<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: (Date of earliest event reported): August 28, 2000
Supply Chain Services Inc.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
000-26049
------------------------
(Commission file number)
Delaware 59-2159951
------------------------------ ----------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
8/F Guangdong Textile Centre, 22 Minden Avenue, Tsimshatsui, Kowloon,
Hong Kong or c/o Registered Agents, Ltd., 1220 North Market Street,
Suite 606, Wilmington, DE 19801
---------------------------------------------------
(Address of principal executive offices) (Zip code)
(852) 2366-8312 or (302) 421-5750
----------------------------------------------------
(Registrant's telephone number, including area code)
Paddington Inc.
Suite E, 15/F, Ho Lee Commercial Building, 40 D'Aguilar Street,
Central, Hong Kong or c/o Registered Agents, Ltd., 1220 North Market
Street, Suite 606, Wilmington, DE 19801
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
Not applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Not applicable.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
(a) Resignation of Independent Accounting Firm
(i) Not applicable.
(ii) Not applicable.
(iii) Not applicable.
(iv) Not applicable.
(v) Not applicable.
(b) Engagement of New Independent Accountants
Not applicable.
ITEM 5. OTHER EVENTS
Not applicable.
ITEM 6. RESIGNATIONS AND APPOINTMENT OF REGISTRANT'S DIRECTORS AND OFFICERS
Not applicable.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired. The required financial
statements for the periods from September 10, 1997 to December 31, 1998,
January 1, 1999 to December 31, 1999, January 1, 1999 to August 31, 1999
(unaudited) and January 1, 2000 to August 31, 2000 are provided in this Report.
Pursuant to paragraph (a)(4) of Item 7, the required historical financial
information will be filed by the Registrant pursuant to the requirements of the
Securities Exchange Act and the rules and regulations promulgated thereunder as
soon as practicable with the initial report or by amendment not later than
60 days after the date of that the initial report on Form 8-K must be filed,
which is in no event later than November 10, 2000. The Registrant's initial
Form 8-K dated August 28, 2000 stated that the required financial statements
would be filed by no later than October 27, 2000 as the Registrant had
originally counted 60 days commencing from the date upon which it had entered
into the merger without counting the 15 days allowed under the Securities
Exchange Act to file the initial Form 8-K.
(b) Pro Forma Financial Information. The pro forma financial
information is not applicable. At the time of filing the original Form 8-K, the
Registrant was not aware of, pursuant to various decisions to be made by its new
auditor, whether it would be required to provide pro forma financial information
in accordance with Item 310(d) of the Regulation S-B. Based upon the financial
statements as prepared by the Registrant's auditors, the Registrant believes
that such pro forma financial information is not required to be made available
pursuant to Item 310(d) of the Regulation S-B.
(c) Exhibits
16.1 Letter from Arthur Andersen & Co. regarding its concurrence with
the statements made by the Registrant in its Form 8-K dated August 28, 2000
16.2 Letter from Areson & Company regarding its consent to the
incorporation of its audit report on the Registrant's Form 8-K/A
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 9, 2000 SUPPLY CHAIN SERVICES INC.
By: /s/ THOMAS YAN CHUEN CHU
------------------------------
Name: Thomas Yan Chuen Chu
Title: President
<PAGE> 5
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ARESON & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
4/F, Galuxe Building, 8-10 On Lan Street, Central, Hong Kong
Tel. (852) 2523 2167 Fax. (852) 2810 1957
Email. [email protected] [email protected]
Principal: William H. Areson, Jr., CPA
New York, USA
SUPPLY CHAIN SERVICES INC.
To the Shareholders and the Board of Directors of Supply Chain Services Inc.:
We have audited the accompanying consolidated balance sheets of Supply Chain
Services Inc. (a company incorporated in the State of Delaware, United States of
America; formerly known as Paddington Inc.; ("the Company") and Subsidiaries
("the Group") as of December 31, 1998 and 1999 and August 31, 2000, and the
related consolidated statements of operations, cash flows and changes in
shareholders' equity for the period from September 10, 1997 (date of
incorporation of the Company's subsidiary, Leader Industrial Group Limited) to
December 31, 1998, year ended December 31, 1999 and for the period from
January 1, 2000 to August 31, 2000. The figures for the period from January 1,
1999 to August 31, 1999 are unaudited and included for comparative purposes
only. These financial statements give retroactive effect, for all year and
periods presented, to the acquisition of Supply Chain Services Limited and
Leader Industrial Group Limited as a reverse acquisition as described in Note 2
to the accompanying financial statements. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test bases, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Supply Chain
Services Inc. and Subsidiaries as of December 31, 1998 and 1999 and August 31,
2000 and the results of their operations and cash flows for the period from
September 10, 1997 (date of incorporation of the Company's subsidiary, Leader
Industrial Group Limited) to December 31, 1998, year ended December 31, 1999 and
for the period from January 1, 2000
<PAGE> 6
to August 31, 2000 after giving retroactive effect to the acquisition of
Supply Chain Services Limited and Leader Industrial Group Limited as a reverse
acquisition as described in Note 2 to the accompanying financial statements, in
conformity with generally accepted accounting principles in the United States of
America.
/s/ ARESON & COMPANY
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
DATED November 6, 2000 HONG KONG
<PAGE> 7
SUPPLY CHAIN SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS AT
DECEMBER 31, 1998, DECEMBER 31, 1999,
AUGUST 31, 1999 AND AUGUST 31, 2000
(Amounts expressed in United States dollars)
<TABLE>
<CAPTION>
At At At At
Notes 12.31.1998 12.31.1999 8.31.1999 8.31.2000
----- ---------- ---------- ----------- ---------
(unaudited)
$ $ $ $
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and bank deposits 25,031 55,099 123,499 45,927
Accounts receivable -- 35,563 57,400 26,542
Other receivable and
Prepayments 399 25,985 24,481 20,122
Deposits 5 -- 7,247 213,543 30,082
Inventories 6 -- -- 53,191 --
---------- ---------- ----------- ---------
TOTAL CURRENT ASSETS 25,430 123,894 472,114 122,673
Furniture, fixtures, equipment
and capital lease, net 7 15,509 64,951 22,694 47,047
Deferred expenses, net 8 28,500 59,375 69,403 61,986
Deferred taxation 10 -- -- -- 11,749
---------- ---------- ----------- ---------
TOTAL ASSETS 69,439 $248,220 564,211 $243,455
========== ========== =========== =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Capital lease obligations,
current portion 9 4,801 16,129 4,801 16,129
Accounts payable -- -- 114,000 49,002
Other payable and accrued
liabilities 8,245 31,661 81,711 21,753
Deposits from customers -- 3,029 276,375 41,105
Due to a shareholder 13 27,247 20,143 48,822 66,503
Provision for taxation 13,123 1,139 13,123
---------- ---------- ----------- ---------
TOTAL CURRENT LIABILITIES 40,293 84,085 526,848 207,615
Capital lease obligations,
non-current portion 9 6,402 48,387 3,201 37,634
Deferred taxation 10 4,777 8,984 6,968 --
---------- ---------- ----------- ---------
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C> <C> <C> <C>
TOTAL LIABILITIES 51,472 141,456 537,017 245,249
---------- ---------- ----------- ---------
Shareholders' equity:
Share capital 11 3,333 3,333 3,333 3,333
Retained earnings (deficit) 14,634 103,431 23,861 (5,127)
---------- ---------- ----------- ---------
TOTAL SHAREHOLDERS' EQUITY 17,967 106,764 27,194 (1,794)
---------- ---------- ----------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 69,439 248,220 564,211 243,455
========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 9
SUPPLY CHAIN SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS FROM
SEPTEMBER 10, 1997 TO DECEMBER 31, 1998,
JANUARY 1, 1999 TO DECEMBER 31, 1999,
JANUARY 1, 1999 TO AUGUST 31, 1999 AND
JANUARY 1, 2000 TO AUGUST 31, 2000
(Amounts expressed in United Stated dollars)
<TABLE>
<CAPTION>
8 months ended 8.31.
-------------------------
From From
9.10.1997 1.1.1999
to to
Notes 12.31.1998 12.31.1999 1999 2000
----- ---------- ---------- ----------- ----------
(unaudited)
$ $ $ $
<S> <C> <C> <C> <C> <C>
Sales and services 242,760 1,990,746 415,175 350,966
Cost of sales and services (170,462) (1,789,512) (354,250) (282,467)
---------- ---------- ----------- ----------
Gross profit 72,298 201,234 60,925 68,499
Commission income -- 53,664 -- 5,587
Retainer fee -- 110,000 60,000 22,000
---------- ---------- ----------- ----------
72,298 364,898 120,925 96,086
Selling expenses (4,438) (6,677) (6,600) (6,189)
General and administrative
expenses (31,626) (195,563) (84,205) (175,937)
Depreciation and
amortization (14,360) (55,036) (16,713) (40,671)
---------- ---------- ----------- ----------
OPERATING INCOME (LOSS) 21,874 107,622 13,407 (126,711)
Other income -- 1,016 -- 1
Interest expenses (2,463) (2,512) (850) (2,581)
---------- ---------- ----------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES 19,411 106,126 12,557 (129,291)
Income taxes 10 (4,777) (17,329) (3,330) 20,733
---------- ---------- ----------- ----------
NET INCOME (LOSS) 14,634 88,797 9,227 (108,558)
========== ========== =========== ==========
EARNINGS (LOSS) PER COMMON
SHARES 0.000439 0.00266 0.000277 (0.00326)
========== ========== =========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 33,333,333 33,333,333 33,333,333 33,333,333
========== ========== =========== ==========
</TABLE>
<PAGE> 10
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 11
SUPPLY CHAIN SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS FROM
SEPTEMBER 10,1997 TO DECEMBER 31, 1998,
JANUARY 1, 1999 TO DECEMBER 31, 1999,
JANUARY 1, 1999 TO AUGUST 31, 1999 AND
JANUARY 1, 2000 TO AUGUST 31, 2000
(Amounts expressed in United States dollars)
<TABLE>
<CAPTION>
8 months ended 8.31.
--------------------------
From From
9.10.1997 1.1.1999
to to
12.31.1998 12.31.1999 1999 2000
---------- ---------- ----------- ----------
(unaudited)
$ $ $ $
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) 14,634 88,797 9,227 (108,558)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 14,360 55,036 16,713 40,671
Loss on sale of motor vehicle -- 2,328 -- --
Income tax provision 4,777 17,329 3,330 (20,733)
Decrease/(Increase) in operating
assets:
Accounts receivable -- (35,563) (57,400) 9,021
Other receivable and prepayments (399) (25,586) (24,082) 5,863
Deposits -- (7,247) (213,543) (22,835)
Inventories -- -- (53,191) --
Increase/(Decrease) in operating
liabilities:
Accounts payable -- -- 114,000 49,002
Other payable and accrued liabilities 8,245 23,416 73,466 (9,908)
Deposits from customers -- 3,029 276,375 38,076
Due to a shareholder 27,247 (7,104) 21,575 46,360
---------- ---------- ----------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 68,864 114,435 166,470 26,959
---------- ---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of motor vehicle -- 6,194 -- --
Purchases of furniture, fixtures
and equipment (2,323) (27,108) (12,551) (1,378)
Deferred expenses (38,000) (52,250) (52,250) (24,000)
---------- ---------- ----------- ----------
</TABLE>
<PAGE> 12
<TABLE>
<S> <C> <C> <C> <C>
NET CASH USED IN INVESTING
ACTIVITIES (40,323) (73,164) (64,801) (25,378)
---------- ---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of shares 3,333 -- -- --
Repayment of capital element of
capital lease obligations (6,843) (11,203) (3,201) (10,753)
---------- ---------- ----------- ----------
NET CASH USED IN FINANCING ACTIVITIES (3,510) (11,203) (3,201) (10,753)
---------- ---------- ----------- ----------
NET INCREASE (DECREASE) IN CASH
AND BANK DEPOSITS 25,031 30,068 98,468 (9,172)
CASH AND BANK DEPOSITS AS OF
BEGINNING OF YEAR/PERIOD -- 25,031 25,031 55,099
---------- ---------- ----------- ----------
CASH AND BANK DEPOSITS AS OF
END OF YEAR/PERIOD 25,031 55,099 123,499 45,927
========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 13
SUPPLY CHAIN SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIODS FROM
SEPTEMBER 10, 1997 TO DECEMBER 31, 1998,
JANUARY 1, 1999 TO DECEMBER 31, 1999,
JANUARY 1, 1999 TO AUGUST 31, 1999 AND
JANUARY 1, 2000 TO AUGUST 31, 2000
(Amounts expressed in United Stated dollars)
<TABLE>
<CAPTION>
Common stock
-------------------------- Retained
Number of Earnings
Shares Amount (deficit)
---------- -------- ----------
$ $
<S> <C> <C> <C>
Issuance of shares 33,333,333 3,333.33
Net income from September 10, 1997 to
December 31, 1998 14,634
---------- -------- ----------
Balance as of December 31, 1998 33,333,333 3,333.33 14,634
Net income from January 1, 1999
to December 31, 1999 88,797
---------- -------- ----------
Balance as of December 31, 1999 33,333,333 3,333.33 103,431
Net loss from January 1, 2000
to August 31, 2000 (108,558)
---------- -------- ----------
Balance as of August 31, 2000 33,333,333 3,333.33 5,127)
========== ======== ==========
Balance as of August 31, 1999
(unaudited) 33,333,333 3,333.33 23,861
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 14
SUPPLY CHAIN SERVICES INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in United States dollars unless otherwise stated)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Supply Chain Services Inc. (the "Company") was incorporated in the State
of Delaware, United States of America, on March 29, 1999 to serve as a
vehicle to effect a merger, exchange of capital stock, asset acquisition,
or other business combination with a domestic or foreign private
business. On August 28, 2000, the Company acquired 100% equity interest
in Supply Chain Services Limited ("SCSL") and its wholly-owned
subsidiary, Leader Industrial Group Limited ("LIGL"), in a transaction
which is described below in this Note. With effect from August 31, 2000,
the Company changed its name from Paddington Inc. to Supply Chain
Services Inc, the present one.
During the period from March 29, 1999 (date of incorporation) to
August 28, 2000 (date of acquisition of SCSL and its wholly-owned
subsidiary, LIGL by the Company), the Company's sole asset was cash on
hand in the amount of 600 and the Company was considered as a Development
Stage Enterprise.
ACQUISITION OF SCSL AND ITS WHOLLY-OWNED SUBSIDIARY LIGL
On August 28, 2000, the Company consummated a stock-for-stock merger
transaction whereby the Company acquired, for an aggregate price of
$2,733.33, 10,000 shares of common shares, par value HK$1 each,
representing all of the issued and outstanding shares of SCSL in exchange
for the issuance by the Company of 27,333,333 shares of its common stock
to Gi-Tech Developments Limited ("Gi-Tech") and Miss Pauline Wai Man Chu
("the SCSL shareholders"), and a designee of Gi-Tech pursuant to the
Share Exchange Agreement signed on the same date by and amongst the
Company, the SCSL shareholders. Gi-Tech is a company incorporated in the
British Virgin Islands and Mr. Thomas Yan Chuen Chu ("Mr. Chu") is the
beneficial owner of all of its issued and outstanding common stock, and
as such is the beneficial owner of all 25,299,999 shares of the Company
now owned by Gi-Tech. In connection with the transaction, Gi-Tech
designated Mr. Tze Tat Fung to receive 666,667 shares of common stock of
the Company. Miss Pauline Wai Man Chu received 1,366,667 shares of the
Company's shares in connection with the transaction.
LIGL was incorporated in Hong Kong on September 10, 1997 and commenced
business mainly in the trading of toys in April 1998. All the then issued
and outstanding common shares of LIGL were owned by Gi-Tech which was
100% beneficially owned by Mr. Chu.
On March 12, 1999, SCSL was incorporated in Hong Kong. 95% of the issued
and outstanding common shares of SCSL were owned by Gi-Tech and were
therefore beneficially owned by Mr. Chu. 5% of the issued and outstanding
common shares of SCSL were owned by Miss Pauline Wai Man Chu. SCSL
commenced business as a supply
<PAGE> 15
chain management services provider in April 1999. In April 1999, SCSL
acquired the entire issued and outstanding common shares of LIGL. After
the acquisition, Gi-Tech, which remained to be 100% beneficially owned
by Mr. Chu, owned indirectly 95% of LIGL's issued and outstanding common
shares and Miss Pauline Wai Man Chu became a 5% indirect shareholder of
LIGL.
SCSL has its headquarters in Hong Kong and has representative offices in
the People's Republic of China and in Taiwan.
2. BASIS OF PRESENTATION
The acquisition of SCSL and its wholly-owned subsidiary, LIGL, by the
Company on August 28, 2000 has been treated as a reverse acquisition
since SCSL is the continuing entity as a result of the stock-for-stock
merger transaction as described above in Note 1 to the accompanying
financial statements. On this basis, the historical financial statements
prior to August 28, 2000 represent the consolidated financial statements
of SCSL and LIGL.
The consolidated financial statements of SCSL, and LIGL were prepared on
the basis as if SCSL and LIGL had been a single group since September 10,
1997 (the date of incorporation for LIGL and the earliest date covered by
this report) since both companies had been under common majority
ownership and management, and carried out complimentary business
activities since the date of incorporation.
The historical shareholders' equity accounts of the Company as of
December 31, 1999 has been retroactively restated to reflect the issuance
of 27,333,333 shares of common stock of par value $0.0001 each in
connection with the acquisition.
The unaudited financial statements for the period from January 1, 1999 to
August 31, 1999 are presented for comparative purposes only.
3. SUBSIDIARIES
Details of the Company's subsidiaries (which together with the Company
are collectively referred to as "the Group") as of August 31, 2000 were
as follows:
<TABLE>
<CAPTION>
Percentage of
of equity
Place of interest
Name incorporation Held Principal activities
------------------------------- ------------- ------------- -------------------------
<S> <C> <C> <C>
Supply Chain Services Limited Hong Kong 100% Provision of supply chain
Management services
Leader Industrial Group Limited Hong Kong 100% Toy trading
</TABLE>
<PAGE> 16
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany transactions and balances
within the Group have been eliminated on consolidation.
INVENTORIES
Inventories are stated at the lower of cost, on a first-in first-out
basis, and market value.
FURNITURE, FIXTURES, EQUIPMENT AND CAPITAL LEASES
Furniture, fixtures, equipment and capital leases are recorded at cost.
Gains or losses on disposals are reflected in current operations.
Depreciation for financial reporting purposes is provided using the
straight-line method over the estimated useful lives of the assets from
three to five years. All ordinary repair and maintenance costs are
expensed as incurred.
DEFERRED EXPENSES
Advertising subsidies granted to customers for the promotion of the
Group's products are capitalized as deferred expenses and are amortized
on the straight-line method by reference to the period over which the
related products are expected to be marketed but not exceeding three
years.
REVENUE RECOGNITION
Sales are recognized upon delivery of goods and passage of title to
customers.
Deposits or advanced payments from customers prior to delivery of goods
and passage of title of goods are recorded as deposits from customers.
Service income is recognized when the related services are rendered.
INCOME TAXES
The Group accounts for income tax under the provisions of Statement of
Financial Accounting Standards No. 109, which requires recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Deferred income taxes are provided using the
liability method. Under the liability method, deferred income taxes are
recognized for all significant temporary differences between the tax and
financial statement bases of assets and liabilities.
<PAGE> 17
OPERATING LEASES
Operating leases represent those leases under which substantially all the
risks and rewards of ownership of the leased assets remain with the
lessors. Rental payments under operating leases are charged to expense on
the straight-line basis over the period of the relevant leases.
FOREIGN CURRENCY TRANSLATION
Transactions in foreign currencies are recorded at the applicable
exchange rates ruling at the transaction dates. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet date
are translated at the applicable exchange rates ruing at that date.
Exchange differences are included in the results of operations.
The translation of the financial statements of subsidiaries into United
States dollars is performed for balance sheet accounts using the closing
exchange rate in effect at the balance sheet dates and for revenue and
expense accounts using an average exchange rate during each reporting
period. The gains or losses resulting from translation are included in
shareholders' equity separately as cumulative translation adjustments.
EARNINGS (LOSS) PER COMMON SHARE
Earning (Loss) per common share is computed in accordance with Statement
of Financial Accounting Standards No.128 by dividing net income (loss)
for each year/period by the weighted average number of shares of common
stock outstanding during the years/periods, as if the common stock issued
for the acquisition of SCSL and LIGL (see Note 1). The weighted average
number of shares used to compute earnings (loss) per common share is
33,333,333 for each year/period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from
those estimates.
5. DEPOSITS
<TABLE>
<CAPTION>
At At At At
12.31.1998 12.31.1999 8.31.1999 8.31.2000
---------- ---------- ----------- ---------
(unaudited)
$ $ $ $
<S> <C> <C> <C> <C>
Deposits comprised:
Deposits to suppliers -- 304 206,600 23,139
Rental and utility deposits -- 6,943 6,943 6,943
---------- ---------- ----------- ---------
</TABLE>
<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C>
---------- ---------- ----------- ---------
-- 7,247 213,543 30,082
========== ========== =========== =========
</TABLE>
6. INVENTORIES
<TABLE>
<CAPTION>
At At At At
12.31.1998 12.31.1999 8.31.1999 8.31.2000
---------- ---------- ----------- ---------
(unaudited)
$ $ $ $
<S> <C> <C> <C> <C>
Inventories comprised:
Finished goods -- -- 53,191 --
========== ========== =========== =========
</TABLE>
7. FURNITURE, FIXTURES, EQUIPMENT AND CAPITAL LEASE
Furniture, fixtures, equipment and capital lease comprised:
<TABLE>
<CAPTION>
At At At At
12.31.1998 12.31.1999 8.31.1999 8.31.2000
---------- ---------- ----------- ---------
(unaudited)
$ $ $ $
<S> <C> <C> <C> <C>
Furniture, fixtures and
equipment:
Furniture and fixtures -- 1,885 1,593 2,662
Office equipment 2,323 14,023 10,680 14,624
Leasehold improvements -- 4,104 2,601 4,104
Capital lease:
Motor vehicle 18,046 73,935 18,046 73,935
---------- ---------- ----------- ---------
Total cost 20,369 93,947 32,920 95,325
Less: Accumulated depreciation
Furniture, fixtures and
equipment (348) (4,351) (1,704) (7,203)
Capital lease (4,512) (24,645) (8,522) (41,075)
---------- ---------- ----------- ---------
Furniture, fixtures, equipment
and Capital lease, net 15,509 64,951 22,694 47,047
========== ========== =========== =========
</TABLE>
8. DEFERRED EXPENSES
<TABLE>
<CAPTION>
At At At At
12.31.1998 12.31.1999 8.31.1999 8.31.2000
---------- ---------- ----------- ---------
(unaudited)
$ $ $ $
<S> <C> <C> <C> <C>
Advertising subsidies, cost 38,000 90,250 90,250 114,250
</TABLE>
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C>
Less: Accumulated amortization (9,500) (30,875) (20,847) (52,264)
---------- ---------- ----------- ---------
Deferred expenses, net 28,500 59,375 69,403 61,986
========== ========== =========== =========
</TABLE>
9. CAPITAL LEASE OBLIGATIONS
Future minimum lease payments under capital lease, together with the
present value of the minimum lease payments, are as follows:
<TABLE>
<CAPTION>
At At At At
12.31.1998 12.31.1999 8.31.1999 8.31.2000
---------- ---------- ----------- ---------
(unaudited)
$ $ $ $
<S> <C> <C> <C> <C>
Payable:
Within one year 6,039 20,000 6,039 20,000
In the second year 6,039 20,000 4,026 20,000
In the third to fourth years,
inclusive 2,013 40,002 -- 26,668
---------- ---------- ----------- ---------
14,091 80,002 10,065 66,668
Less: Imputed interest (2,888) (15,486) (2,063) (12,905)
========== ========== =========== =========
Present value of minimum
lease payments 11,203 64,516 8,002 53,763
Less: Current portion (4,801) (16,129) (4,801) (16,129)
---------- ---------- ----------- ---------
Non-current portion 6,402 48,387 3,201 37,634
========== ========== =========== =========
</TABLE>
10. INCOME TAXES
The Company and its subsidiaries are subject to income taxes on an equity
basis on income arising in or derived from the tax jurisdiction in which
they operate. The Company has not yet commenced any business operations
up to August 31, 2000 and is therefore not subject to any income taxes.
The Hong Kong subsidiaries are subject to Hong Kong profits tax at a rate
of 16%.
Income tax credit (charge) comprised:
<TABLE>
<CAPTION>
8 months ended 8.31.
--------------------------
From 9.10.1997 From 1.1.1999
to to
12.31.1998 12.31.1999 1999 2000
-------------- ------------- ----------- ----------
(unaudited)
$ $ $ $
<S> <C> <C> <C> <C>
Hong Kong profits tax:
Current -- (13,122) (1,139) --
Deferred (4,777) (4,207) (2,191) 20,733
-------------- ------------- ----------- ----------
(4,777) (17,329) (3,330) 20,733
============== ============= =========== ==========
</TABLE>
<PAGE> 20
Components of deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
At At At At
12.31.1998 12.31.1999 8.31.1999 8.31.2000
---------- ---------- ----------- ---------
(unaudited)
$ $ $ $
<S> <C> <C> <C> <C>
Cumulative tax losses 781 2,234 6,268 23,345
Accumulated differences between
taxation allowances and
depreciation/amortization
expenses of:
Furniture, fixtures and
equipment (998) (1,718) (2,132) (1,678)
Deferred expenses (4,560) (9,500) (11,104) (9,918)
---------- ---------- ----------- ---------
(4,777) (8,984) (6,968) 11,749
========== ========== =========== =========
</TABLE>
The tax loss carry forwards have no expiration date.
11. SHARE CAPITAL
PREFERRED STOCK
The Company is authorized to issue 20,000,000 shares of preferred stock
with a par value of $0.0001 each, with such designations, voting and
other rights and preferences as may be determined from time to time by
the Board of Directors.
COMMON STOCK
The Company is authorized to issue 120,000,000 shares of common stock
with a par value of $0.0001 each. During the period from March 29, 1999
(date of incorporation) to September 3, 2000, the Company had 6,000,000
shares of issued and outstanding common stock. On September 4, 2000, the
Company issued 27,333,333 shares of common stock of par value $0.0001
each to the SCSL shareholders and a designee of one of the SCSL
shareholders in connection with its acquisition of SCSL as described in
Notes 1 and 2 to the accompanying financial statements.
12. OPERATING LEASE COMMITMENTS
The Group has an operating lease agreement for office premises which
extends through May 2001.
Future minimum rental payments under the non-cancellable operating lease
are as follows:
<PAGE> 21
<TABLE>
<CAPTION>
At At At At
12.31.1998 12.31.1999 8.31.1999 8.31.2000
---------- ---------- ----------- ---------
(unaudited)
$ $ $ $
<S> <C> <C> <C> <C>
Payable:
Within one year -- 35,226 35,226 17,613
In the second year -- 5,871 17,613 --
---------- ---------- ----------- ---------
-- 41,097 52,839 17,613
========== ========== =========== =========
</TABLE>
13. RELATED PARTY TRANSACTIONS
Details of the amount due to a shareholder of the Company are as follows:
<TABLE>
<CAPTION>
At At At At
12.31.1998 12.31.1999 8.31.1999 8.31.2000
---------- ---------- ----------- ---------
(unaudited)
$ $ $ $
<S> <C> <C> <C> <C>
Gi-Tech Developments Limited 27,247 $20,143 48,822 $66,503
========== ========== =========== =========
</TABLE>
The amount due is unsecured, non-interest bearing and without
pre-determined repayment terms.
14. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest and income taxes comprised:
<TABLE>
<CAPTION>
8 months ended 8.31.
--------------------------
From 9.10.1997 From 1.1.1999
to to
12.31.1998 12.31.1999 1999 2000
-------------- ------------- ----------- ----------
(unaudited)
$ $ $ $
<S> <C> <C> <C> <C>
Interest 2,463 2,512 850 $2,581
============== ============= =========== ==========
Income taxes -- -- -- --
============== ============= =========== ==========
</TABLE>
Supplemental disclosure of investing activities:
During the period ended December 31, 1998 and year ended December 31,
1999, the Group entered into capital lease arrangements to purchase a
motor vehicle with a capital value of $18,046 and $64,516 respectively.
15. OTHER SUPPLEMENTAL INFORMATION
The following items were included in the consolidated statements of
operations:
<PAGE> 22
<TABLE>
<CAPTION>
8 months ended 8.31.
--------------------------
From 9.10.1997 From 1.1.1999
to to
12.31.1998 12.31.1999 1999 2000
-------------- ------------- ----------- ----------
(unaudited)
$ $ $ $
<S> <C> <C> <C> <C>
Amortization of deferred
expenses 9,500 21,375 11,347 $21,389
Depreciation of furniture,
fixture and equipment
-- owned assets 348 4,003 1,356 2,852
-- assets held under
capital lease 4,512 29,657 4,010 16,430
Interest expenses for
capital lease obligations 2,155 2,512 825 2,581
Operating lease rentals for
premises, net of sub-rental
income -- 7,812 1,941 91,000
Loss on sale of motor vehicle -- 2,328 -- --
Net foreign exchange loss
(gain) 197 4,077 (37) (1,262)
Repairs and maintenance 3,835 188 175 310
</TABLE>
16. SEGMENTAL ANALYSIS
MAJOR CUSTOMERS
Details of individual customers accounting for more than 5% of the
Group's sales and services are as follows:
<TABLE>
<CAPTION>
8 months ended 8.31.
--------------------------
From 9.10.1997 From 1.1.1999
to to
12.31.1998 12.31.1999 1999 2000
-------------- ------------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Sears, Reebuck & Co. 96.2% 13.2% 30.0% 23.9%
Rumpus Corporation -- 77.5% 56.8% 44.4%
Plymonth Trading Co. Inc. -- -- 8.6% --
Sports Manufacturers
International Inc. -- -- -- 9.5%
North America Bear Co. Inc. -- -- -- 6.7%
</TABLE>
MAJOR SUPPLIERS
<PAGE> 23
Details of individual suppliers accounting for more than 5% of the
Group's purchases and services are as follows:
<TABLE>
<CAPTION>
8 months ended 8.31.
--------------------------
From 9.10.1997 From 1.1.1999
to to
12.31.1998 12.31.1999 1999 2000
-------------- ------------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Pelagie Industrial Ltd 52.4% 64.3% 57.6% 61.2%
Bondrich Development Ltd 21.2% 22.9% -- --
Mutual Fit Company Limited -- 10.6% 32.2% --
Maxim Company (Taiwan) Ltd -- -- 6.3% --
Play Vogue Industrial Co.
Ltd 21.9% -- -- --
Winch Printers Ltd -- -- -- 15.3%
Winfaith Shipping Ltd -- -- -- 11.3%
Zui Fat Industrial Ltd -- -- -- 7.7%
</TABLE>
