SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
To
FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999 OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 0-26421
CBCOM, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4635025
------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
16830 Ventura Blvd., Suite 211
Encino, California 91436
------------------- ----------
(Address of principal executive offices) (Zip Code)
(818)461-0800
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|
State issuer's revenues for its most recent fiscal year: None
State the aggregate market value of voting and non-voting stock held by
non-affiliates: There is currently no market for the common stock.
Number of shares of Common Stock outstanding as of March 10, 2000: 17,212,240;
As of June 30,2000: 17,997,740
<PAGE>
CBCOM, Inc.
1999 ANNUAL REPORT ON FORM 10-KSB
PART I
ITEM 1. BUSINESS
Overview
CBCom, Inc. is a development stage company incorporated in Delaware in
April, 1997. CBCom was formed to develop telecommunications projects and
Internet-related information services in the People's Republic of China. CBCom
establishes joint venture partnerships with Chinese companies having data
networking technologies or customer bases to which CBCom will contribute United
States technology and management resources. As of December 31, 1999 CBCom has 14
employees, of which five are located in the United States, five are located in
Beijing and four are located in Shanghai.
In August, 1997, CBCom acquired selected assets of Beijing CBCom
Telecommunications and Consulting Co., Ltd., a Chinese private company owned by
Gordon Gao, currently a 2.5% shareholder and director of CBCom. Beijing CBCom
Telecommunications and Consulting Co., Ltd. was developing a Chinese character
special purpose pager designed to download stock quotations.
In October, 1997 CBCom and Beijing Great Wall Century Communications
Technology Company, Ltd., an established paging company in China established a
Sino-U.S. equity joint venture company called GCC CBCom (Tianjin) Communications
Company, Ltd. to build a nationwide paging network. The joint venture has not
commenced business, the business license has lapsed and CBCom will decide at a
later stage whether to reactivate GCC CBCom.
On January 31, 1999, the Company entered into a Memorandum of
Understanding with Shanghai Stock Exchange Communications Co. Ltd. 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 March 10, 2000.
Using strategic partnerships in China, combined with acquisitions,
CBCom will become both an Internet Service Provider (ISP) and Internet Content
Provider (ICP), serving China's huge and exponentially growing market of new and
existing Internet users. By entering this market now, CBCom will enjoy an early
lead into China's young and rapidly growing market of Internet users.
From August, 1997 to the present, CBCom has maintained a representative
office in Beijing called CBCom China for the purpose of oversight of its China
projects. From January, 1998 to March, 1999 CBCom had a representative office in
Shanghai for the purpose of developing its business relationship with Shanghai
Stock Exchange Communications Co. Ltd.
On September 24, 1999 CBCom entered into a merger agreement with Abbacy
Corporation, a public reporting company, to acquire 100% of its equity in
exchange for 250,000 shares of common stock of CBcom. On October 8, 1999, the
Board of Directors and the majority shareholders of the constituent corporations
approved the merger. The merger was effected on October 18, 1999 with the filing
of the Certificate of Merger with the State of Delaware.
2
<PAGE>
Internet Market
From its beginning of only 1700 users in 1993 (1), the Internet market
in China has seen unprecedented growth. China's Internet population tripled in
1998 (2), and quadrupled in the last year from 2.1 million in January of 1999
(3), to its last reported level of 8.9 million in January of 2000 (4). This
trend is expected to continue. China's Internet industry is nonetheless still in
its infancy and a majority of China's ISPs and ICPs are struggling, and in need
of outside help to grow or even just to remain solvent. This presents a window
of opportunity to capitalize on one of the largest and fastest growing markets
in the world. CBCom can combine its understanding of the special needs and
culture of China along with knowledge and lessons learned from the successful
American ISP and ICP markets.
ECommerce has not yet become a mainstream business in China, as credit
cards are essentially non-existent, and its parcel delivery services are
inadequate. ICP businesses offering free information and services financed
solely by web site "banner ads" are not yet profitable. The most secure Internet
revenues are those paid to the Internet Service Providers, as anyone wishing to
access the Internet must pay access fees. There is a large profit potential for
ISPs both now and in the foreseeable future.
Entering this business is attractive, as start-up costs are relatively
low. This has resulted in a large number of small, unsuccessful ISPs and ICPs,
that are under capitalized. The typical smaller ISP is unable to support its
overhead, even less capable of proper marketing, and is thus unable to increase
its subscribers enough to generate a profit.
CBCom plans an aggressive series of mergers, acquisitions, and service
expansions. CBCom will offer convenient accessibility through local access
numbers nationwide, fast access speeds, high quality customer support, and
user-friendly services, all of which are currently lacking in China but are
taken for granted in America. Internet Content will include unique and targeted
applications on its various web sites thereby drawing an ever-increasing
customer base to its ISP business, as well as generating revenue by charging
fees for specialized information and service web sites.
Acquisitions and Consolidation
In order to quickly reach a profitable number of subscribers, CBCom
plans to acquire a number of smaller ISPs and by using current technology,
--------
1 "Asia-Pacific Internet & Interactive Services", The Strategis Group, January
1997
2 "China's Internet Population Tripled in 1998", The Industry Standard, January
1999
3 "Semi-annual Report on the Internet", China Internet Network Information
Center, July 1999
4 Kathlene Ohlson, "China Internet Market on the Rise", The Industry Standard,
September 19981
3
<PAGE>
combine the existing customers into a single ISP. The infrastructure
requirements of a very small ISP are essentially the same as that of a very
large ISP and the cost to maintain operations are virtually fixed. Therefore the
single most important component of profitability is a high number of
subscribers. By acquiring existing businesses, CBCom will immediately benefit
from achieving economies of scale.
All existing ISP companies, regardless of size, require a minimum
infrastructure to provide customer access to the Internet. The single smaller
ISPs lack sufficient equipment to provide service beyond their local area. With
each acquisition, CBCom will acquire local telephone numbers and lines,
computers and connectivity equipment that is already operating throughout
different cities in China.
Memorandum of Understanding
CBCom has entered into a memorandum of understanding with Shanghai
Stock Exchange Communication Co., Ltd. ("SSECC") and Shanghai Xingtong
Telecommunications Science & Technology Co., Ltd. to form a Sino-foreign joint
venture to develop a financial data network in China called "China Financial
Network" or "CFN". SSECC is a subsidiary of the Shanghai Stock Exchange formed
as a joint venture between Shanghai Stock Exchange and Shanghai Stock Central
Clearing Company. The memorandum contemplates that SSECC will provide access to
its existing satellite communication system as well as licenses, permissions and
rights to use the logo, name and promotional information of the Shanghai Stock
Exchange. Shanghai Xingtong Telecommunications will participate in network
design and management to ensure efficient utilization of the satellite network
and will provide technical assistance. CBCom will provide the resources to
collect and compile global financial information, United States technology,
management resources and capital.
The memorandum of understanding anticipates the project planned in two
phases. Phase I is to market and distribute financial information in Chinese
provided by the Shanghai Stock Exchange over a network to various terminals
throughout China, exclusively targeting Chinese stockbrokers, financial
institutions and corporate users. The financial information provided will
include prices for commodities and futures, precious metals, Asian and global
equities and foreign currencies, global market indexes and real time
international news and commentary. The information provided will differ from
information provided by competitors in that it will be entirely in Chinese at a
lower rate. Phase II is to market to individual consumers real-time financial
data, news and on-line investment trading bundled as a single service,
developing into the equivalent of a commercial Internet Service Provider.
The parties to the memorandum must enter into a joint venture and
obtain the required approvals from the Chinese government authorities by
December 31, 2000 or may lose the exclusive right to the use of the SSECC
satellite communication system. CBCom has advanced $250,000 in start-up expenses
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.
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
promotional stock to Sinoway, Ltd. could be cancelled.
4
<PAGE>
Shanghai Stock Exchange Communication Co., Ltd.
SSECC is in charge of the satellite system utilized by the Shanghai
Stock Exchange to distribute real time data to its members. Shanghai Stock
Exchange is a leading stock exchange in China with 560 member brokerage
companies aggregating 2,700 brokerage offices, 20,000 stockbrokers and 33
non-member regional security exchange centers throughout China.
Shanghai Xingtong Telecommunications Science & Technology Co.
Shanghai Xingtong Telecommunications is a subsidiary of the China
Broadcast Satellite Communication company and can utilize its satellite
resources and operating license to provide specialized satellite communication
services. Shanghai Xingtong Telecommunications provides assistance to numerous
Chinese and other foreign companies in building telecommunications networks.
Satellite Network
The satellite network is used to transmit daily stock data and
information to selected brokerage firms and consists of three transponders
(relays) with satellite Asia-1 which are exclusively leased by the Shanghai
Stock Exchange for use by it 24 hours per day. The Shanghai Stock Exchange
utilizes the satellite network approximately 4 to 5 hours per day during market
hours to broadcast real-time financial information. Even during this high use
period, the transponders are utilizing only a fraction of their 26 megabit
bandwidth capacity. CBCom estimates that approximately only 20% to 30% of the
satellite network system capability is utilized with additional usage limited to
possible transactional growth. CBCom anticipates that it will be able to
broadcast on the unused network during off hours and on the unused bandwidths
during high usage times.
Competition
Presently, there are four Chinese government-affiliated Internet
service providers that control direct access to the World Wide Web in China and
approximately 100 small independent Internet Service Providers that are not
linked directly to the World Wide Web. There are several major ISPs which may
pose direct competition to the anticipated business of the joint venture
including Prodigy, Inc., a joint venture including the Shanghai Municipal
Commission of Foreign Relations and Trade and China Internet Corporation, which
was created in 1995 and has been responsible for the creation of the China Wide
Web, an on-line business information and communications system which spans
China. There are four primary financial information vendors servicing the
Chinese market:
Reuters, Telerate (Dow Jones), Hong Kong Data, and Xinhua.
CBCom's Pager Business
In August, 1997, CBCom acquired selected assets of Beijing CBCom
Telecommunications and Consulting Co., Ltd., a Chinese private company owned by
Gordon Gao, including its paging system development. In April, 1999, CBCom
entered into an agreement with Radio, Computer & Telephone Corporation (RC&T), a
Minnesota corporation, for a 10-year license for the non-exclusive license to
market the Microtron 2000 pager, an alphanumeric paging device originally
developed by RC&T pursuant to the specifications of Beijing CBCom for sale in
5
<PAGE>
China. RC&T had filed a complaint against CBCom and others alleging misuse of
information and appropriation of certain proprietary information in regard to
the Microtron 2000.The April 1999 agreement calls for a royalty payment of $2.25
per pager sold in China and represents a settlement of those claims.
In addition to the standard message taking capabilities, the Microtron
2000 pager works as an electronic organizer with directory and diary
capabilities and has the capability to receive user-defined information such as
stock quotes, bank and brokerage accounts, and e-mail. CBCom entered into an
agreement with Samjin Co., Ltd., a Korean corporation, for the manufacture of
the paging devices. CBCom ordered an initial 2000 paging units for sale in
China. CBCom has finalized testing and has appointed a distributor in China to
market the pagers; however, no sales have occurred to date. All of the parts are
in the hands of Samjin Co. and based on the lack of sales to date, CBCom has
written off the balance of parts needed to manufacture the Microtron 2000 pager.
Marketing
CBCom intends to continue its sale of the Microtron 2000 in addition to
the development of the joint venture project for the creation of the China
Financial Network. CBCom believes that the Shanghai Stock Exchange and its
members provide a ready market for the sale of the Microtron 2000 and its
capability to receive stock quotes.
The use of individual pagers has grown significantly since their
introduction in 1987. The rapid growth is believed to be a result of the
shortage of fixed-line phones and the growth of the private market economic
system. CBCom believes that pagers will compete favorably in China with mobile
telephones because in addition to the scarcity of telephone lines and phones,
pagers are small, easy to use, have lower prices and annual fees, are easier to
purchase, and provide retrieval of data such as current affairs, weather
forecasts, financial news, stock quotes and sports scores.
Prior Joint Venture
In October 1997, CBCom and Beijing Great Wall Century Communications
Technology Company, Ltd., an established paging company in China, entered into a
20-year joint venture contract to establish a Sino-foreign joint venture company
called GCC CBCom (Tianjin) Communications Company, Ltd. to build a nationwide
paging network. The joint venture company was formed and CBCom advanced $107,500
in organizational and start-up costs . The joint venture was not commenced and
the business license for the joint venture expired.
ITEM 2. PROPERTIES.
In September, 1997, the Company leased approximately 8,000 square feet
of office space in Sherman Oaks, California under a 5-year lease which expires
August 31, 2002. The facility was in excess of the needs of CBCom at this time
and the lessor agreed in December, 1999 to take back the space. In January, 2000
the Company entered into a 3-year lease expiring December 31, 2002 for
approximately 2,169 square feet at 16830 Ventura Boulevard, Suite 211, Encino,
California at a monthly rental of $4,771.
6
<PAGE>
CBCom has entered into a 5-year lease for its China headquarters that
expires February 28, 2003 for approximately 6,000 square feet at A No. 9 Dong
Tucheng Road, Heping Street, Chao Yang District, Beijing, China, at a monthly
rental of $5,208 per month payable in the form of shares of CBCom common stock.
The aggregate rental ($312,500) has been prepaid by the issuance of 625,000
shares of CBCom to Far East Trading Company, beneficially owned by shareholders
of CBCom.
Each of the facilities are adequate for the Company's current needs.
ITEM 3. LEGAL PROCEEDINGS
CBCom entered into a settlement agreement with Bernard Luskin, the
former Chief Executive Officer of CBCom, in January, 1999, settling an
outstanding dispute for unpaid salary and other compensation. Mr. Luskin had an
employment contract with CBCom which guaranteed payment of his salary through an
escrow account containing 800,000 shares of common stock of Amtec, Inc., which
shares were pledged by Polmont Investments, Ltd., a British Virgin Islands
corporation controlled by one of the principal stockholders of CBCom.
Through the settlement, the parties agreed that Mr. Luskin will receive
unpaid salary and bonus through May 15, 1999 totaling $520,833 plus additional
compensation as may be determined by binding arbitration; but in no event shall
CBCom's liability exceed the value of the shares held in escrow. Mr. Luskin
waived any rights to satisfy any claims against CBCom from any assets other than
those shares held in the escrow account. CBCom is obligated to repay Polmont the
amount it paid to Mr. Luskin from the sale of its Amtec, Inc. shares. Polmont
has agreed to accept payment in the form of shares of CBCom, Inc. valued at
$0.50 per share. Due to the nature of this off-balance sheet financing, the
Company recognized prepaid interest of $220,000 and the corresponding amount in
additional paid-in capital and amortized the prepaid interest over the period of
three years.
On August 30, 1999, a law suit was filed in the Superior Court of the
State of California against CBCom, Inc., Max Sun, and Charles Lesser (Case No.
LCO49888) by Com VU Corporation, a Delaware corporation, based on an alleged
breach of a prior agreement between CBCom and Com VU. The parties entered into a
merger agreement on March 26, 1999, which merger was never effected. Com VU is
alleging CBCom (i) failed to consummate the merger by failure to use its best
efforts to effect it (ii) failed to pay $50,000 in outstanding debts to two
shareholders on behalf of Com Vu (iii) terminated the agreement improperly and
(iv) 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. CBCom
disputes the allegations of the claims and intends to defend the action
vigorously.
Subsequent Event. As of September 1, 2000, Bernard Luskin, former CEO of the
Company has been fully compensated and has released the Company of all claims.
As of September 1, 2000, Com Vu Corporation, in a letter from its counsel, has
accepted CBCom's proposal to resolve the complaint and cross complaint in this
matter by each side releasing the other and dismissing the lawsuit. Pursuant to
this agreement, no payments will be made by or to either side. This settlement
has not been memorialized in a formal settlement agreement.
7
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during
the fourth quarter of 1999.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There has never been a market for the Common Equity of the Registrant.
Recent Sales of Unregistered Securities
1997
During 1997, the Company sold securities that were exempt from
registration under the Securities Act. These transactions are described below.
On April 23, 1997, the Company issued 2,000,000 shares of common stock at $0.20
per share to one of the founding shareholders 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 Mr. Gordon Gao in exchange for his company's, Beijing CBCom
Telecommunications and Consulting Co. Ltd., 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.
1998
During 1998, the Company sold securities that were exempt from
registration under the Securities Act. These transactions are described below.
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 loan was made to the Company from time to time on an as-needed basis
from June 15, 1997 to April 24, 1998 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 at $0.50 per
share in four tranches.
On December 31, 1998, the Company issued 400,000, 400,000, and 320,000 (a total
of 1,120,000) shares of common stock at $0.50 per share to three directors as
8
<PAGE>
their employment compensation of $200,000, $200,000, and $160,000, respectively,
for four months in 1997 (recognized in 1997) and the year of 1998 in accordance
with their respective employment agreements.
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 satellite 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. 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
March 10, 2000, the license has not been obtained.
1999
During 1999, the Company sold securities that were exempt from
registration under the Securities Act. These transactions are described below.
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.
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.
Details are included in Note 7 to the Financial Statements.
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.
Details are included in Note 7 to the Financial Statements.
9
<PAGE>
On August 26, 1999, 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. On December 22, 1999,
the Company completed the offering, issued 50,000 shares of common stock, and
recognized a merger transaction expense of $49,950. The $50 cash was received
subsequent to December 31, 1999.
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 share 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. Details are included in
Note 7 to the Financial Statements.
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. In accordance with the merger
agreement, Abbacy filed a Form 8-K with the SEC on October 19, 1999 to indicate
that CBCom, Inc. would be the successor of the reporting entity in accordance
with the rule 12 (g) 3 in the 1934 Act. On December 22, 1999 the Company issued
250,000 shares of common stock valued at $1.00 per share to the sole shareholder
of Abbacy in exchange for 100% of its equity interest. Accordingly, the Company
recognized $250,000 of merger expense.
On November 1, 1999, the principal shareholder converted $70,000 of
shareholder loan into 140,000 shares of common stock at $0.50 per share.
On December 30, 1999, the principal shareholder converted $578,370 of
shareholder loan into 1,156,740 shares of common stock at $0.50 per share. He
immediately sold the shares to Tan Siong Bee, who is the beneficial holder for
TSB International Inc. Mr. Sun disclaims any beneficial ownership in these
shares.
Subsequent Events
2000
In April and June, 2000, Mr. Max Sun converted loans aggregating
$270,400 into 468,500 shares of common stock.
In April and June, 2000, Mr. Steve Meadows, Chief Engineer of CBCom,
Inc. was issued an aggregate of 317,000 shares of common stock for services
rendered since 1999. The company has recognized compensation cost of $226,500.
10
<PAGE>
PART II
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following selected financial data is as of and for the years ended
December 31, 1999 and 1998, and for the period ended December 31, 1997.
--------------------------------------------
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ -------------
Statements of Operations Data: (in thousands, except per share data)
Net sales ........................ $ - $ - $ -
Cost of sales ....................
------- -------- --------
Gross profit ..................... - - -
Operating expenses:
General and administrative ..... 1,772 3,001 1,847
Merger Expense.................. 400
-------- -------- --------
Total operating expenses ..... 2,172 3,001 1,847
-------- -------- --------
Income (loss) from operations .... (2,172) (3,001) (1,847)
Interest expense, net ............ 106 14 1
Other (income) expense, net ...... (11) (17) -
-------- -------- --------
Income (loss) before income taxes. (2,267) (3,033) (1,848)
Provision (benefit) for income taxes 1 1 1
-------- -------- --------
Net income (loss) ................ $(2,268) $(3,034) $(1,849)
======== ======== ========
Net income (loss) per common share:
Basic .......................... $ (0.15) $ (0.30) $ (0.63)
======== ======== ========
Diluted ........................ $ (0.15) $ (0.30) $ (0.63)
======== ======== ========
Common shares used in computing per share amounts:
Basic .......................... 15,568,879 10,049,226 2,937,500
========== ========== =========
Diluted ........................ 15,568,879 10,049,226 2,937,500
========== ========== =========
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ -------------
Balance Sheet Data: (in thousands)
Cash and cash equivalents ........ $ 32 $ 240 $ 401
Total assets ..................... 473 733 568
Total liabilities ................ 1,586 1,111 1,730
Total stockholders' equity ....... (1,113) (378) (1,162)
11
<PAGE>
Overview
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 the People's Republic of China. The Company
will seek to acquire existing Internet Service Providers (ISP)and web based
content providers (ICP) and operate through a series of sino-foreign joint
venture companies. The Company previously established a joint venture in order
to operate in the pager network business in China; however, this venture was
closed due to the inability at that time to raise sufficient capital. The
Company incurred consecutive losses in 1997, 1998, and 1999.
The following table summarizes certain key financial information:
--------------------------------------------------------------------------------
Change Change
1999 from 1998 from 1997
($000s) prior year ($000s) prior year ($000s)
--------------------------------------------------------------------------------
Net Sales $ - $ - $ -
--------------------------------------------------------------------------------
Gross Profit $ - $ - $ -
--------------------------------------------------------------------------------
General and Administrative
Expenses $ 1,772 (41%) $ 3,002 62% $ 1,847
--------------------------------------------------------------------------------
Merger Expenses $ 400 $ $
--------------------------------------------------------------------------------
Interest Expense,Net $ 107 $ 15 $ 1
Other (Income), Net $ (11) $ 17
-------------------------------------------------------------------------------
Provision (Benefit) for
Income Taxes $ 1 $ 1 $ 1
-------------------------------------------------------------------------------
Results of Operations
Fiscal Years Ended December 31, 1999 and December 31, 1998
The Company has been in the development stage since its inception in
April, 1997. To date, there have been no revenues generated from any of the
operations of the Company. General and administrative expenses consist
principally of business development expenses in China, and salaries and other
overhead expenses in the United States, as well as legal and other professional
services. General and administrative expenses decreased by 41% to $1.8 million
in 1999 from $3.0 million in 1998.
12
<PAGE>
The decrease in general and administrative expenses in 1999 resulted
primarily from the fact that much of the Company's business development expenses
were written off during 1998. The Company has written off all of the expenses of
CBCom China, its representative office in Beijing. The Company wrote off
$280,500 in 1998 and $180,000 in 1999 of funds advanced to CBCom China and
recorded as part of G&A expense. CBCom wrote off all of the assets obtained from
Beijing CBCom Telecommunications and Consulting Company Ltd. in 1988 totaling
$187,500.
CBCom China has been active in securing potential joint venture
projects and in the technical development of the Microtron pager. The balance of
the Microtron pager inventory and development expenses amounting to $143,491
were written off in 1999 as these costs may not have any economic value until
there are current sales.
In October, 1997 CBCom, Inc. and Beijing Great Wall Century
Communications Technology Company, Ltd., an established paging company in China,
established a sino-U.S. equity joint venture company called GCC CBCom (Tianjin)
Communications Company, Ltd. to build a nationwide paging network. CBCom
advanced $107,500 to the joint venture for organization costs and start-up
costs. The joint venture has not commenced operations and CBCom has expensed the
$107,500 during 1998 and will decide at a later date 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 to distribute real time stock and
financial data in China using the satellite communications system owned by
Shanghai Stock Exchange Communications Co. The Company advanced $250,000 in
start-up costs expensed mainly during 1998 which expenses could be credited
toward its capital contribution to the joint venture company when the joint
venture is completed. In 1998, 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 SSEC's VSAT satellite system. The Company recognized a
non-cash promotional expense for the Contract of $623,750 during 1998.
The largest operating expense has been management salaries; however,
much of the management compensation has been paid by issuance of common stock..
The Company issued a total of 875,000 shares of common stock to its CEO, CFO and
Chief Engineer as a signing bonus and recognized a non-cash compensation expense
of $436,625 in 1998. A number of the founding shareholders and directors
received no cash compensation from the inception of the company through the end
of 1998. The Company issued 1,120,000 shares of common stock in December, 1998
and recognized $560,000 non-cash compensation expense. At December 31, 1999 the
company has salaries payable of $557,250, most of which will be converted into
common stock at a conversion price of $1.00 per share, the current fair market
value.
In addition to management salaries, the most significant overhead
expenses of the Company have been legal expenses and merger expenses. The
Company undertook a merger with ComVu Corporation, a dormant public shell
company during 1998 and decided to terminate that merger when the OTC Bulletin
Board (OTCBB) eligibility requirements were changed in January of 1999. The
Company undertook and completed a merger with ABBACY Corporation, a public shell
13
<PAGE>
company in October of 1999. The Company recognized $100,000 of legal fees in
connection with the merger and $250,000 related to the issuance to the
shareholders of Abbacy Corporation of 250,000 shares of CBCom, Inc. common stock
valued at $1.00 per share.
Plan of Operation
CBCom was formed to develop telecommunications projects and
Internet-related information services in the People's Republic of China. CBCom
establishes joint venture partnerships with Chinese companies having data
networking technologies or customer bases to which CBCom will contribute United
States technology and management resources. In order to execute its Business
Plan, CBCom plans to list its common shares on the OTC Bulletin Board and
undertake a Private Placement of $5.0-10.0 million. The funds will be used to
capitalize the joint venture partnerships and acquire internet companies in
China. If CBCom is unable to raise funds through a Private Placement, the
company would be dependent upon its major shareholders for funds and would have
to alter its acquisition strategy and timetable.
To limit the use of valuable cash reserves, CBCom will negotiate its
first acquisitions using only CBCom shares. The terms of any acquisition must
give operating control of the acquired business to CBCom. CBCom will provide the
necessary operating cash as well as management and technical staff to operate
the consolidated business. There is good cause to believe that owners of the
ISPs in China will welcome the opportunity to own stock in a United States
public company.
ECommerce has not yet become a mainstream business in China, as credit
cards are essentially non-existent, and its parcel delivery services are
inadequate. ICP businesses offering free information and services financed
solely by web site "banner ads" are not yet profitable. The most secure Internet
revenues are those paid to the Internet Service Providers, as anyone wishing to
access the Internet must pay access fees. There is a large profit potential for
ISPs both now and in the foreseeable future.
Entering this business is attractive, as start-up costs are relatively
low. This has resulted in a large number of small, unsuccessful ISPs and ICPs,
that are under capitalized. The typical smaller ISP is unable to support its
overhead, even less capable of proper marketing, and is thus unable to increase
its subscribers enough to turn a profit.
CBCom plans an aggressive series of mergers, acquisitions, and service
expansions. CBCom will offer convenient accessibility through local access
numbers nationwide, fast access speeds, high quality customer support, and
user-friendly services, all of which are currently lacking in China but are
taken for granted in America. Internet Content will include unique and targeted
applications on its various web sites thereby drawing an ever-increasing
customer base to its ISP business, as well as generating revenue by charging
fees for specialized information and service web sites.
In order to quickly reach a profitable number of subscribers, CBCom
plans to acquire a number of smaller ISPs and by using current technology,
combine the existing customers into a single ISP. The infrastructure
requirements of a very small ISP are essentially the same as that of a very
large ISP and the cost to maintain operations are virtually fixed. Therefore the
14
<PAGE>
single most important component of profitability is a high number of
subscribers. By acquiring existing businesses, CBCom will immediately benefit
from achieving economies of scale.
CBCom has entered into a memorandum of understanding with Shanghai
Stock Exchange Communication Co., Ltd. ("SSECC") and Shanghai Xingtong
Telecommunications Science & Technology Co., Ltd. to form a Sino-foreign joint
venture to develop a financial data network in China called "China Financial
Network" or "CFN". SSECC is a subsidiary of the Shanghai Stock Exchange formed
as a joint venture between Shanghai Stock Exchange and Shanghai Stock Central
Clearing Company. The memorandum contemplates that SSECC will provide access to
its existing satellite communication system as well as licenses, permissions and
rights to use the logo, name and promotional information of the Shanghai Stock
Exchange. Shanghai Xingtong Telecommunications will participate in network
design and management to ensure efficient utilization of the satellite network
and will provide technical assistance. CBCom will provide the resources to
collect and compile global financial information, United States technology,
management resources and capital.
The memorandum of understanding anticipates the project planned in two
phases. Phase I is to market and distribute financial information in Chinese
provided by the Shanghai Stock Exchange over a network to various terminals
throughout China, exclusively targeting Chinese stockbrokers, financial
institutions and corporate users. The financial information provided will
include prices for commodities and futures, precious metals, Asian and global
equities and foreign currencies, global market indexes and real time
international news and commentary. The information provided will differ from
information provided by competitors in that it will be entirely in Chinese at a
lower rate. Phase II is to market to individual consumers real-time financial
data, news and on-line investment trading bundled as a single service,
developing into the equivalent of a commercial Internet Service Provider.
The parties to the memorandum must enter into a joint venture and
obtain the required approvals from the Chinese government authorities by
December 31, 2000 or may lose the exclusive right to the use of the SSECC
satellite communication system. CBCom has advanced $250,000 in start-up expenses
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.
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
promotional stock to Sinoway, Ltd. could be cancelled.
CBCom intends to continue its sale of the Microtron 2000 in addition to
the development of the joint venture project for the creation of the China
Financial Network. CBCom believes that the Shanghai Stock Exchange and its
members provide a ready market for the sale of the Microtron 2000 and its
capability to receive stock quotes.
15
<PAGE>
Liquidity and Capital Resources
The Company has suffered losses in 1997, 1998 and 1999 and had negative
working capital in 1997, 1998 and 1999, respectively. The Company was funded
initially by two of its founding shareholders in the amounts of $400,000 and
$1,600,000, respectively. During 1999, the Company raised money through a series
of private placements netting $304,000 after selling commissions. In addition,
one of the Company's directors and major shareholders has provided the Company
with loan funds that are convertible into Common Stock at a price of $0.50 per
share. Funds loaned to the Company equalled $679,000 in 1998 and $137,000 in
1999.
One the Company's directors and major shareholders continues to provide
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 its joint venture projects. The Financial Statements
have been prepared assuming that the Company will continue as a going concern.
The audit report indicates that the company has a limited operating history and,
at December 31, 1999 has a shareholders' deficit and that those conditions raise
substantial doubt about the company's ability to continue as a going concern.
While there is no assurance that funding will be available, the Company is
continuing to actively seek funding to complete its joint venture projects and
execute its Business Plan through equity and/or debt financing. Without outside
funding, the Company is totally dependent upon its major shareholders and would
need to reconsider its Business Plan.
RISK FACTORS
CBCom is currently operating at a loss
Revenues from CBCom's sales to date have not been sufficient to cover
the costs of such operations and CBCom has borrowed funds to maintain its
operations. Its ability to develop operations is dependent upon its ability to
generate sales of its paging units or to develop the proposed China Financial
Network.
CBCom commenced operations in 1997 and has a limited operating history
CBCom commenced operations in 1997 and has only a limited history of
operations which to date have not been profitable. Its operations are subject to
the risks and competition inherent in the establishment of a relatively new
business enterprise. There can be no assurance that future operations will be
profitable. Revenues and profits, if any, will depend upon various factors,
including market acceptance of its concepts, market awareness, reliability and
acceptance of the Internet, dependability of its distribution network, and
general economic conditions. There is no assurance that CBCom will achieve its
expansion goals and the failure to achieve such goals would have an adverse
impact on it.
16
<PAGE>
Need for additional capital
CBCom needs additional capital in order to implement its business plan,
to continue its operations and pay outstanding liabilities. CBCom anticipates
that it will seek to raise additional capital through the sale of its equity or
debt securities or through borrowings from commercial lending institutions.
CBCom has no commitments from any financial sources for such funding and there
is no assurance that CBCom will be able to locate any such funding. The
inability of CBCom to raise additional capital could result in its inability of
continue its operations.
Prior joint venture did not succeed
CBCom entered into an earlier joint venture for the development of its
paging network. CBCom was unable to provide the capital required to fund the
joint venture and the term of the joint venture expired without development.
There is no assurance that CBCom will be able to provide the funding necessary
in the proposed joint venture with SSECC. If it is unable to provide such
capital, the proposed business plan of the joint venture would not be able to
continue.
Enforceability of certain civil liabilities
Certain of CBCom's officers and directors reside outside the United
States. Many of the assets of these persons are, and CBCom anticipates that a
substantial portion of the assets that may developed or acquired by it will be
located outside the United States. As a result, it may not be possible for
investors to effect service of process within the United States upon such
persons, or to enforce against CBCom's assets or against such personal judgments
obtained in United States courts predicated upon the liability provisions, and
most particularly the civil liability provisions, of the United States
securities laws or state corporation or other law.
Investment in Far East generally
The Company anticipates that it will initially focus its development
efforts on telecommunication projects and opportunities located in China and the
Far East. Because of government controls and lack of established information
systems, information regarding projects in which the Company may participate
located in China and the Far East will be difficult for United States investors
to obtain and investors will be unable to track the progress of the Company. In
addition, if the Company begins operations in China or the Far East it will be
subject to the risks incident to the ownership and operation of businesses
therein. These risks include, among others, the risks of internal political or
civil unrest, war, or government restrictions. These risks are dynamic and
difficult to quantify. The Company will be subject to the risks normally
associated with changes in general national economic conditions or local market
conditions, competition, patronage, changes in market rates, and the need to
periodically upgrade and replace equipment to maintain desirability, and to pay
the costs thereof. Although many of the governments of the countries of the Far
East have liberalized policies on international trade, foreign ownership and
development, investment, and currency repatriation, increasing both
international trade and investment accordingly, such policies might change
17
<PAGE>
unexpectedly. The Company will be affected by the rules and regulations
regarding foreign ownership of real and personal property, including
telecommunication switching stations, land lines and other property. Such rules
may change quickly and dramatically which may have an adverse impact on
ownership and may result in a loss without recourse of property or assets of the
Company. Hong Kong is in a period of transition from British control over it to
control by China. It is uncertain what changes may result from such transition
with regard to business, foreign property ownership, restrictions on
development, taxes or other factors.
Investment in China in particular
Because the operations of the Company are expected to be based to a
substantial extent in China, the Company will be subject to the rules and
restrictions governing China's legal and economic system as well as general
economic and political conditions in that country. These include the following:
Political and Economic Matters. Under its current leadership, the
government of the People's Republic of China ("PRC") has been pursuing economic
reform policies, which include the encouragement of private economic activity
and greater economic decentralization. There can be no assurance, however, that
the Chinese government will continue to pursue such policies, or that such
policies will be successful if pursued. Changes in policies made by the Chinese
government may result in new laws, regulations, or the interpretation thereof,
confiscatory taxation, restrictions on imports, currency devaluations or the
expropriation of private enterprise which may, in turn, adversely affect the
Company. Furthermore, business operations in China can become subject to the
risk of nationalization, which could result in the total loss of ownership and
control of any assets or operations that may be developed by the Company in
China. Also, economic development may be limited by the imposition of austerity
measures intended to reduce inflation, the inadequate development of an
infrastructure, and the potential unavailability of adequate power and water,
transportation, communication networks, raw materials and parts.
Legal System. The PRC's legal system is a civil law system based on
written statutes. Unlike the common law system in the United States, decided
legal cases in the PRC have little value as precedents. Furthermore, the PRC
does not have a well-developed body of laws governing foreign enterprises.
Definitive regulations and policies with respect to such matters as the
permissible percentage of foreign investment and permissible rates of equity
returns have not yet been published, statements regarding these evolving
policies have been conflicting, and any such policies, as administered, are
likely to be subject to broad interpretation and modification, perhaps on a
case-by-case basis. As the legal system in the PRC develops with respect to such
new forms of enterprise, foreign investors may be adversely affected by new
laws, changes in existing laws (or interpretation thereof) and the preemption of
provincial or local laws by national laws. The Company's operations in China, if
any are developed (of which there can be no assurance) will be subject to
administrative review and approval by various national and local agencies of the
PRC government. Management intends that the Company's operations will comply
with applicable administrative requirements; however, there is no assurance that
the Company will be able to timely obtain the necessary administrative approvals
for any projects that it determines to develop.
18
<PAGE>
Foreign Currency Exchange. The Renminbi ("Rmb"), the currency of China,
is not a freely convertible currency. Both conversion of Rmb into foreign
currencies and the remittance of Rmb abroad are subject to the PRC government
approval. The Company intends to develop telecommunication systems in the Far
East including China and anticipates that initially it may earn revenues, if
any, and incur costs, in Rmb.
Prior to January 1, 1994, Rmb earned within China were not freely
convertible into foreign currencies except with government permission, at rates
determined at swap centers, where the exchange rates often differed
substantially from the official rates quoted by the People's Bank of China. On
January 1, 1994, the People's Bank of China introduced a managed floating
exchange rate system based on the market supply and demand and proposed to
establish a unified foreign exchange inter-bank market among designated banks.
In place of the official rate and the swap center rate, the People's Bank of
China publishes a daily exchange rate for Rmb based on the previous day's
dealings in the inter-bank market. It is expected that swap centers will be
phased out. However, the unification of exchange rates does not imply full
convertability of Rmb into United States dollars or other foreign currencies.
Payment for imported materials and remittance of earnings outside of China are
subject to the availability of foreign currency which is dependent on the
foreign currency-denominated earnings of the entity or allocated to the Company
by the government at official exchange rates.
Approval for exchange at the exchange center is granted to enterprises
in China for valid reasons such as purchases of imported goods and remittance of
earnings. While conversion of Rmb into dollars or other foreign currencies can
generally be effected at the exchange center, there is no guarantee that it can
be effected at all times. There is still uncertainty as to how foreign
enterprises will be treated under this new system or whether the system will be
changed again in the future. In the event of shortages of foreign currency, the
Company may be unable to convert sufficient Renminbi into foreign currency to
enable it to comply with foreign currency payment obligations it may have.
PRC Regulation of the Telecommunications Industry. The Ministry of
Posts and Telecommunications (the "MPT") regulates the telecommunications
industry in China. The MPT directly or indirectly regulates entry into the
telecommunications industry, scope of permissible business, interconnection and
transmission line arrangements, technology and equipment standards, and other
aspects of the Chinese telecommunications industry. Such regulation may limit
the Company's flexibility to respond to certain development opportunities. In
addition, changes in the regulations or policies governing such regulatory
framework could have an adverse effect on the Company. The Company may have to
obtain certain licenses, if required, from the MPT in order to commence its
proposed business. There is no assurance that it will be able to obtain such
licenses, or if obtained, that they will not be untimely revoked or suspended.
The rates that the Company will be permitted to charge for telecommunications
services, if any are developed, are subject to regulation by the State Planning
Commission, the MPT, and relevant Provincial Price Bureaus. Once authorized by
such regulatory agencies, there can be no assurance that changes in the tariffs
and rates would not have a material adverse effect on any Company business and
results of operations, if any had been developed.
19
<PAGE>
Management and affiliates own enough shares to control shareholder vote
CBCom's executive officers and directors beneficially own approximately
19.1% of the outstanding common stock of CBCom. These officers and directors do
not have controlling interest over matters requiring shareholder approval. Over
6,500,000 shares of the outstanding common stock of CBCom is owned by companies
or individuals with familial relationships to the officers and directors of
CBCom, over which such officers and directors claim no beneficial ownership or
voting control. However, taken together the shares owned by the executive
officers and directors and those individuals or entities with familial
relationships have controlling interest over matters requiring stockholder
approval, including the election of directors and the approval of material
corporate matters such as change of control transactions. The effects of such
control could be to delay or prevent any attempt to change control of CBCom
instigated by shareholder action without management support.
Issuance of future shares may dilute investors share value
The Certificate of Incorporation as amended of CBCom authorizes the
issuance of 80,000,000 shares of common stock and 20,000,000 shares of preferred
stock. The future issuance of all or part of the remaining authorized common
stock may result in substantial dilution in the percentage of the Company's
common stock held by the its then existing shareholders. Moreover, any common
stock issued in the future may be valued on an arbitrary basis by CBCom. The
issuance of the Company's shares for future services or acquisitions or other
corporate actions may have the effect of diluting the value of the shares held
by investors, and might have an adverse effect on any trading market, should a
trading market develop for the Company's common stock.
The possibility of CBCom issuing preferred stock with certain preferences may
depress market price of the common stock
CBCom has 20,000,000 shares of non-designated preferred stock
authorized which it may issue from time to time by action of the Board of
Directors. The Board of Directors may designate series or classes of preferred
shares without shareholder consent which designations may give the holders of
the preferred stock voting control and other preferred rights such as to
liquidation and dividends. The authority of the Board of Directors to issue such
stock without shareholder consent may have a depressive effect on the market
price of CBCom's common stock even prior to any such designation or issuance of
the preferred stock.
The possibility of issuing preferred stock for anti-takeover effect could
prevent takeovers favored by shareholders
The Board of Directors has the authority, without further approval of
stockholders, to issue preferred stock, having such rights, preferences and
privileges as the Board of Directors may determine. Any such issuance of shares
of preferred stock, under certain circumstances, could have the effect of
delaying or preventing a change in control of CBCom or other take-over attempt
and could adversely materially affect the rights of holders of shares of the
common stock.
20
<PAGE>
Officers and directors have limited liability and have indemnity rights
The Certificate of Incorporation and By-Laws of CBCom provide that
CBCom indemnify its officers and directors against losses sustained or
liabilities incurred which arise from any transaction in such officer's or
director's respective managerial capacity unless such officer or director
violates a duty of loyalty, did not act in good faith, engaged in intentional
misconduct or knowingly violated the law, approved an improper dividend, or
derived an improper benefit from the transaction. The Company's Certificate of
Incorporation and By-Laws also provide for the indemnification by it of its
officers and directors against any losses or liabilities incurred as a result of
the manner in which such officers and directors operate the Company's business
or conduct its internal affairs, provided that in connection with these
activities they act in good faith and in a manner which they reasonably believe
to be in, or not opposed to, the best interests of the Company and their conduct
does not constitute gross negligence, misconduct or breach of fiduciary
obligations.
Penny Stock Regulation
Upon commencement of trading in the Company's stock, if a market is
developed and if the Company is accepted for trading on the OTC Bulletin Board
(of which there can be no assurance) the Company's common stock may be deemed a
penny stock. Penny stocks generally are equity securities with a price of less
than $5.00 per share other than securities registered on certain national
securities exchanges or quoted on the Nasdaq Stock Market, provided that current
price and volume information with respect to transactions in such securities is
provided by the exchange or system. The Company's securities may be subject to
"penny stock rules" that impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally those with assets in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 together with their
spouse). For transactions covered by these rules, the broker-dealer must make a
special suitability determination for the purchase of such securities and have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the "penny stock rules" require the delivery, prior to the transaction,
of a disclosure schedule prescribed by the Commission relating to the penny
stock market. The broker-dealer also must disclose the commissions payable to
both the broker-dealer and the registered representative and current quotations
for the securities. Finally, monthly statements must be sent disclosing recent
price information on the limited market in penny stocks. Consequently, the
"penny stock rules" may restrict the ability of broker-dealers to sell the
Company's securities. The foregoing required penny stock restrictions will not
apply to the Company's securities if such securities maintain a market price of
$5.00 or greater. There can be no assurance that the price of the Company's
securities will reach or maintain such a level.
21
<PAGE>
Disclosure of Year 2000 Issues
Like other companies, the Company could be adversely affected if the
computer systems it and its suppliers or customers use do not properly process
and calculate date-related information and data from the period surrounding and
including January 1, 2000. This is commonly known as the "Year 2000" issue.
Additionally, this issue could also impact non-accounting systems.
The Company's project to assess and correct Y2K related issues
regarding the Year 2000 has been completed and the Company has not experienced
any significant Y2K related events. However, interactions with other companies'
systems make it difficult to conclude there will not be future effects.
Consequently, at this time, management cannot provide assurances that the Year
2000 issues will not have an impact on the Company's operations.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 13 of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The predecessor company, Abbacy Corporation, engaged the services of
Weinberg & Company, Certified Public Accountants of Boca Raton, Florida. The
registrant, CBCom, Inc. engages the services of BDO International, through its
Shanghai, PRC office. There are no disagreements with accountants. Form 8-K was
filed on September 7, 2000.
22
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Name Age Title
Chiah Yi (Max) Sun 35 Chairman of the Board, President, Director
Charles A. Lesser 53 Secretary, Treasurer, Chief Financial
Officer, Director
Hong Wei (Frank) Zhu 43 Chairman, CBCom China and Director
Gordon Xia Gao 30 General Manager, CBCom China and Director
MR. MAX SUN is Chairman, President, and a Director of the Company since 1997.
Mr. Sun founded and was President of Microtron, Inc., a company that has
developed and distributed pagers in China. Mr. Sun was a founding shareholder
and Senior Vice President, International, of Amtec, Inc. an American Stock
Exchange Company constructing telecommunications networks in China. Previously,
he was founder and President of Interactive TeleVideo, Inc. (ITV), a company
that designed interactive circuitry network products. Mr. Sun has been an
investment banker in Hong Kong and China. He holds a Bachelor of Arts degree in
Accounting from New York University.
Mr. CHARLES A. LESSER is Secretary, Treasurer, Chief Financial Officer and a
Director of the Company since June, 1997. Prior to joining CBCom, Inc. Mr.
Lesser has served as an independent Consultant to early stage companies. From
1994-1995, he was Vice President of Worldwide Corporate Finance, a company which
raised private capital. Previously, Mr. Lesser was Chief Financial Officer of
Weider Sporting Goods, Inc., a manufacturer and distributor of health and
fitness products. He has worked as both a management consultant and auditor with
Alder, Green & Hasson in Los Angeles, KPMG Peat Marwick in Houston and Deloitte
& Touche in Johannesburg, South Africa. He holds an M.B.A. from the University
of the Witwatersrand in South Africa and a B.A. in Economics from the University
of Pittsburgh in Pennsylvania.
MR. FRANK ZHU is a Director of CBCom, Inc.since 1997 and is Chairman of the
Beijing representative office, CBCom China Previously Mr. Zhu held a series of
important managerial positions in China. From 1994 to 1996, he was Chairman and
Vice Executive Officer of China Far East International Trading Group, Los
Angeles, in charge of Sino-US trading activities. From 1991 to 1994, he was
General Manager of Jiyuan Real Estate. Development Company, Beijing, China, and
from 1987 to 1991 he was also General Manager of Linyun Company, China. He
managed projects for China New Start Company between 1983 and 1987 and was with
the Department of Gold, the Ministry of Metallurgy, China from 1979 through
1987.
MR. GORDON GAO is a Director since 1997, a founding shareholder and General
Manager of CBCom China, a representative office of CBCom. His area of expertise
is telecommunications market development and fund raising. From 1995 to 1997, he
was President of Beijing CBCom Telecommunications and Consulting Co. Ltd.,
23
<PAGE>
developing a pager for use in the Chinese market. From 1993 to 1995, he was
Executive Assistant, Director of Domestic Branch Offices and Director of Foreign
Investment and Fund-raising for Catch Communications Group, a major
telecommunications company in China. Mr. Gao has extensive start-up and
operational experiences in the paging industry in China. Mr. Gao is a computer
science graduate of Beijing University.
ITEM 10 -- EXECUTIVE COMPENSATION
The following table summarizes the compensation for the three most recent
fiscal periods ended December 31, 1999, December 31, 1998 and December 31, 1997
of our Chief Executive Officer and the four most highly compensated other
executives and officers whose total annual salary and bonus exceed $100,000. No
other employee's compensation exceeded $100,000 for any of the named years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING
BONUS COMPEN- AWARDS OPTIONS/
NAME AND PRINCIPAL POSITION(1) YEAR SALARY($) ($) SATION ($) ($) SARS
-------------------------------- -------- ----------- ---------- ------------ ------------ -----------
Bernard J. Luskin, former 1999 $131,250 0 0 0 0
Chairman and Chief 1998 350,000 $100,000 0 0 500,000
Executive Officer (1) 1997 218,750 $100,000 0 250,000 0
Chian Yi (Max) Sun 1999 $150,000 0 0 0 0
Chairman and President (2) 1998 150,000 0 0 0 312,500
1997 50,000 0 0 0 0
Charles A. Lesser 1999 $150,000 0 $16,000 0 250,000
Chief Financial Officer (3) 1998 150,000 0 16,000 0 250,000
1997 81,2500 0 3,250 125,000 0
Frank Zhu 1999 $100,000 0 0 0 0
Chairman, CBCom China (2) 1998 150,000 0 0 0 187,500
1997 50,000 0 0 0 0
Gordon Gao 1999 $120,000 0 0 0 0
General Manager, CB (2) 1998 120,000 0 0 0 125,000
China 1997 40,000 0 0 0 0
Steven Meadows (4) 1999 $150,000 0 $6,000 0 0
Chief Engineer 1998 150,000 0 6,000 0 125,000
1997 50,000 0 2,000 62,500 0
</TABLE>
24
<PAGE>
(1) Mr. Luskin left the company during 1999 and his salary and bonus was accrued
through May 15, 1999 in accordance with his settlement agreement. At December
31, 1999 $363,649 is still owed. Under the terms of the settlement agreement,
Mr. Luskin's stock options have been cancelled and revert back to the company's
stock option plan.
(2) The total salary amount for 1999 has been accrued. The
company was unable to pay compensation and in December, 1999 offered to convert
the amounts owed into Common Stock at a price of $1.00 per share, the current
fair market value. Salaries for 1997 and 1998 were converted at December, 1998
into Common stock at $0.50 share, the fair market value at that time
(3) Salary of $6,250 for 1999 and $12,500 for 1998 has been accrued. The
company has offered to convert the amounts owing into Common Stock at a price of
$1.00 per share, the current market value at December, 1999. Other Compensation
consists of an auto allowance and contribution to the company's 401 (k) plan
(4) Salary of $143,750 for 1999 and $18,750 for 1998 has been accrued. The
company was unable to pay compensation and offered to convert amounts owing into
Common Stock at a price of $1.00 per share, the current market value at
December, 1999. Other Compensation consists of an auto allowance. Mr Meadows is
an executive of the company, but is not an officer.
OPTION/SAR GRANTS IN LAST FISCAL PERIOD
The following table sets forth the information concerning individual grants
of stock options and stock appreciation rights ("SARs") during the period ended
December 31, 1999. All of the options granted in the year ended December 31,
1999 have terms of ten (10) years. A total of 250,000 options were granted to
our employees and directors in the 12-month period ended December 31,1999 under
CBCom's 1998 Employee Stock Option Plan.
OPTION/SAR GRANTS IN LAST FISCAL PERIOD
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL PERIOD ($/SH) DATE
------------------------------ -------------- --------------- ------------ -----------
Charles A. Lesser...........1999 250,000 100.0% $ 0.425 01/30/09
</TABLE>
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 year
25
<PAGE>
ended December 31, 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.
A summary of changes in stock options during each year is presented below:
December 31,
--------------------------------------------------------
1998 1999
------------------------- ---------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
----------- ----------- ---------- --------------
Options outstanding at
beginning of year - $ - 1,500,000 $ 0.43
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 exercisable at
end of
Year 750,000 0.43 1,125,000 0.43
----------- ----------- ---------- --------------
Weighted-average fair
value of options
granted during the
year $ 0.39 $ 0.41
----------- --------------
26
<PAGE>
The following table summarizes information about the stock options outstanding
at December 31, 1999.
Options Outstanding Options Exercisable
---------------------------------------- ----------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Outstanding Life (Years) Price Exercisable Price
------------- -------------- -------- --------------- --------------
1,250,000 7.92 $ 0.43 1,125,000 $ 0.43
------------- -------------- -------- --------------- --------------
--------------------------------------------------------------------------------
Aggregated Option Exercises in the 1999 Fiscal Year
and Fiscal Year-End Option Value
--------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Enexercised Options In the Money Options
Exercisable/Unexercisable Exercisable/Unexercisable
--------------------------------------------------------------------------------
Chian Yi (Max) Sun 312,500/0 $0.33/$0.00
Charles A. Lesser 375,000/125,000 $0.41/$0.00
Hong Wei (Frank)Zhu 187,500/0 $0.41/$0.00
Gordon Gao 125,000/0 $0.41/$0.00
Steven Meadows 125,000/0 $0.41/$0.00
--------------------------------------------------------------------------------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table contains information regarding the shareholdings
of CBCom's current directors and executive officers and those persons or
entities who beneficially own more than 5% of its common stock (giving effect to
the exercise of warrants or options exercisable within six months held by each
such person or entity):
27
<PAGE>
Amount of Common Percent of
Stock Beneficially Common Stock
Owned (1) (2) Owned (2)
Chiah Yi (Max) Sun (3) 1,750,000 10.0%
President, Director
52, Jalan Kelochor
Kota Bharu, Kelanta, Malaysia
Charles A. Lesser (4) 600,000 3.4%
Chief Financial Officer, Director
5801 Serrania Avenue
Woodland Hills, California 91367
Hong Wei (Frank) Zhu (5) 587,500 3.4%
Director
1119 A Valencia Way
Arcadia, California 91006
Gordon Xia Gao (6) 547,500 3.2%
Director
425 Waldo Ave. #301
Pasadena, California 91101
All directors and 3,485,000 19.1%
executive officers as
a group (4 persons)(7)
Topbest Worldwide Group (8) 1,000,000 5.8%
Suite 12.33 Petama Komplek
Jalan Tunku Abdul Rahman
Kuala Lumpur, Malaysia
Wake Little Treasure Ltd. 1,250,000 7.3%
297 Prince Edward Road
Suite 6A
Erin Court, Hong Kong
Jesmax Investment Ltd. (9) 1,000,000 5.8%
Suite 12.33, Petama Komplek
JalanTunkuAbdulRahman
50100 Kuala Lumpur, Malaysia
TSB International Inc. (12) 1,180,716 6.9%
Havelet Trust Co (BVI) Ltd.
Box 3186, Abbott Building
Road Town , Tortola,
British Virgin Islands
28
<PAGE>
Ren Zhen Tian (10) 1,200,000 7.0%
7C, 1 Block Jia 2
Zuo Jia Zhuang Road
Chao Yang District
Beijing, China
Gao Bo (11) 800,000 4.6%
Unit 2502, 25/F, K.Wah Centre
Block 901, #03-107
Jurong West St. 91
Singapore 640 902
Sinoway Co. Ltd. 1,250,000 7.3%
191 Java Road
North Point, Hong Kong
(1) Based upon 17,212,240 outstanding shares of common stock.
(2) Assumes exercise of warrants, options or other rights, if any, to
purchase securities held by the named shareholder exercisable within 60
days of the date hereof.
(3) Includes 437,500 shares owned directly by Mr. Sun and 1,000,000 shares
held by Joy Luck Communication Ltd. of which Mr. Sun may be deemed to
be the beneficial owner. Mr. Sun also has beneficial ownership of an
additional 312,500 shares of common stock consisting of options to
purchase 312,500 shares exercisable at $.425 per share.
(4) Includes 225,000 shares and options to purchase 375,000 shares of
common stock held by Mr. Lesser at an exercise price of $.425 per
share.
(5) Includes 400,000 shares owned directly by Mr. Wei and options to
purchase 187,500 shares of common stock at an exercise price of $.425
per share.
(6) Includes 422,500 shares owned by Mr. Gao and options to purchase
125,000 shares of common stock at an exercise price of $.425 per share.
(7) Includes 2,485,000 shares and options to purchase 1,000,000 shares.
(8) Beneficially owned by Mr. Soon Cheh Siong, familially related to Max
Sun, President and a director of the company. Mr. Soon also holds
75,000 shares in his own name. Mr. Sun disclaims beneficial ownership
of any of these shares.
(9) Beneficially owned by persons who are familially related to Max Sun,
President and a director of the Company. Mr. Sun disclaims beneficial
ownership of these shares.
(10) Beneficially owned by persons who are familially related to Zhu Hong
Wei, a director of the Company. Mr. Zhu disclaims beneficial ownership
of these shares.
(11) Beneficially owned by persons who are familially related to Gordon Gao,
a director of the Company. Mr. Gao disclaims beneficial ownership of
these shares.
(12) Beneficially owned by Tan Siong Bee, familially related to Max Sun,
President and a director of the company. Ms. Tan also holds 300,000
shares in her own name. Mr. Sun disclaims beneficial ownership of any
of these shares.
29
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since inception, Mr. Max Sun, President, a director, and controlling
shareholder, has extended credit to CBCom and is expected to continue to extend
credit to it. CBCom has executed a note for the funds borrowed from Mr. Sun. On
April 24, 1998 CBCom converted $1,600,000 of its outstanding note and issued
8,000,000 shares of common stock to Mr. Sun or designee. The outstanding note
provides for interest at 7% per annum but such interest charge has been waived
by Mr. Sun. The note also contains conversion rights for all outstanding amounts
owed subsequent to April 24, 1998, at a conversion rate of $.50 per share.
Between April 24, 1998 and December 31, 1998, $160,000 of the loan was converted
into 320,000 shares of common stock. During 1999, $660,358 of the loan was
converted into 1,320,716 shares of common stock. At December 31, 1999 the
balance owed to Mr. Sun was zero.
Polmont Investments, Ltd. has agreed to pay on behalf of CBCom, Inc.,
through sale of up to 800,000 of the Amtec, Inc. shares owned by it, the agreed
funds payable to Mr. Luskin in regard to CBCom's settlement with Mr. Luskin.
Polmont Investments, Ltd., a British Virgin Islands corporation, is controlled
by a shareholder of CBCom and the sibling of the president of CBCom. Polmont has
agreed to accept repayment in the form of shares of CBCom, Inc. valued at $0.50
per share.
30
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K.
(a) See Index to Financial Statements immediately following Exhibit
Index
(b) A report on Form 8-K has been filed on October 21, 1999 to record
the acquisition of Abbacy Corporation.
(c) A report on Form 8-K/A has been filed on February 10, 2000
including Financial Statements of CBCom, Inc. from Inception
(April 23, 1997) to September 30, 1999. A report on Form 8-K has
been filed on September 7, 2000 to indicate a change in
accountants.
(d) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT MANNER OF FILING
1.1 Agreement and Plan of Merger and amendment Form 8-K dated
thereto between Abbacy Corporation and October 19, 1999
CBCom, Inc. dated September 24, 1999
1.2 Certificate of Incorporation of CBCom, Inc.
and amendments *
1.3 By-Laws of CBCom, Inc. *
10.1 CBCom, Inc. 1998 Stock Option Plan *
10.2 Employment Agreement between CBCom, Inc. and *
Charles A. Lesser dated July 18, 1997 and
Amendment
10.3 Convertible Promissory Note, due April 24, *
2000 between CBCom, Inc. and Max Sun
10.4 Memorandum of Understanding between CBCom, *
Inc., Shanghai Stock Exchange Communications
Co. and Shanghai Xingtong Telecommunications
Science and Technology, Ltd.
10.5 Office Lease between Cornerstone Suburban *
Office, L.P. and CBCom, Inc. dated January
1, 2000
10.6 Settlement Agreement Between Radio, Computer *
& Telephone, Inc. and CBCom, Inc., dated
April 16, 1999 regarding pager technology.
10.7 Letter of Agreement between Polmont Investment *
Limited and CBCom, Inc. dated March 27, 1999
regarding loan of securities as collateral for
the employment agreement of Bernard Luskin.
27 Financial Data Schedule *
* Included with the filing of this Form 10-KSB
31
<PAGE>
CBCOM, INC.
(A DEVELOPMENT STAGE COMPANY)
REPORT ON AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
<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-7
Notes to Financial Statements F-9
<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, 1998 and 1999 and the related statements of
operations, stockholders' deficit, and cash flows for the years ended December
31, 1998 and 1999. We also audited the statements of operations, stockholders'
deficit, and cash flows for the period from inception (April 23, 1997) through
December 31, 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,
1998 and 1999 and the results of its operations and its cash flows for the years
ended 1998 and 1999, and the period from inception (April 23, 1997) through
December 31, 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
December 31, 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
March 10, 2000
Shanghai, PRC
F-2
<PAGE>
<TABLE>
<CAPTION>
CBCOM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<S> <C> <C>
December 31,
--------------------------
ASSETS 1998 1999
------------ ------------
Current assets:
Cash $ 240,000 $ 31,844
Rent receivable 8,655 -
Prepaid expenses - 4,771
Pager inventory (Note 4) 136,620 -
------------ ------------
Total current assets 385,275 36,615
------------ ------------
Furniture, fixtures and equipment, net (Note 2) 72,673 53,288
Other assets:
Deposits 14,521 19,897
Prepaid interest (Note 5) - 165,000
Prepaid rent in Beijing representation office (Note 6) 260,417 197,917
------------ ------------
Total other assets 274,938 382,814
------------ ------------
Total assets $ 732,886 $ 472,717
============ ============
LIABILITIES AND DEFICIT
Current liabilities:
Accounts payable $ 117,772 $ 331,412
Salaries payable - Former CEO (Note 6) 389,583 363,649
Salaries payable - Other 26,000 557,250
Accrued expenses 24,334 129,922
Income tax payable 1,600 2,400
Capital lease obligation - current (Note 6) 32,504 32,433
Loan payable - shareholders (Note 5) - 11,988
------------ ------------
Total current liabilities 591,793 1,429,054
------------ ------------
Loan payable - - shareholders (Note 5) 518,924 -
Loan from a related party (Note 5) - 157,184
Total liabilities 1,110,717 1,586,238
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 7, and 8)
Shareholders' deficit:
Common stock at par value of $0.001 per share,
100,000,000 shares authorized, 15,327,500 and
17,212,240 shares issued and outstanding at 1998 and
1999, respectively (Note 6 and 7) 15,327 17,212
Paid-in capital 4,491,234 6,021,944
Subscription receivable (1,250) (1,300)
Accumulated deficit during the development stage (4,883,142) (7,151,377)
------------ ------------
Total shareholders' deficit (377,831) (1,113,521)
------------ ------------
Total liabilities and shareholders' deficit $ 732,886 $ 472,717
============ ============
See accompanying summary of accounting policies and notes to financial
statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
CBCOM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
From Inception
(April 23, 1997) to
Year Ended December 31, December 31,
--------------------------
1998 1999 1999
============ ============ =============
<S> <C> <C> <C>
Net sales $ - $ - $ -
Cost of sales - - -
------------ ------------ -------------
Gross profit - - -
Selling expense - - -
General and administrative expense 3,001,534 1,771,692 6,620,603
Merger transaction expense (Note 6) - 399,950 399,950
------------ ------------ -------------
Loss from operations (3,001,534) (2,171,642) (7,020,553)
Other income (expense):
Interest expense, net (14,536) (106,698) (122,869)
Other, net (16,944) 10,905 (5,555)
------------ ------------ -------------
Loss before income taxes (3,033,014) (2,267,435) (7,148,977)
Income tax provision (Note 3) 800 800 2,400
Net loss $(3,033,814) $(2,268,235) $(7,151,377)
============ ============ =============
Weighted average number of common shares outstanding 10,049,226 15,568,879
============ =============
Basic and diluted loss per share $ (0.30) $ (0.15)
============ =============
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
CBCOM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
(SEE NOTE 7)
Additional
Paid-In Stock Accumulated
Shares Amount Capital Subscription Deficit Total
---------- ------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of stock for cash ($.20 per 2,000,000 $ 2,000 $ 398,000 $ - $ - $ 400,000
share)
Issuance of stock for assets ($.20 per 937,500 937 186,563 - - 187,500
share)
Issuance of stock for cash ($.50 per 200,000 200 99,800 - - 100,000
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 bonus 875,000 875 436,625 - - 437,500
($.50 per share)
Issuance of stock for rental expense in 625,000 625 311,875 - - 312,500
Beijing ($.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 ($.50 per share)
Issuance of stock for promotion and 1,250,000 1,250 623,750 (1,250) - 623,750
facilitation service ($.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)
========== ======= ========== ============== ============= ===========
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
CBCOM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
(SEE NOTE 7)
Additional
Paid-In Stock Accumulated
Shares Amount Capital Subscription Deficit Total
========== ======= ========== ============== =========== =============
<S> <C> <C> <C> <C> <C> <C>
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 ($.45 per 100,000 100 44,900 - - 45,000
share)
Issuance of stock for cash ($.90 per 10,000 10 8,990 - - 9,000
share)
Issuance of stock for cash ($.90 per 35,000 35 31,465 - - 31,500
share)
Issuance of stock for cash ($.45 per 40,000 40 17,960 - - 18,000
share)
Issuance of stock for cash ($.90 per 23,000 23 20,677 - - 20,700
share)
Issuance of stock for cash ($.45 per 30,000 30 13,470 - - 13,500
share)
Issuance of stock for cash ($.90 per 20,000 20 17,980 - - 18,000
share)
Issuance of stock for cash ($.45 per 30,000 30 13,470 - - 13,500
share)
Issuance of stock options - - 18,750 - - 18,750
Issuance of stock for merger with 250,000 250 249,750 250,000
Abbacy ($1.00 per share)
Regulation D, Rule 506 issuance 50,000 50 49,950 (50) 49,950
($1.00 per share)
Conversion of shareholder's loan 140,000 140 69,860 70,000
($.50 per share)
Conversion of shareholder's loan 1,156,740 1,157 577,213 578,370
($.50 per share)
Forgiveness of interest on - - 41,275 - - 41,275
shareholder's loan
Net loss - - - - (2,268,235) (2,268,235)
---------- ------- ---------- -------------- ----------- ------------
BALANCE, December 31, 1999 17,236,216 $17,236 $6,033,908 $ (1,300) $(7,151,377) $(1,113,521)
========== ======= ========== ============== =========== =============
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
CBCOM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
From Inception
(April 23, 1997) to
-------------------------
Year Ended December 31, December 31,
1998 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $(3,033,814) $(2,268,235) $(7,151,377)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 18,612 18,885 43,052
Write-off assets in Beijing - - 187,500
Write-off of pager inventory - 136,620 136,620
Issuance of stock for signing 436,625 -
bonus 436,625
Forgiveness of interest on shareholder's loan 11,561 41,275 52,836
Compensation cost related to options granted 112,500 18,750 131,250
Issuance of stock for promotion and facilitation service 623,750 - 623,750
Issuance of stock for payroll
expense 560,000 560,000 -
Issuance of stock for merger
transaction expenses 250,000 - 250,000
Increase(decrease) in cash from changes in:
Receivables (8,655) 8,655 -
Pager inventory (77,226) - (136,620)
Deposits - (5,376) (19,897)
Prepaids 56,964 112,729 164,812
Accounts payable 119,372 213,640 331,412
Salaries payable - former 289,583 (25,934) 363,649
CEO
Salaries payable - other (550,625) 531,250 557,250
Accrued liabilities and
income tax payable 14,076 106,388 132,322
------------ ------------ ------------
Net cash used in operating
activities (1,427,277) (861,353) (3,336,816)
------------ ------------ ------------
Cash flows from investing
activities:
Purchase of furniture and (3,528) - (64,336)
equipment
Refund of purchase price on
a piece of furniture - 500 500
------------ ------------ ------------
Net cash provided by (used in)
investing activities (3,528) 500 (63,836)
------------ ------------ ------------
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
CBCOM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<S> <C> <C> <C>
From Inception
(April 23, 1997) to
Year Ended December 31, December 31,
-------------------------
1998 1999 1999
------------ ------------ ------------
Cash flows from financing
activities:
Repayment of capital lease - (71) (71)
Proceeds from shareholder
loans 1,398,941 149,000 2,646,619
Repayments to shareholders (130,437) (7,566) (226,261)
Proceeds from related party
loans - 157,184 157,184
Proceeds from issuance of
stock 875 354,150 855,025
------------ ------------ ------------
Net cash provided by financing
activities 1,269,379 652,697 3.432,496
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents (161,426) (208,156) 31,844
Cash and cash equivalents,
beginning of period - 401,426 240,000
------------ ------------ ------------
Cash and cash equivalents, end
of period $ 31,844 $ 240,000 $ 31,844
============ ============ ============
SUPPLEMENTARY INFORMATION:
Cash paid during the year:
Interest $ 3,179 $ 2,048 $ 5,563
============ ============ ============
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 312,500 - 312,500
rents in Beijing
Conversion of shareholder's 1,760,000 648,370 2,408,370
loan
Issuance of stock for directors' 560,000 - 560,000
compensation
Issuance of stock for promotion 623,750 - 623,750
and facilitation service
Issuance of stock for merger transaction expenses - 250,000 250,000
Deemed interest for Polmont - 220,000 220,000
Forgiveness of interest accrued $ 11,561 $ 34,876 $ 46,437
============ ============ ============
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
F-8
<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION
BACKGROUND OF ORGANIZATION AND GOING CONCERN UNCERTAINTY
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 has incurred consecutive
losses since inception.
The Company's headquarters is located in Encino, 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 Shanghai Stock Exchange Communication
Co. Ltd. ("SSEC").
On January 31, 1999, the Company entered into a Memorandum of Understanding with
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 March 10,
2000.
The Company has suffered losses since its inception in 1997 and had negative
working capital in 1998 and 1999, respectively, that raises substantial doubt
about its ability to continue as a going concern. 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
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
F-9
<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION (CONTINUED)
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, accounts payable, accrued expenses, and short-term
loan payable are reasonable estimates of their fair value because of the short
maturity of these items. The fair value of the long-term loan payable is
estimated using a discounted cash flow analysis utilizing the market rate at
which similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturity.
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.
F-10
<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION (CONTINUED)
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
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 of $623,750 related to cost
incurred for obtaining the license and contract with Shanghai Stock Exchange
(see Note 4 for detail). As the chance of obtaining the license is uncertain,
the fees paid for promotional services were expensed during 1998. In addition,
management assessed the fair value of pager inventory as of December 31, 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 during 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.
F-11
<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION (CONTINUED)
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
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,
1998 1999
------------- -------------
Furniture and fixtures $ 7,716 $ 7,216
Equipment 89,124 89,124
------------- -------------
96,840 96,340
Accumulated depreciation (24,167) (43,052)
------------- -------------
Net $ 72,673 $ 53,288
============= =============
Depreciation expenses were $18,612 and $18,885 for the years ended December 31,
1998, and 1999.
Included in equipment are the following assets held under capital leases:
December 31,
1998 1999
------------- -------------
Equipment $ 32,504 $ 32,504
Accumulated depreciation (9,753) (16,254)
Net $ 22,751 $ 16,250
============= =============
F-12
<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 3-INCOME TAXES
The provision for income taxes consists of: Year Ended December 31,
----------------------------
1998 1999
------------- -------------
Income tax provision (state) $ 800 $ 800
------------- -------------
$ 800 $ 800
============= =============
The components of the net deferred tax asset and liability are as follows:
December 31,
----------------------------
1998 1999
------------- -------------
Deferred tax assets:
Net operating loss carryforwards $ 1,729,890 $ 2,591,504
Salary and bonus accrual 179,333 330,653
Capital loss carryforward 7,198 7,198
------------- -------------
Subtotal 1,916,421 2,929,355
Valuation allowance (1,916,421) $(2,929,355)
------------- -------------
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 $4,341,000,
and $6,049,000 as of December 31, 1998 and 1999, respectively, for Federal and
California state income tax purposes to offset future taxable income, if any,
and expire at various dates through the year 2014 for federal income tax
purposes and through the year 2004 for California state income tax purposes.
However, the utilization of net operating losses may be subject to certain
limitations as prescribed by Section 382 of the Internal Revenue Code. 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. CBCom, Inc. advanced $107,500 to the joint venture
for organization costs and start-up costs. The joint venture has not commenced
the nationwide paging network as of December 31, 1998 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).
F-13
<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 4-JOINT VENTURE PROJECTS
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 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 parts purchased 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 in the future, the
Company wrote the $136,620 balance off during 1999.
LICENSES/CONTRACTS
In 1998, 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
SSEC's 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. As the chance of obtaining the license is
uncertain, the fees paid for promotional services were expensed during 1998.
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
from June 15, 1997 forward and that the advance will be recorded as a loan from
shareholder first and will be converted into common stock at a conversion price
F-14
<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
of $0.20 per share when the total amount reaches $1,600,000. If the other
investor does not inject cash up to $1,600,000 by June 30, 1998, he would have
had to 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 this shareholder was $43,956.
On the same date, the principal shareholder and the Company entered into a
promissory note (the 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. According to the Note, 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 1999, the principal
shareholder waived his accrued interest receivable of $11,561 and $41,275,
respectively.
F-15
<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 5-RELATED PARTY TRANSACTIONS (CONTINUED)
From early October 1998 to early December of 1998, the principal shareholder
converted $160,000 of shareholder loan into 320,000 shares of common stock in
four tranches.
In November 1999, the principal shareholder converted $70,000 of shareholder
loan into 140,000 shares of common stock at $0.50 per share.
On December 30, 1999, the Company issued 1,156,740 shares of common stock to
convert the shareholder loan of $578,370 into equity at $0.50 per share in
accordance with the terms specified in the Note.
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 an 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 and the corresponding amount in
additional paid-in capital and amortized the prepaid interest over the period of
three years.
The balance of loans payable to related parties is as follows:
<TABLE>
<CAPTION>
Loans from Loans from %
Principal Other Loans from
Shareholder Shareholders Polmont Ltd.
<S> <C> <C> <C>
------------ --------------- --------------
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 136,900 12,100 157,184
Repayments including conversion to stock (655,824) (112) -
------------ --------------- --------------
Balance at December 31, 1999 $ - $ 11,988 $ 157,184
============= ============== ==============
</TABLE>
F-16
<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 5-RELATED PARTY TRANSACTIONS (CONTINUED)
The minimum future cash payments for the above loans as of December 31, 1999 are
as follows:
Maturity at December 31, Amount
--------
2000 $ 11,988
2001 -
2002 157,184
--------
Total principal payments $169,172
========
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 also leases equipment under a
non-cancelable capital lease which expires June 2000. Future minimum annual
lease payments as of December 31, 1999 are as follows:
Year ending December 31, Capital Leases Operating 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 sublet a portion of the its facility and offset rent expense in 1998
and 1999. The net rental expense is presented as follows:
Year ended December 31,
----------------------
1998 1999
--------- ---------
Gross rental expense (including rent in Beijing, China) $224,537 $241,927
Sublet rental income (67,230) (92,302)
--------- ---------
Net rental expense $157,307 $149,625
========= =========
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
is $197,917 at December 31, 1999.
F-17
<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 6-COMMITMENTS AND CONTINGENCIES (CONTINUED)
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
CBCom 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.
EMPLOYMENT AGREEMENTS
The Company had 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 the sale of 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 December 31, 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 December 31,
1999, there were 670,000 shares remaining in the escrow account with a market
price of $1.8125. According to the agreement between the Company and Polmont,
the Company will recognize the corresponding 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
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.
F-18
<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 7-EQUITY TRANSACTIONS (CONTINUED)
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 loan was 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 at $0.50 per
share in four tranches.
On December 31, 1998, the Company issued 400,000, 400,000, and 320,000 (a total
of 1,120,000) shares of common stock at $0.50 per share to three directors as
their employment compensation of $200,000, $200,000, and $160,000, respectively,
for four months in 1997 (recognized in 1997) and the year of 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 satellite 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 March 10, 2000, 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.
On March 27, 1999, the Company recognized deferred interest of $220,000 as a
result that Polmont Ltd. was designated to purchase 500,000 shares of the
Company's stock from the former CEO as part of a 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 will amortize
this $220,000 over the period of three years. See Note 5 for more information.
F-19
<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 7-EQUITY TRANSACTIONS (CONTINUED)
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, 1999, 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. On December 22, 1999, the
Company completed the offering, issued 50,000 shares of common stock, and
recognized a merger transaction expense of $49,950. The $50 cash was received
subsequent to December 31, 1999.
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 share 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.
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.
In accordance with the merger agreement, Abbacy filed a Form 8-K on October 19,
1999 with the SEC to indicate that CBCom, Inc. would be the successor of the
reporting entity in accordance with the rule 12 (g) 3 in 1994 Act.
F-20
<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 7-EQUITY TRANSACTIONS (CONTINUED)
On November 1, 1999, the principal shareholder converted $70,000 of shareholder
loan into 140,000 shares of common stock at $0.50 per share.
On December 22, 1999 the Company issued 250,000 shares of common stock valued at
$1.00 per share to the sole shareholder of Abbacy in exchange for 100% of its
equity interest. Accordingly, the Company recognized $250,000 of merger
expense. In addition, the Company incurred approximately $100,000 legal expense
related to this merger transaction. Abbacy would be dissolved subsequent to
December 31, 1999.
On December 30, 1999, the Company issued 1,156,740 shares of common stock to
convert the shareholder loan of $578,370 into equity at $0.50 per share in
accordance with the terms specified in the Note. See Note 5 for reference.
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 stockUnder 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.
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 year ended December 31, 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.
The Company applies APB Opinion No. 25 in accounting for its Plan. During the
years ended December 31, 1998 and 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.
F-21
<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - STOCK OPTIONS (CONTINUED)
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss
would have been increased to the pro forma amount indicated below:
Year ending December 31,
------------------------
1998 1999
-------- ------
Net loss:
As reported $ (3,033,814) $ (2,268,235)
Pro forma $ (3,273,937) $ (2,568,971)
Loss per share:
As reported $ (0.30) $ (0.15)
Pro forma $ (0.33) $ (0.17)
A summary of changes in stock options during each year is presented below:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1999
------------------ ------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year - $ - 1,500,000 $ 0.43
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 year 750,000 0.43 1,125,000 0.43
========== ====== ========== ======
Weighted-average fair value of options granted during the year $ 0.39 $ 0.41
====== ======
</TABLE>
F-22
<PAGE>
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - STOCK OPTIONS (CONTINUED)
The following table summarizes information about the stock options outstanding
at December 31, 1999.
Options Outstanding Options Exercisable
---------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life (Years) Price Exercisable Price
----------- ------------ ------ ----------- ------
$0.43 1,250,000 7.92 $ 0.43 1,125,000 $ 0.43
=========== ============ ====== =========== ======
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:
Year ended December 31,
-----------------------
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 - -
============ ===========
F-23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in the city of Encino,
California, on the 12th day of April, 2000.
CBCOM, INC.
By /s/ Chian Yi Sun
----------------------------
Chian Yi Sun
Chairman of the Board
Date: April 12, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Chian Yi Sun Chairman of the Board April 12, 2000
---------------------- (Principal Executive Officer)
Chian Yi Sun
/s/ Charles A. Lesser Chief Financial Officer/Director April 12, 2000
---------------------- (Principal Financial Officer and
Charles A. Lesser Principal Accounting Officer)
/s/ Gordon X. Gao Director April 12, 2000
----------------------
Gordon X. Gao
