SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB12
INITIAL REPORT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the 3rd Quarter Ended February 29, 2000
Commission file number 0-28239
SUNFLOWER (USA), LTD.
---------------------
(Exact name of Registrant as specified in its charter)
Nevada 82-0349651
------------------------- -----------------------------
(State of incorporation) (I.R.S. Employer I.D. Number)
764 Industry Drive, Building 16, Tukwila, Washington 98188
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (206)-394-9701 or 394-9702
--------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes , No X .
--- ---
The Registrant's revenues for its most recent fiscal year ended May 31, 1999
were $18,172,423 and for its most recent nine months revenue three quarters
ended on February 29, 2000 were $20,405,787.
As of February 29, 2000, the Registrant has 4,546, 667 shares of common stock
outstanding. The aggregate market value (based on an average high bid and a low
asking price of such common equity as quoted on the OTC Electronic Bulletin
Board) of common stock held by non-affiliates of the Registrant (578,333 shares)
was approximately $2,371,165.
<PAGE>
#1Securities to be registered pursuant to Section 12(b) of the Act:
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Title of each class to be registered: NONE
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Name of each exchange on which each class is to be registered: NONE
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Securities to be registered pursuant to Section 12 (g) of the Act:
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Title of each class to be registered:
-------------------------------------
COMMON STOCK IS $0.001 PAR VALUE
--------------------------------
SunFlower (USA) Ltd., Symbol (SFLW)
-----------------------------------
Name of each exchange on which each class is to be registered: NONE
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<PAGE>
SunFlower (USA), Ltd.
---------------------
Unaudited Interim Financial Statements
--------------------------------------
For Third Quarter Ended February 29, 2000
Contents Pages
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Accountants' Review Opinion 4
Unaudited Consolidated Balance Sheet 6
Unaudited Consolidated Statements of Operations 7
Unaudited Consolidated Statement of Changes in Stockholders' Equity 8
Unaudited Consolidated Statement of Cash Flows 9
Notes to the unaudited consolidated financial statements 10-20
Consent Of Independent Certified Public Accountant 21
Signatures 22
<PAGE>
DICKSON V. LEE
CERTIFIED PUBLIC ACCOUNTANTS, L.L.C.
______________________________________________________________________________
Main Address: 110 Wall Street, Suite 15C, New York, NY 10005 PMB 100
------------- Telephone: (212) 701-8587 Fax: (212) 701-8543
China Address: Suite 2503, United Plaza, Shenzhen, China
-------------- Telephone: (755) 271-0062 Fax: (755) 271-0389
______________________________________________________________________________
Accountants' Review Opinion
SunFlower (USA), Ltd.
Stockholders and Board of Directors
We have made a review of the consolidated balance sheet of SunFlower (USA), Ltd.
as of February 29, 2000, 1999 and 1998, which is the end of the third quarter
of the 2000, 1999 and 1998 fiscal years and the related consolidated
statements of income and expenses, consolidated statement of changes in
stockholders' equity and consolidated statement of cash flows for the
three-month periods then ended, in accordance with standards established by the
American Institute of Certified Public Accountants. These consolidated interim
financial statements are the responsibility of the Company's management.
A review of interim financial information consists principally of obtaining an
understanding of the system for the preparation of interim financial
information, applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an examination in accordance with the American
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
<PAGE>
On the basis of our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with the American generally accepted accounting principles.
Dickson V. Lee, Certified Public Accountants, LLC
New York, New York
April 8, 2000
<PAGE>
<TABLE>
<CAPTION>
SUNFLOWER (USA), LTD.
UNAUDITED CONSOLIDATED BALANCE SHEET
------------------------------------
FOR THE THIRD QUARTER ENDED FEBRUARY 29
<S> <C> <C> <C>
ASSETS
2000 1999 1998
----------- ----------- -----------
CURRENT ASSETS
CASH AND CASH EQUIVALENTS 3,726,612 941,922 1,490,838
ACCOUNTS RECEIVABLE (NET) (NOTE 2C) 2,519,691 1,378,827 227,667
INVENTORIES LESS ALLOWANCE (NOTE 2G) 5,145,691 4,414,454 3,668,204
DEPOSITS, OTHER ADVANCES (NOTE 2D) 11,755,913 24,072,225 12,397,648
----------- ----------- -----------
TOTAL CURRENT ASSETS 23,147,907 30,807,428 17,784,357
FIXED ASSETS (NOTE 2E)
LAND & BUILDINGS 11,587,955 2,468,820 2,220,315
MACHINE & OTHERS 18,915,596 3,501,496 3,396,498
LESS: ACC DEPRECIATION (3,002,148) (2,722,496) (1,750,602)
----------- ----------- -----------
FIXED ASSETS (NET) 27,501,403 3,247,820 3,866,211
OTHER ASSETS
CONSTRUCTION IN PROGRESS 2,735,539 5,039,266 4,947,992
----------- ----------- -----------
TOTAL ASSETS 53,384,849 39,094,514 26,598,560
=========== =========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
2000 1999 1998
----------- ----------- -----------
CURRENT LIABILITIES
ACCOUNTS PAYABLES 2,008,257 908,699 1,635,393
SHORT TERM LOANS (NOTE 4) 12,994,661 5,433,657 5,388,115
OTHER PAYABLES (NOTE 2H) 5,342,987 923,853 5,826,602
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 20,345,905 7,266,209 12,850,110
LONG TERM LIABILITIES 12,501,205 13,208,847 1,760,949
----------- ----------- -----------
TOTAL LIABILITIES 32,847,110 20,475,056 14,611,059
STOCKHOLDERS' EQUITY
COMMON STOCK, PAR VALUE $0.001
AUTHORIZED SHARES- 50,000,000, ISSUED
AND OUTSTANDING SHARES- 4,546,667 (NOTE 5) 4,547 12,500 12,500
ADDITIONAL CAPITAL (NOTE 6) 15,880,594 15,040,964 8,530,120
RETAINED EARNINGS 4,652,598 3,565,994 3,444,881
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 20,537,739 18,619,458 11,987,501
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 53,384,849 39,094,514 26,598,560
=========== =========== ===========
</TABLE>
The notes on pages 10 to 20 form an integral part of these consolidated interim
financial statements.
<PAGE>
<TABLE>
<CAPTION>
SUNFLOWER (USA), LTD
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
FOR THE THIRD QUARTER ENDED FEBRUARY 29
2000 1999 1998
------------------------- ------------------------- -------------------------
THIRD THREE QUARTERS THIRD THREE QUARTERS THIRD THREE QUARTERS
QUARTER ACCUMULATED QUARTER ACCUMULATED QUARTER ACCUMULATED
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
SALES (NOTE 2J) $5,626,095 $20,405,787 $4,890,169 $14,598,700 $ 3,732,035 $11,172,853
COST OF SALES 3,812,506 14,936,573 3,423,133 10,708,725 3,106,307 8,981,994
----------- ------------ ----------- ------------ ----------- ------------
GROSS PROFIT 1,813,589 5,469,214 1,467,036 3,889,975 625,728 2,190,859
SELLING EXPENSES 26,353 82,168 29,072 93,675 62,956 133,945
GENERAL & ADMINISTRATION EXPENSES 220,822 890,178 102,894 510,953 107,346 309,136
----------- ------------ ----------- ------------ -----------
OPERATING PROFIT 1,566,414 4,496,868 1,335,070 3,285,347 455,426 1,747,778
FINANCIAL EXPENSES (NOTE 2K) 136,231 451,688 408,740 485,849 54,192 271,139
OTHER INCOME/(EXPENSE) (38,557) (44,413) (7,812) (46,318) 14,570 (31,130)
----------- ------------ ----------- ------------ -----------
INCOME BEFORE TAX 1,391,626 4,000,767 918,518 2,753,180 415,804 1,445,509
TAX (NOTE 2L) 417,488 1,075,740 - - - -
----------- ------------ ----------- ------------ ----------- ------------
NET INCOME $ 974,138 $ 2,925,027 $ 918,518 $ 2,753,180 $ 415,804 $ 1,445,509
=========== ============ =========== ============ =========== ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES - BASIC AND DILUTED 4,546,667 4,546,667 4,166,667 4,166,667 12,500,000 12,500,000
EARNINGS PER SHARE
- BASIC $ 0.21 $ 0.64 $ 0.22 $ 0.66 $ 0.03 $ 0.12
----------- ------------ ----------- ------------ ----------- ------------
- DILUTED $ 0.21 $ 0.64 $ 0.22 $ 0.66 $ 0.03 $ 0.12
----------- ------------ ----------- ------------ ----------- ------------
</TABLE>
The notes on pages 10 to 20 form an integral part of these consolidated interim
financial statements.
<PAGE>
<TABLE>
<CAPTION>
SUNFLOWER (USA), LTD.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
-------------------------------------------------------------------
FOR THE THIRD QUARTER ENDED FEBRUARY 29
<S> <C> <C> <C> <C> <C>
COMMON COMMON
STOCK STOCK ADDITIONAL RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
----------- -------- ----------- ------------ ---------------
BALANCE AS OF MAY 31 1997 12,500,000 $12,500 $ 8,530,120 $ 1,999,372 $ 10,541,992
CAPITAL INCREASE - - 3,510,844 - 3,510,844
NET INCOME FOR THE YEAR - - - 1,813,442 1,813,442
RECAPITALIZATION - - 3,000,000 (3,000,000) -
----------- -------- ----------- ------------ ---------------
BALANCE AS OF MAY 31 1998 12,500,000 12,500 15,040,964 812,814 15,866,278
-------- ----------- ------------ ---------------
DISTRIBUTION - - - (1,566,265) (1,566,265)
REVERSE SPLIT (8,333,333) (8,333) - - (8,333)
COMMON SHARE ISSUED 370,000 370 839,630 - 840,000
COMMON SHARE ISSUED 10,000 10 10
NET INCOME FOR THE YEAR - - - 2,481,022 2,481,022
----------- -------- ----------- ------------ ---------------
BALANCE AS OF MAY 31 1999 4,546,667 4,547 15,880,594 1,727,571 17,612,712
----------- -------- ----------- ------------ ---------------
NET INCOME FOR THREE QUARTER
ACCUMULATED - - - 2,925,027 2,925,027
----------- -------- ----------- ------------ ---------------
BALANCE AS OF FEBRUARY 29 2000 4,546,667 4,547 15,880,594 4,652,598 20,537,739
=========== ======== =========== ============ ===============
</TABLE>
The notes on pages 10 to 20 form an integral part of these consolidated interim
financial statements.
<PAGE>
<TABLE>
<CAPTION>
SUNFLOWER (USA), LTD.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
FOR THE THIRD QUARTER ENDED FEBRUARY 29
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 974,138 $ 918,518 $ 415,804
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH PROVIDED BY
OPERATING ACTIVITIES:
(INCREASE)/DECREASE IN ACCOUNTS RECEIVABLE 2,293,118 61,573 1,737,832
(INCREASE)/DECREASE IN DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES (512,158) (1,963,413) 1,316,001
(INCREASE)/DECREASE IN INVENTORIES (NET) (255,994) 599,065 (1,330,947)
DECREASE IN ACCOUNTS PAYABLE 1,005,859 (1,013,680) (228,173)
INCREASE/(DECREASE) IN OTHER PAYABLE AND CHARGES (6,544,716) (299,712) 3,343,510
DEPRECIATION EXPENSES 285,552 674,638 220,063
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES (2,754,201) (1,023,011) 5,474,090
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT AND MACHINERY - (318,059) (384,126)
PROCEEDS FROM SALES OF PLAN AND MACHINERY - 138,834 -
DECREASE IN CONSTRUCTION IN PROGRESS (451,435) 282,433 55,618
------------ ------------ ------------
NET CASH FLOWS FROM INVESTING ACTIVITIES (451,435) 103,208 (328,508)
CASH FLOWS FROM FINANCING ACTIVITIES:
INCREASE IN LONG TERM DEBT - 799,441 1,255,074
INCREASE IN SHORT TERM BANK LOAN 4,379,624 - -
REDUCTION IN SHORT TERM BANK LOAN - (1,073,198) (6,766,915)
------------ ------------ ------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 4,379,624 (273,757) (5,511,841)
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENT 1,173,988 (1,193,560) (366,259)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD (DECEMBER 1) 2,552,624 2,135,482 1,857,097
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD (FEBRUARY 29) $ 3,726,612 $ 941,922 $ 1,490,838
============ ============ ============
</TABLE>
The notes on pages 10 to 20 form an integral part of these consolidated interim
financial statements.
<PAGE>
1) GENERAL
-------
SunFlower (USA), Ltd. (the Company) is incorporated in the State of Nevada, with
the place of business located at 764 Industry Drive, Building 16, Tukwila,
Washington 98188. It owns 100% of its subsidiary - SunFlower Industry (BVI)
Co. Ltd. (SunFlower (BVI)), which is incorporated in British Virgin Islands.
SunFlower (BVI) is a shell company, which has no activities except that it owns
100% of its subsidiary - SunFlower Industry Co. Ltd. (SunFlower), located in
Sheng Yang City, People's Republic of China (PRC), is incorporation in the PRC
as a sino-Hong Kong joint venture in 1992.
The Company's main activities are operated by its PRC subsidiary SunFlower,
which has been in operation since 1992. The Company engages in the
manufacturing and marketing of different types of alloys and copper products,
such as copper pipes, sheets, wires, plates, belts, white copper, yellow
copper and nickel alloy, etc. The Company receives its sales orders mainly from
the utility and power generating industries. Its products are used in the
high-voltage power transmission, turbines, electrical cables, heat exchangers,
refrigerators and air conditioners.
The Company establishes an US executive office in the suburban area of Seattle,
located at 764 Industry Drive, Tukwila, Washington 98188 to expand its US
presence in July 1999. So that the Company can secure copper raw materials from
the US for its Chinese manufacturing facilities and start sales activities of
its copper pipes, wires and brass products in America.
The Company retains Graves Group & Company of Seattle, Washington as its public
relations consultant to assist the Company to generate news coverage in both
industry trade press as well as the business media in Seattle and to produce a
marketing brochure on the Company.
The Company has filed the Form 10SB with the Securities and Exchange Commission
(SEC) according to the Section 12(g) of the Securities Exchange Act of 1934.
The SEC is currently reviewing company's filing of Form 10-SB.The Company made
an announcement that it intends to apply for the listing at the American Stock
Exchange (AMEX) after the SEC filing is accepted. This upgrading of its stock
listing is an integral part of the Company's objective to expand into the North
American market. The AMEX filing is in process and is expected to complete, upon
the clearance from the SEC and AMEX reviews.
The Company executed an agreement with Mr. Daniel S. Mckinney, to appoint Mr.
Mckinney as its (non-executive) director to promote the Company's business and
growth objective in North America in September, 1999. The duration of the
agreement lasts for a period of three years. Mr. Mckinny is entitled to certain
amount of stock and stock options of the Company for his service to be rendered
to the Company.
2) PRINCIPAL ACCOUNTING POLICIES AND PRACTICE
----------------------------------------------
a) FISCAL YEAR ENDING MAY 31
The Company's fiscal year ends on May 31 of the following year. This fiscal
year policy has been adopted consistently in the past years.
b) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries (See Note 1, General). All material inter-company
balances and transactions, if any, have been eliminated on consolidation.
c) ACCOUNTS RECEIVABLE
Accounts receivable is the sales amount to be received. The balance of this
account is recorded net of provisions for bad debt amounts.
d) DEPOSITS, ADVANCES AND OTHER RECEIVABLES
The balance includes deposits paid for purchase of raw materials & fixed
assets, advances given to company's employees for business travels and
conferences. No related parties borrowings exist in the account. No related
party borrowings exist.
e) PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION EXPENSES
Fixed assets are recorded at historical costs. Depreciation expenses are
calculated to write off asset costs after deducting the scrap values on a
straight line basis over the expected useful lives. The Company's policy
requires proper maintenance to ensure the useful lives of the fixed assets.
The Company has been in the expansion phase since 1997, to construct its
new factory building and install manufacturing equipment in order to
increase production quantity and quality. The expansion of production is
mainly financed by debt facilities (see Note 4, Bank Loans).
f) CONSTRUCTION IN PROGRESS
The amount of expansion while in progress is recorded under the
Construction In Progress account. When the construction is completed, the
balance of the Construction In Progress account is then transferred to the
Property, Plant & Equipment account.
g) INVENTORIES
Inventories are stated at a predetermined manufacturing cost for each
product during the year. The inventory cost includes direct materials,
direct labor and manufacturing overheads. Costs are then adjusted at the
year end to reflect the actual value of the inventories. Inventories are
recorded on the "first-in first-out" basis, which is in compliance with the
Generally Accepted Accounting Principle.
h) OTHER PAYABLES
The balance includes various payables including deposits received, accrued
expenses and notes payables.
i) FOREIGN CURRENCY TRANSLATION
The Company prepares its financial statements using US dollars as the
reporting currency. However, its overseas operation in PRC is conducted in
PRC currency (RMB) (the functional currency). Transactions in RMB are
translated into United States dollars (the reporting currency) for
consolidation. In accordance with SFAS No.52, Foreign Currency Translation,
foreign currency transactions are translated into US dollars at the
applicable rates of exchange prevailing at the dates of the transactions.
Assets and liabilities are denominated at applicable rates prevailing at
the balance sheet date. Exchange differences, if any, resulting from the
above translation policy are reported in stockholders' equity. Gains or
losses arising from exchange foreign currency translations are included in
"other comprehensive income" in the statement of operations
<PAGE>
Currently, the exchange rate of RMB to US dollars is stable and the
Company's management does not expect any major fluctuation in the currency
rate, which would affect the comprehensive income result of exchange gains
and losses. There is no comprehensive income arising from foreign currency
exchange gains and losses in the Company's statement of operations.
j) SALES/REVENUE RECOGNITION
Product sales/revenue is recognized upon transfer of title of goods, this
is in accordance with the American Generally Accepted Accounting Principle.
For each period cover, the increase of net sales are mainly due to sales
volume (not due to an increase of product). It is a result of the Company's
expansion of plant facilities.
k) FINANCIAL EXPENSES
The total amount of interest costs incurred and charged to expense during
the periods, which excludes the amount of interest cost, been capitalized
as fixed assets, (i.e. interest expenses necessary to bring the assets to
the condition and location for its intended use during the periods, which
has future value are capitalized and depreciated over the useful life of
such fixed assets) are as follows:
<TABLE>
<CAPTION>
February 29, 2000 February 28, 1999 February 28, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
- Interest Expense $ 136,231 $ 408,740 $ 54,192
- Interest capitalized $ 450,230 $ 204,223 $ 71,466
</TABLE>
l) INCOME TAX
The Company and its subsidiaries are subject to income taxes on an entity
basis on income arising in or derived from the tax jurisdictions in which
they operate. The current provision for income tax is provided at the
applicable tax rates in accordance with the relevant income tax laws and
tax credits when applicable, may be applied.
Currently, a provision of taxes was made at approximately 30% as Company's
income tax liabilities for its PRC subsidiary. An opinion has been obtained
from the taxing authority that the Company entitles a special reduced tax
rate of 15% on income under Preferential Tax Policies. Hence, an
over-provision of income tax may incur. When the legal opinion is received,
the Company may consider to reverse its overstated tax liabilities and
adjust the tax implication at the year end final.
The Company accounts for income taxes under the Financial Accounting
Standards Board of Financial Accounting Standard No, 109, "Accounting for
Income Taxes". Under the Statements, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to difference
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured at an enacted rate to recovered or settled. Under
the Statement, the effect on deferred tax assets and liabilities of a
change in tax rate is recognized in income in the period that includes the
enactment date. Assuming overall tax of 15%, the SFAS 109 presentation is
as follows:
2000 1999
-------- --------
Deferred Assets $475,625 $625,025
Valuation Allowance 0 0.
------------------- -------- --------
Net Deferred Assets $475,625 $625,025
The Company's wholly owned subsidiary located in the PRC has not
repatriated any profit nor distributed earnings to the Company in the US
since its incorporation in October, 1998. Since there is no profit incurred
in the United States, nor income received from its overseas subsidiary as
defined under Section 951 of Subpart F, Income of Controlled Foreign
Corporation. Therefore, the profits are recognized for the accounting
purposes, while profits are deferred and not recognized for the US tax
purposes, the difference is permanent and may not be revised.
The Company has filed its US Corporate tax return timely. The Company
management believes that the Company may not have U.S. tax liabilities at
the present time. However, when profit is incurred in the United States or
income received from its overseas subsidiary, the Company may be subject to
U.S. taxes. Consequently a U.S. tax provision is to be made.
<PAGE>
m) USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make necessary
estimates and assumptions. The management believes that the estimates used
in preparing the financial statements are reasonable and accurate to
properly reflect the operations of the Company. In addition, the estimates
used are not subject to near term risk of change, if any.
n) COMPREHENSIVE INCOME
In accordance with SFAS No.130, if gains or losses incurred from the
transaction of foreign currency exchange the gains or losses is to be
recorded under comprehensive income on the statement of operations. The
Company has no comprehensive income for the periods reported. (Refer to
Note 2 i - Foreign Currency Translations ).
3) SEGMENTED GEOGRAPHIC SALES
----------------------------
Presently, a 100% of sales is generated from its Chinese subsidiary and no sales
is made by the Company in the United States (See Note 2j).
During the third quarter ended February, 2000, sales to 10 major customers
accounted for over approximate 60% of the Company's sales. However, none of
these individual customer purchases over 10% of the Company's sales. The dollar
value of sales to these customers is expected to maintain or increase steadily
over the next several years due to the fact that the Company is the only
privately-owned alloy manufacturer in the PRC, which can produce certain
products to meet the specifications and quality of its customers. The
management indicated that it will continue to provide alloy products to meet the
demands of its customers.
4) BANK LOANS
-----------
As a result of a major expansion of the Company's factory building and
manufacturing facilities, loans from banks were secured as a way to finance the
expansion. The outstanding loan balance amounted to US$12,994,661, being the
portion repayable within one year, is reflected under the Current Liabilities.
The remaining loan balance of US$12,501,205 is shown under the Long Term
Liabilities. Details of the terms of bank loans:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Principle Denominate Interest Name of Maturity
Currency Rate Banks Date Collateral Nature
---------------- -------------------------- ----------- ---------- ----------
58,489 RMB 0.5115% monthly Bank of Communications April, 2000 No Short Term
----------- ---------- ---------------- -------------------------- ----------- ---------- ----------
706,831 RMB 0.5445% monthly Shenyang Corporation Bank April, 2000 No Short Term
3,313,253 RMB 0.536% monthly Shenyang Credit Bank April, 2000 No Short Term
498,717 USD Libor plus Bank of Communications May, 2000 No Short Term
2,176,528 RMB 0.5625% monthly Shenyang Credit Bank May, 2000 No Short Term
3,253,012 RMB 0.702% monthly Agricultural Bank of China May, 2000 No Short Term
2,987,831 RMB 0.792% monthly Construction Bank of China May, 2000 No Short Term
12,501,205 RMB 1.035% monthly Shenyang Credit Bank April, 2001 Yes Long Term
</TABLE>
All bank loans are charged with a fixed interest rate, except the US$498,717
loan, which is charged with a "LIBOR plus" floating interest rate. Bank loans
are subject to potential credit risk. The management expects continuing
availability of these short- term funds in the future. It is the general
practice of the banking institutes in the PRC to grant loans on a short term
basis. The short term loans will be renewed at the end of the maturity date. The
long term loan was secured by an affiliated company, which Mr. Edward LIU,
chairman of the Company, has a controlling interest.
5) STOCK AND SHAREHOLDERS
------------------------
The Company has 50,000,000 shares of authorized common stock with par value of
US$0.001 per share. No preferred stock is authorized and outstanding. During
the second quarter of 1998, the outstanding common shares of 12,500,000 were
reduced to 4,166,667 common shares.
The Company's shares are listed and traded on the OTC "BB" (or NASDAQ), under
the symbol "SFLW" on and about October 5, 1998. Signature Stock Transfer, Inc.
in Dallas, Texas, serves as transfer agent and registrar for the Company's
common stock. During the forth quarter of the 1998, approximate 370,000
additional common shares were authorized to issue to the public in order to
raise US$1million. The Company also entered into a 3 year contract with a
director (non-executive), in which 10,000 shares and small amount of options are
awarded each year (see Note 1). As a result, the total common shares
outstanding is approximate 4,546,667 shares.
Principal shareholding of the Company after the US$1 million fund raising, is as
follows:
<PAGE>
<TABLE>
<CAPTION>
Name Title Shares Percentage
Owned Owned
<S> <C> <C> <C>
Edward LIU Chairman/Secretary 2,200,000 48.387%
Paul MENG Director/President 240,000 5.279%
Witty LIU Director 240,000 5.279%
Joy King ZHANG Director 120,000 2.639%
Virginia TONG Director 80,000 1.760%
Christina ZHANG Director 80,000 1.760%
Nathan GOLDENTHAL Director 333 0.007%
Total officers and directors as a group 2,960,333 65.11%
</TABLE>
6) PAID-IN-CAPITAL
---------------
Referred to "Unaudited Consolidated Statement of Changes in Stockholders'
Equity". The total additional paid in capital of the Company as of February 29,
2000 is US$15,880,594. While the paid in capital in 1999 was US$15,040,964.
7) COMMITMENT AND CONTINGENCIES
------------------------------
It is company management's belief, the Company is not subject to the US profit
tax (see Note 2l- Income tax). As a result, no provision was made for the US
taxes liabilities. Annual tax filing was made to the Internal Revenue Service.
It has not been challenged, but it may be subject to challenge in the future.
No other material commitments and contingencies other than doing business were
noted as of February 29, 2000.
8) YEAR 2000 ISSUES
------------------
The Company has implemented a Year 2000 (Y2K) program aimed at ensuring that its
Company systems, applications and equipment will function properly beyond 1999.
As a part of this program, the Company conducted an assessment of its equipment
and machinery during August, 1998. The Company's machinery do not have timers
or date counters and, therefore, are not subject to Year 2000 problems. The
Company continuously seeks to upgrade and improve its computer systems and
software to better service customers and to support its growth. As a result,
all of the Company's computer systems and software have been recently acquired
or upgraded and the Company believes they are Year 2000 compliant, though there
can be no assurance in this regard.
Because the Company replaced or upgraded its computer systems and software in
conjunction with its normal business practices, it has not allocated additional
resources or attributed additional costs to Year 2000 compliance. The Company
will continue to assess and test newly purchased machinery and computer-related
hardware and software to ensure such items comply with Year 2000.
9) INFLATION
---------
It is believed that inflation has not had a material impact on the Company's
business in recent years. It is management belief that the inflation will not
have material impact in the future.
10) RELATED PARTY TRANSACTIONS
----------------------------
The Company has some facilities which are shared by its affiliated companies.
The financial effects of the shared facilities are not material. All other
related party transactions are reviewed and disclosed when material, in
accordance with FASB No.57.
11) OPERATING RISKS
----------------
The Company's main operations are conducted in the PRC. Accordingly, the
business, financial conditions and results on operations may be influenced by
the political, economic and legal environment in the PRC. The Company's
operations may be subjected to special considerations and risks not typically
associated with Companies in North America.
The Company is currently in compliance with applicable environmental protection
regulations of the regulatory agency.
12) FOREIGN CORRUPT PRACTICES ACT
--------------------------------
The Company is subject to the U.S. Foreign Corrupt Practices Act of 1977, which
generally prohibits U.S. companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining
business. Foreign companies, including some that may compete with the Company,
are not subject to these prohibitions. During the review, no violation of the
Foreign Corrupt Practices Act by the Company is noted.
13) RETIREMENT PLAN
----------------
The Company's employees in the PRC and the United States are all hired on
contractual basis, which Company has no obligations for pension liabilities to
the employees. In addition, Company has not adopted post-retirement or
post-employment benefit plans.
14) SHORTAGE OF LABOR
-------------------
The Company does not experience any labor shortage or labor disputes in the
past. It is expected that labor resources are abundant to fulfill company's
manufacturing and operating needs.
15) SHORTAGE OF SUPPLIES / COPPER PRICES FLUCTUATION
------------------------------------------------------
The Company purchases raw materials and supplies from various sources and
suppliers (e.g. used coppers, copper ingots, other non-ferrous metals) to
manufacture its products. The Company does not experience any shortage of raw
materials and supplies. It is expected that under a normal business environment,
there is no shortage of raw material and supplies in the near future.
The Company purchases copper raw materials and processes them to finished
products. The prices of copper raw materials may fluctuate from time to time. It
has been low for the past few years, but prices may rise, resulting in increased
material prices for operations.
<PAGE>
16) RELIANCE ON KEY PERSONNEL
----------------------------
Despite that most of the key personnel and employees have been with the Company
for over four (4) years, the operation of the Company is dependent on the
services of its top ranking officers and employees. The possible loss of their
services or the inability to attract qualified personnel will have a material
adverse effect on the Company. The Company indicated that it will be able to
retain or attract qualified personnel in the future to maintain its operations.
17) ACCOUNTING FOR STOCK OPTIONS
-------------------------------
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123 "Accounting for Stock Based Compensation" (FASB No.123), which established
the "fair value" method of accounting for stock based compensation arrangements.
The Company has adopted a Stock Option Plan to its director (non-executive).
The amount involved is not material, taking the total shares outstanding as a
whole (see Note 1). The Board of Directors intends to adopt more stock option
plans in the future to reward its management, directors and employees of
exceptional contributions to the Company.
18) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
---------------------------------------------------
Statement of Financial Accounting Standards No.133 - Accounting for Derivative
Instruments and Hedging Activities (FASB No.133) was recently issued. FASB
No.133 established accounting and reporting standards for derivative financial
instruments and for hedging activities. The Company does not currently engage
in any activities that would be covered by FASB No.133.
<PAGE>
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANT
SunFlower (USA), Ltd.
Tukwila, Washington
We hereby consent to the incorporation by reference of our audit report dated
August 2,1999 relating to the consolidated financial statement of SunFlower
(USA), Ltd. appearing in the Company's Annual Report on Form 10-SB for the year
ended May 31,1999. We also consent to the reference to us under the caption
"Experts" in your financial statements. In addition, we consent to the
incorporation of our review reports dated November 18, 1999, January 3, 2000 and
April 24 relating to the first, second and third quarter financial statements of
your company in the content of Form 10-SB12(G)/A.
/s/ Dickson V. Lee, CPAs, L.L.C.
-------------------------------------
Dickson V. Lee, CPAs, L.L.C.
New York, New York
April 28, 2000
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be singed on its
behalf by the undersigned, thereunto duly authorized
SUNFLOWER (USA), LTD.
By: /s/ Edward Ai Dong Liu
---------------------------
Edward Ai Dong Liu
Chairman of the Board and Chief Executive Officer
Dated: April 23, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
----------------------- ------------------------- -------------
/s/ Edward Liu Chairman of the Board, April 21,2000
----------------------- & Chief Executive Officer
Edward A.D. Liu
/s/ Paul X. B. Meng President and Director April 21,2000
-----------------------
Paul X. B. Meng
/s/JoyKing Zhang Vice President April 21,2000
----------------------- & Director
JoyKing, Zhang Xiao Jun
/s/ Virginia Tong Vice President April 21,2000
----------------------- & Director of Finance
Virginia Z.Q. Tong
/s/ Whitty Liu Director, Treasury April 21,2000
----------------------- & Secretary
Whitty H.D. Liu
/s/ Christina Zhang Director & April 21,2000
----------------------- VP-Marketing
Christina X.M. Zhang
<PAGE>
