>
<CAPTION>
December 31, 1996 1997 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income taxes $344 $430 $1,765
Deferred income taxes 56 27 145
--------------------------------------------------------------------------------
$400 $457 $1,910
================================================================================
</TABLE>
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.
<TABLE>
<CAPTION>
December 31, 1996 1997 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Standard income tax rate 33% 33% 33%
Result of income tax incentive (24) (26) (20)
programs
Other (1) - -
--------------------------------------------------------------------------------
Effective income tax rate 8% 7% 13%
================================================================================
</TABLE>
52
<PAGE> 53
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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:
<TABLE>
<CAPTION>
December 31, 1997 1998
--------------------------------------------------------------------------------
<S> <C> <C>
Bad debt reserves $ (8) $ -
Depreciation and amortization 110 247
--------------------------------------------------------------------------------
$ 102 $ 247
================================================================================
</TABLE>
12. COMMITMENTS AND Lease Commitments
CONTINGENCIES
Minimum lease payments under operating
leases with noncancelable lease terms in
excess of one year are as follows:
<TABLE>
<CAPTION>
Year ended December 31, Operating leases
--------------------------------------------------------------------------------
<S> <C>
1999 $220
2000 206
2001 181
2002 139
2003 51
Thereafter 51
--------------------------------------------------------------------------------
$848
================================================================================
</TABLE>
Rent expense for the years ended December
31, 1996, 1997 and 1998 was $104, $200 and
$249, respectively.
53
<PAGE> 54
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Contractual Obligations
The Company contracted with a building
contractor in 1996 to construct the
group's hotel in Hunan, PRC (see Note 5).
The budgeted costs of the whole project
are estimated to be $4,073. Through
December 31, 1998, the Company has made
hotel-related expenditures of $2,263. Due
to financial constraints, the Company has
suspended construction of the hotel
project. The Company intends to resume
construction of the hotel as soon as it
has sufficient capital to do so.
The Company has contracted with a car
manufacturing company in early 1998 to
acquire 3,000 cars for car rental business
purposes. The contracted amount for such
agreement was $47,475 and the outstanding
commitment was $35,999 after deduction of
deposits paid of $11,476 (see Note 6). As
of December 31, 1998, the car purchase
agreement had not been fulfilled by the
Company by asking for a delivery of cars.
Subsequent to the year-end, the Company
has agreed with the car supplier to extend
the execution of the contract to September
30, 1999. In case of a non-fulfillment of
the contract within the extended period,
the Company may be subject to a penalty,
up to a maximum of $1,812.
The Company has contracted with a building
developer for the acquisition of villa
houses located in Shenzhen, PRC for
$2,114. The outstanding commitment at
December 31, 1998 is $181 after deducting
a deposit paid of $1,933.
Legal Matters
In early 1998, the United States
Securities and Exchange Commission,
commenced an informal inquiry relating to
public disclosures in 1997 by Dawson. The
public disclosures involved, among other
things, press releases relating to the
acquisition of Shenzhen Jinzhenghua
Transport Industrial Development Co.,
Ltd., the value of Dawson's assets,
Dawson's financial prospects and Dawson's
anticipated revenues and earnings
(collectively, the "Public Disclosures").
54
<PAGE> 55
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
In August 1998, a stockholder of the
Company filed a class action complaint in
the United States District Court for the
Southern District of New York naming the
Company, Dawson, and their respective
executive officers and directors as
defendants. The complaint alleges that the
Public Disclosures omitted or
misrepresented material facts. The
plaintiff seeks unspecified damages on
behalf of himself and all other persons
who purchased shares of Dawson's common
stock between March 25, 1997 and December
30, 1997, together with interest and
costs, including attorney fees, under
section 10(b) and 20(a) of the Securities
and Exchange Act of 1934 and Rule 10(b)(5)
thereunder.
The Company currently is engaged in
settlement discussions with respect to the
class action referred to above. Based on
these discussions, the Company has
established a $1,500 liability with
respect to the class action. There can be
no assurance, however, that the settlement
discussions will result in a final
settlement, or that the liability of a
final settlement will be limited to
$1,500. If these settlement discussions
are not the basis for a final settlement,
the liability with respect to the class
action could materially exceed this
amount.
55
<PAGE> 56
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Capital Investment Obligation
Pursuant to Jinzhenghua Transport's
organizational documents, the Company and
the minority owners of Jinzhenghua
Transport are obligated to contribute
$9,200 and $800, respectively, to the
capital of Jinzhenghua Transport. In
particular, the Company was obligated to
make its capital contribution to
Jinzhenghua Transport in two equal
installments of $4,600, the first of which
was due October 30, 1998 and the second of
which will be due December 26, 1999. The
minority owners were obligated to
contribute $340 by October 30, 1998 and
the balance by December 26, 1999. To date,
the Company has contributed approximately
$300 of its aggregate $9,200 obligation to
the capital of Jinzhenghua Transport.
Accordingly, the Company has not performed
on its obligation to contribute $4,200 to
Jinzhenghua Transport by October 30, 1998.
The minority owners also did not perform
on their obligations to contribute the
aggregate of $340 by October 30, 1998. The
Company and the minority owners may amend
the organizational documents of
Jinzhenghua Transport to amend the
contribution capital and extend the time
for payment of the required capital
contributions, subject to government
approval. The Company believes this kind
of approval is a regular process and
approval can usually be obtained. The
Company believes that it will be able to
reach an agreement with the minority
owners to amend the contribution capital
and extend the time for payment, and that
the relevant government authority will
approve such extension of time. In April,
1999, subsequent to the due date (October
30, 1999) of the Company's required
capital contribution of $4.6 million, the
Company has passed the annual inspection
conducted by the relevant
56
<PAGE> 57
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Chinese licensing authority. This annual
inspection forms part of annual renewal
process of the business license which
expires on December 26, 1999. If the
Company is unable to obtain an extention
of time that is approved by the
government, Jinzhenghua transport's
business license could be cancelled by the
government, which would materially and
adversely affect the Company.
Consulting Agreements
As described in Note 9(a), the Company
entered into an agreement with a financial
consultant to introduce prospective
offshore investors. 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 canceled.
On March 31, 1998, the Company issued
7,500 shares to a consultant as
consideration for provision of consulting
services. The Company is presently
negotiating an agreement with such
consultant to provide consulting services
for $9 monthly.
13. SHAREHOLDERS' EQUITY (a) During May 1998, the Company
issued, for an aggregate of $750
(less issuance costs of $75),
206,250 shares of common stock and
warrants to purchase an aggregate
of 220,000 shares of common stock
to certain private investors.
57
<PAGE> 58
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(b) During December 1998, the Company
issued, for an aggregate of $1,600
(less issuance costs of $160),
609,523 shares of common stock and
warrants to purchase an aggregate
of 500,000 shares of common stock
to certain private investors.
Additionally, as finder's
compensation, the Company issued
warrants to purchase an aggregate
of 560,000 shares of common stock
to an unrelated third parties.
(c) In December 1998, the Company
issued 2,228,571 shares of common
stock at $1.75 per share and
warrants to purchase 334,286
shares of common stock in
cancellation of $3,900 of
indebtedness of the Company's
subsidiary, Jinzhenghua (Note
10(b)).
(d) In connection with the
cancellation of Jinzhenghua's
indebtedness ((c) above), and in
consideration of the benefit
received by the minority owner of
Jinzhenghua as a result of the
issuance of common stock, the
Company received a $312,000, 8%
promissory note from the minority
owner of Jinzhenghua.
58
<PAGE> 59
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
14. EARNINGS PER SHARE The following table sets forth the
computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
December 31, 1996 1997 1998
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income, numerator for basic $ 4,563 $ 5,886 $ 7,869
earnings per share - income
available to common shareholders
Effect of diluted securities: - 63 108
Interest on convertible debt after
tax
---------------------------------------------------------------------------------
Numerator for diluted earnings per $ 4,563 $ 5,949 $ 7,977
share-income available to common
shareholders
=================================================================================
Denominator:
Denominator for basic earnings per 6,042 6,042 7,321
share-weighted average shares
Effect of diluted securities:
Convertible debt - 90 327
---------------------------------------------------------------------------------
Dilutive potential common shares:
Denominator for dilutive earnings 6,042 6,132 7,648
per share-adjusted weighted
average shares
=================================================================================
Basic earnings per share $ .76 $ .97 $ 1.07
=================================================================================
Diluted earnings per share $ .76 $ .97 $ 1.04
=================================================================================
</TABLE>
15. FUTURE RENTAL INCOME Rental income from taxi drivers under
noncancelable taxi lease terms in excess
of one year is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------------
<S> <C>
1999 $13,666
2000 5,409
2001 3,686
2002 2,057
2003 1,033
Thereafter 3,867
--------------------------------------------------------------------------------
$29,718
================================================================================
</TABLE>
59
<PAGE> 60
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
16. STATEMENTS OF CASH FLOWS Supplemental Disclosures of Cash Flow
Information
<TABLE>
<CAPTION>
Year ended December 31, 1996 1997 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid for:
Interest $604 $587 $675
Taxes - 39 -
================================================================================
</TABLE>
Supplemental Disclosures of Noncash
Investing and Financing Activities
<TABLE>
<CAPTION>
December 31, 1996 1997 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Acquisition of property and $ 361 $24,067 $ -
equipment and revenue earning
equipment from affiliates
Acquisition of taxi licenses - 115 -
Construction-in-progress financed by 2,302 (455) -
affiliates
Additional paid-in capital - 7,476 -
contributed by shareholder
Disposal of hotel construction items - - 56
to affiliates
Disposal of property and equipment - - 87
to affiliates
Bank loan through related parties - - 200
Issuance of shares for consulting - - 197
services and liquidated damages
Issuance of shares from conversion - - 4,240
of debt and accrued interest
Receipt of promissory note from - - 312
minority shareholder
Issuance of shares from conversion - - 3,900
of debt to Zhenghua
================================================================================
</TABLE>
60
<PAGE> 61
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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
PRC. The Company also maintains executive
offices in New York City (USA) and
Shenzhen (PRC). The industrial and
geographical information regarding
revenue, income before income tax,
minority interest, and cumulative effect
of change in accounting principle, total
assets, addition of long-term assets,
depreciation and amortization for the
years ended December 31, 1996, 1997 and
1998, are as follows:
Industrial Segments
<TABLE>
<CAPTION>
Year ended December 31, 1996
--------------------------------------------------------------------------------
Taxi Car Car Other Total
rental repairs
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue, net $ 7,722 $ - $1,489 $ - $ 9,211
Income before provision 4,349 - 771 - 5,120
for income tax, minority
interest and cumulative
effect of change in
accounting principle
Total assets as at 25,120 - 692 3,287 29,099
December 31, 1996
Additions of productive 141 - 463 2,667 3,271
long-term assets
Depreciation and 2,066 - 81 1 2,148
amortization of property
and equipment,
revenue-earning
equipment and
amortization of taxi
licenses
================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1997
--------------------------------------------------------------------------------
Taxi Car Car Other Total
rental repairs
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue, net $8,425 $2,636 $1,477 $ - $12,538
Income before provision 5,161 1,814 639 (934) 6,680
for income tax, minority
interest and cumulative
effect of change in
accounting principle
Total assets as at 27,630 24,772 791 2,761 55,954
December 31, 1997
Additions of productive 1,580 24,085 4 - 25,669
long-term assets
Depreciation and 2,370 434 78 1 2,883
amortization of property
and equipment,
revenue-earning
equipment and
amortization of taxi
licenses
================================================================================
</TABLE>
61
<PAGE> 62
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year ended December 31, 1998
--------------------------------------------------------------------------------
Taxi Car Car Other Total
rental repairs
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue, net $ 8,318 $12,600 $1,425 $ - $22,343
Income before provision 5,058 9,274 464 (3,112) 11,684
for income tax, minority
interest and cumulative
effect of change in
accounting principle
Total assets as at 25,621 38,727 691 3,618 68,657
December 31, 1998
Additions of productive 1,834 184 8 - 2,026
long-term assets
Depreciation and 2,068 2,087 78 1 4,234
amortization of property
and equipment,
revenue-earning
equipment and
amortization of taxi
licenses
================================================================================
</TABLE>
Geographical Segments
<TABLE>
<CAPTION>
Year ended December 31, 1996
--------------------------------------------------------------------------------
Guangdong Hunan Others Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue, net $ 7,983 $1,228 $- $ 9,211
Income before 4,553 567 - 5,120
provision for income
tax, minority
interest and
cumulative effect of
change in accounting
principle
Total assets 22,671 6,428 - 29,099
================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1997
--------------------------------------------------------------------------------
Guangdong Hunan Others Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue, net $ 9,525 $ 1,344 $ 1,669 $12,538
Income before 5,858 647 175 6,680
provision for income
tax, minority
interest and
cumulative effect of
change in accounting
principle
Total assets 28,590 14,436 12,928 55,954
================================================================================
</TABLE>
62
<PAGE> 63
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year ended December 31, 1998
--------------------------------------------------------------------------------
Guangdong Hunan Others Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue, net $12,329 $ 2,136 $ 7,878 $22,343
Income before 7,133 1,235 3,316 11,684
provision for income
tax, minority
interest and
cumulative effect of
change in accounting
principle
Total assets 42,985 12,879 12,793 68,657
================================================================================
</TABLE>
18. SUBSEQUENT EVENTS On January 1, 1999, the Company adopted a
stock option plan and reserved for
issuance 2,500,000 shares of common
stock. As of that date, the Company
granted options to purchase an aggregate
2,210,000 shares of common stock to
certain of the Company's officers and
directors. The options have an exercise
price of $2.00 per share, which was above
the quoted price of the common stock as
reported on the National Association of
Securities Dealers, Inc.'s OTC Bulletin
Board at the time of grant.
During January 1999, the Company issued
152,381 shares of common stock to a
private investor for an aggregate of $400
(less issuance costs of $40).
Additionally, the Company issued warrants
to purchase an aggregate of 240,000
shares of common stock to an unrelated
third party.
On January 29, 1999, the Company issued
warrants to purchase 3,000 shares of
common stock to a business and financial
consultant as consideration for
consulting services.
During February 1999, the Company issued
5% notes convertible into shares of the
Company's common stock at par value to a
private investor for an aggregate of
$2,000.
During March 1999, the Company issued
2,000,000 shares of common stock to
private investors for an aggregate of
$4,000.
On March 12, 1999, the Company issued
20,000 shares of common stock and
warrants to purchase 30,000 shares of
common stock to a financial consultant as
consideration for consulting services.
On March 25, 1999, the Company issued
warrants to purchase 30,000 shares of
common stock to a financial consultant as
consideration for consulting services.
19. FOURTH QUARTER In the fourth quarter of 1998, the
ADJUSTMENTS Company recorded the following
significant adjustments:
1. A $1,500 provision for a
class action lawsuit (Note 12)
2. Cumulative effect of a change
in accounting principle (Note 1)
of $974.
63
<PAGE> 64
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information concerning the Company's executive officers required by
this Item is incorporated by reference to the text appearing under Part I, Item
1 - Business under the caption "Executive Officers". Information concerning the
Company's directors and compliance with Section 16(a) of the Securities Exchange
Act of 1934 is incorporated by reference to the Company's Definitive Proxy
Statement for the Annual Meeting of Stockholders to be held May 28, 1999.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on May 28, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on May 28, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on May 28, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K
(a) The following documents are filed as part of this report:
(1) Financial Statements
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Statements of Operations for each of the years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Shareholders Equity for each of the years
ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for each of the years ended
December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Schedule 1--Condensed financial information of Registrant for the
years ended December 31, 1998 and 1997.
64
<PAGE> 65
INTEGRATED TRANSPORTATION
NETWORK GROUP, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULES
FORM 10-K - ITEM 14
YEARS ENDED DECEMBER 31, 1997 AND 1998
65
<PAGE> 66
INTEGRATED TRANSPORTATION
NETWORK GROUP, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULES
FORM 10-K - ITEM 14
YEARS ENDED DECEMBER 31, 1997 AND 1998
66
<PAGE> 67
INTEGRATED TRANSPORTATION NETWORK GROUP, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 67
FINANCIAL STATEMENT SCHEDULE I:
Condensed Financial Information of Registrant:
Balance Sheets 68
Statements of Income 69
Statements of Stockholders' Equity 70
Statements of Cash Flows 71
Notes to Condensed Financial Statements 72
</TABLE>
All other schedules have been omitted because they are inapplicable or
not required or the information is included in the consolidated
financial statements or the notes thereto.
67
<PAGE> 68
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Integrated Transportation Network Group, Inc.
and Subsidiaries
New York, New York
The audits referred to in our report dated April 12, 1999 relating to the
consolidated financial statements of Integrated Transportation Network Group,
Inc. and subsidiaries ("ITN"), which is contained in Item 8 of Form 10-K,
included the audit of the financial statement schedule listed in the
accompanying index. This financial statement schedule is the responsibility of
ITN's management. Our responsibility is to express an opinion on this financial
statement schedule based upon our audit.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO International
Hong Kong
April 12, 1999
68
<PAGE> 69
INTEGRATED TRANSPORTATION NETWORK GROUP, INC.
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(US DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, 1997 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8 $ 689
Property and equipment, net 2 2
Investment in and advances to subsidiaries 34,895 50,275
Deposit 2 2
- ---------------------------------------------------------------------------------------------------------------------
$34,907 $50,968
=====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Notes payable $ 4,320 $ 320
Trade payables and accrued expenses 406 1,867
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,726 2,187
- ---------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 12 AND 13 TO THE CONSOLIDATED
FINANCIAL STATEMENTS)
SHAREHOLDERS' EQUITY (NOTE 13 TO THE CONSOLIDATED FINANCIAL
STATEMENTS):
Common stock, $.01 par value - authorized 50,000,000 shares; 60 104
issued and outstanding 6,041,573 shares at December 31, 1997
and 10,435,030 shares at December 31, 1998
Additional paid-in capital 12,665 23,385
Retained earnings 17,050 24,919
Accumulated other comprehensive income - foreign currency 406 373
translation adjustments
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 30,181 48,781
- ---------------------------------------------------------------------------------------------------------------------
$34,907 $50,968
=====================================================================================================================
</TABLE>
See accompanying notes to condensed financial statements.
69
<PAGE> 70
INTEGRATED TRANSPORTATION NETWORK GROUP, INC.
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
(US DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31, 1997 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES $ (822) $(1,412)
OTHER INCOME (EXPENSE):
Equity in net income of subsidiaries 6,820 10,981
Interest expense (112) (200)
Provision for class action lawsuit (see Note 12 to the - (1,500)
consolidated financial statements)
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME 5,886 7,869
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX - FOREIGN CURRENCY 59 (33)
TRANSLATION ADJUSTMENTS
- ---------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $5,945 $ 7,836
=====================================================================================================================
NET INCOME PER COMMON SHARE:
Basic $ .97 $ 1.07
Diluted .97 1.04
=====================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (SEE NOTE 14 TO THE CONSOLIDATED
FINANCIAL STATEMENTS):
Basic 6,042 7,321
Diluted 6,132 7,648
=====================================================================================================================
</TABLE>
See accompanying notes to condensed financial statements.
70
<PAGE> 71
INTEGRATED TRANSPORTATION NETWORK GROUP, INC.
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF SHAREHOLDERS' EQUITY
(US DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Years ended December 31, 1997 and 1998
- ---------------------------------------------------------------------------------------------------------------------
Additional Accumulated Total
other
comprehensive
income -
foreign
currency
Common stock paid-in Retained translation shareholders'
capital earnings adjustments equity
Shares Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 - $ - $ 5,249 $11,164 $347 $16,760
Contribution of capital - - 7,476 - - 7,476
Reorganization-March 1997 (see 6,041,573 60 (60) - - -
Note 1 to the consolidated
financial statements)
Foreign currency translation - - - - 59 59
adjustments
Net income - - - 5,886 - 5,886
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 6,041,573 60 12,665 17,050 406 30,181
Issuance of shares for consulting 7,500 - 33 - - 33
services
Issuance of shares for liquidated 17,268 1 163 - - 164
damages under financing agreement
Issuance of shares with respect to 1,324,345 13 4,227 - - 4,240
conversion of promissory notes
Issuance of shares in connection 206,250 2 673 - - 675
with private placement during May
1998, net of issuance costs
Issuance of shares in connection 609,523 6 1,434 - - 1,440
with private placement during
December 1998, net of issuance
costs
Conversion of debt to equity 2,228,571 22 3,878 - - 3,900
Receipt of promissory note from - - 312 - - 312
minority shareholder
Foreign currency translation - - - - (33) (33)
adjustments
Net income - - - 7,869 - 7,869
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 10,435,030 $ 104 $23,385 $24,919 $373 $48,781
=====================================================================================================================
</TABLE>
See accompanying notes to condensed financial statements.
71
<PAGE> 72
INTEGRATED TRANSPORTATION NETWORK GROUP, INC.
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS (US DOLLARS IN THOUSANDS)
(SEE NOTE 16 TO THE CONSOLIDATED FINANCIAL STATEMENTS)
<TABLE>
<CAPTION>
Year ended December 31, 1997 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,886 $ 7,869
Adjustments to reconcile net income to net cash used in operating
activities:
Equity in net income of subsidiaries (6,820) (10,981)
Increase in deposits (2) -
Increase in accounts payable and accrued expenses 406 1,461
- ---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (530) (1,651)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to subsidiaries (3,780) (18)
Acquisition of property and equipment (2) -
- ---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (3,782) (18)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - 2,350
Proceeds from notes payable 4,320 -
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,320 2,350
- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 8 681
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR - 8
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 8 $ 689
=====================================================================================================================
</TABLE>
See accompanying notes to condensed financial statements.
72
<PAGE> 73
INTEGRATED TRANSPORTATION NETWORK GROUP, INC.
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS)
1. STATEMENT OF ACCOUNTING
POLICY The accompanying condensed financial
statements have been prepared by
Integrated Transportation Network Group,
Inc. ("ITN") pursuant to the rules and
regulations of the Securities and
Exchange Commission. Certain information
and footnote disclosures normally
included in financial statements prepared
in accordance with generally accepted
accounting principles have been condensed
or omitted pursuant to these rules and
regulations. It is, therefore, suggested
that these condensed financial statements
be read in conjunction with the
consolidated financial statements and
notes thereto.
2. RESTRICTIONS ON
DIVIDENDS ITN's subsidiary, Shenzhen Jinzhenghua
Transport Industrial Development Co. Ltd.
("Jinzhenghua Transport"), conducts
business in the People's Republic of
China ("PRC") (see Note 1 to the
consolidated financial statements).
Under the laws of the PRC, there are
certain restrictions on the ability of
Jinzhenghua Transport to pay dividends to
ITN. In order for Jinzhenghua Transport
to pay dividends, ITN must contribute to
the capital of Jinzhenghua Transport the
remaining $8,900 it is obligated to pay
under Jinzhenghua Transport's
organizational documents. Jinzhenghua
Transport must maintain its foreign
currency transaction account, and it must
obtain the foreign exchange necessary to
pay the dividends. ITN has not yet
contributed the required $8,900 in
capital to Jinzhenghua Transport. ITN
intends to contribute the remaining
$8,900 to Jinzhenghua Transport prior to
December 26, 1999.
Accordingly, Jinzhenghua Transport's
ability to pay dividends to ITN is
currently restricted.
73
<PAGE> 74
(3) Listing of Exhibits
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Exhibit No. Description of Exhibit
------------------------------------------------------------------------------------------------------------------
<S> <C>
2.1(1) Agreement and Plan of Reorganization.
------------------------------------------------------------------------------------------------------------------
3.1(1) Certificate of Incorporation of the Company, as Amended.
------------------------------------------------------------------------------------------------------------------
3.2(1) Bylaws of the Company.
------------------------------------------------------------------------------------------------------------------
4.1* Assignment of Indebtedness, dated December 11, 1998 by Shenzhen Zhenghua Group Co. Ltd. to Wu
Zhi Jian, New Century International S.R.L., Billy Yung and Chusa International Ltd.
------------------------------------------------------------------------------------------------------------------
4.2* Subscription Agreement, dated December 11, 1998, between Integrated Transportation Network
Group Inc. and Wu Zhi Jian.
------------------------------------------------------------------------------------------------------------------
4.3* Stock Purchase Warrant, dated December 11, 1998 in favor of Wu Zhi Jian.
------------------------------------------------------------------------------------------------------------------
4.4* Subscription Agreement, dated December 11, 1998, between Integrated Transportation Network
Group Inc. and New Century International S.R.L.
------------------------------------------------------------------------------------------------------------------
4.5* Stock Purchase Warrant, dated December 11, 1998 in favor of New Century International S.R.L.
------------------------------------------------------------------------------------------------------------------
4.6* Subscription Agreement, dated December 11, 1998, between Integrated Transportation Network
Group Inc. and Chusa International Limited.
------------------------------------------------------------------------------------------------------------------
4.7* Stock Purchase Warrant, dated December 11, 1998 in favor of Chusa International Limited.
------------------------------------------------------------------------------------------------------------------
4.8* Subscription Agreement, dated December 11, 1998, between Integrated Transportation Network
Group Inc. and Yeung Shu Kin
------------------------------------------------------------------------------------------------------------------
4.9* Subscription Agreement, dated December 11, 1998, between Integrated Transportation Network
Group Inc. and Surewin International Limited.
------------------------------------------------------------------------------------------------------------------
4.10* Stock Purchase Warrant, dated December 11, 1998 in favor of Surewin International Limited.
------------------------------------------------------------------------------------------------------------------
4.11* Subscription Agreement, dated December 17, 1998, between Integrated Transportation Network
Group Inc. and Kwok Kee Billy Yung.
------------------------------------------------------------------------------------------------------------------
4.12* Stock Purchase Warrant, dated December 11, 1998 in favor of Kwok Kee Billy Yung.
------------------------------------------------------------------------------------------------------------------
4.13* Subscription Agreement, dated December 23, 1998, between Integrated Transportation Network
Group Inc. and Kwok Kee Billy Yung.
------------------------------------------------------------------------------------------------------------------
10.1(1) Letter of Agreement, dated March 19, 1997 between Dawson Science Corporation and Shenzhen City
Zhenghua Traffic and Transportation Main Company, Ltd.
------------------------------------------------------------------------------------------------------------------
10.2(1) Letter Agreement, dated June 27, 1997 between Dawson Science Corporation and Wharton Capital
Partners Ltd.
------------------------------------------------------------------------------------------------------------------
10.3(1) Consulting Agreement, dated February 11, 1998 between Dawson Science Corporation and R.I.P.
Consultants.
------------------------------------------------------------------------------------------------------------------
10.4(1) 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(1) 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(1) Business Loan and Security Agreement, dated November 3, 1997 between Dawson Science
Corporation and Yeung Ming-Sum.
------------------------------------------------------------------------------------------------------------------
10.7(1) Business Loan and Security Agreement, dated September 19, 1997 between Dawson Science
Corporation and Yeung Shu-kin.
------------------------------------------------------------------------------------------------------------------
10.8(1) Business Loan and Security Agreement, dated September 30, 1997 between Dawson Science
Corporation and Neolite Neon Co. Pty. Ltd.
------------------------------------------------------------------------------------------------------------------
10.9(1) Grid Promissory Note, dated July 3, 1997, payable to Wharton Capital Partners, Ltd.
------------------------------------------------------------------------------------------------------------------
10.10(1) Agreement, dated May 28, 1998 between Dawson Science Corporation, Integrated Transportation
Network Group Inc. and R.I.P. Consultants.
------------------------------------------------------------------------------------------------------------------
10.11* Agreement to purchase 2000 automobiles, between Sun Loong and Shenzhen Jinzhenghua Transport
Industrial Development Co., Ltd. (terminated)
------------------------------------------------------------------------------------------------------------------
10.12* Agreement to purchase 3000 automobiles, between First Automobile and Shenzhen Jinzhenghua
Transport Industrial Development Co., Ltd.
------------------------------------------------------------------------------------------------------------------
</TABLE>
74
<PAGE> 75
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Exhibit No. Description of Exhibit
------------------------------------------------------------------------------------------------------------------
<S> <C>
21 List of Subsidiaries
------------------------------------------------------------------------------------------------------------------
27.1 Financial Data Schedule.
------------------------------------------------------------------------------------------------------------------
27.2 Financial Data Schedule.
</TABLE>
(1) Filed as an Exhibit, with the same Exhibit number, to
Amendment No. 3 to the Registrant's registration statement on
Form S-1 filed with the Securities and Exchange Commission on
June 29, 1998, and incorporated herein by this reference
* Filed herewith.
(b) The Company did not file a Current Report on Form 8-K during the 4th Quarter
of fiscal 1998.
75
<PAGE> 76
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTEGRATED TRANSPORTATION NETWORK GROUP INC.,
Registrant
By: /s/ Andrew Lee
------------------------------------------
Andrew Lee, President
Date: April 15, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Wu Zhi Jian Chairman of the Board, Director April 15, 1999
- ------------------------------------ (Principal Executive Officer)
Wu Zhi Jian
/s/ Andrew Lee President and Director April 15, 1999
- ------------------------------------
Andrew Lee
/s/ Willy Wu Executive Vice President, April 15, 1999
- ------------------------------------ Chief Financial Officer
Willy Wu (Principal Financial Officer)
/s/ Peng Jun Executive Vice President, April 15, 1999
- ------------------------------------ Treasurer, Director
Peng Jun (Principal Accounting Officer)
/s/ Zhang Li Wei Director April 15, 1999
- ------------------------------------
Zhang Li Wei
/s/ Li Yong Yuan Director April 15, 1999
- ------------------------------------
Li Yong Yuan
</TABLE>
76
<PAGE> 77
Exhibit Index
-------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Exhibit No. Description of Exhibit
------------------------------------------------------------------------------------------------------------------
<S> <C>
2.1(1) Agreement and Plan of Reorganization.
------------------------------------------------------------------------------------------------------------------
3.1(1) Certificate of Incorporation of the Company, as Amended.
------------------------------------------------------------------------------------------------------------------
3.2(1) Bylaws of the Company.
------------------------------------------------------------------------------------------------------------------
4.1* Assignment of Indebtedness, dated December 11, 1998 by Shenzhen Zhenghua Group Co. Ltd. to Wu
Zhi Jian, New Century International S.R.L., Billy Yung and Chusa International Ltd.
------------------------------------------------------------------------------------------------------------------
4.2* Subscription Agreement, dated December 11, 1998, between Integrated Transportation Network
Group Inc. and Wu Zhi Jian.
------------------------------------------------------------------------------------------------------------------
4.3* Stock Purchase Warrant, dated December 11, 1998 in favor of Wu Zhi Jian.
------------------------------------------------------------------------------------------------------------------
4.4* Subscription Agreement, dated December 11, 1998, between Integrated Transportation Network
Group Inc. and New Century International S.R.L.
------------------------------------------------------------------------------------------------------------------
4.5* Stock Purchase Warrant, dated December 11, 1998 in favor of New Century International S.R.L.
------------------------------------------------------------------------------------------------------------------
4.6* Subscription Agreement, dated December 11, 1998, between Integrated Transportation Network
Group Inc. and Chusa International Limited.
------------------------------------------------------------------------------------------------------------------
4.7* Stock Purchase Warrant, dated December 11, 1998 in favor of Chusa International Limited.
------------------------------------------------------------------------------------------------------------------
4.8* Subscription Agreement, dated December 11, 1998, between Integrated Transportation Network
Group Inc. and Yeung Shu Kin
------------------------------------------------------------------------------------------------------------------
4.9* Subscription Agreement, dated December 11, 1998, between Integrated Transportation Network
Group Inc. and Surewin International Limited.
------------------------------------------------------------------------------------------------------------------
4.10* Stock Purchase Warrant, dated December 11, 1998 in favor of Surewin International Limited.
------------------------------------------------------------------------------------------------------------------
4.11* Subscription Agreement, dated December 17, 1998, between Integrated Transportation Network
Group Inc. and Kwok Kee Billy Yung.
------------------------------------------------------------------------------------------------------------------
4.12* Stock Purchase Warrant, dated December 11, 1998 in favor of Kwok Kee Billy Yung.
------------------------------------------------------------------------------------------------------------------
4.13* Subscription Agreement, dated December 23, 1998, between Integrated Transportation Network
Group Inc. and Kwok Kee Billy Yung.
------------------------------------------------------------------------------------------------------------------
10.1(1) Letter of Agreement, dated March 19, 1997 between Dawson Science Corporation and Shenzhen City
Zhenghua Traffic and Transportation Main Company, Ltd.
------------------------------------------------------------------------------------------------------------------
10.2(1) Letter Agreement, dated June 27, 1997 between Dawson Science Corporation and Wharton Capital
Partners Ltd.
------------------------------------------------------------------------------------------------------------------
10.3(1) Consulting Agreement, dated February 11, 1998 between Dawson Science Corporation and R.I.P.
Consultants.
------------------------------------------------------------------------------------------------------------------
10.4(1) 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(1) 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(1) Business Loan and Security Agreement, dated November 3, 1997 between Dawson Science
Corporation and Yeung Ming-Sum.
------------------------------------------------------------------------------------------------------------------
10.7(1) Business Loan and Security Agreement, dated September 19, 1997 between Dawson Science
Corporation and Yeung Shu-kin.
------------------------------------------------------------------------------------------------------------------
10.8(1) Business Loan and Security Agreement, dated September 30, 1997 between Dawson Science
Corporation and Neolite Neon Co. Pty. Ltd.
------------------------------------------------------------------------------------------------------------------
10.9(1) Grid Promissory Note, dated July 3, 1997, payable to Wharton Capital Partners, Ltd.
------------------------------------------------------------------------------------------------------------------
10.10(1) Agreement, dated May 28, 1998 between Dawson Science Corporation, Integrated Transportation
Network Group Inc. and R.I.P. Consultants.
------------------------------------------------------------------------------------------------------------------
10.11* Agreement to purchase 2000 automobiles, between Sun Loong and Shenzhen Jinzhenghua Transport
Industrial Development Co., Ltd. (terminated)
------------------------------------------------------------------------------------------------------------------
10.12* Agreement to purchase 3000 automobiles, between First Automobile and Shenzhen Jinzhenghua
Transport Industrial Development Co., Ltd.
------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 78
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Exhibit No. Description of Exhibit
------------------------------------------------------------------------------------------------------------------
<S> <C>
21 List of Subsidiaries
------------------------------------------------------------------------------------------------------------------
27.1 Financial Data Schedule.
------------------------------------------------------------------------------------------------------------------
27.2 Financial Data Schedule.
</TABLE>
(1) Filed as an Exhibit, with the same Exhibit number, to
Amendment No. 3 to the Registrant's registration statement on
Form S-1 filed with the Securities and Exchange Commission on
June 29, 1998, and incorporated herein by this reference
* Filed herewith.
(b) The Company did not file a Current Report on Form 8-K during the 4th Quarter
of fiscal 1998.
<PAGE> 1
Exhibit 4.1
ASSIGNMENT OF INDEBTEDNESS
This ASSIGNMENT is made this 11th day of December, 1998 by Shenzhen
Zhenghua Group Co. Ltd. ("Group"), a company organized under the laws of the
Peoples Republic of China ("PRC"), to Mr. Wu Zhi-Jian ("Wu"), New Century
International S.R.L., a company organized under the laws of Peru ("Century"),
Mr. Billy Yung ("Yung") and Chusa International Limited, a company organized
under the laws of Antigua ("Chusa"). Wu, Century, Yung and Chusa are referred to
herein together as the "Assignees."
WHEREAS, Shenzhen Jinzhenghua Transport Industrial Development Co.
Ltd., a company organized under the laws of PRC ("Transport"), is indebted to
Group in an aggregate amount equal to US$3,900,000, representing cash advances
from Group to Transport which have not been formally documented as of the date
hereof, but the receipt of which Transport hereby confirms and acknowledges (the
"Indebtedness"); and
WHEREAS, Group wishes to assign all of its rights to repayment of the
Indebtedness to the Assignees as set forth herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Group hereby assigns, conveys and
transfers all of its right, title and interest in and to the Indebtedness,
including without limitation all rights to repayment of the Indebtedness, to
each of the Assignees in the respective amounts set forth opposite each
Assignee's name on Exhibit A attached hereto.
In witness hereof, Group has caused this Assignment to be duly executed
by its duly authorized representative as of the date set forth above.
Shenzhen Zhenghua Group Co. Ltd.
By: /s/ Wu Zhi Jian
---------------------------------
Name:
-------------------------------
Title:
------------------------------
AGREED AND CONSENTED TO:
Shenzhen Jinzhenghua Transport
Industrial Development Co. Ltd.
By: /s/ Wu Zhi Jian
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE> 2
EXHIBIT A
<TABLE>
<CAPTION>
AMOUNT OF INDEBTEDNESS
ASSIGNEE ASSIGNED
-------- --------
<S> <C>
1. Mr. Wu Zhi-Jian US$825,871
2. New Century International S.R.L. US$1,169,674
3. Mr. Billy Yung US$481,250
3. Chusa International Limited US$1,423,205
------------
TOTAL US$3,900,000
</TABLE>
<PAGE> 1
Exhibit 4.2
December 11, 1998
Integrated Transportation Network Group Inc.
205 West 39th St., 16th Floor
New York, NY 10018
Attn: Andrew Lee, President
Ladies and Gentlemen:
The undersigned, WU ZHI JIAN, hereby subscribes to the immediate
acquisition of (i) 471,926 shares of Common Stock, $.01 par value ("Common
Stock"), of Integrated Transportation Network Group Inc., a Delaware corporation
(the "Company"), and (ii) warrants to purchase 70,789 shares of Common Stock
which shall be exercisable immediately at a price of US$2.00 per share and shall
have a term of five years ("Warrants") (such shares of Common Stock and Warrants
are referred to herein collectively as the "Securities"). The Securities are
being issued to the undersigned in full and complete satisfaction of all
indebtedness of the Company's 92% owned subsidiary, Shenzhen Jinzhenghua
Transport Industrial Development Co. Ltd. ("Transport"), a company organized
under the laws of the Peoples Republic of China ("PRC"), to the undersigned,
including, without limitation, US$825,871.
Upon the Company's acceptance of this subscription, the Company shall
deliver the Securities to the undersigned at the address indicated below.
In connection with the purchase of the Securities, the undersigned
acknowledges, warrants and represents to the Company as follows:
1. The undersigned is acquiring the Securities for investment for its
own account and without the intention of participating, directly or indirectly,
in a distribution of the Securities, and not with a view to resale or any
distribution of the Securities, or any portion thereof.
2. The undersigned has knowledge and experience in financial and
business matters and has consulted with its own professional representatives as
it has considered appropriate to assist in evaluating the merits and risks of
this investment. The undersigned has reviewed the Company's prospectus dated
June 29, 1998 and the Company's Quarterly Reports on Form 10Q for the quarter
ended June 30 and September 31, 1998, respectively. The undersigned has had
access to and an opportunity to question the officers of the Company, or persons
acting on their behalf, with respect to material information about the Company
and, in connection with its evaluation of this investment, has, to the best of
its knowledge, received all information and data with respect to the Company
that the undersigned has requested. The undersigned is acquiring the Securities
based solely upon its independent examination and judgment as to the prospects
of the Company.
3. The Securities were not offered to the undersigned by means of
publicly disseminated advertisements or sales literature.
4. The undersigned acknowledges that an investment in the Securities is
speculative and the undersigned may have to continue to bear the economic risk
of the investment in the Securities for an indefinite period. The undersigned
acknowledges that the Securities are being sold to the undersigned without
registration under any state, or federal or PRC law requiring the
<PAGE> 2
registration of securities for sale, and accordingly will constitute "restricted
securities" as defined in Rule 144 of the U.S. Securities and Exchange
Commission. The transferability of the Securities is therefor restricted by
applicable United States Federal and state securities laws and may be restricted
under the laws of other jurisdictions.
5. The undersigned is an "accredited investor" as such term is defined
in Appendix A.
6. In consideration of the acceptance of this subscription, the
undersigned agrees that the Securities will not be offered for sale, sold or
transferred by the undersigned other than pursuant to (i) an effective
registration under the Securities Act of 1933, as amended ("the Act"), an
exemption available under the Act or a transaction that is otherwise in
compliance with the Act; and (ii) an effective registration under the securities
law of any state or other jurisdiction applicable to the transaction, an
exemption available under such laws, or a transaction that is otherwise in
compliance with such laws.
7. The undersigned understands that no U.S. federal or state agency has
passed upon the offering of the Securities or has made any finding or
determination as to the fairness of any investment in the Securities.
8. The undersigned agrees to execute such further documents as the
Company may request in order to give effect to the cancellation of indebtedness
contemplated hereby.
9. The undersigned agrees to indemnify and hold harmless the Company
and its officers, directors, employees and agents from and against any and all
costs, liabilities and expenses (including attorneys' fees) arising out of or
related in any way to any breach of any representation or warranty contained
herein.
10. If the Company files a Registration Statement under the U.S.
Securities Act of 1933, as a amended, after the date hereof, and the Company is
permitted to include the Common Stock issuable hereunder and under the Warrants
on such Registration Statement, the Company shall so notify the undersigned and
include such shares of Common Stock on such Registration Statement if the
undersigned so requests.
ACCEPTANCE OF SUBSCRIPTION SUBSCRIBER
Integrated Transportation
Network Group Inc. /s/ Wu Zhi Jian
------------------------------------
Name: Wu Zhi Jian
By: /s/ Andrew Lee Address:
----------------------------------
Andrew Lee, President
7/F, Business Bldg. No.1 Suncang
Bao'an North Rd., Shenzhen City
People's Republic of China
<PAGE> 3
APPENDIX A
An "Accredited Investor" within the meaning of Regulation D under the Securities
Act of 1933 includes the following:
ORGANIZATIONS
(1) A bank as defined in section 3(a)(2) of the Act, or any savings and
loan association or other institution as defined in section 3(a)(5)(A) of the
Act, whether acting in its individual or fiduciary capacity; a broker or dealer
registered pursuant to section 15 of the Securities Exchange Act of 1934;
insurance company as defined in section 2(13) of the Act; an investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in section 2(a)(48) of that act; a Small Business Investment
Company licensed by the U.S. Small Business Administration under section 301(c)
or (d) of the Small Business Investment Act of 1958; an employee benefit plan
within the meaning of Title I of the Employee Retirement Income Security Act of
1974, if the investment decision is made by a plan fiduciary, as defined in
section 3(21) of such act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors.
(2) A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940.
(3) A trust (i) with total assets in excess of $5,000,000, (ii) not
formed for the specific purpose of acquiring the Securities, (iii) whose
purchase is directed by a person who, either alone or with his purchaser
representative, has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the proposed
investment.
(4) A corporation, business trust, partnership, or an organization
described in section 501(c)(3) of the Internal Revenue Code, which was not
formed for the specific purpose of acquiring the Securities, and which has total
assets in excess of $5,000,000.
INDIVIDUALS
(5) Individuals with income from all sources for each of the last two
full calendar years whose reasonably expected income for this calendar year
exceeds either of:
(i) $200,000 individual income; or
(ii) $300,000 joint income with spouse.
NOTE: Your "income" for a particular year may be calculated by adding to your
adjusted gross income as calculated for Federal income tax purposes any
deduction for long term capital gains, any deduction for depletion allowance,
any exclusion for tax exempt interest and any losses of a partnership allocated
to you as a partner.
(6) Individuals with net worth as of the date hereof (individually or
jointly with your spouse), including the value of home, furnishings, and
automobiles, in excess of $1,000,000.
(7) Directors, executive officers or general partners of the Issuer.
<PAGE> 1
Exhibit 4.3
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR STATE SECURITIES LAWS. NO SALE, TRANSFER OR OTHER
DISPOSITION OF THIS WARRANT OR SAID SHARES MAY BE EFFECTED WITHOUT (i)
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO UNDER APPLICABLE
STATE SECURITIES LAWS, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SUCH
LAWS IS AVAILABLE.
WARRANT NO. A-1 STOCK PURCHASE WARRANT NO. OF SHARES 70,789
- --------------- --------------------
To Subscribe for and Purchase Common Stock of
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
THIS CERTIFIES that, for value received, WU ZHI JIAN (together with any
subsequent transferees of all or any portion of this Warrant, the "Holder"), is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe for and purchase from INTEGRATED TRANSPORTATION NETWORK GROUP INC., a
Delaware corporation (hereinafter called the "Company"), at the price
hereinafter set forth in Section 2, up to 70,789 fully paid and non-assessable
shares (the "Shares") of the Company's Common Stock, $.01 par value per share
(the "Common Stock").
1. DEFINITIONS. As used herein the following term shall have the
following meaning:
"ACT" means the Securities Act of 1933, as amended, or a successor
statute thereto and the rules and regulations of the Securities and Exchange
Commission issued under that Act, as they each may, from time to time, be in
effect.
2. PURCHASE RIGHTS. The purchase rights represented by this Warrant
shall be exercisable by the Holder in whole or in part commencing December 11,
1998. The purchase rights represented by this Warrant shall expire five (5)
years from the date hereof. This Warrant may be exercised for Shares at a price
of two United States dollars (US$2.00) per share, subject to adjustment as
provided in Section 6 (the "Warrant Purchase Price").
3. EXERCISE OF WARRANT. Subject to Section 2 above, the purchase rights
represented by this Warrant may be exercised, in whole or in part and from time
to time, by the surrender of this Warrant and the duly executed Notice of
Exercise (the form of which is attached as Exhibit A) at the principal office of
the Company and by the payment to the Company, by check, of an amount equal to
the then applicable Warrant Purchase Price per share multiplied by the number of
Shares then being purchased. Upon exercise, the Holder shall be entitled to
receive, within a reasonable time, a certificate or certificates, issued in the
Holder's name or in such name or names as the Holder may direct, for the number
of Shares so purchased. The Shares so purchased shall be deemed to be issued as
of the close of business on the date on which this Warrant shall have been
exercised.
4. SHARES TO BE ISSUED; RESERVATION OF SHARES. The Company covenants
that the Shares that may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon issuance in accordance herewith, be fully
paid and non-assessable, and free from all liens and
<PAGE> 2
charges with respect to the issue thereof. During the period within which
the purchase rights represented by the Warrant may be exercised, the
Company will at all times have authorized and reserved, for the purpose of
issuance upon exercise of the purchase rights represented by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the right represented by this Warrant.
5. NO FRACTIONAL SHARES. No fractional shares shall be issued upon the
exercise of this Warrant. In lieu thereof, a cash payment shall be made equal to
such fraction multiplied by the fair market value of such shares of Common
Stock, as determined in good faith by the Company's Board of Directors.
6. ADJUSTMENTS OF WARRANT PURCHASE PRICE AND NUMBER OF SHARES. If there
shall be any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split or
other change in the corporate structure of the Company, appropriate adjustments
shall be made by the Board of Directors of the Company (or if the Company is not
the surviving corporation in any such transaction, the Board of Directors of the
surviving corporation) in the aggregate number and kind of shares subject to
this Warrant, and the number and kind of shares and the price per share then
applicable to shares covered by the unexercised portion of this Warrant.
7. NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle the Holder
to any voting rights or other rights as a shareholder of the Company prior to
exercise of this Warrant and the payment for the Shares so purchased.
Notwithstanding the foregoing, the Company agrees to transmit to the Holder such
information, documents and reports as are generally distributed to holders of
the capital stock of the Company concurrently with the distribution thereof to
the shareholders. Upon valid exercise of this Warrant and payment for the Shares
so purchased in accordance with the terms of the Warrant, the Holder or the
Holder's designee, as the case may be, shall be deemed a shareholder of the
Company.
8. SALE OR TRANSFER OF THE WARRANT AND THE SHARES; LEGEND. The Warrant
and the Shares shall not be sold or transferred unless either (i) they first
shall have been registered under applicable State Securities laws, or (ii) such
sale or transfer is exempt from the registration requirements of such laws. Each
certificate representing any Warrant shall bear the legend set out on page 1
hereof. Each certificate representing any Shares shall bear a legend
substantially in the following form, as appropriate:
THE SHARES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO UNDER APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO
AN EXEMPTION UNDER APPLICABLE STATE SECURITIES LAWS.
The Warrant and Shares may be subject to additional restrictions on
transfer imposed under applicable state and federal securities law.
-2-
<PAGE> 3
9. MODIFICATIONS AND WAIVERS. This Warrant may not be changed, waived,
discharged or terminated except by an instrument in writing signed by the party
against which enforcement of the same is sought.
10. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder or the Company shall be
delivered, or shall be sent by certified or registered mail, postage prepaid, to
the Holder at its address shown on the books of the Company or in the case of
the Company, at the address indicated therefor on the signature page of this
Warrant, or, if different, at the principal office of the Company.
11. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants with the Holder that upon its receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant or any stock certificate and, in the case of any such loss, theft
or destruction, of an indemnity or security reasonably satisfactory to it, and
upon reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of this Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock certificate,
of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or
stock certificate.
12. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Shares issuable upon exercise of this Warrant
shall survive the exercise and termination of this Warrant and all of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the Holder.
13. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York.
IN WITNESS WHEREOF, INTEGRATED TRANSPORTATION NETWORK GROUP INC. has
caused this Warrant to be executed by its officer thereunto duly authorized.
ORIGINAL ISSUANCE AS OF: December 11, 1998
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
/s/ Andrew Lee
----------------------------------------------------
By: Andrew Lee, President
Address: Integrated Transportation Network Group Inc.
205 West 39th St., 16th Floor
New York, NY 10018
-3-
<PAGE> 4
EXHIBIT A
NOTICE OF EXERCISE
To: INTEGRATED TRANSPORTATION NETWORK GROUP INC.
1. The undersigned hereby elects to purchase _________ shares of Common
Stock of INTEGRATED TRANSPORTATION NETWORK GROUP INC. pursuant to the terms of
the attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name or names as are specified
below.
3. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares. The undersigned further represents that such shares shall not be sold or
transferred unless either (1) they first shall have been registered under
applicable state securities laws or (ii) or an exemption from applicable state
registration requirements is available.
4. In the event of partial exercise, please re-issue an appropriate
Warrant exercisable into the remaining shares.
-----------------------------------------
Name:
Address:
---------------------------------
---------------------------------
---------------------------------
-----------------------------------------
(Signature)
-----------------------------------------
(Date)
-4-
<PAGE> 1
Exhibit 4.4
December 11, 1998
Integrated Transportation Network Group Inc.
205 West 39th St., 16th Floor
New York, NY 10018
Attn: Andrew Lee, President
Ladies and Gentlemen:
The undersigned, NEW CENTURY INTERNATIONAL S.R.L., hereby subscribes to
the immediate acquisition of (i) 668,385 shares of Common Stock, $.01 par value
("Common Stock"), of Integrated Transportation Network Group Inc., a Delaware
corporation (the "Company"), and (ii) warrants to purchase 141,508 shares of
Common Stock which shall be exercisable immediately at a price of US$2.00 per
share and shall have a term of five years ("Warrants") (such shares of Common
Stock and Warrants are referred to herein collectively as the "Securities"). The
Securities are being issued to the undersigned in full and complete satisfaction
of all indebtedness of the Company's 92% owned subsidiary, Shenzhen Jinzhenghua
Transport Industrial Development Co. Ltd. ("Transport"), a company organized
under the laws of the Peoples Republic of China ("PRC"), to the undersigned,
including, without limitation, US$1,169,674.
Upon the Company's acceptance of this subscription, the Company shall
deliver the Securities to the undersigned at the address indicated below.
In connection with the purchase of the Securities, the undersigned
acknowledges, warrants and represents to the Company as follows:
1. The undersigned is acquiring the Securities for investment for its
own account and without the intention of participating, directly or indirectly,
in a distribution of the Securities, and not with a view to resale or any
distribution of the Securities, or any portion thereof.
2. The undersigned has knowledge and experience in financial and
business matters and has consulted with its own professional representatives as
it has considered appropriate to assist in evaluating the merits and risks of
this investment. The undersigned has reviewed the Company's prospectus dated
June 29, 1998 and the Company's Quarterly Reports on Form 10Q for the quarter
ended June 30 and September 31, 1998, respectively. The undersigned has had
access to and an opportunity to question the officers of the Company, or persons
acting on their behalf, with respect to material information about the Company
and, in connection with its evaluation of this investment, has, to the best of
its knowledge, received all information and data with respect to the Company
that the undersigned has requested. The undersigned is acquiring the Securities
based solely upon its independent examination and judgment as to the prospects
of the Company.
3. The Securities were not offered to the undersigned by means of
publicly disseminated advertisements or sales literature.
4. The undersigned acknowledges that an investment in the Securities is
speculative and the undersigned may have to continue to bear the economic risk
of the investment in the Securities for an indefinite period. The undersigned
acknowledges that the Securities are being sold to the undersigned without
registration under any state, or federal or PRC law requiring the
<PAGE> 2
registration of securities for sale, and accordingly will constitute
"restricted securities" as defined in Rule 144 of the U.S. Securities and
Exchange Commission. The transferability of the Securities is therefor
restricted by applicable United States Federal and state securities laws and may
be restricted under the laws of other jurisdictions.
5. The undersigned is an "accredited investor" as such term is defined
in Appendix A.
6. In consideration of the acceptance of this subscription, the
undersigned agrees that the Securities will not be offered for sale, sold or
transferred by the undersigned other than pursuant to (i) an effective
registration under the Securities Act of 1933, as amended ("the Act"), an
exemption available under the Act or a transaction that is otherwise in
compliance with the Act; and (ii) an effective registration under the securities
law of any state or other jurisdiction applicable to the transaction, an
exemption available under such laws, or a transaction that is otherwise in
compliance with such laws.
7. The undersigned understands that no U.S. federal or state agency has
passed upon the offering of the Securities or has made any finding or
determination as to the fairness of any investment in the Securities.
8. The undersigned agrees to execute such further documents as the
Company may request in order to give effect to the cancellation of indebtedness
contemplated hereby.
9. The undersigned agrees to indemnify and hold harmless the Company
and its officers, directors, employees and agents from and against any and all
costs, liabilities and expenses (including attorneys' fees) arising out of or
related in any way to any breach of any representation or warranty contained
herein.
10. If the Company files a Registration Statement under the U.S.
Securities Act of 1933, as a amended, after the date hereof, and the Company is
permitted to include the Common Stock issuable hereunder and under the Warrants
on such Registration Statement, the Company shall so notify the undersigned and
include such shares of Common Stock on such Registration Statement if the
undersigned so requests.
ACCEPTANCE OF SUBSCRIPTION SUBSCRIBER
Integrated Transportation Network
Group Inc. New Century International S.R.L.
By: /s/ Andrew Lee By: /s/ Ya Nan Wang
------------------------------- ---------------------------------
Andrew Lee, President Name:
Title:
Address:
New Century International S.R.L.
Avenue Talara #159
Jesus Maria
Lima, PERU
<PAGE> 3
APPENDIX A
An "Accredited Investor" within the meaning of Regulation D under the Securities
Act of 1933 includes the following:
ORGANIZATIONS
(1) A bank as defined in section 3(a)(2) of the Act, or any savings and
loan association or other institution as defined in section 3(a)(5)(A) of the
Act, whether acting in its individual or fiduciary capacity; a broker or dealer
registered pursuant to section 15 of the Securities Exchange Act of 1934;
insurance company as defined in section 2(13) of the Act; an investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in section 2(a)(48) of that act; a Small Business Investment
Company licensed by the U.S. Small Business Administration under section 301(c)
or (d) of the Small Business Investment Act of 1958; an employee benefit plan
within the meaning of Title I of the Employee Retirement Income Security Act of
1974, if the investment decision is made by a plan fiduciary, as defined in
section 3(21) of such act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors.
(2) A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940.
(3) A trust (i) with total assets in excess of $5,000,000, (ii) not
formed for the specific purpose of acquiring the Securities, (iii) whose
purchase is directed by a person who, either alone or with his purchaser
representative, has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the proposed
investment.
(4) A corporation, business trust, partnership, or an organization
described in section 501(c)(3) of the Internal Revenue Code, which was not
formed for the specific purpose of acquiring the Securities, and which has total
assets in excess of $5,000,000.
INDIVIDUALS
(5) Individuals with income from all sources for each of the last two
full calendar years whose reasonably expected income for this calendar year
exceeds either of:
(i) $200,000 individual income; or
(ii) $300,000 joint income with spouse.
NOTE: Your "income" for a particular year may be calculated by adding to your
adjusted gross income as calculated for Federal income tax purposes any
deduction for long term capital gains, any deduction for depletion allowance,
any exclusion for tax exempt interest and any losses of a partnership allocated
to you as a partner.
(6) Individuals with net worth as of the date hereof (individually or
jointly with your spouse), including the value of home, furnishings, and
automobiles, in excess of $1,000,000.
(7) Directors, executive officers or general partners of the Issuer.
<PAGE> 1
Exhibit 4.5
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR STATE SECURITIES LAWS. NO SALE, TRANSFER OR OTHER
DISPOSITION OF THIS WARRANT OR SAID SHARES MAY BE EFFECTED WITHOUT (i)
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO UNDER APPLICABLE
STATE SECURITIES LAWS, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SUCH
LAWS IS AVAILABLE.
WARRANT NO. A-2 STOCK PURCHASE WARRANT NO. OF SHARES 141,508
- --------------- ---------------------
To Subscribe for and Purchase Common Stock of
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
THIS CERTIFIES that, for value received, NEW CENTURY INTERNATIONAL
S.R.L. (together with any subsequent transferees of all or any portion of this
Warrant, the "Holder"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, to subscribe for and purchase from INTEGRATED
TRANSPORTATION NETWORK GROUP INC., a Delaware corporation (hereinafter called
the "Company"), at the price hereinafter set forth in Section 2, up to 141,508
fully paid and non-assessable shares (the "Shares") of the Company's Common
Stock, $.01 par value per share (the "Common Stock").
1. DEFINITIONS. As used herein the following term shall have the
following meaning:
"Act" means the Securities Act of 1933, as amended, or a successor statute
thereto and the rules and regulations of the Securities and Exchange Commission
issued under that Act, as they each may, from time to time, be in effect.
2. PURCHASE RIGHTS. The purchase rights represented by this Warrant
shall be exercisable by the Holder in whole or in part commencing December 11,
1998. The purchase rights represented by this Warrant shall expire five (5)
years from the date hereof. This Warrant may be exercised for Shares at a price
of two United States dollars (US$2.00) per share, subject to adjustment as
provided in Section 6 (the "Warrant Purchase Price").
3. EXERCISE OF WARRANT. Subject to Section 2 above, the purchase rights
represented by this Warrant may be exercised, in whole or in part and from time
to time, by the surrender of this Warrant and the duly executed Notice of
Exercise (the form of which is attached as Exhibit A) at the principal office of
the Company and by the payment to the Company, by check, of an amount equal to
the then applicable Warrant Purchase Price per share multiplied by the number of
Shares then being purchased. Upon exercise, the Holder shall be entitled to
receive, within a reasonable time, a certificate or certificates, issued in the
Holder's name or in such name or names as the Holder may direct, for the number
of Shares so purchased. The Shares so purchased shall be deemed to be issued as
of the close of business on the date on which this Warrant shall have been
exercised.
4. SHARES TO BE ISSUED; RESERVATION OF SHARES. The Company covenants
that the Shares that may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon issuance in accordance herewith, be fully
paid and non-assessable, and free from all liens and
<PAGE> 2
charges with respect to the issue thereof. During the period within which
the purchase rights represented by the Warrant may be exercised, the
Company will at all times have authorized and reserved, for the purpose of
issuance upon exercise of the purchase rights represented by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the right represented by this Warrant.
5. NO FRACTIONAL SHARES. No fractional shares shall be issued upon the
exercise of this Warrant. In lieu thereof, a cash payment shall be made equal to
such fraction multiplied by the fair market value of such shares of Common
Stock, as determined in good faith by the Company's Board of Directors.
6. ADJUSTMENTS OF WARRANT PURCHASE PRICE AND NUMBER OF SHARES. If there
shall be any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split or
other change in the corporate structure of the Company, appropriate adjustments
shall be made by the Board of Directors of the Company (or if the Company is not
the surviving corporation in any such transaction, the Board of Directors of the
surviving corporation) in the aggregate number and kind of shares subject to
this Warrant, and the number and kind of shares and the price per share then
applicable to shares covered by the unexercised portion of this Warrant.
7. NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle the Holder
to any voting rights or other rights as a shareholder of the Company prior to
exercise of this Warrant and the payment for the Shares so purchased.
Notwithstanding the foregoing, the Company agrees to transmit to the Holder such
information, documents and reports as are generally distributed to holders of
the capital stock of the Company concurrently with the distribution thereof to
the shareholders. Upon valid exercise of this Warrant and payment for the Shares
so purchased in accordance with the terms of the Warrant, the Holder or the
Holder's designee, as the case may be, shall be deemed a shareholder of the
Company.
8. SALE OR TRANSFER OF THE WARRANT AND THE SHARES; LEGEND. The Warrant
and the Shares shall not be sold or transferred unless either (i) they first
shall have been registered under applicable State Securities laws, or (ii) such
sale or transfer is exempt from the registration requirements of such laws. Each
certificate representing any Warrant shall bear the legend set out on page 1
hereof. Each certificate representing any Shares shall bear a legend
substantially in the following form, as appropriate:
THE SHARES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO UNDER APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO
AN EXEMPTION UNDER APPLICABLE STATE SECURITIES LAWS.
The Warrant and Shares may be subject to additional restrictions on
transfer imposed under applicable state and federal securities law.
-2-
<PAGE> 3
9. MODIFICATIONS AND WAIVERS. This Warrant may not be changed, waived,
discharged or terminated except by an instrument in writing signed by the party
against which enforcement of the same is sought.
10. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder or the Company shall be
delivered, or shall be sent by certified or registered mail, postage prepaid, to
the Holder at its address shown on the books of the Company or in the case of
the Company, at the address indicated therefor on the signature page of this
Warrant, or, if different, at the principal office of the Company.
11. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants with the Holder that upon its receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant or any stock certificate and, in the case of any such loss, theft
or destruction, of an indemnity or security reasonably satisfactory to it, and
upon reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of this Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock certificate,
of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or
stock certificate.
12. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Shares issuable upon exercise of this Warrant
shall survive the exercise and termination of this Warrant and all of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the Holder.
13. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York.
IN WITNESS WHEREOF, INTEGRATED TRANSPORTATION NETWORK GROUP INC. has
caused this Warrant to be executed by its officer thereunto duly authorized.
ORIGINAL ISSUANCE AS OF: December 11, 1998
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
/s/ Andrew Lee
-----------------------------------------------------
By: Andrew Lee, President
Address: Integrated Transportation Network Group Inc.
205 West 39th St., 16th Floor
New York, NY 10018
-3-
<PAGE> 4
EXHIBIT A
NOTICE OF EXERCISE
To: INTEGRATED TRANSPORTATION NETWORK GROUP INC.
1. The undersigned hereby elects to purchase _________ shares of Common
Stock of INTEGRATED TRANSPORTATION NETWORK GROUP INC. pursuant to the terms of
the attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name or names as are specified
below.
3. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares. The undersigned further represents that such shares shall not be sold or
transferred unless either (1) they first shall have been registered under
applicable state securities laws or (ii) or an exemption from applicable state
registration requirements is available.
4. In the event of partial exercise, please re-issue an appropriate
Warrant exercisable into the remaining shares.
--------------------------------------------
Name:
Address:
------------------------------------
------------------------------------
------------------------------------
--------------------------------------------
(Signature)
--------------------------------------------
(Date)
-4-
<PAGE> 1
Exhibit 4.6
December 11, 1998
Integrated Transportation Network Group Inc.
205 West 39th St., 16th Floor
New York, NY 10018
Attn: Andrew Lee, President
Ladies and Gentlemen:
The undersigned, CHUSA INTERNATIONAL LIMITED, hereby subscribes to the
immediate acquisition of (i) 813,260 shares of Common Stock, $.01 par value
("Common Stock"), of Integrated Transportation Network Group Inc., a Delaware
corporation (the "Company"), and (ii) warrants to purchase 121,989 shares of
Common Stock which shall be exercisable immediately at a price of US$2.00 per
share and shall have a term of five years ("Warrants") (such shares of Common
Stock and Warrants are referred to herein collectively as the "Securities"). The
Securities are being issued to the undersigned in full and complete satisfaction
of all indebtedness of the Company's 92% owned subsidiary, Shenzhen Jinzhenghua
Transport Industrial Development Co. Ltd. ("Transport"), a company organized
under the laws of the Peoples Republic of China ("PRC"), to the undersigned,
including, without limitation, US$1,423,205.
Upon the Company's acceptance of this subscription, the Company shall
deliver the Securities to the undersigned at the address indicated below.
In connection with the purchase of the Securities, the undersigned
acknowledges, warrants and represents to the Company as follows:
1. The undersigned is acquiring the Securities for investment for its
own account and without the intention of participating, directly or indirectly,
in a distribution of the Securities, and not with a view to resale or any
distribution of the Securities, or any portion thereof.
2. The undersigned has knowledge and experience in financial and
business matters and has consulted with its own professional representatives as
it has considered appropriate to assist in evaluating the merits and risks of
this investment. The undersigned has reviewed the Company's prospectus dated
June 29, 1998 and the Company's Quarterly Reports on Form 10Q for the quarter
ended June 30 and September 31, 1998, respectively. The undersigned has had
access to and an opportunity to question the officers of the Company, or persons
acting on their behalf, with respect to material information about the Company
and, in connection with its evaluation of this investment, has, to the best of
its knowledge, received all information and data with respect to the Company
that the undersigned has requested. The undersigned is acquiring the Securities
based solely upon its independent examination and judgment as to the prospects
of the Company.
3. The Securities were not offered to the undersigned by means of
publicly disseminated advertisements or sales literature.
4. The undersigned acknowledges that an investment in the Securities is
speculative and the undersigned may have to continue to bear the economic risk
of the investment in the Securities for an indefinite period. The undersigned
acknowledges that the Securities are being sold to the undersigned without
registration under any state, or federal or PRC law requiring the
<PAGE> 2
registration of securities for sale, and accordingly will constitute
"restricted securities" as defined in Rule 144 of the U.S. Securities and
Exchange Commission. The transferability of the Securities is therefor
restricted by applicable United States Federal and state securities laws and may
be restricted under the laws of other jurisdictions.
5. The undersigned is an "accredited investor" as such term is defined
in Appendix A.
6. In consideration of the acceptance of this subscription, the
undersigned agrees that the Securities will not be offered for sale, sold or
transferred by the undersigned other than pursuant to (i) an effective
registration under the Securities Act of 1933, as amended ("the Act"), an
exemption available under the Act or a transaction that is otherwise in
compliance with the Act; and (ii) an effective registration under the securities
law of any state or other jurisdiction applicable to the transaction, an
exemption available under such laws, or a transaction that is otherwise in
compliance with such laws.
7. The undersigned understands that no U.S. federal or state agency has
passed upon the offering of the Securities or has made any finding or
determination as to the fairness of any investment in the Securities.
8. The undersigned agrees to execute such further documents as the
Company may request in order to give effect to the cancellation of indebtedness
contemplated hereby.
9. The undersigned agrees to indemnify and hold harmless the Company
and its officers, directors, employees and agents from and against any and all
costs, liabilities and expenses (including attorneys' fees) arising out of or
related in any way to any breach of any representation or warranty contained
herein.
10. If the Company files a Registration Statement under the U.S.
Securities Act of 1933, as a amended, after the date hereof, and the Company is
permitted to include the Common Stock issuable hereunder and under the Warrants
on such Registration Statement, the Company shall so notify the undersigned and
include such shares of Common Stock on such Registration Statement if the
undersigned so requests.
ACCEPTANCE OF SUBSCRIPTION SUBSCRIBER
Integrated Transportation Network
Group Inc. Chusa International Limited
By /s/ Andrew Lee By: /s/ Gregory Jeung
--------------------------------- -------------------------------
Andrew Lee, President Name:
Title:
Address:
Chusa International Limited
c/o Ms. Alice N. Roberts
P.O. Box 2176
60 Nevis Street
St. John's, Antigua - West Indies
<PAGE> 3
APPENDIX A
An "Accredited Investor" within the meaning of Regulation D under the Securities
Act of 1933 includes the following:
ORGANIZATIONS
(1) A bank as defined in section 3(a)(2) of the Act, or any savings and
loan association or other institution as defined in section 3(a)(5)(A) of the
Act, whether acting in its individual or fiduciary capacity; a broker or dealer
registered pursuant to section 15 of the Securities Exchange Act of 1934;
insurance company as defined in section 2(13) of the Act; an investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in section 2(a)(48) of that act; a Small Business Investment
Company licensed by the U.S. Small Business Administration under section 301(c)
or (d) of the Small Business Investment Act of 1958; an employee benefit plan
within the meaning of Title I of the Employee Retirement Income Security Act of
1974, if the investment decision is made by a plan fiduciary, as defined in
section 3(21) of such act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors.
(2) A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940.
(3) A trust (i) with total assets in excess of $5,000,000, (ii) not
formed for the specific purpose of acquiring the Securities, (iii) whose
purchase is directed by a person who, either alone or with his purchaser
representative, has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the proposed
investment.
(4) A corporation, business trust, partnership, or an organization
described in section 501(c)(3) of the Internal Revenue Code, which was not
formed for the specific purpose of acquiring the Securities, and which has total
assets in excess of $5,000,000.
INDIVIDUALS
(5) Individuals with income from all sources for each of the last two
full calendar years whose reasonably expected income for this calendar year
exceeds either of:
(i) $200,000 individual income; or
(ii) $300,000 joint income with spouse.
NOTE: Your "income" for a particular year may be calculated by adding to your
adjusted gross income as calculated for Federal income tax purposes any
deduction for long term capital gains, any deduction for depletion allowance,
any exclusion for tax exempt interest and any losses of a partnership allocated
to you as a partner.
(6) Individuals with net worth as of the date hereof (individually or
jointly with your spouse), including the value of home, furnishings, and
automobiles, in excess of $1,000,000.
(7) Directors, executive officers or general partners of the Issuer.
<PAGE> 1
Exhibit 4.7
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR STATE SECURITIES LAWS. NO SALE, TRANSFER OR OTHER
DISPOSITION OF THIS WARRANT OR SAID SHARES MAY BE EFFECTED WITHOUT (i)
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO UNDER APPLICABLE
STATE SECURITIES LAWS, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SUCH
LAWS IS AVAILABLE.
WARRANT NO. A-3 STOCK PURCHASE WARRANT NO. OF SHARES 121,989
- --------------- ----------------------
To Subscribe for and Purchase Common Stock of
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
THIS CERTIFIES that, for value received, CHUSA INTERNATIONAL LIMITED
(together with any subsequent transferees of all or any portion of this Warrant,
the "Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe for and purchase from INTEGRATED
TRANSPORTATION NETWORK GROUP INC., a Delaware corporation (hereinafter called
the "Company"), at the price hereinafter set forth in Section 2, up to 121,989
fully paid and non-assessable shares (the "Shares") of the Company's Common
Stock, $.01 par value per share (the "Common Stock").
1. DEFINITIONS. As used herein the following term shall have the
following meaning:
"ACT" means the Securities Act of 1933, as amended, or a successor
statute thereto and the rules and regulations of the Securities and Exchange
Commission issued under that Act, as they each may, from time to time, be in
effect.
2. PURCHASE RIGHTS. The purchase rights represented by this Warrant
shall be exercisable by the Holder in whole or in part commencing December 11,
1998. The purchase rights represented by this Warrant shall expire five (5)
years from the date hereof. This Warrant may be exercised for Shares at a price
of two United States dollars (US$2.00) per share, subject to adjustment as
provided in Section 6 (the "Warrant Purchase Price").
3. EXERCISE OF WARRANT. Subject to Section 2 above, the purchase rights
represented by this Warrant may be exercised, in whole or in part and from time
to time, by the surrender of this Warrant and the duly executed Notice of
Exercise (the form of which is attached as Exhibit A) at the principal office of
the Company and by the payment to the Company, by check, of an amount equal to
the then applicable Warrant Purchase Price per share multiplied by the number of
Shares then being purchased. Upon exercise, the Holder shall be entitled to
receive, within a reasonable time, a certificate or certificates, issued in the
Holder's name or in such name or names as the Holder may direct, for the number
of Shares so purchased. The Shares so purchased shall be deemed to be issued as
of the close of business on the date on which this Warrant shall have been
exercised.
4. SHARES TO BE ISSUED; RESERVATION OF SHARES. The Company covenants
that the Shares that may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon issuance in accordance herewith, be fully
paid and non-assessable, and free from all liens and
<PAGE> 2
charges with respect to the issue thereof. During the period within
which the purchase rights represented by the Warrant may be exercised, the
Company will at all times have authorized and reserved, for the purpose of
issuance upon exercise of the purchase rights represented by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the right represented by this Warrant.
5. NO FRACTIONAL SHARES. No fractional shares shall be issued upon the
exercise of this Warrant. In lieu thereof, a cash payment shall be made equal to
such fraction multiplied by the fair market value of such shares of Common
Stock, as determined in good faith by the Company's Board of Directors.
6. ADJUSTMENTS OF WARRANT PURCHASE PRICE AND NUMBER OF SHARES. If there
shall be any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split or
other change in the corporate structure of the Company, appropriate adjustments
shall be made by the Board of Directors of the Company (or if the Company is not
the surviving corporation in any such transaction, the Board of Directors of the
surviving corporation) in the aggregate number and kind of shares subject to
this Warrant, and the number and kind of shares and the price per share then
applicable to shares covered by the unexercised portion of this Warrant.
7. NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle the Holder
to any voting rights or other rights as a shareholder of the Company prior to
exercise of this Warrant and the payment for the Shares so purchased.
Notwithstanding the foregoing, the Company agrees to transmit to the Holder such
information, documents and reports as are generally distributed to holders of
the capital stock of the Company concurrently with the distribution thereof to
the shareholders. Upon valid exercise of this Warrant and payment for the Shares
so purchased in accordance with the terms of the Warrant, the Holder or the
Holder's designee, as the case may be, shall be deemed a shareholder of the
Company.
8. SALE OR TRANSFER OF THE WARRANT AND THE SHARES; LEGEND. The Warrant
and the Shares shall not be sold or transferred unless either (i) they first
shall have been registered under applicable State Securities laws, or (ii) such
sale or transfer is exempt from the registration requirements of such laws. Each
certificate representing any Warrant shall bear the legend set out on page 1
hereof. Each certificate representing any Shares shall bear a legend
substantially in the following form, as appropriate:
THE SHARES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO UNDER APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO
AN EXEMPTION UNDER APPLICABLE STATE SECURITIES LAWS.
The Warrant and Shares may be subject to additional restrictions on
transfer imposed under applicable state and federal securities law.
-2-
<PAGE> 3
9. MODIFICATIONS AND WAIVERS. This Warrant may not be changed, waived,
discharged or terminated except by an instrument in writing signed by the party
against which enforcement of the same is sought.
10. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder or the Company shall be
delivered, or shall be sent by certified or registered mail, postage prepaid, to
the Holder at its address shown on the books of the Company or in the case of
the Company, at the address indicated therefor on the signature page of this
Warrant, or, if different, at the principal office of the Company.
11. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants with the Holder that upon its receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant or any stock certificate and, in the case of any such loss, theft
or destruction, of an indemnity or security reasonably satisfactory to it, and
upon reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of this Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock certificate,
of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or
stock certificate.
12. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Shares issuable upon exercise of this Warrant
shall survive the exercise and termination of this Warrant and all of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the Holder.
13. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York.
IN WITNESS WHEREOF, INTEGRATED TRANSPORTATION NETWORK GROUP INC. has
caused this Warrant to be executed by its officer thereunto duly authorized.
ORIGINAL ISSUANCE AS OF: December 11, 1998
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
/s/ Andrew Lee
-----------------------------------------------------
By: Andrew Lee, President
Address: Integrated Transportation Network Group Inc.
205 West 39th St., 16th Floor
New York, NY 10018
-3-
<PAGE> 4
EXHIBIT A
NOTICE OF EXERCISE
To: INTEGRATED TRANSPORTATION NETWORK GROUP INC.
1. The undersigned hereby elects to purchase _________ shares of Common
Stock of INTEGRATED TRANSPORTATION NETWORK GROUP INC. pursuant to the terms of
the attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name or names as are specified
below.
3. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares. The undersigned further represents that such shares shall not be sold or
transferred unless either (1) they first shall have been registered under
applicable state securities laws or (ii) or an exemption from applicable state
registration requirements is available.
4. In the event of partial exercise, please re-issue an appropriate
Warrant exercisable into the remaining shares.
-------------------------------------
Name:
Address:
-----------------------------
-----------------------------
-----------------------------
-------------------------------------
(Signature)
-------------------------------------
(Date)
-4-
<PAGE> 1
Exhibit 4.8
December 11, 1998
Integrated Transportation Network Group Inc.
205 West 39th St., 16th Floor
New York, NY 10018
Attn: Andrew Lee, President
Ladies and Gentlemen:
The undersigned, YEUNG SHU KIN, hereby subscribes to the immediate
acquisition of 228,571 shares of Common Stock, $.01 par value ("Common Stock"),
of Integrated Transportation Network Group Inc., a Delaware corporation (the
"Company"), at a price of US$2.625 per share for aggregate consideration of
US$600,000 (such shares of Common Stock are referred to herein collectively as
the "Securities").
Upon the Company's acceptance of this subscription, the Company shall
deliver the Securities to the undersigned at the address indicated below.
In connection with the purchase of the Securities, the undersigned
acknowledges, warrants and represents to the Company as follows:
1. The undersigned is acquiring the Securities for investment for its
own account and without the intention of participating, directly or indirectly,
in a distribution of the Securities, and not with a view to resale or any
distribution of the Securities, or any portion thereof.
2. The undersigned has knowledge and experience in financial and
business matters and has consulted with its own professional representatives as
it has considered appropriate to assist in evaluating the merits and risks of
this investment. The undersigned has reviewed the Company's prospectus dated
June 29, 1998 and the Company's Quarterly Reports on Form 10Q for the quarter
ended June 30 and September 31, 1998, respectively. The undersigned has had
access to and an opportunity to question the officers of the Company, or persons
acting on their behalf, with respect to material information about the Company
and, in connection with its evaluation of this investment, has, to the best of
its knowledge, received all information and data with respect to the Company
that the undersigned has requested. The undersigned is acquiring the Securities
based solely upon its independent examination and judgment as to the prospects
of the Company.
3. The Securities were not offered to the undersigned by means of
publicly disseminated advertisements or sales literature.
4. The undersigned acknowledges that an investment in the Securities is
speculative and the undersigned may have to continue to bear the economic risk
of the investment in the Securities for an indefinite period. The undersigned
acknowledges that the Securities are being sold to the undersigned without
registration under any state, or federal or PRC law requiring the registration
of securities for sale, and accordingly will constitute
<PAGE> 2
"restricted securities" as defined in Rule 144 of the U.S. Securities and
Exchange Commission. The transferability of the Securities is therefor
restricted by applicable United States Federal and state securities laws and may
be restricted under the laws of other jurisdictions.
5. The undersigned is an "accredited investor" as such term is defined
in Appendix A.
6. In consideration of the acceptance of this subscription, the
undersigned agrees that the Securities will not be offered for sale, sold or
transferred by the undersigned other than pursuant to (i) an effective
registration under the Securities Act of 1933, as amended ("the Act"), an
exemption available under the Act or a transaction that is otherwise in
compliance with the Act; and (ii) an effective registration under the securities
law of any state or other jurisdiction applicable to the transaction, an
exemption available under such laws, or a transaction that is otherwise in
compliance with such laws.
7. The undersigned understands that no U.S. federal or state agency has
passed upon the offering of the Securities or has made any finding or
determination as to the fairness of any investment in the Securities.
8. The undersigned agrees to execute such further documents as the
Company may request in order to give effect to the cancellation of indebtedness
contemplated hereby.
9. The undersigned agrees to indemnify and hold harmless the Company
and its officers, directors, employees and agents from and against any and all
costs, liabilities and expenses (including attorneys' fees) arising out of or
related in any way to any breach of any representation or warranty contained
herein.
10. The Company agrees to use commercially reasonable efforts to file
and cause to become effective within 180 days of the date hereof a Registration
Statement under the U.S. Securities Act of 1933, as amended, covering the
Securities.
ACCEPTANCE OF SUBSCRIPTION SUBSCRIBER
Integrated Transportation Network
Group Inc.
By: /s/ Andrew Lee /s/ Yeung Shu Kin
------------------------------- ---------------------------------------
Andrew Lee, President Yeung Shu Kin
Address:
Unit 1-2, 1/F, Join In Hang Sing Centre
71-75 Container Port Road
Kwai Chung, N.T.
HONG KONG
<PAGE> 3
APPENDIX A
An "Accredited Investor" within the meaning of Regulation D under the Securities
Act of 1933 includes the following:
ORGANIZATIONS
(1) A bank as defined in section 3(a)(2) of the Act, or any savings and
loan association or other institution as defined in section 3(a)(5)(A) of the
Act, whether acting in its individual or fiduciary capacity; a broker or dealer
registered pursuant to section 15 of the Securities Exchange Act of 1934;
insurance company as defined in section 2(13) of the Act; an investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in section 2(a)(48) of that act; a Small Business Investment
Company licensed by the U.S. Small Business Administration under section 301(c)
or (d) of the Small Business Investment Act of 1958; an employee benefit plan
within the meaning of Title I of the Employee Retirement Income Security Act of
1974, if the investment decision is made by a plan fiduciary, as defined in
section 3(21) of such act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors.
(2) A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940.
(3) A trust (i) with total assets in excess of $5,000,000, (ii) not
formed for the specific purpose of acquiring the Securities, (iii) whose
purchase is directed by a person who, either alone or with his purchaser
representative, has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the proposed
investment.
(4) A corporation, business trust, partnership, or an organization
described in section 501(c)(3) of the Internal Revenue Code, which was not
formed for the specific purpose of acquiring the Securities, and which has total
assets in excess of $5,000,000.
INDIVIDUALS
(5) Individuals with income from all sources for each of the last two
full calendar years whose reasonably expected income for this calendar year
exceeds either of:
(i) $200,000 individual income; or
(ii) $300,000 joint income with spouse.
NOTE: Your "income" for a particular year may be calculated by adding to your
adjusted gross income as calculated for Federal income tax purposes any
deduction for long term capital gains, any deduction for depletion allowance,
any exclusion for tax exempt interest and any losses of a partnership allocated
to you as a partner.
(6) Individuals with net worth as of the date hereof (individually or
jointly with your spouse), including the value of home, furnishings, and
automobiles, in excess of $1,000,000.
(7) Directors, executive officers or general partners of the Issuer.
<PAGE> 1
Exhibit 4.9
December 11, 1998
Integrated Transportation Network Group Inc.
205 West 39th St., 16th Floor
New York, NY 10018
Attn: Andrew Lee, President
Ladies and Gentlemen:
The undersigned, SUREWIN INTERNATIONAL LIMITED, hereby subscribes to
the immediate acquisition of 360,000 warrants (the "Warrants") to purchase
shares of Common Stock, $.01 par value, of Integrated Transportation Network
Group Inc., a Delaware corporation (the "Company"), such warrants to have an
exercise price of US$2.00 per share and a term of five (5) years. The Warrant
and the underlying shares of common stock are referred to herein together as the
"Securities." The undersigned hereby also acknowledges receipt of $60,000 in
cash from the Company (the "Finder's Fee"). The undersigned further acknowledges
that the Finder's Fee and the Securities represent payment in full of the
Company's obligations to the undersigned in connection with the purchase by
Fortune Resources Holdings Ltd. on the date hereof of 228,571 shares of the
Company's common stock for aggregate consideration of US$600,000.
Upon the Company's acceptance of this subscription, the Company shall
deliver the Securities to the undersigned at the address indicated below.
In connection with the purchase of the Securities, the undersigned
acknowledges, warrants and represents to the Company as follows:
1. The undersigned is acquiring the Securities for investment for its
own account and without the intention of participating, directly or indirectly,
in a distribution of the Securities, and not with a view to resale or any
distribution of the Securities, or any portion thereof.
2. The undersigned has knowledge and experience in financial and
business matters and has consulted with its own professional representatives as
it has considered appropriate to assist in evaluating the merits and risks of
this investment. The undersigned has reviewed the Company's prospectus dated
June 29, 1998 and the Company's Quarterly Reports on Form 10Q for the quarter
ended June 30 and September 31, 1998, respectively. The undersigned has had
access to and an opportunity to question the officers of the Company, or persons
acting on their behalf, with respect to material information about the Company
and, in connection with its evaluation of this investment, has, to the best of
its knowledge, received all information and data with respect to the Company
that the undersigned has requested. The undersigned is acquiring the Securities
based solely upon its independent examination and judgment as to the prospects
of the Company.
3. The Securities were not offered to the undersigned by means of
publicly disseminated advertisements or sales literature.
4. The undersigned acknowledges that an investment in the Securities is
speculative and the undersigned may have to continue to bear the economic risk
of the investment in the Securities for an indefinite period. The undersigned
acknowledges that the Securities are being sold to the undersigned without
registration under any state, or federal or PRC law requiring the
<PAGE> 2
registration of securities for sale, and accordingly will constitute
"restricted securities" as defined in Rule 144 of the U.S. Securities and
Exchange Commission. The transferability of the Securities is therefor
restricted by applicable United States Federal and state securities laws and may
be restricted under the laws of other jurisdictions.
5. The undersigned is an "accredited investor" as such term is defined
in Appendix A.
6. In consideration of the acceptance of this subscription, the
undersigned agrees that the Securities will not be offered for sale, sold or
transferred by the undersigned other than pursuant to (i) an effective
registration under the Securities Act of 1933, as amended ("the Act"), an
exemption available under the Act or a transaction that is otherwise in
compliance with the Act; and (ii) an effective registration under the securities
law of any state or other jurisdiction applicable to the transaction, an
exemption available under such laws, or a transaction that is otherwise in
compliance with such laws.
7. The undersigned understands that no U.S. federal or state agency has
passed upon the offering of the Securities or has made any finding or
determination as to the fairness of any investment in the Securities.
8. The undersigned agrees to execute such further documents as the
Company may request in order to give effect to the cancellation of indebtedness
contemplated hereby.
9. The undersigned agrees to indemnify and hold harmless the Company
and its officers, directors, employees and agents from and against any and all
costs, liabilities and expenses (including attorneys' fees) arising out of or
related in any way to any breach of any representation or warranty contained
herein.
10. The Company agrees to use commercially reasonable efforts to file
and cause to become effective within 180 days of the date hereof a Registration
Statement under the U.S. Securities Act of 1933, as amended, covering the shares
of the Company's common stock underlying the Warrants.
ACCEPTANCE OF SUBSCRIPTION SUBSCRIBER
Integrated Transportation Network
Group Inc. Surewin International Limited
By: /s/ Andrew Lee By: /s/ Robert Jeung
-------------------------------- ------------------------------
Andrew Lee, President Name:
Title:
Address:
Surewin International Limited
c/o Ms. Alice N. Roberts
P.O. Box 2176
60 Nevis Street
St. John's, Antigua - West Indies
<PAGE> 3
APPENDIX A
An "Accredited Investor" within the meaning of Regulation D under the Securities
Act of 1933 includes the following:
ORGANIZATIONS
(1) A bank as defined in section 3(a)(2) of the Act, or any savings and
loan association or other institution as defined in section 3(a)(5)(A) of the
Act, whether acting in its individual or fiduciary capacity; a broker or dealer
registered pursuant to section 15 of the Securities Exchange Act of 1934;
insurance company as defined in section 2(13) of the Act; an investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in section 2(a)(48) of that act; a Small Business Investment
Company licensed by the U.S. Small Business Administration under section 301(c)
or (d) of the Small Business Investment Act of 1958; an employee benefit plan
within the meaning of Title I of the Employee Retirement Income Security Act of
1974, if the investment decision is made by a plan fiduciary, as defined in
section 3(21) of such act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors.
(2) A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940.
(3) A trust (i) with total assets in excess of $5,000,000, (ii) not
formed for the specific purpose of acquiring the Securities, (iii) whose
purchase is directed by a person who, either alone or with his purchaser
representative, has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the proposed
investment.
(4) A corporation, business trust, partnership, or an organization
described in section 501(c)(3) of the Internal Revenue Code, which was not
formed for the specific purpose of acquiring the Securities, and which has total
assets in excess of $5,000,000.
INDIVIDUALS
(5) Individuals with income from all sources for each of the last two
full calendar years whose reasonably expected income for this calendar year
exceeds either of:
(i) $200,000 individual income; or
(ii) $300,000 joint income with spouse.
NOTE: Your "income" for a particular year may be calculated by adding to your
adjusted gross income as calculated for Federal income tax purposes any
deduction for long term capital gains, any deduction for depletion allowance,
any exclusion for tax exempt interest and any losses of a partnership allocated
to you as a partner.
(6) Individuals with net worth as of the date hereof (individually or
jointly with your spouse), including the value of home, furnishings, and
automobiles, in excess of $1,000,000.
(7) Directors, executive officers or general partners of the Issuer.
<PAGE> 1
Exhibit 4.10
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR STATE SECURITIES LAWS. NO SALE, TRANSFER OR OTHER
DISPOSITION OF THIS WARRANT OR SAID SHARES MAY BE EFFECTED WITHOUT (i)
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO UNDER APPLICABLE
STATE SECURITIES LAWS, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SUCH
LAWS IS AVAILABLE.
WARRANT NO. B-1 STOCK PURCHASE WARRANT NO. OF SHARES 360,000
- --------------- ---------------------
To Subscribe for and Purchase Common Stock of
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
THIS CERTIFIES that, for value received, SUREWIN INTERNATIONAL LIMITED
(together with any subsequent transferees of all or any portion of this Warrant,
the "Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe for and purchase from INTEGRATED
TRANSPORTATION NETWORK GROUP INC., a Delaware corporation (hereinafter called
the "Company"), at the price hereinafter set forth in Section 2, up to 360,000
fully paid and non-assessable shares (the "Shares") of the Company's Common
Stock, $.01 par value per share (the "Common Stock").
1. DEFINITIONS. As used herein the following term shall have the
following meaning:
"ACT" means the Securities Act of 1933, as amended, or a successor
statute thereto and the rules and regulations of the Securities and Exchange
Commission issued under that Act, as they each may, from time to time, be in
effect.
2. PURCHASE RIGHTS. The purchase rights represented by this Warrant
shall be exercisable by the Holder in whole or in part commencing December 11,
1998. The purchase rights represented by this Warrant shall expire five (5)
years from the date hereof. This Warrant may be exercised for Shares at a price
of two United States dollars (US$2.00) per share, subject to adjustment as
provided in Section 6 (the "Warrant Purchase Price").
3. EXERCISE OF WARRANT. Subject to Section 2 above, the purchase rights
represented by this Warrant may be exercised, in whole or in part and from time
to time, by the surrender of this Warrant and the duly executed Notice of
Exercise (the form of which is attached as Exhibit A) at the principal office of
the Company and by the payment to the Company, by check, of an amount equal to
the then applicable Warrant Purchase Price per share multiplied by the number of
Shares then being purchased. Upon exercise, the Holder shall be entitled to
receive, within a reasonable time, a certificate or certificates, issued in the
Holder's name or in such name or names as the Holder may direct, for the number
of Shares so purchased. The Shares so purchased shall be deemed to be issued as
of the close of business on the date on which this Warrant shall have been
exercised.
4. SHARES TO BE ISSUED; RESERVATION OF SHARES. The Company covenants
that the Shares that may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon issuance in accordance herewith, be fully
paid and non-assessable, and free from all liens and
<PAGE> 2
charges with respect to the issue thereof. During the period within which
the purchase rights represented by the Warrant may be exercised, the
Company will at all times have authorized and reserved, for the purpose of
issuance upon exercise of the purchase rights represented by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the right represented by this Warrant.
5. NO FRACTIONAL SHARES. No fractional shares shall be issued upon the
exercise of this Warrant. In lieu thereof, a cash payment shall be made equal to
such fraction multiplied by the fair market value of such shares of Common
Stock, as determined in good faith by the Company's Board of Directors.
6. ADJUSTMENTS OF WARRANT PURCHASE PRICE AND NUMBER OF SHARES. If there
shall be any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split or
other change in the corporate structure of the Company, appropriate adjustments
shall be made by the Board of Directors of the Company (or if the Company is not
the surviving corporation in any such transaction, the Board of Directors of the
surviving corporation) in the aggregate number and kind of shares subject to
this Warrant, and the number and kind of shares and the price per share then
applicable to shares covered by the unexercised portion of this Warrant.
7. NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle the Holder
to any voting rights or other rights as a shareholder of the Company prior to
exercise of this Warrant and the payment for the Shares so purchased.
Notwithstanding the foregoing, the Company agrees to transmit to the Holder such
information, documents and reports as are generally distributed to holders of
the capital stock of the Company concurrently with the distribution thereof to
the shareholders. Upon valid exercise of this Warrant and payment for the Shares
so purchased in accordance with the terms of the Warrant, the Holder or the
Holder's designee, as the case may be, shall be deemed a shareholder of the
Company.
8. SALE OR TRANSFER OF THE WARRANT AND THE SHARES; LEGEND. The Warrant
and the Shares shall not be sold or transferred unless either (i) they first
shall have been registered under applicable State Securities laws, or (ii) such
sale or transfer is exempt from the registration requirements of such laws. Each
certificate representing any Warrant shall bear the legend set out on page 1
hereof. Each certificate representing any Shares shall bear a legend
substantially in the following form, as appropriate:
THE SHARES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO UNDER APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO
AN EXEMPTION UNDER APPLICABLE STATE SECURITIES LAWS.
The Warrant and Shares may be subject to additional restrictions on
transfer imposed under applicable state and federal securities law.
-2-
<PAGE> 3
9. MODIFICATIONS AND WAIVERS. This Warrant may not be changed, waived,
discharged or terminated except by an instrument in writing signed by the party
against which enforcement of the same is sought.
10. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder or the Company shall be
delivered, or shall be sent by certified or registered mail, postage prepaid, to
the Holder at its address shown on the books of the Company or in the case of
the Company, at the address indicated therefor on the signature page of this
Warrant, or, if different, at the principal office of the Company.
11. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants with the Holder that upon its receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant or any stock certificate and, in the case of any such loss, theft
or destruction, of an indemnity or security reasonably satisfactory to it, and
upon reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of this Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock certificate,
of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or
stock certificate.
12. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Shares issuable upon exercise of this Warrant
shall survive the exercise and termination of this Warrant and all of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the Holder.
13. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York.
IN WITNESS WHEREOF, INTEGRATED TRANSPORTATION NETWORK GROUP INC. has
caused this Warrant to be executed by its officer thereunto duly authorized.
ORIGINAL ISSUANCE AS OF: December 11, 1998
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
/s/ Andrew Lee
-----------------------------------------------------
By: Andrew Lee, President
Address: Integrated Transportation Network Group Inc.
205 West 39th St., 16th Floor
New York, NY 10018
-3-
<PAGE> 4
EXHIBIT A
NOTICE OF EXERCISE
To: INTEGRATED TRANSPORTATION NETWORK GROUP INC.
1. The undersigned hereby elects to purchase _________ shares of Common
Stock of INTEGRATED TRANSPORTATION NETWORK GROUP INC. pursuant to the terms of
the attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name or names as are specified
below.
3. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares. The undersigned further represents that such shares shall not be sold or
transferred unless either (1) they first shall have been registered under
applicable state securities laws or (ii) or an exemption from applicable state
registration requirements is available.
4. In the event of partial exercise, please re-issue an appropriate
Warrant exercisable into the remaining shares.
-----------------------------------
Name:
Address:
---------------------------
---------------------------
---------------------------
-----------------------------------
(Signature)
-----------------------------------
(Date)
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<PAGE> 1
Exhibit 4.11
SUBSCRIPTION AGREEMENT
dated as of
December 17, 1998
ARTICLE I
SUBSCRIPTION
THIS SUBSCRIPTION AGREEMENT dated as of December 17, 1998. between Kwok
Kee Billy Yung (the "Subscriber") and Integrated Transportation Network Group,
Inc., a Delaware corporation (the "Company").
Section 1.01 SUBSCRIPTION. The Subscriber hereby subscribes to the
immediate acquisition of 275,000 shares (the "Shares") of Common Stock, $0.1 par
value ("Common Stock") of the Company. Such shares of Common Stock are referred
to herein as the "Securities." The Securities are being issued to the Subscriber
in full and complete satisfaction of the indebtedness of the Company' s 92%
owned subsidiary, Shenzhen Jinzhenghua Transport Industrial Development Co. Ltd.
("Transport"), a company organized under the laws of the People's Republic of
China ("PRC") to the Subscriber in the amount of US$481,250 (the "Indebtedness")
as described in the letter dated December 17, 1998 from Mr. Wu Zhi Jian to the
Subscriber.
Promptly upon the execution hereof. the Company shall deliver the
Securities to the undersigned at the address indicated below and upon such
delivery the Indebtedness shall be cancelled.
ARTICLE II
PRESENTATIONS AND WARRANTIES
Section 2.01 In connection with the purchase of the Securities the
Subscriber acknowledges, warrants and represents to the Company as follows:
(a) The is acquiring the Securities for investment for his own account
and without the intention of participating, directly or indirectly, in a
distribution of the Securities, and not with a view to resale or any
distribution of the Securities, or any portion thereof.
(b) He has knowledge and experience in financial ,and business matters
and has consulted with his own professional representatives as he has considered
appropriate to assist in evaluating the merits and risks of this investment. He
has reviewed the Company's Registration Statement on Form S-I dated June 29.
1998 and the Company's Quarterly Reports on Form 10 Q for the quarter ended June
30 and September 30. 1998. respectively. He has had access to and an opportunity
to question the officers of the Company, or persons acting on their behalf; with
respect to material information about the Company and in connection with his
evaluation of this investment has to the best of his knowledge, received all
information and data with respect to the
<PAGE> 2
Company that he has requested. He is acquiring the Securities based solely
upon his independent examination and judgment as to the prospects of the
Company.
(c) The Securities were not offered to the Subscriber by memos of
publicly disseminated advertisements or sales literature.
(d) Subject to the provisions of Section 3.01, he acknowledges that an
investment in the Securities is speculative and he may have to continue to bear
the economic risk of the investment in the Securities for an indefinite period.
He acknowledges that the Securities are being sold to the undersigned without
registration under any state or federal or PRC law requiting the registration of
securities for sale and accordingly will constitute "restricted securities" as
defined in Rule 144 of the U.S. Securities and Exchange Commission. The
transferability of the Securities is therefore restricted by applicable United
States Federal and state securities laws and may be restricted under the laws of
other jurisdictions.
(e) The Subscriber is an "accredited investor" as such term is defined
in Appendix A.
(f) In consideration of the acceptance of this subscription, the
Subscriber agrees that the Securities will not be offered for sale, sold or
transferred by the undersigned other than pursuant to (i) an effective
registration under the Securities Act of 1933, as amended (the "Act"), an
exemption available under the Act or a transaction that is otherwise in
compliance with the Act: and (ii) an effective registration under the securities
law of any state or other jurisdiction applicable to the transaction an
exemption available under such laws. or a transaction that is otherwise in
compliance with such laws.
(g) He understands that no U.S. federal or state agency has passed upon
the offering of the Securities or has made any finding or determination as to
the fairness of any investment in the Securities.
(h) He agrees to execute such further documents as the Company may
request in order to give effect to the cancellation of indebtedness contemplated
hereby.
Section 2.02 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As an
inducement to the Subscriber to enter into this Agreement and to consummate the
transactions contemplated herein. the Company hereby represents and warrants to
the Subscriber and agrees as follows:
(a) ORGANIZATION AUTHORITY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
has full power and authority to enter into this Agreement and to perform its
obligations hereunder. This Agreement constitutes, and any other agreements and
instruments required to be delivered by the Company hereunder when duly executed
and delivered by the Company, will constitute valid and binding obligations of
the Company and will be enforceable in accordance with their respective terms.
The Company has previously provided to the Subscriber true copies of all
resolutions of the Company's Board of Directors necessary to authorize the
transactions described herein, and all such resolutions are in full force and
effect and have not been revoked.
-2-
<PAGE> 3
(b) CAPITALIZATION. As of December 10 1998 the authorized
share capital office Company consists of 50,000,000 common shares par value
US$.01 per share, of which 7,397,108 are fully issued and remain outstanding,
and 5,000,000 preferred shares, par value US$.01 per share none of which are
issued and outstanding. Except as set forth above and as set forth in Appendix B
no other shares or equity securities of the Company have been issued and remain
outstanding and there are no outstanding options, warrants or other rights to
purchase or acquire any share capital of the Company, whether granted by the
Company or otherwise, and there are no existing contracts by which the Company
is or may become bound to issue any additional shares. The Company has never
reduced, repaid, redeemed or purchased any of its share capital. The Securities
shall upon issuance shall be fully paid and non-assessable.
(c) NO CONSENTS. Neither the consummation of the transactions
contemplated hereby, nor compliance with nor fulfillment of the terms and
provisions hereof will (i) require the consent of any governmental authority or
any person under any contract to which the Company is a party or to which the
Company is subject or (ii) give any party with rights under any material
contract to which the Company or any subsidiary of the Company is a party the
right to terminate, modify or otherwise change the material rights or
obligations of any party under such contract.
(d) COMPLIANCE WITH LAWS. The Company is in compliance and
there exists no alleged material noncompliance with all applicable laws relating
in any material respect to the Company and the operation or conduct of its
business. except where the failure to so comply would not have a material
adverse effect on the Company and except as previously disclosed in the
Prospectus of the Company dated June 29, 1998 or the quarterly reports of the
Company filed with the SEC on Form 10-Q for the three-month periods ending June
30, 1998 and September 30, 1998 the Company has not received any notice of
alleged violation of any such applicable law.
ARTICLE Ill
MISCELLANEOUS
Section 3.01 MISCELLANEOUS. The Company agrees that it shall file with
the United States Securities and Exchange Commission (the "SEC") a registration
statement under the U.S. Securities Act of 1933 (the "Securities Act") in
accordance with Rule 415 thereof (the "Shelf Registration") with respect to all
of the Securities, and shall use its best efforts to cause such registration
statement to become effective within 180 days after the date hereof and to
remain effective at all times for a period of two years after the date hereof..
In addition, if the Company at any time files a Registration Statement under the
Securities Act with respect to its Common Stock after the date hereof, the
Company shall so notify the undersigned and shall include such of the Securities
as the Subscriber may request on such Registration Statement.
Section 3.02 COUNTERPARTS. This Agreement may be executed in one or
more. counterparts, and by the different parties hereto in separate
counterparts, each of which when
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<PAGE> 4
executed shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
Section 3.03 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, applicable to
contracts executed in and to be performed entirely within that state. All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any New York state or federal court sitting in the City
of New York and. to the extent permitted by law, the parties hereto expressly
consent to the jurisdiction of such courts, agree to venue in such courts and
hereby, waive any defense or claim of forum non conveniens they may have with
respect to any such action or proceeding.
IN WITNESS WHEREOF, the Financier and the Company have executed this
Agreement or caused this Agreement to be executed as of the date first written
above.
COMPANY SUBSCRIBER
Integrated Transportation
Network Group Inc. /s/ Kwok Kee Billy Young
--------------------------------------
Name: Kwok Kee Billy Young
By: /s/ Andrew Lee Address: 1/F Shell Industrial Building
-------------------------------- 12 Lee Chung Street, Chai Wan
Andrew Lee, President Hong Kong, PRC
205 West 39th Street
16th Floor
New York, NY 10018
U.S.A.
-4-
<PAGE> 5
APPENDIX A
An "accredited Investor" within the meaning of Regulation D under the
Securities Act of 1933 includes the following:
ORGANIZATIONS
(1) A bank as defined in Section 3(a)(2) of the Act, or any savings and
loan association or other institution as defined in Section 3(a)5)(A) of the
Act, whether acting in its individual or fiduciary capacity, a broker or dealer
registered pursuant to Section 15 of the Securities Exchange Act of 1934;
insurance company as defined in Section 2(13) of the Act, an investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of that act a Small Business Investment
Company licensed by the U.S. Small Business Administration under Section 301(c)
or (d)of the Small Business Investment Act of 1958: an employee benefit plan
within the meaning of Title I of the Employee Retirement Income Securities Act
of 1974. if the investment decision is made by a plan fiduciary. as defined in
Section 3( 21 ) of such act, which is either a bank, savings and loan
association. insurance company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of $5,000.000 or, if a
self-directed plan, with investment decisions made solely by persons that are
accredited investors.
(2) A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940.
(3) A trust (i) with total assets in excess of $5,000,000, (it) not
formed for the specific purpose of acquiring the Securities, (iii) whose
purchase is directed by a person who. either alone or with his purchase
representative, has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the proposed
investment.
(4) A corporation,. business trust,. partnership, or an organization
described in Section 50 1(c)(3) of the Internal Revenue Code, which was not
formed for the specific purpose of acquiring the Securities, and which has total
assets in excess of $5,000.000.
INDIVIDUALS
(5) Individuals with income from all sources for each of the last two
full calendar years whose reasonably expected income for this calendar year
exceeds either of:
(i) $200,000 individual income: or
(ii) $300.000 joint income with spouse.
NOTE: Your "income" for a particular year may be calculated by adding to your
adjusted gross income as calculated for Federal income tax purposes any
deduction for long term capital gains, any deduction the deduction allowance,
any exclusion for tax exempt interest and any losses of a partnership allocated
to you as a partner.
-5-
<PAGE> 6
(6) Individuals with net worth as of the date hereof (individually or
jointly with your spouse), including the value of home, furnishings, and
automobiles, in excess of $l,000,000.
(7) Directors, executive officers or general partners of the Issuer.
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<PAGE> 7
APPENDIX B
1. The Company has agreed to issue the following securities, in
connection with the cancellation of an aggregate of US$3.9 million in
indebtedness of the Company' s subsidiary, Shenzhen Jinzhenghua Transport
Industrial Development Co., Ltd.: (A) an aggregate of 2,228,571 shares of Common
Stock at a price of not less than US$1.75 per share; and (B) Warrants to
purchase an aggregate of 334.286 shares of Common Stock at an exercise price of
US$2.00 per share.
2. The Company has sold (subject to issuance) US$600.000 in principal
amount of 3% Convertible Debentures, with a fixed conversion price of
US$7552.625 per share of Common Stock. and has agreed to issue Warrants to
purchase up to 360.000 shares of Common Stock at an exercise price of US$1.75
per share.
3. The Company is negotiating to sell US$500,000 in principal amount of
30% Convertible Debentures, at a conversion price equal to the lesser of 150% of
the market price on the closing date and 70% of the market price on the
conversion date. The sale would also involve the issuance of warrants to
purchase 300,000 shares of Common Stock at an exercise price equal to the market
price on the closing date.
-7-
<PAGE> 1
Exhibit 4.12
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR STATE SECURITIES LAWS. NO SALE, TRANSFER OR OTHER
DISPOSITION OF THIS WARRANT OR SAID SHARES MAY BE EFFECTED WITHOUT (i)
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO UNDER APPLICABLE
STATE SECURITIES LAWS, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SUCH
LAWS IS AVAILABLE.
Warrant No. C-1 STOCK PURCHASE WARRANT No. of Shares 500,000
- --------------- ---------------------
To Subscribe for and Purchase Common Stock of
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
THIS CERTIFIES that, for value received, KWOK KEE BILLY YUNG (together
with any subsequent transferees of all or any portion of this Warrant, the
"Holder"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, to subscribe for and purchase from INTEGRATED TRANSPORTATION NETWORK
GROUP INC., a Delaware corporation (hereinafter called the "Company"), at the
price hereinafter set forth in Section 2, up to 500,000 fully paid and
non-assessable shares (the "Shares") of the Company's Common Stock, $.01 par
value per share (the "Common Stock").
1. DEFINITIONS. As used herein the following term shall have the
following meaning:
"Act" means the Securities Act of 1933, as amended, or a successor
statute thereto and the rules and regulations of the Securities and Exchange
Commission issued under that Act, as they each may, from time to time, be in
effect.
2. PURCHASE RIGHTS. The purchase rights represented by this Warrant
shall be exercisable by the Holder in whole or in part commencing on the date
hereof. The purchase rights represented by this Warrant shall expire five (5)
years from the date hereof. This Warrant may be exercised for Shares at a price
of two United States dollars (US$2.00) per share, subject to adjustment as
provided in Section 6 (the "Warrant Purchase Price").
3. EXERCISE OF WARRANT. Subject to Section 2 above, the purchase rights
represented by this Warrant may be exercised, in whole or in part and from time
to time, by the surrender of this Warrant and the duly executed Notice of
Exercise (the form of which is attached as Exhibit A) at the principal office of
the Company and by the payment to the Company, by check, of an amount equal to
the then applicable Warrant Purchase Price per share multiplied by the number of
Shares then being purchased. Upon exercise, the Holder shall be entitled to
receive, within a reasonable time, a certificate or certificates, issued in the
Holder's name or in such name or names as the Holder may direct, for the number
of Shares so purchased. The Shares so purchased shall be deemed to be issued as
of the close of business on the date on which this Warrant shall have been
exercised.
4. SHARES TO BE ISSUED; RESERVATION OF SHARES. The Company covenants
that the Shares that may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon issuance in accordance herewith, be fully
paid and non-assessable, and free from all liens and
<PAGE> 2
charges with respect to the issue thereof. During the period within which
the purchase rights represented by the Warrant may be exercised, the
Company will at all times have authorized and reserved, for the purpose of
issuance upon exercise of the purchase rights represented by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the right represented by this Warrant.
5. NO FRACTIONAL SHARES. No fractional shares shall be issued upon the
exercise of this Warrant. In lieu thereof, a cash payment shall be made equal to
such fraction multiplied by the fair market value of such shares of Common
Stock, as determined in good faith by the Company's Board of Directors.
6. ADJUSTMENTS OF WARRANT PURCHASE PRICE AND NUMBER OF SHARES. If there
shall be any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split or
other change in the corporate structure of the Company, appropriate adjustments
shall be made by the Board of Directors of the Company (or if the Company is not
the surviving corporation in any such transaction, the Board of Directors of the
surviving corporation) in the aggregate number and kind of shares subject to
this Warrant, and the number and kind of shares and the price per share then
applicable to shares covered by the unexercised portion of this Warrant.
7. NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle the Holder
to any voting rights or other rights as a shareholder of the Company prior to
exercise of this Warrant and the payment for the Shares so purchased.
Notwithstanding the foregoing, the Company agrees to transmit to the Holder such
information, documents and reports as are generally distributed to holders of
the capital stock of the Company concurrently with the distribution thereof to
the shareholders. Upon valid exercise of this Warrant and payment for the Shares
so purchased in accordance with the terms of the Warrant, the Holder or the
Holder's designee, as the case may be, shall be deemed a shareholder of the
Company.
8. SALE OR TRANSFER OF THE WARRANT AND THE SHARES; LEGEND. The Warrant
and the Shares shall not be sold or transferred unless either (i) they first
shall have been registered under applicable State Securities laws, or (ii) such
sale or transfer is exempt from the registration requirements of such laws. Each
certificate representing any Warrant shall bear the legend set out on page 1
hereof. Each certificate representing any Shares shall bear a legend
substantially in the following form, as appropriate:
THE SHARES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO UNDER APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO
AN EXEMPTION UNDER APPLICABLE STATE SECURITIES LAWS.
The Warrant and Shares may be subject to additional restrictions on
transfer imposed under applicable state and federal securities law.
-2-
<PAGE> 3
9. MODIFICATIONS AND WAIVERS. This Warrant may not be changed, waived,
discharged or terminated except by an instrument in writing signed by the party
against which enforcement of the same is sought.
10. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder or the Company shall be
delivered, or shall be sent by certified or registered mail, postage prepaid, to
the Holder at its address shown on the books of the Company or in the case of
the Company, at the address indicated therefor on the signature page of this
Warrant, or, if different, at the principal office of the Company.
11. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants with the Holder that upon its receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant or any stock certificate and, in the case of any such loss, theft
or destruction, of an indemnity or security reasonably satisfactory to it, and
upon reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of this Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock certificate,
of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or
stock certificate.
12. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Shares issuable upon exercise of this Warrant
shall survive the exercise and termination of this Warrant and all of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the Holder.
13. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York.
IN WITNESS WHEREOF, INTEGRATED TRANSPORTATION NETWORK GROUP INC. has
caused this Warrant to be executed by its officer thereunto duly authorized.
ORIGINAL ISSUANCE AS OF: December 23, 1998
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
/s/ Andrew Lee
-----------------------------------------------------
By: Andrew Lee, President
Address: Integrated Transportation Network Group Inc.
205 West 39th St., 16th Floor
New York, NY 10018
-3-
<PAGE> 4
EXHIBIT A
NOTICE OF EXERCISE
To: INTEGRATED TRANSPORTATION NETWORK GROUP INC.
1. The undersigned hereby elects to purchase _________ shares of Common
Stock of INTEGRATED TRANSPORTATION NETWORK GROUP INC. pursuant to the terms of
the attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name or names as are specified
below.
3. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares. The undersigned further represents that such shares shall not be sold or
transferred unless either (1) they first shall have been registered under
applicable state securities laws or (ii) or an exemption from applicable state
registration requirements is available.
4. In the event of partial exercise, please re-issue an appropriate
Warrant exercisable into the remaining shares.
-----------------------------------
Name:
Address:
---------------------------
---------------------------
---------------------------
-----------------------------------
(Signature)
-----------------------------------
(Date)
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<PAGE> 1
Exhibit 4.13
SUBSCRIPTION AGREEMENT
dated as of
December 23, 1998
ARTICLE I
SUBSCRIPTION
THIS SUBSCRIPTION AGREEMENT is dated as of December 23, 1998, between
Kwok Kee Billy Yung (the "Subscriber") and Integrated Transportation Network
Group, Inc., a Delaware corporation (the "Company").
Section 1.01 SUBSCRIPTION. The Subscriber hereby subscribes to the
immediate acquisition of (i) 380,952 shares (the "Shares") of Common Stock, $0.1
par value ("Common Stock") of the Company, and (ii) Warrants to purchase an
additional 500,000 shares of Common Stock, which shall be exercisable
immediately at a price of US$2.00 per share and shall have a term of five years.
Such Common Stock and Warrants are referred to herein as the "Securities".
Promptly upon the execution hereof and receipt by the Company of US$
one million dollars (US $1,000,000), the Company shall deliver the Securities to
the undersigned at the address indicated below.
ARTICLE II
PRESENTATIONS AND WARRANTIES
Section 2.01 In connection with the purchase of the Securities, the
Subscriber acknowledges, warrants and represents to the Company as follows:
(a) He is acquiring the Securities for investment for his own account
and without the intention of participating, directly or indirectly, in a
distribution of the Securities, and not with a view to resale or any
distribution of the Securities, or any portion thereof.
(b) He has knowledge and experience in financial and business matters
and has consulted with his own professional representatives as he has considered
appropriate to assist in evaluating the merits and risks of this investment. He
has reviewed the Company's Registration Statement on Form S-1 dated June 29,
1998 and the Company's Quarterly Reports on Form 10Q for the quarter ended June
30 and September 30, 1998, respectively. He has had access to and an opportunity
to question the officers of the Company, or persons acting on their behalf, with
respect to material information about the Company and, in connection with his
evaluation of this
1
<PAGE> 2
investment, has, to the best of his knowledge, received all information and
data with respect to the Company that he has requested. He is acquiring the
Securities based solely upon his independent examination and judgment as to the
prospects of the Company.
(c) The Securities were not offered to the Subscriber by means of
publicly disseminated advertisements or sales literature.
(d) Subject to the provisions of Section 3.01, he acknowledges that an
investment in the Securities is speculative and he may have to continue to bear
the economic risk of the investment in the Securities for an indefinite period.
He acknowledges that the Securities are being sold to the undersigned without
registration under any state, or federal or PRC law requiring the registration
of securities for sale, and accordingly will constitute "restricted securities"
as defined in Rule 144 of the U.S. Securities and Exchange Commission. The
transferability of the Securities is therefore restricted by applicable United
States Federal and state securities laws and may be restricted under the laws of
other jurisdictions.
(e) The Subscriber is an "accredited investor" as such term is defined
in Appendix A.
(f) In consideration of the acceptance of this subscription, the
Subscriber agrees that the Securities will not be offered for sale, sold or
transferred by the undersigned other than pursuant to (i) an effective
registration under the Securities Act of 1933, as amended (the "Act"), an
exemption available under the Act or a transaction that is otherwise in
compliance with the Act; and (ii) an effective registration under the securities
law of any state or other jurisdiction applicable to the transaction, an
exemption available under such laws, or a transaction that is otherwise in
compliance with such laws.
(g) He understands that no U.S. federal or state agency has passed upon
the offering of the Securities or has made any finding or determination as to
the fairness of any investment in the Securities.
Section 2.02 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As an
inducement to the Subscriber to enter into this Agreement and to consummate the
transactions contemplated herein, the Company hereby represents and warrants to
the Subscriber and agrees as follows:
(a) ORGANIZATION; AUTHORITY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
has full power and authority to enter into this Agreement and to perform its
obligations hereunder. This Agreement constitutes, and any other agreements and
instruments required to be delivered by the Company hereunder, when duly
executed and delivered by the Company, will constitute, valid and binding
obligations of the Company and will be enforceable in accordance with their
respective terms. The Company has previously
2
<PAGE> 3
provided to the Subscriber true copies of all resolutions of
the Company's Board of Directors necessary to authorize the transactions
described herein, and all such resolutions are in full force and effect and have
not been revoked.
(b) CAPITALIZATION. As of December 10, 1998, the authorized
share capital of the Company consists of 50,000,000 common shares, par value
US$.01 per share, of which 9,854,250 are fully issued and remain outstanding,
and 5,000,000 preferred shares, par value US$.01 per share, none of which are
issued and outstanding. Except as set forth above and as set forth in Appendix
B, no other shares or equity securities of the Company have been issued and
remain outstanding, and there are no outstanding options, warrants or other
rights to purchase or acquire any share capital of the Company, whether granted
by the Company or otherwise, and there are no existing contracts by which the
Company is or may become bound to issue any additional shares. The Company has
never reduced, repaid, redeemed or purchased any of its share capital. The
Securities shall, upon issuance, shall be fully paid and non-assessable.
(c) NO CONSENTS. Neither the consummation of the transactions
contemplated hereby, nor compliance with nor fulfillment of the terms and
provisions hereof, will (i) require the consent of any governmental authority or
any person under any contract to which the Company is a party or to which the
Company is subject or (ii) give any party with rights under any material
contract to which the Company or any subsidiary of the Company is a party the
right to terminate, modify or otherwise change the material rights or
obligations of any party under such contract.
(d) COMPLIANCE WITH LAWS. The Company is in compliance, and
there exists no alleged material noncompliance, with all applicable laws
relating in any material respect to the Company and the operation or conduct of
its business, except where the failure to so comply would not have a material
adverse effect on the Company, and, except as previously disclosed in the
Prospectus of the Company dated June 29, 1998 or the quarterly reports of the
Company filed with the SEC on Form 10-Q for the three-month periods ending June
30, 1998 and September 30, 1998, the Company has not received any notice of
alleged violation of any such applicable law.
ARTICLE III
MISCELLANEOUS
Section 3.01 MISCELLANEOUS. The Company agrees that it shall file with
the United States Securities and Exchange Commission (the "SEC") a registration
statement under the U.S. Securities Act of 1933 (the "Securities Act") in
accordance with Rule 415 thereof (the "Shelf Registration") with respect to all
of the Securities, and shall use its best efforts to cause such registration
statement to become effective within 180 days after the date hereof and to
remain effective at all times for a period of two years after the date hereof.
In addition, if the Company at any time files a Registration Statement under the
Securities Act with respect to its Common Stock after the date hereof,
3
<PAGE> 4
the Company shall so notify the undersigned and shall include such of the
Securities as the Subscriber may request on such Registration Statement.
Section 3.02 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
Section 3.03 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, applicable to
contracts executed in and to be performed entirely within that state. All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any New York state or federal court sitting in the City
of New York and, to the extent permitted by Law, the parties hereto expressly
consent to the jurisdiction of such courts, agree to venue in such courts and
hereby waive any defense or claim of forum non conveniens they may have with
respect to any such action or proceeding.
IN WITNESS WHEREOF, the Subscriber and the Company have executed this
Agreement or caused this Agreement to be executed as of the date first written
above.
COMPANY SUBSCRIBER
Integrated Transportation
Network Group Inc. /s/ Kwok Kee Billy Yung
--------------------------------------
Name: Kwok Kee Billy Yung
Address: 1/F Shell Industrial Building
By: /s/ Andrew Lee 12 Lee Chung Street, Chai Wan
--------------------------------- Hong Kong, PRC
Andrew Lee, President
205 West 39th Street
16th Floor
New York, NY 10018 U.S.A.
4
<PAGE> 5
APPENDIX A
An "accredited Investor" within the meaning of Regulation D
under the Securities Act of 1933 includes the following:
ORGANIZATIONS
(1) A bank as defined in section 3(a)(2) of the Act, or any savings and
loan association or other institution as defined in section 3(a)(5)(A) of the
Act, whether acting in its individual or fiduciary capacity; a broker or dealer
registered pursuant to section 15 of the Securities Exchange Act of 1934;
insurance company as defined in section 2(13) of the Act; an investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in section 2(a)(48) of that act; a Small Business Investment
Company licensed by the U.S. Small Business Administration under section 301(c)
or (d) of the Small Business Investment Act of 1958; an employee benefit plan
within the meaning of Title I of the Employee Retirement Income Security Act of
1974, if the investment decision is made by a plan fiduciary, as defined in
section 3(21) of such act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors.
(2) A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940.
(3) A trust (i) with total assets in excess of $5,000,000, (ii) not
formed for the specific purpose of acquiring the Securities, (iii) whose
purchase is directed by a person who, either alone or with his Subscriber
representative, has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the proposed
investment.
(4) A corporation, business trust, partnership, or an organization
described in section 501(c)(3) of the Internal Revenue Code, which was not
formed for the specific purpose of acquiring the Securities, and which has total
assets in excess of $5,000,000.
INDIVIDUALS
(5) Individuals with income from all sources for each of the last two
full calendar years whose reasonably expected income for this calendar year
exceeds either of:
(i) $200,000 individual income; or
(ii) $300,000 joint income with spouse.
NOTE: Your "income" for a particular year may be calculated by adding to your
adjusted gross income as calculated for Federal income tax purposes any
deduction for
1
<PAGE> 6
long term capital gains, any deduction for depletion allowance, any
exclusion for tax exempt interest and any losses of a partnership allocated to
you as a partner.
(6) Individuals with net worth as of the date hereof (individually or
jointly with your spouse), including the value of home, furnishings, and
automobiles, in excess of $1,000,000.
(7) Directors, executive officers or general partners of the Issuer.
2
<PAGE> 7
APPENDIX B
1.
Options and Warrants
Employee Options The Company intends to issue options to purchase
up to 2,000,000 shares of Common Stock, on the
grant date at prices no less than the price
reported on the NASD's OTC Bulletin Board or such
other quotation system or exchange on which the
Common Stock is then listed.
Warrants Purchase rights to
694,286 shares of Common
Stock at US $2.00 per
share.
Financier Option Option to purchase
1,992,000 shares of
Common Stock at US
$2.00 per share.
Finder's Warrant Purchase rights to 100,000
shares of Common Stock at
US $2.00 per share.
1
<PAGE> 1
Exhibit 10.11
MOTOR VEHICLE SALES AGREEMENT
1. PARTY A: SUN LOONG
-----------------------
REGISTER NO.: 274
-------------------
2. BANKER:
-------------------------
ACCOUNT NO.: 836406-87200 1853
--------------------
PARTY B: SHENZHEN JINZHENGHUA TRANSPORT INDUSTRIAL DEVELOPMENT CO.,
LTD.
ADDRESS: F3-4 Fu An Building Che Gong Mao Shen Nan Road, Shenzhen
City, PRC
3. MODEL AND QUANTITY
a) RX type
b) Party B proposed to order 2000 units of RX type in 1998
c) Those motor vehicles purchased by Party B should be used for
the operation of taxi services or rental purpose.
4. PRICING AND PAYMENT TERMS
a) Each RX type motor vehicle cost RMB126,000. An additional cost
of RMB200 for each is required for those of RX type with a
metallic coating. A further cost of RMB1,700 for each is
required for the facilities of centralisation of autodoor.
b) Payment: Party B have to pay 20% of the total cost as down
payment. The remaining balances will be settled by five
installments. Payment schedules are as follows:
End of the first month 10%
End of the third month 10%
End of the sixth month 20%
End of the ninth month 20%
End of the twelfth month 20%
Interest expenses: No interest expense is required for the
first year. Outstanding balances after one year are subjected
to a monthly interest expenses on 1% on unsettled balances.
5. DELIVERY
a) Party A should deliver the ordered quantities of motor
vehicles and all related parts to Party B within ten working
days after the collection of down payment.
b) Time and place of delivery: Party A has to deliver items to
the location specified by Party B within 20 days after the
demand for delivery from Part B.
c) At the time of delivery, both parties have to inspect those
items.
d) If quality problem is found at the time of inspection, Party A
has to repair those items within ten working days. If Party A
cannot fulfill this requirement, new products should be
replaced within fifteen working days.
<PAGE> 2
e) After the completion of inspection of motor vehicles supplied
by Party A, Party B should sign on the delivery note.
6. RIGHTS AND DUTIES
a) Party A should ensure the quantity supply and the quality of
motor vehicles.
b) Part B should follow the payment schedule to settle the
installment payments and interest expenses (if any).
c) Party B should carry our quality inspection on motor vehicles
at the time of delivery.
d) 10 units of RX-Type motor vehicles will be awarded to Party B
if Party B can settle all outstanding balance according to the
payment schedule. If the ultimate actual quantity purchase is
less than the proposed quantities but over fifty, then Party A
has to award RMB1,600 for each motor purchased. No other
awards will be given to Party B apart from the above two
situations.
e) Party A offers one year warranty or 100,000 miles warranty to
each motor vehicle whichever comes first.
7. BREACH OF DUTIES
a) If Party A breaches point 4.a. and 4.c. Party A has to pay 10%
of contracted price to Party B as compensation.
b) If Party B breaches Point 3, Party B has to pay 0.5% of
contracted price to party A.
8. OTHER
a) The contract will be effective after signed by both parties.
b) Any argument happen may be resolved by mutual agreement or
resolved it in court.
c) There are four copies of the contract, each party keeps
two copies.
<PAGE> 1
Exhibit 10.12
MOTOR VEHICLE PURCHASING AGREEMENT
PARTY A: ________________________ (FIRST AUTOMOBILE)
PARTY B: SHENZHEN JINZHENGHUA TRANSPORT INDUSTRIAL DEVELOPMENT CO., LTD.
A purchase order has been issued by Party B in 1998 to Party A for purchase of
motor vehicles. After a detailed negotiation, the following purchase agreement
has been established.
1. Model, quantity, price and time and place of delivery. Party B order 1000
units of ______________ at RMB165,000 each and 2000 units of __________ at
RMB114,000 each.
Time and place of delivery: Party A has to deliver items to the location
specified by Party B within 20 days after the demand for delivery from Part
B.
2 Payment method
Party B should pay a down payment of RMB350,000 for each motor vehicle at
the time of receiving motor vehicles. The outstanding balance should be
settled within one year. No interest expense on the outstanding balance is
required if Party B can settle the full outstanding balances within one
year. Party A can entitle 1% interest income charged to Party B on the
outstanding balance not yet settled after one year. Party A has to arrange
stock out procedures after receiving the down payment from Party B.
3. Party A should ensure the required quality of motor vehicles, completion of
handling procedures of motor vehicles according to agreed schedule.
4. Party B should ensure proper settlement and fulfill the requirements of
point 2.
5. This is a general motor vehicle purchasing agreement. Due to the long term
nature of the agreement, the market purchase price may be changed. New
purchase price can be used subject to the agreement of mutual parties. A
new agreement must be signed as a supplement if the unit price of motor
vehicle has been changed.
6. This agreement should be signed by both parties, any party can not
terminate the agreement. Any unresolved items arisen between the parties
can be solved by mutual agreement, any party breaches this agreement may be
subject to the penalty under PRC Company.
7. There are three copies of this agreement. Each party keeps one copy. The
remaining copy is kept for reserve.
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Subsidiary Jurisdiction of Incorporation
---------- -----------------------------
<S> <C>
Shenzhen Jinzhenghua Transport Industrial Development A company organized under the laws of the People's
Co. Ltd. Republic of China
</TABLE>
80
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF INTEGRATED TRANSPORTATION GROUP INC. AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 4,910,000
<SECURITIES> 0
<RECEIVABLES> 105,000
<ALLOWANCES> 0
<INVENTORY> 38,000
<CURRENT-ASSETS> 0
<PP&E> 2,032,000
<DEPRECIATION> (896,000)
<TOTAL-ASSETS> 68,657,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 104,000
<OTHER-SE> 48,677,000
<TOTAL-LIABILITY-AND-EQUITY> 68,657,000
<SALES> 0
<TOTAL-REVENUES> 22,343,000
<CGS> 0
<TOTAL-COSTS> 8,499,000
<OTHER-EXPENSES> 1,500,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 660,000
<INCOME-PRETAX> 11,684,000
<INCOME-TAX> 1,910,000
<INCOME-CONTINUING> 9,774,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 974,000
<NET-INCOME> 7,869,000
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTEGRATED
TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES - CONDENSED FINANCIAL
INFORMATION OF REGISTRANT AND IS QUALIFIED IN ITS ENTIRETY BY REFRENCE TO SUCH
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 689,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,000
<DEPRECIATION> (1,000)
<TOTAL-ASSETS> 50,968,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 104,000
<OTHER-SE> 48,677,000
<TOTAL-LIABILITY-AND-EQUITY> 50,968,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,912,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 200,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,869,000
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.04
</TABLE>
