Commission File No. 0-26333
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
Amendment No. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant Section 12(b) or (g) of the Securities Exchange Act of 1934
INTERMOST CORPORATION
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(Name of Small Business Issuer in its charter)
Utah 87-0418721
- - --------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
38 Floor, Guomao Building, Renmin South Road
Shenzhen, China 518005
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(Address of principal executive offices)(Zip code)
Issuer's telephone number, including area code: 86 755 220 1941
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
--------------------- --------------------------------
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
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(Title of class)
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The Company operates through its various subsidiaries, all of which are
located outside of the United States. Unless otherwise indicated or the context
otherwise requires, the term Company refers collectively to Intermost
Corporation and its subsidiaries. All references to China or the PRC are to the
People's Republic of China. The Company's financial statements are presented in
United States Dollars ("US$"). The Company's sales are principally in Hong Kong
Dollars ("HK$") and Renminbi ("Rmb"). At December 31, 1998, the prevailing
exchange rate of US$ into HK$ and Rmb was US$1.00 = HK$7.746 and US$1.00 = Rmb
8.279.
Item 1. Business.
General
Intermost Corporation (the "Company"), a Utah corporation, through its
subsidiaries, is an Internet provider of company and product information
designed to meet the needs of businesses doing business, or seeking to do
business, in China. We operate within what is commonly referred to as the
"business-to-business" segment of the Internet in which products and services
are offered principally to businesses as compared to the "business-to-consumer"
segment of the Internet in which products and services are offered principally
to consumers. Our web site, www.ChinaE.com, includes a searchable database of
Chinese products and companies. Visitors to our site use our company and product
database to gather and distribute information designed to support and facilitate
domestic and international trade. Chinese and international businesses utilize
our site to identify potential business partners and needed products and
services and to list their own product and service offerings, both domestically
and internationally. It is our objective to establish our site as the recognized
gateway for company and product information searches in China. We believe our
site will provide potential advertisers and e-commerce partners with a large,
demographically desirable audience, who as a group, are affluent, highly
educated and willing to conduct business over the Internet.
In addition to the database services, and related advertising and
e-commerce services, offered via our web site, we offer Internet and Intranet
services to the Chinese market, including web site design, hosting and
maintenance, development and implementation of e-commerce strategies and
applications, and development and implementation of intranet strategies and
applications within companies.
Our operations are located entirely in China and Hong Kong.
History and Development of the Company
The Company was incorporated as La Med Tech, Inc. under the laws of the
State of Utah on March 6, 1985. The Company changed its name to Entertainment
Concepts International during 1987, to Lord & Lazarus, Inc. during 1988 and to
Utility Communication International, Inc. during 1996.
From inception through October of 1998, the Company's operations were
limited to efforts to identify and acquire, or merge with, one or more operating
businesses.
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In October 1998, the Company acquired all of the issued and outstanding
shares of Intermost Limited ("IML"), a British Virgin Islands Company, in
exchange (the "Exchange") for the issuance of 4,970,000 shares of the Company's
common stock, representing 58.7% of the outstanding shares of the Company
following the Exchange. IML was formed in January of 1998 to develop a Chinese-
language internet business portal and provide state-of-the-art internet services
with a view to becoming a leading provider of such services in China. Following
the Exchange, the Company changed its name to Intermost Corporation, terminated
all of its prior activities, adopted the business plan of IML and appointed the
officers and directors of IML to replace previous management. Our principal
offices are located at 38th Floor and 41st Floor, Guomao Building, Renmein South
Road, Shenzhen, China 518005, telephone number is 86-755-220-1941.
Organizational Structure
Our structure following the Exchange, reflecting our major subsidiaries
with their jurisdictions of organization as of October 15, 1999, was as follows:
Intermost Corporation
(Utah)
100%
Intermost Limited
(British Virgin Islands)
100%
IMOT Information China E. Com Information Intermost (Hong Kong)
Technology Technology Ltd. Limited
(Shenzhen) Ltd. (PRC) (Hong Kong)
(PRC)
70%
Shenzhen Jiayin
Electronic Commerce
(Information)
Technology Co., Ltd.
(PRC)
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Industry Background - Market Opportunity
Providing information, products and services to businesspeople over the
Internet represents a large and growing market opportunity. Growth in this
market is being driven by several factors, including:
-- Increasing Internet Usage. The Internet has rapidly become a significant
global communications and commerce medium. The tremendous growth of Internet
usage has been spurred by the growing base of personal computers both in the
home and workplace, the continuously improving network infrastructure, the
proliferation of content and the affordability and ease of access. International
Data Corporation ("IDC"), a research firm that covers information technology
markets and trends, estimates that the number of Internet users will grow
worldwide from approximately 69 million in 1997 to approximately 510 million by
the end of 2003. Within China, IDC projects the number of Internet users to grow
from approximately 1.7 million in 1998 to 9.4 million by 2002.
-- Importance of Online Business Information. Companies and businesspeople
are increasingly recognizing that productivity and competitiveness depend on
access to reliable online information about customers, competitors, products,
industries, business trends, breaking news and market data. Because of its
affordability, convenience and ease of access, the Internet has emerged as an
effective medium for distributing business information. Business organizations
continue to invest heavily in Internet connectivity and networked computing
infrastructures to manage internal information. They now are seeking to leverage
these infrastructures to access, distribute and manage the large amounts of
external business information needed by their workforces. As enterprise
information requirements are reaching unprecedented levels, organizations are
willing to pay for business information that gives them a competitive edge.
-- Expanding Online Advertising and E-Commerce. The Internet enables
advertisers to target their messages to audiences having specific demographic
characteristics and to track the effectiveness of their advertisements based on
impressions delivered and click through rates. Forrester Research estimates that
worldwide Internet advertising will grow from $1.5 billion in 1998 to $15
billion in 2003. E-commerce is revolutionizing the way information and goods are
bought and sold by offering convenience and affordability to consumers and
businesses. IDC estimates that worldwide e-commerce revenues will grow from
$50.4 billion in 1998 to $733.6 billion in 2002 and that e- commerce revenues in
China will grow to $1.87 billion by 2002 with "business-to-business" e- commerce
revenues accounting for better than 70% of worldwide e-commerce revenues.
The Intermost Approach
While company and product data is available from a variety of sources in
the United States, both in print and online, similar data regarding Chinese
companies and products is not as readily available. We believe this lack of
company and product data impedes the efficient operation and growth of companies
which are doing business, or seeking to do business, in China and presents an
opportunity for us to utilize our company and product database to become a
reliable and recognized source of such data.
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We provide high-quality, cost-effective and useful business information,
products and services that are essential to businesspeople today to support
domestic and international trade in China and provide an attractive environment
for organizations seeking to establish advertising or e-commerce relationships.
Key elements to the Intermost approach are:
-- Comprehensive Reliable Content. Our staff of researchers, writers,
editors and online producers compile useful business information from reliable
sources on a wide variety of products and services and companies which offer
those products and services. We offer easy-to-read content in both English and
Chinese. Our editorial staff is constantly updating our database content to
ensure the quality and timeliness of information.
-- Focus on the Information Needs of Chinese Business. We understand and
focus on the information needs of companies seeking to do business in China. We
leverage our unique content to offer products and services that meet the
business needs of companies doing business, or planning to do business, in
China. For example, a visitor may learn quickly about product demand, product
availability, product sources and competition. Visitors may also promote their
companies and products by submitting information for inclusion in our database.
Additionally, users may access information from our site regarding Chinese trade
and investment regulations, current financial and economic news in China,
special product offerings included in our Trade Center section as well as
accessing multiple search engines and a domain name search engine.
-- Tiered Cost Effective Information Offerings. We offer our audience two
levels of information service to meet their varied business needs.
1. FREE. For each of the approximately 300,000 enterprises and 300
product categories included in our database, visitors can
access a brief enterprise and product overviews, which
include the name, address, telephone and fax numbers,
e-mail address, web site and a brief description of the
business and products offered.
2. PAY-PER-VIEW. All of our visitors may access, for a nominal charge
(averaging $20 per month), detailed company profiles and
more in-depth product information and the latest supply
and demand information.
-- Efficient Internet Sales Channel. By deploying a tiered, Internet-based
distribution model, we are able to introduce our business information and
services at no cost to the visitor. We offer these users the opportunity to
access more detailed business and product data at an affordable price,
independent of their enterprise affiliations. We create direct relationships
with individuals within enterprises, which facilitates future enterprise wide
sales. Our mass audience allows us to offer business information on a more
cost-effective basis than traditional providers.
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We believe that our site will attract a large, demographically desirable
audience of business users that makes us attractive to advertisers, sponsors and
businesses with which we may establish e-commerce relationships. We offer banner
and button advertisements on our web site, sponsorships for organizations who
want to integrate their advertisements or products with selected content on our
web site and e-commerce opportunities for organizations who want to sell their
products on our web site. Moreover, we offer combined arrangements that can
integrate components of advertisement, sponsorship and e-commerce.
-- Leverage Web Traffic to Promote Internet and Intranet Service Offerings.
By deploying a tiered, Internet-based distribution model and offering company
and product listings, we are able to establish name recognition and introduce
our internet and intranet service offerings at no cost to the visitor.
Businesses which list on our site are prime candidates for the sale of related
internet and intranet services necessary to design, implement, maintain and host
web sites and facilitate e- commerce activities.
Business Strategy
Our goals are to be one of the Internet destinations that businesses in the
Chinese market depend on daily to perform mission-oriented tasks and to
facilitate their business-related transactions as well as to offer advertisers,
sponsors and e-commerce relationships an attractive environment and to become a
leading provider of web design, maintenance and hosting services and intranet
design and implementation services in China. The key elements of our strategy
include:
-- Increasing Brand Awareness. We will continue to build ChinaE.com brand
awareness and reputation. We intend to build our internal marketing capabilities
through marketing, public relations campaigns and image advertising.
-- Enhancing and Expanding Core Content and Tools. We will continue to
build the depth and breadth of our coverage of companies, industries and
products by expanding our database and may license additional company and
industry information from third parties. We will seek to forge new and expanded
distribution and content relationships. In order to increase the frequency and
duration of our viewers' visits to our site, we intend to develop additional
services, tools and online resource centers tailored to the Chinese market that
businesspeople can use to perform mission-oriented tasks in areas such as
professional development, business travel and corporate operations. By enhancing
and expanding our core content and tools, we intend to make our site a
destination where businesspeople interested in the Chinese market can improve
their professional skills and resources and transact business multiple times a
day.
-- Increasing the Number of Visitors. We intend to attract more visitors to
our web site through our marketing relationships, increasing our direct Internet
marketing and advertising on radio and in trade publications. We plan to expand
our relationships with frequently visited and well-known Web sites and establish
new relationships that allow us to introduce our content to a broader audience.
We also intend to create sponsor areas on popular web sites frequented by
businesspeople.
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-- Establishing a Reputation as a Leading Provider of Internet and Intranet
Services. We intend to establish name recognition, customer loyalty and a
reputation for quality services through the operation of our company and product
database. We offer our full range of Internet and Intranet services on the
ChinaE.com site and at our company site. We intend to supplement the customers
who seek our Internet and Intranet services directly from our web sites with
targeted service offerings to companies which list their products and services
at our site. We believe those companies will have identified the need for an
Internet presence in their marketing and product sourcing and will be prime
candidates for a broad range of Internet and Intranet services.
Intermost Products and Services
Our principal product and service offerings include (1) content delivered
through our web site, www.ChinaE.com, (2) advertising, e-commerce and
sponsorships made available through our web site, and (3) internet and intranet
consulting services.
- - -- ChinaE.com Portal Content
Our portal, www.ChinaE.com, which we refer to as "A Comprehensive China
Product and Business Portal", is designed to meet the information needs of
businesses in, or seeking access to, the Chinese market and to serve as a window
to international markets for Chinese businesses and a gateway to access China
product and company information for international companies. ChinaE.com, which
was launched in July 1998, is a bilingual (both Chinese and English) web site
which offers business content through our Chinese product and company database,
online business tools, Chinese financial and economic news, a product trade
center and search engines. This basic structure is expected to attract an
audience which, as a group, are affluent, highly educated and willing to conduct
business over the Internet, allowing our site to be an attractive host to online
advertisers, e-commerce partners and sponsors.
Traffic on our web site has increased steadily since inception with the
number of hits on our site growing from approximately 10,000 in January 1999 to
approximately 50,000 in September 1999.
-- Content Services. Our content services are tailored to meet the business
information needs of Chinese and international companies which are doing
business, or seeking to do business, in the Chinese market. At the heart of our
content services is our database of Chinese products and companies. At October
1, 1999, we had a database including product and company information for
approximately 1,000,000 products and 300,000 companies. Our database is
searchable in English or in Chinese by product or by company name. Additionally,
all products included in our database are categorized and users may access
information with respect to suppliers of products in each of the following
categories, and within subcategories underneath those categories:
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* Electrical & Electronic Equipment
* Machinery, Tools, Equipment
* Food, Beverage, Tobacco
* Textile, Garment, Leather
* Furniture, Wood Products, Paper
* Chemical
* Plastic, Rubber, Non-Metal
* Metal Smelting & Processing
* Import & Export, Wholesale, Retail
* Mining, Oil Exploitation
* Power, Gas & Water Supply
* Construction
* Transportation, Communication
* Financial, Insurance, Entertainment
Our database allows buyers and sellers to share information with the
business community, promote products and businesses, source products and
identify potential business partners. Basic product information and company
information, including web site information, is free to all users. More detailed
information, such as detailed company profiles, detailed product information and
updated supply and demand information is available to users at nominal charges
(averaging $20 per month).
At October 1, 1999, we had a staff of approximately 20 researchers,
writers, editors and Internet content producers. Our staff collects company and
product information from companies, governmental agencies, trade exhibitions and
publications, a variety of Internet-based and print resources and individual
gathering efforts. Companies are encouraged to submit product and company
information as a means of promoting their business and may submit information
directly to our editorial staff by e-mail or by fax. Our editorial staff
compiles and organizes the data and continuously manages and updates the
database to ensure the quality and timely of the information.
In addition to offering a broad amount of information from our company and
product database, we provide a variety of information and tools on our web site
to address the needs of companies doing business in China. Among the other
resources available at our web site are:
* Trading Center. Our trading center is a bulletin board service where
buyers and sellers can post specific information regarding products,
services and business opportunities.
* Financial and Economic News. The financial and economic news portion
of our web site provides headlines and text of selected news stories
pertaining to financial and economic matters of interest to companies
doing business in China.
* Business Tools. Our web site includes links to a variety of business
tools designed to assist companies doing business in China, including
links to (1) a summary of Chinese trade regulations, (2) a summary of
Chinese investment regulations, (3) airlines providing service to
China, (4) hotels in China, and (5) delivery services.
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* Search Engines. Our web site includes links to major search engines,
including Yahoo, Lycos, Excite, Infoseek, and AltaVista.
- - -- Advertising, E-Commerce and Sponsorships
We are focused on providing our advertisers, sponsors and e-commerce
relationships with a large, demographically desirable audience. We believe
ChinaE.com attracts visitors who as a group are highly educated, professional,
affluent and comfortable transacting business over the Internet. We display
advertisements throughout ChinaE.com and sponsorship, advertising and e-commerce
revenues support the free portions of our Web site.
-- Advertising. The Internet has become a new means of communication,
marketing and distribution for the advertising industry. Currently, advertising
on the Internet consists primarily of:
* Banner ads. Banners are small, usually rectangular graphics that
appear on most Web sites. Like roadside billboards the messages are
usually static and appear at the top of a Web page.
* Button ads. Buttons are small, squarish ads that are usually at the
bottom of a Web page and contain only a corporate name or brand.
Clicking on the button takes the online viewer directly to the
corporate Web site which allows advertisers to directly interact with
the online viewer.
* Sponsorship or co-branded ads. Sponsorships are strategically placed
corporate or brand names ads, possibly including a banner or button,
which attempt to integrate a company's brand or products with the
content on targeted Web sites. The goal of sponsorships is to cause
users to strongly identify the advertiser with the mission, or
content, of the Web site.
We enter into agreements with advertisers pursuant to which advertisements
are placed on our Web site and we guarantee a minimum number of impressions for
a fixed fee. Our list price for advertising currently ranges from $25 to $30 for
each 1,000 impressions generated. Actual ad rates depend upon a variety of
factors, including the duration of the advertising contract, whether the ads are
targeted to a particular audience or are "run-of-site" advertisements, and the
number of impressions purchased, and are often negotiated on a case-by-case
basis.
We utilize third-party ad-services technology to support our advertisers to
assure proper placement, delivery and targeting of advertisements on our site
and accurate collection of data to measure the effectiveness of advertising,
including number of impressions, viewing time, viewer demographics and
click-through rates.
As of October 1, 1999, our advertising sales staff consisted of 23
representatives. Representative organizations which advertised on our site
during 1999, and their industries, include:
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XinFei Electric Electric Appliance
Galanz Electroinics Electronic Appliance
AnHui Huangshan Tourism/Travel
Wuliangye Group Beverage/Liquor
Jiangxi Phenix Optical
Instrument Co. Optical Instrument
-- E-Commerce. E-Commerce refers to financial transactions carried out over
the Internet. E-Commerce is not currently developed in China to the extent it is
in the United States. This is due to, among other reasons, the difficulty in
securing online payment since credit cards are not commonly accepted, used or
available in China. E-Commerce revenues are typically derived from per
transaction fees or percentage of sales fees directly generated by the placement
of links on a Web site to an online merchant site or online store.
As of June 30, 1999, we had generated minimal revenues from e-commerce
transactions. With the implementation of alternative secure payment systems and
increases in the use of credit cards in China, we believe that e-commerce has
the potential to generate significant revenues in the future. As the e-commerce
market develops and matures in China, we are forming strategic relationships to
capitalize on opportunities in e-commerce, including the formation of joint
ventures with name brand manufacturers to sell products directly from our Web
site, such as:
* Yiwen Book Store. Our initial efforts in establishing e-commerce joint
ventures produced an agreement, in April 1999, with Yiwen Book Import
and Export Company to establish an online bookstores of Chinese
titles. Yiwen is a state-owned business affiliated with New China Book
Stores with over 120,000 titles in inventory. Under the terms of the
agreement with Yiwen, we will design and manage the bookselling site
and provide e-commerce consulting services. Yinwen will provide
warehouse space, access to its product inventory and product delivery
services. At October 15, 1999, we had completed design of the
bookselling site as well as establishing all required interfaces and
online payment systems and a database with book covers, book
information, book reviews and commentaries was being compiled. We are
performing a market study to fine-tune the site operations and plan to
conduct a promotional campaign in advance of the site launch. Launch
of the bookselling Web site is expected to occur during the first half
of 2000.
* Jiayin Cyber-Cash Joint Venture. In June of 1999, we entered into a
joint venture to develop an Internet payment system and telephone
payment system to address the relative lack of credit card usage in
China. At October 15, 1999, our partner had completed development of
the telephone payment system and the system was operational. At
October 15, 1999, initial development of the Internet payment system,
or "cyber-cash" system, was complete and the system was being tested
on a pilot basis. The cyber-cash system is expected to be operational
before the end of 1999 with implementation thereof being subject to
approval of the system by the Central Bank. See "Strategic Alliances
and Acquisitions.
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- - -- Internet and Intranet Consulting Services
Our network solutions services offer a range of Internet and Intranet
solutions designed to improve the implementation of Internet and Intranet
technology in marketing, business development, communications and operations of
Chinese companies. Our services include strategy consulting, analysis and
design, technology development, implementation and integration, audience
development and maintenance. Our network solutions services are closely tied to
and integrated with our Web site operations, allowing us to translate our
services into additional content, traffic, advertising and e- commerce
opportunities on our Web site while our Web site operations generate additional
network service opportunities.
-- Internet Solutions. We provide our clients with a wide range of Internet
solutions that are tailored to their individual needs. Our Internet solutions
services include:
* Web Site Design. We provide our clients with Web site design services
in order to create visually appealing and easily navigable Web sites
based on the strategic objectives, targeted audience and marketing
objectives of our clients.
* Web Site Hosting and Maintenance. We provide our clients with complete
Web site hosting and maintenance services utilizing our network
facilities and dedicated, leased line connections supported by our
technical staff. We provide turnkey access solutions which are
scalable to every customer's size, applications, utilization rates and
growth plans.
* Strategic Consulting. We provide our clients with complete consulting
services designed to maximize the client's return on its Internet
investment. We provide services to develop a focused strategy, plan
for implementation and operation of our client's e-commerce business,
and deliver a stable maintainable business application. We study our
client's business objectives, business models and Internet budget and
provide our clients with the methodologies and content solutions
needed to build a successful Internet application.
* Technology Consulting, Integration and Testing. We provide our clients
with complete consulting services designed to select, integrate and
test all hardware and software necessary to meet the client's Internet
objectives. Technology services offered range from project management,
architectural planning, hardware and software selection, coding, and
pre-operation testing to audits following implementation to assure
that the system and all applications are fully tested and fulfill the
client's requirements.
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-- Intranet Solutions. Intranets are mini-versions of the Internet designed
for the exclusive use of a company, its employees and its business partners.
Intranets can span an enterprise, connecting local area networks, or LANs,
computer systems and users throughout an organization, both local and remote,
into a highly reliable, secure private environment for electronic business
communication, computing and database operations. Intraneting can allow an
organization to collect data from within and outside of the organization,
eliminating the cost of replicating data and re- engineering existing systems,
allowing users secure access to critical data in the system and to the Internet.
We provide our clients with a wide range of Intranet solutions that are
tailored to their individual needs. Our Intranet solutions services include:
* System Design and Implementation. We provide our clients with complete
consulting services designed to meet our client's enterprise computing
and communications needs applying a scalable development methodology
that is highly adaptable to a client's project needs and to existing
project management process. We develop a complete needs assessment and
requirements definition for each client's project, then map the
business processes and data flows. We quickly create a model that
shows exactly how the finished site will look and work. We work
closely with each client in selecting, installing and integrating
hardware and software, testing the system and training the client's
staff to assure that the system meets the client's needs.
* Database Integration and Management. We provide our clients with
complete consulting services designed to meet our client's database
operations needs. We work with clients to gather the initial data to
be used in the project, then maintain an ongoing relationship with
end-users and information technology units to keep the application
up-to-date. We seamlessly integrate existing database management
systems with external and internal sites providing users easy access
to existing data, including inventory, market research, human
resources and product information.
* Web Enabling. We provide our clients with complete consulting services
designed to fully integrate the client's Intranet and database systems
with the Internet.
Technology Infrastructure
Our technology infrastructure consists of multiple UNIX and Windows NT
servers and backup server systems located in our Shenzhen office. Our servers
are connected to the primary government owned Internet Service Provider ("ISP")
in China, ChinaNet, through multiple T3 connections. Each of our servers is
designed for ease of capacity expansion and replication.
We also lease servers and equipment in the United States which mirrors our
Web site and is used to improve access to our Web site in the United States.
This mirroring operation is provided by n-vision from its facilities in
Allentown, Pennsylvania. N-vision provides multiple DS3 connections to the
Internet and regularly provides mirroring operations.
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Our technology infrastructure is administered and maintained by our
in-house technology staff with all facilities and servers being monitored 24
hours per day, 7 days per week. All facilities and technologies are protected by
security measures and by multiple uninterruptible power supplies.
Our technology infrastructure has been designed, and is built, to ensure
quality of service, as measured by performance, reliability, security and
availability, quality of information, as measured by data storage and backup,
scalability, bandwidth administration, and administration, statistical
monitoring and analysis and operations.
Strategic Alliances and Acquisitions
We have entered into selected strategic alliances and acquisitions, and
expect to be continually involved in negotiations to enter into strategic
alliances and acquisitions in the future. These alliances and acquisitions are
intended to enhance ChinaE.com, increase traffic, attract new users and service
clients, provide additional revenue streams and secure access to advertising,
technology and services on favorable terms.
- - -- Content and E-Commerce Alliances and Acquisitions
Our initial efforts in establishing strategic alliances and making
acquisitions to enhance our content, e-commerce capabilities and revenues has
resulted in the formation of the following joint ventures:
-- Yiwen Book Store. Our initial efforts in establishing e-commerce joint
ventures produced an agreement, in April 1999, with Yiwen Book Import and Export
Company to establish an online bookstores of Chinese titles. Yiwen is a
state-owned business affiliated with New China Book Stores with over 120,000
titles in inventory. Under the terms of the agreement with Yiwen, we will design
and manage the bookselling site and provide e-commerce consulting services.
Yinwen will provide warehouse space, access to its product inventory and product
delivery services. At October 15, 1999, we had completed design of the
bookselling site as well as establishing all required interfaces and online
payment systems and a database with book covers, book information, book reviews
and commentaries was being compiled. We are performing a market study to
fine-tune the site operations and plan to conduct a promotional campaign in
advance of the site launch. Launch of the bookselling Web site is expected to
occur during the first half of 2000.
-- Jiayin Cyber-Cash Joint Venture. In June of 1999, we entered into a
joint venture to develop an Internet payment system and telephone payment system
to address the relative lack of credit card usage in China. Under the terms of
the joint venture agreement, we agreed with Shenzhen Jiayin Investment
Development Co., Ltd. ("Shenzhen Jiayin") to form Shenzhen Jiayin Electronic
Commerce (Information) Technology Co., Ltd. ("Jiayin Joint Venture"). We agreed
to contribute RMB 3,500,000 to Jiayin Joint Venture for a 70% interest in the
joint venture and Shenzhen Jiayin agreed to contribute RMB 1,500,000 to Jiayin
Joint Venture for a 30% interest in the joint venture. Jiayin Joint Venture, in
turn, agreed to acquire certain assets, technological know-how and the client
base of Shenzhen Jiayin for RMB 4,500,000, payable over a four month period from
the issuance of a business license to Jiayin Joint Venture. Shenzhen Jiayin is,
in turn, obligated to utilize RMB 2,200,000 to purchase stock of Intermost.
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Shenzhen Jiayin is a privately-owned company formed in China to develop
"cyber-cash" as an e-commerce electronic payment system for the Chinese banking
system. Prior to forming Jiayin Joint Venture, Shenzhen Jiayin was working with
the Shenzhen Financial Electronic Settlement Center, a government agency under
China's Central Banking System, in its efforts to develop a cyber-cash system.
The cyber-cash system being created will allow banks and e-commerce companies to
bypass the current limited access to credit cards with a national debt system
that works within government mandates. Jiayin Joint Venture has an exclusive
agreement with Shenzhen Financial Settlement Center, a branch of People's Bank
of China (the Central Bank of China), to provide electronic payment services in
Shenzhen.
At October 15, 1999, we had filed the necessary documents to register and
form Jiayin Joint Venture but the company had not yet been formed and no assets
had been transferred. Pending completion of formation of Jiayin Joint Venture,
as of October 15, 1999, we had advanced to Shenzhen Jiayin RMB 1,800,000 to fund
completion of development of the telephone payment system and the system was
operational. Shenzhen Jiayin has entered into an Agreement with Shenzhen
Financial Settlement Center, which Agreement will be transferred to Jiayin Joint
Venture, allowing us to provide telephone payment system to the public through
twelve commercial banks in Shenzhen province. At October 15, 1999, initial
development of the Internet payment system, or "cyber-cash" system, was complete
and the system was being tested on a pilot basis. The cyber-cash system is
expected to be operational before the end of 1999 with implementation of the
system being subject to finalization of government policies permitting and
regulating online banking. See "Regulation."
- - -- Internet and Intranet Solutions Alliances and Acquisitions
Our initial efforts in establishing strategic alliances and making
acquisitions to enhance our Internet and Intranet solutions business and
revenues has resulted in the following acquisition:
-- Labtam Corporation Systems Integration Contracts. In June 1999, we
entered into an agreement with Labtam Corporation Limited to acquire selected
system integration contracts in exchange for RMB 1,200,000 payable by the
issuance of 69,700 shares of our common stock.
At October 15, 1999, we had completed the acquisition of the system
integration contracts from Labtam and had begun providing services on those
contracts. The contracts include services on network design, installation,
integration and maintenance.
Marketing
Our marketing efforts center around our ChinaE.com and Intermost.com web
sites. We advertise and promote our full range of services and products on each
of our web sites. Internet marketing strategies include advertising and
hyperlinks at other sites through partnerships with as many sites as possible to
trade ads and links. We will also market in business directories and through its
comprehensive database of corporate companies.
Our marketing efforts are conducted under the direction of our senior
management personnel. In addition to the marketing efforts of management, we
have a staff of approximately 23 persons involved in marketing of our services.
14
<PAGE>
Competition
The market for Internet advertising, e-commerce and Internet and Intranet
professional services is relatively new, intensely competitive, rapidly evolving
and subject to rapid technological change. We expect competition to persist,
intensify and increase in the future. We are aware of several Internet sites
which promote Chinese trade and products and which may compete with us for
Internet advertising and e-commerce customers. We also compete indirectly for
advertisers and e- commerce customers with a large number of other Internet
sites, including sites which cater to the Chinese market and sites which promote
international trade, and with traditional advertising and media agencies and
formats. In the Internet and Intranet services arena, we compete with a wide
variety of consulting firms which provide information technology consulting
services. We are not aware of any available market share data regarding the
markets in which we compete nor are we aware of any trends or innovations which
would substantially alter our current market share.
There are relatively low barriers to enter the markets in which we compete.
We have no patented technology to preclude competitors from entering our
markets; instead as a professional service firm, we rely on the skill of our
personnel. Our services will be compared based upon performance, price,
creativity and reliability. We believe that we compete favorably in terms of
performance, price, creativity and reliability. However, many of our competitors
offer comprehensive Internet technology solutions, and have longer operating
histories, larger installed customer bases; longer relationships with clients,
and significantly greater financial, technical and public relations resources
than do we. There can be no assurance that we can successfully compete with
existing competitors or with new competitors which may enter one or more of our
markets.
Intellectual Property and Proprietary Rights
We regard copyrights, service marks, trademarks, trade secrets and other
intellectual property as critical to our success. While we do not presently hold
any copyrights, service marks or trademarks, we expect to rely on trademark and
copyright law, trade secret protection and confidentiality and/or license
agreements with employees, customers, partners and others to protect
intellectual property rights. Despite such precautions, it may be possible for
third parties to obtain and use intellectual property without authorization.
Furthermore, the validity, enforceability and scope of protection of
intellectual property in Internet-related industries is uncertain and still
evolving. The laws of some foreign countries do not protect intellectual
property to the same extent as do the laws of the United States. Specifically,
in China, laws protecting intellectual property rights continue to evolve.
Beginning with the execution of a Memorandum of Understanding on the Protection
of Intellectual Property between China and the United States in 1992, China has
adopted a series of changes to its intellectual property laws designed to bring
those laws into conformity with international conventions. With the adoption of
those changes, the laws governing intellectual property protection in China are
substantially similar to those of the United States. However, because those laws
are relatively new in China as compared to the United States, the level of
enforcement that can be expected from the Chinese government remains subject to
some uncertainty.
15
<PAGE>
We intend to pursue the registration of trademarks in the United States and
internationally in China and other Asian countries. We may not, however, be able
to secure adequate protection for such trademarks in the United States and other
countries. Effective trademark protection may not be available in all the
countries in which we conduct business. Policing unauthorized use of marks is
also difficult and expensive. In addition, it is possible that competitors will
adopt product or service names similar to our's, thereby impeding our ability to
build brand identity and possibly leading to customer confusion.
In order to protect its marks against similar and confusing marks of third
parties, we intend to using a watch service which identifies applications to
register trademarks, filing oppositions to third parties' applications for
trademarks which are similar or confusing, and bringing lawsuits against
infringers.
Many parties are actively developing chat, homepage, search and related Web
technologies. Developers of such technologies can be expected to take steps to
protect these technologies, including seeking patent protection. There may be
patents issued or pending that are held by others and that cover significant
parts of our technology, business methods or services. Disputes over rights to
these technologies may arise in the future. We cannot be certain that our
products and services do not or will not infringe valid patents, copyrights or
other intellectual property rights held by third parties. We may be subject to
legal proceedings and claims from time to time relating to the intellectual
property of others in the ordinary course of our business. In the event that we
determine that licensing this intellectual property is appropriate, we may not
be able to obtain a license on reasonable terms or at all. We may also incur
substantial expenses in defending against third-party infringement claims,
regardless of the merit of these claims. Successful infringement claims against
us may result in substantial monetary liability or may prevent us from
conducting all or a part of our business.
We also intend to continue to license technology from third parties,
including Web-server and encryption technology. The market is evolving and we
may need to license additional technologies to remain competitive. We may not be
able to license these technologies on commercially reasonable terms or at all.
In addition, it is possible that licensed technologies may not be successfully
integrated into our services. The inability to obtain any of these licenses
could delay product and service development until alternative technologies can
be identified, licensed and integrated.
Regulation
We are subject to and affected by Chinese laws, regulations, administrative
determinations, court decisions and similar constraints regarding operation in
China, Internet usage and e-commerce.
Investment and operation in China are governed by various rules regulating
permissible forms of foreign investment. We have obtained government approval to
operate in China, and do operate, as a wholly foreign owned enterprise and, as
such, are not required to maintain Chinese government or private ownership in
our company.
16
<PAGE>
China has enacted other regulations governing Internet connection and the
distribution of information via the Internet. Pursuant to Article 6 of the
Revised Provisional Regulations Governing the Management of Chinese Computer
Information Networks Connected to International Networks, individuals or
entities operating computer networks within China which are connected to the
Internet and conduct international information exchange must use the
international access channels provided by the Ministry of Post and
Telecommunications ("MPT") and obtain various licenses and approvals. We have
secured the necessary licenses and approvals and access the Internet through
ChinaNet, an approved channel of the MPT.
In addition to the regulations relating to connection to the Internet,
China has adopted regulations governing permissible content on the Chinese
Internet infrastructure. The Computer Information Network and Internet Security,
Protection and Management Regulations set forth a comprehensive set of
regulations governing content which are designed to prevent breaches of public
security and socially destabilizing content. Those regulations, which are
supervised by the Ministry of Public Security, prohibit use of the Internet to:
* harm national security;
* disclose state secrets;
* harm the interests of the State, of society or of a group, or the
legal rights of citizens; or
* take part in criminal activities.
Additionally, the regulations prohibit use of the Internet to create,
replicate, retrieve or transmit content that:
* incites violations of the Chinese Constitution, laws or administrative
regulations;
* incites overthrow of the government or the socialist system;
* incites national division harming national unification;
* incites hatred or discrimination among nationalities;
* promotes falsehoods, distorts the truth, spreads rumors or destroys
social order;
* promotes feudal superstition, sexually suggestive material, gambling,
violence or murder;
* promotes terrorism or incites others to criminal activity or openly
insults other people or distorts the truth to slander people;
* injures the reputation of State organs; or
* incites activities that violate the Constitution, laws or
administrative regulations.
The operation of our Web site is subject to the foregoing regulations and
to supervision by the Ministry of Public Security. We must cooperate with and
assist the Ministry of Public Security in discovering and handling possible
violations of the Chinese content regulations. If the content appearing on our
site is determined to violate the regulations imposed by the Chinese government,
our site could be disconnected from MPT channels to the Internet or blocked and,
in the case of serious breaches we may be subject to fines and criminal
proceedings.
17
<PAGE>
We intend to work diligently to assure compliance with all applicable
regulations which may impact our business, including cooperating with the MPT
and the Ministry of Public Security. There can be no assurance, however, that we
will be successful in our efforts to assure full compliance with Chinese
regulations affecting our operations or that additional regulations will not be
enacted which might adversely impact our operations.
With regard to the development and deployment of our cyber-cash system,
Chinese law does not presently permit online banking services. It is presently
anticipated that the government of Shenzhen will adopt laws permitting and
regulating online banking. However, there can be no assurance that online
banking will ever be permitted under Chinese law or that, if online banking is
permitted, the regulations governing online banking operations will be conducive
to profitable operations. Accordingly, there is no assurance that we will ever
be able to utilize our cyber-cash system in China.
Employees
As of October 15, 1999, we had 83 full-time employees, (7 management
executives, 23 engineering/technical staff, 10 administrative and clerical, 20
Internet content research writing and editing and 23 sales persons). We
anticipate the need to hire additional computer programmer/systems specialists
to support our expansion plans. None of our employees is a member of any labor
union, and we have never experienced any business interruption as a result of
any labor disputes. We do not provide any special benefit or incentive programs
for our employees.
18
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
General
The following discussion should be read in conjunction with the financial
statements appearing elsewhere herein.
Prior to October of 1998, we were engaged in limited operations relating to
efforts to identify and acquire, or merge with, one or more operating
businesses. In October 1998, we acquired Intermost Limited and adopted the
business plan of IML. The acquisition of IML has been accounted for using the
purchase method of accounting with the transaction being accounted for as a
"reverse acquisition." We do not consider the operations prior to the
acquisition of IML to be material to an understanding of our company.
Accordingly, this discussion relates to the operations of IML for all periods
presented, excluding our former operations prior to the acquisition of IML.
IML was formed in January of 1998 to establish a position as a leading
provider of Internet technologies and services, business information services,
value-added network consulting services and other related products and services
in China. Revenues are generated through a combination of consulting service
fees, advertising fees, web site design, hosting and maintenance fees and
information fees. We expect that future revenues will include E-commerce fees.
Following the Exchange, we changed our year end to June 30 to conform with
the fiscal year of IML. From inception (January 1998) to June 30, 1998, we were
involved in limited organizational activities and had no operating revenues. We
began revenue producing activities in the first quarter of fiscal 1999 (ended
September 30, 1998).
Plan of Operation
We launched our web site, www.ChinaE.com, in July 1998 and, simultaneous
therewith, began assembling our company and product database, assembling a staff
of information technology and internet professionals and marketing our services.
Since that time, we have grown our database and professional staff and provided
services to a growing base of clients, formed a joint venture to develop online
payment systems for the Chinese market and acquired certain systems integration
accounts.
During the twelve month period beginning October 1, 1999, we plan to
continue to grow our database, professional staff and client base, establish a
growing base of strategic relationships with online advertisers, sponsors and
e-commerce partners and complete the development of a cyber-cash payment system
being developed through our interest in the Jiayin Joint Venture. Our goals are
(1) to establish our web site as a recognized and preferred destination for
companies seeking to establish relationships and source products in the Chinese
market and, as a result thereof, to create an attractive environment for online
advertisers, sponsors and e-commerce partners, (2) to become a leading provider
of web design, maintenance and hosting services, e-commerce solutions and
intranet design and implementation services in China, and (3) to complete
development and begin offering the cyber-cash system of the Jiayin Joint
Venture.
19
<PAGE>
Our cash requirements for the twelve month period beginning October 1, 1999
are expected to relate primarily to the following: (1) support for existing
operations, (2) growth initiatives to increase our online database, establish
additional online advertising and e-commerce relationships, and grow our base of
internet and intranet solutions clients, and (3) funding of the Jiayin Joint
Venture.
Cash on hand at September 30, 1999 is believed to be adequate to support
our existing operations for the following twelve months without raising
additional capital.
Cash requirements to support our growth initiatives are scalable in that
operation of our www.ChinaE.com site, combined with our existing marketing
efforts, is expected to create internal growth at little or no marginal cost
while additional initiatives to supplement internal growth may be undertaken
through increased marketing efforts and acquisitions the cost of which
initiatives may vary from minimal amounts from our existing resources to
millions of dollars which would require us to raise additional capital over the
next twelve months.
Growth in our database, strategic relationships and services client base
are expected to be driven by the operation of our www.ChinaE.com site at little
or no marginal cost. We believe that the ability of companies to include company
and product data in our online database at no cost, and the ability of companies
to access that database at little or no cost will attract many participants in
the Chinese market creating growth in our database, growth in site traffic and
growth in online advertising and e-commerce relationships. We believe that the
operation of www.ChinaE.com will also create growing awareness of our Internet
and intranet solutions services which are marketed through the site resulting in
growth in our client base.
If we rely on existing operations to grow our business, which is our
present plan, we do not expect to make any substantial expenditures over the
following twelve months for research and development or for plant and equipment
purchases. Likewise, we do not anticipate any substantial additional hiring over
the next twelve months with employee headcount expected to rise from
approximately 80 at September 30, 1999 to approximately 150 at September 30,
2000. If internal growth is exceptional or if we undertake substantial growth
initiatives to supplement our internal growth rate, we may be require to
purchase additional servers and related computer and telecommunications
equipment and hire substantial additional personnel to support such growth in
which case we may be required to raise additional capital over the next twelve
months. Additionally, if we pursue acquisitions of complementary business
operations or assets to supplement our growth, we may be required to raise
additional capital or, in the alternative, may issue stock to pay for such
acquisitions similar to our acquisition of certain systems integration contracts
from Labtam Corporation during fiscal 1999.
Cash requirements to support completion of the development and
implementation of the cyber-cash payment system by the Jiayin Joint Venture are
expected to relate primarily to our capital contribution under the joint venture
agreement. We are obligated to contribute RMB3,500,000 to Jiayin Joint Venture.
At October 15, 1999, a business license had not been issued and we had made no
contributions to the capital of Jiayin Joint Venture. However, we had advanced
RMB1,800,000 to Shenzhen Jiayin toward development of the cyber-cash system. The
cyber-cash system is expected to be operational before the end of 1999, subject
to government approvals.
20
<PAGE>
Results of Operations
Following is summary financial information reflecting the operations for
the periods indicated.
<TABLE>
Period from January
2, 1998 (Inception) to Year Ended June
June 30, 1998 30, 1999 Three Months Ended September 30,
----------------------- --------------- ----------------------------------
1998 1999
--------- --------
<S> <C> <C> <C> <C>
Net sales $ 0 $ 388,080 $ 66,108 $ 327,577
Cost of services 0 185,385 13,861 211,846
----------- --------------- ------------- -------------
Gross profit 0 202,695 52,247 115,731
Selling, general and
administrative 6,579 436,120 37,130 148,461
----------- --------------- ------------- -------------
Operating income (loss) (6,579) (233,425) 15,117 (32,730)
Other income, net 0 3,969 0 3,326
----------- --------------- ------------- -------------
Net income (loss) $ (6,579) $ (229,456) $ 15,117 $ (29,404)
=========== =============== ============= =============
</TABLE>
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998 and Year Ended June 30, 1999
Prior to June 30, 1998, our activities were limited to organizational
activities associated with the launch of our web site and commencement of
operations.
Net Sales. Net sales for the quarter ended September 30, 1999 increased to
$327,577, or 396%, from $66,108 for the quarter ended September 30, 1998. Net
sales for the year ended June 30, 1999 totaled $388,080. We had no revenues for
the period from January 2, 1998 (inception of IML) to June 30, 1998.
Net sales for the quarter, and from inception, have been derived
principally from web advertisement, web site design, information fees, systems
integration and e-commerce solutions, referred to as "business portals and
e-commerce solutions", and from software design and general internet solutions
and business consulting services, referred to as "software development and
consulting commission income".
The following table reflects the total net sales and percentage of net
sales represented by business portals and e-commerce solutions and by software
development and consulting services for the periods indicated:
21
<PAGE>
<TABLE>
Total Net Sales Percent of Total Net Sales
----------------------------------------- ---------------------------------------
Year Ended September 30, Year Ended September 30,
June 30, June 30,
1999 1999
------------ --------------------- ------------ -------------------
1998 1999 1998 1999
------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Business portals and e-
commerce solutions
- - - Web site design
and
development $131,629 $40,098 $105,694 33.9% 60.7% 32.3%
- - - Web
advertisement 132,897 20,966 35,073 34.3% 31.7% 10.7%
- - - Systems
sales and
integration 5,176 0 142,715 1.3% 0.0% 43.5%
- - - Web hosting 5,727 5,044 6,195 1.5% 7.6% 1.9%
--------- --------- --------- --------- --------- --------
275,429 66,108 289,677 71.0% 100.0% 88.4%
Software development and
consulting
- - - Software
development 58,651 0 37,900 15.1% 0.0% 11.6%
- - - Consulting 54,000 0 0 13.9% 0.0% 0.0%
--------- --------- --------- --------- --------- --------
112,651 0 37,900 29.0% 0.0% 11.6%
--------- --------- --------- --------- --------- --------
Total $ 388,080 $ 66,108 $ 327,577 100.0% 100.0% 100.0%
========= ========= ========= ========= ========= =========
</TABLE>
Business portals and e-commerce solutions accounted for $289,677 of net
sales, or 88.4% of total net sales, for the quarter ended September 30, 1999,
representing a 338.2% increase in such revenues compared to $66,108 of net
sales, or 100% of total net sales for the quarter ended September 30, 1998.
Business portals and e-commerce solutions accounted for $275,429 of net sales,
or 71.0% of net sales, for the year ended June 30, 1999.
Software development and consulting accounted for $37,900 of net sales, or
11.6% of total net sales, for the quarter ended September 30, 1999, as compared
to $0 of net sales for the quarter ended September 30, 1998. Software
development and consulting accounted for $112,651 of net sales, or 29.0% of net
sales, for the year ended June 30, 1999.
We began earning revenues in July of 1998 and had an engineering/technical
staff of 7 persons at September 30, 1998, which staff had increased to 23
persons at September 30, 1999.
The increase in each category of revenues during the current quarter was
primarily attributable to marketing efforts and increased name brand awareness
in connection with those efforts and the operation of our www.ChinaE.com site.
22
<PAGE>
Cost of Services. Cost of services consist principally of salary for
computer network technicians, costs of systems sales and integration,
subcontract fees, depreciation and amortization, and other costs associated with
the same, including travel, welfare, office and related expenses allocable to
the engineering and technician staff. Additionally, other cost of services
includes certain other costs associated with the offering of special promotional
packages to the top 100 listed companies in China, which package included
participation in a seminar, lodging and advertisement.
The following table reflects the principal components of cost of services
and percentage of net sales represented by each component for the periods
indicated:
<TABLE>
Total Cost of Services Percent of Total Net Sales
----------------------------------------- ------------------------------------
Three Months Ended Three Months Ended
Year Ended September 30, Year Ended September 30,
June 30, June 30,
1999 1999
------------ ------------------------ ------------ -------------------
1998 1999 1998 1999
------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Engineer/
Technician
salaries $ 77,001 $ 4,979 $ 29,761 19.8% 7.5% 9.1%
Subcontract
fees 45,000 - 26,500 11.6% 0.0% 8.1%
Cost of system
sales and
integration - - 131,400 0.0% 0.0% 40.1%
Depreciation 2,106 405 1,929 0.5% 0.6% 0.6%
Other 61,278 8,477 22,256 15.9% 12.9% 6.8%
------------ ---------- ----------- --------- -------- -------
Total $ 185,385 $ 13,861 $ 211,846 47.8% 21.0% 64.7%
============ ========== =========== ========= ======== =======
</TABLE>
For the three months ended September 30, 1999, costs of services increased
1428%, to $211,846, or 64.7% of net sales, compared to $13,861, or 21% of net
sales, for the three months ended September 30, 1998. The principal components
of cost of services during the three months ended September 30, 1999 were
engineer/technician salaries which accounted for $29,761, or 9.1%, of net sales,
representing a 498% increase over engineering/technician salaries of $4,979, or
7.5% of net sales, for the three months ended September 30, 1998; subcontract
fees which accounted for $26,500, or 8.1% of net sales, compared to $0 of
subcontract fees for the three months ended September 30, 1998; cost of hardware
sold which accounted for $131,400, or 40.1% of net sales, compared to $0 of cost
of hardware sold for the three months ended September 30, 1998; other costs
associated with support on the engineering/technician staff which accounted for
$22,256, or 6.8% of net sales, representing a 162.5% increase over other costs
of $8,477, or 12.9%, of net sales, for the three months ended September 30,
1998; and depreciation of equipment utilized in connection with services which
accounted for $1,929, or 0.6%, of net sales, representing a 376% increase over
depreciation which accounted for $405, or 0.6% of net sales, for the three
months ended September 30, 1998; and other costs which accounted for $22,256, or
6.8%, of net sales, representing a 162.5% increase over other costs which
accounted for $8,477, or 12.9%, of net sales, for the three months ended
September 30, 1998. Cost of services for the year ended June 30, 1999 totaled
$185,385, or 47.8% of net sales and consisted primarily of engineer/technician
salaries which accounted for $77,001, or 19.8% of net sales, subcontract fees
which accounted for $45,000, or 11.6% of net sales, depreciation which accounted
for $2,106, or 0.5% of net sales, and other costs which accounted for $61,278,
or 15.9% of net sales.
23
<PAGE>
The increase in costs of services was principally attributable to
expenditures to support the increase in net sales, including an increase in
engineering/technician headcount from 7 at September 30, 1998 to 23 at September
30, 1999 and the sale of certain hardware during the current quarter. The
increase in costs of services as a percentage of revenues was primarily
attributable to the sale of hardware which has a lower profit margin than
service revenues and the costs associated with offering special promotional
packages to selected customers.
Selling, General and Administrative Expense. Selling, general and
administrative expense ("SG&A") consists principally of (1) sales commissions,
advertising, trade show and seminar expenses, and direct-field sales expense,
(2) salary for administrative and sales staff, and (3) corporate overhead.
The following table reflects the principal components of SG&A and
percentage of net sales represented by each component for the periods indicated:
<TABLE>
Total SG&A Percent of Total Net Sales
--------------------------------------- -----------------------------------
Three Months Ended Three Months Ended
Year Ended September 30, Year Ended September 30,
June 30, June 30,
1999 1999
------------ --------------------- ------------ --------------------
1998 1999 1998 1999
------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Sales and
marketing
salaries and
commissions $ 56,390 $ 4,336 $ 25,132 14.5% 6.5% 7.7%
Other sales and
marketing
expenses 89,455 9,820 38,557 23.1% 14.9% 11.8%
Administrative
salaries 62,886 7,854 19,394 16.2% 11.9% 5.9%
Other corporate 227,389 15,120 65,378 58.6% 22.9% 19.9%
------------ ---------- ----------- --------- -------- --------
Total $ 436,120 $ 37,130 $ 148,461 112.4% 56.2% 45.3%
============ ========== =========== ========= ======== ========
</TABLE>
For the three months ended September 30, 1999, SG&A increased 300%, to
$148,461, or 45.3% of net sales, compared to $37,130, or 56.2% of net sales, for
the three months ended September 30, 1998. SG&A totaled $436,120, or 112.4% of
net sales, for the year ended June 30, 1999.
The increase in SG&A has been principally attributable to a combination of
(1) aggressive marketing efforts associated with the commencement and growth of
revenue producing operations, including costs associated with sales commissions,
attendance at international trade conferences, industry journal advertising and
other related expenses, and (2) an increase in administrative support staff and
corporate overhead to support anticipated growth in revenues. The principal
components of SG&A during the three months ended September 30, 1999 were sales
and marketing salaries and commissions which accounted for $25,132, or 7.7% of
net sales, representing a 480% increase from $4,336, or 6.5% of net sales, for
the three months ended September 30, 1998; other marketing expenditures which
accounted for $38,557, or 11.8% of net sales, representing a 293% increase from
24
<PAGE>
$9,820, or 14.9% of net sales, for the three months ended September 30, 1998;
administrative salaries and benefits which accounted for $19,394, or 5.9% of net
sales, representing a 147% increase from $7,854, or 11.9% of net sales, for the
three months ended September 30, 1998; and other corporate expense, which
includes occupancy expense, general office expenses travel, general staff
welfare expense and consulting fees, among others, which accounted for $65,378,
or 19.9% of net sales, representing a 332.4% increase from $15,120, or 22.9% of
net sales, for the three months ended September 30, 1998;. The principal
components of SG&A during the year ended June 30, 1999 were sales and marketing
salaries and commissions which accounted for $56,390, or 14.5% of net sales,
other marketing expenditures which accounted for $89,455, or 23.1% of net sales,
administrative salaries and benefits which accounted for $62,886, or 11.9% of
net sales and other corporate expense which accounted for $227,389, or 58.6% of
net sales.
Other Income. Other income consists principally of interest income. For the
three months ended September 30, 1999 other income totaled $3,326 compared to $0
of other income for the three months ended September 30, 1998. The increase in
other income was attributable to increased balances of cash held in interest
bearing accounts.
Liquidity and Capital Resources
At September 30, 1999 we had cash and cash equivalents of $395,523 and
working capital of $611,647 as compared to $528,612 of cash and cash equivalents
and 651,223 of working capital at June 30, 1999.
Our primary sources of financing has been cash from the sale of common
stock and, to a lesser degree, cash provided by operating activities and various
loans from shareholders and directors.
Operations used $124,623 of cash during the three months ended September
30, 1999 and $167,786 of cash during the year ended June 30, 1999. Funds used in
operations primarily relate to the losses incurred during the period, increases
in trade and other receivables and increases in other current and non-current
assets, all relating to the start-up and growth of operations, which were
partially offset by an increase in trade payables.
Investing activities used $8,466 during the three months ended September
30, 1999 and $140,087 during the year ended June 30, 1999. Funds used in
investing activities consist of purchases of equipment to support operations
amounts due from our joint venture partner, Jiayin Investment Company Limited.
Financing activities provided $0 of cash during the three months ended
September 30, 1999 and $835,549 during the year ended June 30, 1999. The cash
provided by financing activities was attributable to the receipt of proceeds
from the sale of common stock during the periods.
We had no long term debt at September 30, 1999 or June 30, 1999.
Management believes that the funds on hand at September 30, 1999 are
adequate to support operations for at least the following twelve months.
Depending upon the rate of growth and the growth initiatives undertaken, we may
seek additional capital in the future to support expansion of operations and
acquisitions.
25
<PAGE>
Year 2000 Issue
The Year 2000 Issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates where the date has
been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock
or date recording mechanism including date sensitive software which uses only
two digits to represent the year, may recognize a date using 00 as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar activities.
We began operations in mid-1998 and acquired computers, equipment and
software which we believes are Year 2000 compliant. Further, we have trained
specialists with expertise in Year 2000 remediation. Accordingly, we believe
that Year 2000 compliance will have no material impact on our company, our
financial position or results of operations.
As of September 30, 1999, we had communicated with all of the vendors and
suppliers with whom we do significant business to determine their Year 2000
Compliance readiness and the extent to which we are vulnerable to any third
party Year 2000 issues. All of the vendors and suppliers have either provided
adequate assurances of their Year 2000 compliance or have been replaced with
other vendors or suppliers which are Year 2000 compliant. All new vendors and
suppliers will be required to provide assurances of Year 2000 compliance.
However, there can be no guarantee that the systems of other companies on which
our systems rely will be timely converted, or that a failure to convert by
another company, or a conversion that is incompatible with our system, would not
have a material adverse effect on our company, financial position and operating
results.
It should be noted that our web site and our business are substantially
dependent upon our ability, and the ability of our clients, to connect to the
Internet through approved channels maintained by the Chinese government. We are
unable to verify that the network "backbone" operated by the Chinese government,
through which we connect to the Internet, is Year 2000 compliant. Because of the
recent advent of the Internet, particularly in China, we believe that the
systems operated by the Chinese government should be Year 2000 compliant.
However, we have no means of verify such. If the systems operated by the Chinese
government, through which we and our clients access the Internet, fail as a
result of Year 2000 issues, our operations and financial condition could be
materially adversely affected and we could, for a time, be unable to operate our
network in China. While we operate a mirror site in the United States which
could continue to support our site, our ability to operate our site would be
materially impaired if we cannot access the Internet from China.
Factors That May Affect Future Results
Our operating results have been, and will continue to be, affected by a
wide variety of factors that could have a material adverse effect on revenues
and profitability during any particular period, including the level and rate of
acceptance of our products and services by the Chinese people, continued growth
in use of the Internet in China, entry of new competition (including established
companies from outside of China and companies with substantially greater
resources), fluctuations in the level of orders for services which are received
and can be delivered in a quarter, rescheduling or cancellation of orders by
customers, competitive pressures on selling prices, changes in product, service
or customer mix, rapid changes in technology, dependence upon certain key
employees, availability and cost of computer technicians, loss of any strategic
relationships, our ability to introduce new products and services on a timely
basis, new product and service introductions by our competitors, requirements
for additional capital to support future growth and acquisitions, fluctuations
in exchange rates, and general economic conditions, among others.
26
<PAGE>
In addition to the general factors noted above, our future operating
results are expected to be impacted by our acquisition of certain systems
integration contracts from third parties in June 1999. Those contracts, with an
estimated value of services to be rendered of $1,000,000, were acquired for Rmb
1,200,000 which will satisfied through the issuance of 69,700 shares of common
stock. $150,000 of the services to rendered under those contracts were performed
during the three months ended September 30, 1999 and we anticipate that
approximately $500,000 of the services to be rendered under those contracts will
be performed during the final nine months of the year ending June 30, 2000.
In June 1999, we formed the Jiayin Joint Venture to develop a cyber-cash
system. Pursuant to the terms of the joint venture, we are required to
contribute Rmb 3,500,000 to the joint venture in exchange for a 70% interest in
the joint venture and our joint venture partner was required to contribute Rmb
1,500,000 to the joint venture in exchange for a 30% interest in the joint
venture. The joint venture, in turn, agreed to acquire certain assets,
technological know-how and the client base of our joint venture partner for RMB
4,500,000. The payment to be made to Shenzhen Jiayin is payable over a four
month period from the issuance of a business license to Jiayin Joint Venture.
Shenzhen Jiayin is, in turn, obligated to utilize RMB2,200,000 of the proceeds
received to purchase stock of Intermost at a price equal to 50% of the average
closing price of our common stock over the five days prior to the date of the
joint venture agreement. At October 15, 1999, the joint venture had not yet
received a business license, no capital contributions had been made and no
assets transferred. At October 15, 1999, we had advanced RMB1,800,000 to
Shenzhen Jiayin for development of a telephone payment system and the system was
operational. At October 15, 1999, initial development of cyber-cash system was
complete and the system was being tested on a pilot basis. The cyber-cash system
is expected to be operational before the end of 1999. We expect to begin
realizing licensing revenues, subject to receipt of necessary government
approvals, from the cyber-cash system in 2000.
Additionally, our operations may be impacted by various factors associated
with doing business in China, including, but not limited to, uncertainty
regarding the application or enforcement of various regulations relating to
business generally, and the Internet specifically, and potential changes in such
regulations, political or economic conditions, methods and rates of taxation,
and other factors. We may be impacted by the ongoing Asian financial crisis.
Countries in the Asia Pacific region have recently experienced weaknesses in
their currency, banking and equity markets. These weaknesses could adversely
affect, among other things, consumer demand for discretionary goods in the
region (perhaps including our products and services which may be considered
expenditures by consumers), and the U.S. dollar value of our foreign currency
denominated sales (e.g., to the extent sales are denominated in Renminbi or Hong
Kong dollars). In addition, our interest income and expense may be sensitive to
fluctuations in the general level of Hong Kong and Chinese interest rates.
However, as we conduct substantially all of our operations, including
substantially all of our sales and expenses, in Renminbi or Hong Kong dollars,
management does not believe we are exposed to undue risk arising from
fluctuations of the exchange rates between those currencies and the U.S. dollar.
Inflation
Inflation has historically not had a material effect on our operations.
When the price of products and services increases, we believe that we will be
able to pass those higher prices on to the customer. Accordingly, we believe
inflation will not have a material effect on our future operations.
27
<PAGE>
Item 3. Properties.
The Company's executive offices are located in 6,500-square feet of office
space on the 38th and 41st Floor, Guomao Building, Renmin South Road, Shenzhen,
China. The facilities are leased from a third party pursuant to two leases which
expire in April 2000 and July 2001 and provide for aggregate monthly rental
payments of $5,750.
The Company also maintains an office in Hong Kong. The Hong Kong office is
provided through an affiliation with Corporate Conventions International Limited
on a rent free basis.
Management believes that the Company's facilities are adequate to support
operations for the foreseeable future.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
Common Stock
The following table is furnished as of November 12, 1999, to indicate
beneficial ownership of shares of the Company's Common Stock by (1) each
shareholder of the Company who is known by the Company to be a beneficial owner
of more than 5% of the Company's Common Stock, (2) each director and named
officer of the Company, individually, and (3) all officers and directors of the
Company as a group. The information set out in the following table was supplied
by such persons.
Name and Address of Number of Shares
Beneficial Owner (1) Beneficially Owned Percent
- - -------------------- -------------------- --------
Allied Point Limited (2)(3)........................ 3,218,653 33.0 %
Jun LIANG (3)...................................... 3,218,653 (2) 33.0 %
Andy LIN (3)....................................... 3,218,653 (2) 33.0 %
Shim YANG.......................................... 750,000 7.7 %
Wai Ho LI.......................................... 600,000 6.2 %
Sai Keung CHAN..................................... 350,000 3.6 %
All officers and directors as a group (5 persons).. 4,918,653 50.4 %
(1) Unless otherwise noted, each person or group identified possesses sole
voting and investment power with respect to the shares shown opposite the
name of such person or group.
(2) Allied Point Limited is a corporation organized under the laws of the
British Virgin Islands and is owned 50% by Jun Liang and 50% by Andy Lin.
Therefore, Mr. Liang and Mr. Lin may be deemed to be the beneficial owners
of those shares.
(3) Address is 38th Floor, Guomao Building, Renmin South Road, Shenzhen, China.
28
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons.
Identification of Directors, Executive Officers and Certain Significant
Employees
The following table sets forth certain information regarding the directors
and executive officers of the Company.
Name Age Position
Jun LIANG................. 37 President and Director
Andy LIN.................. 52 Executive Vice President and Director
Mark Williamson........... 38 Vice President - Business Development
Sai Keung CHAN............ 44 Secretary and Director
Wai Ho LI................. 43 Director
Shim YANG................. 42 Director
Terms of Office
The directors named above will serve until the first annual meeting of the
Company's shareholders. Thereafter, directors will be elected for one-year terms
at the annual shareholders' meeting. Officers will hold their positions at the
pleasure of the Board of Directors, absent any employment agreement, of which
none currently exist or are contemplated.
Business Experience
Jun LIANG co-founded the Company's predecessor, IML, in January 1998 and
has served as its President and a Director since inception and as President and
a Director of the Company since the Exchange in October 1998. Prior to forming
IML, from 1994 to 1998, Mr. Liang was the president of China Business Resources,
a privately-owned Hong Kong company specializing in providing companies
directories, business directory services and other business information in
print, CD-ROM and electronic format. During the period of Mr. Liang's service
with China Business Resources, annual revenues averaged approximately $500,000.
Mr. Liang graduated from Beijing Shijou University in 1982 with a Bachelor of
Science degree in Chemical Engineering and from Stanford University in 1986 with
a Master of Science degree in Chemical Engineering.
Andy LIN co-founded the Company's predecessor, IML, in January 1998 and has
served as its Vice President and a Director since inception and as Vice
President and a Director of the Company since the Exchange in October 1998.
Prior to forming IML, he was the vice president of China Business Resources from
1994 to 1998. Mr. Lin graduated from Tsinghua University in 1970 with a Bachelor
degree and from the Chinese Academy of Sciences in 1981 with a Master of Science
degree in computer science.
Mark Williamson joined the Company in November 1999 as Vice President -
Business Development. Prior to joining the Company, Mr. Williamson was a Senior
Business Analyst with Electronic Data Systems from October 1998 to October 1999.
Previously from 1994 to 1998 Mr. Williamson was a founder and Managing Director
of Williamson, Fourier & Company, an import-export company based in Budapest,
Hungary.
Sai Keung CHAN joined the Company's predecessor, IML, as Secretary and a
Director in January 1998 and assumed the same positions with the Company
following the Exchange in October 1998. Mr. Chan received a law degree from the
University of Southampton, U.K. and since 1986 has been a partner in the law
firm of Liau, Ho & Chan in Hong Kong.
29
<PAGE>
Wai Ho LI joined the Company's predecessor, IML, as a Director in January
1998 and assumed the same positions with the Company following the Exchange in
October 1998. Since 1983, Mr. Li has been a director of Pado Contracting Co.,
Ltd., a privately-held company in Hong Kong specializing in interior design and
decoration work, where he is responsible for business development and strategic
planning.
Shim YANG joined the Company's predecessor, IML, as a Director in January
1998 and was appointed a Director of the Company following the Exchange in
October 1998. Since 1997, Mr. Yang has been a director of Corporate Finance
International Ltd., a privately-held company in Hong Kong specializing in
corporate finance and business restructuring consulting, where he is responsible
for corporate development and strategic management. Mr. Yang received a
Bachelors degree in Economics from the University of Foreign Trade, China in
1982.
Item 6. Executive Compensation
Neither the Company nor IML has paid compensation to any officer in excess
of $100,000 for any fiscal year, or portion of a fiscal year. During the period
from inception to June 30, 1998, IML paid no compensation to Jun Liang, the
Company's chief executive officer. During the nine months ended March 31, 1999,
the Company and IML paid $15,384 of compensation to Jun Liang.
Beginning January 1, 1999, until the Company acquires sufficient revenues
through the operation of its business, the Company pays each of its executive
officers HK$20,000 per month. The Company currently pays its non-employee
directors HK$5,000 per meeting attended with compensation limited to HK$5,000 in
a month regardless of the number of meetings attended. The Company reimburses
its officers and directors for any out-of-pocket expenses incurred on behalf of
the Company. The Company does not have any pension, profit-sharing, stock bonus,
or other benefit plans. The Company expects to enter into employment agreements
with key employees, to implement comprehensive compensation arrangements with
its officers and directors and to adopt benefit plans in the future at the
discretion of the Board of Directors. The Board plans to adopt a stock option
plan under which 2,000,000 shares of common stock would be reserved for issuance
pursuant to options to be granted to key employees.
Item 7. Certain Relationships and Related Transactions.
None.
Item 8. Description of Securities.
At November 12, 1999, the Company's authorized capital stock consisted of
100,000,000 shares of common stock, $.001 par value, of which 9,754,412 shares
were issued and outstanding, and 5,000,000 shares of preferred stock, $.001 par
value, of which no shares were issued and outstanding.
30
<PAGE>
Common Stock
The holders of common stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to any outstanding shares of preferred stock, holders of common stock
are entitled to receive out of funds legally available therefor dividends as our
Board of Directors may declare from time to time. Upon a liquidation,
dissolution or winding up of the Company, holders of common stock are entitled
to share ratably in all assets remaining after payment of liabilities and the
liquidation preferences of any outstanding shares of preferred stock. Holders of
common stock have no preemptive, conversion, subscription or other rights. There
are no redemption or sinking fund provisions applicable to the common stock.
Preferred Stock
Under the Certificate of Incorporation, as amended and restated, the Board
of Directors will have the authority, without further action by stockholders, to
issue up to 5,000,000 shares of preferred stock in one or more series and to fix
the rights, preferences, privileges, qualifications and restrictions granted to
or imposed upon such preferred stock, including dividend rights, conversion
rights, voting rights, rights and terms of redemption, liquidation preference
and sinking fund terms, any or all of which may be greater than the rights of
the common stock. The issuance of preferred stock could adversely affect the
voting power of holders of common stock and reduce the likelihood that such
holders will receive dividend payments and payments upon liquidation. Such
issuance could have the effect of decreasing the market price of the common
stock. The issuance of preferred stock could have the effect of delaying,
deterring or preventing a change in control of the Company. We have no present
plans to issue any shares of preferred stock.
Anti-Takeover Provisions
Except as described above regarding the Company's authorized preferred
stock, there are no provisions in the Company's Certificate of Incorporation or
Bylaws which would, or could, have the effect of delaying, deferring or
preventing a change in control of the Company.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's common stock is OTC
Stock Transfer, Inc., P.O. Box 65665, Salt Lake City, Utah 84165.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
Market Information
There is no established public trading market for the Company's Common
Stock. The Common Stock trades on a sporadic basis under the symbol IMOT on the
OTC Bulletin Board. There is no assurance that an established trading market
will develop in the Company's shares or that any such market which may develop
will be sustained.
31
<PAGE>
Holders
At November 12, 1999, there were approximately 455 record holders of the
Company's Common Stock.
Dividends
The Company has not paid any dividends to date, and has no plans to do so
in the immediate future.
Shares Issuable Pursuant to Warrants and Options or Eligible for Resale Under
Rule 144 or Pursuant to Registration Rights
At November 12, 1999, there were no warrants, options or convertible
securities outstanding and exercisable to purchase, or convertible into, common
stock of the Company.
As of November 12, 1999, the Company had outstanding 9,754,412 shares of
common stock. Of these shares, 4,661,561 shares are freely tradable without
restriction or registration under the Securities Act by persons other than
"affiliates," as defined by Rule 144 promulgated under the Securities Act. The
remaining 5,092,851 shares are "restricted shares" as that term is defined by
Rule 144. All of the restricted shares presently outstanding are presently
eligible for resale under Rule 144, 4,918,653 of the restricted shares are held
by affiliates of the Company.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the number of shares
of common stock then outstanding or the average weekly trading volume of the
common stock during the four calendar weeks preceding the filing of a Form 144
with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about the Company. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale and who has beneficially owned the shares proposed to be sold
for at least two years would be entitled to sell such shares under Rule 144(k)
without regard to the requirements described above.
The Company cannot predict the effect, if any, that the sales of common
stock or the availability of such shares for sale in the public market will have
on the market price for the Company's common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of common stock in the public market
after the restrictions described above lapse could adversely affect prevailing
market prices for the common stock and impair the Company's ability to raise
capital through an offering of equity securities in the future.
At November 12, 1999, the Company had no obligation to register shares
under
the Securities Act of 1933 for sale by any persons.
32
<PAGE>
Item 2. Legal Proceedings.
The Company is from time to time a party to lawsuits incidental to its
business. The Company and its management are not presently aware of any pending
or threatened proceedings which, individually or in the aggregate, are believed
to be material.
Item 3. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
In July 1999, the Company's Board of Directors selected Arthur Andersen &
Co. to serve as its new independent accountants and dismissed Andersen, Andersen
& Strong, L.C., Certified Public Accountants, of Salt Lake City, Utah which
previously served as the independent accountants for the Company.
Andersen, Andersen & Strong's reports on the financial statements of the
Company for the fiscal years ended December 31, 1995, 1996 and 1997 contain no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty (other than uncertainty as to the company's continuing as a going
concern), audit scope, or accounting principles. In connection with its audits
for fiscal years 1995, 1996 and 1997 and through the date of their dismissal,
there were no disagreements with Andersen, Andersen & Strong, L.C. on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of Andersen, Andersen & Strong, L.C. would have caused them to make
reference thereto in its reports on the financial statements for such years.
Item 4. Recent Sales of Unregistered Securities.
In October 1998, the Company issued 4,970,000 shares of common stock in
exchange for all of the issued and outstanding shares of Intermost Limited
("IML"), a British Virgin Islands Company. The shares were issued to the
shareholders of IML, Jun Liang and Andy Lin, through Allied Point Limited, Shim
Yang, Wai Ho Li and Sai Keung Chan. The transaction was carried out without the
use of an underwriter, without any general advertising, solicitation or public
offering and without the payment of commissions pursuant to the exemption set
forth in Section 4(2) of the Securities Act of 1933, as amended.
In April 1999, the Company completed an offering of 1,298,706 shares of
common stock for $999,999 in cash. The shares were sold without the use of an
underwriter to 42 accredited investors. Commissions totaling $29,160 were paid
in connection with the offering. The offering and sale was made pursuant to the
exemption set forth in Regulation D, Rule 504 of the Securities Act of 1933, as
amended which exemption was based on the following facts: (1) the Company was
not subject 13 or 15(d) of the Exchange Act; (2) the Company was not an
investment Company; (3) the Company was not a development stage company with no
specific business plan or with a business plan to engage in a merger or
acquisition of an unidentified company; and (4) the aggregate offering price did
not exceed $1,000,000.
33
<PAGE>
Item 5. Indemnification and Exclusion of Liability of Directors and Officers
So far as permitted by the Utah Business Corporation Act, the Company's
Articles of Incorporation provide that the Company will indemnify its directors
and officers against expenses and liabilities they incur to defend, settle or
satisfy any civil or criminal action brought against them on account of their
being or having been Company directors or officers unless, in any such action,
they are adjudged to have acted with gross negligence or to have engaged in
willful misconduct. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, (collectively, the "Acts") may be permitted to directors, officers or
controlling persons pursuant to forgoing provisions, the Company has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Acts and is,
therefore, unenforceable.
34
<PAGE>
PART F/S
Index to Financial Statements
Intermost Corporation and Subsidiaries
Page
----
Independent Auditors' Report................................................ F-1
Consolidated Balance Sheets as of June 30, 1998 and 1999.................... F-2
Consolidated Statements of Operations for the Period from January 2, 1998
to June 30, 1998 and the Year Ended June 30, 1999......................... F-3
Consolidated Statements of Cash Flows for the Period from January 2, 1998
to June 30, 1998 and the Year Ended June 30, 1999......................... F-4
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
for the Period from January 2, 1998 to June 30, 1998 and the Year
Ended June 30, 1999 ...................................................... F-5
Notes to Consolidated Financial Statements.................................. F-6
Consolidated Balance Sheet as of September 30, 1999.........................F-20
Consolidated Statements of Operations for the Three Months Ended
September 30, 1998 and 1999...............................................F-21
Consolidated Statements of Cash Flows for the Three Months Ended
September 30, 1998 and 1999...............................................F-22
Notes to Consolidated Financial Statements..................................F-23
35
<PAGE>
PART III
Item 1. Index to Exhibits.
2.1* Articles of Incorporation
2.2* Bylaws
6.1* Joint Venture Agreement re: Tech 2020
6.2* Supply Agreement for Online Bookstore
6.3 Cooperative Agreement re: formation of Jiayin E-Commerce
joint venture
6.4 Agreement re: acquisition of customer accounts from Labtam
Corporation
6.5 Subscription Agreement re: sale of common stock
8.1 Exchange Agreement with Shareholders of
Intermost Limited
27.1 Financial Data Schedule
* Previously filed
36
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant has caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
INTERMOST CORPORATION
Date: November 11, 1999 /s/ Jun Liang
----------------------
By: Jun Liang, President
37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of Intermost Corporation:
We have audited the accompanying consolidated balance sheets of Intermost
Corporation (a company incorporated in the State of Utah, United States of
America; formerly known as Utility Communications International, Inc.; "the
Company") and Subsidiaries ("the Group") as of June 30, 1998 and 1999, and the
related consolidated statements of operations, cash flows and changes in
shareholders' equity for the period from January 2, 1998 to June 30, 1998 and
for the year ended June 30, 1999. These financial statements give retroactive
effect to the acquisition of Intermost 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 audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Intermost Corporation and Subsidiaries as of June 30, 1998 and 1999
and the results of their operations and their cash flows for the period from
January 2, 1998 to June 30, 1998 and for the year ended June 30, 1999, after
giving retroactive effect to the acquisition of Intermost 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.
ARTHUR ANDERSEN & CO.
Certified Public Accountants
Hong Kong
Hong Kong,
October 13, 1999.
F-1
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND 1999
<TABLE>
Note 1 9 9 8 1 9 9 9
----------- -------- -----------------------------------
Rmb US$ Rmb
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and bank deposits - 4,376,906 528,612
Accounts receivable, net 5 - 63,997 7,729
Deposits, prepayments and other
receivables 6 - 946,948 114,366
Due from related companies 15 - 168,952 20,405
Due from directors 15 17 - -
------- ------------ -----------
Total current assets 17 5,556,803 671,112
Machinery and equipment, net 7 - 820,731 99,122
Intangible assets 8 - 1,200,000 144,928
Due from a joint venture partner 15 - 243,292 29,383
------- ------------ -----------
Total assets 17 7,820,826 944,545
======= ============ ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accruals 9 13,359 1,168,472 141,121
Deposits from customers - 158,900 19,191
Business tax payable - 26,177 3,161
Due to directors 15 - 254,420 30,727
------- ------------ -----------
Total current liabilities 13,359 1,607,969 194,200
------- ------------ -----------
Shareholders' equity (deficit):
Common stock, par value US$0.001:
- - - authorized - 100,000,000 shares as of
June 30, 1998 and 1999;
- - - outstanding and fully paid - 4,970,000
and 9,754,412 shares as of June 30, 1998
and 1999, respectively 41,137 80,742 9,751
- - - reserved and to be issued - Nil and
69,700 as of June 30, 1998 and 1999,
respectively - 576 70
Preferred stock, par value of US$0.001;
authorized - 5,000,000 shares as of June
30, 1998 and 1999; outstanding and fully
paid - Nil as of June 30, 1998 and 1999
- - -
Additional paid-in capital - 8,078,166 975,624
Accumulated deficit (54,479) (1,954,380) (236,036)
Cumulative translation adjustments - 7,753 936
------- ------------ -----------
Total shareholders' equity (deficit) (13,342) 6,212,857 750,345
------- ------------ -----------
Total liabilities and
shareholders' equity (deficit) 17 7,820,826 944,545
======= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Translation of amounts from Renminbi ("Rmb") into United States dollars ("US$")
is for the convenience of readers and has been made at the noon buying rate in
New York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York on June 30, 1999 of US$1.00 =
Rmb8.28. No representation is made that the Renminbi amounts could have been, or
could be, converted into United States dollars at that rate or at any other
rate.
F-2
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 2, 1998 TO JUNE 30, 1998
AND THE YEAR ENDED JUNE 30, 1999
<TABLE>
Note 1998 1 9 9 9
------ -------- ---------------------------
Rmb US$ Rmb
<S> <C> <C> <C> <C>
Net sales 16 - 3,213,299 388,080
Cost of services - (1,534,985) (185,385)
-------- ------------ -----------
Gross profit - 1,678,314 202,695
Selling, general and administrative
expenses (54,479) (3,611,074) (436,120)
Other income, net - 32,859 3,969
-------- ------------ -----------
Loss before income taxes 16 (54,479) (1,899,901) (229,456)
Provision for income taxes 10 - - -
-------- ------------ -----------
Net loss (54,479) (1,899,901) (229,456)
======== ============ ===========
Net loss per common share Rmb (0.01) Rmb (0.21) US$ (0.03)
========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Translation of amounts from Renminbi ("Rmb") into United States dollars ("US$")
is for the convenience of readers and has been made at the noon buying rate in
New York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York on June 30, 1999 of US$1.00 =
Rmb8.28. No representation is made that the Renminbi amounts could have been, or
could be, converted into United States dollars at that rate or at any other
rate.
F-3
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 2, 1998 TO JUNE 30, 1998
AND THE YEAR ENDED JUNE 30, 1999
<TABLE>
1998 1999
-------- --------------------------
Rmb Rmb US$
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss (54,479) (1,899,901) (229,456)
Adjustments to reconcile net loss to net cash used
in operating activities -
Depreciation of machinery and equipment - 95,899 11,582
(Increase) Decrease in operating assets -
Accounts receivable, net - (63,997) (7,729)
Deposits, prepayments and other receivables - (946,948) (114,366)
Due from related companies - (168,952) (20,405)
Due from directors (17) 17 2
Increase (Decrease) in operating liabilities -
Accruals 13,359 1,155,113 139,507
Deposits from customers - 158,900 19,191
Business tax payable - 26,177 3,161
Due to directors - 254,420 30,727
-------- ----------- ----------
Net cash used in operating activities (41,137) (1,389,272) (167,786)
-------- ----------- ----------
Cash flows from investing activities:
Additions of machinery and equipment - (916,630) (110,704)
Increase in due from a joint venture partner - (243,292) (29,383)
-------- ----------- ----------
Net cash used in investing activities - (1,159,922) (140,087)
-------- ----------- ----------
Cash flows from financing activities:
Net proceeds from issuance of common stock - 6,918,347 835,549
Effect of exchange reorganization 41,137 - -
-------- ----------- ----------
Net cash provided by financing activities 41,137 6,918,347 835,549
-------- ----------- ----------
Effect of exchange rate changes on cash and bank
deposits - 7,753 936
-------- ----------- ----------
Net increase in cash and bank deposits - 4,376,906 528,612
Cash and bank deposits, beginning of period/year - - -
-------- ----------- ----------
Cash and bank deposits, end of period/year - 4,376,906 528,612
-------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Translation of amounts from Renminbi ("Rmb") into United States dollars ("US$")
is for the convenience of readers and has been made at the noon buying rate in
New York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York on June 30, 1999 of US$1.00 =
Rmb8.28. No representation is made that the Renminbi amounts could have been, or
could be, converted into United States dollars at that rate or at any other
rate.
F-4
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JANUARY 2, 1998
TO JUNE 30, 1998 AND THE YEAR ENDED JUNE 30, 1999
<TABLE>
Accumulated
Common stock other
------------------------------------------------------ comprehensive
Issued Reserved an to be issued income
----------------------- ------------------------- cumulative
Number of Number of Additional Accumulated translation
shares Amount shares Amount paid-in capital deficit adjustments
--------- ------- ------------ --------- ----------------- ------------ ---------------
Rmb Rmb Rmb Rmb Rmb
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of
January 2, 1998 4,970,000 41,137 - - - - -
Net loss - - - - - (54,479) -
----------- --------- ---------- -------- ----------- ---------- --------
Balance as of
June 30, 1998 4,970,000 41,137 - - - (54,479) -
Effect of
exchange 3,485,706 28,853 - - (28,853) -
reorganization
Proceeds on
issuance of 1,298,706 10,752 - - 8,266,281 - -
common stock
Common stock
issuance costs - - - - (1,358,686) - -
Acquisition of - - 69,700 576 1,199,424
business
Net loss - - - - - (1,899,901) -
Translation
adjustments - - - - - - 7,753
----------- --------- ---------- -------- ----------- ---------- --------
Balance as of
June 30, 1999 9,754,412 80,742 69,700 576 8,078,166 (1,954,380) 7,753
=========== ========= ========== ======== =========== =========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
-------------------------------------
Intermost Corporation ("the Company") was incorporated in the State of Utah,
United States of America on March 6, 1985. With effect from October 23, 1998,
the Company changed its name from Utility Communications International, Inc. to
Intermost Corporation, the present one.
During the period from January 2, 1998 to June 30, 1998 (the earliest period
covered by these financial statements), the Company was inactive.
On October 23, 1998, the Company acquired 100% interest in Intermost Limited
("IL"; a company incorporated in the British Virgin Islands) by issuing
4,970,000 shares of common stock of par value of US$0.001 each (after the
redenomination of par value and the stock split as described in Note 12) to Mr.
Jun Liang and Mr. Andy Lin, directors and shareholders of IL. IL was equally
owned by Mr. Jun Liang and Mr. Andy Lin. IL and its subsidiaries ("the IL
Group") are principally engaged in the provision of business portals and
e-commerce solutions, the development of software and the provision of
consultation services in Hong Kong and the People's Republic of China ("the
PRC").
2. BASIS OF PRESENTATION AND CHANGE OF ACCOUNTING YEAR END
-------------------------------------------------------
The acquisition of IL by the Company on October 23, 1998 has been treated as a
reverse acquisition since IL is the continuing entity as a result of the
exchange reorganization. On this basis, the historical financial statements
prior to October 23, 1998 represented the consolidated financial statements of
IL, which was incorporated on January 2, 1998. The shareholders' equity accounts
of the Company as of January 2, 1998 have been retroactively restated to reflect
the issuance of 4,970,000 shares of common stock (after the effect of the
redenomination of par value and the stock split as described in Note 12).
The Company formerly had its accounting year end on December 31. Subsequent to
the acquisition of IL, it changed its accounting year end to June 30 to coincide
with that of IL.
F-6
<PAGE>
3. SUBSIDIARIES
Details of the Company's subsidiaries (which together with the Company are
collectively referred to as "the Group") as of June 30, 1999 were as follows:
Percentage
of
equity
interest
attributable
to
the Principal
Name Place of incorporation Group activities
- - -------------- ---------------------- -------------- ------------
Intermost Limited ("IL") The 100% Investment
British holding
Virgin and
Islands development
of
software
China E. Com Information The 100% Provision
Technology Ltd. ("CECITL") * People's of
Republic business
of portals
China and
e-commerce
solutions
IMOT Information Technology The 100% Inactive
(Shenzhen) Ltd. ("IITSL") * People's
Republic
of
China
Intermost (Hong Kong) Limited Hong 100% Inactive
("IHKL") Kong
* CECITL and IITSL are wholly foreign owned enterprises established in the
PRC to be operated for a period of 10 years until 2008.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
a. Basis of consolidation
----------------------
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intra-group balances and transactions
have been eliminated on consolidation.
b. Subsidiaries
------------
A subsidiary is a company in which the Company holds, directly or
indirectly, more than 50% of its issued voting share capital as a long-term
investment. In the Company's financial statements, investment in
subsidiaries is stated at cost less provision for any permanent diminution
in value, while income from subsidiaries is recorded to the extent of
dividends received and receivable.
F-7
<PAGE>
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
------------------------------------------
c. Machinery and equipment
-----------------------
Machinery and equipment 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 as follows: furniture and office equipment - 5
years, motor vehicle - 5 years, computer equipment - 3 years and leasehold
improvements - 1 to 3 years (over the lease terms). Major expenditures for
betterments and renewals are capitalized. All ordinary repair and
maintenance costs are expensed as incurred.
The Group recognizes an impairment loss on machinery and equipment when
evidence, such as the sum of expected future cash flows (undiscounted and
without interest charges) indicates that future operations will not produce
sufficient revenue to cover the related future costs, including
depreciation. Measurement of the impairment loss is based on the fair value
of the assets.
d. Intangible assets
-----------------
Intangible assets represent system integration contracts acquired from an
independent third party. Each contract is being amortized over the contract
period.
e. Net sales
---------
Net sales represent (i) the invoiced value of business portal and
e-commerce solution fees and software development fees and are recognized
when the services are rendered, net of business tax, and (ii) commission
income, which is recognized when the services are rendered.
Deposits or advance payments from customers prior to provision of services
are recorded as deposits from customers.
f. Research and development expenditures
-------------------------------------
Research and development expenses are charged to expenses as incurred.
g. Income taxes
------------
Income taxes are provided under the provisions of Statement of Financial
Accounting Standards No. 109, which requires recognition of deferred tax
assets and liabilities for 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.
F-8
<PAGE>
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
h. 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.
i. Comprehensive income
--------------------
The Group has adopted Statement of Financial Accounting Standards No. 130,
which requires the Group to report all changes in equity during a period,
except for those resulting from investment by shareholders and distribution
to shareholders, in financial statements for the period in which they are
recognized. The Group has disclosed comprehensive income, which encompasses
net income and currency translation adjustments, in the consolidated
statements of changes in shareholders' equity and Note 11.
j. Foreign currency translation
----------------------------
The Company considers Renminbi as its functional currency as a substantial
portion of the Group's business activities are based in Renminbi.
The translation of the financial statements into Renminbi is performed for
balance sheet accounts using closing exchange rates in effect at the
balance sheet date 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.
Aggregate gains from foreign currency transactions included in the
consolidated results of operations for the period from January 2, 1998 to
June 30, 1998 and the year ended June 30, 1999 were approximately Nil and
Rmb10,000 respectively.
k. Net loss per common share
-------------------------
Net loss per common share is computed in accordance with Statement of
Financial Accounting Standards No. 128, by dividing net loss for each
period or year by the weighted average number of shares of common stock
outstanding during the period or year, as if the common stock issued for
the acquisition of IL (see Note 1) had been consummated prior to the period
or year presented.
F-9
<PAGE>
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
------------------------------------------
k. Net loss per common share (Cont'd)
-------------------------
The computation of diluted loss per common share is similar to basic loss
per common share, except that the denominator is increased to include the
number of additional common shares that would have been outstanding if all
dilutive securities outstanding during the period or year were exercised.
The denominator is based on the following weighted average number of common
shares:
1998 1999
------ ------
Basic 4,970,000 8,980,666
Diluted 4,970,000 8,984,867
No diluted loss per common share was presented in the consolidated
statements of operations as the dilutive securities were anti-dilutive.
l. 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.
m. Fair value of financial instruments
-----------------------------------
All financial instruments are carried at cost, which approximate their fair
values.
5. ACCOUNTS RECEIVABLE
-------------------
Accounts receivable comprised:
1998 1999
-------- -----------------------
Rmb Rmb US$
Accounts receivable - 150,997 18,236
Less: Allowance for doubtful accounts
- (87,000) (10,507)
-------- -------- ---------
Accounts receivable, net - 63,997 7,729
======== ======== =========
F-10
<PAGE>
6. DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES
-------------------------------------------
Deposits, prepayments and other receivables comprised:
1998 1999
------ ------------------------
Rmb Rmb US$
Receivable from an escrow agent* - 646,384 78,066
Rental and utility deposits - 121,450 14,668
Other deposits - 95,670 11,554
Other receivables - 41,843 5,054
Other prepayments - 41,601 5,024
----- -------- ------------
- 946,948 114,366
===== ======== ============
* Receivable from an escrow agent represented the balance of the proceeds
from selling of common stock in December 1998 (see Note 12), which were
held by the escrow agent.
7. MACHINERY AND EQUIPMENT
-----------------------
Machinery and equipment comprised:
1998 1999
------ ------------------------
Rmb Rmb US$
Furniture and office equipment - 142,284 17,184
Motor vehicle - 130,155 15,719
Computer equipment - 518,701 62,645
Leasehold improvements - 125,490 15,156
Cost - 916,630 110,704
Less: Accumulated depreciation - (95,899) (11,582)
----- ----------- -----------
Machinery and equipment, net - 820,731 99,122
===== =========== ===========
8. INTANGIBLE ASSETS
-----------------
On June 8, 1999, the Group entered into an agreement with an independent
third party to acquire certain system integration contracts at a
consideration of Rmb1,200,000, to be satisfied by 69,700 shares of common
stock of the Company. Pursuant to the agreement, transfer of stock should
not be later than October 8, 1999. As of June 30, 1999, no such stock were
issued (see Note 12).
F-11
<PAGE>
9. ACCRUALS
--------
Accruals comprised:
1998 1999
------ --------------------------
Rmb Rmb US$
Accrued wages and bonus - 141,891 17,137
Accrued sub-contracting fees - 374,412 45,219
Accrued professional fees 5,344 547,191 66,086
Others 8,015 104,978 12,679
------- ------- -------
13,359 1,168,472 141,121
======= ======= =======
10. INCOME TAXES
------------
The Company and its subsidiaries are subject to income taxes on an entity
basis on income arising in or derived from the tax jurisdiction in which
they operate.
The Company is subject to the United States federal tax at a rate of 35%.
IL was incorporated under the International Business Companies Act of the
British Virgin Islands and, accordingly, is exempted from payment of the
British Virgin Islands income taxes. The wholly foreign owned enterprises
established in the PRC (IITSL and CECITL) are subject to PRC income taxes
at a rate of 18% (15% state income tax and 3% local income tax). IHKL is
subject to Hong Kong profits tax at a rate of 16%. As of June 30, 1999, all
group companies are in a tax loss position.
The reconciliation of the United States federal income tax rate to the
effective income tax rate based on loss before income taxes stated in the
consolidated statements of operations is as follows:
1998 1999
------ ------
United States federal income tax rate 35% 35%
Effect of different tax rates in foreign jurisdictions (17%) (17%)
Effect of tax loss (18%) (18%)
------ ------
Effective income tax rate - -
====== ======
F-12
<PAGE>
10. INCOME TAXES (Cont'd)
------------
Deferred taxation comprised:
1998 1999
------ ------------------------
Rmb Rmb US$
Temporary difference arising from:
- - - net operating loss carryforwards
2,139 380,615 45,968
- - - provision for doubtful accounts
- 15,660 1,891
------- --------- --------
Deferred tax assets, gross 2,139 396,275 47,859
Valuation allowance (2,139) (396,275) (47,859)
------- --------- ---------
Deferred tax assets, net - - -
======= ========= =========
The change in valuation allowance from June 30, 1998 to June 30, 1999 is
primarily related to the tax effects of the net operating loss of approximately
Rmb1,783,000 and provision for doubtful accounts of approximately Rmb87,000.
Management believes it is more likely than not that the results of future
operations will generate sufficient taxable income to realize the deferred tax
assets as reduced by the valuation allowance.
11. COMPREHENSIVE LOSS
------------------
Comprehensive loss and its components, net of tax, comprised:
1998 1999
------ ----------------------
Rmb Rmb US$
Net loss (54,479) (1,899,901) (229,456)
Other comprehensive income -
Translation adjustments - 7,753 936
-------- ----------- ---------
Comprehensive loss (54,479) (1,892,148) (228,520)
======== =========== =========
F-13
<PAGE>
12. SHARE CAPITAL
-------------
During the period from January 2, 1998 (the earliest date covered by these
financial statements) to October 22, 1998, the Company had authorized share
capital of 100,000,000 shares of common stock, par value US$0.001 each, and
5,000,000 shares of preferred stock, par value US$0.001 each; and
outstanding share capital of 1,742,853 shares of common stock, par value
US$0.001 each. On October 23, 1998, the Company effected a redenomination
of par value, resulting in 50,000,000 shares of common stock, par value
US$0.002 each, authorized, and 1,742,853 shares of common stock, par value
US$0.002 each, outstanding. On the same day, the Company effected a
two-for-one stock split, resulting in 100,000,000 shares of common stock,
par value US$0.001 each, authorized, and 3,485,706 shares of common stock,
par value US$0.001 each, outstanding. Also, on October 23, 1998, the
Company issued 4,970,000 shares of common stock (after the redenomination
of par value and stock split described above), par value US$0.001 each, in
connection with its acquisition of IL as described in Note 2.
The effects of the redenomination of par value and the stock split have
been reflected retroactively in the financial statements and all loss per
share computations.
On December 16, 1998, the Company sold 1,298,706 shares of common stock for
cash at US$0.77 per share through a private placement. The net proceeds
amounted to approximately Rmb6,918,000 (equivalent of US$836,000), of which
approximately Rmb646,000 (equivalent of US$78,000) was yet to be received
as of June 30, 1999 (see Note 6).
On June 8, 1999, the Company reserved to issue 69,700 shares of common
stock, par value US$0.001 each, in connection with its acquisition of
system integration contracts (see Note 8).
13. OPERATING LEASES
----------------
The Group has operating lease agreements for office premises and staff
quarters, which extend through June 2000. Rental expenses for the period
from January 2, 1998 to June 30, 1998 and the year ended June 30, 1999 were
approximately Nil and Rmb201,000, respectively. Future minimum rental
payments as of June 30, 1999, under agreements classified as operating
leases with non-cancellable terms, are as follows:
1998 1999
------ ---------------------------
Rmb Rmb US$
Payable within one year - 428,803 51,788
====== ======== ========
F-14
<PAGE>
14. RETIREMENT PLAN AND POST-EMPLOYMENT BENEFITS
--------------------------------------------
The Group has no retirement plan or post-employment benefits for its employees.
15. RELATED PARTY TRANSACTIONS
--------------------------
Name and relationship of related parties:
Name of related parties Existing relationship with the Group
--------------------------- --------------------------------------
Chuangshengxin Corporate Conventions
(Shenzhen) Company Limited Subsidiary of a company with common
director
Corporate Conventions International
Limited Subsidiary of a company with common
director
Jiayin Investment Company Limited A joint venture partner
Summary of related party balances is as follows:
1998 1999
------ --------------------------
Rmb Rmb US$
Due from related companies (Note a)
- - - Chuangshengxin Corporate Conventions
(Shenzhen) Company Limited
- 83,000 10,025
- - - Corporate Conventions International
Limited - 72,122 8,710
- - - Jiayin Investment Company Limited
- 13,830 1,670
-------- ------
- 168,952 20,405
======== ======
Due from directors
- - - Mr. Jun Liang 9 - -
- - - Mr. Andy Lin 8 - -
------- ------
17 - -
======= ======
Due from a joint venture partner (Note b)
- 243,292 29,383
======== ======
Due to directors (Note a)
- - - Mr. Jun Liang - 156,023 18,843
- - - Mr. Andy Lin - 98,397 11,884
-------- -------
- 254,420 30,727
======== =======
F-15
<PAGE>
15. RELATED PARTY TRANSACTIONS (Cont'd)
--------------------------
Summary of related party transactions is as follows:
1998 1999
------ --------------------------
Rmb Rmb US$
Commission income received from Corporate
Conventions International Limited
- 483,640 58,411
Commission expense paid to Corporate
Conventions International Limited
- 436,132 52,673
Office rentals and utility expenses charged
to Chuangshengxin Corporate Conventions
(Shenzhen) Company Limited
- 116,156 14,029
======= ========== ==========
Notes -
a. The outstanding balances with related companies and directors were
unsecured, non-interest bearing and without pre-determined repayment terms.
b. The amount due from a joint venture partner represented investment in a
joint venture which was yet to be formed.
16. SEGMENTAL INFORMATION
---------------------
a. Net sales
Net sales comprised:
1998 1999
------- ----------------------------
Rmb Rmb US$
Business portals and
e-commerce solutions - 2,280,547 275,429
Software development and consulting
commission income
- 932,752 112,651
----- ---------- -----------
- 3,213,299 388,080
===== ========== ===========
Substantially all of the Group's sales are provided in the PRC.
F-16
<PAGE>
16. SEGMENTAL INFORMATION (Cont'd)
---------------------
b. Loss before income taxes
------------------------
Loss before income taxes comprised:
1998 1999
------ -------------------------
Rmb Rmb US$
Business portals and
e-commerce solutions - (404,803) (48,888)
Software development and consulting
commission income - (961,721) (116,150)
Loss of inactive companies (54,479) (533,377) (64,418)
---------- ----------- ------------
(54,479) (1,899,901) (229,456)
========== =========== ============
c. Assets
------
Substantially all of the Group's identifiable assets are located in the
PRC.
d. Major customers
---------------
Details of individual customers accounting for more than 5% of the Group's
sales are as follows:
1998 1999
------ ------
Corporate Conventions International Limited 15%
Good Prominent Technology Company Limited - 14%
====== =========
e. Major suppliers
---------------
Details of individual suppliers accounting for more than 5% of the Group's
purchases are as follows:
1998 1999
------ ------
Sysway Networks - 39%
Shenzhen Yiyuda Trade Development Limited - 11%
Shenzhen FirstNet System Corporation - 10%
Guangdong Xiaotong Computer Network Technology Limited
- 8%
JOS (Guangzhou) Technology Product Limited - 6%
Shenzhen Delitai Industry Limited - 6%
====== =======
F-17
<PAGE>
17. OPERATING RISK
--------------
a. Country risk
------------
The Group's operations are conducted in Hong Kong and the PRC. Accordingly,
the Group's business, financial condition and results of operations may be
influenced by the political, economic and legal environments in Hong Kong
and the PRC, and by the general state of the Hong Kong and the PRC
economies.
Effective from July 1, 1997, sovereignty over Hong Kong was transferred
from the United Kingdom to the PRC, and Hong Kong became a Special
Administrative Region of the PRC ("the Hong Kong SAR"). As provided in the
Basic Law of the Hong Kong SAR of the PRC, the Hong Kong SAR will have full
economic autonomy and its own legislative, legal and judicial systems for
50 years. The Group's management does not believe that the transfer of
sovereignty over Hong Kong has had an adverse impact on the Company's
financial and operating environment. There can be no assurance, however,
that changes in political or other conditions will not result in such an
adverse impact.
The Group's operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America
and Western Europe. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange.
The Group's results may be adversely affected by changes in the political
and social conditions in the PRC, and by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among
other things.
b. Concentration of credit risk
----------------------------
Concentration of accounts receivable as of June 30, 1998 and 1999 is as
follows:
1998 1999
------ ------
Five largest accounts receivable - 90%
====== ======
The Group performs ongoing credit evaluation of each customer's financial
condition. It maintains reserves for potential credit losses and such
losses in the aggregate have not exceeded management's projections.
F-18
<PAGE>
18. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
------------------------------------------------
Cash paid for interest and income taxes:
1998 1999
------- -------------------
Rmb Rmb US$
Interest - - -
Income taxes - - -
======= ====== ======
19. OTHER SUPPLEMENTAL INFORMATION
------------------------------
The following items were included in the consolidated statements of
operations:
1998 1999
------ --------------------
Rmb Rmb US$
Depreciation of machinery and equipment
- 95,899 11,582
Operating lease rentals for office premises
and staff quarters - 200,698 24,239
Salary and employee benefits - 1,225,341 147,988
Allowance for doubtful accounts - 87,000 10,507
Foreign exchange gain, net - 10,344 1,249
Research and development expenditures
- 193,282 23,343
====== ========== ==========
F-19
<PAGE>
INTERMOST CORPORATION
BALANCE SHEET
September 30, 1999
(Unaudited)
ASSETS
Current assets
Cash $ 395,523
Accounts receivable, net 44,945
Deposits, prepayments and other receivables 627,487
Due from related companies 78,289
-----------
Total current assets 1,146,244
-----------
Machinery and equipment, net 105,659
Intangible assets 144,928
-----------
$ 1,396,831
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 571,932
Other payables 31,859
Deposits from customers 36,544
Due to directors 30,727
Business tax payable 8,463
-----------
Total current liabilities 679,525
-----------
Stockholders' Equity
Preferred Stock
5,000,000 shares authorized, $.001 par value;
none issued -
Common Stock
100,000,000 shares authorized, $.001 par value;
9,754,412 shares issued 9,751
69,700 shares reserved for issuance 70
Capital in excess of par value 975,624
Accumulated deficit (265,440)
Cumulative translation adjustments (2,699)
-----------
Total stockholders' equity 717,306
-----------
$ 1,396,831
===========
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
INTERMOST CORPORATION
STATEMENT OF OPERATIONS
Three Months Ended September 30, 1999 and 1998
(Unaudited)
For the Three Months Ended
September 30,
1999 1998
Net sales $ 327,577 $ 66,108
Cost of services 211,846 13,861
---------- ---------
Gross profit 115,731 52,247
Selling, general and administrative expense (148,461) (37,130)
Other income, net 3,326 -
---------- ---------
Income (loss) before income taxes ( 29,404) 15,117
Provision for income taxes - -
---------- ---------
Net income (loss) $ ( 29,404) $ 15,117
========== =========
Net income (loss) per common share
Basic $ ( 0.00) $ 0.00
========== =========
Weighted average shares outstanding 9,824,112 3,485,706
========== =========
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
INTERMOST CORPORATION
STATEMENT OF CASH FLOWS
Three Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
For the Three Months Ended
September 30,
1999 1998
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss) $ (29,404) $ 15,117
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,929 405
Cumulative translation adjustment (3,635) 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (37,216) (14,270)
(Increase) decrease in deposits, prepayments
and other receivables (513,121) (30,149)
(Increase) decrease in due from related companies (28,501) 0
Increase (decrease) in accounts payable 430,811 5,176
Increase (decrease) in deposits from customers 17,353 0
Increase (decrease) in other payables 31,859 72,572
Increase (decrease) in business taxes payable 5,302 2,941
---------- ---------
Net cash used in operations (124,623) 51,792
---------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of plant and equipment (8,466) (19,256)
---------- ---------
Net cash used in investing activities (8,466) (19,256)
---------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock 0 1,741
---------- ---------
Net cash from financing activities 0 1,741
---------- ---------
Net increase (decrease) in cash (133,089) 34,277
Cash at beginning of period 528,612 0
---------- ---------
Cash at end of period $ 395,523 $ 34,277
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
INTERMOST CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
1. INTERIM FINANCIAL PRESENTATION
The interim financial statements are prepared pursuant to the requirements
for reporting on Form 10-QSB. The interim financial statements and notes
thereto should be read in conjunction with the financial statements and
notes included elsewhere herein at and for the year ended June 30, 1999. In
the opinion of management, the interim financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of
the results for the interim period presented.
F-23
<PAGE>
Cooperative Agreement
(Translation for reference only)
Pursuant to applicable laws, regulations of the People's Republic of China and
Shenzhen and in accordance with the principles of equality, mutual benefit, good
faith and legitimacy, through friendly consultation, both parties have worked
out the following agreement regarding the joint establishment of a business
enterprise and the acquisition of assets.
Article 1 Parties to the Agreement
Parties to this Agreement are :
Shenzhen Jiayin Investment Development Co., Ltd. (hereinafter referred to as
"Party A"), a company registered in Shenzhen, the People's Republic of China
("PRC") with its registered address at Pengyi Garden, Shenzhen City, PRC. Legal
representative : Jie Wei, Position : Chairman, Nationality : Chinese.
IMOT Information Technology (Shenzhen) Ltd. (hereinafter referred to as "Party
B"), a company registered in Shenzhen, PRC, with its registered address at
38/F., Guomao Building, Shenzhen, Legal representation : Jun Liang, Position :
General Manager, Nationality : Chinese.
Article 2 Definitions
1. "Assets" refers the physical assets of electronic mailbox, e-commerce,
telephone payment systems software owned by Party A; ownership right of the
telephone payment system software and related technical data, patent
certificate, permits, etc. In other words, "Assets" shall refer to all the
tangible and/or intangible assets owned by Party A which are related to the
electronic commerce and Telephone Payment System, however, it shall not
include any liabilities of Party A or its obligations to derives its assets
and properties.
2. "Business" refers to all the design, manufacturing and marketing operations
of electronic commerce, electronic mailbox, and telephone payment system
businesses of Party A that it engages in prior to the date of this
Agreement, including business network, list of customers, voice platform
for electronic mailbox, beneficiary rights in contracts and agreements, and
permits for operating electronic mailbox business (both parties may set out
details of the "Assets" and "Business" in separate schedule as annex to
this Agreement)
3. "Newco" refers to the Shenzhen Jiayin E-commerce (Information) Technology
Co., Ltd. to be jointly established by Party A and Party B in Futian
District of Shenzhen in accordance with "The Company Law of the PRC" and
other relevant regulations.
<PAGE>
Article 3 Objective and Format of Cooperation
Objective of Cooperation : Complementary of each party's strengths, to
jointly develop the e-commerce and information
business, etc.
Format of Cooperation : 1. Both Parties will jointly set up the Newco.
2. The Newco shall acquire certain assets and
business of Party A.
3. The Newco shall recruit the technical
and research & development staff of
Party A. Party A shall warrant these people
shall work for Party B and shall
abide by the "Non-competition Agreement)
(List of the staff is set out in Appendix 2)
Article 4 Business Scope, Registered Capital, Shareholding Structure and Board
of Directors for the Newco
1. Business Scope of the Newco : development of new and advanced technology,
electronic mailbox, electronic commerce, network services, voice-mail
platform; design, production and dissemination of various advertisements in
PRC and overseas using its own media; retail and supply of materials
(excluding products that are exclusively sold, controlled or operated by
the state).
2. Registered capital and shareholding structure : Both parties shall
contribute an aggregate of RMB5 million, which shall become the registered
capital of Newco,
of which: Party A RMB1,500,000 accounts for 30% shareholding
Party B RMB3,500,000 accounts for 70% shareholding
3. Board of Directors : The Board of Directors shall consist of 5 directors,
of which 2 directors shall be appointed by Party A and 3 directors shall be
appointed by Party B. The directors shall have an office of 4 years. They
may be re-appointed by the appointing party.
Article 5 Acquisition of Party A's certain Assets and Businesses
1. Target of Acquisition : The assets and businesses as set out in item (1)
and (2) of Article 2 and all the rights and benefits associated with these
assets and Business.
2. Consideration for the Acquisition : The consideration for the acquisition
of these assets and businesses of Party A shall be RMB4,500,000.
<PAGE>
3. Payment Terms
(1) Newco shall pay RMB300,000 (including deposit of RMB50,000) to Party A
within 10 days after the issuance of the Newco's Business License.
(2) Newco shall pay RMB300,000 to Party A within the second month after
the issuance of the Newco's Business License.
(3) Newco shall pay RMB200,000 to Party A within the third month after the
issuance of the Newco's Business license.
(4) Newco shall pay the remaining balance of RMB3,700,000 within the
fourth month after the issuance of the Newco's Business License.
Article 6 Legal Documents and Inter-relationships
This Agreement stipulates all the principles agreed by both parties regarding
the subject matter. Both parties may enter into separate agreements based on
these principles for detailed cooperation plans so as to confirm each party's
rights and obligations. These detailed agreements shall also form an integrated
component of this Agreement.
Should there be any discrepancies between the detailed agreements and this
Agreement, the detailed agreements shall prevail, provided that the detailed
agreements do not violate the principles stipulated in this Agreement.
The detailed agreements shall include, but not limited to :-
1. The contract and articles of association for the Newco to be signed by both
parties based on the Article 4 of this Agreement.
2. Asset and Business Acquisition Agreement between Party A and Newco.
3. Representation made by Party A regarding the consent of the transfer of the
staff to Newco and the Non-competition Agreement (Schedule 3).
4. Representation made by certain staff of Party A to accepting the transfer
to the Newco and consent to abide by the non-competition restriction
(Schedule 4)
Article 7 Warranties and Undertakings
For the execution of this Agreement, Party A and Party B hereby represent,
warrant and undertake to the other party the following :
1. Party A or/and Party B are corporations duly incorporated in the PRC and
they have full authority needed to sign and execute this Agreement and
shall not need consent from any other party (except for the consent and
permission by government authorities)
<PAGE>
2. The signing and execution of this Agreement shall not violate any laws or
regulations, the Articles of Association of each party or other government
approval documents.
3. The acquisition of Party A's certain assets and businesses by the Newco
shall not :
1. Cause any loss on the rights or benefit of the Business.
2. Offer an excuse for any person to terminate the Business.
3. Cause the government to dismiss Party A's permit to conduct electronic
mailbox services business.
4. Violate any binding judgment, verdict or order by any courts,
arbitration organizations or government authorities.
5. Cause the Newco to bear any other obligation not stipulated in this
Agreement.
4. Party A has not and shall not (unless as required by normal business
operations) disclose to any third party any technology, business secrets
and customer list, etc. which are related to the business of Newco. Details
of this Clause are as follows :
1. Within two years after the date of this Agreement, Party A shall not
in any way, including but not limited to, individually or jointly with
other parties or assist other parties to conduct any business in
Shenzhen which is similar to all or part of the business of Newco.
2. Within two years after the date of this Agreement, Party A shall not
in any way, including but not limited to, individually or jointly with
other parties or assist other parties to convince or solicit or intent
to convince or solicit the customers as listed in Schedule 1 so as to
conduct any business with the customers which is in competition with
the Newco's Business.
3. Within two years after the date of this Agreement, Party A shall not
in any way, including but not limited to convince or solicit employees
of Party B or the Newco to conduct any business which is in
competition with the Newco's Business.
4. Upon signing of this Agreement, Party A shall not in any way, disclose
to any one the technology secrets as related to the subject matter of
this Agreement. Party A shall also put all reasonable effort to
prevent those technology secrets from being stolen.
5. Upon signing of this Agreement, Party A shall promptly inform the
Newco about any enquiry on the Business and shall deliver if possible
to the Newco all the purchase order for the relevant Business.
<PAGE>
5. Prior to the date of this Agreement, Party A is not engaged in any
litigation, arbitration or tribunal proceeding which may affect the signing
and execution of this Agreement.
6. Party A shall warrant the staff as list on Schedule 2 of this Agreement
shall accept the appointment by the Newco and shall abide by the
non-competition clause as stipulated in Representation 1 and 2.
Article 8 Responsibilities of Both Parties
The parties hereto shall each fulfil their respective obligations as follows :
(A) Responsibilities of Party A
(1) To handle the Newco's application for incorporation, registration and
Business License;
(2) To contribute the registered capital pursuant to the stipulations of
this Agreement.
(3) To provide its existing office premises (2 rooms) for the Newco's use
free of charge for one year.
(4) To assist the Newco in coordinating and handling application
procedures for water, electricity, transportation and other utilities.
(5) To fulfil all of its obligations as stipulated in the "Acquisition
Agreement for Assets and Business" to be signed by Party A and the
Newco, including but not limited to :-
1. To provide the physical properties in relation to electronic
mailbox, e-commerce, telephone payment system software as listed
on Schedule 1.
2. To provide a full set of the ownership documents for the
telephone payment system software (only confined to those of
existing developed software, detailed as set out in Schedule 1)
3. To provide information on the investment details and financial
statements, and revenue & expenditure of the original
shareholders of Shenzhen Jiayin Future Industries Co., Ltd.
In accordance with this principle, Party A shall complete all the
legal procedures needed for transferring the assets and Business to
the Newco, including but not limited to :
a. To handle the legal procedures required to transfer Party A's
License to Operate Electronic Mailbox Business to the Newco.
<PAGE>
b. To handle all the legal procedures to transfer to the Newco all
the Party A's existing or potential contracts with its customers
which could bring in benefits to the Newco (the list of the
contracts is set out in Schedule 1)
c. To handle all the procedures required to transfer Party A's
ownership right of its "Telephone Payment System Software" to the
Newco.
d. To handle all the application and filing procedures with relevant
business and tax authorities in relation to the acquisition of
Business.
(6) To assist the Newco to recruit management and technical staff, workers and
other necessary employees.
(7) To handle other matters as entrusted by the Newco or matters entrusted by
Party B pursuant to this Agreement.
(B) Responsibilities of Party B
(1) To contribute the registered capital of the Newco as stipulated in
this Agreement;
(2) To assist Party A in the establishment of the Newco.
(3) To handle other matters as entrusted by the Newco or matters entrusted
by Party A pursuant to this Agreement.
(4) Upon its establishment, Party B shall be responsible for all the
capital investment for its future development (subject to its
operation and development plan)
Article 9 Breach of Contract
Should all or part of this Agreement and its appendices be unable to be
fulfilled owing to the fault of one party, the breaching party shall bear the
responsibilities thus caused. Should it be the fault of both parties, they shall
bear their respective responsibilities according to actual situations.
Article 10 Force Majeure
Should either of the parties to this Agreement be prevented from executing this
Agreement by force majeure, sure as earthquake, flood, fire, typhoon and other
unforeseen events, and their happening and consequences are unpreventable and
unavoidable, the party encountering this event of force majeure shall notify the
other party by cable without any delay, and within 15 days thereafter provide
the detailed information of the events and a valid document for evidence issued
by the relevant public notary organization for explaining the reason of its
inability to execute or delay the execution of all or part of this Agreement.
Both parties shall, through consultations, decide whether to terminate this
agreement or to exempt the part of obligations for implementation of this
Agreement or whether to delay the execution of this Agreement according to the
effects of the events on the performance of this Agreement.
<PAGE>
Article 11 Applicable Law
The formation of this Agreement, its validity, interpretation, execution and
settlement of the disputes shall be governed by the related laws of the People's
Republic of China.
Article 12 Settlement of Disputes
Any disputes arising from the execution of or in connection with this Agreement
shall be settled through friendly consultation between both parties. In case no
settlement can be reached through consultation, the dispute shall be submitted
to Shenzhen Arbitration Committee for arbitration according to its enforced
arbitration rules. The arbitration award shall be final and binding upon both
parties.
Article 13 Special Stipulations
1. Party B shall be responsible for the expenses in relation to the
establishment of the Newco.
2. Party B may assign other party to fulfil its obligations as stipulated in
this Agreement, however it's the rights and benefits shall remain
unchanged.
3. The RMB2,200,000 of the acquisition consideration received by Party A shall
only be used to purchase the common stock of Intermost Corporation
("IMOT"). Party B undertakes to issues to Party A certain number of IMOT
stock based on 50% of the average close price of IMOT for the 5 trading
days prior to the date of this Agreement and the exchange rate announced by
the state authorities. Should Party A be unable to get the IMOT stock due
to any reasons, both parties shall discuss and determine the payment method
for the RMB2,200,000 acquisition consideration.
4. Party A shall be responsible for handling for any disputes arising from
other shareholders of Jiayin Future Industries Co., Ltd. other
organizations or individual in relation to this Agreement. These disputes
shall not affect the execution of this Agreement.
PartyA undertakes that : In respect of this clause, Party A shall, if
necessary and at appropriate time, liquidate Jiayin Future Industries Co.,
Ltd. so as to ensure the execution of this Agreement.
5. Upon signing of this Agreement, a working team shall be set up for the
establishment of the Newco.
6. The Newco shall have no responsibilities on any of the liabilities or
claims of Party A (including its associate companies. Party A shall warrant
not to engage in any business as stipulated in Schedule 1. As long as Party
A is its majority shareholder, Guangzhou Zhaoyin Technology Co. shall not
engage in electronic mailbox service and value-added services same as the
Newco. 7. Upon establishment of the Newco, Party B shall be responsible for
capital requirement for the Newco's future development (details subject to
its operating and development plan). Investment by Party B which is under
RMB500,000 shall not affect the shareholding of the Newco. For Investment
made by Party B which exceeds RMB500,000, subject to both parties consent,
the shareholding ratio may be adjusted. Details will be discussed and
determined by both parties.
<PAGE>
Article 14 Others
This Agreement shall be written in Chinese.
This Agreement shall come into effect after signing by the authorized
representatives of both parties with company seal.
No variation, modification, termination or dismissal of this agreement shall be
effective unless in writing (signed by authorized representative of both parties
with Company seal).
Any amendment on this Agreement shall form an integral part of this Agreement.
Should any clauses in this Agreement become void, all other clauses shall remain
binding and effective.
This Agreement shall be executed in duplicate and each party shall keep one
copy.
Signed by Party A Signed by Party B
Date : June 11, 1999
Agreement
(Translation for reference only)
Party A : LABTAM CORPORATION LIMITED
Legal representative
Address : Rm. 1202, Block A, 1 Bo Man Street, Shaukiwan, Hong Kong
Party B : Intermost Limited
Legal Representative
Address : Rm. 4703, Central Plaza, 18 Harbour Road, Wanchai, Hong
Kong
Through friendly consultation, both parties hereby agree the following :
1. Party A hereby permits Party B to make any form of public announcements
(including but not limited to verbal, written, electronic media etc.) that
Party B is a party to certain contracts (as set out in Appendix 1 of this
Agreement). In order words, Party A shall be a party to execute those
contracts.
2. Party A hereby agrees to assign certain contracts to Party B (a list of
these contracts is set out in Appendix 2) and shall notify the customers as
listed in Appendix 2 of this Agreement within 30 days after the date of
this Agreement.
3. Party B agrees to, upon signing of this Agreement, pay to Party A certain
number of the common stock of Intermost Corporation (OTC-BB : IMOT) which
value equals to RMB1,200,000. Payment terms are as follows:
1. Within one month after the date of this Agreement, Party B shall
provide to Party A a board resolution of Intermost Corporation which
authorizes the transfer of certain number of IMOT common stock to
Party A with total value of RMB1,200,000.
2. Within four months after the date of this Agreement, Party B shall
give Party A certain number of IMOT common stock with total value of
RMB1,200,000, and shall handle the share transfer procedures as
requested by Party A. The value of each IMOT common stock shall be
calculated as its average trading price for the 5 days prior to the
date of this Agreement and converted to Renminbi based on the 50% of
exchange rate announced by the State Foreign Exchange Bureau of PRC.
Shares transfer fees shall be borne by Party B.
4. Party A hereby warrants, upon the signing of this Agreement, Party B shall
have the right to announce the content of Clause 1 of this Agreement. Party
A shall not for any reason object and shall not claim for any economic or
legal liabilities against Party B in relation to this issue.
<PAGE>
5. Party A hereby warrants to complete all the notification procedures as
stipulated in Clause 2 of this Agreement within two months after the date
of this Agreement, otherwise Party B shall have the right to withhold the
said stock transfer until Party A has completed all the notification
procedures. If these procedures are not completed in the above mentioned
two months, Clause 2 of this Agreement shall become void but Clause 1 shall
continue to be effective, Party B shall then only need to pay to Party A
certain number of IMOT common stock with total value of RMB1,000,000 as
consideration for the rights it shall be entitled to as stipulated in
Clause 1 of this Agreement. Value of the IMOT common Stock shall be
calculated by the same method as indicated in Clause 3 (2) of this
Agreement.
6. Commencing from the date of completion of the notification procedures as
stipulated in Clause 2 of this Agreement, Party B shall become the
principal party to the contracts listed in Appendix 2. It shall be entitled
to all the rights and benefits the Party A was originally entitled to and
shall continue to execute the contracts as a party to these contracts.
Party A shall not reclaim its contractual rights for any reasons or in any
way and it shall not interfere Party B's executed of these contracts.
7. From the date of this Agreement, Labtam Corporation Limited shall be the
principal party to this Agreement and shall have the full authority to
determine the beneficiary owner for the common stock to be received for
this Licensing Agreement.
8. This Agreement shall become effective after being signed and sealed by both
parties.
Party A : Labtam Corporation Limited
Party B : Intermost Limited
<PAGE>
Transfer Agreement
(Translation for reference only)
Party A : Shenzhen Sundy Computer Network Ltd.
Party B : Labtam Corporation Limited
Party A hereby agrees to gratuitously transfer the customer contracts as listed
in Appendix A1 to Party B, Labtam Corporation Limited. Labtam Corporation
Limited shall have full authority to execute and transfer the customer contracts
as listed in Appendix A1 and shall bear all responsibilities.
Party A : Shenzhen Sundy Computer Network Ltd.
(Signed)
Party B : Labtam Corporation Limited
(Signed)
Date : June 8, 1999
<PAGE>
Transfer Agreement
(Translation for reference only)
Party A : Shenzhen Labtam Computer System Ltd.
Party B : Labtam Corporation Limited
Party A hereby agrees to gratuitously transfer the customer contracts as listed
in Appendix A2 to Party B, Labtam Corporation Limited. Labtam Corporation
Limited shall have full authority to execute and transfer the customer contracts
as listed in Appendix A2 and shall bear all responsibilities.
Party A : Shenzhen Labtam Computer System Ltd.
(Signed)
Party B : Labtam Corporation Limited
(Signed)
Date : June 8, 1999
<PAGE>
Transfer Agreement
(Translation for reference only)
Party A : Guangzhou Labtam Computer System Ltd.
Party B : Labtam Corporation Limited
Party A hereby agrees to gratuitously transfer the customer contracts as listed
in Appendix A3 to Party B, Labtam Corporation Limited. Labtam Corporation
Limited shall have full authority to execute and transfer the customer contracts
as listed in Appendix A3 and shall bear all responsibilities.
Party A : Guangzhou Labtam Computer System Ltd.
(Signed)
Party B : Labtam Corporation Limited
(Signed)
Date : June 8, 1999
INTERMOST CORPORATION
A Utah Corporation
SUBSCRIPTION AGREEMENT
Intermost Corporation
c/o Vanderkam & Sanders
440 Louisiana, Suite 475
Houston, Texas 77002
Gentlemen:
The following information is furnished as the undersigned's subscription
for shares of common stock (the "Shares"), offered by Intermost Corporation, a
Utah corporation (the "Company") and for you to determine whether the
undersigned is qualified to purchase shares. I, the undersigned, understand that
you will rely upon the following information for purposes of such determination.
I also understand that, in connection with my status as an Accredited
Investor, I may be required to supply a balance sheet, prior years federal
income tax returns or other appropriate documentation to verify and substantiate
my status as an Accredited Investor.
ALL INFORMATION CONTAINED IN THIS SUBSCRIPTION AGREEMENT WILL BE TREATED
CONFIDENTIALLY.
I, the undersigned Subscriber, hereby supply you with the following
information and representations:
1. Full Name:
-----------------------------------------------------------------
2. Residence address (no P.O. Boxes please) and telephone number:
------------
---------------------------------------------------------------------------
3. Business address and telephone number:
-------------------------------------
4. State in which the undersigned maintains principal residence:
-------------
5. State in which the undersigned is registered to vote:
----------------------
6. If this investment is to be made by an entity (i.e. Pension, Plan, Profit
Sharing Plan), the undersigned further represents to you as follows:
A. Name and address of entity making purchase (use full legal name):
----------------------------------------------------------------------
3
<PAGE>
B. Name and address of person making investment decisions on behalf of
the above entity:
----------------------------------------------------------------------
C. Position or title of person making investment decision on behalf of
the above entity:
----------------------------------------------------------------------
7. A. I certify that I am an Accredited Investor because I fall within
one of the following categories:
----------------------------------------------------------------------
(PLEASE CHECK APPROPRIATE CATEGORY)
1. $1,000,000 Net Worth Natural Person. A natural person whose
individual net worth, or joint net worth with that person's
spouse, at the time of his purchase, exceeds $1,000,000.
2. $200,000 Income Natural Person. A natural person who had
"individual income" in excess of $200,000 in each of the two most
recent years and who reasonably expects "income" in excess of
$200,000 in the current year.
3. $300,000 Income Natural Person. A natural person who had "joint
income" with his or her spouse in excess of $300,000 in each of
the two most recent years and who reasonably expects joint income
in excess of $300,000 in the current year.
4. Corporate, Partnership or Trust Investor. The investor is a
corporation, partnership or trust, not formed for the specific
purpose of acquiring the securities offered herein, with total
assets in excess of $5,000,000 and in the case of a trust, whose
purchases are directed by a sophisticated person.
5. Bank, Insurance Company, Investment Company, Business Development
Company, etc., Investor. The investor is a bank, insurance
company, registered investment company, business development
company, small business investment company or employee benefit
plan having assets in excess of $5,000,000 or administered by an
accredited investor.
6. Officers of Company. The investor is an execute officer or
director of the Company.
B. I further represent to you as follows:
1. Employer and position of person making investment decision:
-----------------------------------------------------------------
4
<PAGE>
2. Prior employment (5 years) of person making investment decision:
(1)
------------------------------------------------------------
(2)
------------------------------------------------------------
Duties of (1)
--------------------------------------------------
Duties of (2)
--------------------------------------------------
Date of employment:
(1)
--------------------------------------------------------------
(2)
--------------------------------------------------------------
3. Prior Investments of Purchaser: Amount (Cumulative):
Real Estate Up to $50,000 to Over
None $50,000 $150,000 $150,000
Common Stock Up to $50,000 to Over
None $50,000 $150,000 $150,000
Bonds Up to $50,000 to Over
None $50,000 $150,000 $150,000
Other Up to $50,000 to Over
None $50,000 $150,000 $150,000
4. My "Individual Income" from all sources, is at least:
1996 (actual) $50,000 $100,000 $200,000
1997 (actual) $50,000 $100,000 $200,000
1998 (est.) $50,000 $100,000 $200,000
5. My personal net worth, either individually or with my spouse, is in
excess of:
----- $250,000, exclusive of homes, home furnishings and automobiles.
----- $500,000, exclusive of homes, home furnishings and automobiles.
----- $750,000, exclusive of homes, home furnishings and automobiles.
----- $1,000,000, including all personal assets and liabilities
6. I represent that I either:
(PLEASE CHECK APPROPRIATE CATEGORY)
Have such knowledge and experience in financial and business matters that I
am capable of evaluating the merits and risks of an investment in the
shares and am not relying upon a Purchaser Representative and do not need
one; or
5
<PAGE>
Have obtained the services of a Purchaser Representative as defined in
Regulation D ("Purchaser Representative"), in connection herewith whose
name is:
--------------------------------------------------------
(The Purchaser Representative submits for your files a copy of the attached
Purchaser Representative Questionnaire.) The undersigned and the above
named Purchaser Representative together have such knowledge and experience
in financial and business matters that they are capable of evaluating the
merits and risks of an investment in the shares.
8. Representations and Warranties. I, the undersigned, represent and warrant
as follows:
A. I understand that all documents, records and books pertaining to this
investment have been made available by the Company for inspection by
me or my attorney, accountant or Purchaser Representative. I am
familiar with the Company's business objectives and the financial
arrangements in connection therewith and I believe that the shares I
am purchasing are the kind of securities that I wish to hold for
investment and that the nature and amount of the shares are consistent
with my investment program. I and my advisor(s) have had a reasonable
opportunity to ask questions of and receive answers from the Company,
concerning the Company and the shares and all such questions have been
answered to my full satisfaction. I, or my representatives, have made
such investigation of the facts and circumstances in connection with
my purchase of the shares as I have deemed necessary.
B. Subject to the terms and conditions hereof, I hereby irrevocably
tender this Subscription Agreement for the purchase of the number of
shares indicates in Paragraph 14 below. Payment of the full amount of
$.77 per share accompanies the delivery of this Subscription
Agreement. I am aware that the subscription herein is irrevocable but
that the Company has the unconditional right to accept or reject this
subscription in whole or in part, and that the sale of shares pursuant
hereto is subject to the approval of certain legal matters by counsel
and to other conditions. If my subscription is not accepted for any
reason whatsoever, my money will be returned in full, without interest
thereon or deduction therefrom, and the Company will be relieved of
any responsibility or liability which might be deemed to arise out of
my offer to subscribe for shares.
C. I have, either alone or together with my Purchaser Representative,
such knowledge and experience in business and financial matters as
will enable me to evaluate the merits and risks of the prospective
investment and to make an informed investment decision. I am also
aware that no state or federal agency has reviewed this offering, that
the shares involve a high degree of economic risk and that there is,
and will be a limited public market for the shares.
D. I have been advised and am fully aware that investing in securities
such as the shares is a speculative and uncertain undertaking whose
advantages and benefits are generally limited to a certain class of
investors that shares may be sold only to persons who understand the
nature of the proposed operations of the Company and for whom the
investment is suitable.
6
<PAGE>
E. I have relied on my own tax and legal advisor and my own investment
counselor with respect to the income tax and investment considerations
of purchase of shares described in the Prospectus.
F. I certify that either (i) I have a current net worth (inclusive of
homes, furnishing and automobiles), together with the net worth of my
spouse, in excess of $1,000,000; or (ii) I have had an individual
gross income from all sources, exclusive of the income of my spouse,
in excess of $200,000 for the last two calendar years and reasonably
expect an income in excess of $200,000 for the current calendar year;
or (iii) I have a gross income from all sources, including income from
my spouse, in excess of $300,000 for the last two calendar years and
reasonably expect an income in excess of $300,000 for the current
calendar year; or (iv) I otherwise qualify as an Accredited Investor.
G. The solicitation of an offer to purchase the shares was directly
communicated to me and any Purchaser Representative that I might have
by the Company or its designated agent. At no time was I presented
with or solicited by or through any leaflet, public promotional
meeting, circular, newspaper or magazine article, radio or television
advertisement or any other form of general advertising in connection
with such communicated offer.
H. I recognize that an investment in the shares involves certain risks
and I (and my Purchaser Representative) have taken full cognizance of
and understand all of the risks related to the business objectives of
the Company and the purchase of the shares.
I. All information which I provided herein including, without limitation,
information concerning myself and my financial position and my
knowledge of financial and business matters and that of my Purchaser
Representative, is correct and complete as of the date hereof and if
there should be any material change in such information prior to the
acceptance of this Subscription, I will immediately provide the
Company with such information.
J. If the Subscriber is a corporation, partnership, trust or other
entity, it is authorized and otherwise duly qualified to purchase and
hold shares; and such entity has not been formed for the specific
purpose of acquiring shares. If the Subscriber is a trustee and is
acquiring the shares for the trust of which he is a trustee, he has
sought the advise of counsel regarding whether the purchase of the
shares is an authorized trust investment and has been advised by
counsel that, after reviewing the applicable state law and the terms
of the trust investment, such counsel is of the opinion that the
undersigned has the authority to purchase the shares for the trust.
K. If the Subscriber is an individual, he is 21 years of age, or if the
Subscriber is an association, all of its members are of such age.
9. Indemnification. I agree to indemnify and hold harmless the Company and its
Affiliates from and against all damages, losses, costs and expenses
(including reasonable attorneys fees) which they may incur by reason of my
failure to fulfill any of the terms or conditions of this subscription, or
by reason of any untrue statement made herein or any breach of the
representations and warranties made herein or in any document that I have
provided to the Company.
7
<PAGE>
10. Agreement to Arbitrate Controversies. The parties hereby agree to submit
all disputes or claims of whatever kind arising from this transaction to
binding arbitration in Houston, Texas according to the rules and practices
of the American Arbitration Association as then in force. The parties agree
to abide by all awards and relief granted in any such proceeding and that
all such awards may be submitted to any court of competent jurisdiction and
that final judgment may be entered based upon such awards and an order of
execution for their collection issued. The parties hereby consent to
jurisdiction in the District Court of Texas in and for the County of Harris
or the United States District Court for the Southern District of Texas for
such purpose. Arbitration must be commenced by service upon the other party
of a written demand for arbitration or a written notice of intention to
arbitrate within one year after the claim or dispute arises and failure to
institute arbitration proceedings within such period shall constitute an
absolute bar to the institution of any proceedings and a waiver of all
claims.
11. Miscellaneous.
A. I agree that I may not cancel, terminate or revoke this Agreement or
any covenant hereunder and that this Agreement shall survive my death
or disability and shall be binding upon my heirs, executors,
administrators, successors and assigns.
B. This Agreement shall be enforced, governed and construed in all
respects in accordance with the laws of the State of Texas.
C. Within ten (10) days after receipt of a written request from the
Company, I agree to provide such information and to execute and
deliver such documents as reasonably may be necessary to comply with
any and all laws and ordinances to which the Company is subject.
12. Subscription. I hereby subscribe for shares as follows:
A. Number of shares (Minimum of 1)
B. Price per share X .77
C. Total Investment $
13. Registration and Address.
Mr./Mrs./Ms./Other
------------------------------------
(Please print name(s) in which the Units subscribed are
to be registered hereunder.)
8
<PAGE>
------------------------------------
Social Security or Taxpayer ID Number of each Investor
Communications to be sent to (check one): Home Business
------- -------
Form of Ownership (check one):
A. Individual Ownership
B. Joint Tenants with Right of Survivorship (both or all parties
signatures required)
C. Community Property (one signature required if Units held in one name;
two if held in both names)
D. Tenants in Common (all parties signatures required)
E. Partnership*
F. Corporation*
G. Other* (Trust, Pension Plan, etc.) Please specify:
* If E, F or G is checked, documents authorizing Subscriber to make
investment on behalf of that entity must accompany subscription.
9
<PAGE>
EXHIBIT "A"
SIGNATURE PAGE
The undersigned Subscriber, desiring to acquire shares offered by Intermost
Corporation, a Utah corporation (the "Company") acknowledges that he/she meets
the suitability standards for an investment of this nature and that an
investment in the shares is a suitable investment for him/her and affirms the
truthfulness of the information and adopts the representations and warrants set
out in the Subscription Agreement.
DATED this day of , 19 .
--- ------------ -----
- - ----------------------------- ---------------------------------
Signature of Subscriber (if Signature of Co-Investor (if any)
signing on behalf of an entity,
state capacity in which you are
signing)
- - ------------------------ ---------------------------------
Print Name of Subscriber Print Name of Co-Investor (if any)
- - ------------------------
Address
- - ------------------------
- - ------------------------
Number of Units
- - --------------------------------
Amount Paid In Upon Subscription
Checks should be made payable to "Vanderkam & Sanders Trust"
Mail or Deliver Subscription Funds and Documents to:
Intermost Corporation
c/o Vanderkam & Sanders
440 Louisiana, Suite 475
Houston, Texas 77002
SUBSCRIPTION ACCEPTED:
By:
----------------------------
Title:
-------------------------
Broker/Dealer Certification (if applicable)
10
<PAGE>
Based on information obtained from the Subscriber concerning his investment
objective, his representations and warranties expressed above, his other
investments and his financial situation and needs, the undersigned broker/dealer
has reasonable grounds to believe that an investment in the shares is suitable
for the Subscriber and prior to the Subscriber's executing this Subscription
Agreement, the undersigned broker/dealer has informed the Subscriber of any
compensation the undersigned broker/dealer shall receive on account of the sale
of shares herein and all pertinent facts relating to an investment in the shares
including the risk factors and conflicts of interest disclosed in the
Prospectus.
Broker/Dealer
- - -------------------------------------
By:
----------------------------------
Name and Title:
----------------------
Address
- - -------------------------------------
Telephone Number
---------------------
11
<PAGE>
INTERMOST CORPORATION
A Utah Corporation
PURCHASER REPRESENTATIVE QUESTIONNAIRE
Gentlemen:
The following information is furnished to you so that you may determine
whether the undersigned's client, (the "Purchaser"), together with the
undersigned and other purchaser representatives, if any, have such knowledge and
experience in financial and business matters to be capable of evaluating the
merits and risks of an investment in the shares, consisting of common stock, of
Intermost Corporation, a Utah corporation (the "Company"), as required under
applicable federal and state securities laws. I understand that you will rely
upon the information contained herein for purposes of such determination.
All information contained herein will be treated confidentially.
I am acting as Purchaser Representative for the Purchaser in connection
with the Purchaser's investment in the shares and, in that connection, I furnish
you with the following representations and information (Please print):
1. Name:
------------------------------------
2. Age:
------------------------------------
3. Profession (or Business) and Title, if applicable:
--------------------
4. (a) Business address:
------------------------------------
(b) Telephone number:
------------------------------------
5. Details of any training or experience in financial, business or tax
matters which qualify me to act in the capacity of Purchaser
Representative (include current and prior employment, business or
professional education, professional licenses now held, SEC or state
broker/dealer registrations held, and, if applicable, participation in
evaluation of similar investments in the past):
----------------------
----------------------------------------------------------------------
6. The undersigned has not, during the past ten years, (i) been
convicted, indicted or investigated in connection with any past or
present criminal proceeding (excluding traffic violations and other
minor offenses); or (ii) been the subject of any order, judgment or
decree of any court of competent jurisdiction permanently or
temporarily enjoining the undersigned from acting as an investment
advisor, underwriter, broker or dealer in securities or as an
affiliated person, director or employee of an investment company,
bank, savings and loan association or insurance company, or from
engaging in or continuing any conduct or practice in connection with
any such activity or in connection with the purchase or sale of any
security, or been the subject of any order of a federal or state
authority barring or suspending, for more than sixty days, the
undersigned's right to be engaged in any such activity, or to be
associated with persons engaged in any such activity, which order has
not been reversed or suspended.
12
<PAGE>
7. I have such knowledge and experience in financial, business and tax
matters so as to be capable of evaluating, alone or together with the
Purchaser, the relative merits and risks of an investment in the
shares.
8. There is no material relationship between me or my affiliates and the
Company or its affiliates which now exists or is mutually understood
to be contemplated or which has existed as a result of any such
relationship.
9. In advising the Investor in connection with the Investor's prospective
investment in the shares, I will be relying in part on the Investor's
own experience in certain areas. Yes No
---- ----
10. In advising the Investor in connection with the Investor's prospective
investment in the shares, I will be relying in part on the expertise
of an additional Purchaser Representative or Representatives. Yes No
If "Yes," give the name and address of such additional
Representative(s):
disclosed by the Purchaser Representative in response to the foregoing
Questionnaire and does hereby acknowledge said Purchaser Representative to be
his Purchaser Representative in connection with the purchase of shares pursuant
to the Subscription Agreement.
------------------------------------
Investor Signature
------------------------------------
Investor Signature (if joint ownership)
------------------------------------
Date
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (hereinafter referred to as this "Agreement"), is
executed this 23rd day of October, 1998, by and among Utilities Communications
International, Inc., a Utah corporation (hereinafter referred to as
"Utilities"); and Andy Lin and Jun Liang, (hereinafter collectively referred to
as the "Shareholders"). Utilities and the Shareholders are collectively referred
to as the "Parties".
Premises
WHEREAS, the Shareholders own and have the right to sell, transfer and exchange
all (100%) of the issued and outstanding shares of capital stock of Intermost
Limited ("Intermost"), a corporation incorporated under the laws of the British
Virgin Islands;
WHEREAS, Utilities wishes to acquire one hundred percent (100%) of the issued
and outstanding capital stock of Intermost in exchange for 2,485,000 or
4,970,000 post forward split shares of Utilities common stock, par value $.001
per share (the "Utilities Common Stock"),
WHEREAS, the Shareholders wish to exchange their shares of Intermost for
Utilities Common Stock;
NOW THEREFORE, in consideration of the premises herein contained, and the mutual
covenants hereinafter set forth, the parties hereto have agreed, and by these
presents, do hereby contract as follows:
ARTICLE I
REPRESENTATIONS, COVENANTS, AND WARRANTIES
OF THE SHAREHOLDERS
As an inducement to, and to obtain the reliance of Utilities, the Shareholders
represent and warrant as follows:
Section 1.01 - Organization. Intermost is a corporation duly organized, validly
existing, and in good standing under the laws of the British Virgin Islands
("BVI") and has the corporate power and is duly authorized, qualified,
franchised, and licensed under all applicable laws, regulations, ordinances, and
orders of public authorities to own all of its properties and assets and to
carry on its businesses and shall include qualification to do business as a
foreign corporation in the states or countries in which the character and
location of the assets owned by it or the nature of the business transacted by
it requires qualification except where failure to be so qualified would not have
a material adverse effect on its business. Included in the Intermost Schedules
(as hereinafter defined) are complete and correct copies of the BVI equivalent
of articles of incorporation, as amended, and bylaws of Intermost as in effect
on the date hereof. The execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated hereby will not, violate any
provision of Intermost's BVI equivalent of the articles of incorporation or
bylaws. Intermost has taken, or will have taken prior to Closing, all actions
required by law, its articles of incorporation or BVI equivalent, or otherwise
to authorize the execution and delivery of this Agreement. Intermost has, or
will have prior to Closing, full power, authority, and legal right and has, or
will have prior to Closing, taken all action required by law, its bylaws,
articles of incorporation, or BVI equivalent, and otherwise to consummate the
transactions herein contemplated.
<PAGE>
Section 1.02 - Capitalization and Outstanding Shares. The authorized
capitalization of Intermost consists of 50,000 shares of stock, par value of
$1.00 per share, of which the Shareholders own all or 100% of the outstanding
and issued shares of Intermost to date of closing. The Shareholders hereby
represent and warrant that they have full right, power, and authority to
transfer, assign, convey, and deliver their Intermost shares; and delivery of
such shares at the closing will convey to Utilities good and marketable title to
such shares, clear of any claims, charges, equities, liens, security interests
and encumbrances whatsoever.
Section 1.03 - Subsidiaries and Predecessor Corporations. Except as set forth on
the Intermost Schedules, Intermost does not have any subsidiaries, beneficially
or of record, or own any shares of any other corporation. For purposes
hereinafter, the term "Intermost" also includes those subsidiaries, if any, set
forth in the Intermost Schedules.
Section 1.04 - Financial Statements.
(a) Included in the Intermost Schedules are the audited balance sheets of
Intermost as of December 31, 1997 and December 31, 1996, and the related audited
statements of operations, stockholders' equity and cash flows for the two fiscal
years ended December 31, 1997 and December 31, 1996, together with the notes to
such statements and the opinion of an independent certified public accountant,
with respect thereto.
(b) All such financial statements have been prepared in accordance with
generally accepted accounting principles. The Intermost balance sheets present a
true and fair view as of the dates of such balance sheets of the financial
condition of Intermost. Intermost did not have, as of the dates of such balance
sheets, except as and to the extent reflected or reserved against therein, any
liabilities or obligations (absolute or contingent) which should be reflected in
the balance sheets or the notes thereto, prepared in accordance with generally
accepted accounting principles, and all assets reflected therein are properly
reported and present fairly the financial condition of the assets of Intermost
in accordance with generally accepted accounting principles.
(c) Intermost has no liabilities with respect to the payment of any federal,
state, county, local or other taxes (including any deficiencies, interest or
penalties), except for taxes accrued but not yet due and payable.
(d) Intermost has filed all state, federal or local income and/or franchise tax
returns required to be filed by it from inception to the date hereof. Each of
such income tax returns reflects the taxes due for the period covered thereby,
except for amounts which, in the aggregate, are immaterial.
(e) The books and records, financial and otherwise, of Intermost are in all
material respects complete and correct and have been maintained in accordance
with good business and accounting practices.
<PAGE>
(f) All of Intermost's assets are reflected on its financial statements, and
except as set forth in the Intermost Schedules or the financial statements of
Intermost or the notes thereto, Intermost has no material liabilities, direct or
indirect, matured or unmatured, contingent or otherwise.
Section 1.05 Information. The information concerning Intermost set forth in this
Agreement and in the Intermost Schedules is complete and accurate in all
material respects and does not contain any untrue statement of a material fact
or omit to state a material fact required to make the statements made, in light
of the circumstances under which they were made, not misleading. In addition,
the Shareholders have fully disclosed in writing to Utilities (through this
Agreement or the Intermost Schedules) all information relating to matters
involving Intermost or its assets or its present or past operations or
activities which (i) indicated or may indicate, in the aggregate, the existence
of a greater than $10,000 liability or diminution in value, (ii) have led or may
lead to a competitive disadvantage on the part of Intermost or (iii) either
alone or in aggregation with other information covered by this Section,
otherwise have led or may lead to a material adverse effect on the transactions
contemplated herein or on Intermost, its assets, or its operations or activities
as presently conducted or as contemplated to be conducted after the Closing
Date, including, but not limited to, information relating to governmental,
employee, environmental, litigation and securities matters and transactions with
affiliates.
Section 1.06 Options or Warrants. Except as set forth in this Agreement or the
Intermost Schedules, there are no existing options, warrants, calls, or
commitments of any character relating to the authorized and unissued Intermost
common stock.
Section 1.07 Absence of Certain Changes or Events. Except as set forth in this
Agreement or the Intermost Schedules, since December 31, 1997:
(a) there has not been (i) any material adverse change in the business,
operations, properties, assets, or condition of Intermost or (ii) any damage,
destruction, or loss to Intermost (whether or not covered by insurance)
materially and adversely affecting the business, operations, properties, assets,
or condition of Intermost;
(b) Intermost has not (i) amended its Articles of Incorporation or By-Laws or
BVI equivalent; (ii) declared or made, or agreed to declare or make, any payment
of dividends or distributions of any assets of any kind whatsoever to
stockholders or purchased or redeemed, or agreed to purchase or redeem, any of
its capital stock; (iii) waived any rights of value which in the aggregate are
outside of the ordinary course of business or material considering the business
of Intermost; (iv) made any material change in its method of management,
operation or accounting; (v) entered into any other material transaction other
than sales in the ordinary course of its business; (vi) made any accrual or
arrangement for payment of bonuses or special compensation of any kind or any
severance or termination pay to any present or former officer or employee; (vii)
increased the rate of compensation payable or to become payable by it to any of
its officers or directors or any of its salaried employees whose monthly
compensation exceeds $1,000; or (viii) made any increase in any profit sharing,
bonus, deferred compensation, insurance, pension, retirement, or other employee
benefit plan, payment, or arrangement made to, for, or with its officers,
directors, or employees;
<PAGE>
(c) Intermost has not (i) borrowed or agreed to borrow any funds or incurred, or
become subject to, any material obligation or liability (absolute or contingent)
except as disclosed herein and except liabilities incurred in the ordinary
course of business; (ii) paid or agreed to pay any material obligations or
liability (absolute or contingent) other than current liabilities reflected in
or shown on the most recent Intermost balance sheet, and current liabilities
incurred since that date in the ordinary course of business and professional and
other fees and expenses in connection with the preparation of this Agreement and
the consummation of the transactions contemplated hereby; (iii) sold or
transferred, or agreed to sell or transfer, any of its assets, properties, or
rights (except assets, properties, or rights not used or useful in its business
which, in the aggregate have a value of less than $1,000), or canceled, or
agreed to cancel, any debts or claims (except debts or claims which in the
aggregate are of a value of less than $1,000); (iv) made or permitted any
amendment or termination of any contract, agreement, or license to which it is a
party if such amendment or termination is material, considering the business of
Intermost; or (v) issued, delivered, or agreed to issue or deliver any stock,
bonds or other corporate securities including debentures (whether authorized and
unissued or held as treasury stock); and
(d) to the best knowledge of the Shareholders, Intermost has not become subject
to any law or regulation which materially and adversely affects, or in the
future may adversely affect the business, operations, properties, assets, or
condition of Intermost.
Section 1.08 Title and Related Matters. Intermost has good and marketable title
to all of its properties, inventory, interests in properties, and assets, real
and personal, which are reflected in the most recent Intermost balance sheet or
acquired after that date (except properties, inventory, interests in properties,
and assets sold or otherwise disposed of since such date in the ordinary course
of business) free and clear of all liens, pledges, charges, or encumbrances
except (a) statutory liens or claims not yet delinquent; (b) such imperfections
of title and easements as do not and will not materially detract from or
interfere with the present or proposed use of the properties subject thereto or
affected thereby or otherwise materially impair present business operations on
such properties; or (c) as described in the Intermost Schedules. Except as set
forth in the Intermost Schedules, Intermost owns, free and clear of any liens,
claims, encumbrances, royalty interests, or other restrictions or limitations of
any nature whatsoever, any and all products it is currently manufacturing,
including the underlying technology and data, and all procedures, techniques,
marketing plans, business plans, methods of management, or other information
utilized in connection with Intermost's business. Except as set forth in the
Intermost Schedules , no third party has any right to, and Intermost has not
received any notice of infringement of or conflict with asserted rights of
others with respect to any product, technology, data, trade secrets, know-how,
propriety techniques, trademarks, service marks, trade names, or copyrights
which, individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a materially adverse effect on the
business, operations, financial condition, income, or business prospects of
Intermost or any material portion of its properties, assets, or rights.
Section 1.09 Litigation and Proceedings. Except as set forth in the Intermost
Schedules, there are no actions, suits, proceedings, or investigations pending
or, to the knowledge of the Shareholders after reasonable investigation,
threatened by or against Intermost or affecting Intermost or its properties, at
law or in equity, before any court or other governmental agency or
instrumentality, domestic or foreign, or before any arbitrator of any kind. The
Shareholders do not have any knowledge of any material default on the part of
Intermost with respect to any judgment, order, injunction, decree, award, rule,
or regulation of any court, arbitrator, or governmental agency or
instrumentality or of any circumstances which, after reasonable investigation,
would result in the discovery of such a default.
<PAGE>
Section 1.10 Contracts.
(a) Except as included or described in the Intermost Schedules, there are no
"material" contracts, agreements, franchises, license agreements, debt
instruments or other commitments to which Intermost is a party or by which it or
any of its assets, products, technology, or properties are bound other than
those incurred in the ordinary course of business (as used in this Agreement, a
"material" contract, agreement, franchise, license agreement, debt instrument or
commitment is one which (i) will remain in effect for more than six (6) months
after the date of this Agreement or (ii) involves aggregate obligations of at
least ten thousand dollars ($10,000);
(b) All contracts, agreements, franchises, license agreements, and other
commitments to which Intermost is a party or by which its properties are bound
and which are material to the operations of Intermost taken as a whole are valid
and enforceable by Intermost in all respects, except as limited by bankruptcy
and insolvency laws and by other laws affecting the rights of creditors
generally;
(c) Intermost is not a party to or bound by, and the properties of Intermost are
not subject to any contract, agreement, other commitment or instrument; any
charter or other corporate restriction; or any judgment, order, writ,
injunction, decree, or award which materially and adversely affects, the
business operations, properties, assets, or condition of Intermost; and
(d) Except as included or described in the Intermost Schedules or reflected in
the most recent Intermost balance sheet, Intermost is not a party to any oral or
written (i) contract for the employment of any officer or employee which is not
terminable on 30 days, or less notice; (ii) profit sharing, bonus, deferred
compensation, stock option, severance pay, pension benefit or retirement plan,
(iii) agreement, contract, or indenture relating to the borrowing of money, (iv)
guaranty of any obligation, other than one on which Intermost is a primary
obligor, for the borrowing of money or otherwise, excluding endorsements made
for collection and other guaranties of obligations which, in the aggregate do
not exceed more than one year or providing for payments in excess of $10,000 in
the aggregate; (v) collective bargaining agreement; or (vi) agreement with any
present or former officer or director of Intermost.
Section 1.11 Material Contract Defaults. Intermost is not in default in any
material respect under the terms of any outstanding contract, agreement, lease,
or other commitment which is material to the business, operations, properties,
assets or condition of Intermost and there is no event of default in any
material respect under any such contract, agreement, lease, or other commitment
in respect of which Intermost has not taken adequate steps to prevent such a
default from occurring.
Section 1.12 No Conflict With Other Instruments. The execution of this Agreement
and the consummation of the transactions contemplated by this Agreement will not
result in the breach of any term or provision of, constitute an event of default
under, or terminate, accelerate or modify the terms of any material indenture,
mortgage, deed of trust, or other material contract, agreement, or instrument to
which Intermost is a party or to which any of its properties or operations are
subject.
<PAGE>
Section 1.13 Governmental Authorizations. Except as set forth in the Intermost
Schedules, Intermost has all licenses, franchises, permits, and other
governmental authorizations that are legally required to enable it to conduct
its business in all material respects as conducted on the date hereof.
Section 1.14 Compliance With Laws and Regulations. Except as set forth in the
Intermost Schedules, to the best of the Shareholders' knowledge, Intermost has
complied with all applicable statutes and regulations of any federal, state, or
other governmental entity or agency thereof, except to the extent that
noncompliance would not materially and adversely affect the business,
operations, properties, assets, or condition of Intermost or except to the
extent that noncompliance would not result in the occurrence of any material
liability for Intermost.
Section 1.15 Insurance. Intermost will maintain all of its current policies of
insurance (liability and casualty) during the term of this Agreement.
Section 1.16 Approval of Agreement. The board of directors of Intermost has
approved this Agreement.
Section 1.17 Material Transactions or Affiliations. Set forth in the Intermost
Schedules is a description of every contract, agreement, or arrangement between
Intermost and any predecessor and any person who was at the time of such
contract, agreement, or arrangement an officer, director, or person owning of
record, or known by Intermost to own beneficially, 5% or more of the issued and
outstanding common stock of Intermost and which is to be performed in whole or
in part after the date hereof or which was entered into not more than three
years prior to the date hereof. Except as disclosed in the Intermost Schedules
or otherwise disclosed by writing to Utilities, no officer, director, or 5%
shareholder of Intermost has, or has had since inception of Intermost, any known
interest, direct or indirect, in any transaction with Intermost which was
material to the business of Intermost. There are no commitments by Intermost,
whether written or oral, to lend any funds, or to borrow any money from, or
enter into any other transaction with, any such affiliated person.
Section 1.18 Labor Relations. Intermost has not had work stoppage resulting from
labor problems. To the knowledge of the Shareholders, no union or other
collective bargaining organization is organizing or attempting to organize any
employee of Intermost.
Section 1.19 Valid Obligation. This Agreement and all agreements and other
documents executed by the Shareholders in connection herewith constitute the
valid and binding obligation of the Shareholders, enforceable in accordance with
its or their terms, except as may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and subject to the qualification that the availability of equitable
remedies is subject to the discretion of the court before which any proceeding
therefor may be brought.
Section 1.20 Intermost Schedules . The Shareholders have delivered to Utilities
the following schedules, which are collectively referred to as the "Intermost
Schedules " and which consist of separate schedules dated as of the date of
execution of this Agreement, all certified by the chief executive officer of
Intermost as complete, true, and correct as of the date of this Agreement in all
material respects:
<PAGE>
(a) Schedule 1.01 through Schedule 1.18 setting forth any exceptions,
information and copies of documents required to be disclosed in the Intermost
Schedules by Sections 1.01 through 1.18.
(b) a Schedule 1.20(b) containing a list indicating the name and address of each
shareholder of Intermost together with the number of shares owned by him, her or
it;
(c) a Schedule 1.20(c) containing a description of all real property owned by
Intermost, together with a description of every mortgage, deed of trust, pledge,
lien, agreement, encumbrance, claim, or equity interest of any nature whatsoever
in such real property;
(d) a Schedule 1.20(d) including copies of all licenses, permits, and other
governmental authorizations (or requests or applications therefor) pursuant to
which Intermost carries on or proposes to carry on its business (except those
which, in the aggregate, are immaterial to the present or proposed business of
Intermost);
(e) a Schedule 1.20(e) listing the accounts receivable and notes and other
obligations receivable of Intermost as of December 31, 1997, or thereafter other
than in the ordinary course of business of Intermost, indicating the debtor and
amount, and classifying the accounts to show in reasonable detail the length of
time, if any, overdue, and stating the nature and amount of any refunds, set
offs, reimbursements, discounts, or other adjustments, which are in the
aggregate material and due to or claimed by such debtor; and
(f) a Schedule 1.20(f) listing the accounts payable and notes and other
obligations payable of Intermost as of December 31, 1997, or that arose
thereafter other than in the ordinary course of the business of Intermost,
indicating the creditor and amount, classifying the accounts to show in
reasonable detail the length of time, if any, overdue, and stating the nature
and amount of any refunds, set offs, reimbursements, discounts, or other
adjustments, which in the aggregate are material and due to or claimed by
Intermost respecting such obligations.
(g) a Schedule 1.20(g) comprising a true and complete list of (a) all accounts
with banks, money market mutual funds or securities or other financial
institutions maintained by Intermost within the past twelve (12) months, the
account numbers thereof, and all persons authorized to sign or act on behalf of
Intermost, (b) all safe deposit boxes and other similar custodial arrangements
maintained by Intermost within the past twelve (12) months, and (c) the names of
all persons holding powers of attorney from Intermost or who are otherwise
authorized to act on behalf of Intermost with respect to any matter, other than
its officers and directors, and a summary of the terms of such powers or
authorizations.
The Shareholders shall cause the Intermost Schedules and the instruments and
data delivered to Utilities hereunder to be promptly updated after the date
hereof up to and including the Closing Date.
It is understood and agreed that not all of the schedules referred to above have
been completed or are available to be furnished by the Shareholders. The
Shareholders shall have 20 days from the date of execution hereof to provide
such schedules. If the Shareholders cannot or fail to do so, or if Utilities
acting reasonably finds any such schedules or updates provided after the date
hereof to be unacceptable, Utilities may terminate this Agreement by giving
written notice to Intermost within ten (10) days after the schedules or updates
were due to be produced or were provided.
<PAGE>
ARTICLE II
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF UTILITIES
As an inducement to, and to obtain the reliance of the Shareholders, except as
set forth in the Utilities Schedules (as hereinafter defined), Utilities
represents and warrants as follows:
Section 2.01 Organization. Utilities is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Utah and has the
corporate power and is duly authorized, qualified, franchised, and licensed
under all applicable laws, regulations, ordinances, and orders of public
authorities to own all of its properties and assets, to carry on its business in
all material respects as it is now being conducted, and except where failure to
be so qualified would not have a material adverse effect on its business, there
is no jurisdiction in which it is not qualified in which the character and
location of the assets owned by it or the nature of the business transacted by
it requires qualification. Included in the Utilities Schedules are complete and
correct copies of the Articles of Incorporation and By-Laws of Utilities as in
effect on the date hereof. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated hereby will not,
violate any provision of Utilities's Articles of Incorporation or By-Laws.
Utilities has taken all action required by law, its Articles of Incorporation,
By-Laws, or otherwise to authorize the execution and delivery of this Agreement,
and Utilities has full power, authority, and legal right and has or will have
taken all action required by law, its Articles of Incorporation, By-Laws, or
otherwise to consummate the transactions herein contemplated.
Section 2.02 Capitalization. Utilities's authorized capitalization consists of
100,000,000 shares of common stock, and 5,000,000 shares of Preferred Stock, par
value $.001, of which 1,742,853 or 3,485,706 post forward split common shares
are issued and outstanding. Utilities anticipates issuing an additional
1,300,000 to other investors prior to, or shortly after the Closing. All issued
and outstanding shares are legally issued, fully paid, non-assessable and not
issued in violation of the pre-emptive or other rights of any person.
Section 2.03 Financial Statements.
(a) Included in the Utilities Schedules are (i) the unaudited balance sheets of
Utilities and the related statements of operations and cash flows as of and for
the eight months ended August 30, 1998 and (ii) the audited balance sheets of
Utilities as of December 31, 1997 and December 31, 1996, and the related audited
statements of operations, stockholders' equity and cash flows for the two fiscal
years ended December 31, 1997 and December 31, 1996, together with the notes to
such statements and the opinion of independent certified public accountants,
with respect thereto, all as set forth in the SEC Reports.
(c) All such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved. The Utilities balance sheets present fairly as of their
respective dates the financial condition of Utilities. As of the date of such
balance sheets, except as and to the extent reflected or reserved against
therein, Utilities had no liabilities or obligations (absolute or contingent)
which should be reflected in the balance sheets or the notes thereto prepared in
accordance with generally accepted accounting principles, and all assets
reflected therein are properly reported and present fairly the financial
condition of the assets of Utilities, in accordance with generally accepted
accounting principles. The statements of operations, stockholders' equity and
cash flows reflect fairly the information required to be set forth therein by
generally accepted accounting principles.
<PAGE>
(d) Utilities has no liabilities with respect to the payment of any federal,
state, county, local or other taxes (including any deficiencies, interest or
penalties), except for taxes accrued but not yet due and payable.
(e) Utilities has filed all state, federal or local income and/or franchise tax
returns required to be filed by it from inception to the date hereof. Each of
such income tax returns reflects the taxes due for the period covered thereby,
except for amounts which, in the aggregate, are immaterial.
(f) The books and records, financial and otherwise, of Utilities are in all
material aspects complete and correct and have been maintained in accordance
with good business and accounting practices.
(g) All of Utilities's assets are reflected on its financial statements, and,
except as set forth in the Utilities Schedules or the financial statements of
Utilities or the notes thereto, Utilities has no material liabilities, direct or
indirect, matured or unmatured, contingent or otherwise.
Section 2.05 Information. The information concerning Utilities set forth in this
Agreement and the Utilities Schedules is complete and accurate in all material
respects and does not contain any untrue statements of a material fact or omit
to state a material fact required to make the statements made, in light of the
circumstances under which they were made, not misleading. In addition, Utilities
has fully disclosed in writing to the Shareholders (through this Agreement or
the Utilities Schedules) all information relating to matters involving Utilities
or its assets or its present or past operations or activities which (i)
indicated or may indicate, in the aggregate, the existence of a greater than
$50,000 liability or diminution in value, (ii) have led or may lead to a
competitive disadvantage on the part of Utilities or (iii) either alone or in
aggregation with other information covered by this Section, otherwise have led
or may lead to a material adverse effect on the transactions contemplated herein
or on Utilities, its assets, or its operations or activities as presently
conducted or as contemplated to be conducted after the Closing Date, including,
but not limited to, information relating to governmental, employee,
environmental, litigation and securities matters and transactions with
affiliates.
Section 2.06 Options or Warrants. Except as set forth in the Utilities
Schedules, there are no existing options, warrants, calls, or commitments of any
character relating to the authorized and unissued stock of Utilities (the
"Existing Rights").
Section 2.07 Absence of Certain Changes or Events. Except as otherwise described
herein or in the Utilities Schedules, or permitted in writing by the
Shareholders, since the date of the most recent Utilities balance sheet:
<PAGE>
(a) Utilities has not (i) amended its Articles of Incorporation or By-Laws; or
(ii) declared or made, or agreed to declare or make any payment of dividends or
distributions of any assets of any kind whatsoever to stockholders or purchased
or redeemed, or agreed to purchase or redeem, any of its capital stock (however,
Utilities may change its name to Intermost Holding, Inc. or a name substantially
similar thereto prior to the Closing);
(b) Utilities has not (i) granted or agreed to grant any options, warrants, or
other rights for its stock, bonds, or other corporate securities calling for the
issuance thereof; (ii) borrowed or agreed to borrow any funds or incurred, or
become subject to, any material obligation or liability (absolute or contingent)
except liabilities incurred in the ordinary course of business; (iii) paid or
agreed to pay any material obligations or liabilities (absolute or contingent)
other than current liabilities reflected in or shown on the most recent
Utilities balance sheet and current liabilities incurred since that date in the
ordinary course of business and professional and other fees and expenses in
connection with the preparation of this Agreement and the consummation of the
transaction contemplated hereby, including but not limited to the divestiture of
assets and liabilities; (iv) issued, delivered or agreed to issue or deliver,
any stock, bonds, or other corporate securities including debentures (whether
authorized and unissued or held as treasury stock), except in connection with
this Agreement; and
(c) to the best knowledge of Utilities, it has not become subject to any law or
regulation which materially and adversely affects, or in the future, may
adversely affect, the business, operations, properties, assets or condition of
Utilities.
Section 2.08 Litigation and Proceedings. Except as set forth in the Utilities
Schedules, there are no actions, suits, proceedings or investigations pending
or, to the knowledge Utilities after reasonable investigation, threatened by or
against Utilities or affecting Utilities or its properties, at law or in equity,
before any court or other governmental agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind. Utilities has no knowledge of any
default on its part with respect to any judgement, order, writ, injunction,
decree, award, rule or regulation of any court, arbitrator, or governmental
agency or instrumentality or any circumstance which after reasonable
investigation would result in the discovery of such default.
Section 2.09 Contracts.
(a) Utilities is not a party to, and is not bound by, any material contract,
franchise, license agreement, agreement, debt instrument or other commitments
whether such agreement is in writing or oral, except as disclosed in the SEC
Reports or the Utilities Schedules.
(b) All contracts, agreements, franchises, license agreements, and other
commitments to which Utilities is a party or is bound and which are material to
the operations of Utilities taken as a whole are valid and enforceable by
Utilities in all respects, except as limited by bankruptcy and insolvency laws
and by other laws affecting the rights of creditors generally;
(c) Utilities is not a party to or bound by any contract, agreement, other
commitment or instrument; any charter or other corporate restriction; or any
judgment, order, writ, injunction, decree, or award which materially and
adversely affects, the business operations, properties, assets, or condition of
Utilities; and (d) Except as included or described in the Utilities Schedules or
reflected in the most recent Utilities balance sheet, Utilities is not a party
to any oral or written (i) contract for the employment of any officer or
employee which is not terminable on 30 days, or less notice; (ii) profit
sharing, bonus, deferred compensation, stock option, severance pay, pension
benefit or retirement plan, (iii) agreement, contract, or indenture relating to
the borrowing of money, (iv) guaranty of any obligation, other than one on which
Utilities is a primary obligor, for the borrowing of money or otherwise,
excluding endorsements made for collection and other guaranties of obligations
which, in the aggregate do not exceed more than one year or providing for
payments in excess of $25,000 in the aggregate; or (vi) collective bargaining
agreement.
<PAGE>
Section 2.10 Material Contract Defaults. Utilities is not in default in any
material respect under the terms of any outstanding contract, agreement, lease,
or other commitment and there is no event of default in any material respect
under any such contract, agreement, lease, or other commitment in respect of
which Utilities has not taken adequate steps to prevent such a default from
occurring.
Section 2.11 No Conflict With Other Instruments. The execution of this Agreement
and the consummation of the transactions contemplated by this Agreement will not
result in the breach of any term or provision of, constitute a default under, or
terminate, accelerate or modify the terms of, any indenture, mortgage, deed of
trust, or other material agreement or instrument to which Utilities is a party.
Section 2.12 Governmental Authorizations. Except for compliance with federal and
state securities or corporation laws, as hereinafter provided, no authorization,
approval, consent or order of, of registration, declaration or filing with, any
court or other governmental body is required in connection with the execution
and delivery by Utilities of this Agreement and the consummation by Utilities of
the transactions contemplated hereby.
Section 2.13 Compliance With Laws and Regulations. To the best of its knowledge,
Utilities has complied with all applicable statutes and regulations of any
federal, state, or other applicable governmental entity or agency thereof,
except to the extent that noncompliance would not materially and adversely
affect the business, operations, properties, assets or condition of Utilities or
except to the extent that noncompliance would not result in the occurrence of
any material liability. This compliance includes, but is not limited to, the
filing of all reports to date with federal and state securities authorities.
Section 2.14 Insurance. Utilities owns no insurable properties and carries no
casualty or liability insurance.
Section 2.15 Approval of Agreement. The board of directors of Utilities has
authorized the execution and delivery of this Agreement by Utilities and has
approved this Agreement and the transactions contemplated hereby. Consummation
of the transactions contemplated hereby are subject to approval of the
shareholders of Utilities.
<PAGE>
Section 2.16 Material Transactions or Affiliations. Except as disclosed herein
and in the Utilities Schedules, there exists no contract, agreement or
arrangement between Utilities and any predecessor and any person who was at the
time of such contract, agreement or arrangement an officer, director, or person
owning of record or known by Utilities to own beneficially, 5% or more of the
issued and outstanding common stock of Utilities and which is to be performed in
whole or in part after the date hereof or was entered into not more than three
years prior to the date hereof. Neither any officer, director, nor 5%
shareholder of Utilities has, or has had since inception of Utilities, any known
interest, direct or indirect, in any such transaction with Utilities which was
material to the business of Utilities. Utilities has no commitment, whether
written or oral, to lend any funds to, borrow any money from, or enter into any
other transaction with, any such affiliated person.
Section 2.17 Valid Obligation. This Agreement and all agreements and other
documents executed by Utilities in connection herewith constitute the valid and
binding obligation of Utilities, enforceable in accordance with its or their
terms, except as may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and
subject to the qualification that the availability of equitable remedies is
subject to the discretion of the court before which any proceeding therefor may
be brought.
Section 2.18 Utilities Schedules. Utilities has delivered to the Shareholders,
the following schedules, which are collectively referred to as the "Utilities
Schedules" and which consist of separate schedules, which are dated the date of
this Agreement, all certified by the chief executive officer of Utilities to be
complete, true, and accurate in all material respects as of the date of this
Agreement:
Schedule 2.01 through Schedule 2.16 setting forth any exceptions, information
and copies of documents required to be disclosed in the Utilities Schedules by
Sections 2.01 through 2.16.
Utilities shall cause the Utilities Schedules and the instruments and data
delivered to Intermost hereunder to be promptly updated after the date hereof up
to and including the Closing Date.
It is understood and agreed that not all of the schedules referred to above have
been completed or are available to be furnished by Utilities. Utilities shall
have until 20 days from the date of execution hereof to provide such schedules.
If Utilities cannot or fails to do so, or if the Shareholders, find any such
schedules or updates provided after the date hereof to be unacceptable, the
Shareholders may terminate this Agreement by giving written notice to Utilities
within ten (10) days after the schedules or updates were due to be produced or
were provided.
ARTICLE III
PLAN OF EXCHANGE
Section 3.01 - The Exchange. Subject to the conditions set forth in this
Agreement, the Shareholders hereby agree to assign, transfer, and deliver to
Utilities, free and clear of all liens, pledges, encumbrances, charges,
restrictions or known claims of any kind, nature, or description, two shares of
common stock of Intermost, constituting 100% of the issued and outstanding
shares of common stock of Intermost, and Utilities agrees to acquire such shares
on such date by issuing and delivering in exchange therefor 4,970,000 shares of
Utilities restricted common stock, par value $.001, referred to as the
"Exchanged Utilities Stock". Section 3.02 - Certificates. At the Closing, the
Shareholders shall surrender their stock certificate or certificates,
representing 100% of Intermost shares (the "Acquired Intermost Stock") to
Utilities, and thereafter be entitled to receive a certificate or certificates
evidencing the Exchanged Utilities Stock.
<PAGE>
Section 3.03 - Closing. The closing ("Closing") of the transactions contemplated
herein shall be on a date and at such time and place as the parties may mutually
agree ("Closing Date"), but in no event later than November 20, 1998.
Section 3.04 - Closing Events. At the Closing, each of the respective parties
hereto shall execute, acknowledge, and deliver (or shall ensure to be executed,
acknowledged, and delivered) any and all certificates, opinions, financial
statements, schedules, agreements, resolutions, ruling or deeds or other
instruments required by this Agreement to be so delivered at or prior to the
Closing, together with such other items as may be reasonably requested by the
parties hereto and their respective legal counsel in order to effectuate or
evidence the transactions contemplated hereby.
Section 3.05 - Finder's Fees. The parties represent to each other that no
brokers were involved in this transaction and neither party is obligated to pay
any finder's fee.
Section 3.06 - Termination.
(a) This Agreement may be terminated by the board of directors of either
Utilities or the Shareholders at any time prior to the Closing Date if:
(i) there shall be any additional, i.e. actual or threatened action or
proceeding before any court or any governmental body which has not been
disclosed in this agreement and which shall seek to restrain, prohibit, or
invalidate the transactions contemplated by this Agreement and which, in the
judgment of such board of directors, made in good faith and based upon the
advice of its legal counsel, makes it inadvisable to proceed with the exchange
contemplated by this Agreement;
(ii) any of the transactions contemplated hereby are disapproved by any
regulatory authority whose approval is required to consummate such transactions
or in the judgment of such board of directors, made in good faith and based on
the advice of counsel, there is substantial likelihood that any such approval
will not be obtained or will be obtained only on a condition or conditions which
would be unduly burdensome, making it inadvisable to proceed with the exchange;
(iii) there shall have been any change in the assets, properties, business, or
financial condition of Intermost, which could have a materially adverse affect
on the value of the business of Intermost, except any changes disclosed in the
Shareholders Schedules, as the case may be, dated as of the date of the
execution of this Agreement; or
(iv) the Board of Directors of Utilities or the Shareholders determine in good
faith that a condition to closing has not occurred.
<PAGE>
In the event of termination pursuant to this paragraph (a) of Section 3.06, no
obligation, right or liability shall arise hereunder, and each party shall bear
all of the expenses incurred by it in connection with the negotiation, drafting,
and execution of this Agreement and the transactions herein contemplated.
(b) This Agreement may be terminated at any time prior to the Closing by action
of the board of directors of Utilities, if the Shareholders shall fail to comply
in any material respect with any of their covenants or agreements contained in
this Agreement or if any of the representations or warranties of the
Shareholders contained herein shall be inaccurate in any material respect.
If this Agreement is terminated pursuant to this paragraph (b) of Section 3.06,
this Agreement shall be of no further force or effect, and no obligation, right
or liability shall arise hereunder, except that the Shareholders shall bear
their own costs as well as the reasonable costs of Utilities in connection with
the negotiations, preparation, and execution of this Agreement, and matters
connected therewith.
(c) This Agreement may be terminated at any time prior to the Closing by action
of the Shareholders if Utilities shall fail to comply in any material respect
with any of its covenants or agreements contained in this Agreement or if any of
the representations or warranties of Utilities contained herein shall be
inaccurate in any material respect.
If this Agreement is terminated pursuant to this paragraph (d) of Section 3.06,
this Agreement shall be of no further force or effect, and no obligation, right
or liability shall arise hereunder, except that Utilities shall bear its own
costs as well as the reasonable costs of the Shareholders incurred in connection
with the negotiation, preparation and execution of this Agreement.
ARTICLE IV
SPECIAL COVENANTS
Section 4.01 - Access to Properties and Records. Utilities and the Shareholders
will each afford to the officers and authorized representatives of the other
full access to the properties, books and records of Utilities or Intermost as
the case may be, in order that each may have full opportunity to make such
reasonable investigation as it shall desire to make of the affairs of the other,
and each will furnish the other with such additional financial and operating
data and other information as to the business and properties of Utilities or
Intermost, as the case may be, as the other shall from time to time reasonably
request.
Section 4.02 - Delivery of Books and Records. At the Closing, the Shareholders
shall deliver to Utilities the originals of the corporate minute books, books of
account, contracts, records, and all other books or documents of Intermost now
in the possession of Intermost or its representatives.
<PAGE>
Section 4.03 - Special Covenants and Representations Regarding the Exchanged
Utilities Stock and the Acquired Intermost Stock.
(a) The Exchanged Utilities Stock. The consummation of this Agreement and the
transactions herein contemplated, including the issuance of the Exchanged Stock
to the Shareholder of Intermost as contemplated hereby, constitutes the offer
and sale of securities under the Securities and Exchange Act and applicable
state statutes. The Shareholders acknowledge that the shares of Utilities to be
delivered to them pursuant to this Agreement have not been registered under the
Securities Act of 1993 as amended, referred to in this Agreement as the
"Securities Act," or the laws of any other jurisdiction, and that therefore the
stock is not fully transferable except as permitted under various exemptions, if
any contained in the Securities Act and the rules of the Securities and Exchange
Commission interpreting the act. Under US law, Utilities Common Stock cannot be
sold or transferred by the Shareholders unless they are subsequently registered
under applicable law or an exemption from registration is available. Utilities
is not required to register or assist in the registration of the Utilities
Common Stock except as provided herein or to make any exemption from
registration available. The provisions contained in this paragraph are intended
to ensure compliance with the Securities Act. The Shareholders represent and
warrant to Utilities that they are acquiring the shares of Utilities common
stock under this Agreement for their own account for investment, and not for the
purpose of resale or any other distribution of such shares. The Shareholders
also represent and warrant that they have no present intention of disposing of
all or any part of such shares at any particular time, for any particular price
or on the happening of any particular circumstances. They further represent that
they have such knowledge and experience in financial and business matters that
they are capable of evaluating the merits and risks of an investment in
Utilities. The Shareholders acknowledge that Utilities is relying on the truth
and accuracy of these warranties and representations in issuing the shares
without first registering the shares under the Securities Act. The Shareholders
covenant and represent that none of the shares of Utilities capital stock to be
issued to them pursuant to this Agreement, will be offered, sold, assigned,
pledged, transferred, or otherwise disposed of except after full compliance with
all of the applicable provisions of the 1933 act and the rules and regulations
of the Securities and Exchange Commission under the 1933 act. Therefore the
Shareholders agree not to sell or otherwise dispose of any of the shares of
Utilities common stock received pursuant to this agreement unless they 1. have
delivered to Utilities a written legal opinion in form and substance
satisfactory to counsel for Utilities to the effect that the disposition is
permissible under the terms of the Securities Act and regulations interpreting
the act; 2. have complied with the registration and prospectus requirements of
the 1933 act relating to such disposition; or 3. have presented Utilities
satisfactory evidence that such a disposition is exempt from registration under
the act. Utilities shall place a stop transfer order against transfers of shares
until one of the conditions set forth in this paragraph have been met.
Furthermore the Shareholders agree that the certificates evidencing the shares
that they will receive under this agreement will contain the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT. THE SECURITIES MAY
NOT BE SOLD OR OFFERED FOR SALE UNLESS A REGISTRATION STATEMENT UNDER THE
FEDERAL SECURITIES ACT OF 1933, AS AMENDED IS IN EFFECT FOR THE SECURITIES, OR
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS IN FACT
APPLICABLE TO SUCH OFFER OR SALE, AND SUCH EXEMPTION IS EVIDENCED BY AN OPINION
OF COUNSEL SATISFACTORY TO THE ISSUER.
<PAGE>
(b) The Acquired Intermost Stock. Utilities acknowledges that the shares of
Intermost to be delivered to Utilities by each Shareholder pursuant to this
Agreement have not been registered under the Securities Act of 1993 as amended,
referred to in this agreement as the "Securities Act," or the laws of any other
jurisdiction, and that therefore the stock is not fully transferable except as
permitted under various exemptions, if any contained in the act and the rules of
the Securities and Exchange Commission interpreting the act. The provisions
contained in this paragraph are intended to ensure compliance with the
Securities Act. Under US law, Intermost Common Stock cannot be sold or
transferred by Utilities unless they are subsequently registered under
applicable law or an exemption from registration is available. Intermost is not
required to register or assist in the registration of the Acquired Intermost
Stock or to make any exemption from registration available. The provisions
contained in this paragraph are intended to ensure compliance with the
Securities Act. Utilities represents and warrants to the Shareholders that it is
acquiring the shares of Intermost under this Agreement for its own account for
investment, and not for the purpose of resale or any other distribution of such
shares. Utilities also represents and warrants that it has no present intention
of disposing of all or any part of such shares at any particular time, for any
particular price or on the happening of any particular circumstances. Utilities
further represents that it has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of an
investment in Intermost. Furthermore Utilities agrees that the certificates
evidencing the shares that it will receive under this Agreement will contain the
following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT. THE SECURITIES MAY
NOT BE SOLD OR OFFERED FOR SALE UNLESS A REGISTRATION STATEMENT UNDER THE
FEDERAL SECURITIES ACT OF 1933, AS AMENDED IS IN EFFECT FOR THE SECURITIES, OR
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS IN FACT
APPLICABLE TO SUCH OFFER OR SALE, AND SUCH EXEMPTION IS EVIDENCED BY AN OPINION
OF COUNSEL SATISFACTORY TO THE ISSUER.
Section 4.04 Short Positions Prohibited. For a period beginning from the closing
date and ending on the second anniversary of the closing date none of the
Shareholders or any of their affiliates, subsidiaries, officers, directors or
agents, shall directly or indirectly maintain, or assist in maintaining any
short position in the securities of Utilities.
Section 4.05 - Third Party Consents and Certificates. Utilities and Intermost
agree to cooperate with each other in order to obtain any required third party
consents to this Agreement and the transactions herein and therein contemplated.
Section 4.06 - Actions Prior to Closing.
(a) From and after the date of this Agreement until the Closing Date and except
as set forth in the Intermost Schedules or as permitted or contemplated by this
Agreement, Intermost, through the Shareholders will:
(i) carry on its business in substantially the same manner as it had heretofore;
<PAGE>
(ii) maintain and keep its properties in states of good repair and condition as
at present, except for depreciation due to ordinary wear and tear and damage due
to casualty;
(iii) maintain in full force and effect insurance comparable in amount and in
scope of coverage to that now maintained by it;
(iv) perform in all material respects all of its obligations under material
contracts, leases, and instruments relating to or affecting its assets,
properties, and business;
(v) use its best efforts to maintain and preserve its business organization
intact, to retain its key employees, and to maintain its relationship with its
material suppliers and customers;
(vi) fully comply with and perform in all material respects all obligations and
duties imposed on it by all federal and state laws and all rules, regulations,
and orders imposed by federal or state governmental authorities; and
(vii) not take any action described in Section 1.07 or enter into or amend any
contract, agreement, or other instruments of any of the types described in the
Intermost schedules, except that Intermost may enter into or amend any contract,
agreement, or other instrument in the ordinary course of business involving the
sale of goods or services.
(b) From and after the date of this Agreement until the Closing Date, neither
Utilities, the Shareholders nor Intermost will make any changes in their
articles of incorporation or bylaws or the BVI equivalent
Section 4.07 - Sales Under Rule 144 or 145, if Applicable.
(a) Utilities will use its best efforts to at all times comply with the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and NASD, including timely filing of all periodic reports
required under the provisions of the Exchange Act and the rules and regulations
promulgated thereunder.
(b) Upon being informed in writing by any such person holding restricted stock
of Utilities as of the date of this Agreement that such person intends to sell
any shares under Rule 144 or Rule 145 promulgated under the Securities Act
(including any rule adopted in substitution or replacement thereof), Utilities
will certify in writing to such person that it has filed all of the reports
required to be filed by it under the Exchange Act to enable such person to sell
such person's restricted stock under Rule 144 or 145, as may be applicable in
the circumstances, or will inform such person in writing that it has not filed
any such report or reports.
(c) If any certificate representing any such restricted stock is presented to
Utilities' transfer agent for registration of transfer in connection with any
sale theretofore made under Rule 144 or 145, provided such certificate is duly
endorsed for transfer by the appropriate person(s) or accompanied by a separate
stock power duly executed by the appropriate person(s) in each case with
reasonable assurances that such endorsements are genuine and effective, and is
accompanied by an opinion of counsel satisfactory to Utilities and its counsel
that stock transfer has complied with the requirements of Rule 144 or 145, as
the case may be, Utilities will promptly instruct its transfer agent to register
such shares and to issue one or more new certificates representing such shares
to the transferee and, if appropriate under the provisions of Rule 144 or 145,
as the case may be, free of any stop transfer order or restrictive legend. The
provisions of this Section 4.07 shall survive the Closing and the consummation
of the transactions contemplated by this Agreement.
<PAGE>
Section 4.08 - Indemnification.
(a) The Shareholders hereby agree to indemnify Utilities and each of the
officers, agents and directors of Utilities as of the date of execution of this
Agreement against any loss, liability, claim, damage, or expense (including, but
not limited to, any and all expense whatsoever reasonably incurred in
investigating, preparing, or defending against any litigation, commenced or
threatened, or any claim whatsoever), to which it or they may become subject
arising out of or based on any inaccuracy appearing in or misrepresentations
made under Article I of this Agreement. The indemnification provided for in this
paragraph shall survive the Closing and consummation of the transactions
contemplated hereby and termination of this Agreement.
(b) Utilities hereby agrees to indemnify the Shareholders as of the date of
execution of this Agreement against any loss, liability, claim, damage, or
expense (including, but not limited to, any and all expense whatsoever
reasonably incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever), to which it or
they may become subject arising out of or based on any inaccuracy appearing in
or misrepresentation made under Article II of this Agreement. The
indemnification provided for in this paragraph shall survive the Closing and
consummation of the interactions contemplated hereby and termination of this
Agreement.
4.09 Exclusive Dealing Rights. Until 5:00 P.M. New York City Time on November
10th, 1998, in recognition of the substantial time and effort which Utilities
has spent and will continue to spend in investigating Intermost and its business
and in addressing the matters related to the transactions contemplated herein,
each of which may preempt or delay other management activities, neither the
Shareholders, nor any of their representatives or agents will directly or
indirectly solicit or initiate any discussions or negotiations with, or, except
where required by fiduciary obligations under applicable law as advised by
counsel, participate in any negotiations with or provide any information to or
otherwise cooperate in any other way with, or facilitate or encourage any effort
or attempt by, any corporation, partnership, person or other entity or group
(other than Utilities and its directors, officers, employees, representatives
and agents) concerning any merger, sale of substantial assets, sale of shares of
capital stock, (including without limitation, any public or private offering of
the common stock of Intermost) or similar transactions involving Intermost (all
such transactions being referred to as "Intermost Acquisition Transactions"). If
Intermost receives any proposal with respect to a Intermost Acquisition
Transaction, the Shareholders will immediately communicate to Utilities the fact
that it has received such proposal and the principal terms thereof.
Section 4.10 Board of Directors of Utilities. Upon completion of the
acquisition, the existing Board of Directors of Utilities shall be dissolved or
resign and a new board shall be constituted by Intermost.
<PAGE>
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF UTILITIES
The obligations of Utilities under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
Section 5.01 - Accuracy of Representations. The representations and warranties
made by the Shareholders in this Agreement were true when made and shall be true
at the Closing Date with the same force and effect as if such representations
and warranties were made at and as of the Closing Date (except for changes
therein permitted by this Agreement). Additionally, the Shareholders shall have
performed or complied with all covenants and conditions required by this
Agreement to be performed or complied with by such Shareholders, and when
necessary by Intermost, prior to or at the Closing. Utilities shall be furnished
with a certificate, signed by a duly authorized executive officer of Intermost
and the Shareholders dated the Closing Date, to the foregoing effect.
Section 5.02 - Officer's Certificate. Utilities shall have been furnished with a
certificate dated the Closing Date and signed by a duly authorized officer of
Intermost to the effect that no litigation, proceeding, investigation, or
inquiry is pending, or to the best knowledge of the Shareholders, threatened,
which might result in an action to enjoin or prevent the consummation of the
transactions contemplated by this Agreement, or, to the extent not disclosed in
the Intermost Schedules, by or against Intermost, which might result in any
material adverse change in any of the assets, properties, business, or
operations of Intermost.
Section 5.03 - No Material Adverse Change. Prior to the Closing Date, there
shall not have occurred any material adverse change in the financial condition,
business, or operations of Intermost nor shall any event have occurred which,
with the lapse of time or the giving of notice, may cause or create any material
adverse change in the financial condition, business or operations of Intermost.
Section 5.04 - Good Standing. Utilities shall have received a certificate of
good standing from the appropriate BVI official, dated as of a date within ten
days prior to the Closing Date certifying that Intermost is in good standing as
a corporation in the British Virgin Islands.
Section 5.05 - Shareholder Approval. - The shareholders of Utilities shall have
approved this agreement and the transactions contemplated hereby as required by
law.
Section 5.06 - Other Items.
(a) Utilities shall have received a Shareholder list of Intermost containing the
name, address, and number of shares held by each Intermost Shareholder,
certified by an executive officer of Intermost as being true, complete and
accurate,
(b) Utilities shall have received such further documents, certificates or
instruments relating to the transactions contemplated hereby as Utilities may
reasonably request.
<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF
THE SHAREHOLDERS
The obligations of the Intermost Shareholders under this Agreement are subject
to the satisfaction, at or before the Closing Date, of the following conditions:
Section 6.01 - Accuracy of Representations. The representations and warranties
made by Utilities in this Agreement were true when made and shall be true as of
the Closing Date (except for changes therein permitted by this Agreement) with
the same force and effect as if such representations and warranties were made at
and as of the Closing Date, and Utilities shall have performed and complied with
all covenants and conditions required by this Agreement to be performed or
complied with by Utilities prior to or at the Closing. The Shareholders shall
have been furnished with a certificate, signed by a duly authorized executive
officer of Utilities and dated the Closing Date, to the foregoing effect.
Section 6.02 - Officer's Certificate. The Shareholders shall have been furnished
with a certificate dated the Closing Date and signed by a duly authorized
executive officer of Utilities, to the effect that no litigation, proceeding,
investigation or inquiry is pending, other than those disclosed herein, or to
the best knowledge of Utilities threatened, which might result in an action to
enjoin or prevent the consummation of the transactions contemplated by this
Agreement.
Section 6.03. - Resignation of Existing Board. The Shareholders shall have
received the written resignations of all directors and such officers of
Utilities as are requested by the Shareholders.
ARTICLE VII
MISCELLANEOUS
Section 7.01 - Governing Law. This Agreement shall be governed by, enforced, and
construed under and in accordance with the laws of the United States of America
and, with respect to the matters of state law, with the laws of Utah.
Section 7.02 - Notices. Any notice or other communications required or permitted
hereunder shall be sufficiently given if personally delivered to it or sent by
registered mail or certified mail, postage prepaid, or by prepaid telegram
addressed as follows:
If to Utilities, to: Utility Communications International, Inc.
9025 South 700 West
Sandy, Utah 84070
With copies to: Vanderkam and Sanders
Hank Vanderkam
440 Louisiana, Suite 475
Houston, Texas 77002
<PAGE>
If to the Shareholders: Intermost Limited
_________________________
_________________________
_________________________
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and any such notice or communication shall
be deemed to have been given as of the date so delivered, mailed or telegraphed.
Section 7.03 - Attorney's Fees. In the event that any party institutes any
action or suit to enforce this Agreement or to secure relief from any default
hereunder or breach hereof, the breaching party or parties shall reimburse the
nonbreaching party or parties for all costs, including reasonable attorney's
fees, incurred in connection therewith and in enforcing or collecting any
judgment rendered therein.
Section 7.04 - Confidentiality. Each party hereto agrees with the other parties
that, unless and until the transactions contemplated by this Agreement have been
consummated, he, she or it and respective representatives will hold in strict
confidence all data and information obtained with respect to another party or
any subsidiary thereof from any representative, officer, director or employee,
or from any books or records or from personal inspection, and shall not use such
disclosure data or information or disclose the same to others, except (i) to the
extent such data or information is published, is a matter of public knowledge,
or is required by law to be published; and (ii) to the extent that such
disclosure data or information must be used or disclosed in order to consummate
the transactions contemplated by this Agreement. In the event of the termination
of this agreement, each party shall return to the other party all documents and
other materials obtained by it or on its behalf and shall destroy all copies,
digests, workpapers, abstracts or other materials relating thereto, and each
party will continue to comply with the confidentiality provisions set forth
herein.
Section 7.05 - Schedules; Knowledge. Each party is presumed to have full
knowledge of all information set forth in the other party's schedules delivered
pursuant to this Agreement.
Section 7.06 - Third Party Beneficiaries. This contract is strictly between
Utilities and the Shareholders and, except as specifically provided, no
director, officer, stockholder, employee, agent, independent contractor or any
other person or entity shall be deemed to be a third party beneficiary of this
Agreement.
Section 7.07 - Entire Agreement. This Agreement represents the entire agreement
between the parties relating to the subject matter thereof.
Section 7.08 - Survival; Termination. The representations, warranties, and
covenants of the respective parties shall survive the Closing Date. All rights
and obligations under this entire agreement shall be binding upon and inure to
the benefit of the heirs, executors, administrators and assigns of the parties.
Section 7.09 - Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument. For purposes of this Agreement only,
facsimile signatures shall be considered original signatures. Section 7.10 -
Amendment or Waiver. Every right and remedy provided herein shall be cumulative
with every other right and remedy, whether conferred herein, at law, or in
equity, and may enforced concurrently herewith, and no waiver by any party of
the performance of any obligation by the other shall be construed as a waiver of
the same of any other default then, theretofore, or thereafter occurring or
existing. At any time prior to the Closing Date, this Agreement may by amended
by a writing signed by all Parties hereto, with respect to any of the terms
contained herein, and say term or condition of this Agreement may be waived or
the time for performance may be extended by a writing signed by the party or
Parties for whose benefit the provision in intended.
<PAGE>
IN WITNESS WHEREOF, the corporate parties hereto have caused this Agreement to
be extended by their respective officers, hereunto duly authorized, as of the
date first-above written.
ATTEST: UTILITIES COMMUNICATIONS
INTERNATIONAL, INC.
- - --------------------------------
Secretary or Assistant Secretary By:
-----------------------------
Title:
--------------------------
THE SHAREHOLDERS
--------------------------------
Jun Liang
--------------------------------
Andy Lin
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