SCHEDULES TO EXHIBIT 10.1 (SHARE EXCHANGE AGREEMENT DATED APRIL 12, 2000)
SCHEDULE 1.1
DEFINITIONS
"Affiliate and Associate" means an "affiliate" and "associate", respectively, as
those terms are defined in the Business Corporation Act, 1990
(Ontario), as amended on the date hereof.
"Agreement" means the Agreement and any instrument supplemental or ancillary to
it.
"Ancillary Agreements" means all documents, agreements, certificates and
instruments to be executed or delivered by any Person under this
Agreement including the Support Agreement.
"Authorized Representatives" means employees, agents, counsel, accountants and
other representatives.
"Business Day" means any day other than a Saturday, Sunday or statutory holiday
in the Province of Ontario.
"Capital Expenditures" means expenditures which, in accordance with Canadian
generally accepted accounting principles consistently applied, are
chargeable to capital or fixed assets accounts and includes
expenditures in connection with the acquisition by, purchase, erection
or construction of lands, fixed assets, plant, machinery and/or
equipment, whether fixed or moveable.
"China eMall Business" means China eMall's Business of providing internet
marketing and information services to facilitate trades between Chinese
and Western businesses and its aims to establish an on-line
international trade market center for Chinese products.
"China eMall Business Agreements" means the business agreements undertaken in
the normal course of business.
"China eMall Financial Statements" means the financial statements of China eMall
attached as Schedule 5.1 (m).
"China eMall Records" means China eMall's books, records, files, including
business and financial records, documentation and information, whether
in writing or stored in any retrieval system or database.
"China eMall Shareholders" shareholders of all the issued and outstanding
common shares of China eMall as set out in Schedule 4.1 (e).
"China Shares" means the common shares of China eMall currently owned by the
China Vendors as listed in Schedule 4.1 (e).
"China Vendors" means Uphill, GDCT, Gang Chai, Qin Lu Chai, Qing Wang, Tai Xue
Shi, Charles He, and Forte.
"Claims" means claims, demands, actions, causes of action, damages, losses,
costs, fines, penalties, interest, liabilities and expenses, including,
without limitation, reasonable legal fees.
"Closing" means the completion of the transactions contemplated by this
Agreement pursuant to this Agreement.
"Closing Date" means April 12, 2000, or such other later date as may be agreed
to by the Parties.
"Closing Time" means 2:00 p.m. (Toronto time) on the Closing Date or such other
time on the Closing Date as may be agreed to by the Parties.
"Encumbrances" means any mortgage, charge, pledge, hypothecate, lien,
encumbrance, restriction, option, right of others or security interest
of any kind.
"Exchangeable Shares" means Class B Exchangeable Shares of China eMall (to be
created), that will have the rights, privileges and restrictions
substantially as set out in Schedule 2.8.
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"GDCT Agreements" means the business agreements undertaken in the normal course
of business and set out in Schedule 5.3 (p).
"GDCT Business" means the holding of common shares of China eMall and no other
activity, business or holdings.
"GDCT Financial Statements" means the financial statements of GDCT attached as
Schedule 5.3 (m).
"GDCT Shares" means all the issued and outstanding common shares in the
capital of GDCT Capital Inc. currently owned by the shareholders as
listed in Schedule 4.3 (e).
"GDCT Vendors" means Qing Wang and Tai Xue Shi.
"Governmental Authorities" means any applicable Canadian or non-Canadian
federal, provincial and municipal agency, ministry, crown corporation,
department, inspector and official.
"Interim Period" means the period commencing on the date of this Agreement and
ending immediately before the opening of business on the Closing Date.
"NASD" means the National Association of Securities Dealers.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"OSC" means the Ontario Securities Commission.
"Parties" means the parties to the Agreement and "Party" means any one of them.
"Permits"means authorizations, registrations, permits, approvals or licenses
that can be issued or granted by Governmental Authorities.
"Person" means an individual, body corporate, partnership, trustee, trust,
unincorporated association, executor, administrator or legal
representative.
"Purchaser Business" means a developmental stage company in the e-commerce
industry including data content delivery to the point of sale,
incorporation of consumer loyalty marketing programs based on smartcard
technology, the development of internet access set-top boxes, and the
identification of technologies and market opportunities in internet and
interactive media e-commerce and smartcard marketing.
"Purchaser Business Agreements" means the business agreements undertaken in the
normal course of business and set out in Schedule 6.1 (m).
"Purchaser Financial Statements" means the financial statements of the Purchaser
attached as Schedule 6.1 (n).
"Purchaser Records" means the Purchaser's books, records, files, including
business and financial records, documentation and information, whether
in writing or stored in any retrieval system or database.
"Records" means the China eMall Records and the Purchasers' Records.
"Regulatory Approval" means the approvals and consents of applicable regulatory
authorities, which are required to complete the transactions
contemplated by this Agreement.
"Share Conversion" has the meaning attributed to it in section 2.2.
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"Shareholder Approval" means approval by the holders of the common shares of
China eMall in respect to the transactions contemplated by this
Agreement.
"Uphill Agreements" means the business agreements undertaken in the normal
course of business and set out in Schedule 5.2 (p).
"Uphill Business" means the holding of common shares of China eMall and no other
activity, business or holdings.
"Uphill Financial Statements" means the financial statements of Uphill attached
as Schedule 5.2 (m).
"Uphill Shares" means all the issued and outstanding common shares in the
capital of Uphill Capital Inc. currently owned by the shareholders as
listed in Schedule 4.3 (e).
"Uphill Vendors" means Gang Chai and Qin Lu Chai.
"Vendors" means the China Vendors.
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SCHEDULE 2.8
EXCHANGEABLE SHARES
The rights, privileges, restrictions and conditions of the Class A Special
Shares and the Class B Special Shares will be substantially as follows:
(a) Definitions
-----------
The term "Redemption Amount" where used herein with reference to a:
(i) Class A Special share, means an amount per Class A Special share equal
to the original issue price for such Class A Special share;
(ii) Class B Special share (an "Exchangeable Share") means one common share
in the capital of VHS Network Inc., ("VHS") a corporation formed under
the laws of the State of Florida in the United States of America (the
"VHS Share");
The term "Redemption Price" where used herein with reference to:
(i) a Class A Special share shall mean, at the relevant time, the
respective Redemption Amount of such share together with all dividends
declared thereon and unpaid; and
(ii) an Exchangeable Share shall mean, at the relevant time, the respective
Redemption Amount of such share together with all dividends declared on
the VHS Share and unpaid.
(b) Dividends
---------
The directors may, in their discretion, declare dividends or other distributions
on the Class A Special shares, the Exchangeable Shares and the common shares or
on any of such classes of shares, wholly to the exclusion of the other classes
of shares, at such times or from time to time and in such differing amounts
among classes as they may deem advisable; provided that:
(i) the holders of the Class A Special shares shall be entitled to receive
each year, for each such Class A Special share held by them, out of
moneys of the Corporation properly applicable to the payment of
dividends before the payment of any dividends of the Corporation to the
holders of the Exchangeable Shares and the common shares or any other
shares of the Corporation ranking after the Class A Special shares, one
or more non-cumulative preferential dividends of an aggregate amount
equal to a minimum of 0.0% and a maximum of 10.0% of the Redemption
Amount for each such Class A Special share held by them;
(ii) the holders of the Exchangeable Shares shall be entitled to receive
each calendar year, for each such Exchangeable Share held by them, out
of moneys of the Corporation properly applicable to the payment of
dividends or other distributions before the payment of any dividends of
the Corporation to the holders of the common shares or any other shares
of the Corporation ranking after the Exchangeable Shares, one or more
non-cumulative preferential dividends or other distributions of an
aggregate amount equal to the dividends or distributions paid on the
VHS Shares during such calendar year.
(c) Return of Capital
-----------------
In the event of the liquidation, dissolution or winding-up of the Corporation or
other distribution of the property or assets of the Corporation among its
shareholders for the purpose of winding-up its affairs, whether voluntary or
involuntary, the holders of the Class A Special shares shall be entitled to
receive out of the property and assets of the Corporation before any amount
shall be paid or any property or assets of the Corporation are distributed to
the holders of the Exchangeable Shares and the common shares or any other shares
of the Corporation ranking after the Class A Special shares, an amount equal to
the Redemption Price of each Class A Special share held by them.
After payment to the holders of the Class A Special shares of the amounts
provided above, the holders of the Exchangeable Shares shall be entitled to
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receive out of the property and assets of the Corporation, before any amount
shall be paid or any property or assets of the Corporation are distributed to
the holders of the common shares or any other shares of the Corporation ranking
after the Exchangeable Shares, an amount equal to the Redemption Price of each
Exchangeable Share held by them.
After payment to the holders of the Class A Special shares and the Exchangeable
Shares of the amounts provided above, the holders of the Class A Special shares
and the Exchangeable Shares shall not be entitled as such to share in any
further distribution of the property or assets of the Corporation.
All property and assets of the Corporation remaining after satisfying the
foregoing rights of the holders of the Class A Special shares and the
Exchangeable Shares shall be distributed on a pro-rata basis to the holders of
the common shares.
(d) Redemption by the Corporation
-----------------------------
The Corporation may, upon giving notice as hereinafter provided, redeem at any
time all or any part of the Class A Special shares on payment (in cash or in
kind) for each Class A Special Share to be redeemed of the Redemption Price
thereof. Not less than seven days written notice of such redemption shall be
given by mailing such notice to the registered holders of the Class A Special
shares to be redeemed, specifying the date (in this paragraph referred to as the
"Redemption Date") and the place or places of redemption. If notice of any such
redemption is given by the Corporation in the manner aforesaid and an amount
sufficient to redeem such Class A Special shares is deposited with any trust
company or chartered bank in Canada, as specified in the notice, on or before
the Redemption Date, the Class A Special shares in respect of which such deposit
was made shall be deemed to be redeemed on the Redemption Date and the holders
thereof shall thereafter have no rights against the Corporation in respect
thereof except, upon surrender of the certificates for such Class A Special
shares, to receive payment therefor without interest out of the monies so
deposited. Any interest allowed on any such deposit shall belong to the
Corporation.
The Corporation may, upon giving notice as hereinafter provided, redeem:
(i) at any time after the expiration of the earlier of (A) three years from
the date on which a Form SB-2 or similar filing has been filed with the
SEC with respect to the common shares of VHS Network Inc. and the SEC
has reach a position of no further comment, and (B) five years after
which such Exchangeable Shares were issued; or
(ii) after there has been an offer to acquire outstanding voting or equity
securities of a class of VHS made to any person or corporation or to a
security holder of VHS issuer where the securities subject to the offer
to acquire, together with the offeror's securities, constitute 20 per
cent or more of the outstanding securities of that class of securities
of VHS at the date of the offer to acquire;
all or any part of the Exchangeable Shares on payment of one VHS Share for each
Exchangeable Share to be redeemed.
Notwithstanding the foregoing, if and whenever at any time the outstanding
Exchangeable Shares or the outstanding VHS Shares shall be subdivided, redivided
or changed into a greater or consolidated into a lesser number of shares or
reclassified into different shares, the basis of satisfying such redemption then
in effect shall be appropriately adjusted and any holder of Exchangeable Shares
who has not exercised the right of exchange prior to the effective date of such
subdivision, redivision, change, consolidation or reclassification shall be
entitled to receive and shall accept, upon the redemption, in lieu of the number
of VHS Shares to which the holder was theretofore entitled upon conversion, the
aggregate number of VHS Shares that such holder of Exchangeable Shares would
have been entitled to receive as a result of such subdivision, redivision,
change, consolidation or reclassification if, on the effective date thereof,
such holder had been the registered holder of the number of VHS Shares to which
such holder was theretofore entitled upon exchange. Not less than seven days
written notice of such redemption shall be given by mailing such notice to the
registered holders of the Exchangeable Shares to be redeemed, specifying the
date (in this paragraph referred to as the "Redemption Date") and the place or
places of redemption. If notice of any such redemption is given by the
Corporation in the manner aforesaid and an amount sufficient to redeem such
Exchangeable Shares is deposited with any trust company or chartered bank in
Canada, as specified in the notice, on or before the Redemption Date, the
Exchangeable Shares in respect of which such deposit was made shall be deemed to
be redeemed on the Redemption Date and the holders thereof shall thereafter have
no rights against the Corporation in respect thereof except, upon surrender of
the certificates for such Exchangeable Shares, to receive payment therefor
without interest out of the monies so deposited. Any interest allowed on any
such deposit shall belong to the Corporation.
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(e) Redemption by Shareholder
-------------------------
A holder of Class A Special shares shall be entitled to require the Corporation
to redeem at any time or times all or any of the Class A Special shares
registered in the name of such holder on the books of the Corporation by
tendering to the Corporation at its registered office a share certificate or
certificates representing the Class A Special shares which the registered holder
desires to have the Corporation redeem, together with a written request
specifying:
(i) that the registered holder desires to have the Class A Special shares
represented by such certificate or certificates redeemed by the
Corporation; and
(ii) the business day (in this paragraph referred to as the "Redemption
Date") on which the holder desires to have the Corporation redeem such
Class A Special shares.
The Redemption Date shall not be less than seven days after the day on which the
written request is received by the Corporation. Upon receipt of the share
certificate or certificates representing the Class A Special shares which the
registered holder desires to have the Corporation redeem together with such
request, the Corporation shall, on the Redemption Date, redeem such Class A
Special shares by paying to the registered holder an amount equal to the
aggregate Redemption Price of the Class A Special shares being redeemed. Such
payment shall be made by cheque payable at par at any branch of the
Corporation's bankers for the time being in Canada. The Class A Special shares
so requested to be redeemed shall be redeemed on the Redemption Date and from
and after the Redemption Date such Class A Special shares shall cease to be
entitled to dividends and the holder thereof shall not be entitled to exercise
any of the rights of holders of Class A Special shares in respect thereof unless
payment of the Redemption Price is not made on the Redemption Date, in which
event the rights of the holder of such Class A Special Shares shall remain
unaffected.
A holder of Exchangeable Shares shall be entitled to require the Corporation to
redeem at any time or times all or any of the Exchangeable Shares registered in
the name of such holder on the books of the Corporation by tendering to the
Corporation at its registered office a share certificate or certificates
representing the Exchangeable Shares which the registered holder desires to have
the Corporation redeem, together with a written request specifying:
(i) that the registered holder desires to have the Exchangeable Shares
represented by such certificate or certificates redeemed by the
Corporation; and
(ii) the business day (in this paragraph referred to as the "Redemption
Date") on which the holder desires to have the Corporation redeem such
Exchangeable Shares.
The Redemption Date shall not be less than seven days after the day on which the
written request is received by the Corporation. Upon receipt of the share
certificate or certificates representing the Exchangeable Shares which the
registered holder desires to have the Corporation redeem together with such
request, the Corporation shall, on the Redemption Date, redeem such Exchangeable
Shares by delivery to the registered holder one issued and outstanding VHS Share
for every Exchangeable Share redeemed.
Notwithstanding the foregoing, if and whenever at any time the outstanding
Exchangeable Shares or the outstanding VHS Shares shall be subdivided, redivided
or changed into a greater or consolidated into a lesser number of shares or
reclassified into different shares, the basis of satisfying such redemption then
in effect shall be appropriately adjusted and any holder of Exchangeable Shares
who has not exercised the right of exchange prior to the effective date of such
subdivision, redivision, change, consolidation or reclassification shall be
entitled to receive and shall accept, upon the redemption, in lieu of the number
of VHS Shares to which the holder was theretofore entitled upon conversion, the
aggregate number of VHS Shares that such holder of Exchangeable Shares would
have been entitled to receive as a result of such subdivision, redivision,
change, consolidation or reclassification if, on the effective date thereof,
such holder had been the registered holder of the number of VHS Shares to which
such holder was theretofore entitled upon exchange. Such payment of an amount,
if applicable, shall be made by cheque payable at par at any branch of the
Corporation's bankers for the time being in Canada. The Exchangeable Shares so
requested to be redeemed shall be redeemed on the Redemption Date and from and
after the Redemption Date such Exchangeable Shares shall cease to be entitled to
dividends and the holder thereof shall not be entitled to exercise any of the
rights of holders of Exchangeable Shares in respect thereof unless payment of
the Redemption Price is not made on the Redemption Date, in which event the
rights of the holder of such Exchangeable Shares shall remain unaffected.
(f) Voting
------
The holders of the Class A Special shares and the common shares shall be
entitled to receive notice of and to attend and vote at all meetings of the
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shareholders of the Corporation and each of the Class A Special shares or Common
Shares, as the case may be, shall confer on the holder thereof the right to one
vote in person or by proxy at all meetings of shareholders of the Corporation.
The holders of the Exchangeable Shares shall, subject to certain conditions, not
be entitled to receive notice of or to attend or vote at any meeting of the
shareholders of the Corporation save and except that the holders of the
Exchangeable Shares shall always be entitled to notice of and to attend and vote
at any meeting of shareholders called for the purpose of authorizing the
dissolution of the Corporation or the sale, lease or exchange of all or
substantially all the property of the Corporation other than in the ordinary
course of business of the Corporation.
(g) Exchange
--------
The holders of the Exchangeable Shares shall have the right at any time to
exchange Exchangeable Shares into VHS Shares at any time on the basis of one VHS
Share for each Exchangeable Share so exchanged.
The exchange may be exercised by notice in writing given to the Corporation at
its registered office, accompanied by the certificate or certificates
representing the Exchangeable Shares in respect of which the holder thereof
desires to exercise the right of exchange. Such notice shall be signed by such
holder or his duly authorized attorney and shall specify the number of
Exchangeable Shares which the holder desires to have exchanged. If less than all
of the Exchangeable Shares represented by a certificate or certificates
accompanying such notice are to be exchanged, the holder shall be entitled to
receive, at the expense of the Corporation, a new certificate representing the
number of Exchangeable Shares comprised in the certificates so surrendered which
are not to be exchanged.
In the case of any Exchangeable Shares which may be called for redemption, the
right of exchange thereof shall, notwithstanding anything contained herein,
cease and terminate at the close of business on the last business day before the
date fixed for redemption, provided however, that if the Corporation shall fail
to redeem such Exchangeable Shares in accordance with the notice of redemption
the right of conversion shall thereupon be restored.
If and whenever at any time the outstanding Exchangeable Shares or the
outstanding VHS Shares shall be subdivided, redivided or changed into a greater
or consolidated into a lesser number of shares or reclassified into different
shares, the basis of conversion then in effect shall be appropriately adjusted
and any holder of Exchangeable Shares who has not exercised the right of
exchange prior to the effective date of such subdivision, redivision, change,
consolidation or reclassification shall be entitled to receive and shall accept,
upon the exercise of such right at any time on the effective date or thereafter,
in lieu of the number of VHS Shares to which the holder was theretofore entitled
upon conversion, the aggregate number of VHS Shares that such holder of
Exchangeable Shares would have been entitled to receive as a result of such
subdivision, redivision, change, consolidation or reclassification if, on the
effective date thereof, such holder had been the registered holder of the number
of VHS Shares to which such holder was theretofore entitled upon exchange.
(h) Restriction on Dividends, Purchase or Redemption
------------------------------------------------
Notwithstanding any other provision hereof, the Corporation shall not, without
the prior written consent of all of the holders of the Remaining Shares, as
defined below, pay any dividend, purchase, redeem or otherwise acquire or
cancel, or return the stated capital in respect of any outstanding shares of the
Corporation if the payment of such dividend or the completion of such purchase,
redemption, acquisition or cancellation or return of stated capital would cause
the realizable value of the Corporation's assets to be less than the aggregate
of:
(i) its liabilities;
(ii) the stated capital of the Remaining Shares; and
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(iii) the amount, if any, by which the aggregate Redemption Price of the
Remaining Shares exceeds the stated capital attributable to such
Remaining Shares.
In this paragraph "Remaining Shares" means the Class A Special shares and the
Exchangeable Shares of the Corporation that would be issued and outstanding
immediately after the payment of the dividend or the completion of the purchase,
redemption, acquisition, cancellation or return of capital giving rise to the
application of this subparagraph (g).
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SCHEDULE 3.1
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT is made as of the day of April, 2000,
BETWEEN
VHS NETWORK, INC.
a corporation incorporated under the laws
of the State of Florida
(hereinafter referred to as the "Purchaser")
OF THE FIRST PART,
and
CHINA EMALL CORPORATION.,
a corporation incorporated under the laws
of the Province of Ontario
(hereinafter referred to as "China eMall")
OF THE SECOND PART.
WHEREAS the Purchaser and China eMall have entered into an agreement
(the "Amended and Restated Share Exchange Agreement") with the shareholders of
China eMall Corporation ("China eMall") whereby the certain shareholders of
China eMall, before giving effect to the Share Exchange Agreement, shall
exchange all of their common shares of China eMall for exchangeable preference
shares (the "Exchangeable Shares") of China eMall that are exchangeable into
common shares of the Purchaser.
AND WHEREAS After the Closing Date as defined in the Share Exchange
Agreement China eMall will be a wholly-owned subsidiary of two other
wholly-owned subsidiaries of the Purchaser.
NOW THEREFORE THIS AGREEMENT WITNESSES THAT, in consideration of the
mutual covenants hereinafter contained and provided for and other good and
valuable consideration (the receipt and sufficiency of which is hereby
acknowledged by the Parties), the Parties agree as follows:
1. China eMall will be funded by the Purchaser with sufficient resources
(including, without limitation, issued and outstanding common shares in
the capital of the Purchaser) to permit China eMall to satisfy its
dividend, redemption and retraction obligations with respect to the
Exchangeable Shares in the capital of China eMall outstanding from time
to time;
2. the Purchaser may not, subdivide, re-divide or change into a greater or
consolidated into a lesser number of shares or reclassify into
different shares, the common shares of the Purchaser without ensuring
that the rights of the holders of the Exchangeable Shares shall be
appropriately adjusted to ensure that the rights of the holders of the
Exchangeable Shares are not diminished and that the fair market value
of the Exchangeable Shares is not decreased directly or indirectly, in
any manner whatsoever.
IN WITNESS WHEREOF this agreement has been executed by the Parties each
as of the day and year first before written.
THIS AGREEMENT IS HEREBY EXECUTED on the date set forth above.
VHS NETWORK, INC.
Per: _______________________
A.S.O.
CHINA EMALL CORPORATION
Per: ______________________
A.S.O.
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SCHEDULE 4.1 (e)
LIST OF CHINA VENDORS
Number of
Shareholder Common Shares
----------- -------------
Uphill Capital Inc. 200,000
Gang Chai 199,572
Qin Lu Chai 199,571
Charles He 364,000
GDCT Investment Inc. 200,000
Qing Wang 192,000
Tai Xue Shi 192,000
Forte Management Corp. 200,000
TOTAL 1,747,143
--------------------------------------------------------------------------------
SCHEDULE 4.2 (e)
LIST OF UPHILL VENDORS
Shareholder Number of Common Shares
----------- -----------------------
Gang Chai 50
Qin Lu Chai 50
--------------------------------------------------------------------------------
SCHEDULE 4.3 (e)
LIST OF GDCT VENDORS
Shareholder Number of Common Shares
----------- -----------------------
Qing Wang 350,000
Tai Xue Shi 350,000
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SCHEDULE 5.1 (m)
CHINA EMALL FINANCIAL STATEMENTS
Wasserman North American Centre, Xerox Tower
Ramsay 5650 Yonge Street, Suite 1303, North York, Canada M2M 4G3
---------- Tel. (416) 226-4631 Fax (416) 226-9562
Chartered Accountants Internet Email: [email protected]
AUDITORS' REPORT
To the Shareholders of
China Emall Corporation:
We have audited the interim balance sheet of China Emall Corporation as at
August 31, 1999, and the interim statements of loss and deficit and changes in
financial position from the period from incorporation (February 5, 1999) to
August 31, 1999. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these interim financial statements present fairly, in all
material respects, the financial position of the company as at August 31, 1999
and the results of its operations and the changes in its financial position for
the period from incorporation (February 5,1999) to August 31, 1999 in accordance
with generally accepted accounting principles.
Toronto, Ontario
September 28, 1999
"Wasserman Ramsay"
Chartered Accountants
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CHINA EMALL CORPORATION
(Incorporated under the provisions of the Ontario Business Corporations Act)
INTERIM BALANCE SHEET- AUGUST 31, 1999
1999
--------
ASSETS
Long term:
Computer equipment $ 10,158
Deferred web site development costs 23,542
--------
$ 33,700
LIABILITIES
Current:
Advance from shareholders (Note 4) $ 4,012
Accounts payable 1,749
--------
5,761
SHAREHOLDERS' EQUITY
Capital stock:
Authorized:
Unlimited common shares
Unlimited preference share issuable in series
Issued
1,300,000 common shares (Note 3) 30,600
Deficit (2,661)
--------
27,939
--------
$ 33,700
========
Approved on behalf of the Board:
Gang Chai, Director
The accompanying notes form an integral part of these financial statements
F-1
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CHINA EMALL CORPORATION
INTERIM STATEMENT OF LOSS AND DEFICIT
FOR THE PERIOD FROM INCORPORATION (FEBRUARY 5, 1999) TO
AUGUST 31, 1999 1999
Expenses:
Legal and audit expense 2,661
-----
Net loss for the period and deficit end of period (2,661)
--------
INTERIM STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE PERIOD FROM INCORPORATION (FEBRUARY 5, 1999) TO
AUGUST 31, 1999
1999
--------
Cash was provided by (used in) the following activities:
Operations:
Net loss for the period $ (2,661)
Add: Item not involving an outlay of cash
Net change in non-cash working capital items 1,749
--------
(912)
Financing:
Issuance of common shares (Note 3) 30,600
Advances from shareholders 4,012
--------
34,612
Investing:
Deferred wed site development costs (23,542)
Acquisition of computer equipment (10,158)
(33,700)
Net change in cash and cash end of period $ -
========
The accompanying notes form an integral part of these financial statements.
F-2
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CHINA EMALL CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
AUGUST 31, 1999
1. Incorporation and nature of operations:
The corporation was incorporated under the Ontario Business Corporations Act on
February 5, 1999
The Company is in the process of developing a web site to sell products from
China on a wholesale basis via the internet. As of August 31, 1999 the Company
was in the development stage, that is, it was still developing its web site and
had not began planned principal operations. No revenue has been received to
date. All costs incurred to date relating to development of the web site have
been deferred and will be amortized by charges to income over a period of 3
years once planned principal operations have commenced.
At the present time it is unknown whether a market will develop for the
Company's services. In addition, the Company is dependent upon raising further
funds, either through advances from shareholders or private placements, in order
to complete development of its web site and generate cash inflows.
2. Summary of significant accounting policies:
a) Deferred web site development costs:
Web site development costs incurred to date have been deferred and will
be amortized by charges against income over a period of 3 years once
planned principal operations have commenced.
b) Computer equipment:
Computer equipment is recorded at cost. Depreciation will be provided
for at the rate of 30% on a declining balance basis once the Company
commences planned principal operations.
c) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues
and expenses during the period. Actual results may differ from those
estimates.
d) Financial instruments:
The Company's financial instruments recognized in the balance sheet
consists accounts payable. The fair value of these financial
instruments approximate their carrying value due to the short maturity
or current market rate associated with this instrument.
F-3
<PAGE>
CHINA EMALL CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS AUGUST 31, 1999
3. Capital stock:
The company has issued common shares as follows:
# shares $ value
To directors and officers - for cash 400,000 $ 30,000
To directors and officers - for services provided 900,000 600
--------- --------
Balance August 31, 1999 1,300,000 $ 30,600
========= ========
The Company is also authorized to issue an unlimited number of preference shares
in one or more series. The directors are authorized to fix the number of shares
and their designation, rights, privileges and conditions attached to the shares
of each series. As of August 31, 1999 no preference shares have been issued.
4. Advances from shareholders:
The advances from shareholders are non-interest bearing, unsecured and due on
demand.
5. Uncertainty due to Year 2000 Issue:
The year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information is
processed. In addition, similar problems may arise in some systems which use
certain dates in 1999 to represent something other than a date. The effects of
the Year 2000 Issue may be experienced before, on, or after January 1, 2000,
and, if not addressed, the impact on operations and financial reporting may
range from minor errors to significant systems failure which could affect an
entity's ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity, including
those related to the efforts of customers, suppliers, or other third parties,
will be fully resolved.
6. Subsequent event:
On October 1, 1999 a further 90,000 common shares were issued for $9,000 in the
aggregate.
F-4
<PAGE>
SCHEDULE 5.1 (p)
CHINA EMALL BUSINESS AGREEMENTS
1. Agreement between China eMall and Wangfujing Department Store Ltd.
--------------------------------------------------------------------------------
SCHEDULE 5.2 (m)
UPHILL FINANCIAL STATEMENTS
None
--------------------------------------------------------------------------------
SCHEDULE 5.2 (p)
UPHILL BUSINESS AGREEMENTS
None
--------------------------------------------------------------------------------
SCHEDULE 5.3 (m)
GDCT FINANCIAL STATEMENTS
N/a
--------------------------------------------------------------------------------
SCHEDULE 5.3 (p)
GDCT BUSINESS AGREEMENTS
None.
--------------------------------------------------------------------------------
SCHEDULE 6.1 (k)
PURCHASER'S LITIGATION
1. In December, 1999 the Purchaser entered into a stipulated judgment in
the amount of $37,000 related to an action commenced by David Johnston
alleging liability on a promissory note. The Purchaser intends to
settle this action for a total amount less than $37,000 which may
include the issuance of 10,000 common shares and the payment of cash.
11
<PAGE>
SCHEDULE 6.1 (m)
PURCHASER'S BUSINESS AGREEMENTS
1. Management Services Agreement with Groupmark Canada Limited
2. Trade-mark License Agreement with Groupmark Canada Limited
3. Public Relation Agreement with Stephen Rossi Consulting
4. Webranger License Agreement
SCHEDULE 6.1 (n)
PURCHASER'S FINANCIAL STATEMENTS
1. Unaudited balance sheet as at September 30, 1999 and statement of
operations for the 9 months ended September 30,m 1999.
--------------------------------------------------------------------------------
SCHEDULE 6.1 (p)
PURCHASER'S ISSUED AND OUTSTANDING SHARES
Issued and Outstanding: 15,520,268
Directors Options: 2,000,000
Shares for salary 555,000
Warrants 1,225,000
Subscriptions for cash 550,000
Other 50,000
China eMall Shareholders 6,115,000
-------------------
Fully Diluted 26,015,268
--------------------------------------------------------------------------------
SCHEDULE 6.1 (u)
PURCHASER'S TAX
1. The Purchaser is aware of an investigation by the Internal Revenue
Service relating to a corporation that merged with the Purchaser.
Internal Revenue Service personnel have verbally responded to the
Purchaser's inquiries and stated that the investigation is focused on
the director of the corporation that merged with the Purchaser.
However, the Purchaser recognizes that the investigation may represent
a liability to the Purchaser.
