SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Date of Report (Date of earliest event reported): October 19, 1999
-----------------
CBCOM, INC.
-----------------------------------------------
(Exact name of registrant as specified in charter)
Delaware
--------------------------------------------
(State or other jurisdiction of incorporation)
0-26405
----------------------
(Commission File Number)
95-4635025
------------------------------
(IRS Employer Identification No.)
16830 Ventura Boulevard, 1st Financial Plaza, Encino, California 91436
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(818) 461-0800
--------------------------------------------------
(Registrant's telephone number, including area code)
15260 Ventura Boulevard, Suite 1200,
Sherman Oaks, California 91403
----------------------------------------------------------
(Former name or former address, if changed since last report)
ITEM 7. Financial Statements and Exhibits.
(a) Audited financial statements for CBCOM, Inc., the business
acquired by the Registrant on October 19, 1999.
(b) Pro Forma Combined Financial Information (Unaudited), giving
effect to the merger between Abbacy Corporation and CBCom,Inc.
1
<PAGE>
CBCOM, INC.
(a development stage company)
REPORT ON AUDITED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (APRIL 23, 1997) TO DECEMBER 31, 1997,
THE YEAR ENDED DECEMBER 31, 1998,
AND THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
2
<PAGE>
CBCOM, INC.
(a development stage company)
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-2
Financial Statements
Balance Sheets F-3
Statements of Operations F-4
Statements of Shareholders' Deficit F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-8
Introduction to Pro Forma Combined Financial Statements (Unaudited) F-23
Pro Forma Combined Balance Sheets (Unaudited) F-24
Pro Forma Combined Statements of Operations (Unaudited) F-25
3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
CBCom, Inc. (a development stage company)
We have audited the accompanying balance sheets of CBCom, Inc., (a
development stage company) as of December 31, 1997, 1998 and September 30, 1999
and the related statements of operations, stockholders' deficit, and cash flows
for the period from inception (April 23, 1997) to December 31, 1997, the year
ended December 31, 1998, and the nine-month period ended September 30, 1999.
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. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CBCom, Inc. at December 31,
1997, 1998, and September 30, 1999 and the results of its operations and its
cash flows for the period from inception (April 23, 1997) to December 31, 1997,
the year ended December 31, 1998, and the nine-month period ended September 30,
1999 in conformity with generally accepted accounting principles in the United
States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has a limited operating history and, at
September 30, 1999, has a shareholders' deficit that raises substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
BDO International
December 10, 1999
Shanghai, PRC
F-2
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<PAGE>
CBCOM, INC.
(a development stage company)
BALANCE SHEETS
<TABLE>
<S> <C> <C> <C>
December 31, September 30,
----------------------------
1997 1998 1999
------------- ------------ ----------------
ASSETS
Current assets:
Cash $ 401,426 $ 240,000 $ 10,452
Rent receivables - 8,655 -
Prepaid expenses 4,881 - -
Pager inventory (Note 4) 59,394 136,620 -
------------- ------------ ----------------
Total current assets 465,701 385,275 10,452
------------- ------------ ----------------
Furniture, fixtures and equipment, net (Note 2) 87,757 72,673 58,009
Other assets:
Deposits 14,521 14,521 14,496
Prepaid interest (Notes 6 and 7) - - 183,333
Prepaid rent in Beijing representation office (Note 6) - 260,417 213,542
------------- ------------ ----------------
Total other assets 14,521 274,938 411,371
------------- ------------ ----------------
Total assets $ 567,979 $ 732,886 $ 479,832
============= ============= =================
LIABILITIES AND DEFICIT
Current liabilities:
Accounts payable $ - $ 117,772 $ 333,101
Salaries payable - Former CEO (Note 6) 100,000 389,583 363,649
Salaries payable - Other 576,625 26,000 444,501
Accrued expenses 9,458 24,334 131,436
Income tax payable 800 1,600 2,400
Capital lease obligation - current (Note 6) 14,958 32,504 32,433
Loan payable - shareholders (Note 5) 1,010,420 - 536,408
------------- ------------ ----------------
Total current liabilities 1,712,261 591,793 1,843,928
------------- ------------ ----------------
Capital lease obligation - long-term (Note 6) 17,546 - -
Loan payable - shareholder - 518,924 -
Loan from a related party (Note 5) - - 157,184
------------- ------------ ----------------
Total liabilities 1,729,807 1,110,717 2,001,112
------------- ------------ ----------------
Commitments and Contingencies (Notes 5, 6, 7 and 8)
Shareholders' deficit:
Common stock at par value of $0.001 per share, 3,137 15,327 15,615
100,000,000 shares authorized, 3,137,500,
15,327,500, 15,615,500 shares issued and outstanding
Paid-in capital 684,363 4,491,234 5,068,772
Subscription receivable - (1,250 ) (1,250 )
Accumulated deficit during the development stage (1,849,328 ) (4,883,142 ) (6,604,417 )
------------- ------------ ----------------
Total shareholders' deficit (1,161,828 ) (377,831 ) (1,521,280 )
------------- ------------ ----------------
Total liabilities and shareholders' deficit $ 567,979 $ 732,886 $ 479,832
============ ============ ================
</TABLE>
See accompanying summary of accounting policies and notes to
financial statements.
F-3
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<PAGE>
CBCOM, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C>
Period from
Inception
(April 27, 1997) Nine Months Nine Months
through Year ended Ended Ended
December 31, December 31, September 30, September 30,
1997 1998 1998 1999
------------------- ----------------- ----------------- -----------------
(Unaudited)
Net sales $ - $ - $ - $ -
Cost of sales (Note 4) - - - -
------------------- ----------------- ----------------- -----------------
Gross profit - - - -
Selling expense - - - -
General and administrative 1,847,377 3,001,534 2,029,107 1,508,775
expense
Merger transaction expense - - - 149,950
(Note 9)
------------------- ----------------- ----------------- -----------------
Loss from operations (1,847,377 ) (3,001,534 ) (2,029,107 ) (1,658,725 )
Other income (expense):
Interest expense, net (1,635 ) (14,536 ) (8,652 ) (72,655 )
Other, net 484 (16,944 ) 3,860 10,905
------------------- ----------------- ----------------- -----------------
Loss before income taxes (1,848,528 ) (3,033,014 ) (2,033,899 ) (1,720,475 )
Income tax provision (Note 3) 800 800 - 800
------------------- ----------------- ----------------- -----------------
Net loss $ (1,849,328 ) $ (3,033,814 ) $ (2,033,899 ) $ (1,721,275 )
=================== ================= ================= =================
Weighted average number of 2,937,500 10,048,884 9,159,478 15,425,353
common shares outstanding
=================== ================ ================= ==================
Basic and diluted loss per $ (0.63 ) $ (0.30 ) $ (0.22 ) $ (0.11 )
share ==================== ================ ================= ==================
</TABLE>
See accompanying summary of accounting policies and notes to
financial statements.
F-4
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<PAGE>
CBCOM, INC.
(a development stage company)
STATEMENTS OF SHAREHOLDERS' DEFICIT
(See Note 7)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Additional
Paid-In Stock Accumulated
Shares Amount Capital Subscription Deficit Total
----------- ---------- ----------- ------------ ------------ -----------
Issuance of stock for cash ($.20 2,000,000 $ 2,000 $ 398,000 $ - $ - $ 400,000
per share)
Issuance of stock for assets ($.20 937,500 937 186,563 - - 187,500
per share)
Issuance of stock for cash ($.50 200,000 200 99,800 - - 100,000
per share)
Net loss - - - - (1,849,328 ) (1,849,328 )
----------- ---------- ----------- ------------ ------------ -----------
Balance, December 31, 1997 3,137,500 3,137 684,363 - (1,849,328 ) (1,161,828 )
Issuance of stock for signing 875,000 875 436,625 - - 437,500
bonus ($.50 per share)
Issuance of stock for rental 625,000 625 311,875 - - 312,500
expense in Beijing ($.50 per
share)
Conversion of shareholder's loan 8,000,000 8,000 1,592,000 - - 1,600,000
($.20 per share)
Conversion of shareholder's loan 320,000 320 159,680 - - 160,000
($.50 per share)
Issuance of stock for directors' 1,120,000 1,120 558,880 - - 560,000
compensation ($.50 per share)
Issuance of stock for promotion 1,250,000 1,250 623,750 (1,250 ) - 623,750
and facilitation service ($.50
per share)
Issuance of stock options - - 112,500 - - 112,500
Forgiveness of interest on - - 11,561 - - 11,561
shareholders loan
Net loss - - - - (3,033,814 ) (3,033,814 )
----------- ---------- ----------- ------------ ------------ -----------
Balance, December 31, 1998 15,327,500 15,327 4,491,234 (1,250 ) (4,883,142 ) (377,831 )
Issuance of warrants for cash - - 135,000 - - 135,000
Deemed interest for Polmont - - 220,000 - - 220,000
Issuance of stock for cash ($.45 100,000 100 44,900 - - 45,000
per share)
Issuance of stock for cash ($.90 10,000 10 8,990 - - 9,000
per share)
Issuance of stock for cash ($.90 35,000 35 31,465 - - 31,500
per share)
Issuance of stock for cash ($.45 40,000 40 17,960 - - 18,000
per share)
Issuance of stock for cash ($.90 23,000 23 20,677 - - 20,700
per share)
Issuance of stock for cash ($.45 30,000 30 13,470 - - 13,500
per share)
Issuance of stock for cash ($.90 20,000 20 17,980 - - 18,000
per share)
Issuance of stock for cash ($.45 30,000 30 13,470 - - 13,500
per share)
Forgiveness of interest on - - 34,876 - - 34,876
shareholder's loan
Issuance of stock options - - 18,750 - - 18,750
Net loss - - - - (1,721,275 ) (1,721,275 )
----------- ---------- ----------- ------------ ------------ -----------
Balance, September 30, 1999 15,615,500 $ 15,615 $ 5,068,772 $ (1,250 ) $ (6,604,417 )$ (1,521,280 )
=========== ========== =========== ============ =========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to
financial statements.
F-5
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<PAGE>
CBCOM, INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<S> <C> <C> <C> <C>
Period from
Inception
(April 27, 1997) Nine Months
through Year ended Nine Months Ended
December 31, December 31, September 30, September 30,
1997 1998 1998 1999
----------------- ----------------- ----------------- -----------------
(Unaudited)
Cash flows from operating
activities:
Net loss $ (1,849,328 ) $ (3,033,814 ) $ (2,033,899 ) $ (1,721,275 )
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation 5,555 18,612 13,959 14,164
Write-off of assets in Beijing 187,500 - - -
Issuance of stock for signing - 436,625 436,625 -
bonus
Forgiveness of interest - 11,561 8,671 34,876
on shareholder's loan
Amortization of prepaid - - - 36,667
interest
Compensation cost related to - 112,500 - 18,750
options granted
Issuance of stock for - 623,750 - -
promotion and facilitation
service
Issuance of stock for payroll - 560,000 - -
expense
Write-off of pager inventory - - - 136,620
Increase (decrease) from
changes in:
Receivables - (8,655 ) - 8,655
Pager inventory (59,394 ) (77,226 ) (77,226 ) -
Deposits (14,521 ) - - 25
Prepaids (4,881 ) 56,964 39,090 46,875
Accounts payable - 119,372 119,372 216,129
Salaries payable - former 100,000 289,583 262,583 (25,934 )
CEO
Salaries payable - other 576,625 (550,625 ) 157,417 418,501
Accrued liabilities and 10,258 14,076 6,282 107,102
income tax payable ----------------- ----------------- ----------------- -----------------
Net cash used in operating (1,048,186 ) (1,427,277 ) (1,067,126 ) (708,845 )
activities ----------------- ----------------- ----------------- -----------------
Cash flows from investing
activities:
Purchase of furniture and (60,808 ) (3,528 ) (3,528 ) -
equipment
Refund of purchase price on - - - 500
a piece of furniture
----------------- ----------------- ----------------- -----------------
Net cash provided by (used in) (60,808 ) (3,528 ) (3,528 ) 500
investing activities ----------------- ----------------- ----------------- -----------------
</TABLE>
F-6
8
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Period from
Inception
(April 27, 1997) Nine Months
through Year ended Nine Months Ended
December 31, December 31, September 30, September 30,
1997 1998 1998 1999
----------------- ----------------- ----------------- -----------------
(Unaudited)
Cash flows from financing
activities:
Repayment of capital lease - - - (71)
Proceeds from shareholder 1,098,678 1,398,941 1,072,897 25,000
loans
Repayments to shareholders (88,258 ) (130,437 ) (97,827 ) (7,516)
Proceeds from related party - - 157,184
loans
Proceeds from issuance of 500,000 875 - 304,200
stock ----------------- ----------------- ----------------- -----------------
Net cash provided by financing 1,510,420 1,269,379 975,070 478,797
activities ----------------- ----------------- ----------------- -----------------
Net increase (decrease) in cash and 401,426 (161,426 ) (95,584 ) (229,548)
cash equivalents
Cash and cash equivalents, - 401,426 401,426 240,000
beginning of period ----------------- ----------------- ----------------- -----------------
Cash and cash equivalents, end $ 401,426 $ 240,000 $ 305,842 $ 10,452
of period ================= ================= ================= =================
Supplementary information:
Cash paid during the year:
Interest $ - $ 3,179 $ 2,384 $ 2,048
================== ================ ================= ================
Supplemental disclosure of
non-cash activities:
Issuance of stock to purchase
selected assets in CBCom
Beijing 187,500 - -
Capital lease 32,504 - -
Issuance of stock for signing
bonus - 436,625 436,625 -
Issuance of stock for prepaid
rents in Beijing - 312,500 312,500 -
Conversion of shareholder's
loan - 1,760,000 1,600,000 -
Issuance of stock for directors'
compensation - 560,000 - -
Issuance of stock for promotion
and facilitation service - 623,750 - -
Deemed interest for Polmont - - - 220,000
Forgiveness of interest accrued $ - $ 11,561 $ 8,671 $ 34,876
================ ================== ================ ==================
</TABLE>
See accompanying summary of accounting policies and notes to
financial statements.
F-7
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<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION
Background of Organization
CBCom, Inc. ("the Company") was incorporated under the laws of the State of
Delaware on April 23, 1997 and is registered to do business as a foreign
corporation in the State of California. The strategic mission of the Company is
to participate in the development of telecommunication, internet, and
information service businesses in China. The Company was previously involved in
the pager network business in China through transferring Western manufacturing
technology and management resources to joint ventures established in China,
however, these ventures were unsuccessful. The Company incurred consecutive
losses in 1997, 1998, and the first nine months in 1999.
On January 31, 1999, the Company entered into a Memorandum of Understanding
with Shanghai Stock Exchange Communication Co. Ltd. ("SSEC") and Shanghai
Xingtong Telecommunication Science and Technology Co. Ltd. ("SXTST) to develop a
financial data network in China through setting up an equity joint venture
invested by these three parties. The main strategy is to make full usage of the
existing capacity of VSAT satellite communication infrastructure owned by
Shanghai Stock Exchange throughout China. The total capital required in that
joint venture is currently estimated to be US$3,000,000. The Company will
contribute 70% of that amount; SSEC, 20%; and SXTST, 10%. The joint venture has
not yet been established as of December 10, 1999.
The Company's headquarters is located in Sherman Oaks, California. From
August 1997 to the present, the Company has maintained a representative office
in Beijing for the purpose of oversight of its China projects. From January 1998
to March 1999, the Company had a representative office in Shanghai for the
purpose of developing its business relationship with SSEC.
The Company has suffered losses in 1997, 1998 and 1999 and had negative
working capital in 1997, 1998 and 1999, respectively. Historically, one of the
Company's directors and major shareholders provided the Company with substantial
financing sources. The director has provided a letter of support indicating that
he pledges to provide continuous financial support to enable the Company to
satisfy its working capital requirements and to complete its commitments to the
aforementioned Shanghai joint venture project on a going concern basis. While
there is no assurance that funding will be available, the Company is continuing
to actively seek funding to complete the Shanghai joint venture project through
equity and/or debt financing. There is an uncertainty that management fund
raising will be successful. The accompanying financial statements do not include
any provisions or adjustments, which might result from the outcome of the
uncertainty discussed above.
Basis of Accounting
The financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America (U.S. GAAP) and
are presented in U.S. dollars.
Cash and Cash Equivalents
F-8
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<PAGE>
NOTE 1-BASIS OF PRESENTATION (Continued)
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Inventory
Inventory consists principally of pager parts and is stated at the lower of
cost or market on a first-in first-out basis.
Furniture, Fixtures and Equipment
Property and equipment are stated at cost. Depreciation is computed
primarily using the estimated useful lives of the assets as follows:
Estimated
Useful Life
(in years)
----------------
Furniture and fixtures 7
Equipment 5
Maintenance, repairs and minor renewals are charged directly to expenses as
incurred. Additions and betterment to property and equipment are capitalized.
When assets are disposed of, the related cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in the
statement of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from these estimates.
Fair Value of Financial Instruments
The carrying amount of cash, rent receivable, paper inventory, accounts
payable, accrued payable, and loans payable are reasonable estimates of their
fair value because of the short maturity of these items.
Income Taxes
The Company accounts for income taxes using the liability method, which
requires an entity to recognize deferred tax liabilities and assets. Deferred
income taxes are recognized based on the differences between the tax bases of
assets and liabilities and their reported amounts in the financial statements
which will result in taxable or deductible amounts in future years. Further, the
effects of enacted tax laws or rate changes are included as part of deferred tax
expenses or benefits in the period that covers the enactment date. A valuation
allowance is recognized if it is more likely than not that some portion, or all
of, a deferred tax asset will not be realized.
Adoption of SFAS No. 121
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121 (SFAS No. 121) "Accounting for the Impairment of Long-Lived
F-9
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<PAGE>
NOTE 1-BASIS OF PRESENTATION (Continued)
Assets and for Long-Lived Assets to be Disposed Of", which requires impairment
losses to be recorded on long-lived assets being developed, based on fair value,
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. Examples of indicators of impairment include a significant decrease in
the market value of an asset, a significant change in the extent or manner in
which an asset is used or a significant adverse change in legal or business
factors that could affect the value of an asset.
Management assessed the fair value of assets in the Beijing representation
office as of December 31, 1997 and found that these assets basically did not
have any future economic benefits, therefore, decided to write the entire value
of $187,500 off as of December 31, 1997. In addition, management assessed the
fair value of pager inventory as of September 30, 1999 and found that these
pager inventories did not have any future economic benefits because development
work has been completed and there are no current sales, therefore, decided to
write the value of $136,620 off as of September 30, 1999.
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-based Compensation" SFAS 123, establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which a
company acquires goods or services from non-employees in exchange for equity
instruments. SFAS 123 also gives the option to account for stock-based employee
compensation in accordance with Accounting Principles Board Opinion No. 25 (APB
25), "Accounting for Stock issued to Employees," or SFAS 123. The Company
elected to follow APB 25 which measures compensation cost for employee stock
options as the excess, if any, of the fair market price of the Company's stock
at the measurement date over the amount an employee must pay to acquire stock.
Earnings (Loss) Per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). The statement
replaces the calculation of primary and fully diluted earnings (loss) per share
with basic and diluted earnings (loss) per share. Basic earnings (loss) per
share includes no dilution and is computed by dividing income (loss) available
to common shareholders by the weighted average number of shares outstanding
during the period. Diluted earnings (loss) per share reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully diluted earnings (loss) per share. The 1,500,000 options and 1,250,000
options in 1998 and 1999 were not included in calculating weighted average
outstanding shares as they have an anti-dilutive impact on loss per share.
New Accounting Standard Not Adopted Yet
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets or liabilities in the balance sheet and
to measure them at fair value. If certain conditions are met, a derivative may
be specifically designated as a hedge, the objective of which is to match the
timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
F-10
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<PAGE>
NOTE 1-BASIS OF PRESENTATION (Continued)
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard on January 1, 2001 to affect its
financial statements.
NOTE 2-FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consists of:
December 31, September 30,
-----------------------------
1997 1998 1999
------------ ------------ ----------------
Furniture and fixtures $ 7,716 $ 7,716 $ 7,216
Equipment 85,596 89,124 89,124
------------ ------------ ----------------
93,312 96,840 96,340
Accumulated depreciation (5,555 ) (24,167 ) (38,331 )
------------ ------------ ----------------
Net $ 87,757 $ 72,673 $ 58,009
============ ============ ===============
The depreciation expense was $5,555, $18,612 and $14,164 in the period from
the inception to December 31, 1997, the year ended December 31, 1998, and the
nine month period ended September 30, 1999.
Included in equipment are the following assets held under capital leases:
December 31, September 30,
-----------------------------
1997 1998 1999
------------ ------------ -------------
Equipment $ 32,504 $ 32,504 $ 32,504
Accumulated depreciation (3,252 ) (9,753 ) (14,629 )
------------ ------------ --------------
Net $ 29,252 $ 22,751 $ 17,875
============ ============ ==============
NOTE 3-INCOME TAXES
The provision for income taxes consists of:
F-11
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<PAGE>
NOTE 3-INCOME TAXES (Continued)
Nine Months
ended
Year ended December 31, September 30,
--------------------------
1997 1998 1999
---------- ------------- ---------------
Income tax provision (state) $ 800 $ 800 $ 800
---------- ------------- ---------------
$ 800 $ 800 $ 800
========== ============= ===============
The components of the net deferred tax asset and liability are as follows:
December 31, September 30,
-----------------------------
1997 1998 1999
------------ ------------- ---------------
Deferred tax assets:
Net operating loss carryforwards $ 638,213 $ 1,729,890 $ 2,244,846
Salary and bonus accrual 96,000 179,333 285,654
Capital loss carryforward - 7,198 7,198
---------- ------------ ------------
Subtotal 734,213 1,916,421 2,537,698
Valuation allowance $ (734,213 ) (1,916,421 ) $ (2,537,698 )
---------- ------------ ------------
Net $ - $ - $ -
========== ============ ============
Management is unable to determine whether the realization of the net
deferred tax asset is more likely than not to realize, therefore, a 100%
valuation allowance has been established.
The Company had accumulated net operating losses of approximately
$1,601,366, $4,341,000, and $5,546,000 as of December 31, 1997 and 1998 and
September 30, 1999, respectively. These net operating losses will expire
starting 2012. The Company has a capital loss carryforward of $17,994 which will
expire in 2003.
NOTE 4-JOINT VENTURE PROJECTS
In October, 1997, CBCom, Inc. and Beijing Great Wall Century Communications
Technology Company, Ltd., an established paging company in China, signed a
twenty year joint venture contract to establish a Sino-U.S. equity joint venture
company called GCC CBCom (Tianjin) Communications Company, Ltd. to build a
nationwide paging network. The joint venture company was formed and CBCom, Inc.
advanced $107,500 for organization costs and start-up costs. The joint venture
has not commenced the nationwide paging network and the business license for GCC
CBCom (Tianjin) has expired and has not been renewed. The Company has expensed
$107,500 during 1998 and will decide at a later stage whether to reactivate GCC
CBCom (Tianjin).
The Company signed a Memorandum of Understanding with Shanghai Stock
Exchange Communication Co., a subsidiary of the Shanghai Stock Exchange on
January 31, 1999. The purpose of the Memorandum of Understanding is to establish
a Sino-U.S. equity joint venture company, in which CBCom, Inc. will hold 70% of
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<PAGE>
NOTE 4-JOINT VENTURE PROJECTS (Continued)
the equity. The joint venture company will distribute real time stock and
financial data in China using the satellite communications system owned by
Shanghai Stock Exchange Communication Co. At a later time, the joint venture
plans to create an Internet Service Provider (ISP) in China. The Company has
incurred $250,000 in start-up expense which was expensed during 1998 and which
could be credited toward its capital contribution to the joint venture company
when the joint venture is completed.
Pager Inventory
Pager inventory represent purchase of parts to be used to manufacture the
Microtron 2000 pager. The parts are already in the hands of the Company's
contract manufacturer, Samjin, Ltd., a third party. As pagers are manufactured
and sold, the cost of the parts already advanced will be charged to the cost of
goods sold and will reduce the amount of cash necessary to pay for the
manufactured pagers. Based on a review of the expected usage and the lower of
cost or market, the Company wrote the $136,620 balance off as of September 30,
1999.
Assets in Beijing Representation Office
The amount represents the selected assets of $187,500 purchased on
April 30, 1997 from Beijing CBCom Telecommunications and Consulting Co., Ltd., a
Chinese private company, developing a pager in China. The Company issued 937,500
shares of the Company's common stock in exchange for these selected assets.
Based upon review of the situation in Beijing, the Company evaluated the net
realizable value of these assets and wrote the remaining balance off as of
December 31, 1997.
Licenses/Contracts
The Company issued 1,250,000 shares of common stock valued at $0.50 per
share to Sinoway Limited for its services to obtain an exclusive license to use
Shanghai Stock Exchange Co.'s (SSEC) VSAT satellite system and other
telecommunication infrastructures and the name and logo, etc., of SSEC.
Accordingly, the Company recognized a notional stock subscription receivable of
$1,250 and promotion service for License and Contract of $623,750 in 1998 since
the chances of obtaining the license is uncertain. The promotional services were
expensed during 1998.
F-13
15
<PAGE>
NOTE 5-RELATED PARTY TRANSACTIONS
The Company's operations have been financed by capital injection from
shareholders and loans from shareholders. On April 23, 1997, the first
individual investor injected cash of $400,000 in exchange for 2,000,000 shares
of common stock. Another investor promised to inject cash of $1,600,000. Both
investors agreed that the $1,600,000 should be injected on an as-needed basis
since June 15, 1997 forward and will be recorded as a loan from shareholder
first and will be converted into common stock at a conversion price of $0.20 per
share when the total amount reaches $1,600,000. If the other investor did not
inject cash up to $1,600,000 by June 30, 1998, he must accept the current
private placement price when he converts his loan. The funds advanced by the
other investor did not bear interest and had no stated maturity. On April 24,
1998, the other investor converted the outstanding loan of $1,600,000 into
8,000,000 shares of common stock. Thereafter, the other investor became the
principal shareholder of the Company. After the conversion, the balance of loan
payable to shareholder was $43,956.
On the same date, the principal shareholder and the Company entered into a
promissory note (Note), which specified that the principal shareholder will
continue to provide funds to the Company on a going forward basis and that any
balance of loan payable to the principal shareholder should be due on April 24,
2000 bearing an interest rate of 7% per annum. The Note also specified that the
lender has the option to convert his outstanding loan balance into the Company's
common stock at a conversion price of $0.50 per share at any time prior to the
maturity date. The Note also specified that the conversion price may be adjusted
if the Company shall at any time undergo a stock split, stock dividend or other
combination or subdivision that does not involve payment of consideration for
such shares. As of December 31, 1998 and September 30, 1999, the principal
shareholder waived his accrued interest receivable of $11,561 and $34,876,
respectively.
From early October to early December 1998, the principal shareholder
converted $160,000 of shareholder loan into 320,000 shares of common stock in
four tranches.
Two other shareholders also advanced money to the Company in 1999. However,
these advances did not bear interest and did not have a definite maturity date.
The Company also has loans from Polmont Ltd., an investment holding company
registered in the British Virgin Islands, which is beneficially owned by the
sister of the principal shareholder. The Company entered into agreement with
Polmont on March 27, 1999 whereby the Company shall repay the loan balance on a
dollar-to-dollar basis to Polmont on or before March 26, 2002 for all amounts
paid to a former CEO for compensation from the sale of security by an escrow
agent, plus simple interest at 10% per annum on each amount advanced. Also, that
agreement specified that the Company allows Polmont to convert the outstanding
obligation, in whole or part, into common stock at a conversion price of $0.50
per share. Upon conversion, interest earned by Polmont on the amount(s)
converted shall be waived by Polmont. In addition, the Company designated
Polmont to purchase 500,000 shares of common stock owned by the former CEO at
$30,000 in total after the repayment process is complete. See Note 6 for
details. Due to the nature of this off-balance sheet financing, the Company
recognized prepaid interest of $220,000 (as the fair value of common stock was
$0.50 per share on that date) and the corresponding amount in additional paid-in
capital and amortized the prepaid interest over the period of three years.
F-14
16
<PAGE>
NOTE 5-RELATED PARTY TRANSACTIONS (Continued)
The balance of loans payable to related parties is as follows:
Loans from Loans from
Principal Other Loans from
Shareholder Shareholders Polmont Ltd.
----------- ------------ -----------
April 24, 1997 - - -
New borrowings $ 1,098,678 $ - $ -
Repayment (88,258 ) - -
---------- --------- ---------
Balance at December 31, 1997 1,010,420 - -
New borrowings 1,398,941 - -
Repayments including conversion to stock (1,890,437 ) - -
---------- --------- ---------
Balance at December 31, 1998 518,924 - -
New borrowings 12,900 12,100 157,184
Repayment (7,404 ) (112 ) -
---------- --------- ---------
Balance at September 30, 1999 $ 524,420 $ 11,988 $ 157,184
========= ========= =========
The minimum future cash payments for the above loans as of September 30,
1999 are as follows:
Maturity at December 31, Amount
- ------------------------- ---------------
2000 $ 536,408
2001 -
2002 157,184
---------------
Total principal payments $ 693,592
===============
F-15
17
<PAGE>
NOTE 6-COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its facilities in the U.S. under a non-cancelable
operating lease which expires August 31, 2002. The Company sublet a portion of
its facility and offset rent expense for two months in 1998. The Company also
leases equipment under a non-cancelable capital lease which expires June 2000.
The terms of the lease require 36 monthly payments of $1,060 and annual interest
at 10.7%. The Company is in default as only five payments have been made as of
September 30, 1999.
The rental expense in the respective periods are presented as follows:
Years ending December 31, September 30,
---------------------------
1997 1998 1999
------------ -------------- --------------
Gross rental expense (including
rent in Beijing, China) $ 51,516 $ 224,537 $ 176,216
Sublet rental income 18,618 67,230 83,052
---------- ---------- ----------
Net rental expense $ 32,898 $ 157,307 $ 93,164
========== ========== ==========
The Company has no future sublet rental income as of September 30, 1999.
Future minimum annual lease payments as of September 30, 1999 are as follows:
Capital Operating
Year ending December 31, Leases Leases
-------------------------- ------------ -----------
2000 $ 36,693 172,454
2001 - 172,454
2002 - 114,970
Less: interest (4,260 ) -
------------ ------------
Total lease payments $ 32,433 $ 459,878
============ ============
The Company leases its facilities in Beijing under a five year
non-cancelable operating lease which expires February 28, 2003. The Company
issued 625,000 shares of common stock in exchange for $312,500 of rent. The
Company amortizes the prepaid rent at the rate of $5,208 per month. The balance
of prepaid rent at September 30, 1999 is $213,542.
On August 30, 1999, a law suit was filed in the Superior Court of the State
of California against the Company and its officers by Com VU Corporation, a
Delaware corporation, based on an alleged breach of a prior agreement between
CBCcom and Com VU. The parties entered into a merger agreement on March 26,
1999, which merger was never effected. Com VU is alleging that the Company
failed to consummate the merger by failure to use its best efforts to effect it,
failed to pay $50,000 in outstanding debts to two shareholders on behalf of
Com Vu, terminated the agreement improperly and breached a covenant of good
faith. Com Vu is requesting payment of the $50,000 plus losses of approximately
$15,000 in expenses and costs. The management is unable to estimate the pending
result.
F-16
18
<PAGE>
NOTE 6-COMMITMENTS AND CONTINGENCIES (Continued)
Employment Agreements
The Company has entered into employment agreements with all of its officers
that expire at various dates during 1999.
The Company has a five-year employment agreement starting from May 17, 1997
with the former CEO who left the Company in January 1999. He filed a lawsuit
against the Company for the unpaid compensation of $520,833 through May 17, 1999
plus $30,000 for repurchasing the shares currently owned by him and the relevant
compensation remaining on his employment agreement. In accordance with the
employment agreement, the former CEO's annual base salary and bonus were
guaranteed up to May 15, 1999 by 800,000 shares of a publicly traded company's
common stock in an escrow account, which were owned by Polmont Investment
Limited.
On January 21, 1999, the Company entered into a settlement agreement with
the former CEO as follows: (1) the delayed compensation of $520,833 would be
paid by the proceeds from selling the asset held in the escrow account; and
(2) both parties agreed to submit any remaining compensation claims to binding
arbitration. To the extent that the former CEO wins an award in excess of
$550,833, he will be authorized to sell remaining shares in the escrow account
to the extent of 3,500 shares per day; and (3) the former CEO agreed to look
solely to the escrowed shares for his satisfaction of his claim in this lawsuit,
waive any claim for damages in excess of their value, and generally release all
parties to this lawsuit, such release being subject to the performance of the
obligations of the related defendants. As of September 30, 1999, the escrow has
sold 130,000 shares for proceeds of $157,184, accordingly the amount due to the
former CEO was reduced to $363,649.
Based upon the above settlement agreement, the Company understands that the
total obligation to Polmont will depend on the market value of these shares
remaining in the escrow account (See Note 5 for reference). As of September 30,
1999, there were 670,000 shares remaining in the escrow account with a market
price of $1.1875. According to the agreement between the Company and Polmont,
the Company will recognize loan payable to Polmont as shares are sold and the
proceeds are used to settle its obligation to the former CEO.
NOTE 7-EQUITY TRANSACTIONS
1997
On April 23, 1997, the Company issued 2,000,000 shares of common stock at
$0.20 per share to an individual investor for total proceeds of $400,000.
On April 23, 1997, the Company issued 937,5000 shares of common stock at
$0.20 per share to an individual investor in exchange for his company's assets
of $187,500 (mainly office equipment, furniture and fixtures) located in
Beijing, China.
On December 31, 1997, the Company issued 200,000 shares of common stock at
$0.50 per share to a family trust investor for total proceeds of $100,000.
F-17
19
<PAGE>
NOTE 7-EQUITY TRANSACTIONS (Continued)
1998
On January 1, 1998 the Company issued 500,000, 250,000, and 125,000 (a
total of 875,000) shares of common stock to its CEO, CFO, and chief engineer,
respectively, at $.001 per share as signing bonus for their services from
inception to September 30, 1999 with the Company. The Company received proceeds
of $875 and recognized compensation cost of $436,625, based on a fair value of
$.50 per share.
On March 1, 1998, the Company issued 625,000 shares of common stock at
$0.50 per share in exchange for the future rent in its Beijing representative
office for the next five years. The prepaid rental of $312,500 will be amortized
over the next five years.
On April 24, 1998, the Company issued 8,000,000 shares of common stock at
$0.20 per share to convert a shareholder loan of $1,600,000. This conversion
price was specified on August 31, 1997 between the original founders and the
company. The shareholder loans were made to the Company from time to time on an
as-needed basis from June 15, 1997 to April 24, 1999 and was not converted into
common stock until the shareholder loan totaled $1,600,000.
From early October to early December 1998, the principal shareholder
converted $160,000 of shareholder loan into 320,000 shares of common stock in
four tranches.
On December 31, 1998, the Company issued 400,000, 400,000, and 320,000
shares of common stock at $0.50 per share to three directors as their employment
compensation $200,000, $200,000, and $160,000, respectively, for four months in
1997 and twelve months in 1998 in accordance with their respective employment
agreement.
On December 31, 1998, the Company issued 1,250,000 shares of common stock
at $0.001 per share in exchange for the promotion and facilitation services
provided by Sinoway Limited (Sinoway) registered in the British Virgin Islands
with a corporate office in Hong Kong, which is an affiliate company of Shanghai
Stock Exchange Communication Co. Ltd. Sinoway promised to obtain exclusive
licenses to use VSAT sattellite systems owned by SSE and the logo and name of
SSE. Sinoway agreed to pay $0.001 per share for these 1,250,000 shares of common
stock. Accordingly, the Company recognized a notional stock subscription of
$1,250 and a promotion expense for the License/Contract of $623,750. If these
licenses were obtained, the cost would be amortized over the life of joint
venture with SSEC and SXTST. However, the effectiveness of this issuance depends
on the success of setting up the equity joint venture among the Company, SSEC,
and SXTST and obtaining the exclusive licenses. On June 30, 2000, if the joint
venture has not been set up and exclusive licenses to use the satellite
communication network owned by Shanghai Stock Exchange and use the logo and name
of Shanghai Stock Exchange have not been obtained, the issuance of stock could
be canceled. As of December 10, 1999, the license has not been obtained.
1999
On February 1, 1999, the Company conducted a private placement to issue
600,000 warrants at $0.25 per warrant in four tranches to an existing
shareholder and received total proceeds of $135,000, net of a finders fee of
$15,000. Each warrant carries an exercise price of $0.25 per share and allows
each holder of warrant to exercise any time on or before January 31, 2004.
Accordingly, the Company reserved 600,000 shares of common stock for these
warrants.
F-18
20
<PAGE>
NOTE 7-EQUITY TRANSACTIONS (Continued)
On March 27, 1999, the Company recognized deferred interest of $220,000 as
a result that Polmont was designated to purchase 500,000 shares of the Company's
stock from the former CEO as part of settlement for a total of $30,000 whereas
the fair value of stock was at $0.50 per share at that date. Therefore, the
Company recognized $220,000 of prepaid interest and amortized this $220,000 over
the period of three years. See Note 5 for more information.
On May 10, 1999, the Company conducted a private placement to issue 100,000
shares of common stock at $0.50 per share to an accredited investor and received
total proceeds of 45,000, net of a finders fee of $5,000.
From May 14 to June 4, 1999 the Company conducted a private placement to
issue 45,000 shares of common stock at $1.00 per share in three tranches to an
individual investor and one corporate investor and received total proceeds of
$40,500, net of a finders fee of $4,500.
On June 22, 1999, the Company issued 40,000 shares of common stock at $0.50
per share to an existing shareholder. Consequently, the Company received total
proceeds of $18,000, net of a finders fee of $2,000. The amount recorded by the
Company includes deducting $0.50 per share for her service as a part of fund
raising cost.
In August 1999, the Company conducted a private placement to issue 23,000
shares of common stock at $1.00 per share in three tranches to two individual
investors and received total proceeds of $20,700, net of a finders fee of
$2,300.
On August 25, 1999, the Company issued 30,000 shares of common stock at
$0.50 per to an existing shareholder. Consequently, the Company received total
proceeds of $13,500, net of a finders fee of $1,500. The amount recorded by the
Company includes deducting $0.50 per share for her service as a part of fund
raising cost.
On August 26, the Company conducted a Regulation D, Rule 506 offering to
issue 50,000 shares of common stock at par value of $0.001 per share to 300
shareholders through an off-shore investment company in order to satisfy its
goal to be listed on the NASDAQ OTC Bulletin Board. The Company recognized
merger transaction expense of $49,950 by crediting accrued liability of $49,950.
When receiving the $50 of cash, the Company will convert accrued liability of
$49,950 into equity and issue 50,000 shares of common stock accordingly.
Subsequent to September 30, 1999 the Company issued the 50,000 shares.
On September 15, 1999, the Company conducted a private placement to issue
20,000 shares of common stock at $1.00 per share to two individual investors.
Consequently, the Company received total proceeds of $18,000, net of a finders
fee of $2,000.
On September 24, 1999, the Company issued 30,000 shares of common stock at
$0.50 per to an existing shareholder to reward her effort to introduce new
potential investors to the Company. Consequently, the Company received total
proceeds of $13,500, net of a finders fee of $1,500. The amount recorded by the
Company includes deducting $0.50 per share for her service as a part of fund
raising cost.
F-19
21
<PAGE>
NOTE 8 - STOCK OPTIONS
The Company adopted a stock option plan (the Plan), which includes
non-qualified stock options and incentive stock options for its employees
officers and directors.
The stock option plan authorizes the granting of options to purchase up to
an aggregate maximum of 2,500,000 shares of common stock.
Under the incentive stock option plan, the exercise price shall not be less
than 100% of the fair market value of common stock on the date of grant. If an
incentive option is granted to an employee who at the time of grant owns more
than 10% of the total combined voting power of all classes of capital stock of
the Company, the option exercise price shall be at least 110% of the fair market
value of common stock on the date of grant.
Under the non-qualified stock option plan, the exercise price shall not be
less than 85% of the fair market value of common stock on the date of grant.
Each option under the plan shall become exercisable over a period not to exceed
ten years.
No options were granted under the plan during the year ended December 31,
1997. During the year ended December 31, 1998, the Company issued 1,500,000
non-qualified stock options at an exercise price of $0.425. These options become
exercisable over a period of one year and can be exercised for a period of five
to ten years. The 1,500,000 non-qualified stock options included 500,000 options
issued to the former CEO which were cancelled in January, 1999. During the nine
months ended September 30, 1999, the Company issued 250,000 non-qualified stock
options at an exercise price of $0.425, which was 85% of the market price at
grant date. These options become exercisable over a period of two years and can
be exercised for a period of ten years.
During the year ended December 31, 1998 and for the nine months ended
September 30, 1999, the options granted under the non-qualified plan were at an
exercise price below the fair market value. In accordance with APB Opinion
No. 25, the Company has recorded compensation expense of $112,500 and $18,750,
respectively.
Years ending December 31, September 30,
---------------------------------
1997 1998 1999
--------------------------------- -----------------
Net loss:
As reported $ (1,849,328 ) $ (3,033,814 ) $ (1,721,275 )
Pro forma $ (1,849,328 ) $ (3,273,937 ) $ (1,994,077 )
Loss per share:
As reported $ (0.63 ) $ (0.30 ) $ (0.11 )
Pro forma $ (0.63 ) $ (0.33 ) $ (0.13 )
F-20
22
<PAGE>
NOTE 8 - STOCK OPTIONS (Continued)
A summary of changes in stock options during each year is presented below:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
December 31, September 30,
-------------------------------------------------------
1997 1998 1999
-------------------------- -------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------- ------------ ----------- ----------- ---------- -------------
Options outstanding at - $ - - $ - 1,500,000 $ 0.43
beginning of year
Options granted - - 1,500,000 0.43 250,000 0.43
Options cancelled - - - - (500,000 ) -
Options exercised - - - - - 0.43
----------- ------------ ----------- ----------- ---------- -------------
Options at end of year - $ - 1,500,000 $ 0.43 1,250,000 $ 0.43
=========== =========== =========== ========== ========== ===========
Options and warrants
exercisable at end of - - 750,000 0.43 1,125,000 0.43
year =========== =========== =========== ========== ========== ==========
Weighted-average fair
value of options
granted during the
year $ - $ 0.39 $ 0.41
=========== ========== ==========
</TABLE>
The following table summarizes information about the stock options
outstanding at September 30, 1999.
Options and Outstanding Options and Exercisable
----------------------------- ----------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
at Contractual Exercise at Exercise
Exercise Price 9/30/98 Life (Years) Price 9/30/98 Price
---------- ------------ --------- ----------- ------------
$0.43 1,250,000 7.92 $ 0.43 1,125,000 $ 0.43
--------- --------- --------- --------- ----------
F-21
23
<PAGE>
NOTE 8 - STOCK OPTIONS (Continued)
The fair value of the stock options granted during 1998 and 1999 was
$588,916 and $102,616, respectively, on the date of grant using the Black
Scholes option-pricing model. The weighted-average assumptions used were as
follows:
Nine Months
Year ended ended
December 31, September 30,
1998 1999
--------------- ----------------
Discount rate - bond yield rate 4.51 - 4.82 % 4.67 %
Volatility 72 % 72 %
Expected life 5-10 years 5-10 years
Expected dividend yield - -
--------------- ----------------
NOTE 9 - SUBSEQUENT EVENTS
On September 24, 1999, the Company entered into a merger agreement with
Abbacy Corporation (a public shell company), to acquire 100% of its equity. On
October 8, 1999, the Board of Directors and the majority shareholders of the
constituent corporations approved the merger.
The terms of the merger agreement requires the Company to acquire all
outstanding shares of common stock of Abbacy Corporation on a pro rata basis in
exchange for 250,000 shares of common stock of the Company. The Company shall be
the successor of a public reporting company. The Company agreed to pay $100,000
for legal service related to the above merger transaction.
F-22
24
<PAGE>
CBCOM, INC.
(a development stage company)
INTRODUCTION TO PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
On September 24, 1999, the Company entered into a merger agreement with
Abbacy Corporation (a public shell company), to acquire 100% of its equity. On
October 8, 1999, the Board of Directors and the majority shareholders of the
constituent corporations approved the merger.
The terms of the merger agreement requires the Company to acquire all
outstanding shares of common stock of Abbacy Corporation on a pro rata basis in
exchange for 250,000 shares of common stock of the Company. The Company shall be
the successor of a public reporting company.
Abbacy Corporation was incorporated on June 7, 1999 to serve as vehicle to
effect a merger, exchange of capital stock, asset acquisition or other business
combination with a domestic or foreign private business. Abbacy has not
commenced significant operation yet as of September 30, 1999.
Abbacy filed a Form 8-K on October 19, 1999 to the SEC and by doing so
CBCom, Inc. became the successor of the reporting entity in accordance with rule
12(g) 3 of the Securities Exchange Act of 1934. Accordingly, CBCom, Inc. filed
the merger certificate on October 18, 1999 with the State of Delaware effecting
the merger.
As CBCom, Inc. is the acquiring company and the successor of a public
reporting company and Abbacy would be dissolved after the merger, the merger is
accounted for under the acquisition method. CBCom recognized $250,000 of merger
transaction expense in terms of the fair value of 250,000 shares of its common
stock at $1.00 per share. In the meantime, Abbacy was dissolved.
The accompanying unaudited pro forma combined balance sheet as of
September 30, 1999 is based on the historical balance sheet of CBCom and Abbacy
for the same date, respectively, and the assumption that the merger transaction
took place on that date. The unaudited pro forma combined statement of
operations for the nine months ended September 30, 1999 is based on the
historical statement of operations of CBCom and Abbacy for the same period,
respectively, and the assumption that the merger transaction took place on June
7, 1999, the date of incorporation of Abbacy. The unaudited pro forma combined
statement of operations for the year ended December 31, 1998 is based on the
historical statement of operation of CBCom and Abbacy for the same period,
respectively, and the assumption that the merger transaction took place on
January 1, 1998.
These unaudited pro forma combined financial statements are not necessarily
indicative of the financial position and results of operations that would have
been obtained had the transaction actually taken place at the dates assumed
above and do not purport to be indicative of the effect that may be expected to
incur in the near future. The accompanying audited pro forma combined financial
statements should be read in connection with the historical financial statements
of CBCom, Inc. and Abbacy Corporation.
F-23
25
<PAGE>
CBCOM, INC.
(a development stage company)
PRO FORMA COMBINED BALANCE SHEETS (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
CBCom, Inc. Abbacy Pro forma
September 30, September 30, Pro forma September 30,
1999 1999 Adjustment 1999
---------------- ---------------- -------------- -----------------
ASSETS
Current assets:
Cash $ 10,452 $ 500 $ 500 $ 10,452
---------------- ---------------- -------------- -----------------
Total current assets 10,452 500 - 10,452
---------------- ---------------- -------------- -----------------
Furniture, fixtures and equipment, net 58,009 - - 58,009
Other assets:
Deposits 14,496 - - 14,496
Prepaid interest 183,333 - - 183,333
Prepaid rent in Beijing representation office 213,542 - - 213,542
---------------- ---------------- -------------- -----------------
Total other assets 411,371 - - 411,371
---------------- ---------------- -------------- -----------------
Total assets $ 479,832 500 (500 ) 479,832
---------------- ---------------- -------------- -----------------
LIABILITIES AND DEFICIT
Current liabilities:
Accounts payable $ 333,101 - - 333,101
Salaries payable - Former CEO 363,649 - - 363,649
Salaries payable - Other 444,501 - - 444,501
Accrued expenses 131,436 - - 131,436
Income tax payable 2,400 - - 2,400
Capital lease obligation - current 32,433 - - 32,433
Loan payable - shareholders 536,408 - - 536,408
---------------- ---------------- -------------- -----------------
Total current liabilities 1,843,928 - - 1,843,928
---------------- ---------------- -------------- -----------------
Loan from a related party 157,184 - - 157,184
---------------- ---------------- -------------- -----------------
Total liabilities 2,001,112 - - 2,001,112
---------------- ---------------- -------------- -----------------
Commitments and Contingencies
Shareholders' deficit:
Common stock at par value of $0.001 per share,
100,000,000 shares authorized, 15,615,500
shares issued and outstanding 15,615 500 (500 ) 15,865
250
Paid-in capital 5,068,772 4,830 - 5,323,352
249,750
Subscription receivable (1,250 ) - - (1,250 )
Accumulated deficit (6,604,417 ) (4,830 ) - (6,859,247 )
(250,000 )
---------------- ---------------- -------------- -----------------
Total shareholders' deficit (1,521,280 ) 500 (500 ) (1,521,280 )
---------------- ---------------- -------------- -----------------
Total liabilities and shareholders' deficit $ 479,832 $ 500 $ (500 ) $ 479,832
---------------- ---------------- -------------- -----------------
</TABLE>
F-24
26
<PAGE>
CBCOM, INC.
(a development stage company)
PRO FORMA COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
CBCom, Inc. Abbacy Pro forma
Nine Months Nine Months Nine Months
Ended Ended Ended
September 30, September 30, Pro forma September 30,
1999 1999 Adjustment 1999
---------------- ---------------- -------------- -----------------
Net sales $ - $ - $ - $ -
Cost of sales (Note 4) - - - -
---------------- ---------------- -------------- -----------------
Gross profit - - - -
Selling expense - - - -
General and administrative expense 1,508,775 4,830 - 1,513,605
Merger transaction expense 149,950 - 250,000 399,950
---------------- ---------------- -------------- -----------------
Loss from operations (1,658,725 ) (4,830 ) (250,000 ) (1,913,555 )
Other income (expense):
Interest expense, net (72,655 ) - - (72,655 )
Other, net 10,905 - - 10,905
---------------- ---------------- -------------- -----------------
Loss before income taxes (1,720,475 ) (4,830 ) (250,000 ) (1,975,305 )
Income tax provision (Note 3) 800 - - 800
---------------- ---------------- -------------- -----------------
Net loss $ (1,721,275 ) $ (4,830 ) $ (250,000 ) $ (1,976,105 )
================ ================ ============== =================
Weighted average number of common shares 15,425,353 15,675,353
outstanding ================ =================
Basic and diluted loss per share $ (0.11 ) $ (0.13 )
================ =================
</TABLE>
F-25
27
<PAGE>
CBCOM, INC.
(a development stage company)
PRO FORMA COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
CBCom, Inc. Abbacy Pro forma
Nine Months Nine Months Nine Months
Ended Ended Ended
December 31, December 31, Pro forma December 31,
1998 1998 Adjustment 1998
---------------- ---------------- -------------- -----------------
Net sales $ - $ - $ - $ -
Cost of sales (Note 4) - - - -
---------------- ---------------- -------------- -----------------
Gross profit - - - -
Selling expense - - - -
General and administrative expense 3,001,534 - - 3,001,534
Merger transaction expense - - - -
---------------- ---------------- -------------- -----------------
Loss from operations 3,001,534 - - 3,001,534
Other income (expense):
Interest expense, net (14,536 ) - - (14,536 )
Other, net (16,944 ) - - (16,944 )
---------------- ---------------- -------------- -----------------
Loss before income taxes (3,033,014 ) - - (3,033,014 )
Income tax provision (Note 3) 800 - - 800
---------------- ---------------- -------------- -----------------
Net loss $ (3,033,814 ) $ - $ - $ (3,033,814 )
================ ================ ============== =================
Weighted average number of common shares
outstanding 10,048,884 10,048,884
================ =================
Basic and diluted loss per share $ (0.30 ) $ (0.30 )
================ =================
</TABLE>
F-26
28
<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CBCOM, Inc.
/s/ Charles A. Lesser
------------------------
Charles A. Lesser
Chief Financial Officer
Date: February 8, 2000.
29
