COMPANY DATA:
COMPANY CONFORMED NAME: TOPAZ GROUP INC.
CENTRAL INDEX KEY:
STANDARD INDUSTRIAL CLASSIFICATION: 3911
IRS NUMBER: 91-1762285
STATE OF INCORPORATION: NV
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-12G
SEC ACT:
SEC FILE NUMBER:
FILM NUMBER:
BUSINESS ADDRESS: Continental Plaza
STREET 1: 550 Kirkland Way, Suite 200
CITY: Kirkland
STATE: WA
ZIP: 98033
BUSINESS PHONE: (425) 739-2224
MAIL ADDRESS:
STREET 1:
CITY:
STATE:
ZIP:
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 General Form for Registration of Securities
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
THE TOPAZ GROUP INC.
Nevada 91-1762285
- --------------------------- ----------------------
(Address of principal executive offices)
Registrant's telephone number, including area code
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock - Par Value $0.001
Series A Convertible Voting and Participating Preferred Stock Par Value $0.001
TABLE OF CONTENT Page Number
ITEM 1 Business
ITEM 2 Financial Information
ITEM 3 Properties
ITEM 4 Security Ownership of Certain Beneficial Owners and Management
ITEM 5 Directors and Executive Officers
ITEM 6 Executive Compensation
ITEM 7 Certain Relationships and Related Transactions
ITEM 8 Legal Proceedings
ITEM 9 Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters
ITEM 10 Recent Sales of Unregistered Securities
ITEM 11 Description of Registrant's Securities to be Registered
ITEM 12 Indemnification of Directors and Officers
ITEM 13 Financial Statements and Supplementary Data
ITEM 14 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
ITEM 15 Financial Statements and Exhibits
Item 1. Description of Business
Formation of the Company
Topaz Group, Inc. (the "Company") is a Nevada corporation listed on the NASDAQ
Bulletin Board under the trading symbol TOPZ. In April 1999, the Company
entered into two separate exchange agreements to issue shares of its preferred
stock to Best Worth Agents, Ltd. ("Best Worth"), a BVI corporation, as
consideration for the acquisition of all of the issued and
outstanding preferred
shares of Creative Gems and Jewelry Co., Ltd. ("Creative"), Advance Gems and
Jewelry Co., Ltd. ("Advance"), and Well Gems and Jewelry Co., Ltd. ("Well"),
all Thai corporations. Upon completion of the terms of the agreements and the
exchanges of stock provided for therein, which is expected to occur on or about
September 1, 1999, the preferred shares of Creative, Advance, and Well acquired
by the Company will represent one hundred percent (100%) of the voting and
dividend participation rights of each Thai company and the preferred shares
issued to Best Worth will represent 90.4% of the Company's shareholder voting
rights, as well as the right to receive 90.4% of all dividends paid to
shareholders by the Company. Prior to entering into the exchange agreements,
the Company's principal business was a project to establish facilities in China
to sell social welfare lotteries in that country. That business was conducted
by the Company's wholly-owned subsidiary Morceli Limited Corp. ("Morceli"), an
Oklahoma corporation, through Morceli's participation as a party to a joint
venture agreement with a Chinese company. Subsequent to entering into the
agreements to acquire the preferred shares of Creative, Advance, and Well, all
of which are involved in the manufacture and sale of jewelry and the polishing,
cutting, and selling of precious and semi-precious gemstones, the Company
reduced its interest in the Chinese joint venture by distributing
eighty percent
(80%) of the stock of Morceli ratably to the Company's shareholder and
retaining a twenty percent (20%) interest in Morceli.
Upon completion of the two exchange agreements, the Company's principal
business will be the manufacture and sale of jewelry and gemstones carried out
through the operations of its subsidiaries Creative, Advance, and Well. For
that reason, except where otherwise indicated, this registration statement
relates to the business and operations of Creative, Advance, and Well
(collectively referred to hereinafter as "Topaz").
General Development of Business
In the early 1970's several families of Thai goldsmiths joined together to open
a jewelry shop in Bangkok, Thailand. The families subsequently
diversified into
jewelry production by forming and operating joint ventures with other parties.
In 1993, three separate Thai companies, Creative, Advance, and Well were formed
to constitute a fully integrated jewelry production and sales operation, from
the purchase of rough stones to the sale of fine finished jewelry. By 1996
Topaz was benefiting from the general success of the Asia Pacific business
environment,the stability of the Thai Baht currency,and the growth of both the
American and Japanese jewelry markets, Topaz's largest export countries. As a
result, in 1996 Topaz posted revenues of US $34 million and maintained an eight
percent revenue to expenses ratio. Jewelry buyers made regular trips to Bangkok
to make selections and place orders for the next season. Having the largest
manufacturing capacity in Thailand, the largest customers, such as Wal-Mart and
Sears, regularly placed orders with Topaz.
At the end of the second quarter of 1997, the Thai Baht was devalued and the
Thai market collapsed causing failures in every sector
of business and finance.
Export based companies that were able to finance their operations
and receive US
dollars were the only companies positioned to main their profits and grow.
Although Topaz was not carrying debt to Finance companies or Banks and had not
invested in non-core businesses, it was still nearly impossible to obtain
additional operating capital from the finance sector. Customers were still
placing orders, but became increasingly wary of the stability of their Asian
suppliers.To begin with the general expectation amongst overseas customers and
local alike was that there would be drastic price cuts
due to the devaluation of
the Thai Baht. Topaz pointed out to customers, and convinced them, that the
materials that were needed for production were all US $ traded world wide;
thus, the only advantage to be obtained by Topaz
related to local production costs
which were being offset by additional expenses involved in trading US dollars.
Obtaining orders continued to be no problem and Topaz maintained a full order
book for the remainder of 1997, but found it difficult to obtain sufficient
operating funds to cover the inventory required for operations and quick
response to order placement.
The covering of inventory cost is long term in the
jewelry business and especially so for Topaz which has a total through-put
operation - buying raw materials directly from the mines, principally in Africa
and Brazil, cutting, polishing, and irradiating stones for color, trading unset
stones to the manufacturing industry, designing and setting finished pieces of
jewelry, individually and in bulk, for wholesaling and retailing. In addition,
as virtually the only company dealing in the irradiation of the topaz stone,
Topaz was required to invest even more as the time required to complete
irradiation to American Atomic Energy Authority standards is from three months
to a maximum of three years on very deep hues. Nevertheless, despite the
higher cost, more and more of Topaz's revenue is coming from the sale of topaz
which has the highest gross margin because the product is totally controlled
from mine to finished product with virtually no competition. This is the
principal reason for the strength of Topaz and their increase in gross margin %
over the years, thus the increased production of topaz is a key element in the
financial strength experienced by Topaz over the past three years.
The Thai economy continued to be depressed and was slow to proceed towards
recovery in 1998. More and more jewelry factories ceased operations and the
economic crisis spread to the other Asian countries to such a degree that
American buyers cut back on their buying trips to Asia.Topaz management
decreed
that it was necessary to take a much more aggressive stance in keeping current
customers and a more active presence was initiated for Jewelry Shows in America
and Hong Kong. Three major new accounts were landed from these efforts and
additional orders, acquired from, as well additional orders from current
customers, normally received through domestic middlemen, were obtained from
current customers.
Topaz's new policy, commenced at the Jewelry Shows, of taking orders for
semi-precious and precious stones and settings for later delivery,
coupled with aggressively price promoted merchandise for over the counter
delivery, was successful and was the major factor contributing to the increased
net income realized in 1998.
It is apparent that the economic crisis in Thailand has bottomed out in mid-
Topaz, already the leading Thai gemstone producer, has recently obtained
its largest-ever order and, being unburdened by major financing
commitments, is positioned to capitalize on its strengths, both in
Thailand and in the topaz world market and as the leading Thai gemstone
producer. Consequently, management expects to experience rapid expansion
during the remainder of 1999 and into 2000.
Additionally, the Thai government has
implemented policies to force commercial banks back into the lending market (at
extremely reasonable rates) complementing Topaz's abilities to expand rapidly
and to accept new orders. Yet another factor complementing Topaz's expected
rapid expansion and its ability to accept the new orders is that the large
American customers are now placing gold jewelry orders with Topaz in
addition to their orders for silver jewelry that have traditionally long
been the strength of the company.
These order increases can be attributed largely to Topaz's
reputation for consistent "on time" delivery coupled its commitment to exacting
quality control standards which require that each piece be individually
inspected for the minutest flaw before being released. This effort has been
successful to such an extent that Topaz has experienced near zero returns from
shipments to major customers since the policy was implemented.
Narrative Description of Business
Topaz, through its wholly-owned subsidiaries, is engaged in the sourcing of raw
gemstones, the cutting and polishing of same,the irridation for color and then
the design, assembly, merchandising and wholesale distribution of jewelry right
through to retailing, and is now in the planning stages for a large number of E-
Commerce sites, both directly and in conjunction with other E-Commerce
operators. Topaz provides a broad range of fashionable jewelry targeted at
consumers of all economic levels who seek fine jewelry at moderate prices.
These customers are likely to purchase jewelry at frequent intervals
as fashions and styles change.
Topaz's policy is that sales are made at very competitive
prices. Topaz is a through-put manufacturing entity having four principal
areas of operation:
(1) purchases directly from the mines of raw gemstones followed
by the designing, polishing, and cutting of the stones; (2) production of gold,
silver, platinum and gemstone jewelry and decorative products; (3) export and
wholesale of jewelry, loose gemstones, and decorative products; and (4)
marketing and retailing of high quality loose gemstones,jewelry,and decorative
products at highly competitive prices.
Topaz's products are sold throughout the
world with its primary export markets being the U.S. Major customers include
Wal-Mart, Sears, Home Shopping Network, QVC, and K Mart. Topaz intends to
capitalize on the expected expansion of the jewelry industry by promoting its
branded lines of jewelry and merchandise for sale in the retail market through
E-Commerce, further developing existing customer relationships by providing
special services, and taking aggressive steps to expand into new mass
distribution channels, especially in the United States.
Products and Pricing
Topaz manufactures a comprehensive selection of quality jewelry and gemstone
products principally in the middle price range. Included in the product line
are rings, pendants, earrings, bracelets, necklaces, pins, hair clips, and tie
clips made of precious or semi-precious stones set in silver and gold. Topaz's
Suzuki brand was introduced in 1998 and other branded lines are to be
introduced in 1999.
Raw Materials
Topaz purchases gemstones and other raw materials from over 200 vendors, the
largest of which represents approximately 23% of total purchases.
As a totally through-put operation,
Topaz purchases all gem stones in raw form directly from
the mines, principally in Africa and Brazil; these have the largest production
of topaz in the world, this coupled with the largest manufacturing capacity in
Thailand, plus virtually the only company dealing in the irradiation of stones
to produce top quality colors, puts Topaz in a strong position from which to
deal with suppliers enabling it to maintain the high quality of its products
while keeping prices at competitive levels.
Patents, Trademarks, Licenses or Franchises
Topaz copyrights its designs. Topaz currently holds no patents, licenses or
franchises. In 1998, the "Suzuki" line of rings, necklaces, bracelets,
pendants, hair clips, tie clips, earrings, and pins was introduced.
Seasonal Effects
The jewelry business is highly seasonal, with the fourth quarter which includes
the Christmas shopping season, realizing the highest sales of any quarter.
Topaz's experience has been that fifty percent (50%) of its sales are realized
in the last twenty weeks of the calendar year.
To date, sales for the first six
months of 1999, plus firm orders for the following six weeks, are more than 72%
of total sales for 1998; on that basis Topaz projects total 1999 sales to be
more than 20% higher than 1998 sales.
Operating Capital
Although the jewelry industry has no standard guideline for carrying working
capital, the covering of inventory cost is long term, especially so for Topaz
which is a total through-put operation - buying raw materials directly from the
mines, principally in Africa and Brazil, cutting, polishing, and irradiating
stones for color, trading unset stones to the manufacturing industry, setting
and designing finished pieces of jewelry, individually and in bulk, for
wholesaling and retailing. Additionally, because Topaz deals in irradiation of
the topaz stone, an even greater than normal investment is involved as the time
required to complete irradiation to American Atomic Energy Authority standards
ranges from a minimum of three months to a maximum of three years on very deep
hues. In the latter part of 1997, largely because of changes in the market
caused by the economic conditions in the Far East, Topaz placed an emphasis on
maximization of its resources by cutting expenses through scaling back
operations in its Lopburi factory and cutting the work force in all its
facilities by 30%. Major areas of production were moved to the Mae-Sae plant
where there was a more efficient labor force with a lower overhead, both in
fixed and variable terms; several additional cost saving and efficiency
enhancing manufacturing procedures and processes, such as in-the-wax setting,
were also initiated with a resultant relative decrease in operating capital
requirements. Also in 1997, the company curtailed the extension of long-term
credit to customers. On significant orders and questionable accounts, Topaz
established a requirement for a deposit of 35% before an order was
initiated for processing;
Letters of Credit were also required on all large orders and were
used to arrange short-term credit to cover future order placements. The
cumulative effect of these measures, plus the inter-linking of operations
directly with the mines, was an increase in net income for 1997 over 1996, in
spite of an 8% reduction in US Dollar sales caused by the devaluation of the
Baht.
Customers
Topaz enjoys a broad customer base including over 350 individual purchasers.
The 10 largest customers accounted together for approximately 33% of
all net sales in 1998 and the largest customer accounted for 18%
while no other single
customer accounted for more than 6.5% of net sales. Although the loss of one
or more large customers could have a material adverse effect on Topaz's
operating results, customer relations are generally very good, in large part
because of the company's on-time delivery record and the high quality of its
products, especially since implementation of a strict quality control program;
as a result, no loss of major customers is anticipated.
Backlog
Backlog orders firm as of December 31, 1998, were $6,286,000 compared to
$6,092,000 as of December 31, 1997. Topaz expects the backlog to remain fairly
stable and estimates $6,500,000 for 1999. In the past, dealers were allowed to
submit blank orders to guarantee shipment times but this practice has been
eliminated. Currently, all orders placed with Topaz are expected to be filled
and shipped as ordered and are considered firm. Topaz does, however, allow
modifications or cancellations of orders up to the time the product is
loaded for shipment, although a cancellation at such a late stage is
subject to a monetary penalty and is rare.
Competition
The jewelry industry is highly competitive, both in the United States and
internationally. Principal factors in the industry are price, quality, design,
and customer service and Topaz is well-positioned in each area. Topaz is the
largest manufacturer of topaz jewelry in the world and is also unique in
dealing with the irradiation of the topaz to produce colors,
thereby being in a position
to produce quality products at competitive prices. The range of retail prices
available for various product lines makes Topaz products available to a wide
range of customers. Additionally, as a through-put operation,Topaz is able
to deliver quality products faster and at a lower cost than others using
outside resources.
The Topaz commitment to quality is taken very seriously and
specially trained quality control teams check every step of production using
state-of-the-art electronic testing equipment. Upon completion of the
manufacturing process, each individual piece is inspected for defects in
workmanship and materials and only after an item is passed by a
final inspection is it ready to ship.
This commitment to quality has enabled Topaz to
consistently maintain an average rejection factor of less than 2%. Topaz
possesses an additional competitive advantage with respect to most, if not all,
of its competitors in that its three subsidiary companies have each
been given a
promotional privilege by the Thai Board of Investment in the form of an eight-
year exemption from corporate income tax on revenues derived from its business
as a gemstone and jewelry manufacturer.
Research and Technical Development
The vertically integrated manufacturing process coupled with the extensive
employee training provided encourages constant refining of systems and controls
with relatively small expenditure. The Topaz designers are encouraged to
develop distinctive pieces using artistic themes and architectural images
related to historical settings and to employ uncommon materials and
combinations of gold, silver, and varied colored stones.
This is in addition to customer
supplied designs. The Topaz in-house design staff has developed a selection of
over 10,000 designs from which to choose.
Environmental Matters
Topaz has had no expenditure due to fines or corrective actions for
environmental violations at any of its facilities.
Employees
Topaz employs approximately 2,200 individuals as of June 30, 1999, consisting
primarily of hourly production employees who produce in excess of 2,000,000
carats of loose stones and between 50,000 to 70,000 pieces of gold and silver
jewelry per month. The company's craftsmen go through continuous training in
stone cutting, polishing, waxing, and stone setting and are generally full time
employees. None of Topaz's employees belong to a labor union and the company
believes its relations with its employees are good.
Item 2 Financial Information
Selected Financial Data
The following table sets forth selected combined financial data as of and for
the years ended December 31, 1998, 1997, 1996, and for the 6 Month period ended
June 30, 1999, and are derived from the audited, combined financial
statements of the Company re Chancellor, Creative, Advance, and Well:
6 months-
6/30/99 1998 1997 1996
U.S.$ U.S.$ U.S.$ U.S.$
Net Sales $10,739,497.00 $25,762,511.00 $19,775,549.00 $30,922,870.00
Cost of Sales 7,020,914 14,825,090 9,894,362 25,947,602
------------ ------------- ------------- -------------
Gross Profit 3,718,583 10,937,421 9,881,187 4,975,268
Other Income 49,272 260,623 180,222 2,697,539
------------ ------------- ------------- -------------
Total Revenue 3,767,855 11,198,044 10,061,409 7,672,807
Selling, General,
& Administrative
Expenses 1,319,125 4,054,157 6,100,764 5,042,726
(Gain)/Loss on
Foreign Exchange
Translation (A) (316,477) 3,719,022 (3,588,487) -
Income Before Taxes 2,765,207 3,424,865 7,549,132 2,630,081
------------ ------------- ------------- -------------
Income Taxes - - - -
------------ ------------- ------------- -------------
Net Income
After Taxes $2,765,207.00 $3,424,865.00 $7,549,132.00 $2,630,081.00
============ ============= ============= =============
Net Income
Per Common Share 0.9160 0.1134 2.5160 0.8770
Weighted Average
Number of Shares
Outstanding 40,000,000 30,200,000 30,000,000 30,000,000
Cash Dividend
Per Common Share - 1.3628 - -
(A) This is an extraordinary item. The exchange difference arose as a result
of converting the original transactions recorded in U.S. dollar to Thai
Baht and then from Thai Baht back to U.S. dollar.
Balance Sheet Data
December 31, 6/30/99 1998 1997 1996
Working Capital 17,003,408 12,052,325 14,149,689 11,224,082
Property, Plant
& Equipment-Net 1,685,278 1,587,040 1,392,116 2,222,477
Investment
Security Available - - - -
Other Assets 128,462 37,795 48,505 96,914
Total Assets 36,952,581 31,129,823 21,022,737 24,490,340
Long Term Debt 2,158,436 45,951 - -
Management's Discussion and Analysis of Financial Condition
and Results of Operation
The following discussion and analysis of the Financial Condition and
Results of operation of Topaz should be read in conjunction with the
Selected Financial Data and the Consolidated Financial Statements and
Notes thereto of Topaz included herein.
In addition to the historical information contained
herein, the discussions in this Registration Statement may contain forward-
looking statements that involve risks and uncertainties. Topaz's actual
results could differ materially from those discussed herein.
Overview
Chancellor Corporation is a development stage company whose primary business
prior to April 1999, was the proposed development of facilities in the Peoples'
Republic of China (PRC) for the sale of a social lottery. Business activities
regarding the project were carried out by a joint venture in which Morceli
Limited, an Oklahoma corporation formed to be a wholly-owned subsidiary of
Chancellor, became a partner for the purpose of participating in the project.
Chancellor has had no business operations and its participation in the PRC
project was limited to making interest free, unsecured loans to Morceli. In or
about July 1999, Chancellor reduced its ownership interest in Morceli to 20% by
making a pro rata distribution to shareholders of 80% of the issued and
outstanding stock of Morceli. Subsequent to the exchange of stock provided for
in the two Exchange Agreements which is expected to be completed
on September 1, 1999,
the primary business of the Company will be to continue the business
activities of Topaz.
For that reason and because Chancellor has had no business
operations, the following discussion and analysis deals with the financial
condition and results of operations of Topaz.
Topaz designs, manufactures, merchandises, and wholesales semi-precious gem-set
jewelry for fine jewelers, department stores, catalogue dealers, showrooms, and
television shopping networks. Topaz has four principal areas of operation:
Purchase of raw stone from the mines followed by design, cutting and polishing.
Production of finished gold, silver, platinum, and gem stone jewelry and
decorative products.
Export and wholesale of jewelry, loose gem stones, and decorative products.
Marketing and retailing high quality loose stones, jewelry, and decorative
products at competitive prices.
Topaz's products are sold to customers in every price range,
from silver jewelry
retailing for less than $10 to platinum jewelry that retails for over $10,000.
In addition to custom designs for specific customers, the in-house design staff
have developed a selection of more than 10,000 designs. The Topaz line of
branded and unbranded jewelry and decorative products are sold world wide.
Topaz has its own web site online which displays its products as well as
general information about Topaz and its business operations. Inquiries from
this web site will be directed to the representative for the area from
which the inquiry originated.
Although there are direct sales to retail customers at
three locations, and Topaz plans to open additional locations for direct sales
to retail customers, marketing emphasis is presently directed to developing the
existing base and aggressively expanding into new mass distribution channels,
especially in the U.S.
Topaz's actual results could differ materially from those discussed herein.
Topaz operates five fully integrated facilities, each of which can produce
products in response to customer orders,
as well as to Topaz's own requirements.
Topaz products are sold in every price range.
Net revenues from the sale of the
topaz stone are becoming a greater portion of total net revenues, as topaz has
the highest gross margin of all the Topaz products as it can be controlled from
the mine to the finished product with little or no competition.
The following table sets forth, for the periods indicated, a consolidated
statement of income data as a percentage of net sales.
YEAR ENDED DECEMBER 31st 1998 1997 1996
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 57.0% 49.6% 77.2%
Gross Profit 43.0% 50.4% 22.8%
Selling, General &
Administrative Expenses 15.5% 30.6% 15.0%
Income Before Taxes 27.5% 19.8% 7.8%
Income Tax --- --- ---
Net Income 27.5% 19.8% 7.8%
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997.
Net Sales. Topaz had a 10.6% decrease in net sales from 1997 to 1998, and a
22.6% increase in net income for this period.
Cost of Sales. Topaz's cost of sales percentage increased by 7.4% from 1997 to
1998.
Expenses were sharply reduced by US$ 4.76 million ( a 56% reduction ) due to
cost cutting and high 1997 provisions.
Net Income. As a result of the above factors, Topaz recognized net income for
1998 of $7.14 million, compared to net income of $5.78 million in 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31,1996.
Net Sales.
Topaz had a 14.4% decrease in net sales in 1997 as compared to 1996;
However, cost of sales in 1997 was down 27.6% on the 1996 figures.
Expenses increased by US$ 3.81 million due to high provisions and actions taken
to combat the far east economic problems.
Net Income. As a result of the above factors, Topaz recognized net income for
1997 of $5.78 million, compared to net income of $2.66 million in 1996.
The 1998 decrease in net sales over 1997 net sales and the decrease of net sales
from 1996 was due, for the most part, to the devaluation of the Thai Baht and
the collapse of the Thai market at the end of the second quarter of 1997, as
discussed in Item 1, Business, under the Customers section.
Cost of sales as a percentage of net sales increased in 1998 from 1997, and
principally reflected the stringent cost cutting measures taken in 1997 to
combat the collapse of the Thai market.
Selling and Administrative expenses decreased from 30.6% of net sales in 1997
to 15.6% in 1998, reflecting stringent cost cutting programs and decreased
requirements for provisions.
Net Income. As a result of the above factors, Topaz recognized net income for
1998 of $7.1 million, compared to net income of $5.8 million in 1997. These
numbers do not take into account the effects of foreign currency exchange
fluctuations. Although a majority of Topaz financial transactions, including
most sales and raw material purchases, are conducted in U.S. Dollars, the books
of account are required to be kept in Thai Baht making them subject to changes
in the exchange rate which resulted in a notional gain of $5.2 million in 1997
and a loss of $3.7 million in 1998.
Liquidity and Capital Resources
Topaz's principal source of cash is income from operations. The increase in
liquidity from 1996 to 1997 was the result of the reduction in cost of sales
from 1996 to 1997 with the resultant retained earnings flow.
Topaz's cash account increased by a factor of six from 1997 to 1998, and
accounts receivable increased by $4.5 million in 1998. Current liabilities
increased by $9.9 million from 1997 to 1998, due to the accrued dividend which
is to be converted into share capital and long term loans, and this contributed
to a decrease in Topaz's liquidity ratio (cash and accounts receivable versus
total current liabilities) in 1998 to 1.40 compared to 2.87 in 1997. Adjusting
for the accrued dividend not being current liabilities the liquidity ratio for
1998 was 4.05.
3. Properties
Topaz operates five fully integrated facilities in various parts of Thailand
totaling 201,000 square feet. The properties have a combined acquisition cost,
including land, buildings, and improvements of $1.6 million $US, and are
unencumbered.
Item 4. Security Ownership of Certain Beneficial Owners and Management
Common Stock
The following table sets forth information with respect to beneficial ownership
of Common Stock of The Topaz Group as of June 30, 1999 by (i) each person who
is known to be a beneficial owner of more than 5% of the outstanding shares of
Common Stock, and (ii) all directors and executive officers of Chancellor as a
group.
Name and Address Number of Shares Percent of Common Percent of All
of Beneficial Owner Beneficially Owned Shares Owned Shares Owned *
- ------------------- ------------------ ------------ ------------------
Carlton Rogers Inv. Trust 536,000 25.9% 2.8%
P.O. Box 957
New York, NY 10274
Cede & Co. 580,533 28.0% 3.0%
C/O Depository Trust Co.
55 Water Street - 2 SL
New York, NY 10041
Jim Fain 210,000 10.1% 1.1%
4909 Stockdale Hwy, Ste. 204
Bakersfield, CA 93309
NAFTA 490,000 23.7% 2.5%
15550 Tuolomne Road
Sonora, CA 95370
Sakon Ltd. 210,000 10.1% 1.1%
14019 117th Place NE
Kirkland, WA 98034
US Heritage Capital Corp. 500,000 24.1% 2.6%
5770 Wulff Run Rd.
Cincinnati, OH 45233
All Directors & Exec.
Officers as a Group 89,668 4.3% **
Includes common shares together with preferred shares after their issuance
on or about September 1, 1999.
** Less than 1%.
Convertible Voting and Participating Preferred Stock
As of June 30, 1999 none of the Company's Series A Convertible Voting and
Participating Preferred Stock had been issued. The following table identifies
each person known to the Company who will be a beneficial owner of more than 5%
of the outstanding shares of Series A Convertible Voting and Participating
Preferred Stock to be issued to Best Worth Agents, Ltd. on or about September 1,
1999, in exchange for preferred stock of Creative Gems & Jewelry Co., Ltd.,
Advance Gems & Jewelry Co., Ltd., and Well Gems & Jewelry Co., Ltd., pursuant to
the terms of the Company's agreements with Best Worth Agents, Ltd.
Name and Address Number of Shares Percent of Preferred Percent of All
of Beneficial Owner Beneficially Owned Shares Owned Shares Owned *
- ------------------- ------------------ ------------ ---------------
Best Worth Agents, Ltd. 17,375,000 100.0% 90.4%
Includes common shares together with preferred shares after their issuance
on or about September 1, 1999.
Item 5. Directors & Executive Officers
The following table sets forth-certain information regarding the directors and
executive officers of the Company. Each of these individuals has previously
been involved with Creative, Advance, and/or Well as discussed below and, as of
September 1, 1999, will assume responsibilities with respect to the Company
described below:
Name Age Position
Jeremy Filmer Watson 57 Chairman, Outside Director
Kasem Chitmunchaitham 50 President, Director
Thammatinna Thammaradi 40 Chief Executive Officer - Gems &
Jewelry, Director
Jariya Sae-Fa 44 Director - Investor Management
Kiattichai Tantikitmanee 44 Executive Vice President
Production, Director
Somsin Ulanpongtham 33 Chief Financial Officer, Director
Leonard Orrin 53 Vice President - Product Development,
Director
Albert C. W. Wong 33 Secretary
Don Alger -- Outside Director
David Dikinis -- Outside Director
Danie Tangchai 41 Outside Director ( Gem Relations )
Jeremy Filmer Watson
(Chairman)
Mr. Jeremy Filmer Watson F.C.A. is by profession a Chartered Accountant having
qualified in London with BDO Binder.
After seven years in the Audit profession, he was a lecturer in Accounting
to the Construction Industry before becoming the Financial Controller
of RCA (UK) Ltd.
In 1971, he moved to Thailand with a British Import Company operating Colgate
and Massey Ferguson as their main products. For twenty-five years, he worked
for the Singer Company in Thailand, Singapore, Malaysia, China, Pakistan,
Bangladesh, India and Sri Lanka. His last two appointments were as Managing
Director Malaysia (Five years) and then Managing Director China (Five years).
From 1994 to 1997, Mr. Watson was vice president in charge of operations for
Fritz Gegauf A.G. (Bernina) in Asia and the South Pacific. From 1997 he was
president of his own firm involved in consumer finance.
In late 1998 Mr. Watson
became a consultant to Creative, Advance, and Well in the areas of Financial
Management, Company Administration, Marketing and Investor Relations and will
become Chairman of the Company as of September 1, 1999.
Kasem Chitmunchaitham
(President, Director)
Mr. Chitmunchaitham graduated with BA Honors in Economics from Thammasart
University. He has had twenty-seven years of problem solving, decision making
and increasing responsibility with extensive hands-on experience of
administering; planning and managing operations in management, purchasing,
finance and administration in both local and international companies and
banking institutions.
Thammatinna Thammaradi
(Chief Executive Officer - Gems & Jewelry, Director)
Ms. Thammaradi is the Executive Vice President of Topaz. An American citizen,
Ms. Thammaradi graduated from Thammasart University with a Bachelor Degree in
Economics and a Master of Business Administration from the University of
Denver, USA.
Ms. Thammaradi brings to Topaz her experience in sales, marketing,
manufacturing, finance, start-ups and overall management. Prior to joining
Topaz, Ms. Thammaradi was President at T.R. Holdings Inc., where she was
responsible for the overall management and distribution of jewelry to multi-
national companies such as Sears Roebuck.
Jariya Sae-Fa
(Director)
Ms. Sae-Fa brings to Topaz a wealth of experience in finance and accounting
acquired as financial controller for several international corporations.
She is presently involved in a number of jewelry manufacturing companies.
She is a graduate of Ramkhamhaeng University.
Kiattichai Tantikitmanee
(Director)
Mr. Tantikitmanee holds a Bachelor of Science Degree in Business
Administration.He has had extensive experience in all aspects of the
manufacturing process from purchasing to grading to products as well as sales.
He has also been involved in the acquisition, development and implementation of
more than 8 production facilities throughout Thailand.
Mr. Tantikitmanee has held senior management positions with several jewelry
companies in Thailand. He is presently the Managing Director
of Advance Gems & Jewelry Co., Ltd.
Somsin Ulanpongtham
(Chief Financial Officer, Director)
Mr. Ulanpongtham graduated with a Master Business Administration degree from
Thammasart University. He has had extensive experience in development and
implementation of financial policies and internal control systems.
He has also been involved in setting up the financial and accounting systems
for hire-purchase, leasing, and hotel businesses.
Albert C. W. Wong
Secretary
Mr. Wong is a Canadian citizen who has practiced public accounting in Hong Kong
under the name of Albert Wong & Co. since 1995. He was a senior auditor with
Price Waterhouse, Coopers between 1988 and 1992, and was a solicitor trainee
with F. Zimmen, Solicitors & Notary Public from 1992 until 1995. Mr. Wong
became a barrister-in-law of Hong Kong in 1998 and has been a law consultant of
Daniel Wong & Partners, Solicitors from 1998 to the present. Since June 1999
Mr. Wong has served as company secretary of Hung Fung Group Holdings Ltd., a
publicly listed company with the Hong Kong Joint Stock Exchanges.
Leonard Orrin
(Vice President - Product Development, Director)
Mr. Orrin, a United States citizen, is a 22 year veteran of the jewelry
industry and has been involved in product design, merchandising, sales and
production management for several multi-national jewelry companies.
Prior to joining the Company, he was operations and quality assurance manager
at Fabrikant (Thailand) Co., Ltd. in Bangkok;
Director for Joseph E. DeMarco Inc. New York; Stone Buyer and Sale
Representative for DAR Imports Co., Ltd.; Merchandising at Budoff Inc.,
Gordon Jewelry Corp. and Senior Buyer/Contract Manager at Best Production.
Mr. Orrin joined Topaz in 1995 and is presently Vice President in charge of
Production. He oversees the development of all types of production
systems from filing and polishing, to all aspects of gold,
platinum and silver. In addition, Mr. Orrin attends to the design needs and
production and quality assurance of customers.
Don Alger
(Outside Director)
An American citizen, Dr. Alger is President of Quali-Tech Inc. and Alger
Associates, both of Columbia, Missouri. Mr. Alger is a fellow of the American
Nuclear Society and a registered member of Missouri Professional Engineering.
A graduate of the University of Missouri, Dr. Alger holds
a Ph.D. in Nuclear Engineering.
Prior to joining Topaz as an Outside Director, Dr. Alger was with the
University of Missouri Research Reaction Facility and directed numerous
nuclear engineering projects.
Dr. Alger is the author of in excess of 60 publications, technical
presentations and technical reports related to nuclear engineering.
Dr. Alger presently resides in Columbia, Missouri.
David Dikinis
(Outside Director)
An American citizen, Mr. Dikinis lives in Sonoma, California. A graduate of
the University of California in Business Administration, Mr. Dikinis
background
includes 20 years of marketing and distribution experience in gemstones and
jewelry in the United States.
He is a world renowned Gemologist and is a former member of the Board of
Directors of the American Gem Trade Association (AGTA). Mr. Dikinis is also
a successful pioneer in the marketing of jewelry on the InterNet. Through
American Market Gem System (AMGS), an early InterNet Provider, he opened up
offices in Germany and Thailand.
In 1989, he founded Business Development Service to promote mass marketing by
catalog and on the World Wide Web. Mr. Dikinis is a founder and managing
partner of Amlet Gemstone jewelry catalog and Talismand, which are distributed
throughout the United States.
Danie Tangchai
(Outside Director)
Mr. Tangchai, an American national, is a widely respected senior member of
the Thailand gems and jewelry industries. He completed his Bachelor's
Degree at the University of Colorado, followed by a Master's Degree in
International Business from the University of Bridgeport,
Connecticut, USA. He holds a degree in Operations Management from
Collins International, Brisbane, Australia, as well.
Mr. Tangchai brings to Topaz his experience in corporate finance, accounting,
financial management, sales, and marketing, where he oversees sales and
marketing.
Mr. Tangchai has worked as general manager of Federated Department (USA), The
Nova Group and Minor Group, both of the United States. Mr. Tangchai's
accomplishments include being awarded the President sales; successfully
developed a computerized sales distribution center in merchandise display. He
has held senior positions at T.R. Holding Inc. as Vice President of Sales,
Group
General Manager for Bloomingdale's responsible for retail operations
(employees); was manager of the sales division with Holiday Inn, Denver,
Colorado, and operations of the Minor Group, Bangkok, Thailand.
Item 6. Executive Compensation
Subsequent to the Exchange Agreements of April 7 and April 30, 1999,
there are four paid executive officers of the Company. The following
table provides certain summary information concerning the compensation
that will be paid on an annualized basis to the Company's President and
the three (3) other paid executive officers
(the "Named Executive Officers") for all services to be
rendered in all capacities to the Company during the fiscal year ended
December 31, 1998.
Name and Annual Compensation (US$) Long Term
Principal Position 1998 Compensation Awards
Kasem Chitmunchaitham $32,400 none
Jariya Sae-Fa $32,400 none
Kiattichai Tantikitmanee $27,600 none
Somsin Ulanpongtham $22,700 none
Employment Agreements
The Company has no employment agreements with any of its Executive Officers.
Director Compensation
There is no compensation for directors either on an annual basis or for
attendance at board meetings.
Stock Option Plan
In August 1999, the Topaz Board of Directors approved The Topaz Group, Inc.
Employee Stock Option Plan (the "Option Plan") which will become effective
immediately after completion of the two stock exchange agreements with
Chancellor. The purpose of the Option Plan is to provide all employees
of the Company with incentives that link their personal interests with the
long-term financial success of the Company. All executive and
non-executive employees will be eligible for non-qualified stock
options on terms and conditions to be determined by the Board of Directors
which intends to reserve 5,000,000 shares of the Company's Common Stock
for issuance under the Option Plan. The Option Plan will terminate
not later than January 1, 2004.
Item 7. Certain Relationships and Related Transactions
None.
Item 8. Legal Proceedings
The Company is not presently a party to any litigation material to
its ongoing business operations or financial condition.
Item 9. Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters
There is no non-U.S. trading market for the Common Stock of the Company.
Within the United States, the Company's Common Stock is quoted on the
OTCBB under the symbol "TOPZ". The quotations below were provided by
the National Quotation Bureau, LLC, reflect inter-dealer prices without
mark-up, mark-down or commission, and do not represent actual
transactions. At August 23, 1999, the bid price of the Common
Stock was $1.00.
The following prices have been provided by Transfer Online, Inc.,
the Company's transfer agent located in Portland, Oregon, based upon
actual trades; (selling price during the applicable period).interim
period from July 1, 1999, through August 15, 1999, the high bid price
was $.75 while the low was $.375.
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
High Low High Low High Low High Low
------------- ------------- ------------- ---------------
1997 6 3/4 7 1/8 4.75 .25 2 .5625 NA NA
1998 4.75 2.375 2.50 .4375 .9375 .375 .40625 .125
1997 2.625 .375 5.5 .25 9.75 5.25 7 4.25
6.Chancellor has neither conducted operations nor had revenues;
neither Chancellor nor any of its subsidiaries has paid dividends
As of June 30, 1999, there were 2,625,000 shares of the Common Stock of
Chancellor issued and outstanding held by approximately 550 beneficial holders
of the Common Stock of the Company, substantially all of whom are in the United
States. As of June 30, 1999, none of the Company's Series A Convertible Voting
and Participating Preferred Stock was issued. Pursuant to resolutions of the
respective boards of directors and as provided in the amended Exchange
Agreements, however, on or about September 1,7, 1999, the Company will issue
17,325,000 shares of its Series A Preferred Stock to Best Worth, Ltd., in
exchange for one hundred percent (100%) of the issued and outstanding
preferred stock of Creative, Advance, and Well.
Item 10. Recent Sales of Unregistered Securities
The Company has issued the following unregistered securities during the
three-year period ended June 30, 1999
1. In April 1997, the Company Chancellor issued 800,000 shares of its common
stock to Columbia Trust, in consideration for the cancellation of its
promissory note executed by the Company in the amount of $25,000 and payable to
Columbia Trust as assignee of the promisee. The shares were issued to Columbia
Trust, a Vancouver, Canada entity, in reliance on the exemption from
registration under the 1933 Securities Act provided by Section 4(2).Regulation S
2. In June 1997, the Company Chancellor issued 300,000 shares of common stock
to Carousel Consultants in consideration for financial consulting services
rendered and in a separate transaction, issued 100,000 shares of common stock to
National Employee Database in consideration for financial consulting services
rendered. Both/Each of the sales were/was made in reliance on the exemption
from registration provided for in Section 4(2) of the 1933 Securities Act,
as amended.
3. In August 1997, the Company, Chancellor issued 500,000 shares of common
stock to Phoenix Financial Trust as payment in full of the principal and
interest due under a promissory note executed by the Company in the amount of
$25,000 in favor of Phoenix Financial Trust in the amount of $25,000.
The shares were issued under the exemption from registration provided under
Section4(2) of the 1933 Securities Act, as amended.
4. In February 1998, pursuant to a Note and Warrant Purchase Agreement
("Agreement") between the Company/Chancellor and Generation Capital Associates
("GCA"), the Company/Chancellor agreed to issue up to 400,000 shares of common
stock to be held in escrow to be delivered to GCA upon the partial or total
conversion of one or more of its Convertible Promissory Notes (the
"Note")executed by the Company in favor of GCA pursuant to the Agreement. The
Agreement provides that, upon election by GCA to convert some or all of the
Note, the escrow agent will release to GCA Note(s), the appropriate number of
shares will be released to GCA at a conversion price equal to Two-Thirds
(66.6667%) of the Closing Bid Price of the Common Stock on the trading day
immediately preceding the Conversion Date. The Note further provides that
neither GCA nor any holder of the Note shall be required or permitted to
exercise any conversion rights if such would result in GCA or the holder
becoming at any particular time the beneficial owner of an aggregate of more
than 5% of the then-outstanding common stock of the Company/Chancellor, as
calculated pursuant to Section 13 of the Securities Exchange Act and Regulation
13D-G promulgated thereunder. Additionally, in February 1998, the
Company/Chancellor issued a Warrant to GCA to purchase 50,000 shares of common
stock for each $100,000 (or portion thereof) of Notes purchased from the
Company/Chancellor, at an exercise price of $3.125 per share for the first
50,000 shares and at an exercise price for any subsequent shares purchased
which is the closing bid price on the day prior to the Warrant issuance.
The Warrant shall be exercisable by GCA for five years.
The Note(s), Warrant(s), and the common stock to be issued upon conversion of
the Note(s) and exercise of the Warrant(s), were issued pursuant to exemption
from registration under Section 4(2) of the 1933 Securities Act,as amended,
and Rule 504 of Regulation D promulgated thereunder.
5. On May 5, 1999, Chancellor issued 210,000 of common stock to Jim Fain and
210,000 shares of common stock to Sakon, Ltd. in consideration for services
rendered in connection with the execution of the Creative and Advance-Well
exchange agreements. Both sales were made in reliance on exemption from
registration pursuant to Section 4(2) of the 1933 Securities Act, as amended.
Effective March 1999, Chancellor effected a one for three reverse split of
outstanding common shares; the numbers of shares described in #s 1 - 4
above are all pre-reverse split numbers and the numbers of shares
described in #5 above are post-reverse split numbers.
Item 11. Description of Registrant's Securities to be Registered
The authorized capital stock of the Company Chancellor consists of one
hundred million Common Shares, 2,071,202 of which were outstanding as of June
30, 1999, and held of record by approximately 550 shareholders, and twenty
million Preferred Shares, none of which were issued and outstanding as of July
30, 1999. The following summaries of certain provisions of the Common
Shares and certain of the rights and privileges of the Series A Preferred
Shares do not purport to be complete and are subject to, and qualified in
their entirety by, the provisions of the Company's/Chancellor's Restated
Articles of Incorporation, Bylaws, and the Certification of Preferences, Rights,
and Limitations of Series A Convertible Voting and Participating Preferred
Stock, each of which is included as an exhibit to this Registration
Statement, as well as and by the provisions of applicable law.
Common Shares
The Company's/Chancellor 's Restated Articles of Incorporation authorize
the issuance of up to one hundred million Common Shares. Holders of Common
Shares, together with holders of the Convertible Preferred Shares, are entitled
to receive ratably such dividends, if any, as may be declared by the
Company's/Chancellor's Board of Directors out of funds legally available
therefor. Upon the liquidation, dissolution or winding up of the
Company/Chancellor, after the holders of Common Shares and Convertible
Preferred Shares are entitled to receive ratably the net assets of the Company
Chancellor available after the payment of all debts and other liabilities.
Holders of Common Shares have no preemptive subscription, redemption or
conversion rights.
The outstanding Common Shares are, when issued and paid for, fully paid
and nonassessable.
Series A Convertible Voting and Participating Preferred Shares
The Company's Chancellor's Restated Articles of Incorporation, as amended by
resolution of the board of directors, authorize the issuance of twenty
million preferred shares. By resolution dated August 25, 1999, the board
created a series of Preferred Stock of the Company/Chancellor consisting of
twenty million (20,000,000) authorized shares, $.001 par value, and designated
as Series A Convertible Voting and Participating Preferred Stock ("Series A
Preferred Stock"). The board of directors may, from time to time, as permitted
by law and by the Restated Articles of Incorporation and Bylaws of the
Company/Chancellor, increase or decrease the total number of shares of Series A
Preferred Stock.
The Transfer Agent for the Shares is Transfer Online, Inc. Of Portland, Oregon.
Item 12. Indemnification of Directors and Officers
The Nevada Revised Statutes (the "NRS"), the provisions of which govern the
Company/Chancellor, empowers a Nevada Corporation to indemnify present and
former directors, officers, employees, or agents or any person who may have
served at the request of the corporation as a director, officer, employee,
or agent of another corporation ("Eligible Persons") against liability
incurred in any proceeding, civil or criminal, in which the Eligible Person
is made a party by reason of being or having been in any such capacity, or
arising out of his status as such, if the individual acted in good faith and
reasonably believed that (a)the individual was acting in the best interests of
the corporation, or (b)if the challenged action was taken other than in
the individual's official capacity as an officer, director, employee or
agent, the individual's conduct was at least not opposed to the
corporation's best interests, or (c) if in a criminal proceeding,
either the individual had reasonable cause to believe his conduct
was lawful or no
reasonable cause to believe his conduct was unlawful.
The NRS further empowers a corporation to pay or reimburse the reasonable
expenses incurred by an Eligible Person in connection with the defense of any
such claim, including counsel fees; and, unless limited by its articles of
incorporation, the corporation is required to indemnify an Eligible Person
against reasonable expenses if he is wholly successful in any such proceeding,
on the merits or otherwise.Under certain circumstances,a corporation may pay
or reimburse an Eligible Person for reasonable expenses prior to final
disposition of the matter.Unless a corporation's articles of incorporation
otherwise provide,an Eligible Person may apply for indemnification to a court
which may order indemnification upon a determination that the
Eligible Person is entitled to mandatory
indemnification for reasonable expense or that the
Eligible Person is fairly and reasonably entitled to indemnification in view of
all the relevant circumstances without regard to whether his actions satisfied
the appropriate standard of conduct.. Before a corporation may indemnify any
Eligible Person against liability or reasonable expenses under the NRS, a
quorum consisting of directors who are not parties to the proceeding must (1)
determine that indemnification is permissible in the specific circumstances
because the Eligible Person met the requisite standard of conduct (2)
authorize the corporation to indemnify the Eligible Person and (3) if
appropriate, evaluate the reasonableness of expenses for which indemnification
is sought. If it is not possible to obtain a quorum of uninvolved
directors, the foregoing action may be taken by a committee of two or more
directors who are not parties to the proceeding, special legal counsel
selected by the Board or such a committee, or by the shareholders
of the corporation.
In addition to the foregoing,the NRS states that the indemnification it
provides shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any provision of the articles
of incorporation or bylaws, resolution of the board of directors or
shareholders, or any other authorization adopted after notice by a
majority vote of all the voting shares then issued and outstanding.
The NRS also empowers a Nevada corporation to purchase and maintain
insurance on behalf of any Eligible Person against any liability
asserted against or incurred by him in any capacity as such, or
arising out of his status as such, whether or not the corporation would
have had the power to indemnify him against such liability.
See Article XI of the Bylaws of the Company/Chancellor included with this
Registration Statement as Exhibit 3.02 for a further description of the
Company's its rights and obligations to indemnify its officers and directors.
Item 13. Financial Statements
See Financial Statements under Item 15
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
By letter of February 5, 1999 (Exhibit 16.01) Price Waterhouse Coopers ("PWC)
advised the Topaz Group (as the auditor of Creative, Advance, and Well for the
year ended December 31, 1997.)that it was unable to continue its engagement as
their auditor.Subsequently, for purposes of this Item 14, counsel to the Topaz
Group made a written request (Exhibit 16.02) that PWC provide the specific
information required by Item 14.As of August 27, 1999, the information has not
been provided despite second and third requests requested in Item 14. As of
September 7, 1999, PWC has not provided the requested information and the
Company is therefore unable to respond further to this Item 14.
Item 15. Financial Statements and Exhibits
FINANICAL STATEMENTS ATTACHED
(A) Chancellor Corporation
(1) Audited financial statements as of and for the year ended December 31,
1998
* Independent Auditors' Report.
* Balance Sheet
* Statement of Income
* Statement of Stockholders' Equity
* Statement of Cash Flows
* Notes to Financial Statements.
(2) Audited financial statements as of and for the year ended December 31,
1997
* Independent Auditors' Report.
* Balance Sheet
* Statement of Income
* Statement of Stockholders' Equity
* Statement of Cash Flows
* Notes to Financial Statements.
(3) Audited financial statements as of and for the year ended December 31,
1996
* Independent Auditors' Report.
* Balance Sheet
* Statement of Income
* Notes to Financial Statements.
(B) Creative Gems & Jewelry Company Limited
Advance Gems & Jewelry Company Limited
Well Gems & Jewelry Company Limited
(1) Combined Audited financial statements as of and for the year ended
December 31, 1998
* Report of Independent Certified Public Accountants
* Balance Sheets
* Statements of Income and Retained Earnings
* Notes to Financial Statements.
(C) Advance Gems & Jewelry Company Limited
(1) Audited financial statements as of and for the year ended December
31, 1997
* Report of the Auditor
* Balance Sheet
* Statements of Loss and Deficits
* Notes to Financial Statements.
(2) Audited financial statements as of and for the year ended December
31, 1996
* Auditor's Report
* Balance Sheet
* Statements of Income and Retained Earnings
* Notes to Financial Statements.
(D) Creative Gems & Jewelry Company Limited
(1) Audited financial statements as of and for the year ended December
31, 1997
* Report of the Auditor
* Balance Sheet
* Statements of Income and Retained Earnings
* Notes to Financial Statements.
(2) Audited financial statements as of and for the year ended December
31, 1996
* Report of the Auditor
* Balance Sheet
* Statements of Income and Retained Earnings
* Notes to Financial Statements.
(E) Well Gems & Jewelry Company Limited
(1) Audited financial statements as of and for the year ended December
31, 1997
* Report of the Auditor
* Balance Sheet
* Statements of Loss and Retained Deficits
* Notes to Financial Statements.
(2) Audited financial statements as of and for the year ended December
31, 1996
* Report of the Auditor
* Balance Sheet
* Statements of Income and Retained Earnings
* Notes to Financial Statements.
Item 15 (A) (1)
Chancellor Corporation
(A Development Stage Company)
Financial Statements
Year Ended December 31, 1998
Independent Auditors' Report
To: The Board of Directors and Shareholders
of Chancellor Corporation
We were engaged to audit the balance sheet of Chancellor Corporation as of
December 31, 1998 and the related statements of income, stockholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management.
The Company did not maintain financial books and records for the year ended
December 31, 1998 and for the previous years since inception
because none of the books and records was available for our inspection.
Management of the Company and the previous auditor were unable to provide
any substantiation of assets and liabilities appearing on the
Company's audited balance sheet at December 31, 1997;
such assets and liabilities were carried over to December 31, 1998. The
Company issued a total of 666,079 shares of common stock during the year 1998
and yet management did not provide information for the dollar values of such
stock issuances to enable proper recording of all stock transactions
occurred in 1998. Consequently, the Company's common stock capital
and paid-in capital as well as the related assets at December 31, 1998
were understated by the omission of such stock transactions whose value
was unknown at the close of our audit. A certain investment consulting
company was involved in raising capital for the Company by private
placements; a total of $1,660,000 was raised during the years
1996, 1997 and 1998.Management of the Company and this investment consulting
company were unable to provide detailed information about these stock
transactions for our audit.The funds of $1,484,000 were disbursed directly to
Morceli Limited as development cost(see note 3); an amount of $21,000 was held
by the investment consulting company in trust for the Company; however, the
balance of $155,000 was unaccountable.
Due to a lack of books and records, pertinent financial information and
evidence in substantiation of the Company's assertion of assets,
liabilities and stockholders' equity at December 31, 1998 and its
operating results and cash flows for the year then ended, we were not
able to apply other auditing procedures to satisfy ourselves of the
existence and correctness of all items
presented in the accompanying financial statements.
Therefore, the scope of our work was not sufficient to enable us to
express, and we do not express, an opinion on these financial statements.
Samuel H. Wong & Co., LLP
Certified Public Accountants
San Francisco, California
August 23, 1999
Balance Sheet as of December 31, 1998.
Chancellor Corporation
(A Development Stage Company)
Balance Sheet
31-Dec-98
Assets
Cash held by Phoenix Financial Inc. $21,000
Due from Morceli Limited Note 3 11,484,000
Less: Allowance for Bad Debts -11,484,000
-----------
Total Assets $21,000
Liabilities and Stockholders' Equity
Liabilities
Accounts Payable $91,000
Total Liabilities 91,000
Stockholders' Equity
Common Stock Note 4 6,214
Paid-in Capital 139,252
Additional Paid-in Capital 11,268,534
Retained Deficits -11,484,000
Total Stockholders' Equity -70,000
Total Liabilities and Stockholders' Equity $21,000
See Accompanying Notes and Accountants' Report
Statement of Income for the Year Ended December 31, 1998.
Chancellor Corporation
(A Development Stage Company)
Statement of Income
For the Year Ended December 31, 1998
Operating Income $ ---
Allowance for Bad Debts 11,484,000
Loss for the year -11,484,000
Retained Earnings 1/1/98 ---
Ending Retained Deficits 12/31/98 ($11,484,000)
See Accompanying Notes and Accountants' Report
Statement of Stockholders' Equity for the Year Ended December 31, 1998.
Chancellor Corporation
(A Development Stage Company)
Statement of Cash Flows
For the Year Ended December 31, 1998
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss $ (11,484,000)
Adjustments to reconcile net loss
to net cash used for operating
Activities:
Allowance for Bad Debts 11,484,000
Net Cash used for Operating Activities 0
CASH FLOW FROM INVESTING ACTIVITIES:
Net Cash used for Investing Activities 0
CASH FLOW FROM FINANCING ACTIVITIES:
Loans to Morceli Limited (280,200)
Net Decrease in Cash and Cash Equivalents (280,200)
Cash and Cash Equivalents at 1/1/98 301,200
Cash and Cash Equivalents at 12/31/98 $ 21,000
See Accompanying Notes and Accountants' Report
Notes to Financial Statements.
Chancellor Corporation
(a Development Stage Company)
Notes to Financial Statements
For the Year Ended December 31, 1998
1. The Company
Chancellor Corporation (prior to November 8, 1996: Technivision Inc.) was
incorporated in the State of Nevada on June 3, 1996 and merged with Prime
Collateral Inc.(a Utah Corporation) pursuant to Articles and Plan of Merger of
June 3, 1996 whereby Technivision Inc. became the surviving corporation by
virtue of Section 450 and seq. of Nevada Revised Statutes.
The name of "Chancellor Corporation" was changed to "Topaz Gem Group Inc."
pursuant to an Amendment to the Articles of Incorporation on November 13, 1998
in contemplation of an agreement between Chancellor and Best Worth Agent, Ltd.
by which Chancellor would acquire all of the issued and outstanding preferred
stock of the three Thai companies(namely: Creative Gems & Jewelry Co., Ltd.,
Advance Gems & Jewelry Co., Ltd., and Well Gems & Jewelry Co., Ltd.)
in exchange for shares of preferred stock of Chancellor.
Although a memorandum of understanding was entered into between Chancellor
and Topaz on October 22, 1998, the exchange agreements were not signed
until April 30, 1999 which was subject to the adjustment of the number
of shares of Chancellor to be paid to the three Thai companies.
During the year 1998 and through August 23, 1999, the following persons served
as the Company's directors and officers:
Board of Directors Officers
Mr. Ron Sparks(Chairman) Mr. Martin Newman(President)
Mr. Martin Newman Miss Jane Kelly(Secretary)
Mr. Peter Lynch
Mr. Brian Condon
Miss Jane Kelly
The Company's counsel is preparing shares adjustments to finalize the exchange
agreement whereupon the appointment of new directors and officers is
expected to be made on September 1, 1999.
Prior to the exchange agreement, Chancellor's main project was a joint venture
contract for horse racing and national lottery with Beijing Da Du International
Jockey Club Co., Ltd.(a Beijing, PRC Company) through Morceli Limited(an
Oklahoma Corporation).
2. Summary of Significant Accounting Policies
This summary of significant accounting policies of Chancellor Corporation (the
Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management who is responsible for their integrity and objectivity.
Information in respect of events occurred prior to 1998 was carried over from
the 1997 audited financial statements.
(a) Basis of Reporting
The Company adopts the accrual basis of accounting.
(b) Allowance for Bad Debts
Whenever management of the Company has doubts of recovering debts after
exercising reasonable collection measures, management will recommend providing
Allowance for Bad Debts by crediting the desired amount to an "Allowance
for Bad Debts" account and debiting an "Allowance for Bad Debts Expense"
account.
(c) Income Taxes
The Company uses the accrual method of accounting to determine and report its
taxable income and the flow-through method to account for tax credits,
which are reflected as a reduction of income taxes for the year in which
they are available.
Income tax liabilities computed according to the Federal tax laws, are provided
for the tax effects of transactions reported in the financial statements and
consist of taxes currently due plus deferred taxes related primarily to
differences between the basis of fixed assets and intangible assets for
financial and tax reporting. The deferred tax assets and liabilities represent
the future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for operating losses and passive activity
losses that are available to offset future taxable income and tax credits that
are available to offset future Federal income taxes.
(d) Cash Flows
For the purpose of statement of cash flows, the company considers all highly
liquid debt instruments with maturity dates of three months or less to be cash
equivalents.
(e) Use of Estimate
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at the date of the
financial statements and revenue and expenses during the reporting period.
Actual results could differ from those estimates.
3. Due from Morceli Limited
The Company made interest-free unsecured loans to Morceli Limited with the plan
of financing its project of national lottery and horse-racing activities in the
Peoples' Republic of China(PRC). Morceli Limited was contemplated to be a
wholly-owned subsidiary of Chancellor Corporation. However, there was no
issuance of any stock of shares from Morceli to Chancellor to realize this
relationship. The amount outstanding at December 31, 1998 was comprised of:
Development Cost(funded by capital
raised through private placements) $ 1,484,000
Restricted Cash Reserves in PRC 5,000,000
Restricted Securities Deposited in PRC 5,000,000
(Note: these two items were placed as registered
capital in PRC and were funded by Additional
Paid-in Capital)
____________
$11,484,000
4. Stock Capital
The Company is authorized by its Restated Articles of Incorporation dated
November 4, 1997 to issue:
100,000,000 shares of common stock at $0.001 par value $100,000
10,000,000 shares of preferred stock at $0.001 par value 10,000
$110,000
As of December 31, 1998, the Company has issued and outstanding 6,213,607
shares at $0.001 par value $6,214. However, the Company decided to
effectuate a ONE FOR THREE REVERSE SHARE SPLIT at December 7, 1998.
As a result, the 6,213,607 shares before the split have been converted into
2,071,202 shares after the split.
4. The financial statements disclosed total shares of common stock issued and
outstanding at December 31, 1998, 1997 and 1996 as follows; however, these
totals do not reconcile with those revealed in Stockholders' List
Reports issued by the Company's transfer agent:
Common Stock 1998 1997 1996
Total Shares per Financial Statements 6,213,607 14,546,607 3,500,000
Total Shares per transfer agent 5,463,738 14,392,977 3,633,459
________ _________ ________
Discrepancies 749,869 153,630 <133,459>
The above discrepancies occurred because management did not exercise proper
control of stock transactions.
By a Board Resolution of December 27, 1997, the 8,333,000 shares before the
split(under Certificate #20123) issued to Beijing Dadu International
Jockey Club Co. Ltd. was cancelled.
However, the fact that Beijing Dadu has not surrendered
the stock certificate for cancellation, negates the transfer agent's authority
to execute the stock cancellation transaction. Consequently, such shares are
still included in the Company's share register.
The Company by board resolution dated August 27, 1999, has directed the
transfer agent to place a stop transfer order against Certificate #20123.
Item 15 (A) (2)
Robert G. Tschida
Certified Public Accountant
301 North Main
P.O. Box 5507
Pueblo, CO 81002
(719) 568-9700
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Chancellor Corporation
Oklahoma City, Oklahoma
I have audited the accompanying balance sheet of Chancellor Corporation as of
December 31, 1997. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion based on my
audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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 balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. I
believe that my audit provides a reasonable basis for my opinion.
In my opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Chancellor Corporation as of
December 31, 1997 and the results of its operations and its cash flows for the
period ending December 31, 1997 in conformity with generally accepted
accounting principles.
Robert G. Tschida, CPA
January 30, 1998
CHANCELLOR CORPORATION
(A Development Stage Company)
Balance Sheet
December 31, 1997
Assets
Current Assets:
Cash $301,200
Other Assets:
Subsidiary (Note 2) 2,500,000
Development costs (Note 2) 1,203,800
Total other assets 3,703,800
Restricted Assets:
Cash reserves (Note 4) 5,000,000
Securities deposited (Note 4) 5,000,000
Discounted cash-flows (Note 3) 122,606,644
Total restricted assets 132,606,644
Total Assets $136,611,644
Liabilities & Stockholders' Equity
Current Liabilities
Accounts payable $ 91,000
Unearned Revenues (Note 3) 122,606,644
Stockholders' Equity
Common Stock, 100,000,000 shares authorized,
$0.001 par value, 14,546,607 shares issued and
outstanding. 145,466
Preferred Stock, 5,000,000, $10.00 value
authorized, 250,000 shares issued and outstanding 2,500,000
Paid-in Capital 11,268,534
Total Stockholders' Equity 13,914,000
Total Liabilities and Stockholders' Equity $136,611,644
The accompany notes are an integral part of these financial statements
CHANCELLOR CORPORATION
(A Development Stage Company)
Statement of Stockholder's Equity
For the period ending December 31, 1997
Common Preferred Paid-in Retained
Stock Stock Capital Earnings
Beginning
Balance $3,700 $2,500,000 $117,300 $ 0
Balance
12/31/97 $145,466 $2,500,000 $11,268,534 $ 0
The accompany notes are an integral part of these financial statements
CHANCELLOR CORPORATION
(A Development Stage Company)
Cash Flows
December 31, 1997
Cash flows from operation:
Net Income $ 0
Cash flows from investing activities:
Increase in discounted cash flows (122,606,644)
Investment in subsidiary (2,500,000)
Investment in development costs (1,203,800)
Increase in unearned income 122,606,644
Issuance of preferred stock 2,500,000
Issuance of common stock 141,766
Increase in paid-in capital 11,151,234
Cash flow from financing activities:
Investment of cash & securities in subsidiary (10,000,000)
Increase in payables 91,000
Cash provided 254,000
Beginning cash 121,000
Ending cash $ 301,200
The accompany notes are an integral part of these financial statements
CHANCELLOR CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
Note 1: The company was incorporated in the State of Nevada in 1981. The
company main project is a joint venture gaming agreement with the Beijing
DaDu International Jockey Club.
This agreement has been approved by the Chinese government.
The agreement may be seen at the company corporate office.
Note 2: The company has acquired a Fraternal Insurance Society to market
various services to member in exchange for the issuance of preferred stock.
The company is managed by the U.S. Management, a subsidiary of Chancellor.
Note 3: The company's share of the proposed income from the Beijing DaDu
International Jockey Club is projected by using the present value of the cash-
flow based on a 20% accrual to Chancellor over 12 years of the projected
income of the project over the same 12 years as follows:
Total Income projected $1,542,576,295.00
20% accrual to Chancellor $308,515,259.00
Discounted @ 8% for 12 years
(factor is .3971)
$308,515,259.00 x .3971 = $122,606,644.00
Note 4: Cash and securities were placed as Registered Capital in China, (for
Morceli, Inc., a wholly owned subsidiary), and are restricted as to usage in
China. Entry consists of $5,000,000 cash and $5,000,000 securities. Cash can
be replaced by acceptable securities at any time and total funds will be
released on December 1, 1998.
Note 5: Subsequent Events:
The company reached an agreement with Zhida Development Co,. Ltd. and America
Saipan International Trading, Inc., as follows:
A) Chancellor Corporation and Ron Sparks, Chairman agreed to cancel 8,333,000
shares of common stock that was issued in the name of Beijing Dadu
International Jockey Club Co. Ltd.
B) Cancellation of 500,000 preferred shares issued in the name of Zhida
Development Co. Ltd.
C) The 3,000,000 shares of control shares held by NAFTA Trust were canceled
and re-issued as follows;
1. 1,470,000 American Saipan International Trading Inc.
2. 1,530,000 NAFTA Trust
Mr. Du, Lianlu of American Saipan was appointed to the Board of Directors of
Chancellor Corporation.
Note 6: The company reversed the acquisition of the Fraternal Insurance
Society and canceled the 250,000 shares of preferred stock used for that
acquisition. The company will proceed with an alternate insurance program.
The net result of the above transaction leaves Chancellor Corporation with
only 6,321,000 shares outstanding, the cancellation of debt for the real
estate in Guang Dong Province, the debt for the Fraternal company and
the debts of $15 million dollars for the license fee and $55 million
dollars for the lease of the facility in Beijing.
Item 15 (A) (3)
Robert G. Tschida
Certified Public Accountant
301 North Main
P.O. Box 5507
Pueblo, CO 81002
(719) 568-9700
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Chancellor Corporation
Sausalito, California
I have audited the accompanying balance sheet of Chancellor Corporation (a
development stage company) as of December 20, 1996 and the related
statements of income, stockholders' equity and cash flows for the beginning
period ending December 20, 1996.
These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion based on my
audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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 statements presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements of Chancellor Corporation referred to
above present fairly, in all material respects, the financial position of
Chancellor Corporation as of December 31, 1996 and the results of its
operations and its cash flows for the period ending December 31, 1996
in conformity with generally accepted accounting principles.
Robert G. Tschida, CPA
CHANCELLOR CORPORATION
(A Development Stage Company)
Balance Sheet
December 20, 1996
Assets
Current Assets:
Cash $ 121,000
Other Assets
Investment in Parent 3,500,000
Total Assets $ 3,621,000
Liabilities & Stockholders' Equity
Stockholders' Equity
Common Stock, 100,000,000 shares authorized,
$0.001 par value, 3,500,000 shares issued and
Outstanding. $ 3,500
Paid-in Capital 117,500
Paid-in Capital from issuance of Stock 3,500,000
Total Stockholders' Equity 3,621,000
Total Liabilities and Stockholders' Equity $3,621,000
The accompany notes are an integral part of the financial statements
CHANCELLOR CORPORATION
(A Development Stage Company)
Income Statement
For the period ending December 31, 1996
NO ACTIVITIES
The accompany notes are an integral part of the financial statements
CHANCELLOR CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996
Note 1: The company was incorporated in 1981 in the State of Nevada for the
general purpose of purchasing investments grade commercial real estate
projects.
Note 2: The company's plan is to issue Corporate Real Estate Bonds in order
to finance the acquisition of TRIPLE NET LEASED commercial real estate
properties from Major S&P rated corporations. The company's immediate
objective is to finance acquisition with a minimum price of $100,000,000.
The lease terms will vary from 25-60 years all NNN, with a beginning
capitalization of 10.25% - 10.50% annual yield.
Note 3: The company proposes to utilize the income generated from these
projects, including interest income derived from the Bonds to offer an
attractive yield to the Bondholders of 7% and to support operating general,
marketing and administrative expenses.
Note 4: The company has projected statements which are available at the
corporate offices located at 3030 Bridgeway, Suite 100, Sausalito, CA 94965.
Note 5: The parent company contributed 350,000 shares of preferred at $10.00
stated value. U.S. Heritage Inc. (Parent Company) has net assets in
excess of $200,000,000.
The accompanying notes are an integral part of these financial statements.
Item 15 (B) (1)
CREATIVE GEMS & JEWELRY COMPANY LIMITED
ADVANCE GEMS & JEWELRY COMPANY LIMITED
WELL GEMS & JEWELRY COMPANY LIMITED
REPORT AND COMBINED FINANCIAL STATEMENTS
31st DECEMBER, 1998
BDO
BDO Richfield Ltd. 22nd Floor, CTI Tower
Certified Public Accountants 191/41 New Tachadapisek Road
Klongtoey, Bangkok 10110, Thailand
Telephone: (662) 261-1251/4, 661-9510-3
Telefax: (662) 261-1255
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Creative Gems & Jewelry Company Limited,
Advance Gems & Jewelry Company Limited, and
Well Gems & Jewelry Company Limited
We have audited the accompanying combined balance sheet of Creative Gems &
Jewelry Company Limited, Advance Gems & Jewelry Company Limited,
and Well Gems & Jewelry Company Limited as at 31st December, 1998,
and the combined related statements of earnings and combined retained
earnings for the year then ended. These financial statements are the
responsibility of the Company's management as to their correctness and
completeness of the presentation. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in
the 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 audit provides a reasonable basis for our opinion, except as
discussed in the third paragraph, fourth paragraph, fifth paragraph, sixth
paragraph and seventh paragraph.
The audit result of an oversea account receivable of Baht 428.41 million,
from the total outstanding accounts receivable of Baht 621.09 million of
Creative Gems & Jewelry Company Limited,an oversea account receivable of Baht
29.60 million, from the total outstanding accounts receivable of Baht 43.90
million of Advance Gems & Jewelry Company Limited, and an oversea account
receivable of 34.99 million, from the total outstanding accounts
receivable of Baht 59.05 million of Well Gems & Jewelry Company Limited
as at 31st December, 1998, revealed that various documents received from
third party are not consistent with the documents received from the Company.
We are unable to perform other alternative tests to satisfy ourselves as to
the existence and correctness of the account receivable and the trading
transactions the Companies had with such trade debtors.
A Member Firm of BDO Binder
BDO
The audit result of an oversea account payable of Baht 39.70 million, from
the total outstanding accounts payable of Baht 102.02 million of
Creative Gems & Jewelry Company Limited as at 31st December, 1998,
revealed that various documents received from third party are not
consistent with the documents received from the Company.
We are unable to perform other alternative tests to satisfy ourselves
as to the existence and correctness of the account payable and
the trading transactions the Company had with such trade creditor.
As we were appointed as Creative Gems & Jewelry Company Limited auditor on
26th March, 1999, we were unable to observe the beginning inventory count
as at 1st January, 1998 valued at Baht 113.41 million.
Furthermore, we were unable to satisfy ourselves by means of other auditing
procedures as to the quantities of such inventories and we were unable
to examine the cost calculation of such inventories due to insufficiency
of relevant documents and information and we were unable to satisfy
ourselves by means of other auditing procedures as to the
unit cost of such inventories. Therefore, we were unable to determine the
effect of adjustments, if any, that might have been required on the value of
such inventories and therefore its effect on the cost of sales for the year
ended 31st December, 1998.
As we were appointed as Advance Gems & Jewelry Company Limited and Well
Gems & Jewelry Company Limited auditor on 26th March, 1999, we were unable to
observe the inventories as at 31st December, 1997 value at Baht 25.66 million
and Baht 41.02 million respectively and also unable to attend the physical
inventory count after 26th March, 1999 because these Companies had already
sold out the inventories before such date, and we were thus unable to satisfy
ourselves by means of other auditing procedures as to the quantities of such
inventories. Furthermore, we were unable to examine the cost calculation of
such inventories due to insufficiency of relevant documents and information
and we were thus unable to satisfy ourselves by means of other auditing
procedures as to the unit cost of such inventories. Therefore we were
unable to determine the effect of any adjustments that might have been
required on the cost of sales for the year ended 31st December, 1998.
As described in note 1 to the financial statements, Advance Gems & jewelry
Company Limited and Well Gems & Jewelry Company Limited ceased their
operations in October 1997 and obtained an approval letter dated 13th
November, 1998 from the Board of Investment Committee for temporarily
ceased operations under the certificate dated 20th July, 1993.
Additionally the Companies recorded a net loss for the year ended
31st December, 1998 of Baht 41.48 million and Baht 10.64 million,
respectively and as of that date total current liabilities exceeded
their total current assets by Baht 22.93 million and Baht 44.28 million,
respectively and as of that date Well Gems & Jewelry Company Limited had
capital deficiency of Baht 34.28 million. These factors raise a substantial
doubt that these Companies will be able to continue as a going concern.
Nevertheless, these Companies are in the process of increasing the capital
and planning to resume the business operation during 1999. The
accompanying financial statements do not include any adjustment relating
the realization of recorded assets and the amount of liabilities that
might result from the outcome of these uncertainties.
BDO
Because of the high significance on the effects of any adjustments as
might have been determined to be necessary had we been able to verify the
existence and correctness of the account receivable and the related trading
transactions these Companies had with the said trade debtors mentioned in the
third paragraph; the existence and correctness of the account payable and the
related trading transactions the Company had with the said trade creditor
mentioned in the fourth paragraph; the correctness of the value of beginning
inventories as at 1st January, 1998 mentioned in the fifth paragraph and sixth
paragraph and the uncertainty of these companies' going concern mentioned
in the seventh paragraph, we are unable to express an opinion on the
combined financial statements of Creative Gems & Jewelry Company Limited,
Advance Gems & Jewelry Company Limited, and Well Gems & Jewelry Company
Limited for the year ended 31st December, 1998.
Without qualifying our opinion, we draw attention to note 18, to the
financial statements on 17th November,1998 the Board of Directors of Creative
Gems & Jewelry Company Limited approved to pay interim dividends of Baht 500
million based on the 1997 operating results.However, the Company's ability to
pay such interim dividends will depend on its liquidity status as well as the
successful collection of its account receivable.
We draw attention to note 20 to the financial statements, in 1998, Advance
Gems & Jewelry Company Limited applied the equity method for the investment in
the subsidiary company instead of the cost method.In addition, equity in loss
for investment in the subsidiary as stated in the financial statements for the
year ended 31st December, 1998 computed from the financial statements of
subsidiary audited by another auditor whose report dated 5th March, 1999
express an unqualify opinion.
The financial statements of Creative Gems & Jewelry Company Limited for
the year ended 31st December, 1997 were audited by another auditor whose
report dated 16th November, 1998 expressed a disclaimer opinion on the
financial statements because of the significant effects of any adjustments
that might have been required had the auditor been able to verify one
trade account receivable of Baht 377 million and the valuation of
inventories as at 31st December, 1996.
The financial statements of Advance Gems & Jewelry Company Limited and
Well Gems & Jewelry Company Limited for the year ended 31st December,
1997 were audited by another auditor whose report dated 16th November,
1998 expressed the disclaimer opinion on the financial statements
because of the significant effects of any adjustments that might
have been required to the valuation of inventories as at 31st December,
1996 and the uncertainty of the Companies's going concern.
Mr. Anurak Lelapiyamit
Certified Public Accountant (Thailand) No. 3462
BDO Richfield Ltd.
Bangkok : 30th April, 1999
The above report of independent certified public accountants and accompanying
financial statements are English translations of such report and financial
statements prepared for and used in Thailand. The accompanying financial
statements were prepared using accounting principles, procedures and reporting
practices generally accepted in Thailand and are not intended to present the
financial position and results of operations, changes in shareholders' equity
and cash flows in accordance with accounting principles and practices generally
accepted in countries and jurisdictions other than those in Thailand. The
standards, procedures and practices utilized to audit such financial statements
are those generally accepted and applied in Thailand.
BDO
CREATIVE GEMS & JEWELRY COMPANY LIMITED,
ADVANCE GEMS & JEWELRY COMPANY LIMITED AND
WELL GEMS & JEWELRY COMPANY LIMITED
COMBINED BALANCE SHEETS
AS AT 31st DECEMBER, 1998
Conversion Note BAHT US$
ASSETS
CURRENT ASSETS
Cash in hand and at banks 65,241,124 1,778,269
Short-term investments 3 20,000,000 545,137
Trade accounts receivable - net 4 661,738,839 18,036,929
Trade accounts receivable
related companies - net 5 1,649,879 44,971
Inventories -net 6 291,163,518 7,936,206
Value Added Tax refundable 34,678,061 945,215
Other current assets 2,667,622 72,711
TOTAL CURRENT ASSETS 1,077,139,043 29,359,438
INVESTMENTS IN SUBSIDIARY
AND OTHER COMPANIES 7 1,213,789 33,084
LOAN TO DIRECTOR 8 1,870,000 50,970
PROPERTY, PLANT AND EQUIPMENT - NET 9 58,225,326 1,587,040
FIXED DEPOSIT 10,21 2,256,169 61,496
OTHER ASSETS 1,386,616 37,795
TOTAL ASSETS 1,142,090,943 31,129,823
The accompanying notes are an integral part of the financial statements.
BDO
ADVANCE GEMS & JEWELRY COMPANY LIMITED AND
WELL GEMS & JEWELRY COMPANY LIMITED
COMBINED BALANCE SHEETS (Continued)
AS AT 31st DECEMBER, 1998
Conversion Note BAHT US$
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft 11 843,957 23,003
Loan from financial institution 12 63,000,000 1,717,183
Trade accounts payable 104,671,761 2,853,024
Trade accounts payable
- related companies 5 954,800 26,025
Other accounts payable
- related companies 5 7,282,133 198,488
Other accounts payable 3,480,892 94,878
Current portion of hire
purchase payable 13 1,332,731 36,326
Loan from director 14 72,425,569 1,974,094
Accrued dividend 18 368,000,000 10,030,528
Other current liabilities 12,971,542 353,564
TOTAL CURRENT LIABILITIES 634,963,385 17,307,113
HIRE PURCHASE PAYABLE - NET 13 1,685,862 45,951
TOTAL LIABILITIES 636,649,247 17,353,064
SHAREHOLDERS' EQUITY
Share capital 15
Authorized, issued and fully paid-up
Preference share of 9,800,000 shares at 16
Baht 10 par value 98,000,000 2,671,173
Common share of 30,200,000 shares at
Baht 10 par value 302,000,000 8,231,575
400,000,000 10,902,748
Less: Share subscription receivable (8,050,000) (219,418)
391,950,000 10,683,330
Retained earnings
Appropriated
Legal reserve 17 10,000,000 272,569
Unappropriated 103,491,696 2,437,471
Translation adjustments - 383,389
TOTAL SHAREHOLDERS' EQUITY 505,441,696 13,776,759
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,142,090,943 31,129,823
The accompanying notes are an integral part of the financial statements.
DIRECTOR
BDO
CREATIVE GEMS & JEWELRY COMPANY LIMITED,
ADVANCE GEMS & JEWELRY COMPANY LIMITED AND
WELL GEMS & JEWELRY COMPANY LIMITED
COMBINED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
YEAR ENDED 31st DECEMBER, 1998
Conversion Note BAHT US$
EARNINGS
REVENUES
Sales 19 1,050,981,635 25,762,511
Interest income 6,393,066 156,712
Other income 4,239,044 103,911
TOTAL REVENUES 1,061,613,745 26,023,134
EXPENSES
Cost of sales 604,789,532 14,825,090
Selling and administrative expenses 154,507,966 3,787,424
Loss on exchange rate 151,696,360 3,718,504
Equity in loss for investment in subsidiary 21,141 518
Interest expenses 10,882,994 266,773
Corporate income tax 23 -
TOTAL EXPENSES 921,897,993 22,598,309
NET EARNINGS FOR THE YEAR 139,715,752 3,424,825
EARNINGS PER SHARE
Net earnings for the year 4.62 0.11
RETAINED EARNINGS
BALANCE-beginning of the year 478,140,953 13,032,625
The cumulative effect on prior years for applying the equity
method for investment in subsidiary company 20 (4,365,009) (118,976)
BALANCE-beginning of the year after adjustment 473,775,944 12,913,649
APPROPRIATION ITEMS
Legal reserve 17 (10,000,000) (272,569)
Interim dividends 18 (500,000,000) (13,628,434)
BALANCE AFTER APPROPRIATION (36,224,056) (987,354)
NET EARNINGS FOR THE YEAR 139,715,752 3,424,825
BALANCE-ending of year 103,491,696 2,437,471
The accompanying notes are an integral part of the financial statements
BDO
CREATIVE GEMS & JEWELRY COMPANY LIMITED,
ADVANCE GEMS & JEWELRY COMPANY LIMITED AND
WELL GEMS & JEWELRY COMPANY LIMITED
NOTES TO FINANCIAL STATEMENTS
NOTE 1- A GOING CONCERN ISSUE
Advance Gems & Jewelry Company Limited recorded a net loss for the year ended
31st December, 1998 of Baht 41.48 million and as of that date the Company's
total current liabilities exceeded its total current assets by Baht 22.93
million.
Well Gems & Jewelry Company Limited recorded a net loss for the year ended
31st December, 1998 of Baht 10.64 million and as of that date the
Company had capital deficiency of Baht 34.28 million, and total current
liabilities exceeded its net total current asset by Baht 44.28 million.
Advance Gems & Jewelry Company Limited and Well Gems & Jewelry Company
Limited ceased it operations in October 1997 and obtained an approval
letter dated 13th November, 1998 from the Board of Investments
Committee for temporarily ceased operations under the certificate
dated 20th July, 1993.
These factors raise a substantial doubt that these Companies will be able to
continue as a going concern. Nevertheless, these Companies are in the
process of increasing the capital and planning to resume the business
operation during 1999. The financial statements, therefore, do not
include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classification of liability
that might be necessary should these Companies are be unable to continue
as a going concern.
At the extraordinary meeting of Advance Gems & Jewelry Company Limited
and Well Gems & Jewelry Company Limited No. 2/1999 held on 8th March,
1999 and No. 3/1999 held on 30th March, 1999, the shareholders approved
to increase the Company's registered share capital from Baht 100 million
to Baht 200 million.
/ 2
BDO
- - 2 -
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of Accounting
The combined financial statements are prepared in accordance with accounting
principles generally accepted in Thailand which include the accounts of
Creative Gems & Jewelry Company Limited, Advance Gems & Jewelry Company
Limited and Well Gems & Jewelry Company Limited. All significant
inter-company accounts and transactions have been eliminated in the
combined financial statements.
2.2 Sales
Sales are shown net of discounts and sales returned, represent the invoiced
value of goods supplied.
2.3 Allowance for doubtful accounts
These Companies provide allowances for the total amount of doubtful accounts.
The estimated losses are based on a review of the current status of
the existing receivables.
2.4 Inventories
Inventories are stated at the lower of cost or net realisable value.
Costs are determined on a moving average basis. Net realisable value
is the price at which inventories can be sold in the normal course of
business after allowing for the costs of realisation and,where appropriate,
the cost of conversion from their existing state to a finished condition.
Provision is made where necessary for obsolete, slow-moving and
deteriorating inventories.
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2.5 Recognition of investments
Investment in subsidiary company
- - Investment in subsidiary company is accounted for using the equity method.
Investment in an other company
- - Investment in an other company under 20% controlled is accounted for using
the cost method. Provision for loss will be set aside upon any permanent
diminution in value of the investment.
2.6 Depreciation
Depreciation for plant and equipment is calculated by reference to their cost on
a straight-line method at the following rates:
Percent per annum
Buildings and building improvement 5-20
Machinery and equipment 20
Furniture and fixtures 20
Motor Vehicles 20
2.7 Foreign currency translation and transactions
The financial position and results of operations of Creative Gems & Jewelry
Company Limited, Advance Gems & Jewelry Company Limited and Well Gems &
Jewelry Company Limited are determined using local currency as the
functional currency. Assets, liabilities and capital of these companies
are translated at the prevailing exchange rate in effect at each year end.
Income statement accounts are translated at the average rate of exchange
during the year. Translation adjustments arising from the use of different
exchange rates from period to period are included in the cumulative
translation adjustment account in shareholders' equity.
/ 4
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Transactions incurred during the year denominated in foreign currencies were
translated into Thai Baht at the exchange rate ruling when the transactions
were entered into. Monetary assets and liabilities denominated in foreign
currencies were translated in Thai Baht at the exchange rate ruling at
the balance sheet date. Exchange gain or losses are included in the
statement of earnings.
The exchange rate as of December 31, 1998 was $1 = Thai Baht 36.688.
The average exchange rate during the year was $1 = Thai Baht 40.795.
2.8 Provision for loss from contingent goods returned
The Company records the provision for loss from contingent goods returned by
estimating from the ratio of the goods actually returned in the past.
2.9 Earnings per share
Earnings per share is determined by dividing net earnings for the year by the
weighted-average number of shares outstanding during the year.
NOTE 3- SHORT-TERM INVESTMENTS
Short-term investments represent promissory notes issued by a finance
institution bearing interest at the rate of 16.75% - 17.75% per annum.
NOTE 4- TRADE ACCOUNTS RECEIVABLE-NET
BAHT
Trade accounts receivable 701,439,478
Post-dated cheques received 22,595,099
724,034,577
Less: Allowance for doubtful accounts (62,295,738)
Trade accounts receivable - net 661,738,839
/ 5
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NOTE 5- TRANSACTIONS WITH RELATED COMPANIES
Balance with the related companies as at 31st December, 1998
consisted of
BAHT
Trade accounts receivable - related company (net)
Trillion Royal Grand Company Limited 24,456,390
Less: allowances for doubtful account (22,806,511)
Trade accouns receivable - related company (net) 1,649,879
Trade accounts payable - related company
Trillion Royal Grand Company Limited 954,800
Other accounts payable - related companies
Quality Color Company Limited 1,522,133
Calibration of Gems Factory Company Limited 5,760,000
Total 7,282,133
Revenue and expenses transactions with related companies for the year
ended 31st December, 1998 can be summarized as follows:-
BAHT
Sales 1,499,890
Expenses 1,200,000
NOTE 6- INVENTORIES - NET
BAHT
Raw materials 113,422,680
Work in process 6,809,782
Finished goods 177,164,678
297,397,140
Less : Provision for lower of cost or net
realisable value and slow-moving (6,233,622)
Inventories - net 291,163,518
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NOTE 7- INVESTMENTS IN SUBSIDIARY AND OTHER COMPANIES
Percentage
of holdings BAHT
Investments in subsidiary company (equity method)
Aeuchart Development Co., Ltd.
(499,994 shares of Baht 10 each) 99.99 4,999,940
Less : Equity in deficit for investment (4,386,151)
613,789
Investment in other company (cost method)
AGD Gems Dealer Co., Ltd.
(12,000 shares of Baht 50 each) 1.83 600,000
1,213,789
NOTE 8 - LOAN TO DIRECTOR
This represents loans to a director with no interest charge and no
fixed terms of repayments.
NOTE 9 - PROPERTY, PLANT AND EQUIPMENT - NET
Accumulated Net
Cost Depreciation Book Value
BAHT BAHT BAHT
Land 39,216,312 - 39,216,312
Building and building
improvement 14,209,319 5,627,086 8,582,233
Land improvement 585,557 - 585,557
Machinery and equipment 28,721,659 24,250,009 4,471,650
Furniture and fixtures 3,722,095 2,217,880 1,504,215
Vehicles 7,803,629 3,938,270 3,865,359
94,258,571 36,033,245 8,225,326
/ 7
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Depreciation charge for the year amounting to Baht 4,645,204 is included in
selling and administrative expenses, and amounting to Baht 2,966,891 is
included in cost of goods sold, and amounting to Baht 800,926 in cost
of production.
Land has been mortgaged with a financial institution as collateral for
short-term loans and bank overdraft.
NOTE 10 - FIXED DEPOSIT
As at 31st December, 1998, fixed deposit of Baht 2.01 million has been
pledged as security for bank guarantee with a local bank.
NOTE 11- BANK OVERDRAFT
The overdraft facilities have been guaranteed by the mortgage of the
Company's land and building.
NOTE 12- LOANS FROM FINANCIAL INSTITUTIONS
Loans from financial institution represent promissory notes issued to a
finance institution bearing interest at the following rates:
Loan Principal
Interest rate Million Baht
Creative Gems & Jewelry Company Limited MLR + 2% per annum 5
Advance Gems & Jewelry Company Limited 16.5% - 21% per annum 51
Well Gems & Jewelry Company Limited 16.5% - 21% per annum 7
Total 63
These loans are secured by the Company's directors and mortgaging the
Companies's land and building.
/ 8
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NOTE 13 - HIRE PURCHASE PAYABLE - NET
BAHT
Hire purchase payable 3,018,593
Less : Current portion of hire purchase payable (1,332,731)
Hire purchase payable - net 1,685,862
NOTE 14- LOAN FROM DIRECTOR
This represents loans from a director made for the purpose of financing the
Company's working capital with no interest charge and no fixed terms of
repayments.
NOTE 15- SHARE CAPITAL
At the extraordinary meeting of Creative Gems & Jewelry Company Limited No.
4/1998 and No. 5/1998 held on 20th October, 1998 and 10th November, 1998
respectively, the shareholders approved to increase the Company's registered
share capital from Baht 100million (10 million shares at Baht 10 par value)
to Baht 200 million (20 million shares at Baht 10 par value) dividing
into 10.2 million common shares and 9.8 million preference shares.
The Company registered the resolution for the increase in share capital
with the Ministry of Commerce on 27th November, 1998.
NOTE 16- PREFERENCE SHARES
The preference shares of the Company must first be paid dividend
proportionally to the holder(s) of the preference shares, in the amount
equivalent to the paid-up value of the preference shares and the balance
thereof shall be paid proportionally to holder(s) of the ordinary
shares and preference shares.
/ 9
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NOTE 17 - LEGAL RESERVE
Under the provisions of the Civil and Commercial Code, the Company is
required to set aside as legal reserve of at least 5% of its net
earnings at each dividend declaration until the reserve reaches 10% of
the authorized share capital. Such reserve is not available for
dividend distribution.
NOTE 18- INTERIM DIVIDENDS PAYMENT
On 17th November, 1998 the Board of Directors of Creative Gems & Jewelry
Company Limited approved to pay interim dividends to the shareholders
amounting to Baht 500 million (Baht 50 per share), from the results
of the Company's operations in 1997. Some shareholders have given
their consent to offset part of the interim dividends above against
the share subscription receivable of Baht 132 million.
NOTE 19- SALES - NET
BAHT
Sales 1,108,660,316
Less: Sales returned (57,678,681)
Sales - net 1,050,981,635
NOTE 20- THE CHANGE IN RECOGNITION OF INVESTMENT IN SUBSIDIARY COMPANIES
In 1998, Advance Gems & Jewelry Company Limited used the equity
method for the investment in subsidiary companies instead of the cost method.
The Company retroactively adjusted the beginning deficit in the financial
statements of 31st December, 1998. The effect of the change to beginning
deficit, net loss for the year and loss per share were as follows:
BAHT
Deficit-beginning of year 4,365,009
Increase in net loss (Baht) 21,142
Increase in loss per share (Baht per share) 0.002
/ 10
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NOTE 21 - BANK GUARANTEES
As at 31st December, 1998 a local bank has provided a guarantee on
behalf of the Company in respect of electricity supply amounting to
Baht 2.01 million. These guarantees are secured by pledging of
fixed deposits.
NOTE 22- COMMITMENTS
The Company has entered into a lease agreement on building and
services for head office location and 3 lease agreements on building for
branch office location payable on the monthly basis for rentals
and services charges of Baht 192,000 per month as from July 1996
to February 2011.
NOTE 23- PROMOTIONAL PRIVILEGE
Advance Gems & Jewelry Company Limited and Well Gems & Jewelry
Company Limited received promotional privilege from the Board of Investments
under the certificate dated 20th July, 1993 and Creative Gems & Jewelry
Company Limited received a promotional privilege on 22nd August, 1994
in respect of the manufacture of gems stone and jewelry.
Under this privilege, these Companies have received exemption from
certain taxes and duties including corporate income
tax on income derived from the promoted activities for a period of 8 years
commencing from the date that these Companies have income derived from those
activities. The Companies are required to comply with the terms
and conditions specified in the promotional certificate.
On 13th November, 1998, Advance Gems & Jewelry Company Limited and
Well Gems & Jewelry Company Limited have obtained an approval letter from the
Board of Investment Committee for temporarily ceased operations under the
certificate date 20th July, 1993 as requested by these Companies.
/ 11
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NOTE 24- IMPACT OF YEAR 2000 COMPUTER PROBLEM ON THE ENTERPRISE
The Company is in the process of correcting its computer systems with
regard to the year 2000 problem. As there is a risk associated with
the computer systems when the year 200 arrives, and the risk arising
from other businesses, with whom the Company has dealing, and who will
not be able to achieve the year 2000 compliance in time.
However, the Company expects that such impact will have no
material effect on its operations.
NOTE 25- SUBSEQUENT EVENT
At the extraordinary meeting of Advance Gems and Jewelry Company
Limited and Well Gems & Jewelry Company Limited No. 2/1999 held on 8th March,
1999 and N0. 3/1999 held on 30th March, 1999 respectively, the shareholders
approved to increase the Company's registered share capital from Baht 100
million (10 million shares at Baht 10 par value) to Baht 200 million
(20 million shares at Baht 10 par value) dividing into 0.2 million
common shares and 9.8 million preference shares.
However, these Companies have not yet registered the resolutions for
the capital increase with the Ministry of Commerce.
NOTE 26- PRESENTATION
The presentation of the financial statements has been made in
compliance with the Ministerial Regulation No.2 dated 7th December, 1976 as
empowered under the National Executive Council Announcement No. 285
of Thailand.
Item 15 (C) (1)
PRICEWATERHOUSE COOPERS
Report of the auditors to the shareholders of
Advance Gems & Jewelry Company Limited
We have examined the balance sheet of Advance Gems & Jewelry Company Limited
as at December 31, 1997,and the related statements of loss and deficit
for the year then ended. Our examination was made in accordance with
generally accepted auditing standards and accordingly included such
tests of the accounting records and such other auditing procedures as
we considered necessary in the circumstances.
We were appointed as the Company's auditor after the date of December 31 1996,
therefore, we did not observe the physical inventory count valued at Baht
47,898,956 at that date. We observed the inventory count on October 5, 1997
and reconciled back to the year ended December 31, 1996. However,
the Company did not summarise the results of the physical inventory count
and did not perform a reconciliation of inventories from the stocktaking
date to December 31, 1996.
Furthermore, we were unable to examine the cost calculation of inventories as
at December 31, 1996 due to insufficiency of relevant documents and
information. We were unable to satisfy ourselves by means of other auditing
procedures as to the effect of any such adjustment on the quantity and
valuation of inventories as at December 31, 1996 and cost of sales for
the year ended December 31, 1997.
As described in note 1 to the financial statements, the Company ceased its
operations in October 1997 and obtained an approval letter from the Board of
Investment Committee for temporarily ceased operations under the certificate
dated July 20, 1993. The provision for lower of cost or net realisable
value ofinventories as at December 31, 1997 approximately of Baht 26 million
which will be sold in the following fiscal years was recorded in these
financial statements. Additionally, the company recorded a net loss for the
year ended December 31, 1997 of Baht 83 million, which has reduced total
Shareholders' Equity to Baht 45 million, compared to short-term loans of
Baht 51 million.
PRICEWATERHOUSECOOPERS
Page 2
These financial statements have been prepared in accordance with generally
accepted accounting principles assuming that the Company is able to continue
as a going concern for the foreseeable future. The financial statements,
therefore, do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amount; and classification of
liabilities that might be necessary should the Company be unable to continue
as a going concern.
Because of the significance of the effects of any adjustments that might have
been required had we been able to satisfy ourselves concerning the matters
mentioned in the second paragraph and the uncertainty of the Company's going
concern mentioned in the third paragraph, we are unable to express an
opinion on the financial statements of Advance Gems & Jewelry Company Limited
for the year ended December 31, 1997.
VICHIEN KHINGMONTRI
Certified Public Accountant
(Thailand) No. 3977
PricewaterhouseCoopers Audit and Business Advisory Services Ltd.
November 16, 1998
PRICEWATERHOUSECOOPERS
Advance Gems & Jewelry Company Limited
Balance sheet as at December 31, 1997
Notes Baht
ASSETS
Current assets
Cash in hand and at banks 3 3,536,553
Acounts receivable-trade, net 4 588,620
Amounts due from affiliated companies 5 38,412,104
Inventories, net 6 25,655,088
Other current assets 826,410
Total current assets 69,018,775
Investments in subsidiary and other companies 7 5,599,940
Loan to a director 1,600,000
Property, plant and equipment, net 8 34,894,024
Other assets 545,278
TOTAL ASSETS 111,658,017
The notes on pages 5 to 11 form an integral part of the financial statements.
Auditors' report pages 1 and 2
PRICEWATERHOUSECOOPERS
Page 3
Notes Baht
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank overdrafts 101,897
Short-term loans 9 51,000,000
Accounts payable-trade 1,915,337
Amounts due to affiliated companies 5 6,141,785
Obiligations under hire-purchase
contracts due within one year 10 930,073
Other current liabilities 4,904,527
Total Current liabilites 64,993,619
Obiligations under hire-purchase contracts 10 1,277,412
TOTAL LIABILITIES 66,271,031
Shareholders' equity
Share capital 11 81,700,000
Deficit (36,313,014)
TOTAL SHAREHOLDERS' EQUITY 45,386,986
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 111,658,017
Director
Director
Date
November 16, 1998
PRICEWATERHOUSECOOPERS
Page 4
Advance Gems & Jewelry Company Limited
Statement of loss
for the year ended December 31, 1997
Notes Baht
REVENUES 5
Sales, net 12 7,740,336
Other income 1,747,672
TOTAL REVENUES 9,488,008
EXPENSES 5
Cost of sales 28,534,879
Selling and administrative expenses 66,995,724
Interest expense 8,258,363
TOTAL EXPENSES 103,788,966
Loss before extraordinary item (94,300,958)
Extraordinary item 13
Net gain on the adoption of managed floatation of the
Thai Baht against foreign currencies 11,346,838
NET LOSS FOR THE YEAR (82,954,120)
STATEMENT OF DEFICIT
Retained earnings brought forward 46,641,106
Net loss for the year (82,954,120)
Deficit carried forward (36,313,014)
LOSS PER SHARE 14
Loss before extraordinary item (13)
Extraordinary item 2
Net loss (11)
The notes on pages 5 to 11 form an integral part of the financial statements.
Auditors' report pages 1 and 2.
PRICEWATERHOUSECOOPERS
Page 5
Advance Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997
General
1. The Company ceased its operations in October 1997 and obtained an
approval letter from the Board of Investment Committee for temporarily
ceased operations under the certificate dated July 20, 1993.
The provision for lower of cost or net realisable value of
inventories as at December 31, 1997 approximately of Baht 26 million
which will be sold in the following fiscal years was recorded in
these financial statements. Additionally the company recorded a
net loss for the year ended December 31, 1997 of Baht 83 million, which
has reduced total Shareholders' Equity to Baht 45 million, compared to
short-term loans of Baht 51 million.
These financial statements have been prepared in accordance with
generally accepted accounting principles assuming that the Company is able
to continue as a going concern for the foreseeable future. The financial
statements, therefore, do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classification of liability that might be necessary should the Company
be unable to continue as a going concern.
Principal accounting policies
1. A summary of the significant accounting policies of the Company is set out
below.
(a) Inventories
Inventories are stated at the lower of cost or net realisable value. Costs
are determined on a first-in first-out basis. Net realisable value is the
price at which inventories can be sold in the normal course of business
after allowing for the costs of realisation and, where appropriate, the cost
of conversion from their existing state to a finished condition. Provision
is made where necessary for obsolete, slow-moving and defective inventories.
(b) Investments
Investments are stated at cost. Provision is made in the case of a permanent
diminution in value.
PRICEWATERHOUSECOOPERS
Page 6
Advance Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997 continued
(c) Depreciation
Depreciation is calculated so as to write-off the cost of the assets on a
straight-line basis over the expected useful economic lives of the assets
concerned. The principal annual rates used for this purpose are:
%
Building and building improvement 12.5
Machinery and equipment 20
Furniture and fixtures 20
Motor vehicles 20
(d) Foreign currencies translation
Transactions incurred during the year denominated in foreign currencies
are translated into Thai Baht at the exchange rates ruling when the
transactions were entered into. Monetary assets and liabilities denominated
in foreign currencies are translated into Thai Baht at the exchange rates
ruling at the balance sheet date.
Exchange gains or losses are included in the statement of loss.
(e) Sales
Sales, which are shown net of discounts and sales returned, represent the
invoiced value of goods supplied.
Cash in hand and at banks
3. Cash in hand and at banks includes a fixed deposit of Baht 500,000
which has been pledged as security for bank guarantee with a local bank.
PRICEWATERHOUSECOOPERS
Page 7
Advance Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997 continued
Accounts receivable-trade, net
4. Baht
Accounts receivable-trade 18,295,412
Post-dated cheques 500,946
18,796,358
Less: Allowance for doubtful accounts (18,207,738)
Accounts receivable-trade, net 588,620
Transactions with affiliated companies
5. A summary of significant transactions with affiliated companies is as
follows:
Baht
During the year ended December 31, 1997
Sales 26,149,928
Purchase of raw materials and supplies 8,615,353
Expenses 2,354,331
As at December 31, 1997
Amounts due from affiliated companies 38,412.104
Amounts due to affiliated companies 6,141,785
Inventories, net
6. Inventories are made up of:
Baht
Raw material 42,183,212
Finished goods 9,911,165
52,094,377
Less: Provision for lower of cost or net realisable value (26,439,289)
Inventories, net 25,655,088
PRICEWATERHOUSECOOPERS
Page 8
Advance Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997 continued
Investments in subsidiary and other companies
7. Percentage
of investment Baht
Aeuchart Development Co., Ltd. 99.00 4,999,940
(499,994 shares of Baht 10 each)
AGD Gems Dealer Co., Ltd.
(12,000 shares of Baht 50 each) 1.83 600,000
5,599,940
Property, plant and equipment, net
8. Property, plant and equipment, at cost:
Baht
Land 22,546,000
Building and building improvement 3,795,626
Machinery and equipment 24,387,477
Furniture and fixtures 1,388,255
Motor vehicles 3,867,100
55,984,458
Less: Accumulated depreciation (21,090,434)
Property, plant and equipment, net 34,894,024
Depreciation for the year amounting to Baht 5,964,424 has been included
in the statement of loss.
Land has been mortgaged with a finance institution as collateral for
short-term loans.
PRICEWATERHOUSECOOPERS
Page 9
Advance Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997 continued
Short-term loans
9. Short-term loans represent promissory notes issued to a finance
institution bearing interest at the rate of 16.5% per annum. These loans
are secured by the Company's directors and mortgaging the Company's land.
Obligations under hire-purchase contracts
10. The hire-purchase contracts are in respect of motor vehicles. The
commitment of repayments under these contracts are as follows:
Baht
Due within 1 year 930,073
Due over 1 year 1,277,412
2,207,485
Share Capital
11. Baht
Registered share capital:
10,000,000 ordinary shares of Baht 10 each 100,000,000
Issued and called-up share capital:
10,000,000 ordinary shares of Baht 10 each 100,000,000
Less: Unpaid called-up share capital (18,300,000)
81,700,000
At the directors' meeting held on December 20, 1997, it was unanimously
called the remaining portion 5 million ordinary shares of Baht 6 per share
totaling of Baht 30 million. However, as at December 31, 1997, the Company
has not yet received such called-up share capital.
PRICEWATERHOUSECOOPERS
Page 10
Advance Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997 continued
Sales, net
12. Sales are made up of:
Baht
Sales 46,684,579
Less: Sales returned (38,944,243)
Sales, net 7,740,336
Sales returned represents the substandard goods which were sold in 1995
to 1997 and returned in 1997.
Extraordinary item
13. On July 2, 1997, the Ministry of Finance declared the adoption of an
immediately effective managed floatation of the Thai Baht against foreign
currencies. Subsequent to July 2, 1997, the Thai Baht has devalued
significantly against foreign currencies. As a result, the Company has
incurred an exchange gain approximately amounting to Baht 1.3 million which
has been charged to the statement of loss as an extraordinary item.
Loss per share
14. Loss per share is calculated by using the weighted average number of
shares in issue during the year.
Bank guarantees
15. As at December 31, 1997, a local bank has provided a guarantee on
behalf of the Company in respect of electricity supply amounting to Baht
500,000. This guarantee is secured by pledging of a fixed deposit.
PRICEWATERHOUSECOOPER
Page 11
Advance Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997 continued
Promotional privilege
16. The Company received a promotional privilege from the Board of Investment
under the certificate dated July 20, 1993 in respect of the manufacture of
gems stone and jewelry. Under this privilege, the Company has received
exemption from certain taxes and duties including corporate income tax on
income derived from the promoted activities for a period of 8 years
commencing from the date that the Company has income derived from that
activities. The Company is required to comply with the terms and conditions
specified in the promotional certificate.
At November 13, 1998, the Company has obtained an approval letter from the
Board of Investment Committee for temporarily ceased operations under the
certificate dated July 20, 1993 as requested by the Company.
Auditors' report pages 1 and 2
Item 15 (C) (2)
Data Accounting
Certified Public Accountant
FINANCIAL STATEMENTS AND AUDITORS' REPORT
ADVANCE GEMS AND JEWELLY CO., LTD.
DECEMBER 31, 1996
Data Accounting
Certified Public Accountant
AUDITORS' REPORT
To the shareholders of ADVANCE GEMS AND JEWELLY CO., LTD.
We have examined the balance sheet of Advance Gems and Jewelly
Company Limited as at December 31, 1996 and the related statement of
income and retained earnings for the year then ended. Our examination
was made in accordance with generally accepted auditing standards and,
accordingly included such tests of the accounting records and such other
auditing procedures as we considered necessary in the circumstances.
The financial statements of Advance Gems and Jewelly Company Limited
For the year ended December 31, 1995 were examined by other auditors whose
reports expressed unqualified opinions as in auditors' report dated
October 24, 1996.
In our opinion, the aforementioned financial statements present
fairly the financial position of Advance Gems and Jewelly Company Limited
as at December 31, 1996 and the results of its operations for the year then
ended, in conformity with generally accepted accounting principles applied
on a basis consistent with that of the preceding year.
(Mr. Seri Butamjai)
Certified Public Accountant no. 3505
41/351 Soi Smakompaht, Sukhaphibal 1 Road,
Klongkhum, Bungkhum District, Bangkok 10240
April 25, 1997
Data Accounting
Certified Public Accountant
ADVANCE GEMS & JEWELLY CO., LTD.
BALANCE SHEET
AS AT DECEMBER 31, 1996
ASSETS
CURRENT ASSETS Baht
Cash in hand at banks (Note 2) 4,740,014.35
Accounts and notes receivable (Note 3) 118,278,607.42
Inventories (Note 1.2 and note 4) 47,898,956.19
Accrued income receivables 18,150,700.00
Other current assets 5,613,374.98
Total Current Assets 194,681,652.94
INVESTMENT IN OTHER COMPANIES 5,599,940.00
PROPERTY, PLANT AND EQUIPMENT - NET (Note 1.3 and note 5) 18,480,286.87
OTHER ASSETS (Note 6) 427,486.96
TOTAL ASSETS 219,189,366.77
The accompanying notes are an integral of the financial statements
Data Accounting
Certified Public Accountant
ADVANCE GEMS & JEWELLY CO., LTD.
BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES Baht
Promissory notes 26,000,000.00
Accounts and notes payable 42,240,749.52
Current portion of long-term debt 994,992.00
Loans from directors 9,293,761.51
Loans from other companies 6,276,316.23
Deposit payable 7,114,038.40
Other current liabilities 8,326,776.89
Total Current Liabilities 100,246,634.55
OTHER LIABILITIES (Note 7) 2,301,625.99
Total Liabilities 102,548,260.54
SHAREHOLDERS' EQUITY
Share capital (Note 8)
Registered capital
10,000,000 ordinary shares
of Baht 10.00 each 100,000,000.00
issued and paid-up capital
5,000,000 ordinary shares
of Baht 10.00 each
Called and paid-up 100% 50,000,000.00
5,000,000 ordinary shares
of Baht 10.00 each
Called and paid-up 40% 20,000,000.00
70,000,000.00
Retained Earnings 46,641,106.23
Total shareholders' Equity 116,641,106.23
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 219,189,366.77
The accompanying notes are an integral of the financial statements
Data Accounting
Certified Public Accountant
ADVANCE GEMS & JEWELLY CO., LTD.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
REVENUES Baht
Income from sales 195,549,197.96
Other income 19,825,252.64
Total Revenues 215,374,450.60
EXPENSES
Cost of sales 172,334,574.57
Selling and administrative expenses 37,633,569.71
Interest expenses 3,296,773.24
Total Expenses 213,264,917.52
NET PROFIT 2,109,533.08
RETAINED EARNINGS BROUGHT FORWARD 44,531,573.15
RETAINED EARNINGS CARRIED FORWARD 46,641,106.23
EARNINGS PER SHARE
Net Profit (Note 1.5) 0.32
The accompanying notes are an integral of the financial statements
Data Accounting
Certified Public Accountant
ADVANCE GEMS AND JEWELLY CO., LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
Notes 1 Summary of Significant Accounting Policies
1.1 Revenues and Expenses Recognition
Revenues and Expenses Recognized on an accrual basis
1.2 Inventories are stated at cost, on the firsr-in, first-out basis
1.3 Property, plant and equipments are stated at cost, after deducted
accumulated depreciation
Depreciation is calculated on the straight-line basis, according to their
Estimate useful lives at the rate under taxation rule
1.4 Foreign currency convertions
Assets and liabilities in foreign currency outstanding on the balance
sheet date are converted in to Thai Baht at rate of exchange ruling on the
balance sheet date. Foreign currency transaction dates during the year
are translated at the rates ruling on the transaction date
Exchange gains and losses are included in determining earnings.
1.5 Earning per share is calculated by deviding net loss for the year by the
weighted average number of ordinary shares in issue during the year
Notes 2 Cash in Hand and at Banks
Cash in hand and at banks comprise: Baht
Cash in hand 192,745.80
Cash at banks 4,547,268.55
4,740,014.35
Cash at banks of Baht 593,145.38 are pledged as collateral.
Notes 3 Accounts and notes receivable
Accounts and notes receivable comprise: Baht
Accounts receivable 109,987,423.63
Notes receivable 11,441,858.17
121,429,281.80
Less Reserve for bad debts (3,150,674.38)
118,278,607.42
Data Accounting
Certified Public Accountant
ADVANCE GEMS AND JEWELLY CO., LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
Note 4 Inventories
Inventories comprise: Baht
Raw materials 1,980,998.91
Finished products 45,917,957.28
47,898,956.19
Note 5 Property, plant and equipments
Property plant and equipments - net comprise :
Building 2,571,973.08
Building improvement 1,025,947.36
Machinery 13,873,199.96
Tools 10,314,276.68
Furniture and fixture 1,388,255.04
Vehicles 3,867,100.00
33,040,752.12
Less Accumulated Depreciation (14,560,465.25)
18,480,286.87
Note 6 Other Assets
Other Assets comprise: Baht
Organization expense - net 58,746.67
Defered interest 170,074.99
Leasehold right - net 198,665.30
427,486.96
Note 7 Other liabilities
Other liabilities comprise: Baht
Hire-purchase payable 3,296,617.99
Less current portion of long-term debts (994,992.00)
2,301,625.99
Data Accounting
Certified Public Accountant
ADVANCE GEMS AND JEWELLY CO., LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
Note 8 Share capital
In the 1/1996 and 2/1996 extraordinary shareholders' meeting held on February
16, 1996 and March 11, 1996 respectively, a resolution was passed to increase
the authorized share capital to Baht 100 million consist of 5,000,000 shares
called and paid-up of Baht 10 per share and 5,000,000 shares called and
paid-up of Baht 4 per share. The company registered the increase in paid up
share capital on March 15, 1996.
Note 9 Promotional privileges
The company was granted certain promotional privileges by exemption from
payment of corporate income tax for a period of 8 years from the start of
the operations and payment of corporate income tax at the rate of 50% for
the next period of 5 years and other promotional privileges from Board of
Investment, the company must comply with certain conditions and provided for
in the promotional certificate. The company started of the operations for
the above promotional privileges on July 20, 1994.
Item 15 (D) (1)
PRICEWATERHOUSE COOPERS
Report of the auditors to the shareholders of
Creative Gems & Jewelry Company Limited
We have examined the balance sheet of Creative Gems & Jewelry Company Limited
as at December 31, 1997, and the related statements of income and retained
earnings for the year then ended. Our examination was made in accordance
with generally accepted auditing standards and accordingly included such
tests of the accounting records and such other auditing procedures as we
considered necessary in the circumstances.
The debtors figure of Baht 590 million at December 31, 1997 includes a
balance of Baht 377 million with one debtor, who has disagreed that he owes
any money. In addition, we were unable to satisfy ourselves that the
selling price used to calculate this balance is reasonable.
Management have informed us that the dispute was caused by this debtor
receiving goods on behalf of the real debtor of the Company and that
the said real debtor has confirmed that he owes the
total monies. However we have not been able to carry out audit procedures
to satisfy ourselves as to the amount and existence of this balance.
We were appointed as the Company's auditor after the date of December
31, 1996, therefore, we did not observe the physical inventory count valued
at Baht 43,966,141 at that date. We observed the inventory count on
October 5, 1997 and reconciled back to the year ended December 31, 1996.
However, the Company did not perform a reconciliation of inventories from
the stocktaking date in 1996 to December 31, 1996. Furthermore, we were
unable to examine the cost calculation of inventories as at December 31,
1996 due to insufficiency of relevant documents and information.
We were unable to satisfy ourselves by means of other auditing procedures
as to the effect of any adjustment on the quantity and valuation of
inventories as at December 31, 1996 and thus cost of sales for the
year ended December 31, 1997.
PRICEWATERHOUSECOOPERS
Page 2
Because of the significance of the effects of any adjustments that might have
been required had we been able to satisfy ourselves concerning the matters
mentioned in the second and third paragraphs above, we are unable to express
an opinion on the financial statements of Creative Gems & Jewelry Company
Limited for the year ended December 31, 1997.
VICHIEN KHINGMONTRI
Certified Public Accountant
(Thailand) No. 3977
PricewaterhouseCoopers Audit and Business Advisory Services Ltd.
November 16, 1998
PRICEWATERHOUSECOOPERS
Page 2
Creative Gems & Jewelry Company Limited
Balance sheet as at December 31, 1997
Notes Baht
ASSETS
Current assets
Cash in hand and at banks 2 11,135,469
Short-term investments 3 30,000,000
Acounts receivable-trade, net 4, 10 590,058,252
Amounts due from affiliated companies 5 17,133,371
Inventories, net 6 113,408,265
VAT refundable 18,659,509
Other current assets 4,739,501
Total current assets 785,134,367
Property, plant and equipment, net 7 20,350,535
Other assets 1,681,100
TOTAL ASSETS 807,166,002
The notes on pages 5 to 10 form an integral part of the financial statements.
Auditors' report pages 1 and 2
PRICEWATERHOUSECOOPERS
Page 3
Notes Baht
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank overdrafts 227,217
Accounts payable-trade 91,488,704
Amounts due to affiliated companies 5 9,662,915
Obiligations under hire-purchase
contracts due within one year 8 429,708
Accrued expenses 8,151,774
Other current liabilities 2,453,896
Total Current liabilites 112,414,214
Obiligations under hire-purchase contracts 8 1,649,016
TOTAL LIABILITIES 114,063,230
Shareholders' equity
Share capital 9 55,000,000
Retained earnings 638,102,772
TOTAL SHAREHOLDERS' EQUITY 693,102,772
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 807,166,002
Director
Director
Date
November 16, 1998
PRICEWATERHOUSECOOPERS
Page 4
Creative Gems & Jewelry Company Limited
Statement of income
for the year ended December 31, 1997
Notes Baht
REVENUES 5
Sales, net 10 854,875,570
Other income 2,817,626
TOTAL REVENUES 857,693,196
EXPENSES 5
Cost of sales 324,992,113
Selling and administrative expenses 58,132,733
Interest expense 949,599
TOTAL EXPENSES 384,074,445
Income before extraordinary item 473,618,751
Extraordinary item 11
Net gain on the adoption of managed floatation of the
Thai Baht against foreign currencies 138,751,665
NET INCOME FOR THE YEAR 612,370,416
STATEMENT OF RETAINED EARNINGS
Retained earnings brought forward 25,732,356
Net income for the year 612,370,416
Retained earnings carried forward 638,102,772
EARNINGS PER SHARE 12
Income before extraordinary item 84
Extraordinary item 25
Net Income 109
The notes on pages 5 to 10 form an integral part of the financial statements.
Auditors' report pages 1 and 2.
PRICEWATERHOUSECOOPERS
Page 5
Creative Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997
Principal accounting policies
2. A summary of the significant accounting policies of the Company is set out
below.
(d) Inventories
Inventories are stated at the lower of cost or net realisable value.
Costs are determined on a moving average basis. Net realisable value is
the price at which inventories can be sold in the normal course of business
after allowing for the costs of realisation and, where appropriate,
the cost of conversion from their existing state to a finished condition.
Provision is made where necessary for obsolete, slow-moving
and defective inventories.
(e) Depreciation
Depreciation is calculated so as to write-off the cost of the assets on a
straight-line basis over the expected useful economic lives of the assets
concerned.
The principal annual rates used for this purpose are:
%
Buildings 5
Building improvement 20
Machinery and equipment 20
Furniture and fixtures 20
Motor vehicles 20
(c) Foreign currencies translation
Transactions incurred during the year denominated in foreign currencies
are translated into Thai Baht at the exchange rates ruling when the
transactions were entered into. Monetary assets and liabilities denominated
in foreign currencies are translated into Thai Baht at the exchange rates
ruling at the balance sheet date. Exchange gains or losses are included in
the statement of income.
PRICEWATERHOUSECOOPERS
Page 6
Creative Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997 continued
(f) Sales
Sales, which are shown net of discounts and sales returned, represent the
invoiced value of goods supplied.
Cash in hand and at banks
3. Cash in hand and at banks includes fixed deposits of Baht 151,200 which
have been pledged as security for bank guarantee with local banks.
Short-term investments
3. Short-term investments represent promissory notes issued by a finance
institution with bearing interest at the rates of 12.75% to 15.75% per annum.
Accounts receivable-trade, net
4. Baht
Accounts receivable-trade 574,110,224
Post-dated cheques 42,312,176
616,422,400
Less: Allowance for doubtful accounts (26,364,148)
Accounts receivable-trade, net 590,058,252
PRICEWATERHOUSECOOPERS
Page 7
Creative Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997 continued
Transactions with affiliated companies
5. A summary of significant transactions with affiliated companies is as
follows:
Baht
During the year ended December 31, 1997
Sales 29,137,942
Purchase of raw materials and supplies 45,546,136
Expenses 24,611,655
As at December 31, 1997
Amounts due from affiliated companies 17,133,371
Amounts due to affiliated companies 9,662,915
Inventories, net
5. Inventories are made up of:
Baht
Raw material 13,360,209
Work in process 10,653,528
Finished goods 90,658,308
Goods in transit 259,473
114,931,518
Less: Provision for lower of cost or net realisable value (1,523,253)
Inventories, net 113,408,265
PRICEWATERHOUSECOOPERS
Page 8
Creative Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997 continued
Property, plant and equipment, net
6. Property, plant and equipment, at cost:
Baht
Land 11,070,312
Buildings 1,985,645
Building improvement 3,427,225
Machinery and equipment 4,044,501
Furniture and fixtures 1,804,725
Motor vehicles 3,046,329
25,378,737
Less: Accumulated depreciatio n (5,028,202)
Property, plant and equipment, net 20,350,535
Depreciation for the year amounting to Baht 2,370,356 has been included
in the statement of income.
Obligations under hire-purchase contracts
7. The hire purchase contracts are in respect of motor vehicles.
The commitment of repayments under these contracts are as follows:
Baht
Due within 1 year 429,708
Due over 1 year 1,649,016
2,078,724
PRICEWATERHOUSECOOPERS
Page 9
Creative Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997 continued
Share capital
Baht
9.
Registered share capital:
10,000,000 ordinary shares of Baht 10 each 100,000,000
Issued and called-up share capital:
10,000,000 ordinary shares of Baht 10 each 100,000,000
Less: Unpaid called-up share capital (45,000,000)
55,000,000
At the directors' meeting held on December 20, 1997, it was unanimously
called the remaining portion 6 million ordinary shares of Baht 7.5 per
share totaling of Baht 45 million. However, as at December 31, 1997,
the Company has not yet received such called-up share capital.
Sales, net
10. Sales are made up of:
Baht
Sales 1,079,883,708
Less: Sales returned (225,008,138)
Sales, net 854,875,570
Sales returned represents the substandard goods which were sold in 1995
to 1997 and returned in 1997 and 1998.
PRICEWATERHOUSECOOPERS
Page 10
Creative Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997 continued
Extraordinary item
11. On July 2, 1997, the Ministry of Finance declared the adoption of an
immediately effective managed floatation of the Thai Baht against foreign
currencies. Subsequent to July 2, 1997, the Thai Baht has devalued
significantly against foreign currencies. As a result, the Company has
incurred an exchange gain approximately amounting to Baht 138.8 million
which has been charged to the statement of income as an extraordinary item.
Earnings per share
12. Earnings per share is calculated by using the weighted average number of
shares in issue during the year.
Bank guarantees
13. As at December 31, 1997, local banks have provided guarantees on behalf
of the Company in respect of electricity supply amounting to Baht 151,200.
These guarantees are secured by pledging of fixed deposits.
Promotional privilege
14. The Company received a promotional privilege from the Board of Investment
under the certificate dated August 22, 1994 in respect of the manufacture of
gems stone and jewelry. Under this privilege, the Company has received
exemption from certain taxes and duties including corporate income tax on
income derived from the promoted activities for a period of 8 years
commencing from the date that the Company has income derived from that
activities. The Company is required to comply with the terms and conditions
specified in the promotional certificate.
Auditors' report pages 1 and 2
Item 15 (D) (2)
BUNCHIKIJ CO., LTD.
Certified Public Accountants
A member of Horwath International
Report of the Auditor
To Shareholders of CREATIVE GEMS & JEWELRY CO., LTD.
We have examined the balance sheet as of December 31, 1996 and the related
statements on income and retained earnings for the year ending on the same
day of CREATIVE GEMS & JEWELRY CO., LTD. in accordance with the auditing
standards as generally accepted, which included such tests of the accounting
records and such other auditing procedures as we considered necessary in
the circumstances.
In our opinion, the aforementioned financial statements present fairly the
financial position of CREATIVE GEMS & JEWELRY CO., LTD. at December 31, 1996
and the results of its operation for the year then ended in conformity with
generally accepted accounting principles applied on a basis consistent with
that of the preceding year.
(Navee Patisampitavong)
Certified Public Acountant
Bunchikij Co., Ltd.
Bangkok, July 7, 1997
87 Modern Town Tower Floor, 9-10 Ekamai Soi 3 Sukhumvit 63, Bangkok 10110
Tel.3820414 Fax: 3815849
BUNCHIKIJ CO., LTD.
CREATIVE GEMS & JEWELRY CO., LTD.
BALANCE SHEET
As at December 31, 1996
Unit: Baht
ASSETS
CURRENT ASSETS
Cash in hand and at banks (Note 2) 16,851,734.06
Short-term investment (Note 3 and 13 7,000,000.00
Accounts and notes receivable (Note 4) 89,811,628.02
Inventories (Note 5) 41,502,976.70
VAT Receivable 21,946,562.37
Deposit for land purchase (Note 6) 6,582,000.00
Deposit for inventories 4,472,166.84
Other current assets 3,257,193.81
Total current assets 191,424,261.80
PROPERTY, PLANT AND EQUIPMENT-NET (Note 7 and 13) 20,147,626.59
OTHER ASSETS (Note 8) 1,749,956.10
Total assets 213,321,844.49
(See notes to financial statements which form a financial integral
part of these statements)
BUNCHIKIJ CO., LTD.
CREATIVE GEMS & JEWELRY CO., LTD.
BALANCE SHEET
As at December 31, 1996
Unit: Baht
LIABILITIES AND SHAREHOLDERS' EQUITY
CURENT LIABILITIES
Loans from bank (Note 9) 70,592,933.99
Accounts and notes payable (Note 10) 66,304,110.24
Accrued expenses 1,646,587.91
Other current liabilities (Note 6) 3,924,220.68
Total current liabilities 142,467,852.82
LOANS FROM DIRECTORS (Note 11) 5,121,636.00
Total liabilities 147,589,488.82
SHAREHOLDERS' EQUITY
Share capital (Note 12)
Authorized share capital
10,000,000 Common shares of Baht 10 each 100,000,000.00
issued and paid-up share capital
4,000,000 Common shares of Baht 10 each.
fully paid 40,000,000.00
Retained earnings-unappropriated 25,732,355.67
Total shareholders' equity 65,732,355.67
Total liabilities and shareholders' equity 213,321,844.49
(See notes to financial statements which form a financial integral
part of these statements)
BUNCHIKIJ CO., LTD.
CREATIVE GEMS & JEWELRY CO., LTD.
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the year ended December 31, 1996
Unit: Baht
REVENUES:
Sales 420,672,535.67
Other Income 2,692,842.76
Total revenues 423,365,378.43
EXPENSES:
Cost of sales 374,075,732.00
Selling and administrative expenses 28,411,261.42
Interest paid 4,094,402.92
Income tax 68,473.50
Total expenses 406,649,869.84
NET PROFIT 16,715,508.59
RETAINED EARNINGS-BEGINNING OF PERIOD 9,016,847.08
RETAINED EARNINGS-END OF PERIOD 25,732,355.67
EARNINGS PER SHARE
Net profit 4.18
(see notes to financial statements which form a financial integral
part of these statements)
BUNCHIKIJ CO., LTD.
CREATIVE GEMS & JEWELRY CO., LTD.
Notes to Financial Statements
As at December 31, 1996
1. Summary of significant accounting policies
1.1 Allowance for doubtful accounts
A company provided allowance for possible losses equal to the estimated
losses that may be incurred in the collection of the accounts based on
review and evaluation of the current status of accounts receivable.
1.2 Inventories
Valued at lower of cost price or market under moving-average method.
1.3 Depreciation and amortization
Depreciation is computed by the straight-line method over the estimated
useful lives of depreciable assets for 5 years.
Deferred charges are amortized over a period of 5 years by the
straight-line method. In this account period the amortized
amount was Baht 11,040.00
1.4 Foreign Currency translation
Foreign currency assets at the end of the year were translated into Thai
currency at average buying rate of commercial banks and foreign currency
liabilities were translated into Thai currency at average selling rate of
commercial banks as announced by the Bank of Thailand. Difference in foreign
exchange was shown in Statement of income.
1.5 Earning per share
Earnings per share is computed by dividing net profit by the number of common
shares equivalent to fully paid-up share at the end of the period.
BUNCHIKIJ CO., LTD.
- -2-
CREATIVE GEMS & JEWELRY CO., LTD.
Notes to Financial Statements (Continued)
2. Cash in hand and at banks
Consist of:
Cash in hand 82,244.50
Cash at banks -Current a/c 15,243,194.26
-Savings a/c 1,355,647.97
-Fixed a/c 170,647.33
Total Baht 16,851,734.06
Fixed deposit amounting to Baht 105,200.00 has been placed at the bank
to secure the letter of guarantee issued by a bank in favour.
3. Short-term investment
Short-term investment represents promissory notes issued by a financial
institution bearing interest rate at 11.25 % -12.50 p.a. The above
promissory notes have been pledged at Export-Import Bank of Thailand
to secure the loans.
4. Accounts and notes receivable
Consist of:
Accounts receivable -local 8,301,271.97
-foreign 89,304,499.84
Post dated cheques -local 1,531,635.23
-foreign 83,162.50
99,220,569.54
Less Allowance for doubtful accounts 9,408,941.52
Total Baht 89,811,628.02
5. Inventories
Consist of:
Finished goods 31,368,387.29
Raw materials 10,134,589.41
Total Baht 41,502,976.70
BUNCHIKIJ CO., LTD.
- -3-
CREATIVE GEMS & JEWELRY CO., LTD.
Notes to Financial Statements (Continued)
6. Deposits for land purchase
The company has entered the agreement to buy land with area of 47 rai
1 ngan 55 square wah in Suratani in the amount of Baht 22.746 million.
The company paid a deposit of Baht 5.7 million, and in Nakhonpanom with
area of 248 rai in amount of Baht 2.728 million.
The company paid a deposit of Baht 0.882 million the
remaining balance of Baht 18.892 million will be paid when transfer of
ownership. In addition the company bought a piece of land with area
of 405 rai 2 ngan 50 square wah in Nakhonpanom in the amount
of Baht 5,070,312.00. The deposit of Baht 2,535,156.00 was made and the
ownership has been transferred. The company paid the remaining balance in
quarterly installment basis. Baht 845,052.00 has been paid and will be
paid up by November 1, 1997. The remaining balance was included in other
current liabilities.
In February 1997 the company decided not to make use of the land in
Suratani and transferred the agreement to buy the land to an affliate
company.
7. Property, plant and equipment-net
Consist of:
Land 11,070,312.00
Building 1,985,645.14
Machineries 2,087,328.04
Tools and equipment 1,667,243.55
Furniture and fixtures 1,205,514.73
Building improvement 3,427,224.52
Vehicles 1,362,204.00
22,805,472.08
Less Accumulated depreciation 2,657,845.49
Total property, plant and equipment-net Baht 20,147,626.59
Depreciation for the year Baht 1,611,703.18
The land has been mortgaged at Export-Import Bank of Thailand in the
amount of Baht 32.50 million.
BUNCHIKIJ CO., LTD.
- -4-
CREATIVE GEMS & JEWELRY CO., LTD.
Notes to Financial Statements (Continued)
8. Other assets
Consist of:
Deposit 863,100.00
Amortization 16,560.00
Withholding tax 67,035.10
Custom department deposit 830,261.00
Total Baht 1,749,956.10
9. Loans from Bank
Consist of:
Loans from bank in the form of promissory note with
-interest 7.8125% - 8.00 % p.a. 39,259,800.00
Discount - Export bills 31,333,133.99
Total Baht 70,592,933.99
10. Accounts and notes payable
Consist of:
Accounts payable -local 56,651,675.99
-foreign 1,378,106.18
Notes payable 8,274,328.07
Total Baht 66,304,110.24
11. Loans from directors
No agreement to charge interest
12. Share capital
In accordance with the Extra-ordinary Shareholders' meeting No.1/1996 dated
February 16, 1996 and No. 2/1996 dated March 11, 1996, the company passed the
resolution to increase share capital from 4,000,000 common shares to
10,000,000 common shares of Baht 10.00 each.
The company registered the increased capital to the Ministry of Commerce on
March 15, 1996. The company received the payment on the increased shares at
Baht 2.50 per share during April - June 1997 totally amounting to Baht
13,500,000.00.
BUNCHIKIJ CO., LTD.
- -5-
CREATIVE GEMS & JEWELRY CO., LTD.
Notes to Financial Statements (Continued)
13. Assets for guarantee
To secure the credit arrangement of Baht 55 million granted from
Export-Import Bank of Thailand, the company mortgaged the land of
Baht 11,070,312.00 to secure the credit line of Baht 32.50 million
and pledged investment in promissory notes of Baht 7,000,000.00.
In addition company's directors provided personal guidance.
On May 26, 1997, the company redeemed the mortgage of the above land
but has not registered the redemption with Land Department.
14. Privileges according to the Investment Promotion Act, B.E. 2520
The company has obtained the Investment Promotion Certificate No. 1544/2537
dated August 22, 1994 for the production of jewel ornaments at the factory in
Lopburi province, the privileges are the following:
1. Exemption from import duty on machinery
2. Reduction of import duty at 75% of normal rate necessary imported material
and supplies for one year from the first import date.
3. Exemption from company income tax for eight years from the first date the
Income is derived.
4. Double deduction of transportation, electricity and water expenses for ten
years from the date income is first derived.
5. Entitled to bring in and send out foreign currencies from June 29, 1993
which is date promotion was approved.
The Company moved the factory from Lopburi to Chiengrai with the B.O.I.'s
permission to transfer the privileges from Certificate No. 1544/1994 to the
amended Certificate No. 4044/1996 dated January 29, 1996.
- -------------------------------------------------
Item 15 (E) 1
PRICEWATERHOUSE COOPERS
Report of the auditors to the shareholders of
Well Gems & Jewelry Company Limited
We have examined the balance sheet of Well Gems & Jewelry Company Limited as
at December 31, 1997, and the related statements of loss and deficit for
the year then ended. Our examination was made in accordance with generally
accepted auditing standards and accordingly included such tests of the
accounting records and such other auditing procedures as we considered
necessary in the circumstances.
We were appointed as the Company's auditor after the date of December 31, 1996,
therefore, we did not observe the physical inventory count valued at Baht
107,283,490 at that date. We observed the inventory count on October 5, 1997
and reconciled back to the year ended December 31, 1996. However, the Company
did not summarise the results of the physical inventory count and did not
perform a reconciliation of inventories from the stocktaking date to December
31, 1996. Furthermore, we were unable to examine the cost calculation of
inventories as at December 31, 1996 due to insufficiency of relevant documents
and information. We were unable to satisfy ourselves by means of other
auditing procedures as to the effect of any adjustment on the quantity and
valuation of inventories as at December 31, 1996 and cost of sales for the
year ended December 31, 1997.
PRICEWATERHOUSECOOPERS
Page 2
As described in note 1 to the financial statements, the Company ceased its
operations in October 1997 and obtained an approval letter from the Board of
Investment Committee for temporarily ceased operations under the certificate
dated July 13, 1993. The provision for lower of cost or net realisable
value of inventories as at December 31, 1997 approximately of Baht 81 million
which will be sold in the following fiscal years was recorded in these
financial statements. Additionally, as at December 31, 1997 the Company had
current liabilities in excess of current assets approximately amounting
to Baht 14.5 million and a deficit in excess of share capital approximately
amounting to Baht 23.6 million. These financial statements have been
prepared in accordance with genearlly accepted accounting principles
assuming that the Company is able to continue as a going concern for the
foreseeable future. The financial statements, therefore, do not include
any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities
that might be necessary should the Company be unable
to continue as a going concern.
Because of the significance of the effects of any adjustments that might have
been required had we been able to satisfy ourselves concerning the matter
mentioned in the second paragraph and the uncertainty of the Company's going
concern mentioned in the third paragraph, we are unable to express an opinion
on the financial statements of Well Gems & Jewelry Company Limited for the
year ended December 31, 1997.
VICHIEN KHINGMONTRI
Certified Public Accountant
(Thailand) No. 3977
PricewaterhouseCoopers Audit and Business Advisory Services Ltd.
November 16, 1998
PRICEWATERHOUSECOOPERS
Well Gems & Jewelry Company Limited
Balance sheet as at December 31, 1997
Notes Baht
ASSETS
Current assets
Cash in hand and at banks 3 1,213,303
Acounts receivable-trade, net 4 48,848,646
Inventories, net 5 41,022,861
Other current assets 1,223,383
Total current assets 92,308,193
Property, plant and equipment, net 6 10,184,873
Other assets 53,353
TOTAL ASSETS 102,546,419
The notes on pages 5 to 10 form an integral part of the financial statements.
Auditors' report pages 1 and 2
PRICEWATERHOUSECOOPERS
Page 3
Notes Baht
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term loan 7 7,000,000
Accounts payable-trade 78,132,513
Amounts due to affiliated companies 8 11,761,197
Obiligations under hire-purchase
contracts due within one year 9 221,292
Other current liabilities 9,738,046
Total current liabilites 106,853,048
Obiligations under hire-purchase contracts 9 92,175
Loans from a director 19,250,000
TOTAL LIABILITIES 126,195,223
Shareholders' equity
Share capital 11 100,000,000
Deficit (123,648,804)
TOTAL SHAREHOLDERS' EQUITY (23,648,804)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 102,546,419
Director
Director
Date
November 16, 1998
PRICEWATERHOUSECOOPERS
Page 4
Well Gems & Jewelry Company Limited
Statement of Loss
for the year ended December 31, 1997
Notes Baht
REVENUES 8
Sales, net 12 132,862,521
Other income 3,905,149
TOTAL REVENUES 136,767,670
EXPENSES 8
Cost of sales 177,535,660
Selling and administrative expenses 150,362,247
Interest expense 1,346,504
TOTAL EXPENSES 329,244,411
Loss before extraordinary item (192,476,741)
Extraordinary item 13
Net gain on the adoption of managed floatation of the
Thai Baht against foreign currencies 18,560,407
NET LOSS FOR THE YEAR (173,916,334)
STATEMENT OF DEFICIT
Retained earnings brought forward 50,267,530
Net Loss for the year (173,916,334)
Deficit carried forward (123,648,804)
LOSS PER SHARE 14
Loss before extraordinary item (19)
Extraordinary item 2
Net Loss (17)
The notes on pages 5 to 10 form an integral part of the financial statements.
Auditors' report pages 1 and 2.
PRICEWATERHOUSECOOPERS
Page 5
Well Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997
General
1. The Company ceased its operations in October 1997 and obtained an
approval letter from the Board of Investment Committee for temporarily
ceased operations under the certificate dated July 13, 1993. The provision
for lower of cost or net realisable value of inventories as
at December 31, 1997 approximately of Baht 81 million which will be
sold in the following fiscal years was recorded in these financial
statements. Additionally, as at December 31, 1997 the Company
had current liabilities in excess of current assets approximately amounting
to Baht 14.5 million and a deficit in excess of share capital approximately
amounting to Baht 23.6 million. These financial statements have been prepared
in accordance with generally accepted accounting principles assuming that the
Company is able to continue as a going concern for the foreseeable future.
The financial statements, therefore, do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
Principal accounting policies
2. A summary of the significant accounting policies of the Company is set
out below.
(g) Inventories
Inventories are stated at the lower of cost or net realisable value. Costs
are determined on a moving average basis. Net realisable value is the price at
which inventories can be sold in the normal course of business after allowing
for the costs of realisation and, where appropriate, the cost of conversion
from their existing state to a finished condition. Provision is made where
necessary for obsolete, slow-moving and defective inventories.
PRICEWATERHOUSECOOPERS
Page 6
Well Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997 continued
(h) Depreciation
Depreciation is calculated so as to write-off the cost of the assets on a
straight-line basis over the expected useful economic lives of the asset
concerned.
The principal annual rates used for this purpose are:
%
Building and building improvement 5
Motor vehicles 20
(c) Foreign currencies translation
Transactions incurred during the year denominated in foreign currencies
are translated into Thai Baht at the exchange rates ruling when the
transactions were entered into. Monetary assets and liabilities denominated
in foreign currencies are translated into Thai Baht at the exchange rates
ruling at the balance sheet date.
Exchange gains or losses are included in the statement of loss.
(d) Sales
Sales, which are shown net of discounts and sales returned, represent the
invoiced value of goods supplied.
Cash in hand and at banks
4. Cash in hand and at banks includes fixed deposits of Baht 222,400
which has been pledged as security for bank guarantee with a local bank.
PRICEWATERHOUSECOOPERS
Page 7
Well Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997 continued
Accounts receivable-trade, net
4. Baht
Accounts receivable-trade 71,653,723
Post-dated cheques 4,291,927
75,945,650
Less: Allowance for doubtful accounts (27,097,004)
Accounts receivable-trade, net 48,848,646
Inventories, net
5. Inventories are made up of:
Baht
Raw material 893,769
Work in process 2,009,968
Finished goods 119,267,794
122,171,531
Less: Provision for lower of cost or net realisable value (81,148,670)
Inventories, net 41,022,861
Property, plant and equipment, net
6. Property, plant and equipment, at cost:
Baht
Land 5,400,000
Building and building improvement 5,000,823
Motor vehicles 910,200
11,311,023
Less: Accumulated depreciation (1,126,150)
Property, plant and equipment, net 10,184,873
PRICEWATERHOUSECOOPERS
Page 8
Well Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997 continued
Depreciation for the year amounting to Baht 2,302,221 has been included
in the statement of loss.
Land has been mortgaged with a finance institution as collateral for a short-
term loan.
Short-term loan
7. Short-term loan represent a promissory note issued to a finance
institution bearing interest at the rate of 16.5% per annum.
The promissory note is secured by mortgaging the Company's land.
Transactions with affiliated companies
8. A summary of significant transactions with affiliated companies is as
follows:
During the year ended December 31, 1997
Baht
Sales 18,261,851
Purchases of raw material and supplies 18,292,115
Expenses 268,186
As at December 31, 1997
Amounts due to affiliated companies 11,761,197
Obligations under hire-purchase contracts
9. The hire-purchase contracts are in respect of motor vehicles. The
commitment of
repayments under these contracts are as follows:
Baht
Due within 1 year 221,292
Due over 1 year 92,175
313,467
PRICEWATERHOUSECOOPERS
Page 9
Well Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997 continued
Loans from a director
10. This represents loans from a director with no interest charge and
no fixed terms of repayments
Share Capital
11. Baht
Registered share capital:
10,000,000 ordinary shares of Baht 10 each 100,000,000
Issued and paid-up share capital:
10,000,000 ordinary shares of Baht 10 each 100,000,000
Sales, net
14. Sales are made up of:
Baht
Sales 240,049,682
Less: Sales returned (107,187,161)
Sales, net 132,862,521
Sales returned mainly represents the substandard goods which were sold
in 1995 to 1997 and returned in 1997.
Extraordinary item
15. On July 2, 1997, the Ministry of Finance declared the adoption of an
immediately effective managed floatation of the Thai Baht against foreign
currencies. Subsequent to July 2, 1997, the Thai Baht has devalued
significantly against foreign currencies. As a result, the Company has
incurred an exchange gain approximately amounting to Baht 18.6 million which
has been charged to the statement of loss as an extraordinary item.
PRICEWATERHOUSECOOPERS
Page 10
Well Gems & Jewelry Company Limited
Notes to the financial statements - December 31, 1997 continued
Loss per share
16. Earnings per share is calculated by using the weighted average
number of shares in issue during the year.
Bank guarantee
17. As at December 31, 1997, a local bank has provided a guarantee on
behalf of the Company in respect of electricity supply amounting to
Baht 222,400. This guarantee is secured by pledging of a fixed deposit.
Promotional privilege
18. The Company received a promotional privilege from the Board of
Investment under the certificate dated July 31, 1993 in respect of the
manufacture of gems stone and jewelry. Under this privilege, the Company
has received exemption from certain taxes and duties including corporate
income tax on income derived from the promoted activities for a period
of 8 years commencing from the date that the Company has income derived
from that activities. The Company is required to comply with the terms
and conditions specified in the promotional certificate.
At November 13, 1998, the Company has obtained an approval letter from
the Board of Investment Committee for temporarily ceased operations under
the certificate dated July 31, 1993 as requested by the Company.
Auditors' report pages 1 and 2
Item 15 (E) (2)
FINANCIAL STATEMENTS
OF
WELL GEMS & JEWELRY CO., LTD.
FOR
JANUARY 1, 1996- DECEMBER 31,1996
REPORT OF THE AUDITOR
TO SHAREHOLDERS OF WELL GEMS & JEWELRY CO ., LTD.
WE HAVE EXAMINED THE BALANCE SHEET AS OF DECEMBER 31, 1996 AND THE RELATED
STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDING ON THE SAME
DAY OF WELL GEMS & JEWELRY CO ., LTD. IN ACCORDANCE WITH THE AUDITING
STANDARDS AS GENERALLY ACCEPTED, WHICH INCLUDED SUCH TESTS OF THE
ACCOUNTING RECORDS AND SUCH OTHER AUDITING PROCEDURES AS WE CONSIDERED
NECESSARY IN THE CIRCUMSTANCES.
IN OUR OPINION, THE AFOREMENTIONED FINANCIAL STATEMENTS PRESENT FAIRLY
THE FINANCIAL POSITION OF WELL GEMS & JEWELRY CO ., LTD AT DECEMBER 31, 1996
AND THE RESULTS OF ITS OPERATION FOR THE YEAR THEN ENDED IN CONFORMITY WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES APPLIED ON A BASIS CONSISTENT WITH
THAT OF THE PRECEDING YEAR.
(PUANGPEN SRIYAKORN)
CERTIFIED PUBLIC ACCOUNTANT NO. 622
443/1 ISARAPAB RD. ARUNAMARIN
BANGKOKYAI BANGKOK
SEPTEMBER 19,1997
WELL GEMS & JEWELRY CO., LTD.
BALANCE SHEET
AS AT DECEMBER 31, 1996
BAHT
ASSET
CURRENT ASSETS
CASH IN HAND AND AT BANKS (NOTE 2) 3,154,640.23
ACCOUNTS AND NOTES RECEIVABLE (NOTE 3) 104,518,741.08
INVENTORIES (NOTE 1.1) 107,283,489.94
OTHER CURRENT ASSETS 2,942,125.33
TOTAL CURRENT ASSETS 217,898,996.58
RECEIVABLES AND LOANS TO RELATED COMPANY (NOTE 4) 2,296,754.43
PROPERTY, PLANT AND EQUIPMENT (NET) (NOTE 5) 18,378,625.17
OTHER ASSETS 308,413.33
TOTAL ASSETS 238,882,789.51
(SEE NOTES TO FINANCIAL STATEMENTS WHICH FORM A FINANCIAL INTEGRAL PART
OF THESE STATEMENTS)
WELL GEMS & JEWELRY CO., LTD.
BALANCE SHEET
AS AT DECEMBER 31, 1996
BAHT
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
BANK OVERDRAFT AND LOANS FROM BANK (NOTE 6) 6,708,539.72
SHORT TERM LOANS (NOTE 7) 7,000,000.00
ACCOUNTS AND NOTES PAYABLE (NOTE 8) 63,455,784.62
CURRENT PORTION OF HIRE PURCHASE PAYABLE 442,453.59
ADVANCE RECEIVED FOR GOODS SOLD 5,030,427.17
ACCURED EXPENSES 11,360,840.19
OTHER CURRENT LIABILITIES 2,861,457.24
TOTAL CURRENT LIABILITIES 96,859,502.53
PAYABLE AND LOANS FROM DIRECTORS (NOTE 9) 1,335,179.06
OTHER LIABILITIES 420,577.56
TOTAL LIABILITIES 98,615,259.15
SHAREHOLDERS' EQUITY
SHARE CAPITAL (NOTE 10)
AUTHORIZED SHARE CAPITAL
10,000,000 COMMON SHARES OF BAHT 10 EACH
100,000,000.00 ISSUED AND PAID-UP SHARE CAPITAL
10,000,000 COMMON SHARES OF BAHT 10 EACH, FULLY APID 100,000,000.00
LESS SHARES SUBSCRIPTION RECEIVABLE 10,000,000.00
PAID-UP SHARE CAPITAL 90,000,000.00
RETAINED EARNINGS-UNAPPROPRIATED 50,267,530.36
TOTAL SHAREHOLDERS' EQUITY 140,267,530.36
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 238,882,789.51
(SEE NOTES TO FINANCIAL STATEMENTS WHICH FORM A FINANCIAL INTEGRAL PART
OF THESE STATEMENTS)
WELL GEMS & JEWELRY CO., LTD.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
BAHT
B.O.I NON B.O.I. TOTAL
REVENUES:
SALES 206,671,763.17 170,065,338.63 376,737,101.80
OTHER INCOME 45,148,420.58 1,525,348.80 46,673,769.38
TOTAL REVENUES 251,820,183.75 171,590,687.43 423,410,871.18
EXPENSES:
COST OF SALES 174,966,590.90 143,966,312.67 318,932,903.57
SELLING AND ADMINISTRATIVE
EXPENSES 29,638,827.54 24,387,471.29 54,026,298.83
INTEREST EXPENSES 457,735.25 376,634.51 834,369.76
INCOME TAX 0.00 980,770.49 980,770.49
TOTAL EXPENSES 205,063,153.69 169,711,188.96 374,774,342.85
NET PROFIT 46,757,030.06 1,879,498.47 48,636,528.53
RETAINED EARNINGS-BEGINNING OF PERIOD 1,631,001.83
RETAINED EARNINGS-END OF PERIOD 50,267,530.36
EARNINGS PER SHARE
NET PROFIT 5.55 0.22 5.77
(SEE NOTES TO FINANCIAL STATEMENTS WHICH FORM A FINANCIAL INTEGRAL PART
OF THESE STATEMENTS)
WELL GEMS & JEWELRY CO., LTD.
NOTES TO FINANCIAL STATEMENTS
AS AT DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.1 Inventories
Raw materials: Valued at lower of cost price or market 27,065,247.33
Under moving average method
Work in process Valued at average production cost 18,346,432.98
Finished goods Valued at moving average cost 61,871,809.63
TOTAL: BAHT 107,283,489.94
1.2 Depreciation and amortization
Depreciation is computed by the straight line method over the estimated
useful lives of depreciable assets for 5-20 years.
Defered charges are amortized over a period of 5 years by the straight-line
method. In this Accounting period the amortizatio amount was Baht 55,000.00
1.3 Foreign currency translation
Foreign currency assets at the end of the year were translated into that
currency at average buying rate of commercial banks and foreign currency
liabilities were translated into Thai currency at average selling rate of
commercial banks as announced by the bank of Thailand. Difference in foreign
exchange was shown in statement of income.
1.4 Allocation of cost and expenses between promoted and non-promoted
transactions
Cost of sale of which portion can be specified would be separated and charged
directly. The portion which can be specified, administrative expenses and
interest would be allocated in accordance with the proportion of sales.
1.5 Earnings per share
Earnings per share is computed by dividing net profit by the number of
shares equivalent to fully paid-up shares and weighted by the period of
paid-up capital.
WELL GEMS & JEWELRY CO., LTD.
NOTES TO FINANCIAL STATEMENTS
AS AT DECEMBER 31, 1996
2. Cash in hand and at banks
Consist of:
Cash in hand 327,302.80
Cash at banks -current A/C 1,120,173.10
-savings A/C 1,470,567.93
-fixed A/C 236,596.40
Total BAHT 3,154,640.23
Fixed deposit amounting to Baht 222,400.00 has been placed at the Bank
to secure to letter of guarantee for the use of electricity issued by a bank.
3. ACCOUNTS AND NOTES RECEIVABLE
Consist of:
Accounts receivable -Local 46,002,478.79
-Foreign 46,369,699.20
Notes receivable -Local 10,705,332.03
-Foreign 830,142.08
Cheque return 611,088.98
Total: BAHT 104,518,741.08
4. RECEIVABLES AND LOANS TO RELATED COMPANY
No Agreement to charge interest.
WELL GEMS & JEWELRY CO., LTD.
NOTES TO FINANCIAL STATEMENTS (continued)
5. PROPERTY, PLANT AND EQUIPMENT (NET)
Consist of:
Land 5,400,000.00
Building 2,456,822.43
Building improvement 2,544,000.68
Machineries 3,461,535.17
Furniture and fixture 454,476.13
Tools and equipment 12,364,523.43
Vehicles 3,620,075.15
30,301,432.99
Less accumulated depreciation 11,922,807.82
Total property, plant and equipment (net) BAHT 18,378,625.17
Depreciation for the year BAHT 4,309,737.16
The land and building have been mortgaged at a financial institution
to secure short term loans in note 7.
6. BANK OVERDRAFT AND LOANS FROM BANK
Consist of:
Bank overdraft BAHT 6,708,539.72
The bank overdraft is secured by director's personal properties.
7. SHORT-TERM LOANS
These represent promissory notes issued to one financial institution, bearing
interest rate at 14.5% P.A.. The land and building have been mortgaged to
secure the loans.
WELL GEMS & JEWELRY CO., LTD.
NOTES TO FINANCIAL STATEMENTS (continued)
8. ACCOUNTS AND NOTES PAYABLE
Consist of:
Accounts payable -Local 14,840,330.79
-Foreign 39,475,354.52
Post dated cheque 9,140,099.31
Total BAHT 63,455,784.62
9. PAYABLES AND LOANS FROM DIRECTORS
These represent loans in the form promissory notes. No agreement to charge
interest.
10. SHARE CAPITAL
In accordance with the extra-ordinary shareholders' meeting no. 1/1996 dated
February 6, 1996 and no. 2/1996 dated February 16,1996, the company passed
the Resolution to increase share capital from 6,000,000 common shares to
10,000,000 common shares of Baht 10.00 each.
The company registered the increased share capital with the ministry of
commerce on March 15, 1996.
11. PRIVILEGES ACCORDING TO THE INVESTMENT PROMOTION ACT. B. E. 2520
The company has obtained the investment promotion certificate on 1100/1993
dated July 31, 1993 for the production of jewelry ornaments at the factory
in Lopbur Province. The privileges are the following:
1. Exemption from inport duty on machinery.
2. Reduction of import duty at 75% normal rate on necessary imported material
and supplies for one year from the first import date.
3. Exemption from company income tax for eight years from the first date the
income is derived.
4. Double deduction of transportation, electricity and water expenses for
ten years from the date income is first derived.
5. Entitled to bring in and send out foreign currencies from June 29, 1993
which is date the promotion was approved.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
TOPAZ GROUP, INC.
(Registrant)
Date: September 9, 1999
By:
-----------------------------------
Kasem Chitmunchaitham,
President
INDEX TO EXHIBITS
Number Assigned in
Regulation S-K Item 601 Exhibit Description of Exhibit
(2) 2.01 Agreement of Exchange - Creative
Gems &
Jewelry Agreement of Exchange - Advance Gems & Jewelry
Co., Ltd. and Well Gems & Jewelry Co., Ltd.
Amendments to Agreements of Exchange (Creative and Advance and Well)
(3) 3.01 Restated Articles of Incorporation of
the Company
3.02 Amendment to Articles of Incorporation
3.03 Bylaws of the Company
(4) 4.01 Certificate of Designation for Series
A Convertible Voting and Participating
Preferred Stock
(9) 9.01 <No Exhibit>
(10) 10.01 <No Exhibit>
(11) 11.01 Statements re Per Share Earnings
(12) 12.01 Statements re Computation of Ratios
(16) 16.01 Price Waterhouse, Coopers letter of
resignation as auditors
16.02 Letter of Request re S-K Item 304
(21) 21.01 Subsidiaries of Company
(24) 24.01 <No Exhibit>
(27 27.01 Financial Data Schedule
(99) 99.01 <No Exhibit>
TOPAZ GROUP INC.
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from
the consolidated financial statements of Topaz Group Inc. and is qualified
in its entirety by reference to such financial statements.
Please see Exhibit 27.01 attached
Exhibit 27.01
TOPAZ GROUP INC.
Balance Sheets
At December 31, 1998, 1997 & 1996
ASSETS
1998 Unit:Baht Unit:USD
1997 Unit:Baht Unit:USD
1996 Unit:Baht Unit:USD
CURRENT ASSETS
Cash in hand and at banks
67,497,292.00 1,839,764.83
15,783,428.00 335,817.62
24,746,388.64 964,771.49
Short-term investment
20,000,000.00 545,137.37
30,000,000.00 638,297.87
7,000,000.00 72,904.48
Accounts and notes receivable
661,738,840.00 18,036,928.70
639,495,518.00 13,606,287.62
312,608,976.52 12,187,484.46
Amout due from affiliated companies
1,649,879.00 44,970.54
26,710,569.88 568,310.00
- -
Loans to a director
1,870,000.00 50,970.34
1,600,000.00 34,042.55
- -
Investments in other companies
1,213,789.00 33,084.09
1,234,931.00 26,275.13
5,599,940.00 218,321.25
Advance for construction
- -
- -
- -
Inventories
291,163,518.00 7,936,205.79
180,086,214.00 3,831,621.57
196,685,422.83 7,668,047.67
VAT Receivable
34,678,061.00 945,215.36
18,659,509.00 397,010.83
21,946,562.37 855,616.47
Deposit for land purchased
- -
- -
6,582,000.00 256,608.19
Deposit for Inventories
- -
- -
4,472,166.84 174,353.48
Accrued income receivable
- -
- -
18,150,700.00 707,629.63
Other current assets
2,667,621.00 72,711.00
6,789,294.00 144,453.06
11,812,694.12 460,533.88
Total current assets
1,082,479,000.00 29,504,988.01
920,359,463.88 19,582,116.25
609,604,851.32 23,766,271.01
PROPERTY, PLANT AND EQUIPMENT-NET
58,225,326.00 1,587,040.07
65,429,432.00 1,392,115.57
57,006,538.63 2,222,477.14
RECEIVABLES AND LOANS TO RELATED COMPANIES
- -
- -
2,296,754.43 89,542.08
OTHER ASSETS
1,386,617.00 37,794.84
2,279,731.00 48,504.91
2,485,856.39 96,914.48
Total assets
1,142,090,943.00 31,129,822.91
988,068,626.88 21,022,736.74
671,394,000.77 26,175,204.71
LIABILITIES AND SHAREHOLDERS' EQUITY
1998 Unit: Baht Unit: USD
1997 Unit: Baht Unit: USD
1996 Unit: Baht Unit: USD
CURRENT LIABILITIES
Loans from banks
843,957.00 23,003.63
227,217.00 4,834.40
70,592,933.99 2,752,161.17
Loan from financial institution
63,000,000.00 1,717,182.73
58,000,000.00 1,234,042.55
39,708,539.72 1,548,091.22
Accounts and notes payable
108,152,653.00 2,947,902.67
171,536,554.00 3,649,713.91
172,000,644.38 6,705,678.14
Amount to affiliated companies
8,236,933.00 224,513.00
1,486,991.88 31,638.13
- -
Obligation under hire-purchase due within one year
1,332,731.00 36,326.07
1,581,083.00 33,640.06
1,437,445.59 56,040.76
Accrued dividend
1998 368,000,000.00 10,030,527.69
1997 - -
1996 - -
Deposit payable
- -
- -
12,144,465.57 473,468.44
Income tax payable
- -
- -
- -
Accrued expenses
4,106,489.00 111,930.03
6,835,774.00 145,442.00
13,007,428.10 507,112.21
Other current liabilities
8,865,053.00 241,633.59
15,656,469.00 333,116.36
15,112,454.81 589,179.52
Total current liabilities
562,537,816.00 15,333,019.41
255,324,088.88 5,432,427.42
324,003,912.16 2,631,731.47
Obligation under hire-purchase contracts
1,685,862.00 45,951.32
3,018,593.00 64,225.38
2,722,203.55 106,128.79
Loans from Directors
72,425,569.00 1,974,094.23
19,250,000.00 409,574.47
15,750,576.57 614,057.57
Loans from other companies
- -
6,276,316.23 244,690.69
- -
Total liabilities
1998 636,649,247.00 17,353,064.95
1997 277,592,681.88 5,906,227.27
1996 348,753,008.51 3,596,608.52
SHAREHOLDERS' EQUITY
Share capital
Number of Preferred shares
29,400,000.00 29,400,000.00
- -
- -
Number of common shares
30,600,000.00 30,600,000.00
30,000,000.00 30,000,000.00
30,000,000.00 30,000,000.00
Par Value per each share
1998 10.00 0.27
1997 10.00 0.21
1996 10.00 0.39
Issued and fully paid - up
Preference shares
98,000,000.00 2,671,173.14
- -
- -
Common shares
302,000,000.00 8,231,574.36
300,000,000.00 6,382,978.72
290,000,000.00 11,306,042.88
Total
1998 400,000,000.00 10,902,747.49
1997 300,000,000.00 6,382,978.72
1996 290,000,000.00 11,306,042.88
Less: Share subscription receivable
(8,050,000.00) (219,417.79)
(63,300,000.00) (1,346,808.51)
(90,000,000.00) (3,508,771.93)
Total Net
1998 391,950,000.00 10,683,329.70
1997 236,700,000.00 5,036,170.21
1996 200,000,000.00 7,797,270.96
Retained earnings appropriated
- - Legal reserve
10,000,000.00 272,568.69
- -
- -
- - Translation Adjustment
1998 - 383,389.57
- -
- -
- - Unappropriated
103,491,696.00 2,437,471.00
473,775,945.00 10,080,339.26
122,640,992.26 4,781,325.23
Total shareholders' equity
505,441,696.00 13,776,758.96
710,475,945.00 15,116,509.47
322,640,992.26 12,578,596.19
Total liabilities and shareholders' equity
1,142,090,943.00 31,129,823.91
988,068,626.88 21,022,736.74
671,394,000.77 26,175,204.71
Sources:
- -
- -
- -
Exchange Rate at 12/31/97 & 12/31/96 from Bloomberg
1998 36.6880 1.00
1997 47.0000 1.00
1996 25.6500 1.00
Exchange Rate at 12/31/98 from Audited Financial Statements
Baht USD
TOPAZ GROUP INC.
Exhibit 27.01
Statements of Income and Retained Earnings
For the years ended December 31, 1998, 1997 & 1996
REVENUES
Sales Unit: Baht Unit: USD
1998 1,050,981,635.00 25,762,510.97
1997 929,450,809.99 19,775,549.15
1996 793,171,615.54 30,922,870.00
Other income
10,632,110.00 260,622.87
8,470,447.00 180,222.28
69,191,864.78 2,697,538.59
Total revenues
1,061,613,745.00 26,023,133.84
937,921,256.99 19,955,771.43
862,363,480.32 33,620,408.59
EXPENSES
Cost of Sales
604,789,532.00 14,825,089.64
465,035,034.99 9,894,362.45
665,555,990.25 25,947,601.96
Selling and administrative expenses
154,507,966.00 3,787,424.10
275,490,704.00 5,861,504.34
120,071,129.96 4,681,135.67
Equity in loss for investment in subsidiary
21,142.00 518.25
690,738.00 14,696.55
- -
Interest expense
10,882,994.00 266,772.74
10,554,466.00 224,563.11
8,225,545.92 320,684.05
Income tax
- -
- -
1,049,243.99 40,906.20
Accrued dividend
- -
- -
- -
Total expenses
770,201,634.00 18,879,804.73
751,770,942.99 15,995,126.45
794,901,910.12 30,990,327.88
Income before extraordinary item
291,412,111.00 7,143,329.11
186,150,314.00 3,960,644.98
67,461,570.20 2,630,080.71
Gain/(loss) on the adoption of managed floatation of Thai Baht
(151,696,360.00) (3,718,503.74)
168,658,910.00 3,588,487.45
- -
Net Profit
139,715,751.00 3,424,825.37
354,809,224.00 7,549,132.43
67,461,570.20 2,630,080.71
Beginning Retained Earnings
473,775,945.00 12,913,649.00
122,640,992.26 2,609,382.81
55,179,422.06 2,151,244.52
Prior Period Adjustments
- -
(3,674,271.26) (78,175.98)
- -
Legal Reserve
1998 (10,000,000.00) (272,568.69)
Dividends Paid
1998 (500,000,000.00) (13,628,434.00)
- -
- -
Ending Retained Earnings
1998 103,491,696.00 2,437,471.68
1997 473,775,945.00 10,080,339.26
1996 122,640,992.26 4,781,325.23
Exchange Rate at December 31, 19XX
1998 40.7950 1.00
1997 47.0000 1.00
1996 25.6500 1.00
Baht USD
Source: Bloomberg
(b) Exhibits: See Index to Exhibits.
The Topaz Group, Inc.
SEC Form 10-12G
September 9, 1999
