<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
FORM 20-F
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934 OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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 number: 0-96988
NET-MATRIX LIMITED
(Exact name of Registrant as specified in its charter)
-----------------------------------
BRITISH VIRGIN ISLANDS
(Jurisdiction of incorporation or organization)
Room 1806, Hutchison House
10 Harcourt Road, Central
Hong Kong
(Address of principal executive offices)
-----------------------------------
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class Which the Securities are Registered
- --------------------------------- -----------------------------------
<S> <C>
Class A Common Stock, par value $0.0001 per share NONE
Class B Preferred Stock, par value $0.0001 per share
</TABLE>
----------------------------------------
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act
NONE
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the
Registration Statement.
As of November 9, 1999, 10,000,000 Class A shares, par value $0.0001 per share
(collectively, with the Class A and Class B Stock not yet issued and
outstanding, the "Common Stock"), were issued and outstanding.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark which financial statement item the registrant has elected
to follow. Item 17 [ ] Item 18 [X]
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF THE BUSINESS.
1A. GENERAL
Net-Matrix Limited (the "Company") was incorporated on September 15,
1999 under the International Business Companies Act of the British Virgin
Islands (the "IBC Act"). The Company is a development stage company and has no
operations to date other than issuing shares and options to its original
shareholders and authorizing those actions in connection with the filing of this
Form 20-F (the "Registration Statement"), as described more fully herein.
The Company has been formed in accordance with the requirements for
forming a blank check company (a "Blank Check Company") as defined in Section
7(b)(3) of the Securities Act of 1933, as amended (the "Securities Act"). The
Company intends to provide a method for a foreign or domestic private company to
become a reporting company whose securities are qualified for trading in the
United States secondary market, pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
As such, the Company will attempt to locate and negotiate with a
business entity (a "Target Company") for the merger with or consolidation of,
the full or partial acquisition of, or the entering into any other business
combination with a Target Company. No assurances can be given that the Company
will be successful in locating, negotiating or merging with, acquiring, or
entering into any other business combination with any Target Company.
1B. PERCEIVED BENEFITS
There are certain perceived benefits to being a company with a class of
publicly-traded securities. These are commonly thought to include the following:
- the ability to use registered securities to make acquisitions
of assets or businesses;
- increased visibility in the financial community;
- facility of borrowing from financial institutions;
- improved trading efficiency;
- shareholder liquidity;
- greater ease in raising capital;
- compensation of key employees through stock options and
similar stock plans;
- enhanced corporate image; and
- a presence in the United States capital market.
1C. POTENTIAL TARGET COMPANIES
Target Companies that may be interested in any form of business
combination with the Company could include, without limitation, the following:
- a company for which the primary purpose of becoming public is
the use of its securities for the acquisition of assets or
businesses;
- a company which is unable to find an underwriter of its
securities or is unable to find an underwriter of securities
on terms acceptable to it;
- a company which wishes to become public with less dilution of
its common stock than would occur upon an underwriting of
additional equity;
<PAGE> 3
- a company which believes that it will be able to obtain
investment capital on more favorable terms after it has become
public;
- a foreign company which desires to make an initial entry into
the United States capital market;
- a special situation company, such as a company seeking a
public market to satisfy redemption requirements under a
qualified Employee Stock Option Plan; and
- a company seeking one or more of the other perceived benefits
of becoming a public company.
The officers, directors and shareholders are currently composed of the
same individuals. See ITEM 5, "DIRECTORS, OFFICERS, PROMOTERS AND CONTROL
PERSONS" and ITEM 7, "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS". A
business combination with a Target Company will normally, but not necessarily,
involve the transfer to the Target Company of the majority of the issued and
outstanding common stock of the Company, and the partial or complete
substitution by the Target Company of the Company's current officers and
directors.
No assurances can be given with respect to the Company's ability to
enter into a business combination, nor can assurances be made regarding the
terms of any business combination or the nature of the Target Company with which
the Company may enter into a business combination. See ITEM 1D(2), "SPECULATIVE
NATURE OF THE COMPANY'S PROPOSED PLAN OF OPERATION".
The proposed business activities described herein classify the Company
as a Blank Check Company. The Securities and Exchange Commission (the
"Commission") and many states have enacted statutes, rules and regulations
limiting the sale of securities of Blank Check Companies. The officers and
directors do not intend to undertake any efforts to cause a market to develop in
the Company's securities until such time as the Company has successfully
implemented its business plan described herein.
The Company is voluntarily filing this Registration Statement with the
Commission and is under no obligation to do so under the Exchange Act.
1D. PLAN OF OPERATIONS
For the remainder of the fiscal year, the Company anticipates no
operations other than the following activities: (i) continued initial
organization of the Company, (ii) preparing and filing this Registration
Statement and (iii) preliminary and general oral conversations by its officers
and directors with respect to engaging in a merger with or acquisition of
another company, which may or may not lead to such a merger or acquisition in
the remainder of this fiscal year. The Company does not know of or have an
established plan to enter into any arrangement, agreement or understanding in
the remainder of the fiscal year with respect to engaging in a merger with or
acquisition of a specific Target Company. The Company has no present plans to
thoroughly research the market for Target Companies, and has no plans to
materially expand the number of people it employs for the remainder of the
fiscal year.
1E. RISK FACTORS
The Company's business is subject to numerous risk factors, including
but not limited to the following:
(1) NO OPERATING HISTORY OR REVENUE AND MINIMAL ASSETS.
The Company has had no operating history, revenues or earnings
from operations and has no significant assets or financial
resources. The Company will, in all likelihood, sustain
operating expenses without corresponding revenues, at least
until the consummation of a business combination, if any. This
may result in the Company incurring a net operating loss that
will increase continuously until the Company can consummate a
business combination with a Target Company. There is no
assurance that the Company can identify such a Target Company
and consummate such a business combination.
(2) SPECULATIVE NATURE OF THE COMPANY'S PROPOSED PLAN OF
OPERATIONS.
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The success of the Company's proposed plan of operation will
depend to a great extent on the operations, financial
condition and management of the identified Target Company
following any business combination. While the Company's
officers, directors and current shareholders will likely
prefer business combinations with entities having established
operating histories, there can be no assurance that the
Company will be successful in locating Target Companies
meeting such criteria. In the event the Company completes a
business combination, of which there can be no assurance, the
success of the Company's operations will be dependent upon the
business operations and financial results of the Target
Company and numerous other factors beyond the Company's
control.
(3) SCARCITY OF AND COMPETITION FOR BUSINESS OPPORTUNITIES AND
COMBINATIONS.
The Company currently has no way of distinguishing itself from
other blank check companies seeking merger or acquisition
candidates, and also anticipates that it will be an
insignificant participant in the business of seeking mergers
with and acquisitions of business entities. A large number of
established and well-financed operating entities, including
venture capital firms, are active in mergers with and
acquisitions of Target Companies. Nearly all such entities
have significantly greater financial resources, technical
expertise and managerial capabilities than the Company and,
consequently, the Company will be at a competitive
disadvantage in identifying possible business opportunities
and successfully negotiating and completing a business
combination. Moreover, the Company will also compete with
numerous other small public and private companies, including
other blank check companies with registered classes of
securities, in seeking merger or acquisition candidates.
(4) NO AGREEMENT FOR BUSINESS COMBINATION OR OTHER TRANSACTION -
NO STANDARDS FOR BUSINESS COMBINATION.
The Company has no current arrangement, agreement or
understanding with respect to engaging in a merger with or
acquisition of a specific Target Company. There can be no
assurance that the Company will be successful in identifying
and evaluating suitable business opportunities, locating a
Target Company or concluding a business combination. The
officers and directors have not identified any particular
industry or specific business within an industry for
evaluation by the Company. There is no assurance that the
Company will be able to negotiate a business combination on
terms favorable to the Company. In implementing a structure
for a particular business acquisition with a Target Company,
the Company may also become a party to a merger,
consolidation, reorganization, joint venture or licensing
agreement with another corporation or entity. The Company has
not established a specific length of operating history or a
specified level of earnings, assets, net worth or other
criteria which it will require a Target Company to have
achieved, or without which the Company would not consider a
business combination with such Target Company. Accordingly,
the Company may enter into a business combination with a
Target Company having losses, no significant operating
history, limited or no potential for immediate earnings,
limited assets, negative net worth or other negative
characteristics. The Company may consider, however, other
factors, including (but not limited to) the Target Company's
long-term growth possibilities, as well as its strategic
position relative to other companies in its location and
industry, in deciding to enter into a business combination.
(5) CONTINUED MANAGEMENT CONTROL, LIMITED TIME AVAILABILITY.
While seeking a business combination, the officers and
directors anticipate keeping their current employment
positions as well as seeking to organize other companies of a
similar nature. As such, demands may be placed on the
officers' and directors' time that will detract from the time
they are able to devote to the Company. The officers and
directors intend to devote as much time to the activities of
the Company as required; however, should a conflict arise,
there is no assurance that the officers and directors of the
Company would not attend to other matters prior to those of
the Company. Initially, the officers and directors intend to
devote up to ten
<PAGE> 5
(10) hours each per month to the business of the Company, and
they intend to increase that amount of time when the analysis
of, and negotiations and consummation with, a Target Company
is conducted. See ITEM 10E, "CONFLICTS OF INTEREST". The
Company's officers have not entered into a written employment
agreement with the Company and they are not expected to do so
in the foreseeable future. The Company has not obtained key
man life insurance on its officers and directors.
Notwithstanding the limited experience and limited time
commitment of the officers and directors, loss of the services
of the officers and directors would adversely affect
development of the Company's business and its likelihood of
continuing operations.
(6) CONFLICTS OF INTEREST--GENERAL.
The Company's officers and directors participate in other
business ventures that may compete directly with the Company.
The officers and directors will be responsible for seeking,
evaluating, negotiating and consummating a business
combination with a Target Company that may result in terms
providing benefits to the officers and directors. Additional
conflicts of interest and non-arms length transactions may
also arise in the future. There are no binding guidelines or
procedures for resolving potential conflicts of interest.
Failure by the officers and directors to resolve conflicts of
interest in favor of the Company could result in liability of
the officers and directors to the Company. However, any
attempt by shareholders to enforce a liability of the officers
and directors to the Company would most likely be
prohibitively expensive and time consuming. As the
shareholders and the officers and directors are currently the
same persons, these conflicts of interest also apply to the
shareholders.
(7) OTHER BLANK CHECK COMPANIES.
The officers and directors are currently involved in creating
additional Blank Check Companies substantially similar to the
Company. To date, three other companies substantially similar
to the Company have been established, but neither of those
companies has taken such prior action as the filing of a
registration statement or any other securities filing or
issuance. The officers and directors anticipate, however, that
two other companies may file registration statements
substantially similar to the Registration Statement of the
Company simultaneously with or soon after this Registration
Statement is filed. A conflict may arise in the event that
another Blank Check Company with which the officers and
directors are affiliated files a Registration Statement and
actively seeks a Target Company. The officers and directors
anticipate (but are not required to so effect) that Target
Companies will be located for the Company and other Blank
Check Companies either (i) in chronological order of the date
of formation of such Blank Check Companies; or (ii) by lot.
However, other additional Blank Check Companies that may be
formed may differ from the Company in certain items such as
place of incorporation, number of shares and shareholders,
working capital, types of authorized securities, or other
items. It may be that a Target Company may be more suitable
for or may prefer a certain Blank Check Company formed after
the Company. In such case, a business combination might be
negotiated on behalf of the more suitable or preferred Blank
Check Company regardless of date of formation or choice by
lot. See ITEM 10C, "DIRECTORS AND OFFICERS OF REGISTRANT
--CURRENT BLANK CHECK COMPANIES".
(8) REPORTING REQUIREMENTS MAY DELAY OR PRECLUDE ACQUISITION.
Section 13 of the Exchange Act requires companies subject to
the Exchange Act to provide certain information about
significant acquisitions, including certified financial
statements for an acquired company covering one or two
complete fiscal years, depending on the relative size of any
acquisition. The time and additional costs that may be
incurred by some Target Companies to prepare such financial
statements may significantly delay or essentially preclude
consummation of an otherwise desirable acquisition by the
Company. Acquisition prospects that do not have or are unable
to obtain the required financial statements may not be
appropriate for acquisition so long as the reporting
requirements of the Exchange Act are applicable.
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(9) LACK OF MARKET RESEARCH OR MARKETING ORGANIZATION AND
EXPERTISE.
The Company has neither conducted nor obtained market research
indicating that demand exists for the type of transactions
contemplated by the Company. Even in the event demand exists
for a merger or acquisition of the type contemplated by the
Company, there is no assurance the Company will be successful
in completing any such business combination.
The officers and directors will be responsible for seeking,
evaluating, negotiating and consummating a business
combination with a Target Company. The officers and directors
are not, however, professional business analysts, and are
novices relative to the more established and well-financed
entities who are active in mergers with and acquisitions of
Target Companies. Therefore, the Company will operate at a
competitive disadvantage in identifying and completing
business combinations with suitable Target Companies.
(10) LACK OF DIVERSIFICATION.
The Company's proposed operations, even if successful, will
probably, but not necessarily, result in the Company engaging
in a business combination with only one Target Company. The
officers and directors anticipate that the Company will be
able to participate in only one potential business venture
because the Company has nominal assets and limited financial
resources. Consequently, the Company's activities will be
limited to those engaged in by the Target Company with which
the Company merges or acquires. The Company's inability to
diversify its activities into a number of areas may subject
the Company to economic fluctuations within a particular
business or industry and therefore increase the risks
associated with the Company's operations. This lack of
diversification should be considered a substantial risk to the
shareholders of the Company because it will not permit the
Company to offset potential losses from one venture against
gains from another.
(11) REGULATION UNDER THE INVESTMENT COMPANY ACT.
Although the Company will be subject to certain regulation
under the Exchange Act, (and, if involved in a reorganization,
potentially the Securities Act), the officers and directors
anticipate that the Company will not be subject to regulation
under the Investment Company Act of 1940 (the "Investment
Company Act"). In the event the Company engages in business
combinations which result in the Company holding passive
investment interests in a number of entities, the Company
could be subject to regulation under the Investment Company
Act. In such event, the Company would be required to register
as an investment company under the Investment Company Act and
comply with the provisions thereof and could be expected to
incur significant registration and compliance costs. The
Company has obtained no formal determination from the
Commission as to the status of the Company under the
Investment Company Act. Any violation of the Investment
Company Act could subject the Company to material adverse
consequences.
(12) PROBABLE CHANGE IN CONTROL AND MANAGEMENT.
A business combination involving the issuance of the Company's
common stock will, in all likelihood, result in the
shareholders of the Target Company obtaining a controlling
interest in the Company. Any such business combination may
require shareholders of the Company to sell or transfer all or
a portion of the Company's common stock held by them. Any
merger or acquisition effected by the Company can be expected
to have a significant dilutive effect on the percentage of
shares held by the Company's shareholders at such time. The
resulting change in control of the Company could potentially
result in the partial or complete removal of the present
officers and directors of the Company and a corresponding
reduction in or elimination of their participation in the
future affairs of the Company.
The issuance of previously authorized and unissued common
stock of the Company would also result in a reduction in
percentage of shares owned by
<PAGE> 7
the present shareholders of the Company and would most likely
result in a change in control or substitution or replacement
of some or all of the officers and directors of the Company.
The terms of any business combination may include such terms
as any or all of Messrs. Chan and Chan remaining a director,
officer and/or shareholder of the Company or any or all of
them becoming consultants to the Company with compensation
should they resign as directors and officers of the Company
and as a result of the consummation of a business combination.
See ITEM 10A, "BACKGROUNDS OF DIRECTORS".
(13) TAXATION.
Tax consequences will, in all likelihood, be major
considerations in any business combination the Company
undertakes. Currently, such transactions may be structured to
result in tax-free treatment to both companies, pursuant to
various jurisdictions' tax provisions. The Company intends to
structure any business combination to minimize the tax
consequences to both the Company and the Target Company. There
can be no assurance, however, that any such business
combination will meet the statutory requirements of a tax-free
reorganization or that the parties will obtain the intended
tax-free treatment upon a transfer of stock or assets. A
non-qualifying reorganization could result in the imposition
of taxes in any jurisdiction that may have an adverse effect
on all parties to the transaction. See ITEM 7, "TAXATION".
(14) EMPLOYEES.
The Company has no full time employees. The Company's officers
and directors have agreed to allocate a portion of their time
to the activities of the Company, without compensation. The
officers and directors anticipate that the business plan of
the Company can be implemented by initially devoting no more
than ten (10) hours per month to the business affairs of the
Company and, consequently, conflicts of interest may arise
with respect to the limited time commitment by such officers
and directors. See ITEM 1D(5), "RISK FACTORS--CONTINUED
MANAGEMENT CONTROL; LIMITED TIME AVAILABILITY".
(15) ADVISORS OF TARGET COMPANY
A potential Target Company may have an agreement with a
consultant or advisor providing for services of the consultant
or advisor to be continued after any business combination.
Additionally, a Target Company may be presented to the Company
only on the condition that the services of a consultant or
advisor be continued after a merger, acquisition or other
business combination. Such preexisting agreements of Target
Companies for the continuation of the services of attorneys,
accountants, advisors or consultants could be a factor in the
selection of a Target Company.
(16) RISKS ASSOCIATED WITH THE YEAR 2000 PROBLEM
At present, the Company does not own or lease any computer
equipment. However, the Company, and any potential Target
Company, may face material adverse problems in maintaining or
upgrading its own (if any) or interfacing with other computer
systems, software, circuitry or any other electronic device in
the correct handling and processing of any date change. Any
such failure could have a material adverse effect on the
Company's financial condition and could also be a factor in
the selection of a Target Company.
(17) ENFORCEMENT OF CIVIL LIABILITIES.
The Company has appointed Mossack Fonseca & Co. (B.V.I.) Ltd.,
P.O. Box 3136, Road Town, Tortola, British Virgin Islands as
its agent upon whom service of process may be served in any
action brought against it under the securities laws of the
United States. All of the Company's officers and directors
reside outside the United States and all of the assets of
these persons and of the Company are or may be located outside
of the United States.
<PAGE> 8
The Company has been advised by Conyers Dill & Pearman, its
legal counsel in the British Virgin Islands, that Section 7 to
the IBC Act provides that:
"Subject to Section 74, no member, director, officer, agent,
or liquidator of a company incorporated under this Act is
liable for any debt, obligation, or default of the company,
unless specifically provided in this Act or in any other law
for the time being in force in the British Virgin Islands, and
except in so far as he may be liable for his own conduct and
actions."
Section 74 provides that:
"If at any time there is no member of a company incorporated
under this Act, any person doing business in the name of or on
behalf of the company is personally liable for the payment of
all debts of the company contracted during the time and the
person may be sued therefor without joinder in the proceedings
of any other person."
The Company has been advised by Conyers Dill & Pearman that
the United States and British Virgin Islands do not have a
treaty providing for reciprocal recognition of and enforcement
of judgments of United States courts in civil and commercial
matters and that a final judgment for the payment of money
rendered by any federal or state courts in the United States
based on civil liability, whether or not predicated solely
upon the United States federal securities laws, would,
therefore, not be automatically enforceable in the British
Virgin Islands. The Company has also been advised by Conyers
Dill & Pearman that a final and conclusive judgment obtained
in federal or state courts in the United States under which a
sum of money is payable as compensatory damages (i.e. not
being a sum claimed by a revenue authority for taxes or other
charges of a similar nature by a governmental authority, or in
respect of a fine or penalty or multiple or punitive damages)
may be the subject of an action on a debt in the Supreme Court
in the British Virgin Islands under the common law doctrine of
obligation. Such an action should be successful on the proof
that the sum of money is due and payable, without having to
prove the facts supporting the underlying judgment, as long
as:
(a) such courts had proper jurisdiction over the parties
subject to such judgment,
(b) such courts did not contravene the rules of natural
justice of the British Virgin Islands,
(c) such judgment was not obtained by fraud,
(d) enforcement of the judgment would not be contrary to
the public policy of the British Virgin Islands,
(e) no new admissible evidence relevant to the action is
submitted prior to the rendering of the judgment by
the courts of the British Virgin Islands, and
(f) due compliance is made with the correct procedures
under the laws of the British Virgin Islands.
A British Virgin Islands court may impose civil liability on
the Company or its directors or officers in a suit brought in
the Supreme Court of the British Virgin Islands against the
Company or such persons with respect to a violation of United
States federal securities laws, provided that the facts
surrounding such violation constitute or give rise to a cause
of action under British Virgin Islands law. Only if the above
preconditions are satisfied can a plaintiff under a United
States judgment sue the Company or its officers or directors
in the British Virgin Islands upon the debt created by the
United States judgments and would be entitled to summary
judgment without further review of the merits of the United
States case. As such, Conyers Dill & Pearman has advised that
it may be more difficult for potential investors to effect
service of process within the United States upon the Company's
officers or directors, or to enforce
<PAGE> 9
against the Company or such persons judgments obtained in
United States courts predicated solely upon the civil
liability provisions of the United States securities laws.
(18) DIRECTOR ACTIONS AND SHAREHOLDER RIGHTS UNDER BRITISH VIRGIN
ISLANDS LAW.
Pursuant to the Company's Memorandum and Articles of
Association and pursuant to the laws of the British Virgin
Islands, the Company's Memorandum and Articles of Association
may be amended by the Board of Directors without shareholder
approval. This includes amendments to increase or reduce the
authorized capital stock of the Company, to authorize the
issuance of different classes of stock including preferred
stock and to issue such stock subject to any designations,
powers, preferences, rights, qualifications, limitations and
restrictions. The Board of Directors may also increase the
capital of the Company without shareholder approval. Further,
the Company's Memorandum and Articles of Association provide
that differences which may arise between the Company and any
of its shareholders, their executors, administrators or
assigns relating to the Company's Memorandum and Articles of
Association shall, unless the parties agree to a single
arbitrator, be referred to two arbitrators to be chosen by
each of the differing parties. The ability of the Company to
amend its Memorandum and Articles of Association without
shareholder approval could have the effect of delaying,
deterring or preventing a change in control of the Company
without any further action by the shareholders, including,
without limitation, a tender offer to purchase the Common
Stock at a premium over then current market prices. In
addition, issuance of Preferred Stock, without shareholder
approval, on such terms as the Board of Directors may
determine, could adversely affect the voting power of the
holders of the Common Stock, including the loss of voting
control to others. No amendment to the Memorandum and Articles
of Association will be effective unless and until it is filed
with the Companies Registry of the British Virgin Islands.
Under the laws of most jurisdictions in the United States,
majority and controlling shareholders generally have certain
fiduciary duties to the minority shareholders. Shareholder
action must be taken in good faith and actions by controlling
shareholders which are obviously unreasonable may be declared
null and void. However, Conyers Dill & Pearman has advised
that British Virgin Islands law protecting the interests of
minority shareholders may not be as protective in all
circumstances as the law protecting minority shareholders in
United States jurisdictions.
Further, Conyers Dill & Pearman has advised that, while
British Virgin Islands law does permit a shareholder of a
British Virgin Islands company to sue its directors
derivatively, and to sue the Company and its directors for the
shareholder's benefit and the benefit of other shareholders
similarly situated, the circumstances in which any such action
may be brought, and the procedures and defenses that may be
available in any such action, may result in the rights of
shareholders of a British Virgin Islands company being more
limited than shareholders of a corporation incorporated in the
United States.
(19) LACK OF DIVIDENDS.
The Company has not paid any cash dividends on its Common
Stock. The future payment of dividends is within the
discretion of the Board of Directors. The Board does not
intend to declare any dividends in the foreseeable future, but
intends to retain all future earnings, if any, for use in the
Company's merger and acquisition activities.
(20) POLITICAL AND ECONOMIC DEVELOPMENTS AFFECTING HONG KONG.
The Company's principal office is located in Hong Kong.
Accordingly, the Company may be materially adversely affected
by factors affecting Hong Kong's political situation and its
economy or in its international political and economic
relations. Pursuant to the Sino-British Joint Declaration, the
government of the People's Republic of China ("PRC") began to
exercise sovereignty over Hong Kong, effective July 1, 1997,
through the Hong Kong Special Administrative Region, which was
established pursuant to
<PAGE> 10
Article 31 of the PRC constitution. The PRC has agreed that
(i) Hong Kong's current social and economic system will remain
unchanged for 50 years after July 1, 1997, with the Special
Administrative Region to be administered by local inhabitants
under the PRC's "Basic Law," and (ii) the laws currently
enforced in Hong Kong will remain largely in unchanged and
foreign investment will be protected by the law. There can be
no assurance that the Basic Law as adopted in its present form
will not be changed or interpreted in a materially adverse
manner for the Company in the future or that any such changes
or interpretations would not be given retroactive effect.
Accordingly, future political developments could make it
impractical, inefficient or impossible for the Company to
conduct business in or from Hong Kong.
ITEM 2. DESCRIPTION OF PROPERTIES
2A. GENERAL
The Company has no properties and currently has no agreements or plans
to acquire any properties. The Company's officers and directors use the offices
of Champ Pacific Capital Limited, Room 1806, Hutchison House, 10 Harcourt Road,
Central, Hong Kong at no cost to the Company. Champ Pacific Capital Limited has
agreed to continue this arrangement at any location it occupies until the
Company completes a transaction with a Target Company. One of the Company's
officers, directors and beneficial owners, Mr. Kevin Sheung Wai Chan, is a
director and fifty percent (50%) beneficial shareholder of Champ Pacific Capital
Limited.
2B. REAL ESTATE INVESTMENT POLICIES.
The Company has no real estate properties and at this time has no
agreements to acquire any properties. The Company does not preclude, however,
the possibility of becoming a party to a business combination with a Target
Company or another corporation or entity, or acquiring stock or assets of an
existing business, in which investments in real estate or interests in real
estate are involved.
ITEM 3. LEGAL PROCEEDINGS.
There is no litigation pending or, to the Company's knowledge,
threatened by or against the Company.
ITEM 4. CONTROL OF REGISTRANT.
The following table sets forth, as of September 30, 1999, each person
known by the Company to be the beneficial owner of ten (10) percent or more of
the Company's outstanding Class A common stock, each of whom are directors
individually and directors and officers of the Company as a group. Each person
has sole voting and investment power with respect to the shares shown. Other
than the rights to exercise options on the Class B preferred stock as described
below, none of the stockholders listed at this time have any rights to acquire
within sixty (60) days any additional common or preferred stock from warrants,
rights, conversion privilege(s) or similar obligations. No preferred stock of
the Company has been issued at this time; however, the individuals listed below
are the beneficial owners of rights to acquire, at an exercise price of US
$0.0001 per share, and at any time between September 15, 1999 and September 14,
2009, the Class B stock in the amounts below from stock options, each of whom
are directors individually and directors and officers of the Company as a group.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Title of Class Name and Address of Owner Number of Shares Percentage
Owned of Class
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Common Beauty Wise Secretaries Limited 7,500,000 75%
Stock Room 1806, Hutchison House
10 Harcourt Road, Central
Hong Kong
- -----------------------------------------------------------------------------------------------------------------------
Class A Common Fortune Access Nominees Limited 2,500,000 25%
Stock Room 1806, Hutchison House
10 Harcourt Road, Central
Hong Kong
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
Class B Beauty Wise Secretaries Limited 7,500,000 75%
Preferred Room 1806, Hutchison House
Stock 10 Harcourt Road, Central
Options Hong Kong
- -----------------------------------------------------------------------------------------------------------------------
Class B Fortune Access Nominees Limited 2,500,000 25%
Preferred Stock Room 1806, Hutchison House
Options 10 Harcourt Road, Central
Hong Kong
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Beauty Wise Secretaries Limited ("Beauty Wise"), formerly Beauty Wise
Development Limited, a company organized and existing under the laws of Hong
Kong, holds its shares and options in trust for a beneficial owner, Mr. Kevin
Sheung Wai Chan. Mr. Kevin Sheung Wai Chan is the Secretary, one of two
Directors and a 50% shareholder in Beauty Wise. Beauty Wise holds the
above-mentioned shares of Mr. Kevin Sheung Wai Chan for Mr. Kevin Sheung Wai
Chan's sole benefit pursuant to a Nominee Shareholder Agreement dated September
15, 1999 between Mr. Kevin Sheung Wai Chan and Beauty Wise.
Fortune Access Nominees Limited ("Fortune Access"), formerly Fortune
Access Development Limited, a company organized and existing under the laws of
Hong Kong, holds its shares and options for a beneficial owner, Mr. Silas Sheung
Kwan Chan. Mr. Kevin Sheung Wai Chan is the Secretary, one of two Directors and
a 50% shareholder in Fortune Access. Fortune Access holds the above-mentioned
shares of Mr. Silas Sheung Kwan Chan for Silas Sheung Kwan Chan's sole benefit
pursuant to a Nominee Shareholder Agreement dated September 15, 1999 between Mr.
Silas Sheung Kwan Chan and Fortune Access.
ITEM 5. NATURE OF THE TRADING MARKET
The Common Stock of the Company is not yet listed on an exchange or
over-the-counter system. The Company does plan to consider looking at listing
its shares on the OTC Bulletin Board or the Nasdaq Small Cap market in the
future.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no exchange control restrictions on the payment of dividends
on the Common Stock of the Company in Hong Kong, where the Company's principal
executive offices are located, or the British Virgin Islands, where the Company
is incorporated. Currently, the shares in the Company are issued in the currency
of the United States. Other jurisdictions in which the Company may conduct
operations in the future, or where a Target Company is located, may have various
exchange controls.
Although the Company has not entered into any discussions with any
potential Target Company, the Company may seek to merge with or acquire a Target
Company in a number of jurisdictions, including the People's Republic of China
("PRC"), whose currency, the Renminbi, is not freely convertible into foreign
currency. The PRC government imposes control over its foreign currency reserves
in part through direct regulation of the conversion of Renminbi into foreign
currency and through restrictions on foreign trade. Prior to January 1, 1994,
the PRC had a dual exchange rate system, which consisted of the rate fixed
time-to-time by the PRC State Administration of Exchange Control (the "SAEC")
and the rates prevailing in the various swap centers around the country (the
"Swap Rates"). In most cases, foreign enterprises satisfied their need for
foreign currency through such means as exporting products for foreign currency,
selling "import substitute" products in the PRC for payment in foreign currency,
or accessing a swap center. Among the more widely used Swap Rates was the rate
at the swap center in Shanghai. Effective January 1, 1994, a new unitary,
managed floating-rate system was introduced in the PRC to replace the previous
dual-track foreign exchange system, which was abolished pursuant to the Notice
of the People's Bank of China Concerning Further Reform of the Foreign Currency
Control System (the "PBOC Notice"). The conversion of Renminbi into U.S. dollars
must now be based on the rate set by the People's Bank of China, which is set
based on the previous day's PRC interbank foreign exchange market rate and with
reference to current exchange rates on the world financial markets. In
furtherance of these currency reforms, the China Foreign Exchange Trading Center
(the "CFETC") was formally established in Shanghai and began operating in April
1994. The establishment of the CFETC was originally intended to coincide with
the phasing out of the swap centers. However, the swap centers have been
retained as an interim measure and it is envisaged that the local swap centers
will be phased out gradually.
Currently, foreign investment enterprises ("FIEs") in the PRC
(including Sino-foreign equity and co-operative joint ventures) are required to
apply to the local bureau of the SAEC for "foreign exchange registration
certificates foreign investment
<PAGE> 12
enterprises." Upon the presentation of appropriate documentation, FIEs may enter
into foreign exchange transactions at swap centers, or in the future, in the
event the unitary exchange rate system is implemented as anticipated, through
the unified market when all swap centers are consolidated under the CFETC. On
January 29, 1996, the State Council promulgated the Regulations of the People's
Republic of China Regarding Foreign Exchange Control (the "Regulations") which
came into effect on April 1, 1996. Pursuant to the Regulations, conversion of
Renminbi into foreign exchange for current account items is permissible.
Conversion of Renminbi into foreign exchange for capital items, such as direct
investment, loans or security is still under the sole jurisdiction and requires
approval of the SAEC.
As a result of the adoption of the unitary exchange rate system on
January 1, 1994, the official bank exchange rate for Renminbi to U.S. dollars
experienced an immediate devaluation of approximately 50% to US$1.00 .2 = Rmb
8.7000. Any future volatility or devaluation of the Renminbi could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Management believes that the Company, if it merges with or acquires a
Chinese Target Company, would be able to obtain all required approvals for the
conversion and remittance abroad of foreign currency necessary for the
operations of any Chinese Target Company's business. However, such approvals do
not guarantee the availability of foreign currency, and no assurance can be
given that the Company would be able to convert sufficient amounts of foreign
currency in the PRC's foreign exchange markets in the future at acceptable
rates, or at all, for the repayment of debt, payments of interest, purchases of
equipment or payment of dividends, if any, and payments for services and other
contracts.
CERTAIN FOREIGN ISSUER CONSIDERATIONS
The Company is an International Business Company incorporated under the
provisions of the IBC Act. The transfer of shares between persons regarded as
residents outside of the British Virgin Islands is not subject to any exchange
controls. Likewise, issues and transfers of shares involving any person regarded
as resident in the British Virgin Islands are not subject to exchange control
approval. There are no limitations on the rights of non-British Virgin Islands
owners of the Common Stock to hold or vote their shares. Because the Company has
been formed pursuant to the IBC Act, there are no restrictions on its ability to
transfer funds into and out of the British Virgin Islands or to pay dividends to
U.S. residents who are holders of the Common Stock.
In accordance with the Company's Memorandum and Articles of
Association, share certificates are only issued as shares registered on the
books of the Company. In the case of a representative acting in a special
capacity (for example, as an executor or trustee), the Company is not bound to
investigate or incur any responsibility in respect of the proper administration
of any such estate or trust. The Company takes no notice of any trust applicable
to any of its shares whether or not it had notice of such trust.
As a company subject to the IBC Act, the Company may not: (i) transact
business with persons resident in the British Virgin Islands except as set out
in Section 5(2) of the IBC Act; (ii) own an interest in real property situated
in the British Virgin Islands, other than a lease of property for use as am
office from which to communicate with shareholders or where books and records of
the Company are prepared and maintained; (iii) maintain a banking or trust
business, unless it is licensed under the British Virgin Islands Banks and
Trusts Companies Act of 1990; (iv) transact business as an insurance or a
reinsurance company, insurance agency or insurance broker, unless it is licensed
under an enactment authorizing it to transact that business; (v) maintain the
business of company management unless it is licensed under the British Virgin
Islands Company Management Act, 1990; or (vi) maintain the business of providing
a registered office or act as the registered agent for companies incorporated in
the British Virgin Islands.
There are no restrictions on the degree of foreign ownership of the
Company. The Company is subject neither to taxes on its income or dividends nor
to any foreign exchange controls in the British Virgin Islands. In addition, the
Company is not subject to capital gains tax in the British Virgin Islands, and
profits can be accumulated by the Company, as deemed by management to be
required, without limitation.
<PAGE> 13
ITEM 7. TAXATION
The following discussion summarizes certain tax consequences to a
holder of Common Stock of the Company under present British Virgin Islands,
United States, Hong Kong and the People's Republic of China tax laws. The
discussion does not deal with all possible tax consequences relating to the
Company's operations or ownership of the Common Stock and does not purport to
deal with the tax consequences applicable to particular investors, some of which
(including banks, securities dealers, insurance companies and tax-exempt
entities, as well as financial institutions, broker-dealers, tax-exempt
organizations or persons or particular classes of U.S. holders of at least 10%
of the voting power of the value of the Company's stock) may be subject to
special rules. In particular, the discussion does not address the tax
consequences under state, local and other national tax laws. The following
discussion is based upon laws and relevant interpretations thereof in effect as
of the date of this Registration Statement, all of which are subject to change
retroactively and prospectively.
ANY PROSPECTIVE INVESTOR IN THE COMPANY SHOULD CONSULT WITH HIS OR HER
OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER TO
PURCHASE, OWN AND DISPOSE OF THE SECURITIES, INCLUDING THE EFFECTS OF APPLICABLE
BRITISH VIRGIN ISLANDS, HONG KONG, PRC AND/OR UNITED STATES FEDERAL, STATE,
LOCAL OR OTHER TAX LAWS, AS WELL AS POSSIBLE CHANGES IN THE TAX LAWS.
BRITISH VIRGIN ISLANDS TAXATION
Under the IBC Act as currently in effect, a holder of Common Stock of
the Company who is not a resident of the British Virgin Islands is exempt from
British Virgin Islands income tax on dividends paid with respect to the Common
Stock of the Company. A holder of Common Stock of the Company is not liable for
British Virgin Islands income tax on gains realized on the sale or disposal of
such shares. The British Virgin Islands does not impose a withholding tax on
dividends paid by the Company to its shareholders due to its incorporation under
the IBC Act.
There are no capital gains, gift and inheritance, or income taxes
levied by the British Virgin Islands on companies incorporated under the IBC
Act. In addition, the Common Stock of the Company is not subject to transfer
taxes, stamp duties or similar charges.
There is no income tax treaty or convention currently in effect between
the United States and the British Virgin Islands. As an exempted company, the
Company is required to pay the British Virgin Islands government an annual
license fee based on the Company's stated authorized capital.
UNITED STATES FEDERAL INCOME TAXATION.
The following is a summary of material United States federal income tax
consequences arising from the purchase, ownership and disposition of the Common
Stock to holders who are United States citizens, individuals resident in the
United States for purposes of United States federal income tax, or domestic
corporations who purchase Common Stock in any future offering and hold such
Common Stock as capital assets (a "U.S. holder"). A U.S. holder must allocate
the purchase price for the Common Stock on the date of issuance as the U.S.
holder's tax basis in his Common Stock for federal tax purposes.
Cash dividends paid out of the Company's current and accumulated
earnings and profits to a holder of Common Share who is a U.S. holder will be
taxed as ordinary income for United States federal income tax purposes. Cash
distributions in excess of the current and accumulated earnings and profits of
the Company will first be treated, for United States federal income tax
purposes, as a nontaxable return on capital to the extent of the United States
Investor's basis in the Common Share and then as gain from the sale or exchange
of a capital asset.
In general, a U.S. holder, other than a shareholder owning 10% or more
of the voting power of the Company, will be entitled to claim a foreign tax
credit only for taxes, if any, imposed on dividends paid to such U.S. holder
(such as withholding taxes) and not for taxes, if any, imposed on the Company or
on any entity in which the Company has made an investment. The amount of the
foreign tax credit that may be claimed is limited to that proportion of the tax
against which the credit is taken that the holder's taxable income from
non-United States sources bears to the holder's entire taxable income for that
taxable year. The foreign tax credit limitation is applied
<PAGE> 14
separately to different categories of income. Generally, for purposes of
applying such foreign tax credit limitations, dividends are included in the
passive income category.
The amount of the gross distributions actually or constructively
received by a U.S. Common Stock holder will be included as ordinary income to
the extent such distribution is paid from current or accumulated earnings and
profits of the Company, as determined under United States federal income tax
principles. Such distributions will not be eligible for the dividends that
receive deductions allowed to United States corporations. Distributions in
excess of the Company's current and accumulated earnings and profits are treated
as a non-taxable return of basis to the extent thereof, and then as a gain from
the sale of Common Stock.
A U.S. holder will recognize capital gain or loss upon the sale or
other disposition of the Common Stock in an amount equal to the difference
between the amount realized and the U.S. holder's tax basis in the Common Stock.
Such gain or loss will be long-term capital gain or loss if the Common Stock has
been held for more than one year at the time of the sale or other disposition.
Long-term capital gain of a non-corporate U.S. holder is generally subject to
tax at more favorable rates than ordinary income or short-term capital gain.
However, if the Company is deemed to be a passive foreign investment
company ("PFIC"), upon the receipt of certain distributions from the Company or
a disposition of the Common Stock, each U.S. holder will be liable for United
States federal income tax computed generally at the highest applicable rate as
if such distribution or gain had been recognized ratably over the period the
U.S. holder held such Common Stock, plus interest on the tax allocable to prior
years including within such holding period. Such tax and interest will be
payable by the U.S. holder for the year in which the distribution or gain is
actually realized, regardless of whether losses, credits or other tax benefits
would have been available to the U.S. holder to offset such income if it had
actually been realized in such prior tax years. Under certain circumstances, if
the Company were a PFIC, distributions and dispositions of shares in a direct or
indirect foreign corporate subsidiary of the Company may be attributed in whole
or in part to a U.S. holder, and such U.S. holder may be taxed under the PFI
rules with respect to such distributions or dispositions.
The Company will be treated as a PFIC if in the current tax year or any
prior tax year, either (i) seventy-five (75) percent or more of the gross income
of the Company is passive income, or (ii) on average, at least fifty (50)
percent of the assets of the Company (by value or, if the Company elects, by
their adjusted basis for computing earnings and profits) produce or are held for
the production of passive income ("passive assets"). Under special
"look-through" rules, the Company is considered to own its pro rata share of the
gross income and assets of any corporation which the Company owns (or is
considered to own) twenty-five (25) percent or more of the stock (by value).
Passive income for purposes of the PFIC rules generally includes dividends,
interest and other types of investment income.
The Company anticipates that under the look-through rules most of its
income will not constitute passive income and that most of its investments
therein will not constitute passive assets. Accordingly, the Company does not
anticipate that it will be treated as a PFIC based on the nature of its
business; however, there can be no assurance that they will not be treated as
such.
Alternatively, a U.S. holder could elect to treat the Common Stock as
an investment in a qualified electing fund ("QEF"). In such a case, the PFIC
rules described above would not apply; instead, the U.S. holder would be
required to include currently in his income his pro-rata share of the Company's
ordinary earnings (as ordinary income) and his pro-rata share of the Company's
net capital gains (as long-term capital gain), whether or not distributions with
respect to such earnings or gains are actually made to the U.S. holder. If the
U.S. holder makes the QEF election for the first year in which the Company is a
PFIC, the investor will be required to include its share of such income only for
tax years in which the Company meets either the income test or the asset test
and not in other tax years. Once made, the QEF election will be effective for
the tax year and all subsequent tax years, and may be revoked only with the
consent of the United States Internal Revenue Service.
The Company intends to notify U.S. holders in the event that it
concludes it will be treated as a PFIC for any tax year to enable the U.S.
holders the ability to consider whether to make the QEF election, although the
Company has no obligation to do so nor should U.S. holders rely on the Company
doing so. Prospective investors should
<PAGE> 15
consult with their own tax advisors regarding the possible treatment of the
Company as a PFIC, its effect, and the eligibility, manner and advisability of
making a QEF election in such case.
A U.S. holder will be subject to "backup withholding" at the rate of
thirty-one (31) percent with respect to dividends paid on the Common Stock and
any proceeds of the sale, exchange or redemption of the Common Stock which are
paid through a paying agent, broker or other intermediary in the United States
or a United States broker or certain United States-related brokers to such
holder outside the United States unless the U.S. holder (i) qualifies as an
exempt payee (including, without limitation, a corporation), and when required,
demonstrates this fact or (ii) provides a correct taxpayer identification number
(or certifies that he has applied for a taxpayer identification number),
certifies that such holder is not subject to backup withholding and otherwise
complies with the backup withholding rules. Backup withholding is not an
additional tax; rather the stockholder is entitled to a credit against his
United States federal income tax for the amount of any backup withholding. In
addition, a United States investor who fails to furnish his taxpayer
identification number may be subject to a penalty.
A U.S. holder who owns or acquires five (5) percent or more in value of
the Company's stock may be required to file certain additional reports with
respect to the Company with the United States Internal Revenue Service and may
be subject to a penalty for failing to do so.
HONG KONG TAXATION.
Under the laws of Hong Kong, as currently in effect, a holder of Common
Stock is not subject to Hong Kong tax on dividends paid with respect to such
shares and no holder of Common Stock is liable for Hong Kong tax on gains
realized on sale or other disposition of such Common Stock except that those
persons who are classified for Hong Kong purposes as dealers in securities in
Hong Kong may be subject to Hong Kong tax in respect of any gain resulting from
the disposition of Common Stock. Hong Kong does not impose a withholding tax on
dividends paid by the Company. In addition, the Company will not be subject to
Hong Kong taxes as a result of its receipt of dividends from any of its
subsidiaries.
PRC TAXATION.
Currently, there is no material connection with the Company and the PRC
for tax claims to be made by PRC tax authorities. However, the Company is
looking to merge with or acquire a Target Company in the future, which may (but
not necessarily) be an operating entity in the PRC. The Company anticipates that
there would be no material consequences to holders of the Common Stock solely as
a result of the purchase, ownership and disposition of the Common Stock after
any potential merger or acquisition with a Chinese Target Company. There is an
income tax treaty in effect between the United States and the PRC.
ITEM 8. SELECTED FINANCIAL DATA
SUMMARY FINANCIAL AND OPERATING DATA
The selected information set forth below should he read in conjunction
with, and is qualified in its entirety by reference to, the consolidated
financial statements of the Company included in this Registration Statement as
prepared by Arthur Andersen & Co., independent public accountants. The Company
prepares its financial statements in accordance with United States generally
accepted accounting principles ("U.S. GAAP").
<PAGE> 16
BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(Amounts expressed in United States dollars)
<TABLE>
<CAPTION>
ASSET
<S> <C>
Cash $ 1,000
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Accrued liabilities $ 5,000
-------------
Stockholders' deficit:
Common Stock - Class A, $0.0001 par value; 400,000,000
shares authorized; 10,000,000 shares issued and
outstanding 1,000
Common Stock - Class B, $0.0001 par value; 100,000,000
shares authorized; Nil issued and outstanding --
Additional paid-in capital 100
Accumulated deficit (5,100)
-------------
Total stockholders' deficit (4,000)
-------------
Total liabilities and stockholders' deficit $ 1,000
=============
</TABLE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
With the exception of any historical matters herein, this Registration
Statement may contain "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (except as may be limited by Section
27A(b)(2)(D) of the Securities Act and Section 21E(b)(2)(D) of the Exchange
Act). The Company's actual results could differ materially from the results, if
any, discussed in such forward-looking statements. Any such forward-looking
statements should be read only in conjunction with this entire Registration
Statement and the exhibits hereto.
9A. GENERAL BUSINESS PLAN
The Company's purpose is to seek, investigate and, if such
investigation warrants, attempt to enter into some form of business combination
with a Target Company seeking the perceived advantages of having a class of
securities registered under the Exchange Act. The Company will not restrict its
search to any specific business, industry or geographical location and the
Company may participate in a business venture of virtually any kind or nature.
It is impossible to predict at this time the status of any business in which the
Company may become engaged, in that such business may need to seek additional
capital, may desire to have its shares publicly traded, or may seek other
perceived advantages which the Company may offer. The Company is also not
restricted from implementing a structure for a particular business acquisition
with a Target Company in which the Company also becomes a party to a merger,
consolidation, reorganization, joint venture, or licensing agreement with a
third party corporation or entity. The Company has not identified any Target
Companies and has not entered into any negotiations regarding such business
combination to date. None of the Company's officers or directors have engaged in
any negotiations with any representative of any company regarding the
possibility of any business combination between the Company and such other
company to date.
The officers and directors anticipate possibly seeking out a Target
Company through solicitation. Such solicitation may include newspaper or
magazine advertisements, mailings and other distributions to law firms,
accounting firms, investment bankers, financial advisors and similar persons,
the use of one or more World Wide Web sites and similar methods. No estimate can
be made as to the number of persons who may be contacted or solicited. The
officers and directors may engage in such solicitation directly or may employ
one or more other entities to conduct or assist in such solicitation. The
officers and directors will pay referral fees to consultants and others who
refer Target Companies for mergers into reporting companies in which the
officers and directors have an interest. Payments are made if a business
combination occurs, and may consist of cash or a portion of the stock in the
Company retained by the officers and directors.
The Company anticipates that the selection of a business opportunity in
which to participate will be complex and a high-risk endeavor. The officers and
directors believe (but have not conducted or obtained any research to confirm)
that there are business entities seeking the perceived benefits of a publicly
registered corporation. Such perceived benefits may include the items listed in
Part 1, Item 1B of this Registration Statement. Business opportunities may be
available in many different industries and at various stages of development, all
of which will make the task of
<PAGE> 17
comparative investigation and analysis of such business opportunities difficult
and complex.
The Memorandum and Articles of Association of the Company provides that
the Company may indemnify officers and/or directors of the Company for all
losses and liabilities which he or she may sustain or incur in or about the
execution of the duties of his or her office or otherwise in relation thereto,
and no director or officer shall be liable for any loss, damage or misfortune
which may happen to, or be incurred by the Company in the execution of the
duties of his or her office, or in relation thereto.
The Company has, and will continue to have, no capital with which to
provide the owners of business entities with any cash or other assets. The
Company believes it will be able to offer owners of Target Companies the
opportunity to enter into a business combination with a reporting company
without incurring the cost and time that would be required should a Target
Company decide to become a reporting company on its own. In analyzing
prospective business opportunities, the officers and directors will consider
such matters as: (i) available technical, financial and managerial resources;
(ii) working capital and other financial requirements; (iii) history of
operations, if any; (iv) prospects for the future; (v) nature of present and
expected competition; (vi) quality and experience of management services which
may be available and the depth of that management; (vii) potential for further
research, development or exploration; (viii) specific risk factors not now
foreseeable but which then may be anticipated to impact the proposed activities
of the Company; (ix) potential for growth or expansion; (x) the potential for
profit; (xi) perceived public recognition or acceptance of products, services or
trades; (xii) name identification; and (xiii) other relevant factors. This
discussion of the proposed criteria is not meant to be a restrictive or an
inclusive list of the Company's virtually unlimited discretion to search for and
enter into potential business opportunities. The officers and directors have not
conducted or obtained market research and are not aware of any empirical data to
support the perceived benefits of a merger or acquisition transaction for the
owners of any Target Company. See ITEM 1D(9), "RISK FACTORS - LACK OF MARKET
RESEARCH OR MARKETING ORGANIZATION AND EXPERTISE".
The Exchange Act requires that any merger or acquisition candidate comply
with certain reporting requirements, which include providing audited financial
statements in any reporting filings made under the Exchange Act. The officers
and directors of the Company will in all likelihood be inexperienced in matters
relating to the business of a Target Company. The officers and directors will
rely upon their own efforts in accomplishing the pre-business combination
purposes of the Company. Outside consultants or advisors may be utilized by the
Company to assist in the search for qualified Target Companies. If the Company
does retain such an outside consultant or advisor, any cash fee earned by such
person will need to be assumed by the Target Company, as the Company has limited
cash assets with which to pay such obligation.
Following a business combination the Company may benefit from the
services of others in regard to accounting, legal services, underwritings and
corporate public relations. If requested by a Target Company, the officers and
directors of the Company may recommend one or more underwriters, financial
advisors, accountants, law firms, public relations firms or other consultants to
provide such services.
9B. ACQUISITION OF OPPORTUNITIES
It is anticipated that any securities issued in any such reorganization
would be issued in reliance upon exemption from registration under the
Securities Act, any other applicable federal securities laws and state
securities laws. In some circumstances, however, as a negotiated element of its
transaction, the Company may agree to register all or a part of such securities
under the applicable federal or state securities laws immediately after the
transaction is consummated or at specified times thereafter. If such
registration occurs, of which there can be no assurance, it will be undertaken
by the surviving entity after the Company has entered into an agreement for a
business combination or has consummated a business combination and the Company
is no longer considered a Blank Check Company. Until such time as this occurs,
the Company will not register any securities. The issuance of additional
securities and their potential sale into any trading market which may develop in
the Company's securities may depress the market value of the Company's
securities in the future if such a market develops, of which there is no
assurance.
<PAGE> 18
While the terms of a business transaction to which the Company may be a
party cannot be predicted, it is expected that the parties to the business
transaction will desire to avoid the creation of a taxable event and thereby
structure the acquisition as a "tax-free" reorganization under Sections 351 or
368 of the Internal Revenue Code of 1986, as amended (the "Code").
With respect to any negotiations with a Target Company, the officers
and directors expect to analyze, among other factors, the percentage of the
Company Target Company shareholders would acquire in exchange for their
shareholdings in the Target Company. Depending upon, among other things, the
Target Company's assets and liabilities, the Company's shareholders would in all
likelihood hold a substantially lesser percentage ownership interest in the
Company following any such transaction. The percentage of ownership may be
subject to significant reduction in the event that the Company acquires a Target
Company with substantial assets.
The Company will participate in a business opportunity only after the
negotiation and execution of appropriate agreements. Although the terms of such
agreements cannot be predicted, generally such agreements will require certain
representations and warranties of the parties thereto, will specify certain
events of default, will detail the terms of closing and the conditions which
must be satisfied by the parties prior to and after such closing, will outline
the manner of bearing costs, including costs associated with the Company's
attorneys and accountants, and will include miscellaneous other terms.
The Company is currently exempt from certain provisions applicable to
U.S. public companies, including the duty to file its quarterly reports on Form
10-Q (or 10-QSB, as applicable), as required under the Exchange Act. However,
the Company anticipates that upon effectiveness of this Registration Statement
on January 9, 2000, it will be subject to the rules and regulations of the
Exchange Act and other laws, rules and regulations as applicable to foreign
companies and as may be necessary for listing its securities in the future on
Nasdaq Small Cap or OTC Bulletin Board.
The officers and directors have agreed that they will advance to the
Company any additional funds which the Company needs for operating capital and
for costs in connection with searching for or completing a business combination
with a target company. The officers and directors are under no obligation to
advance funds to the Company, and they may discontinue such funding at any time.
Such advances will be made without expectation of repayment unless the owners of
the business which the Company acquires or merges with agree to repay all or a
portion of such advances. There is no minimum or maximum amount the officers and
directors will advance to the Company. The Company will not borrow any funds to
make any payments to the Company's promoters, officers, directors or their
affiliates or associates.
9C. COMPETITION
The Company will remain an insignificant participant among the firms
that engage in the acquisition of business opportunities. There are many
established venture capital and financial concerns which have significantly
greater financial and personnel resources and technical expertise than the
Company. In view of the Company's combined extremely limited financial resources
and limited management availability, the Company will continue to be at a
significant competitive disadvantage compared to the Company's competitors. See
ITEM 1D(3), "RISK FACTORS--SCARCITY OF AND COMPETITION FOR BUSINESS
OPPORTUNITIES AND COMBINATIONS".
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT.
10A. BACKGROUNDS OF DIRECTORS
The Company has the following officers and directors:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Name Age Positions and Offices Held
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Kevin Sheung Wai Chan 38 Director
- ---------------------------------------------------------------------------------------------------------
Silas Sheung Kwan Chan 36 Director and Secretary
- ---------------------------------------------------------------------------------------------------------
</TABLE>
There are no agreements or understandings for the officers or directors
to resign at the request of another person and the above-named officer and
director is not acting on behalf of nor will act at the direction of any other
person.
<PAGE> 19
Set forth below are summary descriptions containing the name of the
directors and officers of the Company, all positions and offices with the
Company held, the period during which such officer or director has served as
such, and the business and educational experience of each during at least the
last five (5) years:
KEVIN SHEUNG WAI CHAN. Mr. Chan is a director of the Company. From 1985
to 1989, he was with the audit division of Arthur Andersen in Hong Kong. From
1989 to 1994, he was an investment banker with Deutsche Morgan Grenfell in Hong
Kong. From 1994 to the present, Mr. Chan has been a Principal of Champ Pacific
Capital Limited, a financial consulting and advisory firm located in Hong Kong.
Mr. Chan has been a Certified Public Accountant in Hong Kong since 1989, as well
as a fellow member of the Hong Kong Society of Accountants and the Association
of Chartered Certified Accountants. Mr. Chan received his B.So.Sc. in Management
Studies from the University of Hong Kong in 1985.
SILAS SHEUNG KWAN CHAN. Mr. Chan is a director and secretary of the
Company. From 1985 to 1990, Mr. Chan was an Accountant with KPMG Peat Marwick
and Ernst & Young, both located in Hong Kong. From 1990 to 1992, Mr. Chan was
with the Hong Kong Stock Exchange as a Listing Executive. From 1993 to 1997, Mr.
Chan was with Fuji International Finance Limited, an international investment
bank, as Assistant Director. From 1997 to the present, Mr. Chan has been an
executive officer with Champ Pacific Capital Limited, a financial consulting and
advisory firm located in Hong Kong. Mr. Chan is a fellow member of the Hong Kong
Society of Accountants and the Association of Chartered Certified Accountants
since 1989, and has been a Chartered Financial Analyst since 1997. Mr. Chan
received a B.Sc. in Accounting from the University of Hong Kong in 1985 and an
M.B.A. from the University of Birmingham in 1993.
10B. PREVIOUS BLANK CHECK COMPANIES
Since formation of the Company, Messrs. Chan and Chan have formed or
are in the process of forming two additional British Virgin Islands companies -
Digital Star Inc. and Portal Net Limited -- with the intent of them becoming
additional Blank Check Companies. See ITEM 10D, "RECENT TRANSACTIONS BY BLANK
CHECK COMPANIES". Prior to initiating formation of these companies, Messrs. Chan
and Chan and the Company have owned together one other British Virgin Islands
Blank Check Company, First Nets Global Inc., but Messrs. Chan and Chan have not
yet registered such company under the Exchange Act.
10C. CURRENT BLANK CHECK COMPANIES
In addition to First Nets Global Inc., with which they have organized
and established in the British Virgin Islands but have not registered any shares
of such company under the Exchange Act, Messrs. Chan and Chan anticipate being
involved with additional Blank Check Companies with common stock registered
under the Securities Act or the Exchange Act. At present, Messrs. Chan and Chan
also anticipate filing a registration statement for Digital Star Inc. and Portal
Net Limited simultaneously with the Registration Statement for the Company or on
a date soon after this Registration Statement is filed by the Company.
10D. RECENT TRANSACTIONS BY BLANK CHECK COMPANIES
Although Messrs. Chan and Chan have formed the three additional
companies listed in Item 10B and 10C above with the intent of such companies
becoming additional Blank Check Companies, no Registration Statements have been
filed previous to this Registration Statement for these three companies.
However, Messrs. Chan and Chan anticipate registering the shares of Digital Star
Inc. and Portal Net Limited simultaneously with the Company or on a date soon
after this Registration Statement is issued by the Company. At present, Messrs.
Chan and Chan do not have plans to file a registration statement for First Nets
Global Inc. in the immediate future.
10E. CONFLICTS OF INTEREST
The Company's officers and directors expect to register Digital Star
Inc., Portal Net Limited, First Nets Global Inc. and other companies of a
similar nature and with a similar purpose as the Company. Consequently, there
are potential inherent conflicts of interest in acting as an officer and
director of the Company. Insofar as the officers and directors are engaged in
other business activities, the officers and directors anticipate that they will
devote only a minor amount of time to the Company's affairs.
<PAGE> 20
A conflict may arise in the event that another Blank Check Company with
which the officers and directors are affiliated is registered and actively seeks
a Target Company. The officers and directors anticipate (but are not required to
so effect) that Target Companies will be located for the Company and other Blank
Check Companies either (i) in chronological order of the date of formation of
such Blank Check Companies; or (ii) by lot. However, other additional Blank
Check Companies that may be formed may differ from the Company in certain items
such as place of incorporation, number of shares and shareholders, working
capital, types of authorized securities, or other items. It may be that a Target
Company may be more suitable for or may prefer a certain Blank Check Company
formed after the Company. In such case, a business combination might be
negotiated on behalf of the more suitable or preferred Blank Check Company
regardless of date of formation or choice by lot. See ITEM 1D(7), "RISK
FACTORS-OTHER BLANK CHECK COMPANIES".
Mr. Silas Sheung Kwan Chan is an executive officer of Champ Pacific
Capital Limited, and a Director and Secretary of Digital Star Inc., Portal Net
Limited and First Nets Global Inc. and expects to organize other companies of a
similar nature and with a similar purpose as the Company. As such, demands may
be placed on the time of Mr. Silas Sheung Kwan Chan that will detract from the
amount of time he is able to devote to the Company. Mr. Silas Sheung Kwan Chan
intends to devote as much time to the activities of the Company as required.
However, should a conflict arise regarding the time demands of Mr. Silas Sheung
Kwan Chan, there is no assurance that Mr. Silas Sheung Kwan Chan would not
attend to other matters prior to those of the Company. Mr. Silas Sheung Kwan
Chan projects that initially up to ten hours per month of his time may be spent
locating a Target Company which amount of time would increase when the analysis
of, and negotiations and consummation with, a Target Company are conducted.
Mr. Kevin Sheung Wai Chan is a Director of Champ Pacific Capital
Limited, Digital Star Inc., Portal Net Limited and First Nets Global Inc. and
expects to organize other companies of a similar nature and with a similar
purpose as the Company. As such, demands may be placed on the time of Mr. Kevin
Sheung Wai Chan that may detract from the amount of time he is able to devote to
the Company. Mr. Kevin Sheung Wai Chan intends to devote as much time to the
activities of the Company as required. However, should a conflict arise
regarding the time demands of Mr. Kevin Sheung Wai Chan, there is no assurance
that Mr. Kevin Sheung Wai Chan would not attend to other matters prior to those
of the Company. Mr. Kevin Sheung Wai Chan projects that initially up to ten
hours per month of his time may be spent locating a Target Company which amount
of time would increase when the analysis of, and negotiations and consummation
with, a Target Company are conducted.
At the time of a business combination, the officers and directors
expect that some or all of the shares of common stock owned by the shareholders
and directors will be purchased by the Target Company. The amount of common
stock sold or continued to be owned by the directors cannot be determined at
this time.
The Company may agree to pay finder's fees, as appropriate and allowed,
to unaffiliated persons who may bring a Target Company to the Company where that
reference results in a business combination. The amount of any finder's fee will
be subject to negotiation, and cannot be estimated at this time. No finder's fee
of any kind will be paid to the officers and directors or promoters of the
Company or to their associates or affiliates. No loans of any type have, or will
be, made to the officers, directors or promoters of the Company or to any of
their associates or affiliates.
The Company's officers and directors have not had any negotiations with
and there are no present arrangements or understandings with any representatives
of the owners of any business or company regarding the possibility of a business
combination with the Company.
Any changes in these provisions require the approval of the Board of
Directors. The officers, directors and current shareholders do not intend to
propose any such action and do not anticipate that any such action will occur.
10F. INVESTMENT COMPANY ACT OF 1940
See ITEM 1D (11), "RISK FACTORS--REGULATION UNDER THE INVESTMENT
COMPANY ACT". Any violation of the Investment Company Act would subject the
Company to material adverse consequences.
<PAGE> 21
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.
The Company's officers and directors do not receive any compensation
for services rendered to the Company, have not received such compensation in the
past, and are not accruing any compensation pursuant to any agreement with the
Company.
The officers and directors of the Company will not receive any finder's
fee, either directly or indirectly, as a result of their efforts to implement
the Company's business plan outlined herein. However, the officers and directors
of the Company anticipate receiving benefits as beneficial shareholders of the
Company. See ITEM 4, "CONTROL OF REGISTRANT," and ITEM 13, "INTEREST OF
MANAGEMENT IN CERTAIN TRANSACTIONS".
No retirement, pension, profit sharing, stock option or insurance
programs or other similar programs have been adopted by the Company for the
benefit of its directors, officers or other employees.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.
Mr. Kevin Sheung Wai Chan is the beneficial holder of the right to
exercise stock options for 7,500,000 Class B shares at an exercise price of US
$0.0001 per share expiring September 14, 2009. It is anticipated that all such
shares would, if Mr. Kevin Sheung Wai Chan were to exercise such right, be held
in trust by a nominal shareholder, Beauty Wise Secretaries Limited, formerly
Beauty Wise Development Limited, a company organized and existing under the laws
of Hong Kong. Mr. Kevin Sheung Wai Chan is the Secretary, one of two Directors
and a 50% shareholder in Beauty Wise Secretaries Limited. Beauty Wise
Secretaries Limited would hold the above-mentioned shares of Mr. Kevin Sheung
Wai Chan for Mr. Kevin Sheung Wai Chan's sole benefit pursuant to a Nominee
Shareholder Agreement dated September 15, 1999 between Mr. Kevin Sheung Wai Chan
and Beauty Wise Secretaries Limited.
Mr. Silas Sheung Kwan Chan is the beneficial holder of the right to
exercise stock options for 2,500,000 Class B shares at an exercise price of US
$0.0001 per share expiring September 14, 2009. It is anticipated that all such
shares would, if Mr. Silas Sheung Kwan Chan were to exercise such right, be held
in trust by a nominal shareholder, Fortune Access Nominees Limited, formerly
Fortune Access Development Limited, a company organized and existing under the
laws of Hong Kong. Mr. Kevin Sheung Wai Chan is the Secretary, one of two
Directors and a 50% shareholder in Fortune Access Nominees Limited. Fortune
Access Nominees Limited would hold the above-mentioned shares of Mr. Silas
Sheung Kwan Chan for Silas Sheung Kwan Chan's sole benefit pursuant to a Nominee
Shareholder Agreement dated September 15, 1999 between Mr. Silas Sheung Kwan
Chan and Fortune Access Nominees Limited.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.
The Company has issued a total of 10,000,000 shares of common stock to
the following persons for a total of US
$1,100.00 in cash:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Name Relationship to Issuer Number of Total Shares Consideration
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kevin Sheung Wai Chan Director 7,500,000 825
- -------------------------------------------------------------------------------------------------------------------------
Silas Sheung Kwan Chan Director and Secretary 2,500,000 275
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has also provided Kevin Sheung Wai Chan and Silas Sheung
Kwan Chan, through nominee shareholders Beauty Wise Secretaries Limited and
Fortune Access Nominees Limited, respectively, with the right to exercise stock
options for Class B shares as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Name Relationship to Issuer Number of Total Shares Consideration
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kevin Sheung Wai Chan Director 7,500,000 750
- -------------------------------------------------------------------------------------------------------------------------
Silas Sheung Kwan Chan Director and Secretary 2,500,000 250
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 22
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.
14A. GENERAL
The authorized capital stock of the Company consists of 400,000,000
shares of Class A stock, par value $0.0001 per share, and 100,000,000 shares of
Class B stock, par value $0.0001 per share. To date, no preferred stock has been
issued by the Company; however, Messrs. Chan and Chan have been given the right
to exercise, from September 15, 1999 until September 14, 2009, the Class B stock
in the amounts set forth in Item 12 above from stock options. To date, Messrs.
Chan and Chan have not exercised their rights to purchase stock options. The
following statements relating to the capital stock are summaries and, as
summaries, may not contain all information of importance to investors and
potential investors. Reference is made to the more detailed provisions of, and
such statements are qualified in their entirety by reference to, the Certificate
of Incorporation and the Memorandum and Articles of Association, copies of which
are filed as exhibits to this Registration Statement.
14B. COMMON STOCK
Holders of shares of Class A common stock are entitled to one vote for
each share on all matters to be voted on by the stockholders. Holders of common
stock do not have cumulative voting rights. Holders of common stock are entitled
to share ratably in dividends, if any, as may be declared from time to time by
the Board of Directors in its discretion from funds legally available therefor.
In the event of a liquidation, dissolution or winding up of the Company, the
holders of common stock are entitled to share pro rata all assets remaining
after payment in full of all liabilities. Under British Virgin Islands law,
nonresidents of the British Virgin Islands may freely hold, vote and transfer
shares of Common Stock in the same manner as British Virgin Islands residents.
Holders of common stock have no preemptive rights to purchase the
Company's common stock. Without prejudice to any special rights previously
conferred on the holders of any existing shares or class of shares, any share in
the Company may be issued with such preferred, deferred or other special rights,
or such restrictions, whether in regard to dividend, voting, return of capital
or otherwise, as the Directors may from time to time determine.
Subject to the provisions of the IBC Act, shares may be issued on the
terms that they are redeemable, or, at the option of the Company, liable to be
redeemed on such terms and in such manner as the directors before or at the time
of the issue of the shares may determine. The Board of Directors may redeem any
such share at a premium. The Company's organizational documents contain no
provisions regarding sinking funds or liability to further calls or assessment
by the Company.
14C. PREFERRED STOCK
Pursuant to the Articles of Association of the Company, holders of
Class B shares are entitled to five votes for each share on all matters to be
voted on by the stockholders. Each Class B share can be converted into one Class
A share at the option of the holders of such shares. Conversion shall be
effected by written notice of such election by the holder to the Secretary of
the Company. Other than voting rights and conversion rights mentioned above, the
organizational documents of the Company do not provide Class B preferred
shareholders with any different rights than Class A common shareholders in terms
of dividend rights, liquidation rights, pre-emptive rights, redemption
provision, sinking fund provisions, and liability to further calls or to
assessment by the Company.
If at any time the share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise provided by the terms
of issue of that class) may, whether or not the Company is being wound up be
varied with the consent in writing of the holders of not less than fifty-one
percent of the issued shares of that class and of the holders of not less than
fifty-one percent of the issued shares of any other class of shares which may be
affected by such variation.
The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless otherwise expressly provided by
the terms of issue of the shares of that class, be deemed to be varied by the
creation or issue of further shares ranking pari passu therewith.
<PAGE> 23
Any future issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the shareholders and may adversely affect the voting and other rights
of the holders of common stock. At present, the Company has no plans to issue
any preferred stock nor adopt any series, preferences or other classification of
preferred stock.
The issuance of shares of preferred stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of preferred stock might impede
a business combination by including class voting rights that would enable the
holder to block such a transaction, or facilitate a business combination by
including voting rights that would provide a required percentage vote of the
stockholders. In addition, under certain circumstances, the issuance of
preferred stock could adversely affect the voting power of the holders of the
common stock. Although the Board of Directors is required to make any
determination to issue such stock based on its judgment as to the best interests
of the stockholders of the Company, the Board of Directors could act in a manner
that would discourage an acquisition attempt or other transaction that
potentially some, or a majority, of the stockholders might believe to be in
their best interests or in which stockholders might receive a premium for their
stock over the then market price of such stock. The Board of Directors does not
at present intend to seek stockholder approval prior to any issuance of
currently authorized stock, unless otherwise required by law or stock exchange
rules.
14D. DIVIDENDS
Dividends, if any, will be contingent upon the Company's revenues and
earnings, if any, and capital requirements and financial conditions. The payment
of dividends, if any, will be within the discretion of the Company's Board of
Directors. The Company presently intends to retain all earnings, if any, for use
in its business operations and accordingly, the Board of Directors does not
currently anticipate declaring any dividends prior to a business combination.
See ITEM 1(D)(19) "LACK OF DIVIDENDS" and ITEM 6 "EXCHANGE CONTROLS AND OTHER
LIMITATIONS AFFECTING SECURITY HOLDERS".
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 16. CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED
SECURITIES AND USE OF PROCEEDS
None.
PART IV
ITEM 17. FINANCIAL STATEMENTS (Intentionally Omitted)
ITEM 18. FINANCIAL STATEMENTS
The financial statements of the Company are presented in U.S.
Dollars. All financial statements of the Company presented herein have been
prepared in conformity with U.S. GAAP. The selected information set forth below
should he read in conjunction with, and is qualified in its entirety by
reference to, the consolidated financial statements of the Company included in
this Registration Statement as prepared by Arthur Andersen & Co., independent
public accountants.
<PAGE> 24
BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(Amounts expressed in United States dollars)
<TABLE>
<CAPTION>
ASSET
<S> <C>
Cash $ 1,000
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Accrued liabilities $ 5,000
-----------
Stockholders' deficit:
Common Stock - Class A, $0.0001 par value; 400,000,000
shares authorized; 10,000,000 shares issued and
outstanding 1,000
Common Stock - Class B, $0.0001 par value; 100,000,000
shares authorized; Nil issued and
outstanding --
Additional paid-in capital 100
Accumulated deficit (5,100)
-----------
Total stockholders' deficit (4,000)
-----------
Total liabilities and stockholders' deficit $ 1,000
===========
</TABLE>
NET-MATRIX LIMITED
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 15, 1999 (DATE OF INCORPORATION)
TO SEPTEMBER 30, 1999
(Amounts expressed in United States dollars except for per share data)
<TABLE>
<S> <C>
Selling, general and administrative expenses $ (5,100)
Provision for income taxes --
------------------
Net loss $ (5,100)
==================
Loss per common share - Basic 0.05
cents
==================
</TABLE>
<PAGE> 25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant certifies that it meets all of the requirements for filing on
Form 20-F and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
NET-MATRIX LIMITED
By: /s/ Mr. Kevin Sheung Wai Chan
------------------------------------
Name: Mr. Kevin Sheung Wai Chan
Title: Director
By: /s/ Mr. Silas Sheung Kwan Chan
-----------------------------------
Name: Mr. Silas Sheung Kwan Chan
Title: Director and Secretary
Date: February 11, 2000
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Net-Matrix Limited
We have audited the accompanying balance sheet of Net-Matrix Limited as of
September 30, 1999 and the related statement of operations, cash flows, and
changes in shareholders' equity for the period from September 15, 1999 (date of
incorporation) to September 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly, in
all material respects, the financial position of Net-Matrix Limited as of
September 30, 1999, and the results of its operations and its cash flows for the
period from September 15, 1999 (date of incorporation) to September 30, 1999, in
conformity with generally accepted accounting principles in the United States of
America.
/s/ Arthur Andersen & Co.
- --------------------------------
ARTHUR ANDERSEN & CO.
Certified Public Accountants
Hong Kong
Hong Kong,
October 25, 1999.
<PAGE> 27
NET-MATRIX LIMITED
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(Amounts expressed in United States dollars)
<TABLE>
<CAPTION>
ASSET
<S> <C>
Cash $ 1,000
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Accrued liabilities $ 5,000
-------------
Stockholders' deficit:
Common Stock - Class A, $0.0001 par value; 400,000,000
shares authorized; 10,000,000 shares issued and
outstanding 1,000
Common Stock - Class B, $0.0001 par value; 100,000,000
shares authorized; Nil issued and outstanding --
Additional paid-in capital 100
Accumulated deficit (5,100)
-------------
Total stockholders' deficit (4,000)
-------------
Total liabilities and stockholders' deficit $ 1,000
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 28
NET-MATRIX LIMITED
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 15, 1999 (DATE OF INCORPORATION)
TO SEPTEMBER 30, 1999
(Amounts expressed in United States dollars except for per share data)
<TABLE>
<S> <C>
Selling, general and administrative expenses $ (5,100)
Provision for income taxes --
------------------
Net loss $ (5,100)
==================
Loss per common share - Basic 0.05
cents
==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 29
NET-MATRIX LIMITED
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 15, 1999 (DATE OF INCORPORATION)
TO SEPTEMBER 30, 1999
(Amounts expressed in United States dollars)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $ (5,100)
Increase in accrued liabilities 5,000
-------------
Net cash flows from operating activities (100)
Cash flows from financing activities:
Net proceeds from issuance of common stock - Class A 1,100
-------------
Net increase in cash and balance as of end of period $ 1,000
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 30
NET-MATRIX LIMITED
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM SEPTEMBER 15, 1999 (DATE OF INCORPORATION)
TO SEPTEMBER 30, 1999
(Amounts expressed in United States dollars)
<TABLE>
<CAPTION>
Common stock - Class A Common stock - Class B
---------------------------- ---------------------------- Additional
Number of Number of Paid-in Accumulated
shares Amount shares Amount capital deficit
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
September 15, 1999 -- $ -- -- $ -- $ -- $ --
Issuance of common
stock 10,000,000 1,000 -- -- 100 --
Net loss for the
period -- -- -- -- -- (5,100)
------------- ------------- ------------- ------------- ------------- -------------
Balance as of
September 30, 1999 10,000,000 $ 1,000 -- $ -- $ 100 $ (5,100)
============= ============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 31
NET-MATRIX LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(Amounts expressed in United States dollars)
1. Organization and Business Operations
Net-Matrix Limited (a development stage company) (the "Company") was
incorporated in the British Virgin Islands on September 15, 1999 to serve as a
vehicle to effect a merger, exchange of capital stock, asset acquisition, or
other business combination with a domestic or foreign private business. As of
September 30, 1999 the Company had not yet commenced any formal business
operations, and all activity to date relates to the Company's formation and
proposed fund raising. The Company's fiscal year end is September 30.
The Company's ability to commence operations is contingent upon its ability to
identify a prospective target business and raise the capital it will require
through the issuance of equity securities, debt securities, bank borrowings, or
a combination thereof.
2. Summary of significant accounting policies
a. Income taxes
The Company accounts for income tax under the provisions of Statement
of Financial Accounting Standards No. 109, which requires recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Deferred income taxes are provided using the
liability method. Under the liability method, deferred income taxes are
recognized for all significant temporary differences between the tax
and financial statement bases of assets and liabilities.
b. Loss per common share
Basic loss per common share is computed in accordance with Statement of
Financial Accounting Standards No. 128 by dividing net loss for each
year/period by the weighted average number of shares of common stock
outstanding during the year/period. The weighted average number of
shares used to compute basic loss per common share is 10,000,000 shares
for the period from September 15, 1999 (date of incorporation) to
September 30, 1999.
<PAGE> 32
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
b. Loss per common share (Cont'd)
The computation of diluted loss per common share is similar to basic
loss per common share, except that the denominator is increased to
include the number of additional common shares that would have been
outstanding if all dilutive securities outstanding during the
year/period are exercised. The weighted average number of shares used
to compute diluted loss per common share is approximately 20,000,000
shares for the period from September 15, 1999 (date of incorporation)
to September 30, 1999.
No diluted loss per common share for the period from September 15, 1999
(date of incorporation) to September 30, 1999 is presented as the
Company had not loss for the period. Accordingly, the inclusion of
stock options in the computation of diluted loss per common share will
result in anti-dilutive per-share amount.
c. Use of estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles in the United States of
America 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 and the reported amounts of revenues and expenses during the
reporting period. Accordingly, actual results could differ from those
estimates.
d. Fair value of financial instruments
All financial instruments of the Company are carried at cost, which
approximate their fair values.
3. COMMON STOCK AND STOCK OPTIONS
a. Common stock
The Company is authorized to issue 400,000,000 shares of common stock -
Class A with a par value of $0.0001 each and 100,000,000 shares of
common stock - Class B with a par value of $0.0001 each. Upon
incorporation, 10,000,000 shares of common stock - Class A were issued
at $0.00011 each to provide the Company with working capital.
The shareholders of common stock - Class A have one vote per share
while the shareholders of common stock - Class B have five votes per
share on any matter submitted to the shareholders. The shareholders of
common stock - Class A shall rank equally with the shareholders of
common stock - Class B in all other aspects.
<PAGE> 33
3. COMMON STOCK AND STOCK OPTIONS (Cont'd)
b. Stock options
On September 15, 1999, the Company granted stock options to existing
shareholders to subscribe for 10,000,000 Class B shares of common
stock. The share options are exercisable at par value of $0.0001 each
during the period from September 15, 1999 to September 14, 2009. No
stock option was exercised subsequent to their issuance.
<PAGE> 34
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
1.1* Memorandum of Association
1.2* Articles of Association
2.1* Relevant Board Resolutions
2.2* Nominee Shareholder Agreements
3.1* Letter of Agreement to Use Offices of Champ Pacific
Capital Limited
10.1* Consent of Champ Pacific Capital Limited
10.2 Consent of Accountants
</TABLE>
*Previously Filed
<PAGE> 1
February 9, 2000
The Board of Directors
Net-Matrix Limited
Unit 1806, Hutchison House
10 Harcourt Road
Central
Hong Kong
Dear Sirs,
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 20-F of our report dated October 25, 1999 included in the
Registration Statement. It should be noted that we have not audited any
financial statements of the Company subsequent to September 30, 1999 or
performed any audit procedures subsequent to the date of our report.
Very truly yours,
/s/ Arthur Andersen & Co.
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