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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(g) of
the Securities Exchange Act of 1934
PACIFIC VISION GROUP, INC.
(Name of Small Business Issuer in its Charter)
NEVADA 77-0442111
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9540 WAPLES STREET, SUITE E
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices) (Zip code)
(858) 453-0068
(Issuer's telephone number)
Securities to be Registered Pursuant to Section 12(b) of the Act:
[none]
Securities to be Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
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TABLE OF CONTENTS
Page
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PART I.........................................................................3
Item 1. Description of Business..............................................3
Item 2. Plan of Operation...................................................10
Item 3. Description of Property.............................................14
Item 4. Security Ownership of Certain Beneficial Owners and Management......14
Item 5. Directors, Executive Officers, Promoters and Control Persons........15
Item 6. Executive Compensation..............................................17
Item 7. Certain Relationships and Related Transactions......................17
Item 8. Description of Securities...........................................17
PART II.......................................................................18
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters.........................18
Item 2. Legal Proceedings...................................................18
Item 3. Changes in and Disagreements with Accountants.......................18
Item 4. Recent Sales of Unregistered Securities.............................19
Item 5. Indemnification of Directors and Officers...........................19
PART F/S......................................................................21
Financial Statements.......................................................F-1
PART III......................................................................22
Item 1. Index to Exhibits...................................................22
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PRELIMINARY STATEMENT
Pacific Vision Group, Inc., a Nevada corporation (the "Company"), is filing
this registration statement pursuant to an Agreement and Plan of Merger between
Pacific Vision Group, Inc., a Delaware corporation ("Pacific Vision"), and
Winnernet Industries, Inc., a Nevada corporation ("Winnernet"), dated June 13,
2000. The Company's common stock currently trades in the over-the-counter market
under the symbol "PVGI." The effectiveness of this registration statement
subjects the Company to the periodic reporting requirements imposed by Section
13(a) of the Securities Exchange Act.
The Company will electronically file with the Securities Exchange
Commission (the "Commission"), the following periodic reports:
* Annual reports on Form 10-KSB with audited financial statements;
* Quarterly reports on Form 10-QSB; and
* Periodic reports on Form 8-K of matters of material interest to
the Company's shareholders.
Annual proxy statements will be sent to the Company's shareholders in the
notices of its annual shareholders' meetings. The public may read and copy any
materials the Company files with the Commission at its Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information by calling the Commission at 1-800-SEC-0330. The Commission
maintains an Internet site (http://www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers that
electronically file reports with the Commission. The Company's Internet website
is http://www.pacificvisiongroup.com.
FORWARD LOOKING STATEMENTS
The Company cautions readers regarding forward looking statements found in
the following discussion, elsewhere in this registration statement and in any
other statement made by, or on behalf of the Company, whether or not in future
filings with the Commission. Forward looking statements are statements not based
on historical information and which relate to future operations, strategies,
financial results or other developments. Forward looking statements are
necessarily based upon estimates and assumptions that are inherently subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the Company's control and many of which, with respect
to future business decisions, are subject to change. These uncertainties and
contingencies may affect actual results and may cause actual results to differ
materially from those expressed in any forward looking statement made by or on
behalf of the Company. The Company disclaims any obligation to update forward
looking statements.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Pacific Vision was incorporated on June 18, 1998, under the laws of the
State of Delaware. Since its inception, Pacific Vision has designed, developed,
manufactured and marketed spectacle lenses. In 1998, Pacific Vision formed a
China based joint venture manufacturing company, Ningbo Eastern Pacific Vision
Co., Ltd. ("Ningbo"), located in the Ningbo Free Trade Zone, China.
On June 21, 2000, Pacific Vision merged with and into Winnernet. Winnernet
was incorporated in the State of Nevada on November 8, 1996. From incorporation,
Winnernet has searched for a qualified business or merger candidate. The Company
is the surviving corporation of the merger between Pacific Vision and Winnernet.
THE COMPANY TODAY
* Develops, Manufacturers and Markets premium lenses such as:
* Mid and High Index Aspheric Finished and Semi Finished Lenses;
* Mid and High Index Progressive Finished and Semi Finished Lenses;
* Anti-Reflective Coated Lenses; and
* Hard Coated Scratch Resistant Lenses.
* Distributes products to processing labs, wholesale distributors and
retail eye care chains in:
* Asia;
* Europe; and
* North America.
PRODUCTS
The Company has four principal products.
* Luxus Mid and High Index Aspheric Finished Lenses;
* Luxus Mid and High Index Progressive Semi Finished Lenses;
* Anti-Reflective Coated Lenses; and
* Luxus Mid and High Index Progressive Finished Hard Coated Scratch
Resistant Lenses.
The Company focuses on introducing new products, developing new material
and designing advanced and simple processes. For example, the Company has
recently created a proprietary technology which is based upon a unique
application of ultraviolet light in the lens production process. While the
traditional thermal cure process takes about 18 hours, the Company's proprietary
application of the ultraviolet light cure process takes less than 60 minutes.
This system has been installed and is used in the Company's Ningbo facility. By
manufacturing its products in the Ningbo Free Trade Zone, the Company is not
taxed on materials imported to the Ningbo plant to be used to finish goods for
export.
THE COMPANY'S FACILITIES
The Ningbo facility houses the Company's production line, a complete
optical finishing lab, raw materials, and finished products. This facility also
functions as a distribution center. The quality standards in the Ningbo facility
are the same as those used by companies in the U.S. and are enforced by the
Company's U.S. trained quality control department. Statistical Process Control
is used to monitor and control the Company's manufacturing process. In addition,
the Company's Ningbo facility is capable of implementing and maintaining any
specific quality requirements that may be requested.
Ningbo has entered into a Cooperation Contract with China United Online
Information Development Co., Ltd. ("China United Online"), a large Internet and
E-Commerce services provider in China. Pursuant to this contract, China United
Online will distribute the Company's lenses through the Internet to consumers
and wholesalers in China. This Agreement allows the Company to open sales
offices in China United Online facilities. The Company currently has three
operational sales offices in Shanghai, Ningbo and Beijing pursuant to this
contract. This agreement requires China United Online to provide facilities,
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office support and Internet sales personnel to the Company's China sales
offices.
COMPETITION
The spectacle lens industry is highly competitive. The Company competes
principally on the basis of customer service, price, quality and breadth of
product offerings. The Company's largest global competitors are Essilor, Inc.,
Hoya Corporation and Sola International. The Company attempts to counter
competition on the basis of price by focusing on developing a faster development
process with cost effective materials. However, there can be no assurance that
the Company's competitors will not develop products or services that are more
effective or less expensive than the Company's products or which could render
certain products of the Company less competitive. Some competitors have
significantly greater financial resources than the Company to fund expansion and
research and development.
The Company also competes indirectly with manufacturers of contact lenses
and providers of medical procedures for the correction of visual impairment.
Laser eye surgery and implants correct refractive error such as myopia,
hyperopia and astigmatism. These procedures are currently ineffective at
correcting presbyopia, which the Company's management has determined affects
mainly people over the age of 45 and is a major cause of demand for its lenses.
There can be no assurance that current or future medical procedures will not
materially impact demand for the Company's lenses.
The Company holds a special niche in the optical market. The Company has
developed a high technology process which enables it to compete directly with
potential competitors through quality enhancement, a cost-effective process and
"just in time" production. Additionally, the Management believes that the
Company's Aspheric lenses are attractive to the consumer due to the Company's
findings that its lenses are 38-55% flatter, 32-40% lighter, and 30-36% thinner
than those of the Company's competitors' standard spherical products.
A distinct advantage of the Company's lens manufacturing process is that it
uses an ultraviolet light curing process. The Company believes that this process
enables it to produce lenses 90% faster than its competitors and at a lower
price. By using this ultra violet light curing process, the Company has
determined that it has significantly reduced its initial capital investment. The
Company also uses a taping process instead of the traditional high-cost curing
gasket used by many in the industry. The taping process entails using a tape to
hold the molds together during the filling and curing process. The tape that the
Company uses is cheaper and more flexible than the traditional gasket used by
many of its competitors.
RAW MATERIALS AND SUPPLIERS
The Company's lenses are made mainly of resins and specialized chemicals.
The Company obtains its resins and chemicals from several U.S. chemical
suppliers. The chemicals are premixed and relabeled before being shipped to the
Ningbo facility. Final mixing with specialized equipment and under controlled
conditions is done in Ningbo.
The typical turnaround time for orders is:
* approximately four hours to mix the resins;
* up to four hours to cast, inspect and conduct a quality control
check on the Company's product;
* about six hours to apply the hard coating to the lens; and
* an additional four hours for packing and labeling the product.
The Company currently has the capacity to produce an average of 1.8 million
semi-finished and finished lenses annually. The Company expects this to be
sufficient to meet its customers' requirements in the foreseeable future.
EQUIPMENT
The Company's Ningbo processing laboratory is equipped with modern,
computer controlled equipment. The lens processing system was purchased from LOH
Germany. The Company believes that LOH's lens processing equipment is one of the
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most advanced and reliable pieces of lens processing equipment in the world.
With this equipment, Ningbo has the ability to process custom Rx lenses in-house
for customers in Asia and the United States.
The Company has also purchased a large mold-cleaning system from Trek
Industries, Inc. in Azusa, California. This equipment allows Ningbo to clean the
molds without too much handling. Since molds are one of the most expensive
capital investments for the Company, this mold cleaning equipment, due to less
human handling, helps prevent the molds from breaking and enables the life of
each mold to be extended 2-3 times longer.
MARKETING, SALES AND DISTRIBUTION
The Company develops and manages its marketing strategy on a centralized
basis with local sales and marketing implementation and tactics. The Company's
marketing strategy focuses on distinguishing its products from those of its
competitors through lens design, lens materials and coatings formulations. For
example, the Company's marketing focuses on its proprietary technology involving
ultraviolet light which cures lenses within an hour. Most of the Company's
competitors use the traditional curing process which takes approximately 18
hours. In response to customer demand, the Company's strategy is based on
providing a wide range of quality products on short notice.
In order to meet customer demand for delivery of a broad range of products
within a short time, the Company is in the process of centrally merging the
inventory and logistics through a widespread distribution network operated on an
international basis.
The Company uses four main distribution channels for its products.
* In the U.S., distributors resell the lenses to wholesale
distributors in the optical industry.
* In China, the Company markets and distributes products directly
to retail outlets.
* International distributors are responsible for all aspects of
sales and marketing in their respective territories. They each
manage their own inventory, warranty, billings, sales and
customers service departments.
* Internal sales and marketing departments distribute lenses to
wholesale distributors in Canada and Europe.
MAJOR CUSTOMERS
The Company's main customer in the U.S. is High Technologies Management
Corporation. The Company's principal customer in Canada is Instant Ophthalmics
Inc. In Asia the Company's main customers are Hitop Kwang Meng Co., PTE. LTD,
and ARG Optical PTY LTD.
PATENTS, TRADEMARKS AND LICENSES
On April 11, 2000, the Company was granted the trademark "LUXUS" with the
U.S. Patent and Trademark office. Two trademarks have been granted in China for
Luxus lenses. The Company has three trademarks pending in China.
GOVERNMENT APPROVALS AND REGULATIONS
The Company is subject to U.S. Food and Drug Administration inspection and
approval.
The Company satisfies ISO 9002 and ASTM Standards. In March 2000, the
Company was granted ISO 9002 certification. ISO is a universal standard of
quality assurance. A company that is registered to the appropriate ISO standard
ensures that the quality of its product will be as promised. Many companies
require suppliers to become registered to ISO. ISO 9002 is the "Quality System -
Model for Quality Assurance in production, installation and services." ASTM
Standards are Technical Standards set forth by the American Society for Testing
and Materials for Industry.
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EFFECT OF GOVERNMENTAL REGULATIONS ON THE BUSINESS
NONE.
RESEARCH AND DEVELOPMENT COSTS
The Company has invested and continues to invest heavily in research and
development in order to design new and innovative products and to improve the
efficiency of its manufacturing process.
The Company invested approximately $600,000 in 1998 and $300,000 in 1999 on
lens processing technology research. The expense covered research of lens
casting and curing technology, optical resin formulation, and scratch resistant
and anti-reflective lens coating technology. The Company also focused on the
development of its material and curing of spectacle lenses, lens casting, the
manufacturing process and lens mold design. The Company has research and
development centers in San Diego, California. For a description of the Company's
research and development, see "Research and Development" under Item 2.
ENVIRONMENTAL LAWS
The Company (together with the industry in which it operates) is subject to
United States and foreign environmental laws and regulations concerning
emissions to the air, waste, water discharges and the generation, handling,
storage, transportation and disposal of hazardous wastes, and to other federal,
state and foreign laws and regulations. The Company believes that it possesses
all material permits and licenses necessary for the continuing operation of its
business and the Company believes that its operations are in substantial
compliance with the terms of all applicable environmental laws. It is impossible
to predict accurately what effect these laws and regulations will have on the
Company in the future.
The Company's manufacturing processes generally utilize non-hazardous
chemicals where feasible. Certain processes, including those for cleaning lenses
and mold assemblies, and abrasion resistant and anti-reflection coating of
lenses, use a variety of volatile and other hazardous substances. Company
developments in manufacturing methods, alternative non-solvent cleaning
processes and waste reduction have been successful in reducing the use of these
chemicals and/or emissions and environmental damage from these processes.
Programs to eliminate use of chlorinated hydrocarbons and chlorofluorocarbons in
manufacturing processes have also been developed and the current use of these
substances in the Company's China operations is minimal.
It is possible that the Company may be involved in investigations and
actions under state, federal or foreign environmental law in the future. Based
on currently available information, the Company does not believe that its share
of costs, either at the existing sites or at any future sites, is likely to
result in a liability that will have a material adverse effect on its results of
operations or financial condition.
It is the Company's policy to meet or exceed all applicable environmental,
health and safety laws and regulations. The complexity and continuing evolution
of environmental regulation (including certain programs for which implementing
regulations have not yet been finalized) preclude precise estimation of future
environmental expenditures.
EMPLOYEES
The Company employs 95 people in its Ningbo facility and 5 in its principal
office in the U.S. The Company has no part-time employees. None of the Company's
employees are covered by collective bargaining agreements. There have been no
significant labor disputes involving the Company in the past 2 years.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
In addition to the other information in this Registration Statement on Form
10-SB, the following important factors should be carefully considered in
evaluating the Company and its business because such factors currently and/or in
the future may have a significant impact on the Company's business, prospects,
financial condition and results of operations.
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POLITICAL FACTORS
Certain critical functions and operations of the Company are carried out in
the Ningbo Free Trade Zone in China. Any political unrest in China could have a
material adverse effect on the Company and its business activities. Direct
foreign investment is often subject to local political risks, including but not
limited to, change of laws, lack of enforcement or discriminatory enforcement of
laws, acts of violence or other unforeseen events. Occurrence of any one or more
of these events could have a material adverse effect on the Company's business,
financial condition and results of operations.
CURRENCY FLUCTUATION
The Company has significant operations in Ningbo, China. The current
exchange rate for Chinese Yuan RenMinBi could change at any time by the
direction of the government or market conditions. Such changes could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company anticipates that it will acquire a substantial portion of its
supplies from sources in China and Europe. To the extent the exchange rate for
currencies in any of such countries fluctuates significantly, such fluctuations
could make the Company's supplies more expensive to acquire and, as a result,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE ON SINGLE MANUFACTURING FACILITY
The Company depends on the Ningbo facility to manufacture its lenses. Any
interruption in the operations or decrease in the capacity of this facility,
whether because of political or economic factors, equipment failure, natural
disaster, or otherwise, may limit the Company's ability to meet future customer
demand for its products and would have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON NON-PATENTED PROPRIETARY RIGHTS AND KNOW-HOW
The Company's success depends, in part, upon its intellectual property
rights relating to its materials, production process and other operations. The
Company anticipates that it will rely on a combination of trade secret,
nondisclosure, and other contractual arrangements, confidentiality procedures,
and patent, copyright, and trademark laws, to protect its proprietary rights.
The Company uses non-patented proprietary technology for manufacturing its
lenses. The Company believes that the non-patented proprietary lens technology
will be protected under trade secret, contractual, and other intellectual
property rights that do not afford the statutory exclusivity possible for
patented products and processes. To protect its proprietary technology, the
Company mixes the proprietary component of the resins in a secure environment at
a U.S. chemical laboratory. There, resins are labeled with the Company's item
number under a confidentiality agreement and shipped to the Ningbo facility. The
production processes to manufacture products from the resins are proprietary;
however, there is a certain amount of know-how that the Company has gained which
would hinder a person taking the Company's resins and introducing them into the
conventional manufacturing environment.
There can be no assurance that the steps taken by the Company with respect
to its proprietary technology and technical know-how will be adequate to deter
misappropriation of its proprietary information or that the Company will be able
to detect unauthorized use and take appropriate steps to enforce its
intellectual property rights. The Company's proprietary information may also
become known to, or independently developed by, competitors, or the Company's
non-patented proprietary rights may be challenged. Such events could have a
material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION
Competition in the lens industry, which includes, among other things,
resins, is largely based upon quality and price. Many of the Company's
competitors have greater financial resources than those available to the Company
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and certain competitors spend substantially greater amounts for advertising and
promotion. In addition, many of the Company's competitors are more established
and have greater name recognition.
ECONOMIC FACTORS
Direct foreign investment in other countries involves potential economic
factors such as currency devaluation, inflation, interest rate fluctuations,
exchange controls, restrictions on currency repatriation, unidentified adverse
changes in internal or international policies, tariffs, trade barriers and
changes in world economic conditions. Occurrence of any one or more of these or
similar factors in China may have a material adverse effect on the Company's
business, financial condition and results of operations.
RELIANCE ON SUPPLY OF RAW MATERIALS
The Company receives resins from several U.S. suppliers. The Company's
ability to obtain adequate supplies of resins for its products depends on the
Company's success in entering into long-term arrangements with suppliers and
managing the collection of supplies from geographically dispersed suppliers. The
termination or interruption of the Company's significant supplier relationships
could subject the Company to the risk that it would be unable to purchase
sufficient quantities of raw materials to meet its production requirements or
would have to pay higher prices for replacement supplies. The termination of
significant sources of raw materials or payment of higher prices for raw
materials could have a material adverse effect on the Company's business,
financial condition and results of operations.
MANAGEMENT OF GROWTH
The Company recently has experienced growth in product demand. This growth
is in part due to the execution of significant manufacturing contracts with High
Technologies Management Corporation, the Company's major U.S. customer. This
growth in the Company's business has resulted in an increase in the
responsibilities of the Company's management and is expected to place added
pressures on the Company's operating and financial systems. The Company's
ability to assimilate new personnel will be critical to its performance, and
there can be no assurance that the management and systems currently in place
will be adequate if its operations continue to expand or that the Company will
be able to implement additional systems successfully and in a timely manner.
RISKS IN DEVELOPING AND COMMERCIALIZING THE COMPANY'S PRODUCTS
The Company has developed a number of new products. The commercialization
and sale of these new products are relatively new ventures with high costs,
expenses, difficulties, and delays associated with commercialization of new
products. Such new product development necessitates the development of new
production processes for cost effective manufacturing in commercial quantities.
The Company has developed a distribution plan for each product, either through
an internal sales and marketing organization or through establishing
relationships with companies with existing distribution networks. This
development process typically spans over a period of years. Although the Company
in the last few years has expended substantial sums on developing new products
which has taxed the Company's resources, significant additional funds must be
expended for the new products and process development and marketing activities
to continue. There is no assurance that the Company will be able to raise such
funds on terms favorable to the Company, if at all.
INTRODUCTION OF NEW PRODUCTS
The Company's success will primarily depend upon its ability to introduce
new products that achieve market acceptance. To meet these challenges, the
Company invests and expects to continue to invest in the development of new
products and production processes. There can be no assurance that the Company
will be able to respond effectively to the needs of emerging markets or that
markets will develop for any product introduced or under development by the
Company.
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ENVIRONMENTAL LIABILITIES
Actions by federal, state, and local governments concerning environmental
matters could result in environmental laws or regulations that could increase
the cost of producing the Company's lenses, or otherwise adversely affect the
demand for the Company's products. At present, during the Company's early stage
of development, environmental laws and regulations do not have a material
adverse effect upon the demand for the Company's lenses. In addition, certain of
the Company's operations are subject to federal, state, and local environmental
laws and regulations that impose limitations on the discharge of pollutants into
the air and water and establish standards for the treatment, storage, and
disposal of solid and hazardous wastes. While the Company has not had to make
significant capital expenditures for environmental compliance, the Company
cannot predict with any certainty its future capital expenditure requirements
relating to environmental compliance because of continually changing compliance
standards and technology. The Company does not have insurance coverage for
environmental liabilities and does not anticipate obtaining such coverage in the
future.
The Company is also subject to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), and similar state
laws which impose liability without regard to fault or to the legality of the
original action, on certain classes of persons (referred to as potentially
responsible parties or "PRPs") associated with the release or threat of release
of certain hazardous substances into the environment. Generally, liability of
PRPs to the government under CERCLA is joint and several. Financial
responsibility for the remediation of contaminated property or for natural
resources damage can extend to properties owned by third parties. The Company
believes that it is in substantial compliance with all environmental laws
applicable to its business. There can be no assurance that the Company will
respond effectively to changes in CERCLA and similar state laws, if necessary,
relating to the release or threat of release of certain hazardous substances
into the environment.
PRODUCT LIABILITY CLAIMS
The manufacture of lenses could expose the Company to the risk of product
liability claims. While the Company has had no material liability with respect
to product liability claims to date, future product liability claims could have
a material adverse effect on the Company's business, financial condition, and
results of operations. The Company currently does not carry product liability
insurance against the possibility of defective product claims. There can be no
assurance that the Company will obtain product liability insurance in the future
or that it will be sufficient to protect the Company against liability from such
claims.
DEPENDENCE ON KEY PERSONNEL
The activities of the Company, including the development of new products,
and, as a result, the Company's future success, will depend to a significant
extent on its senior management and other key employees. Certain officers of the
Company have engaged in related activities in China and the United States for
approximately 20 years. Any loss of services of any Senior Management could have
a material adverse effect on the Company's business, financial condition and
results of operations.
The Company also believes that its future success will depend in a large
part on its ability to attract and retain key employees. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. The Company's inability
to attract and retain additional key employees or the loss of one or more of its
current key employees could have a material adverse effect on the Company's
business, financial condition and results of operations.
LABOR MATTERS
The operating activities of the Ningbo facility require the engagement and
expertise of local labor. Various issues with employees could be raised, such as
wages, working conditions, security, housing, hours of work, advancement, and
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medical plans. Any difficulties in relationships with the employees of the
Company could have a material adverse effect on the Company's business,
financial condition and results of operations.
ISSUANCE OF ADDITIONAL SECURITIES; DILUTIVE EFFECT
The Company may offer additional shares of Common Stock or other equity or
debt securities for cash, in exchange for property or otherwise. Stockholders
will have no preemptive right to acquire any such securities, and any such
issuance of equity securities could result in dilution of an existing
stockholder's investment in the Company. In addition, the Board of Directors has
the authority to issue shares of preferred stock having preferences and other
rights superior to Common Stock.
LIMITED MARKET FOR COMMON STOCK
The Company's Common Stock is covered by Securities and Exchange Commission
rules that impose additional sales practice requirements on broker-dealers who
sell securities priced at under $5.00 ("penny stocks") to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5 million or individuals with net worth in excess of $1
million or annual income exceeding $200,000). For transactions covered by such
rules, the broker-dealer must make a special suitability determination for the
purchaser and receive the purchaser's written agreement to the transaction prior
to the sale. Moreover, such rules also require that brokers engaged in secondary
sales of penny stocks provide customers written disclosure documents, monthly
statements of the market value of penny stocks, disclosure of the bid and ask
prices, disclosure of the compensation to the broker-dealer, and disclosure of
the salesperson working for the broker-dealer. Consequently, the rules may
affect the ability of broker-dealers to sell the Company's Common Stock and also
may affect the ability of persons receiving such Common Stock to sell their
Common Stock in the secondary market. These trading limitations tend to reduce
broker-dealer and investor interest in penny stocks and could operate to inhibit
the ability of the Company's Common Stock to reach and maintain a $3 or more per
share trading price that would make it eligible for quotation on NASDAQ, even if
the Company otherwise qualifies for quotation on NASDAQ.
ITEM 2. PLAN OF OPERATION
The Company has operated in the development stage from inception through
December 31, 1999. The Company has begun to generate revenue in the year 2000
and therefore has emerged from the development stage.
The Company has relied on borrowings to fund its initial operations. The
Company borrowed $910,000 from entities associated with and controlled by a
member of the board of directors. The Company has used certain of its borrowings
to invest in Ningbo. Additionally, the minority investor in Ningbo invested
approximately $350,000 in equity capital in Ningbo. See Item 7 -- "Certain
Relationships and Related Transactions."
In the six months ended June 30, 2000, the Company borrowed $136,000 under
a convertible note. The Company recently borrowed an additional $64,000 totaling
$200,000 under the note. Pursuant to this note, the Company believes that the
amount owed to date will be converted to an equivalent amount of Common Stock in
the Company.
The Company had a working capital deficiency of $630,000 and $773,000 as of
December 31, 1999 and June 30, 2000 respectively. Trade accounts payable
increased by $195,000 from December 31, 1999 to $287,000 in June 30, 2000 as the
Company began a higher volume of production in that period. The Company will
attempt to negotiate and management believes that $900,000 of the current debt
and related accrued interest will ultimately be converted to an equivalent
amount of shares of its Common Stock. The Company believes that this will give
it adequate working capital to implement the Company's business plan in the
short term. However, there can be no assurances that the Company will be
successful in negotiating the conversion of debt to equity. If the Company is
not successful in doing so, it will be required to look to other sources of
equity capital.
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The Company has recently entered into distribution agreements for its
products with distributors in the United States and Asia. On the basis of
project sales, the Company will require working capital for inventories and
accounts receivable. The Company anticipates the inventory levels will
approximate $1,000,000 in the short-term. As sales volume increases, the Company
will carry higher balances of accounts receivable. The Company has negotiated
payment terms with certain distributors that will require advance payments at
the time the order is given and full payment upon shipment. The Company believes
this will allow it to maintain manageable levels of accounts receivable.
The Company does not anticipate significant capital expenditures in the
short-term. The Ningbo plant is currently operating two shifts and there is
additional capacity at this facility if a third shift is added. The Company has
entered into an agreement with a distributor in China that will allow us to
operate wholesale outlets at several locations in China. The Company's
arrangement is such that establishing these facilities can be accomplished with
nominal cash outlays.
The Company's initial production strategy is to focus on the manufacturing
and distribution of Scratch Resistant Hard Coated Lenses, Aspheric lenses, and
Anti-Reflective Coated Progressive Lenses ("AR Lenses"). The Company offers
different lens designs for each market.
RESEARCH AND DEVELOPMENT
The Company is planning on using the proceeds of the above referenced loans
to fund the following projects:
1. MANUFACTURE AND DISTRIBUTE 1.56 AND 1.60 INDEX ASPHERIC AND PROGRESSIVE
LENSES
The Company's Ningbo facility currently manufactures 1.56 and 1.60 Index
Aspheric and Progressive lenses. The Ningbo plant includes a full production
line with a capacity to produce 1.8 million mid- and high-index lenses per year.
The Company intends on using some of the proceeds from the loans mentioned above
to fund the development of these lenses.
2. POLYCARBONATE DISTRIBUTION
According to the study conducted by the Vision Council of America ("VICA")
in July 1999, polycarbonate is a lens material that is more impact resistant
than the standard CR 39 lenses. This lens material is lighter and costs less to
manufacture than the standard CR 39. Polycarbonate is commonly used in safety
lenses and prescribed to children.
According to the July 1999 VICA report, the market share in the U.S. for
polycarbonate was 21 percent in 1998 and 24 percent in 1999. The Company
anticipates that this trend will continue. Although the Company has the
technology to manufacture this lens, the process is costly and production of
this line of lens has been limited. The Company intends on applying certain
proceeds from the above mentioned financings to further produce polycarbonate
lenses.
3. LAUNCH PHOTOCHROMIC LENSES IN CHINA AND THE UNITED STATES
Photochromic lenses are transparent lenses which darken when exposed to
bright light. A recent advancement in this product is a resin offered by Corning
Incorporated called SunSensors(TM). SunSensors(TM) is distinct from traditional
resins in that SunSensors(TM) contains photochromic properties and does not need
to be imbibed (coated) with photochromic material. The Company intends to
manufacturer the SunSensors(TM) lenses for Corning Incorporated.
4. ESTABLISH MINI LABS IN CHINA
During the Company's marketing study of the lens market in China, it found
that there are ten lens processing labs in China. Four of the ten labs are owned
by lens manufacturers. Due to the limited amount of processing labs and high
demand for lenses in China, the lenses offered in China are usually
pre-finished, resulting in a limited selection of lens design and parameter
extension.
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The Company believes that the Fastgrind 2000(TM) manufactured by Super
Systems Optical Technologies, will respond to the demand for lens processing.
Fastgrind 2000(TM) is a mini-lab system made by Super Systems Optical
Technologies and is a completely self-contained lens processing system which
uses pre-blocked, semi-finished lenses supplied by the Company. A wide variety
of lenses can be processed using this system including aspheric, bifocals and
progressive designs.
The Company has a signed an exclusive distribution agreement with Super
Systems Optical Technologies to distribute Fastgrind 2000(TM) in China. The
Company also plans on manufacturing the system in China.
The Company intends to sell the mini lab system to optical shops, optical
chains and spectacle lens retailers. This system is attractive to the optical
retailer because of its low initial capital investment. Furthermore, the system
enables the retailer to offer their customers higher end, higher profit products
not readily available because of the lack of processing labs in China.
Fastgrind 2000(TM) requires specific products which the Company produces.
By purchasing Fastgrind 2000(TM), retailers will be required to purchase the
Company's products specifically designed to be used with Fastgrind 2000(TM)
equipment such as the Company's pre-blocked semi-finished lens blanks.
5. USE ANTI-REFLECTIVE COATING
This project involves the purchase, installation and qualification of a
system to apply an Anti-Reflective Coating ("AR Coating") to spectacle lenses.
The cost to apply this coating to the Company's lenses in the Ningbo facility is
approximately less than $1.90 per pair.
According to the July 1999 VICA report, the demand for AR Coating has
increased by 26% between 1995 and 1998. A 1997 VICA special report entitled
"Consumer Attitudes: Eyecare & Eyewear" set forth that at least 50 percent of
the respondents to the study viewed scratch coatings, UV coatings and AR
Coatings as attractive features to lenses. By installing the AR Coating system,
the Company will be able to respond to consumer demand, coat large volumes of
lenses and offer a lower priced final lens. Such a system will reduce the
Company's product turnaround time to a day as compared to most of its
competitors who rely mainly on outside coating companies and thus have a
turnaround time of about a week.
6. LAUNCH SHORT CORRIDOR PROGRESSIVE LENS
A progressive lens is designed for presbyopic patients. Presbyopia is the
inability of the eye to focus sharply on nearby objects due to hardening of the
crystalline lens. Presbyopia is commonly associated with advanced aging. The
Company has determined that a typical candidate for this lens is one who is 45
or older and who has lost the ability to see both distance and close images
clearly. In the past, bifocals were used to aid in this form of vision
correction. The progressive lens was designed to correct presbyopia without the
unsightly lines associated with bifocals.
There are numerous designs of progressive lenses offered and the vast
majority contain "long corridors." This is the area of the lens that the eye
passes through from looking at the upper, distance vision portion of the lens
down into the lower, near vision portion of the lens. Usually these corridors
are 22 to 24 mm long and require a large frame.
The latest entry to the progressive market is the "short corridor" design
that is suited for small frames. The short corridor lens on the market today is
approximately 13 mm and is made for the 1.50 CR 39 material. Despite the
limitation of the heavier, thicker CR 39 material, this lens is popular due to
its design and ability to be used in small frames.
The Company has designed a short corridor progressive lens which uses the
lighter, higher index 1.56 material. The Company will first market this design
in Asia highlighting the use of lighter 1.56 material and the ability to fit the
progressive lens in smaller frames.
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7. ADDITIONAL FACILITIES IN NORTH AMERICA
The Company is currently in the planning stages for the procurement of two
new processing, laboratory and distribution centers. One lab will be located in
Canada and the other will be in either Muskogee, Oklahoma, or Chattanooga,
Tennessee. The company has focused on Muskogee or Chattanooga because of
favorable financing programs and training subsidies available for manufacturing
expansion in these cities.
The Company intends to use the Ningbo facility for labor intensive
manufacturing and use the North American facilities for certain processes, such
as hard coating, AR coating, and specialty cosmetic color tints and safety
lenses. The Company also anticipates conducting research and development in the
North American facilities. Additionally, these facilities will serve as the
Company's warehouses, customer service centers and sales offices.
8. ESTABLISH A EUROPEAN WHOLESALE LAB
The Company intends to manufacture its products for a European distributor.
By doing this, it hopes to establish a presence in the European market. The
Company also intends on acquiring processing labs in strategic locations such as
Italy. As part of the European Community, Italy is an ideal location to begin
the Company's European presence. The Company intends on acquiring processing
labs throughout Europe and other locations to support the local customer base.
9. ENTER INTO A JOINT VENTURE WITH AN EYE CARE ORGANIZATION
The Company has been in negotiations with an eyecare insurance provider to
form a joint venture partnership. In the event such partnership is established,
the eyecare insurance provider would offer savings to the insured if the
Company's product is used.
10. NEW PRODUCT OFFERING
The Company's engineers have recently developed a lens design that is
thinner and lighter than most other equivalent power lenses on the market. The
Company is in the process of obtaining a patent on this spectacle lens design.
Finished casting has enabled us to reduce lens mass, size and weight in a
cost effective manner by using inexpensive mid-index lens materials and an
efficient casting process. This in turn allows us to fit lenses into advanced
frame designs.
11. MANUFACTURE ORTHO-K CONTACT LENSES
The Company has developed a contact lens manufacturing process
incorporating ultra-precision lathes, advanced process controls and
interferometry. Management has determined that this process enables the Company
to manufacture Ortho-K lenses at 35% less cost than the competitors' production
processes. The Company intends to implement this process for the purpose of
manufacturing, marketing and selling Ortho-K lenses.
Ortho-K lenses are made from gas permeable material and are used to correct
myopia. According to a study conducted by School of Ophthalmology, Wenzhou,
China and published in the Chinese Journal of Optometry and Ophthalmology in
June, 1999, 53.8% of children have myopia. The Company's Ortho-K lenses may be
used in corneal refractive therapy to help those with myopia.
PROPERTY AND EQUIPMENT
The Company intends to purchase two Model 1200 Anti Reflective Coating
Machines to facilitate the manufacture of lenses in its Ningbo facility.
The Company will be expanding its US and China personnel over the next
year. The Company is looking for a new and larger office space in San Diego.
There can be no assurance that the Company may successfully implement these
research and development plans, if at all.
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ITEM 3. DESCRIPTION OF PROPERTY
The Company's corporate offices are located in a 1609 square foot leased
facility at 9540 Waples Street, Suite E, San Diego, California 92121. The
Company also leases a 22,000 square foot manufacturing facility, built to
specifications in 1998, located in Building A1, Western Free Trade Zone of
Ningbo, China P.C. 315800. The current Ningbo facility is capable of housing two
additional manufacturing lines and should accommodate the Company's needs for
the next five years.
The Company leases its offices and facilities for a total of $1424 per
month on a month-to-month basis. The Ningbo facility is leased on a three-year
contract with lease payments due bi-annually at the rate of $2463 USD per month.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below lists the beneficial ownership of the Company's voting
securities by each person known by the Company to be the beneficial owner of
more than 5% of such securities, as well as the securities of the Company
beneficially owned by all officers and directors of the Company as of August 15,
2000. Unless otherwise indicated, the shareholders listed possess sole voting
and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Title of Class Name and Address of Beneficial Owner Beneficial Owner of Class(1)
-------------- ------------------------------------ ---------------- -----------
<S> <C> <C> <C>
Common Eastern Financial International Inc. 1,050,000 7
Common Lens Engineering International Inc. 4,725,000(2) 31.5
Common Hong Kong Eastern International Finance Ltd. 4,725,000 31.5
Common Barry Chen 1,653,750(3) 11
Common Joe Collins 1,370,250 (4) 9.1
Common Ali Dahi 1,701,000 (5) 11.3
Common Officers and Directors as a group
(3 persons) 4,725,000 31.5
</TABLE>
----------
(1) Based on 15,000,000 shares issued and outstanding as of August 15, 2000.
(2) Represents 4,725,000 shares received on July 13, 2000, pursuant to the
merger with Winnernet. 925,250 of such shares are beneficially owned by the
Company.
(3) Represents shares held by Lens Engineering International Inc., 1,653,750 of
which are beneficially owned by Mr. Chen.
(4) Represents shares held by Lens Engineering International Inc., 1,370,250 of
which are beneficially owned by Mr. Collins.
(5) Represents shares held by Lens Engineering International Inc., 1,701,000 of
which are beneficially owned by Mr. Dahi.
CHANGES IN CONTROL
There are no arrangements which may result in a change in control of the
Company.
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and officers of the Company are as follows:
Name Age* Position
---- ---- --------
Barry Chen 46 President, Chief Executive Officer and
Chairman of the Board of Directors
Joe Collins 46 Vice President, Chief Operating Officer
and Director
Ali Dahi 48 Vice President , Chief Technical Officer
and Director
Hongliang Philip Liu 36 Vice President, Chief Financial Officer
and Director
Zhou Keqing 41 Director
Susan Chan 35 Director
Dr. Jerome A. Legerton 53 Director
* As of July 26, 2000
The above listed officers and directors will serve until the next annual
meeting of the shareholders or until their death, resignation, retirement,
removal, disqualification, or until their successors have been duly elected and
qualified. Vacancies in the existing Board of Directors will be filled by
majority vote of the remaining directors. Officers of the Company serve at the
will of the Board of Directors.
BIOGRAPHICAL INFORMATION
BARRY CHEN has served as the Company's President and Chief Executive Officer
since Pacific Vision was incorporated in June 1998. During Pacific Vision's
start up period, Mr. Chen's responsibilities focused on site location, hiring of
the initial staff, establishment of the Company's purchasing systems, and the
design and construction of prototype equipment. He is currently responsible for
all daily activities at the corporate level. Mr. Chen is involved in all aspects
of sales and marketing, especially in the Pacific Rim Countries. He also serves
as a member of the Compensation Committee of the Board of Directors. He is one
of the key members that established Ningbo and serves as the Vice Chairman of
Ningbo.
Mr. Chen has over fifteen years of experience in the optical field, and has
served as a Senior Engineer and Engineering Manager for Wesley Jessen Vision
Care, Inc., a large contact lens company. He was instrumental in the design and
development of the first-and-only fully automated lathed contact lens
fabrication line in the world. Mr. Chen has several inventions and patents for
optical products and optical manufacturing processes. For the past ten years, he
was the principal shareholder and Chief Operating Executive of an
industrial-products exporting company. Mr. Chen holds a Masters Degree in
Engineering from South Dakota School of Mines Technology.
JOE COLLINS has served as Vice President and Chief Operating Officer since
Pacific Vision's incorporation in June 1998. He is responsible for China and the
complete marketing and sales activities for the Company in the U.S. and Europe.
Mr. Collins currently serves on the Compensation Committee of the Board of
Directors. He is the General Manager of the Ningbo facility and is responsible
for coordinating all departments and sales activities in China.
Mr. Collins has over twenty years of experience in business and engineering
management. Mr. Collins gained experience in lens marketing, distribution and
sales while working as a member of the Business Team for Pilkington, Barnes Hind
Group, a large premium contact lens company. During this time, he had shared
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responsibilities for the marketing, distribution, and sales of a premium brand
lens. He also acquired significant experience in the establishment of focus
groups, marketing studies, plans, development of distribution systems, and sales
force development and training. He has thorough knowledge in state-of-the-art
quality control techniques, statistical process control, and design of
experiments. Mr. Collins was the leader of the team that designed and developed
a fully automated lathed contact lens fabrication line. Mr. Collins' education
is in Management and Engineering from Arizona State University.
HONGLIANG PHILIP LIU has served as the Vice President and Chief Financial
Officer since June 1998. He coordinated the joint venture between Lens
Engineering Group, Inc. and Hong Kong Eastern International Finance Ltd. Mr. Liu
is also a member of the Board of Directors of Ningbo.
Mr. Liu is a corporate finance and international business development
professional with over seventeen years of business experience in both the China
and North American markets. Mr. Liu has a MBA in corporate finance from Campbell
University and a business degree in Economics from the Hubei School of Business
in China. Mr. Liu has also served as a director for other businesses in the
United States, Hong Kong, and China. He is currently the Managing Director of
Eastern Finance International Inc., President of Aniche, Inc. and President and
Chief Executive Officer of MYOEM.COM, INC. in Phoenix, Arizona.
ALI DAHI has served as Vice President and Chief Technology Officer since July
1998. Mr. Dahi is responsible for corporate technology development and
technology transfer and serves as a member of the Compensation Committee of the
Board of Directors. Mr. Dahi has been the key person in the development of the
production processes, equipment specifications, equipment installations, process
transfer, process implementation, trouble-shooting, and training in China. He is
the chief engineer and is responsible for all engineering, quality control and
production departments at the Ningbo facility.
Mr. Dahi has over twenty years experience in the manufacturing of spectacle
lenses, contact lenses, and intraocular lenses. For eleven years, Mr. Dahi
worked as a Senior Engineer for Signet Armorlite, a large spectacle lens
manufacturing company, and has focused on quality improvements and cost
reductions in the fabrication of optical lenses. Mr. Dahi has a Bachelor of
Science Degree in Engineering from the University of Central Florida and a
Masters Degree in Engineering Management from Southwestern Louisiana State. He
also holds a certificate in Advanced Biomedical Manufacturing Systems from the
University of San Diego.
ZHOU KEQING has served as the director of the Company from its incorporation in
1998. Since 1993, Mr. Keqing has served as an Executive Vice President of China
Ningbo Dongfang Economic Development Group. He is also a director of other
corporations in China such as China United OnLine, Shanghai Ecom Int'l Trading
Co., Ltd., Shanxi Ecom Int'l Co., Ltd., Ningbo Dongfeng Int'l Trading Co., Ltd.
Mr. Keqing received a Bachelor of Science degree in Industrial Automation from
Ningbo College in 1993.
SUSAN CHAN is a director of the Company and has served in this capacity since
1998. Since 1995, she has been in charge of daily operations of Eastern
Financial International Inc. In 1994 and 1995, Ms. Chan worked as an executive
assistant in Hainan Economic Cooperation Development Corporation in Haikou,
China. From 1992 to 1994, she worked as legal counsel at Ningbo Production
Material Exchange. Ms. Chan received her Juris Doctor from Ningbo University in
1992.
JEROME A. LEGERTON, OD, MS, MBA, FAAO, is a director of the Company and has
served in this capacity since July 2000. Dr. Legerton was the managing partner
of a seven doctor, four office, multi-specialty practice in San Diego. During
his twenty-five years in practice, he was honored as the California Optometric
Association's YOUNG OPTOMETRIST OF THE YEAR in 1971 and the San Diego Optometric
Society's OPTOMETRIST OF THE YEAR in 1987. in addition, he is also a Fellow of
the American Academy of Optometry, a member of the American Optometric
Association Low Vision and Contact Lens Sections, and a life member of the
American Optometric Foundation and Southern California College of Optometry
Alumni Association.
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<PAGE>
He has received two post-doctoral Masters degrees (MBA and MS). Dr. Legerton
provides management and consulting services to optometrists throughout the
United States for THE EPIC GROUP, a business he founded in 1988. He is currently
serving as the Benedict Professor of Practice Management for the University of
Houston, College of Optometry.
Dr. Legerton served as the Director of Clinical Research for Pilkington Barnes
Hind Group, a multinational manufacturer and distributor of contact lenses.
ITEM 6. EXECUTIVE COMPENSATION
None of the Company's officers and directors has received compensation for
services rendered to the Company. No officer has received grants of stock
options or freestanding stock appreciation rights during the last fiscal year.
The Company has no long-term incentive plan intended to serve as incentive for
performance. Directors of the Company currently receive no compensation for
their services as directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has issued multiple advance promissory notes to several of the
Company's officers and employees from time to time. Interest on the notes
accrues on the unpaid principal amount at an annual rate equal to the federal
short-term rate under Section 1274(d) of the Internal Revenue Code of 1954, as
amended, as the rate is in effect when the funds are advanced. As of June 30,
2000, no such loan received by any given officer or employee equaled or exceeded
$60,000.
ITEM 8. DESCRIPTION OF SECURITIES
The Company is authorized to issue up to 100,000,000 Shares of Common Stock
($0.01 par value).
COMMON STOCK
VOTING RIGHTS
Holders of shares of common stock have one vote per share on matters
submitted to a vote of the shareholders.
DIVIDEND RIGHTS
Holders of record of shares of common stock may receive dividends when
and if declared by the board of directors out of funds of the Company legally
available.
LIQUIDATION RIGHTS
Upon any liquidation, dissolution or winding up of the Company,
holders of shares of common stock shall receive pro rata any of the assets of
the Company available for distribution to common shareholders.
PREEMPTIVE RIGHTS
Holders of common stock do not have any preemptive rights to subscribe
for or to purchase any stock, obligations or other securities of the Company.
DISSENTERS' RIGHTS
Under current Nevada law, a shareholder is afforded dissenters' rights
which, if properly exercised, may require the Company to purchase his or her
shares. Dissenters' rights commonly arise in extraordinary transactions such as
mergers, considerations, reorganizations and substantial asset sales.
REGISTRAR AND TRANSFER AGENT
The Company's registrar and transfer agent is Holladay Stock Transfer,
Inc., 2939 N. 67th Place, Scottsdale, AZ 85251. Telephone (480) 481-3940.
17
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
Winnernet began quoting its stock on the over-the-counter market on October
6, 1999 under the symbol "WNNI." Following the Merger, the Company's common
stock continued to trade on the over-the-counter market under the symbol "PVGI."
There is no established trading market for the Company's common stock and
trading volume is low.
The following sets forth the range of high and low bid quotations for the
Company's common stock as reported by National Quotation Bureau, Inc. The
quotations reflect inter-dealer prices, without retail markup, markdown or
commissions and may not represent actual transactions.
High Low
---- ----
1999
4th Quarter 2.500 .000
2000
1st Quarter 3.375 .125
2nd Quarter 5.700 .125
On August 15, 2000, there were 15,000,000 shares of common stock issued and
outstanding. No shares of common stock are subject to outstanding options to
purchase, or securities convertible into, such shares of stock.
HOLDERS
As of August 15, 2000, there were approximately 17 holders of record
of the Company's common stock. Certain of these record holders are nominees,
holding the shares for "street name" holders. The number of underlying
beneficial owners of the Company's Common Stock is unknown at the present time.
DIVIDENDS
The Company has paid no dividends to its shareholders and does not
plan to pay dividends on the Company's common stock in the foreseeable future.
The Company currently intends to retain any earnings to finance future growth.
ITEM 2. LEGAL PROCEEDINGS
Neither the Company nor its property is a party to any pending or
threatened litigation or any known proceeding contemplated by a governmental
authority.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Winnernet's independent accountant for fiscal years 1996, 1997, and 1998
has been Michael A. Segelstein, 144-12 76th Avenue, Flushing, N.Y. 11367.
Segelstein's report on the financial statements for fiscal years 1996, 1997, and
1998 did not contain an adverse opinion nor were such financial statements
modified as to uncertainty, audit scope or accounting principles. There were no
disagreements with the former accountant on any matter of accounting principles
or auditing scope or procedure. Segelstein was not available to conduct an audit
for the 1999 fiscal year. On March 21, 2000, Winnernet retained Pinkham &
Pinkham, P.C. to conduct an audit for the period ended March 31, 2000. There
were no disagreements with Pinkham & Pinkham, P.C. on any matter of accounting
principles, auditing scope or procedures.
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<PAGE>
Pacific Vision retained King, Weber & Associates, P.C. on May 16, 2000, to
prepare the consolidated audited financial statements for Pacific Vision. King
Weber & Associates, P.C. is the Company's current independent auditor.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During the past two years, Pacific Vision issued 10,000,000 shares of its
common stock under a transaction exempt from registration pursuant to the
provisions of Rule 506 under Regulation D. The names of the persons who bought
the shares of stock, the dates the shares were issued, the number of shares
issued and the price paid in cash for the shares are as follows:
No. of
Date Shares Issued Price
---- ------------- ---------
Eastern Financial International Inc. 8-8-98 1,000,000 $ 5,000
Hong Kong Eastern International Finance Ltd. 8-8-98 4,500,000 $ 100,000
Lens Engineering International Inc. 8-8-98 4,500,000 $ 100,000
All of the above entities had a pre-existing relationship with Pacific
Vision as founders of Pacific Vision.
All of the above entities are accredited investors within the meaning of
the Commission's Rule 506(b)(2)(ii) and Rule 501 of Regulation D. The above
entities are also sophisticated investors within the meaning of Rule
506(b)(2)(ii).
On November 8, 1996, Winnernet issued 5,000 shares of its common stock
under a private placement transaction exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933. Winnernet's then President, Jim
Pitochelli received 4,750 of these shares in consideration of his services and
his contributions to the organizational expenses of Winnernet. No underwriters
were used to effect the sale of stock. On February 19, 1999, there was a 200-1
forward stock split converting the original 5,000 shares into 1,000,000 shares
of common stock. Mr. Pitochelli returned for cancellation 925,000 shares he held
in Winnernet resulting in a total of 75,000 shares outstanding. On August 2,
1999, the Company effectuated a 60-1 forward split of its common stock resulting
in 4,500,000 issued and outstanding shares.
Pursuant to the Agreement and Plan of Merger between Winnernet and Pacific
Vision dated June 13, 2000, Winnernet issued 10,500,000 shares to the three
shareholders of Pacific Vision as listed below. This transaction is exempt from
registration under Section 4(2) of the Securities Act and Regulation D. The
three Pacific Vision shareholders are accredited and sophisticated investors as
contemplated by Rule 506(b)(2)(ii).
Date No. of Shares
---- -------------
Eastern Financial International Inc. 06/13/00 1,050,000
Hong Kong Eastern International Finance Ltd. 06/13/00 4,725,000
Lens Engineering International Inc. 06/13/00 4,725,000
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article V of the Bylaws of the Company sets forth that the Company will
indemnify any and all of its current or former directors and officers against
expenses actually and necessarily incurred by them in connection with the
defense of any action, suit or proceeding in which they, or any of them are made
a party by reason of being an officer or director except if such person is
adjudged to be liable for negligence or misconduct in the performance of such
duty.
Under Nevada corporation law, a corporation is authorized to indemnify
officers, directors, employees and agents who are made or threatened to be made
parties to any civil, criminal, administrative or investigative suit or
proceeding by reason of the fact that they are or were a director, officer,
employee or agent of the corporation or are or were acting in the same capacity
for another entity at the request of the corporation. The indemnification may
include expenses (including attorneys' fees), judgment, fines and amounts paid
in settlement actually and reasonably incurred by such persons if they acted in
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<PAGE>
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation, or, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful.
In the case of any action or suit by or in the right of the corporation
against such persons, the corporation is authorized to provide similar
indemnification, provided that, should any such persons be adjudged to be liable
for negligence or misconduct in the performance of duties to the corporation,
the court conducting the proceeding must determine that such persons are
nevertheless fairly and reasonably entitled to indemnification. To the extent
any such persons are successful on the merits in defense of any such action,
suit or proceeding, Nevada law provides that they shall be indemnified against
reasonable expenses, including attorney fees.
A corporation is authorized to advance anticipated expenses for such suits
or proceedings upon an undertaking by the person to whom such advance is made to
repay such advances if it is ultimately determined that such person is not
entitled to be indemnified by the corporation.
Indemnification and payment of expenses provided by Nevada law are not
deemed exclusive of any other rights by which an officer, director, employee or
agent may seek indemnification or payment of expenses or may be entitled to
under any by-law, agreement, or vote of shareholders or disinterested directors.
In such regard, a Nevada corporation is empowered to, and may, purchase and
maintain liability insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation. As a results of such corporation
law, the Company may, at some future time, be legally obligated to pay judgments
(including amounts paid in settlement) and expenses in regard to civil or
criminal suits or proceedings brought against one or more of its officers,
directors, employees or agents.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions or otherwise, the
Company has been advised that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, and is, therefore, unenforceable.
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PART F/S
FINANCIAL STATEMENTS
The following financial statements are attached to this report and filed as
a part thereof.
Independent Auditor's Report ................................................F-1
Consolidated Financial Statements for the year ended December 31, 1999:
Consolidated Balance Sheet .............................................F-2
Consolidated Statements of Operations ..................................F-3
Consolidated Statements of Comprehensive Income.........................F-4
Consolidated Statements of Stockholders' Deficit........................F-5
Consolidated Statements of Cash Flows...................................F-6
Notes to Financial Statements................................................F-7
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pacific Vision Group, Inc.:
We have audited the consolidated balance sheet of Pacific Vision Group, Inc. (a
Development Stage Company) and its subsidiary (the "Company"), as of December
31, 1999, and the related consolidated statements of operations, comprehensive
income, stockholders' deficit and cash flows for the year ended December 31,
1999 and the period June 18, 1998, the date of inception, through December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit the
statements of operations and cash flows for the year ended December 31, 1999,
and the period September 29, 1998, the date of inception, through December 31,
1998, of Ningbo Eastern Pacific Vision Co., Ltd., a majority owned subsidiary
that operates in China, which statements reflect total assets of $1,074,475 as
of December 31, 1999, and no significant revenues for the year then ended. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Ningbo
Eastern Pacific Vision Co., Ltd., is based solely on the report of the other
auditors. The auditors for Ningbo Eastern Pacific Vision Co. Ltd. issued an
unqualified opinion.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of the other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Pacific Vision Group,
Inc. and its subsidiary as of December 31, 1999 and the consolidated results of
their operations and their cash flows for the year ended December 31, 1999, and
the period June 18, 1998, the date of inception, through December 31, 1998, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has a working
capital deficit of $629,505 at December 31, 1999, and has experienced
significant operating losses with uncertain cash flow to service trade debt and
operating expenses. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans with regard to these
matters are discussed in Note 1. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
/s/ KING, WEBER & ASSOCIATES, P.C.
Tempe, Arizona
July 20, 2000
F-1
<PAGE>
PACIFIC VISION GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
DECEMBER 31, JUNE 30,
1999 2000
----------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 29,364 $ 53
Accounts receivable -- 24,399
Advances to suppliers 40,037 28,922
Inventories 409,264 601,818
Tax refund receivable 19,452 27,636
Prepaid expenses and other assets 41,099 36,411
----------- -----------
Total current assets 539,216 719,239
PROPERTY AND EQUIPMENT, net 604,264 611,752
OTHER ASSETS 28,705 38,272
----------- -----------
TOTAL ASSETS $ 1,172,185 $ 1,369,263
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
CURRENT LIABILITIES:
Accounts payable $ 92,181 $ 287,218
Accrued expenses and other liabilities 47,090 82,467
Bank line of credit -- 15,765
Advances from customers -- 11,180
Accrued interest 119,450 183,050
Notes payable 910,000 912,000
----------- -----------
Total current liabilities 1,168,721 1,491,680
CONVERTIBLE NOTE PAYABLE $ -- $ 136,000
----------- -----------
MINORITY INTEREST 279,114 244,258
----------- -----------
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value, 100,000,000 shares
authorized, 10,500,000 and 15,000,000 issued and
outstanding at December 31, 1999 and June 30, 2000 10,500 15,000
Paid in capital 194,500 190,000
Foreign currency translation adjustment (84) (232)
Accumulated deficit (480,566) (707,443)
----------- -----------
Total stockholders' deficit (275,650) (502,675)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,172,185 $ 1,369,263
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
PACIFIC VISION GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE FROM
JUNE 18, 1998 JUNE 18, 1998 SIX MONTHS
YEAR ENDED (DATE OF INCEPTION) (DATE OF INCEPTION) ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999 JUNE 30, 2000
----------------- ----------------- ----------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES $ 11,145 $ -- $ 11,145 $ 90,819
COST OF SALES 18,934 -- 18,934 94,152
------------ ------------ ------------ ------------
Gross (loss) profit (7,789) -- (7,789) (3,333)
------------ ------------ ------------ ------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and benefits expense 99,165 -- 99,165 44,490
Selling and promotion expense 20,632 1,446 22,078 19,583
Office and administrative expense 254,815 66,556 321,371 120,847
Depreciation 11,081 2,133 13,214 5,503
------------ ------------ ------------ ------------
Total selling, general and
administrative expenses 385,693 70,135 455,828 190,423
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (393,482) (70,135) (463,617) (193,756)
------------ ------------ ------------ ------------
OTHER (INCOME) AND EXPENSES
Government subsidy (24,157) -- -- --
Interest income (6,966) (1,869) (8,835) (49)
Interest expense 119,126 4,943 124,069 64,712
------------ ------------ ------------ ------------
Total other expenses 88,003 3,074 91,077 64,663
------------ ------------ ------------ ------------
MINORITY INTEREST 66,072 8,056 74,128 31,542
------------ ------------ ------------ ------------
NET LOSS $ (415,413) $ (65,153) $ (480,566) $ (226,877)
============ ============ ============ ============
NET LOSS PER COMMON SHARE
Basic $ (0.04) $ (0.01) $ (0.05) $ (0.02)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 10,500,000 10,500,000 10,500,000 10,725,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
PACIFIC VISION GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE FROM
JUNE 18, 1998 JUNE 18, 1998 SIX MONTHS
YEAR ENDED (DATE OF INCEPTION) (DATE OF INCEPTION) ENDED
DECEMBER 31, 1999 TO DECEMBER 31, 1998 TO DECEMBER 31,1999 JUNE 30, 2000
----------------- -------------------- ------------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET LOSS $ (415,413) $ (65,153) $ (480,566) $ (226,877)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation
adjustments (13) (71) (84) (148)
------------ ------------ ------------ ------------
Total Other Comprehensive Income (13) (71) (84) (148)
------------ ------------ ------------ ------------
COMPREHENSIVE INCOME (LOSS) $ (415,426) $ (65,224) $ (480,650) $ (227,025)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
PACIFIC VISION GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN CURRENCY ACCUMULATED
SHARES AMOUNT CAPITAL TRANSLATION DEFICIT TOTAL
------ ------ ------- ----------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE JUNE 18, 1998 10,500,000 $ 10,500 $ (10,500) $ -- $ -- $ --
Initial capitalization of Pacific Vision
Group, Inc., by founders for cash 205,000 205,000
Currency translation (71) (71)
Net loss (65,153) (65,153)
---------- -------- --------- ------ ---------- ----------
BALANCE DECEMBER 31, 1998 10,500,000 10,500 194,500 (71) (65,153) 139,776
Currency translation (13) (13)
Net loss (415,413) (415,413)
---------- -------- --------- ------ ---------- ----------
BALANCE DECEMBER 31, 1999 10,500,000 10,500 194,500 (84) (480,566) (275,650)
Recapitalization for reverse merger 4,500,000 4,500 (4,500) --
Currency translation (148) (148)
Net loss (226,877) (226,877)
---------- -------- --------- ------ ---------- ----------
BALANCE JUNE 30, 2000 (UNAUDITED) 15,000,000 $ 15,000 $ 190,000 $ (232) $ (707,443) $ (502,675)
========== ======== ========= ====== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
PACIFIC VISION GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 18, 1998 JUNE 18, 1998 SIX MONTHS
YEAR ENDED (DATE OF INCEPTION) (DATE OF INCEPTION) ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1999 1998 1999 2000
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (415,413) $ (65,153) $ (480,566) $ (226,877)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 11,080 2,133 13,213 28,607
Undistributed minority interest (66,072) (8,055) (74,127) (31,542)
Changes in assets and liabilities:
Accounts receivable -- -- -- (24,399)
Advances to vendors (40,037) -- (40,037) 11,115
Inventories (279,925) (129,339) (409,264) (192,554)
Prepaid expenses and other current assets (32,816) (8,286) (41,102) 4,688
Other assets 571 (29,276) (28,705) (9,567)
Tax subsidy receivable (19,452) -- (19,452) (8,184)
Accounts payable (4,851) 97,032 92,181 195,037
Advances from customers -- -- -- 11,180
Accrued liabilities 42,225 4,865 47,090 32,063
Accrued interest 114,511 4,939 119,450 63,600
----------- ----------- ----------- -----------
Net cash used in operating activities (690,179) (131,140) (821,319) (146,833)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (556,606) (60,871) (617,477) (36,095)
----------- ----------- ----------- -----------
Net cash used in investing activities (556,606) (60,871) (617,477) (36,095)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 515,000 395,000 910,000 138,000
Proceeds from issuance of common stock -- 205,000 205,000 --
Sale of minority interest in subsidiary 152,978 200,264 353,242 --
Proceeds on bank line of credit -- -- -- 15,765
----------- ----------- ----------- -----------
Net cash provided by financing activities 667,978 800,264 1,468,242 153,765
----------- ----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (11) (71) (82) (148)
DECREASE IN CASH AND EQUIVALENTS (578,818) 608,182 29,364 (29,311)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 608,182 -- -- 29,364
----------- ----------- ----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 29,364 $ 608,182 $ 29,364 $ 53
=========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ -- $ -- $ -- $ 1,112
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
PACIFIC VISION GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
Pacific Vision Group, Inc., (the "Company") was formed in 1998 for the
purpose of manufacturing, marketing and distributing high-quality, cost
effective plastic eye-glass lenses and other medical plastic resin
products. The Company has established manufacturing facilities and begun
marketing activities for its products. However, as of December 31, 1999,
the Company had yet to generate significant revenue and continues to
operate in the development stage. The Company manufactures its product
through its majority owned subsidiary, Ningbo Eastern Pacific Vision Co.,
Ltd. ("NEPVC") at its plant in China. The Company intends to distribute its
products to retail and regional distributors in Asia and the United States.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has had material
operating losses and has had to rely on offerings of its common stock and
the borrowings to obtain sufficient cash to meet its operating expenses.
The Company has yet to generate substantive revenue. The Company has
entered into distribution agreements for its products with distributors.
However, there can be no assurances that the product sales volumes will be
sufficient to result in profitable operations. These factors raise
substantial doubt about the Company's ability to continue as a going
concern. The Company intends to continue to attempt to raise capital and
bring its product to market. However, there can be no assurances that the
Company will be able to generate profitable operations. The financial
statements do not include any adjustments relating to the recoverability
and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the accounts
and activities of Pacific Vision Group, Inc. and its majority owned
subsidiary, Ningbo Eastern Pacific Vision Co., Ltd. ("NEPVC"). The Company
formed NEPVC in 1998 and owns 67% of the voting interest. All significant
intercompany transactions and balances have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS includes all short-term highly liquid investments
that are readily convertible to known amounts of cash and have original
maturities of three months or less. At times cash deposits may exceed
government insured limits. At December 31, 1999, cash deposits did not
exceeded those insured limits.
INVENTORIES are stated at the lower of cost (on an average cost basis) or
market. Inventories consist of raw materials (resins, etc) work-in-progress
and finished goods. Finished goods and work-in-progress include costs of
materials direct labor and an allocation of production overhead expenses.
PROPERTY AND EQUIPMENT are recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets ranging
from 5 to 10 years. Depreciation on items in construction in progress
commences when assets are placed in service.
RESEARCH AND DEVELOPMENT costs for new products are expensed as incurred.
ADVERTISING COSTS are expensed as incurred. Advertising expense for the
years ended December 31, 1999 and 1998 and six months ended June 30, 2000
was $1,290, $530 and $15,292, respectively.
INCOME TAXES - The Company provides for income taxes based on the
provisions of Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES, which among other things, requires that
recognition of deferred income taxes be measured by the provisions of
enacted tax laws in effect at the date of financial statements. NEPVC is
subject to Chinese taxing jurisdictions.
F-7
<PAGE>
FOREIGN CURRENCY TRANSLATION - The foreign subsidiary maintains its
financial statements in the local currency which has been determined to be
the functional currency. NEPVC's functional currency is the Chinese
Renminbi. Assets and liabilities denominated in the foreign currency are
translated into U.S. dollars at the rates in effect at the balance sheet
date. Revenues and expenses are translated at average rates for the year.
Related translation adjustments are reported as a separate component of
stockholders' equity, whereas, gains and losses resulting from foreign
currency transactions are included in the results of operations.
FINANCIAL INSTRUMENTS - Financial instruments consist primarily of cash,
and obligations under accounts payable, accrued expenses and the note
payable. The carrying amounts of cash, accounts payable and accrued
expenses approximate fair value because of the short maturity of those
instruments. However, the fair value of the note payable is not estimated
because of the related party nature of the instrument.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
LOSS PER SHARE - Basic loss per share is computed using the weighted
average number of shares of common stock outstanding for the period. The
Company has a simple capital structure and therefore there is no
presentation for diluted loss per share.
3. INVENTORIES
Inventories consisted of the following:
December 31, June 30,
1999 2000
--------- ---------
(unaudited)
Finished goods $ 155,620 $ 267,136
Raw materials 105,006 119,718
Work-in-progress 26,562 34,982
Supplies 67,810 56,033
Consigned goods 35,430 123,949
In-transit items 19,196 -0-
--------- ---------
Total inventory $ 409,264 $ 601,818
========= =========
Consigned goods are finished goods held by retail customers.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31, June 30,
1999 2000
--------- ---------
(unaudited)
Office furniture and equipment $ 38,102 $ 38,102
Computer and test equipment 46,847 48,883
Laboratory equipment 282,047 298,633
Leasehold improvements 157,937 161,024
Construction in progress 102,092 116,478
--------- ---------
Total 627,025 663,120
Less accumulated depreciation
and amortization (22,761) (51,368)
--------- ---------
Property and equipment - net $ 604,264 $ 611,752
========= =========
F-8
<PAGE>
5. MAJORITY OWNED SUBSIDIARY
The Company established a Sino-American joint venture on September 29,
1998. The joint venture, Ningbo Eastern Pacific Vision Co., Ltd. ("NEPVC")
was formed to manufacture the Company's product in China. The Company's
management controls the management of NEPVC. The Company invested
approximately $700,000 in NEPVC for a controlling interest of approximately
67%. The remaining 33% is owned by Ningbo Orient Economic Development
Group, a Chinese entity which invested approximately $350,000.
Approximately $700,000 was invested in 1998 to initially capitalize NEPVC
in the year ended December 31, 1998. In the year ended December 31, 1999,
an additional $350,000 was invested. Both parties invested proportionate
amounts in the respective years to maintain the 67% - 33% ownership ratio.
The assets and liabilities, operations of NEPVC are included in the
accompanying consolidated financial statements.
6. NOTES PAYABLE
The Company has borrowed a total of $910,000 from entities whom are
stockholders of the Company and whom are controlled by a member of the
board of directors. The notes bear interest at 7.5% to 14.4% per annum. The
notes all mature in the year 2000. The Company has failed to make payment
on the notes when they became due in 2000. There are two notes for $400,000
each. These notes are collateralized by all the assets of the Company. The
other notes are unsecured.
In the six month period ended June 30, 2000 the Company borrowed an
additional $138,000 under notes payable and $15,765 under a bank line of
credit.
A summary of notes payable and the line of credit is as follows:
December 31, June 30,
1999 2000
---------- ----------
(unaudited)
Notes payable for $400,000 each. Due March
31, 2000, bearing interest at 14.4% per
annum. Funds borrowed from entities whom are
stockholders of the Company and whom are
controlled by a member of the board of
directors. Collateralized by all assets of
the Company. $ 800,000 $ 800,000
Notes payable for $50,000 each. Due January
5, 2000 and February 15, 2000, bearing
interest at 12% per annum. Funds borrowed
from entities whom are stockholders of the
Company and whom are controlled by a member
of the board of directors. The notes are
unsecured. 100,000 100,000
Demand notes payable, bearing interest at
7.5% per annum. Funds borrowed from entities
whom are stockholders of the Company and whom
are controlled by a member of the board of
directors. The notes are unsecured. 10,000 12,000
F-9
<PAGE>
Bank line of credit. Credit limit of $15,800.
The credit facility bears interest at the
prime rate plus 2.75%, 12.25% at June 30,
2000. The credit facility is unsecured and
personally guaranteed by certain officers.
The credit facility expires April 1, 2000. 15,765
Convertible note payable. Face amount of
$200,000. The note bears interest at 8% per
annum. Due June 11, 2003. The note is
convertible into common stock at the option
of the holder at a price of $0.10 per share.
The note is unsecured. The Company borrowed
$136,000 under the note as of June 30, 2000.
The Company subsequently borrowed the
remaining $64,000 available under the note. 136,000
---------- ----------
TOTAL 910,000 1,063,765
Less current portion 910,000 927,765
---------- ----------
Long term portion $ -0- $ 136,000
========== ==========
7. INCOME TAXES
The Company recognizes deferred income taxes for the differences between
financial accounting and tax bases of assets and liabilities. Income taxes
for the years ended December 31, 1999 and 1998, respectively, consisted of
the following:
June 30,
1999 1998 2000
---------- ---------- ----------
(unaudited)
Current tax provision (benefit) $ (200,700) $ (29,000) $ (81,675)
Deferred tax provision (benefit) 200,700 29,000 81,675
---------- ---------- ----------
Total income tax provision (benefit) $ -0- $ -0- $ -0-
========== ========== ==========
There were no material temporary book/tax differences for the years ended
December 31, 1999 and 1998. There was a deferred tax asset of $229,700 at
December 31, 1999, relating primarily to net operating loss carryforwards
of approximately $480,000. The deferred income tax asset is fully offset by
a valuation allowance. The net operating loss carryforwards expire from
2013 to 2019.
Deferred income taxes for the years ended December 31, 1999 and 1998,
primarily relate to temporary differences for the increase in the valuation
allowance of $200,700 and $29,000 respectively. Likewise, the valuation
allowance was increased by $81,765 for the six month period ended June 30,
2000.
The Company files a consolidated income tax return in the United States.
There is no effect of foreign income taxes since the foreign subsidiaries
incurred operating losses for income tax purposes. Any effect of foreign
income taxes would be recognized in the U.S income tax return.
8. LEASES
OPERATING LEASES
The Company leases its facilities under long-term operating leases that
expire through 2001. Rent expense under these leases was approximately
$14,609, $5,937 and $11,635 for the years ended December 31, 1999 and 1998,
and six month period ended June 30, 2000, respectively. Minimum annual
lease payments under these agreements are as follows:
F-10
<PAGE>
Years ended December 31:
2000 $ 29,530
2001 14,765
---------
Total $ 44,295
=========
9. RELATED PARTY TRANSACTIONS
The Company has borrowed a total of $910,000 from entities whom are
stockholders of the Company and whom are controlled by a member of the
board of directors. Interest expense on these notes was $114,751 and $4,699
for the years ended December 31, 1999 and 1998 respectively. No interest
has been paid on these notes and a total of $119,450 was accrued at
December 31, 1999.
The Company has occasionally advanced cash to certain officers. Advances to
officers of $23,175 are included in other assets as of December 31, 1999
and June 30, 2000, in the accompanying balance sheets.
10. SUBSEQUENT EVENTS
On June 21, 2000, Pacific Vision merged with and into Winnernet Industries,
Inc. As a result of the merger transaction with Winnernet, the former
stockholders of the Company held a majority of Winnernet's voting stock.
For financial accounting purposes, the acquisition is a reverse acquisition
of the Winnernet by the Company, under the purchase method of accounting,
and will be treated as a recapitalization with the Company as the acquirer.
Winnernet had no operations nor any significant assets or liabilities at
the time of the merger. As a result of the merger transaction with Pacific
Vision Group, the former Pacific Vision Group stockholders held
approximately 70% of the Company's voting stock. For financial accounting
purposes, the acquisition was a reverse acquisition of the Company by
Pacific Vision Group, Inc., under the purchase method of accounting, and
was treated as a recapitalization with Pacific Vision Group, Inc. as the
acquirer. Accordingly, the historical financial statements have been
restated after giving effect to the June 21, 2000, acquisition of the
Company. The financial statements have been prepared to give retroactive
effect to June 18, 1998, of the reverse acquisition completed on June 21,
2000, and represent the operations of Pacific Vision Group. Consistent with
reverse acquisition accounting: (i) all of Pacific Vision Group's assets,
liabilities, and accumulated deficit, are reflected at their combined
historical cost (as the accounting acquirer) and (ii) the preexisting
outstanding shares of the Company (the accounting acquiree) are reflected
at their net asset value as if issued on June 21, 2000.
11. INTERIM FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared by
the Company without audit, pursuant to the rules and regulations for
financial information. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
These unaudited financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's audited
financial statements as of December 31, 1999. In the opinion of management,
these unaudited financial statements reflect all adjustments which are
necessary to present fairly the financial position and results of
operations of the Company for such interim period. Operating results for
the interim period are not necessarily indicative of the results that may
be expected for the entire year.
* * * * * *
F-11
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
Page Number or
No. Method of Filing
--- ----------------
2 Agreement and Plan of Merger *
3.1 Articles of Merger *
3.2 Articles of Incorporation *
3.3 By-Laws *
10 Cooperation Contract with China United Online
Information Development Co., Ltd. *
16 Letter on Change in Certifying Accountant **
23 Consent of Independent Accountants *
27 Financial Data Schedule *
* Filed herewith.
** To be filed by amendment
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: September 26, 2000 PACIFIC VISION GROUP, INC.
By: /s/ Barry Chen
-----------------------------------
Name: Barry Chen
Its: President and Chief Executive
Officer
22
