POWERSOFT TECHNOLOGIES INC. ANNUAL MEETING
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential for use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
POWERSOFT TECHNOLOGIES INC.
----------------------------------------------
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which the transaction applies: (2)
Aggregate number of securities to which transaction applies: (3) Per unit price
or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid: $967.60
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
POWERSOFT TECHNOLOGIES INC.
650 West Georgia Street, Suite 1600
P. O. Box 11586
Vancouver, B.C., Canada V6B4N8
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on November 10, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Powersoft Technologies Inc., a Delaware corporation (the
"Company"), will be held in the Board Room of eVision USA.Com, Inc., 31st Floor,
1700 Lincoln Street, Denver, Colorado 80203, on November 10, 1999, at 10:00 a.m.
Mountain Time, for the purpose of considering and voting upon proposals to:
(1) elect two directors to serve until the next Annual Meeting of
Stockholders or until their successors are elected and qualify;
(2) reincorporate the Company by changing the state of incorporation from
Delaware to Colorado by the adoption of a Plan and Agreement of Merger
pursuant to which the Company will effectuate a 30 to 1 reverse split
of its common stock and will be merged with and into Asia SuperNet
Corporation, a Colorado corporation, which is a wholly owned
subsidiary of the Company formed specifically for the purpose of the
reincorporation and which shall be the surviving corporation;
(3) approve an agreement between the Company and SAR Trading Limited
("SAR"), a company wholly owned by Fai H. Chan, an officer, director
and majority stockholder of the Company, whereby the Company agreed to
sell and SAR agreed to purchase all of the operating subsidiaries of
the Company in consideration for which the Company agreed to issue SAR
$4,838,000 of convertible debt; and
(4) transact such other business as may lawfully come before the Meeting
or any adjournment(s) thereof.
Only stockholders of record at the close of business on October 13, 1999,
are entitled to notice of and to vote at the Meeting and at any adjournment
thereof.
The enclosed Proxy is solicited by and on behalf of the Board of Directors
of the Company. All stockholders are cordially invited to attend the Meeting in
person. Whether you plan to attend or not, please date, sign and return the
accompanying proxy in the enclosed return envelope, to which no postage need be
affixed if mailed in the United States. The giving of a proxy will not affect
your right to vote in person if you attend the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
ROBERT H. TRAPP, SECRETARY
Vancouver, B.C., Canada
October 19, 1999
<PAGE>
POWERSOFT TECHNOLOGIES INC.
650 West Georgia Street, Suite 1600
P. O. Box 11586
Vancouver, B.C., Canada V6B4N8
604-685-3398
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 10, 1999
This proxy statement ("Proxy Statement") is being furnished in connection
with the solicitation of proxies by the Board of Directors of Powersoft
Technologies Inc. (the "Company") to be used at the Annual Meeting of
Stockholders (the "Meeting") to be held in the Board Room of eVision USA.Com,
Inc., 31st Floor, 1700 Lincoln Street, Denver, Colorado 80203 on November 10,
1999, at 10:00 a.m. Mountain Time, and at any adjournment(s) thereof.
This Proxy Statement and the accompanying Proxy will be mailed to the
Company's stockholders on or about October 19, 1999.
Any person signing and mailing the enclosed Proxy may revoke it at any time
before it is voted by: (i) giving written notice of the revocation to the
Company's corporate secretary; (ii) voting in person at the Meeting; or (iii)
voting again by submitting a new proxy card. Only the latest dated proxy card,
including one which a person may vote in person at the Meeting, will count. If
not revoked, the Proxy will be voted at the Meeting in accordance with the
instructions indicated on the Proxy by the Stockholder, or, if no instructions
are indicated, will be voted FOR the slate of directors described therein; FOR
reincorporating the Company by changing the state of incorporation from Delaware
to Colorado by the adoption of a Plan and Agreement of Merger pursuant to which
the Company will effectuate a 30 to 1 reverse split of its common stock and will
be merged with and into Asia SuperNet Corporation, a Colorado corporation, which
is a wholly owned subsidiary of the Company formed specifically for the purpose
of the reincorporation and which shall be the surviving corporation; and FOR
approving an agreement between the Company and SAR Trading Limited ("SAR"), a
company wholly owned by Fai H. Chan, an officer, director and shareholder of the
Company, whereby the Company agreed to sell and SAR agreed to purchase all of
the operating subsidiaries of the Company in consideration for which the Company
agreed to issue SAR $3,472,222 of convertible debt.
VOTING SECURITIES
Voting rights are vested exclusively in the holders of the Company's $0.01
par value common stock ("Common Stock") with each share entitled to one vote.
Cumulative voting in the election of directors is not permitted. Only
stockholders of record at the close of business on October 13, 1999, are
entitled to notice of and to vote at the Meeting or any adjournments thereof. On
October 3, 1999, the Company had 15,560,262 shares of Common Stock outstanding.
1
<PAGE>
THE COMPANY
The Company was originally organized in California on March 24, 1958 as
Time Saver Markets, Inc. From 1958 to 1994, the Company effected numerous name
changes and engaged in businesses other than those it presently operates. In
August 1994, the Company changed its corporate domicile to Delaware. In November
1994, the Company, then known as Alpine International Corp., changed its name to
Heng Fai China Industries, Inc. On March 31, 1998, the Company changed its name
to Powersoft Technologies Inc. The Company has signed an agreement ("SAR
Agreement"), to sell most of its subsidiaries, and as a result, all of its
operations to SAR Trading Limited, ("SAR"), a company wholly owned by Fai H.
Chan, an officer, director and majority stockholder of the Company. Upon
stockholder approval of the SAR Agreement, the Company intends to focus its
operations on the acquisition of companies operating in the fields of computer
technology, Internet and telecommunications to be implemented in Asian markets.
As of June 30, 1999, the Company's investments and subsidiaries were as follows:
Name % Owned State/Foreign
Incorporation
- ----------------------------- ------- -------------
Vancouver Hong Kong 100%(2) Canada
Properties Ltd.
America & China Business 100% Canada
and Development Inc.
Heng Fai Management Inc. 100%(2) British Virgin Islands
Heng Fai China & Asia 100%(2) Hong Kong
Industries Limited
Cangzhou Min You 19%(1) People's Republic of
Cement Co., Ltd. China
Heng Fai China 100%(2) Hong Kong
Industries Limited
Worldwide Container 100%(2) Hong Kong
Company Limited
Greatly Hong Kong Limited 100%(2) Hong Kong
Heng Fai China Industries 100%(2) Hong Kong
Acquisition Limited
2
<PAGE>
(1) As of July 24, 1998, the Company divested 81% of its interest in
Cangzhou Min You Cement Co., Ltd.
(2) On January 18, 1999, the Company entered into an agreement with SAR
wherein SAR agreed to buy and the Company agreed to sell these
subsidiaries to SAR for approximately $4,838,000 in the form of the
assumption of certain liabilities. In consideration of the assumption
of liabilities, the Company agreed to issue two notes payable to SAR
in the amounts of $1,000,000 and $3,838,000. The $1,000,000 note is
immediately convertible into 20,000,000 shares of Common Stock. The
$3,838,000 note can be converted into shares of Common Stock of the
Company, in minimum increments of $250,000 each, at the average 15 day
trading price of the Company's Common Stock at the option of the
Company by giving seven trading days notice in writing to SAR. The
Company agreed to offset the amounts due from related parties of
$1,365,278 against the $3,838,000 note payable, resulting in an
amendment to the original promissory notes. The note payable for
$3,838,000 was effectively reduced to $2,472,722. The agreement is
subject to the approval of the Company's stockholders.
Agreement with CyberConstruction Company, Inc.
On February 12, 1999, the Company entered into a Technology License and
Services Agreement (the "Agreement") with CyberConstruction Company, Inc.
("Cyber"). Cyber has developed and continues to develop certain software
applications, methods, operating procedures, Internet infrastructure design and
Internet site template development (collectively the "Technology"). The
Agreement grants a nontransferable license to the Company to use and execute the
Technology, along with related services, for the Company's customers. The
Company agreed to grant and transfer to Cyber, as a consideration of the license
and related services, certain of its preferred stock equal in value to $10
million, as part of an issuance of up to $50 million worth of its preferred
stock. The Company has agreed that upon the sooner of (i) the licensing or
acquisition of technologies or companies utilizing the $50 million proceeds from
the sale of preferred stock; or (ii) February 13, 2001, the Company will
endeavor to meet the listing requirements of Nasdaq for registration of the
preferred stock. The transaction contemplated by the agreement has not yet been
consummated and consequently, has not yet been recorded.
Historical Information
In 1994, the Company acquired Vancouver Hong Kong Properties Ltd., a
Canadian corporation ("Vancouver Hong Kong"), which owns an apartment building
in North Vancouver, British Columbia ("Apartment Building").
In January 1995, the Company acquired a wholly-owned subsidiary, Heng Fai
China & Asia Industries Limited ("Asia"), a company incorporated in Hong Kong,
along with Asia's wholly-owned subsidiary, Heng Fai China Industries Limited
("China"). China is incorporated in Hong Kong and owned an option to acquire,
through its wholly owned subsidiary, Cangzhou Min You Cement Co., Ltd., a
foreign-owned enterprise registered in the People's Republic of China ("PRC")
("Min You"), direct or joint venture operating lease interests in the following
3
<PAGE>
three cement factories in the Hebei province of PRC: (i) the Hebei Cangzhou City
Chemical Corporation Factory ("Cangzhou Factory"); (ii) the Qingxian Cement
Factory ("Qingxian Factory"); and (iii) the Hebei Cangzhou Area Construction
Materials Factory ("Hebei Factory"). Min You did not exercise its option to
acquire interests in the Qingxian Factory and the Hebei Factory, and such option
has since expired.
In April 1995, Min You exercised an option to lease a production line at
the Cangzhou Factory. Such lease provided for the use of the production line at
Cangzhou Factory for a five year period commencing January 1, 1995.
In September 1996, the Company, through its wholly owned subsidiary,
Worldwide Container Company, Ltd. ("Worldwide"), acquired a 70% interest in
Wuhan Monkey King Container Co., Ltd. ("Wuhan"), in exchange for 727,272 shares
of the Company's Common Stock. Wuhan is a sino-foreign equity joint venture
registered in PRC which is engaged in the design, manufacture, lease and repair
of standard and non-standard containers and related steel structure products.
In January 1997, the Company acquired from Fai H. Chan, an officer,
director and shareholder of the Company, 100% of the outstanding Common Stock of
Greatly Hong Kong Limited ("Greatly HK") in exchange for nominal consideration.
Greatly HK had a 25% interest in Hebei Cherry Valley Duck Ltd. ("Duck Farm"), a
cooperative joint venture established in the PRC which was engaged in the
management and operation of a duck farm in PRC. The investment was wholly
financed by an interest free, short term advance from Fai H. Chan. Other than
the investment in the Duck Farm and advance from Fai H. Chan, Greatly HK had no
other material assets and liabilities, or operations at the time of acquisition.
In March 1997, the Company acquired from Fai H. Chan, an officer, director
and majority stockholder of the Company, 100% of the outstanding Common Stock
Heng Fai China Industries Acquisition Limited ("Heng Fai Acquisition") in
exchange for nominal consideration. Heng Fai Acquisition had an option to form a
cooperative joint venture in PRC, but otherwise had no material assets and
liabilities, or operations at the time of acquisition. Heng Fai Acquisition
entered into a conditional agreement ("Agreement") with an unaffiliated party in
PRC ("PRC Party") to establish a joint venture, Heng Li (Zhangjiagang Free Trade
Zone) International Trading and Development Co., Ltd. ("Heng Li"), to develop
and construct a commercial building in Zhangjiagang Free Trade Zone, PRC.
However, the Agreement was not completed and an application has been submitted
to cancel the registration of Heng Li.
1997 Divestitures
After several years of direct investments in the PRC as described above,
the Company believed the returns on such investments were unsatisfactory. The
Company believed its best course of action was to write-off or discontinue a
substantial part of its PRC operations ("Divestiture"). Pursuant to
reorganization, the Company commenced the Divestiture and entered into the
following agreements to terminate or substantially reduce its interest in its
PRC operations as follows:
4
<PAGE>
Min You. In December 1997, the Company, through China, transferred 81% of its
interest in Min You to two unrelated parties in Hong Kong and PRC. China
retained a 19% interest in Min You and full provisions have been made against
the remaining cost of investment in Min You. Applications for the change in
ownership in Min You have been approved by the respective authorities in PRC.
Wuhan. In December 1997, the Company effected an agreement to reverse the
acquisition by returning its 70% interest in Wuhan and redeeming the 727,272
shares of restricted Common Stock previously issued pursuant to the acquisition.
Applications for the change in ownership in Wuhan were approved by the
respective authorities of PRC during 1998.
Duck Farm. In December 23, 1997, Greatly HK effected an agreement to dispose of
its 25% interest in the Duck Farm to compensate for the loss of the joint
venture. Applications for the change in ownership of the Duck Farm were approved
by the respective authorities in PRC and the transaction was consummated during
1998.
Heng Li. Heng Fai Acquisition did not exercise its option to form Heng Li as
certain conditions of the joint venture agreement were not met. In December
1997, the Company canceled the registration of Heng Li.
Segment Information
Segment information for the six months ended June 30, 1999 and 1998 is not
included because it may not be indicative of the current or future operations of
the segments primarily due to the SAR Agreement.
<TABLE>
<CAPTION>
Rental Investment
Income Income Consolidated
For the year ended December 31, 1998 ------ ---------- ------------
<S> <C> <C> <C>
Revenues .................................. $ 307,327 $ 13,303 $ 320,630
--------- ---------- ----------
Income (loss) from operations ............. 80,714 (25,154) 55,560
General corporate expenses ................ (639,889)
Interest Expense .......................... (492,804)
----------
Loss from continuing operations ........... (1,077,133)
----------
Discontinued operations:
Cangzhou Cement ........................ --
Wuhan .................................. --
Investment in Duck Farm ................ --
Loss from discontinued operations.......... --
----------
Loss before income taxes .................. $(1,077,133)
==========
5
<PAGE>
<CAPTION>
For the year ended December 31, 1998 Rental Investment
(continued) Income Income Consolidated
------ ---------- ------------
<S> <C> <C> <C>
Identifiable assets:
Continuing operations .................. $ 703,003 $ 474,435 $ 1,177,438
Discontinued operations:
Cangzhou Cement ..................... --
Wuhan ............................... --
Investment in Duck Farm ............. --
----------
1,177,438
Corporate assets ....................... 38,328
----------
$ 1,215,766
==========
Supplemental information
Depreciation ........................... $ 34,346 $ 840 $ 35,186
========== ========== ==========
Capital expenditures ................... $ -- $ -- $ --
========== ========== ==========
<CAPTION>
Rental Investment
Income Income Consolidated
For the year ended December 31, 1997 ------ ---------- ------------
<S> <C> <C> <C>
Revenues .................................. $ 346,528 $ 225,393 $ 571,921
---------- ---------- ----------
Income (loss) from operations ............. 116,404 138,794 255,198
General corporate expenses ................ (1,163,415)
Interest Expense .......................... (309,201)
----------
Loss from continuing operations ........... (1,217,418)
----------
Discontinued operations:
Cangzhou Cement ........................ (8,342)
Wuhan .................................. 59,232
Investment in Duck Farm ................ (301,324)
----------
Loss from discontinued operations ......... (250,434)
----------
Loss before income taxes .................. (1,467,852)
==========
Identifiable assets:
Continuing operations .................. $ 803,754 $ 1,531,620 $ 2,335,374
6
<PAGE>
<CAPTION>
For the year ended December 31, 1997 Rental Investment
(continued) Income Income Consolidated
------ ---------- ------------
<S> <C> <C> <C>
Discontinued operations:
Cangzhou Cement ..................... --
Wuhan ............................... --
Investment in Duck Farm ............. --
----------
2,335,374
Corporate assets ....................... 52,688
----------
$ 2,388,062
Supplemental information: ==========
Depreciation ........................... $ 40,320 $ 841 $ 41,161
========== ========== ==========
Capital expenditures ................... $ -- $ -- $ --
========== ========== ==========
<CAPTION>
Rental Investment
Income Income Consolidated
For the year ended December 31, 1996 ------ ---------- ------------
<S> <C> <C> <C>
Revenues .................................. $ 336,644 $ 92,214 $ 428,858
---------- ---------- ----------
Income (loss) from operations ............. 85,883 (59,955) 25,928
General corporate expenses ................ (1,966,224)
Interest Expense .......................... (121,436)
----------
Loss from continuing operations ........... (2,061,732)
----------
Discontinued operations:
Cangzhou Cement ........................ (62,487)
Wuhan .................................. (241,208)
Investment in Duck Farm ................ --
----------
Loss from discontinued operations ......... (303,695)
----------
Loss before income taxes .................. $(2,365,427)
==========
Identifiable assets:
Continuing operations .................. $ 787,920 $ 710,307 $ 1,498,227
Discontinued operations:
Cangzhou Cement ..................... 395,955
Wuhan ............................... 8,560,939
Investment in Duck Farm ............. --
----------
7
<PAGE>
<CAPTION>
For the year ended December 31, 1996 Rental Investment
(continued) Income Income Consolidated
------ ---------- ------------
<S> <C> <C> <C>
$10,455,121
Corporate assets ....................... 170,259
----------
$10,625,380
==========
Supplemental information:
Depreciation ........................... $ 41,395 $ 420 $ 41,815
========== ========== ==========
Capital expenditures ................... $ -- $ 3,363 $ 3,363
=========== =========== ===========
</TABLE>
The following is a summary of information regarding the Company's
continuing operations by geographical area for each of the six months ended June
30, 1999 and 1998 and for the three years ended December 31, 1998:
Six Months Ended June 30, 1999 and 1998
1999 1998
---- ----
Revenue:
North America ........................... $ 169,473 $ 172,751
Hong Kong ............................... $ 212 $ 2,879
Operating income (loss):
North America ........................... $ 94,608 101,138
Hong Kong ............................... $ 153,290 $(211,626)
General corporate expenses .............. $(327,725) $(393,459)
Identifiable assets:
North America ........................... $ 675,508 $ 661,805
PRC ..................................... $ -- $ --
Hong Kong ............................... $ 782,030 $ 439,290
8
<PAGE>
Three Years Ended December 31:
1998 1997 1996
---- ---- ----
Revenue:
North America ...................... $ 312,119 $ 360,030 $ 342,112
Hong Kong .......................... 8,511 211,891 86,746
--------- ----------- ---------
$ 320,630 $ 571,921 $ 428,858
========== =========== =========
Operating income (loss):
North America ...................... $ 80,714 $ 116,404 $ 91,351
Hong Kong .......................... (517,958) (170,407) (186,859)
Three Years Ended December 31, 1998 1998 1997 1996
(continued) ---- ---- ----
General corporate expenses ......... $ (639,889) $(1,163,415) $(1,966,224)
---------- ---------- ----------
$(1,077,733) $(1,217,418) $(2,061,732)
========== ========== ==========
Identifiable assets:
North America ...................... $ 703,003 $ 803,754 $ 787,920
PRC ................................ -- -- 8,956,894
Hong Kong .......................... 474,435 1,531,620 710,307
Corporate assets ................... 38,328 52,688 170,259
--------- --------- ----------
$ 1,215,766 $2,388,062 $ 10,625,380
========= ========== ==========
Real Estate Operations
Vancouver Hong Kong operates an apartment building, Lord Highlands
Apartments, 260 East 12 Street, North Vancouver, British Columbia, Canada V7L
2J6 ("Apartment Building"), located within the Central Lonsdale area of the City
of North Vancouver, British Columbia. Developments in the immediate area consist
primarily of low to medium density residential units, with commercial
development focused along Lonsdale Avenue to the west and the more prominent
cross streets such as 13th Street and 15th Street. Lions Gate Hospital, a
principal medical facility, is located just north of the apartment building at
the intersection of East 13th Street and St. George Avenue.
The Central Lonsdale corridor serves as the primary commercial center for
the city and the surrounding areas of North Vancouver. Residential development
in the surrounding areas consists of a variety of 3-story rental and strata
tiled apartments, plus lower density townhouse developments. The area also has
higher density development in the area. Thus, the apartment building is located
within a stable multiple residential oriented neighborhood, located in close
proximity to local retail, recreational and public amenities.
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<PAGE>
The following information has been extracted from the Canada Housing
Corporation's ("CMHC") Vancouver CMA Rental Market Report.
Vacancy Rates
Region 12/98 12/97 12/96
- ------------------------------ ----- ----- -----
City North of Vancouver 1.9% 0.6% 0.6%
District North of Vancouver 1.2% 0.2% 0.2%
Metro Vancouver 1.5% 1.5% 1.2%
Apartment Rental Rates
City North of Vancouver 12/98 12/97 12/96
- ------------------------------- ----- ----- -----
Bachelor CDN$607 CDN$574 CDN$572
One Bedroom CDN$705 CDN$703 CDN$688
Two Bedroom CDN$859 CDN$971 CDN$967
The Apartment Building is a 60 unit, three-story wood frame building
constructed in the late 1960's. The building has a below grade basement
containing the mechanical rooms, various storage rooms, workshops and
recreational areas. The apartment building has a total of 60 suites consisting
of one bachelor suite, 38 one bedroom suites and 21 two bedrooms suites. Twelve
of the two bedrooms suites, located on the corners of the building offer wood
burning fireplaces. The suites are generally larger than average and on the
whole, have been well maintained. General finishing details include hardwood
floors or wall-to-wall carpeting with vinyl flooring in the kitchens and
bathrooms, adequate cabinet/counter space in the kitchens with two appliances,
partly tiled shower surrounds in the bathroom and covered balconies or patios.
Paved open parking for 60 vehicles is provided at the rear of the apartment
building. Access/egress is available by a paved rear service lane off St.
Andrews Avenue.
Apartment Building Rental Rates
The current monthly rents* are as follows:
Suite Type Monthly Rent
- -------------------------------- -------------------------------
Bachelor CDN$580
One Bedroom CDN$660
Two Bedroom CDN$805
- -------------
* Rent includes heat, hot water, parking and cable television.
10
<PAGE>
The above survey supports the conclusion that the monthly rents within the
subject are reasonably in line with market rents, taking into account the size
and condition of the units plus the inclusions in the monthly rent.
This Subsidiary is being sold as a part of the SAR Agreement.
Employees
The Company currently employs five persons, two of which oversee the
operations of the Apartment Building, and one monitors the operations in PRC.
The Company believes that its relationship with its employees is good. If
proposal number three is approved, the Company will not employ any persons.
However, the Company intends to hire information technology employees shortly
thereafter.
Government Regulation
The Company is not aware of any government regulations in the United States
or Canada which could materially adversely affect its business or operations in
Canada. The Company's participation in the operations of the Apartment Building
are subject to significant governmental regulation in Canada and the Company
believes it is in compliance with such regulations to the extent the same are
applicable to the Company.
Properties
The Company leases its principal executive offices at 650 West Georgia
Street, Vancouver, British Columbia, Canada. The offices are suitable for the
needs of the Company.
In June 1998, the Company transferred a lease for an office at 45 Wall
Street, New York, New York to eVision USA.Com, Inc., formerly known as Fronteer
Financial Holdings, Ltd., a company of which Fai H. Chan is an officer, director
and beneficial majority stockholder.
Vancouver Hong Kong also operates the Apartment Building, composed of 60
individual residential units in a three story frame building situated at the
corner of East 12 Street and St. Andrews Avenue in North Vancouver, British
Columbia, Canada. The Apartment Building is approximately 57,340 square feet and
is situated on approximately 1,109 acres of land. It is owned by the Company,
subject to first and second mortgages. The land underlying the Apartment
Building is leased and such lease terminates on May 31, 2032, subject to earlier
termination in certain circumstances. The annual lease cost for the land is
fixed at $71,115 until the year 2010, after which time it will be renegotiated
for the remaining term.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the OTC Bulletin Board ("OTC").
However, there is no established public trading market for the Company's Common
Stock. The following table sets forth, for the periods indicated, the reported
high and low bid price quotations for the Common Stock for the periods such
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<PAGE>
securities have been reported on the OTC. Such quotations reflect inter-dealer
prices, but do not include retail mark-ups, mark-downs or commissions and may
not necessarily represent actual transactions.
Common Stock
Six Months Ended June 30, 1999: High Bid Low Bid
-------- -------
First Quarter $ 0.045 $ 0.022
Second Quarter 0.024 0.020
Year ended December 31, 1998:
First Quarter $ 0.245 $ 0.10
Second Quarter 0.210 0.12
Third Quarter 0.130 0.09
Fourth Quarter 0.085 0.05
Year ended December 31, 1997:
First Quarter $ 1.875 $ 0.53
Second Quarter 0.813 0.34
Third Quarter 0.600 0.24
Fourth Quarter 0.265 0.11
As of October 3, 1999, there were approximately 1,445 holders of record of
the Common Stock based upon information furnished by OTR/Oxford Transfer &
Registrar Securities Agent, the transfer agent for the Common Stock. The number
of record holders does not include holders whose securities are held in street
names. The closing price of the Common Stock on January 18, 1999, the date of
the agreement between the Company and SAR, was $0.045 per share. The closing
price of the Common Stock as reported on the OTC Bulletin Board on June 17, 1999
was $0.022. As of June 17, 1999, there were 15,560,262 shares of Common Stock
outstanding.
The Company has never paid and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. The Company intends to
retain all earnings for use in the Company's business operations and in the
expansion of its business.
12
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company and
its subsidiaries. The selected consolidated financial data for the Company in
the table for the six months ended June 30, 1999 and 1998 and for the five years
ended December 31, 1998, 1997, 1996, 1995 and 1994, are derived primarily from
the consolidated financial statements included elsewhere herein. The data should
be read in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition," the consolidated financial statements of
the Company and related notes thereto and other financial information included
elsewhere herein. All dollar amounts reflect U.S. Dollars.
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
------------------------ ----------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net operating
revenues ....... $ 169,685 175,630 320,630 571,921 428,858 354,952 333,319
(Loss) income
from
continuing ..... (79,827) (503,947) (1,077,133) (1,217,418) (2,061,732) (1,880,672) 27,315
operations
Total assets ...... 1,568,210 1,939,513 1,215,766 2,388,062 10,625,380 1,723,856 1,129,696
Long-term
obligations:
Mortgage loans.. 727,096 808,253 710,277 837,966 865,594 975,108 971,611
payable
Long-term note.. -- -- -- -- 88,744 91,415 --
payable
Per common share, basic and diluted:
(Loss) income
from
continuing ..... -- (0.03) (0.07) (0.08) (0.18) (0.18) 0.02
operations
Cash dividends
per
common share ... -- -- -- -- -- -- --
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and related Notes thereto, and
other financial information included elsewhere herein. The financial statements
of the Company are prepared in conformity with United States generally accepted
accounting principles.
Introduction
The Company was originally incorporated in 1958 and until June 1994 had
been engaged in businesses other than those it presently operates.
The Company owns an Apartment Building in North Vancouver, British
Columbia, and until June 1995 the Company's operations were comprised of that
single segment. In 1995 and 1996, the Company, through various subsidiaries,
acquired certain interests in PRC, including:
o Min You, which has an option to lease a production line in Cangzhou
Factory for cement manufacturing;
o a 70% interest in Wuhan, a PRC container manufacturer; o an interest in
the Duck Farm pursuant to which the Company operated a
duck farm in PRC; and
o an option to form Heng Li in order to develop a commercial building in
Zhangjiagang Free Trade Zone, PRC.
In the fourth quarter of 1997, the Company determined that it would
discontinue substantially all of its operations in PRC. The Divestiture
included:
o the transfer of 81% of the Company's interest in Min You to two
unrelated parties;
o effecting an agreement to reverse the acquisition of a 70% interest in
Wuhan;
o the termination of the Company's interest in the Duck Farm; and o the
termination of the Heng Li joint venture agreement.
As of December 31, 1998, the Company retained a 19% interest in Min You,
but full provisions have been made against the remaining cost of investment in
Min You, and 100% of the outstanding capital stock of Vancouver Hong Kong.
On January 18, 1999, the Company entered into an agreement with SAR wherein
SAR agreed to buy and the Company agreed to sell all of the operating
subsidiaries to SAR for approximately $4,838,000 in the form of the assumption
of certain liabilities. In consideration of the assumption of liabilities, the
Company agreed to issue two notes payable to SAR in the amounts of $1,000,000
and $3,838,000. The $1,000,000 note is immediately convertible into 20,000,000
shares of Common Stock of the Company. The $3,838,000 note can be converted into
shares of Common Stock of the Company, in minimum increments of $250,000 each,
at the average 15 day trading price of the Company's Common Stock at the option
of the Company by giving seven trading days notice in writing to SAR. The
14
<PAGE>
Company agreed to offset the amounts due from related parties of $1,365,278
against the $3,838,000 note payable, resulting in an amendment to the original
promissory notes. The note payable for $3,838,000 was effectively reduced to
$2,472,722. This transaction essentially liquidates the operations of the
Company and transfers control of the Company to SAR.
Results of Continuing Operations
SIX MONTHS ENDED JUNE 30, 1999, AS COMPARED TO THE SIX MONTHS ENDED JUNE
30, 1998
There were no significant changes in the revenues and expenses attributable
to the operation of Vancouver Hong Kong's real estate between the six-months
ended June 30, 1999 and six-months ended June 30, 1998.
Investment income decreased from $2,879 in through June 30, 1998 to $679
through June 30, 1999. The Company has not engaged in investment activity during
the six month ended June 30, 1999. This is because of the uncertainty related to
the international securities markets. Investment income in 1999 consists of
interest income.
Consulting expense decreased from an aggregate of $62,500 for the six
months ended June 30, 1998 to nil for the six months ended June 30, 1999. This
is due to the Company's reduced use of consulting services. Interest expense
decreased from $214,505 for the six-months ended June 30, 1998 to $189,662 for
the same period in 1999. This is due to the decrease in margin loans payable.
The outstanding balance of margin loans payable amounted to $3,099,607 and
$3,136,264 at June 30, 1999, and June 30, 1998, respectively. Other operating
expenses decreased from $76,642 in 1998 to $59,040 in 1998. The decrease is due
to reduced professional fees and financial, travel and miscellaneous expenses.
YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO THE YEAR ENDED DECEMBER
31, 1997
There were no significant changes in the revenues and expenses attributable
to the operation of Vancouver Hong Kong's real estate between the year ended
December 31, 1998 and the year ended December 31, 1997.
Investment income decreased from income of $138,794 through December 31,
1997 to a loss of $25,154 through December 31, 1998. The Company has not engaged
in investment activity during the year ended December 31, 1998. This is because
of the uncertainty related to the international securities markets. The net
investment loss in 1998 consists of the loss due to the expiration of the
warrants, amounting to $145,800 and interest income.
Consulting expense decreased from an aggregate of $772,250 for the year
ended December 31, 1997 to $562,500 for the year ended December 31, 1998, due to
amortization period of certain consulting agreements expiring early in 1998.
Interest expense increased from $309,201 for the year ended December 31, 1997 to
$492,804 for the same period in 1998.
15
<PAGE>
The Company's net loss from continuing operations was $1,077,133 for the
year ended December 31, 1998, as compared to a net loss of $1,217,418 for the
year ended December 31, 1997. The reasons for the trend are the reductions in
the other operating administrative expenses and consulting fees during the year
ended December 31, 1998.
YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO THE YEAR ENDED DECEMBER
31, 1996
The Company's net loss from continuing operations for the year ended
December 31, 1997 was $1,217,418, a change of $844,314 compared to a net loss of
$2,061,732 for the year ended December 31, 1996. The decrease in the net loss
was primarily due to (i) an increase in investment income; (ii) a decrease in
consulting fees paid.
Consolidated revenues increased to $571,921 for the year ended December 31,
1997, from $428,858 for the year ended December 31, 1996. This is due to the
gains that have been recorded in connection with its investment securities.
In the operation of Vancouver Hong Kong's real estate, the Company
experienced an increase in rental income of $9,884 from 1996 to 1997. Also
property expenses decreased by $20,637 in 1997 as compared to 1996. This is
because of cost controls applied to repairs, utilities and management fee
expenses.
Operating expenses decreased from $2,490,590 in 1996 to $1,789,339 in 1997.
The decrease is primarily due to the reduced use of consultants for investor
relations and financial advice. Such expenses have declined from $1,368,567 in
1996 to an aggregate of $272,250 in 1997.
In addition to the above consulting fees, there has been an increase in
interest expense, from $121,436 in 1996 to $309,201 in 1997. This is primarily
due to the increase in margin borrowings in 1997, from $489,193 at December 31,
1996, to $3,058,295 at December 31, 1997.
The Company holds certain equity securities that are available for sale.
The Company records unrealized gains and losses, as a component of equity. The
net unrealized losses so recorded during 1997 amounted to $2,228,442. The
cumulative net losses charged to equity as of December 31, 1997 are $2,307,267.
The Company holds certain equity securities that are available for sale.
The Company records unrealized gains and losses, net of applicable taxes, as a
component of equity. The cumulative net unrealized losses so recorded as of
December 31, 1996 amounted to $78,825.
16
<PAGE>
Inflation
The effect on inflation on the Company's operations is not material and is
not anticipated to have any material effect in the future.
Discontinued Operations
YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO THE YEAR ENDED DECEMBER
31, 1996
In 1997, the cement operation of Min You recorded sales of $306,398
compared to $540,191 in the year ended December 31, 1996. At the same time, the
net loss amounted to $157,117 in 1997 compared to a loss of $62,487 in 1996.
In 1997, the container operation of Wuhan recorded sales of $2,934,871 as
compared to $1,082,317 in 1996. At the same time, the net loss amounted to
$248,210 in 1997 compared to a loss of $241,208 in 1996.
During 1997, the Company acquired and later disposed of a 25% interest in
the Duck Farm. The aggregate of the Company's share of the loss in the Duck Farm
and the loss on disposition was approximately $300,000.
Liquidity and Capital Resources
The net cash used by operating activities for the year ended December 31,
1998 amounted to $26,606. The Company meets its working capital requirements
from the proceeds of margin loans, described below and the collection of amounts
from related parties.
During the year ended December 31, 1998, the Company did not make
additional cash investments in securities or facilities.
The net cash provided by financing activities amounted to $56,682 for the
year ended December 31, 1998. This is due primarily to the increase in the
margin loan payable.
The net cash used in operating activities for year ended December 31, 1997
amounted to $4,034,680. This was primarily due to the operating losses
experienced, increases in receivable from the container segment and the payment
of amounts that were payable to related parties. The Company met its capital
requirements from the proceeds of bank borrowings and the issuance of common
shares.
The net cash provided by financing activities amounted to $7,179,780 for
the year ended December 31, 1997. This is due to the increases in short term
borrowings, margin loans, and the issuance of common shares.
The Company's operating losses and deficiency in net tangible assets raise
substantial doubts concerning the Company's ability to continue as a going
concern. However, the Company's principal shareholder has agreed to continue to
provide the Company with necessary financial support.
17
<PAGE>
New Accounting Standards Not Yet Adopted
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments. It requires an
entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for years beginning after June 15, 1999, although
early adoption is permitted.
During April 1998, the AICPA Accounting Standards Executive Committee
issued Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities". Generally, the Statement requires that the costs of start-up
activities shall be expensed as incurred, and that upon initial adoption an
adjustment to reflect the cumulative effect of a change in accounting principle
shall be recorded. This statement will be effective for periods beginning after
December 15, 1998, with earlier application permitted.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which amends the disclosure
requirements for pensions and other postretirement benefits. Adoption of the
standard will not significantly change the Company's financial statement
disclosure.
The Company believes that the effects of adopting these standards will not
be material to the Company's financial position or results of operations.
Regional Economic Developments
Several countries in Asia have recently experienced significant adverse
economic developments including substantial exchange rate fluctuations,
inflation, social unrest, increased interest rates, reduced economic growth
rates, corporate bankruptcies, declines in the market value of shares listed on
stock exchanges, emergency loan agreements with the International Monetary Fund
and government-imposed austerity measures. To date, neither the PRC nor Hong
Kong has experienced these developments will not occur in the PRC or Hong Kong
in the future, which could have a material effect on a Company's financial
condition or results of operations.
The Year 2000
The Year 2000 issue refers to the fact that many computer systems were
originally programmed using two digits rather than four digits to identify the
applicable year. When the year 2000 occurs, these systems could interpret the
year as 1900 rather than 2000. Unless hardware, system software and applications
are corrected to be Year 2000 compliant, computers and the devices they control
could generate miscalculations and create operational problems. Various systems
could be affected ranging from complex information technology ("IT") computer
systems to non-IT devices such as an individual machine's programmable logic
controller.
18
<PAGE>
To address this issue, the Company developed a corporate plan including the
formation of a team consisting of internal resources and, as deemed necessary,
third-party experts. The phases of the plan include: conducting inventory of the
affected technology and assessing the impact of the Year 2000 issue; developing
solution plans; modification or replacement; testing and certification; and
developing contingency plans. All components of software and hardware of the
Company are presently in various phases. The Company expects to have critical IT
systems tested and installed, and expects to be Year 2000 compliant by the end
of the third quarter 1999.
The Company relies on third-party suppliers for many services and the
Company may be adversely impacted if these suppliers do not make the necessary
changes to their own systems and products successfully and in a timely manner.
The total cost of the program is estimated to be insignificant.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issues. Nevertheless, since it is not possible to
anticipate all possible future outcomes, especially when third parties are
involved, there could be circumstances in which the Company would be unable to
rent apartments, take customer orders, or collect payments. In addition,
disruptions in the economy generally resulting from Year 2000 issues could
materially adversely affect the Company. The Company could be subject to
litigation for computer systems product failure, for example, equipment shutdown
or failure to properly date transaction records. The amount of potential
liability and lost revenue cannot be reasonably estimated at this time.
The Company has an informal contingency plan for its applications. The
Company is working continually with the third party suppliers of software and
related services in resolving Year 2000 issues. The Company's formal contingency
plans are currently being developed in conjunction with these suppliers. Testing
will be performed and completed by the end of the third quarter of 1999. The
Company will continue to monitor the progress of the suppliers in the resolution
of Year 2000 issues and continue to evaluate the necessity of an independent
contingency plan.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk of loss that may result from the
potential change in the value of a financial instrument as a result of
fluctuations in interest and currency exchange rates, equity and commodity
prices, changes in the implied volatility of interest rate, foreign exchange
rate, equity and commodity prices and also changes in the credit ratings of
either the issuer of the financial instrument or its related country of origin.
Market risk is inherent to many non-derivative financial instruments, and
accordingly, the scope of the Company's market risk management procedures
includes all market risk sensitive financial instruments.
The Company faces two types of market risk: foreign exchange rate risk and
equity price risk.
19
<PAGE>
Foreign Exchange Rate Risk. Foreign exchange rate risk arises from the
possibility that changes in foreign exchange rates will impact the value of
financial instruments. When the Company buys or sells a financial instrument
denominated in a currency other than U.S. dollars, exposure exists from a net
open currency position. The Company is then exposed to a risk that the exchange
rate may move against it. At December 31, 1998 and June 30, 1999, the currency
creating foreign currency risk for the Company was the Hong Kong dollar.
Equity Price Risk. The Company is exposed to equity price risk as a consequence
of making investments in equity securities. Equity price risk results from
changes in the level or volatility of equity prices, which affect the value of
equity securities or instruments that derive their value from a particular
stock, a basket of stocks or a stock index. The Company attempts to reduce the
risk of loss inherent in its inventory of equity securities by entering into
transactions designed to mitigate the Company's market risk profile.
The Company utilizes a wide variety of market risk management methods,
including: limits for each trading activity; marking all positions to market on
a timely basis; timely profit and loss statements; and independent verification
of pricing. The Company believes that these procedures, which stress timely
communication, are the most important elements of the risk management process.
Efforts to further strengthen the Company's management of market risk are
continuous, and the enhancement of risk management systems is a priority of the
Company. This includes the development of quantitative methods, profit and loss
and variance reports, and the review and approval of pricing models.
The table below provides a comparison of the carrying amount to the fair
value of the securities owned by the Company that are classified as
available-for-sale securities.
June 30, 1999 Carrying Amount Fair Value
- ------------- --------------- ----------
Foreign Exchange Rate Risk:
Equity securities denominated in $ 782,030 $ 782,030
Hong Kong dollars
Equity Price Risk:
Equity securities* 782,030 782,030
December 31, 1998
Foreign Exchange Rate Risk:
Equity securities denominated in $ 439,290 $ 439,290
Hong Kong dollars
Equity Price Risk:
Equity securities* 439,290 439,290
*Includes equity securities denominated in Hong Kong dollars.
20
<PAGE>
In accordance with generally accepted accounting principles, securities
classified as available-for-sale securities are marked-to-market and the
resulting unrealized gain or loss is reflected in the statement of comprehensive
income. For the year ended December 31, 1998, the Company recognized unrealized
losses of $1,048,813 on the equity securities denominated in Hong Kong dollars.
For the six months ended June 30, 1999, the Company recognized $342,740 of
unrelated gains.
PRINCIPAL STOCKHOLDERS AND
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of June 30, 1999, the number of shares of
outstanding Common Stock beneficially owned by each of the Company's current
directors and executive officers, sets forth the number of shares of Common
Stock beneficially owned by all of the Company's current executive officers and
directors as a group, and sets forth the number of shares of Common Stock owned
by each person who owned of record, or was known to own beneficially, more than
5% of the outstanding shares of Common Stock:
Amount and Nature of
Name Beneficial Ownership(1) Percent of Class
- ---- ---------------------- ----------------
Fai H. Chan 6,392,886(2)(3)(4) 40.0%
Robert H. Trapp 100,000 1.0%
All executive officers and 6,492,886(2)(3)(4) 41.0%
directors as a group (2 persons)
Keow Y. Chan 2,772,886(3)(4) 17.0%
- -----------------
(1) Except as indicated below, each person has sole and voting and/or
investment power over the shares listed.
(2) Includes 5,800,000 shares owned of record by Mr. Chan. Also includes (i)
37,500 shares of Common Stock held by Inter-Asia Equities, Inc.
("Inter-Asia"); (ii) 37,500 shares of Common Stock underlying warrants held
by Inter-Asia; (iii) 258,943 shares of Common Stock held by Excess Pension
Fund, Inc. ("Fund"); and (iv) 258,943 shares of Common Stock underlying
warrants held by the Fund. Mr. Chan is an officer, director and stockholder
of Inter-Asia, and a beneficial owner of the Fund. Excludes the 2,180,000
shares owned of record by Mr. Chan's wife. See Footnote (4) below.
(3) Mr. Chan would be deemed to beneficially own all of the shares owned by his
spouse, Keow Y. Chan.
(4) Includes (i) 258,943 shares of Common Stock held by the Fund; (iii) 258,943
shares of Common Stock underlying warrants held by the Fund; (iv) 37,500
shares of Common Stock held by Inter-Asia; and (v) 37,500 shares of Common
Stock underlying warrants held by Inter-Asia. Ms. Chan is the president and
director of Inter-Asia, and a beneficial owner of the Fund. Excludes (i)
5,800,000 shares owned of record by Ms. Chan's husband, Fai H. Chan. See
Footnote (2) above.
21
<PAGE>
ACTIONS TO BE TAKEN AT MEETING
The Meeting has been called by the directors of the Company (the
"Directors") to consider and act upon the following matters:
1. elect two directors to serve until the next Annual Meeting of
Stockholders or until their successors are elected and qualify;
2. reincorporate the Company by changing the state of incorporation
from Delaware to Colorado by the adoption of a Plan and Agreement of Merger
pursuant to which the Company will be merged with and into Asia SuperNet
Corporation, Inc., a Colorado corporation, which is a wholly owned
subsidiary of the Company formed specifically for the purpose of the
reincorporation and which shall be the surviving corporation;
3. approve an agreement between the Company and SAR Trading Limited
("SAR"), a company wholly owned by Fai H. Chan, an officer, director and
shareholder of the Company, whereby the Company agreed to sell and SAR
agreed to purchase all of the operating subsidiaries of the Company for
approximately $4,838,000 in consideration for which the Company agreed to
issue to SAR $3,472,272 of convertible debt; and
4. transact such other business as may lawfully come before the
Meeting or any adjournment(s) thereof.
The holders of a majority of the outstanding shares of Common Stock of the
Company present at the Meeting in person or represented by proxy shall
constitute a quorum. If a quorum is present, Directors are elected by a
plurality of the vote, i.e., the candidates receiving the highest number of
votes cast in favor of their election will be elected to the Board of Directors.
As to all other actions voted on at the Meeting, if a quorum is present, the
affirmative vote of a majority of the shares represented in person or by proxy
at the Meeting and entitled to vote on the subject matter shall be the act of
the stockholders. Where brokers have not received any instruction from their
clients on how to vote on a particular proposal, brokers are permitted to vote
on routine proposals but not on nonroutine matters. The absence of votes on
nonroutine matters are "broker nonvotes." Abstentions and broker nonvotes will
be counted as present for purposes of establishing a quorum, but will have no
effect on the election of Directors. Abstentions and broker nonvotes on
proposals other than the election of Directors will be counted as present for
purposes of the proposals and against such proposals.
22
<PAGE>
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
The number of Directors on the Company's Board of Directors has been
established by resolution of the Board of Directors as two Directors. The terms
of all of the current Directors expire at the Meeting.
The persons named in the enclosed form of Proxy will vote the shares
represented by such Proxy for the election of the two nominees for Director
named below. If, at the time of the Meeting, any of these nominees shall become
unavailable for any reason, which event is not expected to occur, the persons
entitled to vote the Proxy will vote for such substitute nominee or nominees, if
any, as they determine in their sole discretion. If elected, Fai H. Chan and
Robert H. Trapp will hold office until the annual meeting of stockholders to be
held in 2000, until their successors are duly elected or appointed or until
their earlier death, resignation or removal. The nominees for Director, each of
whom has consented to serve if elected, are as follows:
23
<PAGE>
<TABLE>
<CAPTION>
Director
Name of Nominee Since Age Principal Occupation for Last Five Years
- --------------- -------- --- ----------------------------------------
<S> <C> <C> <C>
Fai H. Chan 1994 54 Fai H. Chan has been the president and a
director of the Company since June 1994
and has served as the Company's Chief
Executive Officer since June 1995. In
1998, Mr. Chan was appointed president
and chairman of the board of directors
of eVision USA.Com, Inc., formerly known
as Fronteer Financial Holdings, Ltd., a
holding company which among other
things, owns a securities broker/dealer
located in Colorado. From June 1993 to
the present, he has been a director of
Inter-Asia Equities, Inc., a Canadian
company. Since September 1992 to the
present, he has been a director of Heng
Fung Holdings Co., Ltd. ("Heng Fung"), a
public company in Hong Kong, which is
listed on the Hong Kong Stock Exchange.
In 1995, Mr. Chan was appointed managing
director and chairman of Heng Fung,
positions which he still holds. In May
1998, he was appointed a director of
Global Med Technologies, Inc. Since
March 1988, he has been chairman of the
board of directors of American Pacific
Bank, a bank in Oregon, and between
April 1991 and April 1993, he was the
chief executive officer of the bank.
24
<PAGE>
<CAPTION>
Director
Name of Nominee Since Age Principal Occupation for Last Five Years
- --------------- -------- --- ----------------------------------------
<S> <C> <C> <C>
Robert H. Trapp 1994 44 Robert H. Trapp has been the secretary
and treasurer and a director of the
Company since June 1994. In May 1998, he
was appointed a director of Global Med
Technologies, Inc. In 1997 and 1998, Mr.
Trapp was appointed managing director
and director of eVision USA.Com, Inc.,
formerly known as Fronteer Financial
Holdings, Ltd. Since May 1995, Mr. Trapp
has been a director of Heng Fung
Holdings Co., Ltd., a public company in
Hong Kong, which is listed on the Hong
Kong Stock Exchange. Since April 1994,
Mr. Trapp has been the secretary of the
Company. Since February 1995, Mr. Trapp
has been a director of Inter-Asia
Equities, Inc. a Canadian company. Since
July 1991, he has also been the Canadian
operational manager of Pacific Concord
Holding (Canada) Ltd., responsible for
management, marketing, and financial
reporting operations of such company to
Pacific Concord Holding Ltd. of Hong
Kong. Between March and June 1991, Mr.
Trapp was a securities trainee at
Pacific International Securities in
Vancouver, B.C., Canada. Between
September 1985 and June 1989, Mr. Trapp
served as an executive officer and a
director of Inter-Asia Equities, Inc.
</TABLE>
The Company's Board of Directors held two meetings during the Company's
fiscal year ended December 31, 1998. Such meetings consisted of consent
Directors minutes signed by all Directors and actual meetings at which all of
the Directors were present in person or by telephone. Each director attended
both meetings. The Company has no standing audit, nominating or compensation
committees or other similar committees of the Board of Directors.
25
<PAGE>
Directors of the Company received no compensation for their services as
directors.
The Board of Directors recommends a vote in favor of the election of the
nominees listed above. In the absence of instructions to the contrary, proxies
solicited in connection with this proxy statement will be so voted.
EXECUTIVE OFFICERS
The executive officers of the Company are Fai H. Chan and Robert H. Trapp,
information pertaining to whom is set forth under "Election of Directors" above.
The executive officers of the Company are elected annually at the first meeting
of the Company's Board of Directors held after each annual meeting of
stockholders. Each executive officer will hold office until his or her successor
duly is elected and qualified, until his or her death or resignation or until he
or she shall be removed in the manner provided by the Company's Bylaws.
There is no arrangement or understanding between any executive officer and
any other person pursuant to which any person was selected as an executive
officer.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and Directors and persons who own more than 10% of the
Company's outstanding Common Stock to file reports of ownership with the
Securities and Exchange Commission ("SEC"). Directors, officers and greater than
10% stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company during and for the Company's fiscal year ended December
31, 1998, there were no Directors, officers or more than 10% stockholders of the
Company that failed to timely file a Form 3, 4 or 5, other than Fai H. Chan, who
failed to timely file a Form 5.
EXECUTIVE COMPENSATION
The following table provides certain information pertaining to the
compensation paid by the Company and its subsidiaries during the Company's last
three fiscal years for services rendered by Fai H. Chan, the Chief Executive
Officer and the President of the Company, and Robert H. Trapp, the Secretary and
Treasurer of the Company.
26
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
Fiscal ---------------------------------- ----------
Ended Other Securities All Other
Septem- Compen- Underlying Compensa-
Name and Principal Position ber 30, sation($) Salary($) Bonus($) Options(#) tion($)
- --------------------------- ------- -------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fai H. Chan 1998 $500,000(1) -- -- -- --
Chief Executive Officer 1997 500,000(1) -- -- -- --
and President 1996 500,000(1) -- -- -- --
</TABLE>
- ------------------
(1) Pursuant to a management contract with Tight Hold Investments, Ltd., a
company wholly owned by Fai H. Chan. This contract was cancelled June 18,
1999.
There were no options granted to or exercised by Fai H. Chan or Robert H.
Trapp in fiscal 1998.
TRANSACTIONS WITH MANAGEMENT AND OTHERS AND
CERTAIN BUSINESS RELATIONS
The Company maintains deposits at standard rates in accounts at American
Pacific Bank. Fai H. Chan (an officer, director and stockholder of the Company)
is an officer and/or director of such bank.
The Company owns 48,535,276 shares of Common Stock of Heng Fung Holdings
Company Limited. Messrs. Chan, and Trapp (officers, directors and/or
stockholders of the Company) are officers, directors and /or stockholders of
such company.
27
<PAGE>
At December 31, 1998 and 1997, a second mortgage on the apartment building
in Canada of $77,579 and related interest payable of $25,368 and $38,623,
respectively, were payable by the Company to the Silverstein Foundation, Inc., a
Panama company, in which Mr. Fai H. Chan's children have beneficial ownership
interests. The related interest expense was $8,269 in 1998, $7,774 in 1997 and
$8,947 in 1996.
On January 18, 1999, the Company entered into an agreement with SAR wherein
SAR agreed to buy and the Company agreed to sell the majority of its
subsidiaries to SAR for approximately $4,838,000 in the form of the assumption
of certain liabilities. In consideration of the assumption of liabilities, the
Company agreed to issue two notes payable to SAR in the amounts of $1,000,000
and $3,838,000. The $1,000,000 note is immediately convertible into 20,000,000
shares of Common Stock of the Company. The $3,838,000 note can be converted into
shares of Common Stock of the Company, in minimum increments of $250,000 each,
at the average 15 day trading price at the option of the Company by giving seven
trading days notice in writing to SAR. The Company agreed to offset the amounts
due from related parties of $1,365,278 against $3,838,000 note payable,
resulting in an amendment to the original promissory notes. The note payable for
$3,838,000 was effectively reduced to $2,373,722. SAR is owned 100% by Fai H.
Chan. Proposal number three requests that the stockholders ratify this
agreement.
Heng Fai Management, Inc., a wholly owned subsidiary of the Company,
entered into a consultation and management agreement with Tight Hold Investment
Limited, a company wholly owned by Fai H. Chan, president and chief executive
officer of the Company. The term of this agreement was for ten years commencing
November 1, 1996 and ending October 31, 2006. The remuneration the Company was
to pay for services rendered pursuant to this agreement as follows: (i) the sum
of $500,000 per year for the duration of the agreement, a rate of $41,667 per
month; and (ii) upon the Company meeting NASDAQ National Market System
("NASDAQ") requirements of having $4,000,000 in net tangible assets, and
obtaining the other requirements which would have enabled the Company's Common
Stock to be margined on NASDAQ and having realized at least a minimum $0.10 per
share earnings and $0.05 dividend to common stockholders, the fee would have
increased to $1,000,000 per year for the duration of the agreement, a rate of
$83,333 per month. This agreement was terminated during June 1999.
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PROPOSAL NUMBER TWO
REINCORPORATION PROPOSAL
The Directors believe that the best interests of the Company and the
stockholders will be served by changing the Company's state of incorporation
from Delaware to Colorado, changing the Company's name to Asia SuperNet
Corporation and effectuating a 30 to 1 reverse split of its Common Stock
("Reincorporation"). As discussed below, the principal reason for
Reincorporation is the lower costs of operating under Colorado corporate law.
Although Colorado law provides the opportunity for the Board of Directors to
adopt various mechanisms which may enhance the Board's ability to negotiate
favorable terms for the stockholders in the event of an unsolicited takeover
attempt, the proposed Articles of Incorporation (the "Colorado Articles of
Incorporation") and Bylaws for Asia SuperNet Corporation are substantially
similar to the Company's current Certificate of Incorporation and Bylaws, with
the exception that the Colorado Articles of Incorporation increase the
authorized shares of common and preferred stock, reduces the par value of the
preferred stock and certain other alterations due to differences in Delaware and
Colorado law.
The Reincorporation will be effected by merging the Company with and into
Asia SuperNet Corporation. Upon completion of the Reincorporation, the Company
will cease to exist in accordance with the Delaware General Corporation Act
("DGCA") and Asia SuperNet Corporation will operate the business of the Company
under the name Asia SuperNet Corporation. Pursuant to the Plan and Agreement of
Merger between the Company and Asia SuperNet Corporation (the "Merger
Agreement"), thirty outstanding shares of Common Stock will automatically be
converted into one share of Asia SuperNet Corporation Common Stock, par value
$0.01 per share. It is expected that the Reincorporation will be effective as of
5:01 p.m., Mountain Time, on the Effective Date.
Asia SuperNet Corporation will assume and continue the outstanding stock
options, if any, and all other employee benefit plans of the Company. Each
outstanding and unexercised option or other right to purchase shares of Common
Stock will become an option or right to purchase the same number of shares of
Asia SuperNet Corporation Common Stock on the same terms and conditions and at
the same exercise price applicable to any such option or stock purchase right as
of the Effective Date. It is expected that the Common Stock of Asia SuperNet
Corporation will be listed on the OTC Bulletin Board and that it will trade
under the symbol "PWSF". There are no assurances that the Company's Common Stock
would trade after a reverse split at a price directly proportional to the price
that the Common Stock traded at prior to the reverse split. In most cases, the
public trading price of a security after a reverse split will be less than a
price that is proportional to the price before the reverse split.
Shareholders will have dissenters' rights of appraisal with respect to the
Reincorporation Proposal. See "Significant Differences Between the Corporation
Laws of Colorado and Delaware--Appraisal Rights." The discussion set forth below
is qualified in its entirety by reference to the Merger Agreement, the Colorado
Articles of Incorporation and the Bylaws of Asia SuperNet Corporation, copies of
which are attached hereto as Annex I, II, and III, respectively.
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Principal Reasons for the Reincorporation. As the Company plans for the
future, the Board of Directors and management believe that the lower costs of
operating under Colorado corporate law will aid the Company during this
transition period and in the future. The simplicity of Colorado's corporate law
and the lower costs will enable the Company to concentrate its personnel and
financial resources towards its new business strategy as opposed to dealing with
the large regulatory system of Delaware and the high fees charged against
Delaware corporations.
No Change in the Name, Board Members, Business, Management, Employee
Benefit Plans or Location of Principal Facilities of the Company. The
Reincorporation Proposal will effect a change in the legal domicile of the
Company, but not its physical location. The Reincorporation will not result in
any change in the name, business, management, fiscal year, assets or liabilities
(except to the extent of legal and other costs of effecting the Reincorporation)
or location of the principal facilities of the Company. The Directors of the
Company will become the Directors of Asia SuperNet Corporation. All stock
options, warrants or other rights to acquire Common Stock will automatically be
converted into an option or right to purchase the same number of shares of Asia
SuperNet Corporation Common Stock at the same price per share, upon the same
terms, and subject to the same conditions. The Company's other employee benefit
arrangements will also be continued by Asia SuperNet Corporation upon the terms
and subject to the conditions currently in effect.
Anti-takeover Implications. Colorado, like many other states, permits a
corporation to adopt a number of measures through amendment of its articles of
incorporation or bylaws or otherwise, which measures are designed to reduce the
corporation's vulnerability to unsolicited takeover attempts.
Significant Differences Between the Asia SuperNet Corporation Articles of
Incorporation and the Delaware Certificate of Incorporation. The Board of
Directors believes that the following summary of the significant differences
between the Asia SuperNet Corporation Articles of Incorporation and the Delaware
Certificate of Incorporation is a fair one. It should be understood that it is
merely a summary, does not purport to be complete and is qualified in its
entirety by reference to the Articles of Incorporation and the Delaware
Certificate of Incorporation.
Change in Par Value. The Delaware Certificate of Incorporation currently
authorizes the Company to issue up to 30,000,000 shares of Common Stock, par
value $0.10 per share, and 25,000,000 shares of Preferred Stock, par value $5.00
per share. The Asia SuperNet Corporation Articles of Incorporation provide that
Asia SuperNet Corporation will have 900,000,000 authorized shares of Common
Stock, par value $0.001 per share, and 300,000,000 shares of preferred stock,
$0.001 par value per share.
Preferred Stock. Like the Delaware Certificate of Incorporation, the Asia
SuperNet Corporation Articles of Incorporation provide that the Board of
Directors is entitled to determine the powers, preferences and rights, and the
qualifications, limitations or restrictions, of the authorized and unissued
preferred stock. Thus, although it has no present intention of doing so, the
Board of Directors, without shareholder approval, could authorize the issuance
of preferred stock upon terms which could have the effect of delaying or
preventing a change in control of the Company or modifying the rights of holders
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of the Common Stock under either Colorado or Delaware law. The Board of
Directors could also utilize such shares for further financings, possible
acquisitions and other uses. The Company has not issued any shares of preferred
stock but intends to in relation to two transactions. See "The Company".
Quorum. The Delaware Certificate of Incorporation and Bylaws provide that a
majority of the shares entitled to vote at any meeting shall constitute a
quorum. The Asia SuperNet Corporation Articles of Incorporation provide that
one-third of the shares entitled to vote will constitute a quorum.
Monetary Liability of Directors. The Delaware Certificate of Incorporation
and the Asia SuperNet Corporation Articles of Incorporation both provide for the
elimination of personal monetary liability of directors under certain
circumstances. For a more detailed explanation of the foregoing, see
"Significant Differences Between the CBCA and DGCL--Indemnification and
Limitation of Liability."
Loans to Officers and Employees. Under the CBCA, any loan or guaranty to or
for the benefit of a director of the corporation as a "conflicting interest
transaction" requires either: (i) approval of the majority of disinterested
directors after disclosure of material facts, (ii) approval of the shareholders
after disclosure of material facts, or (iii) that it be fair as to the
corporation. In accordance with the DGCL, the Company may make loans to,
guarantee the obligations of or otherwise assist its officers or other employees
and those of its subsidiaries (including directors who are also officers or
employees) when such action, in the judgment of the directors, may reasonably be
expected to benefit the corporation.
Voting by Ballot. The Bylaws of Asia SuperNet Corporation provide,
consistent with the CBCA, that the election of Directors at a shareholders'
meeting shall be by ballot. Under the Bylaws of the Company, the right to vote
by written ballot may be restricted if so provided in the certificate of
incorporation. The Delaware Certificate of Incorporation provides that elections
of directors need not be by ballot. As a result, the Delaware Certificate of
Incorporation does not require election of directors by ballot, unless demanded
by a shareholder of the Company, unlike the Bylaws of the Asia SuperNet
Corporation.
Compliance with the DGCL and the CBCA. Following the Meeting, if the
Reincorporation Proposal is approved by the Shareholders, the Company will
submit the Articles of Merger to the office of the Secretary of State of the
State of Colorado and the Certificate of Merger to the office of the Secretary
of State of the State of Delaware for filing.
Significant Differences Between the CBCA and the DGCL. The CBCA and the
DGCL differ in many respects. Although all the differences are not set forth in
this Proxy Statement, certain provisions, which may materially affect the rights
of the Shareholders, are as follows:
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Stockholder Approval of Certain Business Combinations. In recent years, a
number of states have adopted special laws designed to make certain kinds of
"unfriendly" corporate takeovers, or other transactions involving a corporation
and one or more of its significant Shareholders, more difficult. Under Section
203 of the DGCL certain "business combinations" with "interested stockholders"
of Delaware corporations are subject to a three-year moratorium unless specified
conditions are met. Section 203 prohibits a Delaware corporation from engaging
in a "business combination" with an "interested stockholder" for three years
following the date that such person or entity becomes an interested stockholder.
With certain exceptions, an interested stockholder is a person or entity who or
which owns, individually or with or through certain other persons or entities,
15% or more of the corporation's outstanding voting stock (including any rights
to acquire stock pursuant to an option, warrant, agreement, arrangement or
understanding, or upon the exercise of conversion or exchange rights, and stock
with respect to which the person has voting rights only), or is an affiliate or
associate of the corporation and was the owner, individually or with or through
certain other persons or entities, of 15% or more of such voting stock at any
time within the previous three years, or is an affiliate or associate of any of
the foregoing. For purposes of Section 203, the term "business combination" is
defined broadly to include mergers with or caused by the interested stockholder;
sales or other dispositions to the interested stockholder (except
proportionately with the corporation's other stockholders) of assets of the
corporation or a direct or indirect majority-owned subsidiary equal in aggregate
market value to 10% or more of the aggregate market value of either the
corporation's consolidated assets or all of its outstanding stock; the issuance
or transfer by the corporation or a direct or indirect majority-owned subsidiary
of stock of the corporation or such subsidiary to the interested stockholder
(except for certain transfers in a conversion or exchange or a pro rata
distribution or certain other transactions, none of which increase the
interested stockholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock or of the corporation's voting stock);
or receipt by the interested stockholder (except proportionately as a
stockholder), directly or indirectly, of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation or a
subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if (i) prior to the date on which such stockholder becomes an
interested stockholder, the board of directors approves either the business
combination or the transaction that resulted in the person or entity becoming an
interested stockholder, (ii) upon consummation of the transaction that made him
or her an interested stockholder, the interested stockholder owns at least 85%
of the corporation's voting stock outstanding at the time the transaction
commenced (excluding from the 85% calculation shares owned by directors who are
also officers of the target corporation and shares held by employee stock plans
that do not give employee participants the right to decide confidentially
whether to accept a tender or exchange offer), or (iii) on or after the date
such person or entity becomes an interested stockholder, the board approves the
business combination and it is also approved at a stockholder meeting by 66-2/3%
of the outstanding voting stock not owned by the interested stockholder.
Section 203 only applies to corporations that have a class of voting stock
that is (i) listed on a national securities exchange, (ii) authorized for
quotation on Nasdaq or (iii) held of record by more than 2,000 stockholders.
Although a Delaware corporation to which Section 203 applies may elect not to be
governed by Section 203, the Company did not so elect. Section 203 may encourage
any potential acquirer to negotiate with the Board of Directors. Section 203
also might have the effect of limiting the ability of a potential acquirer to
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make a two-tiered bid for the Company in which all stockholders would not be
treated equally. Shareholders should note, however, that the application of
Section 203 to the Company confers upon the Board of Directors the power to
reject a proposed business combination in certain circumstances, even though a
potential acquirer may be offering a substantial premium for the Company's
securities over the then-current market price. Section 203 may also discourage
certain potential acquirers unwilling to comply with its provisions. See
"Stockholder Voting" herein.
The CBCA does not have legislation similar to Section 203.
Removal of Directors. Under the CBCA, unless the articles of incorporation
of a corporation provide otherwise, any director or the entire board of
directors may be removed, with or without cause, with the approval of a majority
of the outstanding shares entitled to vote; however, if cumulative voting is in
effect, no individual director may be removed if the number of votes cast
against such removal would be sufficient to elect the director under cumulative
voting, and any director elected by a voting group can only be removed by that
voting group. Cumulative voting is prohibited by the Asia SuperNet Corporation
Articles of Incorporation. Under the DGCL, a director of a corporation that does
not have a classified board of directors or cumulative voting may be removed
with or without cause with the approval of a majority of the outstanding shares
entitled to vote at an election of directors. In the case of a Delaware
corporation having cumulative voting, if less than the entire board is to be
removed, a director may not be removed without cause if the number of shares
voted against such removal would be sufficient to elect the director under
cumulative voting. A director of a corporation with a classified board of
directors may be removed only for cause, unless the corporation's certificate of
incorporation otherwise provides. The Delaware Certificate of Incorporation does
not provide for a classified Board of Directors or for cumulative voting.
Staggered Board of Directors. A staggered or classified board is one on
which a certain number, but not all, of the directors are elected on a rotating
basis each year. This method of electing directors makes changes in the
composition of the board of directors more difficult, and thus a potential
change in control of a corporation a lengthier and more difficult process. The
CBCA permits a corporation to provide for a staggered board of directors by
allowing for either all, or one-half or one-third of the board to be elected
annually. Asia SuperNet Corporation has not adopted a classified board of
directors. The DGCL permits, but does not require, a classified board of
directors, pursuant to which the directors can be divided into as many classes
with staggered terms of office, with only one class of directors standing for
election each year. The Delaware Certificate of Incorporation does not provide
for a classified board of directors. The establishment of a classified board of
directors following the Reincorporation would require the approval of the
stockholders of Asia SuperNet Corporation.
Indemnification and Limitation of Liability. Both the CBCA and the DGCL
have similar provisions respecting indemnification by a corporation of its
officers, directors, employees and other agents. The laws of both states also
permit, with certain exceptions, a corporation to adopt a provision in its
articles of incorporation or certificate of incorporation, as the case may be,
eliminating the liability of a director to the corporation or its stockholders
for monetary damages for breach of the director's fiduciary duty. There are
nonetheless certain differences between the laws of the two states respecting
indemnification.
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The Asia SuperNet Corporation Articles of Incorporation eliminate the
liability of the Board of Directors to the fullest extent permissible under the
CBCA. The CBCA does not permit the elimination of monetary liability for breach
of fiduciary duty as a director where such liability is based on (i) breach of
the director's duty of loyalty to the corporation or its shareholders, (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (iii) unlawful distributions, (iv) any transaction
from which the director directly or indirectly derived an improper personal
benefit, or (v) any act or omission occurring before the provision eliminating
liability became effective.
The Delaware Certificate of Incorporation eliminates the liability of
Directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a Director to the fullest extent permissible under the
DGCL, as such law exists currently or as it may be amended in the future. The
limitations imposed on such a provision under the DGCL are substantially similar
to the limitations imposed by the CBCA.
The CBCA permits indemnification of a person made party to a proceeding
because the person is or was a director against liability incurred in the
proceeding if (i) the person conducted himself or herself in good faith and (ii)
the person reasonably believed, in the case of conduct in an official capacity
with the corporation, that his or her conduct was in the corporation's best
interests, and in all other cases, that his or her conduct was at least not
opposed to the corporation's best interests. Additionally, in the case of any
criminal proceeding, the person must have had no reasonable cause to believe his
or her conduct was unlawful. Notwithstanding the foregoing, under the CBCA, a
corporation may not indemnify a director in connection with a derivative action
in which the director was adjudged liable to the corporation, or in connection
with any other proceeding charging that the director derived an improper
personal benefit, and in which proceeding the director was adjudged liable on
the basis that he or she in fact derived such improper personal benefit. Also,
in a derivative action, indemnification is expressly limited to the reasonable
expenses incurred in connection with the proceeding.
Under the DGCL, a corporation may indemnify a director against all
liability (including expenses) in an action other than a derivative action if
the person conducted himself or herself in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interest of the
corporation (without a distinction made, as in the CBCA, for actions taken in
"official capacity"), and with respect to criminal actions, he or she had no
reasonable cause to believe that his or her conduct was unlawful. In derivative
actions, as under the CBCA, indemnification is limited to reasonable expenses
incurred (and is subject to the same standard of conduct for non-derivative
actions), with the additional restriction that if the director is adjudged
liable to the corporation, the court deciding the proceeding must make the
special determination that the director is entitled to indemnification of
expenses notwithstanding such adverse adjudication because such person is fairly
and reasonably so entitled in view of all the circumstances. By comparison,
under the CBCA, if a corporation elects not to indemnify a director against
expenses incurred in connection with a derivative action because the director
was found not to have acted within the requisite standard of conduct, a court
may nevertheless award expenses if the court determines the director is fairly
and reasonably entitled to indemnification in light of all of the circumstances.
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Under both the CBCA and the DGCL, officers, employees and agents (as well
as fiduciaries, under the CBCA) may be indemnified to the same extent as
directors.
Under both the CBCA and the DGCL, a corporation must indemnify the person
made party to a proceeding because such person was a director against expenses
(including attorney's fees) where such person is successful on the merits or
otherwise in defense of such proceeding. Though, under the CBCA, this mandatory
indemnification may be limited by the articles of incorporation, the Asia
SuperNet Corporation Articles of Incorporation contain no such limitation. Also,
under the DGCL, this mandatory indemnification is extended to persons made party
to a proceeding because such person was an officer, employee or agent of the
corporation; under the CBCA, the mandatory indemnification of expenses, as may
be further limited by the articles of incorporation, is only extended to
officers of the corporation.
Under the DGCL, the corporation may advance the expenses incurred by a
director in connection with proceedings prior to a final adjudication if the
director executes an undertaking to repay such amounts if it is ultimately
determined that the director is not entitled to indemnification. The board of
directors may set other terms and conditions for the advance of expenses on
behalf of employees and agents. Under the CBCA, in addition to the undertaking
referred to above (which must be an unlimited general obligation of the
director, but need not be secured), the director must furnish a written
affirmation of the director's good faith belief that he or she has met the
requisite standard of conduct heretofore described.
Under both the DGCL and the CBCA, a "determination" must be made, based on
the facts then known to those making the determination, that indemnification
would not be precluded under applicable law. The "determination" is made by the
affirmative vote a majority of directors not party to the subject proceeding, by
independent legal counsel, or by the shareholders. The CBCA allows for a
determination by a committee where no quorum of non-party directors can be
reached; the DGCL does not require a quorum of non-party directors. Under the
CBCA, the determination is made by stockholders only if the board directs, or
cannot approve because of a lack of non-party directors; there is no such
limitation on stockholder approval under the DGCL. The "determination" must be
made in advance of indemnification and advancement of expenses under the CBCA;
however, no prior determination is required for the advancement of expenses
under the DGCL.
The DGCL and CBCA both authorize a corporation's purchase of insurance on
behalf of directors, officers, employees and agents, regardless of the
corporation's statutory authority to indemnify such person directly. The CBCA
specifically allows such insurance to be purchased from a company in which the
corporation has equity or other interests.
Under the CBCA, a corporation can indemnify officers, employees,
fiduciaries and agents (but not directors) to a greater extent than provided in
the CBCA, subject to public policy concerns, if such rights are set forth in the
articles of incorporation, bylaws, or board of director or stockholder
resolution, or by contract, though the Company does not provide such greater
indemnification. The CBCA does not provide for extended indemnification of
directors. By contrast, under the DGCL, a director's rights to indemnification
are not limited to those set forth in the DGCL, and may be expanded by bylaw,
agreement, common law, or otherwise, though limitations could be imposed by a
court on grounds of public policy.
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Reduction of Capital. The DGCL provides that a corporation may reduce its
capital in a variety of specified methods, including: by reducing or eliminating
the capital represented by shares of capital stock which had been retired; by
applying to an otherwise authorized purchase or redemption of outstanding shares
of its capital stock, some or all of the capital represented by the shares being
purchased or redeemed or any capital that has not been allocated to any
particular class of its capital stock; by applying to an otherwise authorized
conversion or exchange of outstanding shares of its capital stock, some or all
of the capital represented by the shares being converted or exchanged, or some
or all of any that has not been allocated to any particular class of its capital
stock, or both, to the extent that such capital in the aggregate exceeds the
total aggregate par value or the stated capital of any previously unissued
shares issuable upon such conversion or exchange; or by transferring to surplus
(i) some or all of the capital not represented by any particular class of its
capital stock, (ii) some or all of the capital represented by issued shares of
its par value capital stock, which capital is in excess of the aggregate par
value of such shares, or (iii) some of the capital represented by the issued
shares of its capital stock without par value.
The foregoing may be conducted without the approval of the corporation's
stockholders, provided that the assets remaining after the reduction are
sufficient to pay any debts not otherwise provided for. The CBCA, contains no
directly corresponding provision. The statutory scheme for capitalization of
Colorado corporations differs from the DGCL statute in that concepts such as
"capital" and "surplus" are not addressed under the CBCA statute. The effect of
this difference is not material to the rights of the stockholders.
Dividends and Repurchase of Shares. The CBCA dispenses with the concepts of
par value of shares as well as statutory definitions of capital, surplus and the
like. The concepts of par value, capital and surplus are retained under the
DGCL.
Under the CBCA, a corporation may not make any distribution (including
dividends, or repurchases and redemptions of shares) if, after giving effect to
the distribution, (i) the corporation would not be able to pay its debts as they
become due in the usual course of business, or (ii) the corporation's total
assets would be less than the sum of its total liabilities plus (unless the
articles of incorporation permit otherwise) the amount that would be needed, if
the corporation were to be dissolved at the time of distribution, to satisfy the
preferential liquidation rights of stockholders not receiving the distribution.
The DGCL permits a corporation to declare and pay dividends out of surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year as long as the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, the DGCL generally provides that a
corporation may redeem or repurchases its shares only if the capital of the
corporation is not impaired and such redemption or repurchase would not impair
the capital of the corporation.
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Stockholder Voting. Under the DGCL and pursuant to the Asia SuperNet
Corporation Articles of Incorporation, as permitted by the CBCA, a majority of
the stockholders of both acquiring and target corporations must approve any
statutory merger, except in certain circumstances substantially similar under
both the CBCA and the DGCL.
Also, under the DGCL and pursuant to the Articles of Incorporation, as
permitted by the CBCA, a sale of all or substantially all of the assets of a
corporation must be approved by a majority of the outstanding voting shares of
the corporation transferring such assets. With certain exceptions, the CBCA also
requires that mergers, share exchanges, certain sales of assets and similar
transactions be approved by a majority vote of each voting group of shares
outstanding. In contrast, the DGCL generally does not require class voting,
except in certain transactions involving an amendment to a corporation's
certificate of incorporation that adversely affects a specific class of shares.
As a result, stockholder approval of such transactions may be easier to obtain
under the DGCL for companies, which have more than one class of shares
outstanding.
Interested Director Transactions. Under both the CBCA and the DGCL, certain
contracts or transactions in which one or more of a corporation's directors has
an interest are not void or voidable because of such interest provided that
certain conditions, such as obtaining the required approval and fulfilling the
requirements of good faith and full disclosure, are met. With certain
exceptions, the conditions are similar under the CBCA and the DGCL. The most
significant difference between the DGCL and the CBCA is that under the CBCA, a
corporation cannot rely on ratification or authorization of a disinterested
board of directors regarding a loan or guaranty benefiting a director unless the
stockholders have been given at least ten days written notice. The Company is
not aware of any plans of the Board of Directors to propose, authorize, or
ratify any such transaction for which notice would be required under the CBCA,
but not under the DGCL.
Stockholder Derivative Suits. The CBCA provides that the corporation or the
defendant in a derivative suit may require the plaintiff shareholder to furnish
a security bond if the shareholder holds less than 5% of the outstanding shares
of any class and such shares have a market value of less than $25,000. The DGCL
does not have a similar bonding requirement.
Appraisal Rights. Under both the CBCA and the DGCL, a stockholder of a
corporation participating in certain major corporate transactions may, under
varying circumstances, be entitled to appraisal rights pursuant to which such
stockholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transaction. Appraisal rights are available in response to similar transactions
under both the CBCA and the DGCL, except that under the CBCA, appraisal rights
are also available to a shareholder in the event of (i) a share exchange to
which the corporation is a party as the corporation whose shares will be
acquired (a transaction not specifically authorized by the DGCL), (ii) a sale,
lease, exchange or other disposition of all or substantially all of the assets
of a corporation or an entity which the corporation controls if a vote of the
shareholders is otherwise required, and (iii) a reverse stock split if the split
reduces the number of shares owned by the shareholder to a fraction of a share
or to scrip and such fraction or scrip is to be acquired for cash or voided
pursuant to the statutory procedure available under the CBCA.
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In addition, there are differences in the timing of payments made to
dissenting shareholders, the ability of a court to award attorneys' fees, and
the manner of determining "fair value" which may make the CBCA more favorable
from a shareholder's point of view.
Under both the DGCL and the CBCA, stockholders (i) receive prior notice of
their rights to dissent, (ii) must deliver their notice of dissent prior to the
corporate action given rise to dissenter's rights, and (iii) will receive notice
from the corporation of the effectiveness of the corporate action within ten
days. Other procedural differences between the CBCA and DGCL may be viewed as
more favorable to a dissenting stockholder.
Under the DGCL, a dissenting stockholder has 120 days to obtain from the
corporation a settlement of the fair value of his or her shares. If no
settlement is reached at that time, the stockholder may petition the Delaware
Court of Chancery to determine the fair value of the shares, after which the
corporation will be instructed to pay to the dissenting stockholder the fair
value, as determined. The court costs will be allocated among the corporation
and dissenting stockholders, as equitable, and the legal fees for dissenting
stockholders who prosecute their claims may be spread among the dissenting
stockholders as a group. Finally, in determining "fair value" the Delaware Court
of Chancery is required to consider all relevant factors, and to include
interest, but is statutorily prohibited from including "any element of value
arising from the accomplishment or expectation" of the transaction giving rise
to appraisal rights.
In contrast, under the CBCA, a dissenting shareholder may make a demand no
later than 30 days following the notice from the corporation of the maturity of
his or her appraisal rights. Upon receipt of such demand (or the effective date
of the transaction, whichever is later), the corporation must pay each dissenter
who has properly followed the procedure set forth in the CBCA an amount which
the corporation estimates to be the fair value of the dissenter's shares, plus
interest. In addition, the corporation must also deliver, among other things,
financial statements, a statement of the estimate of fair value, and an
explanation of how interest was calculated. If the dissenting shareholder is
dissatisfied with this offer, such dissenting stockholder may then, within 30
days, keep the payment, but reject the corporation's calculation of fair value
and present a counter-offer. If the corporation does not agree with the
dissenting shareholder's counter-offer, the corporation is forced to commence an
appraisal proceeding. A court will then determine the fair value of the
dissenter's shares, taking into consideration all relevant factors. The court
can also assess legal fees not only among the class of dissenters as under the
DGCL law, but against the corporation if it is determined that it is equitable
to do so and that the corporation did not substantially comply with the
procedures set forth in the CBCA. Legal fees and expenses may also be awarded to
any party if the opposing party is found to have acted arbitrarily, vexatiously
or not in good faith. Unlike the DGCL, the CBCA does not specifically prohibit
the court from taking into effect any appreciation in the fair value of the
shares attributable to the "accomplishment or expectation" of the transaction
giving rise to dissenter's rights.
38
<PAGE>
Other than Proposals Two and Three, the Company does not presently intend
to take any action, which would give rise to dissenter's rights. However, should
such a transaction occur, the provisions under the CBCA may be viewed more
favorable to a shareholder than the provisions under the DGCL.
Dissolution. Under the CBCA, dissolution may be authorized by the adoption
of a plan of dissolution by the board of directors, followed by the
recommendation of the proposal to the shareholders (unless because of a conflict
of interest or other circumstances the board determines it cannot make any
recommendation), then followed by the approval of shareholders entitled to vote
thereon. The CBCA provides for the approval by a majority of each voting group
entitled to vote thereon. The CBCA also provides for judicial dissolution of a
corporation in an action by a shareholder upon a showing that (i) the directors
are deadlocked in management, the shareholders are unable to break the deadlock,
and irreparable injury to the corporation is threatened or being suffered, or
the business and affairs of the corporation can no longer be conducted to the
advantage of the stockholders generally, because of the deadlock, (ii) the
directors or those in control of the corporation are acting or will act in a
manner which is illegal, oppressive, or fraudulent, (iii) the shareholders have
been deadlocked over two annual meetings in the election of directors, or (iv)
the corporate assets are being misapplied or wasted. A Colorado corporation can
also be dissolved judicially upon other grounds in a proceeding by the attorney
general, or in a proceeding by creditors, as well as by the secretary of state.
Under the DGCL, unless the board of directors approves the proposal to dissolve,
the dissolution must be approved by all the stockholders entitled to vote
thereon. Only if the dissolution is initially approved by the board of directors
may it be approved by a simple majority of the outstanding shares of the
corporation's stock entitled to vote. In the event of such a board-initiated
dissolution, the DGCL allows a Delaware corporation to include in its
certificate of incorporation a supermajority (greater than a simple majority)
voting requirement in connection with dissolutions. The Delaware Certificate of
Incorporation contains no such supermajority voting requirement, however, and a
majority of the outstanding shares entitled to vote, voting at a meeting at
which a quorum is present, would be sufficient to approve a dissolution of the
Company that had previously been approved by its Board of Directors. The DGCL
provides for dissolution by operation of law for abuse, misuse or nonuse of its
corporate powers, privileges or franchises.
Action by Consent. Under the CBCA, unless the articles of incorporation
require that a particular action is taken at a meeting of shareholders, any
action to be taken by shareholders may be taken instead by the unanimous written
consent of all shareholders entitled to vote thereon. Under the DGCL, action in
lieu of a meeting is also allowed. However, under the DGCL law, the action may
be taken by the written consent of only those stockholders required to vote in
favor of the action. Those stockholders not executing written consents (and who
would otherwise be entitled to notice of a meeting at which such action would
have otherwise taken place) must receive prompt written notice of the action
taken.
Special Meetings. The DGCL provides that a special meeting of the
stockholders may be called by the holders of shares entitled to cast not less
than 10% of the votes to be cast at the meeting. Stockholders, under the DGCL,
do not have a right to call a special meeting unless it is conferred in the
corporation's certificate of incorporation or bylaws. Neither the Certificate of
Incorporation nor the Bylaws of the Company allow for special meetings to be
called by stockholders.
39
<PAGE>
Other. The foregoing is an attempt to summarize the more important
comparisons between the corporation laws of the two states and does not purport
to be a complete listing of differences in the rights and remedies of holders of
shares of Colorado, as opposed to Delaware, corporations. Such differences can
be determined in full by reference to the CBCA and the DGCL. In addition, both
the CBCA and the DGCL provide that some of the statutory provisions as they
affect various rights of holders of shares may be modified by provisions in the
articles of incorporation or bylaws of a corporation. The Certificate of
Incorporation and Bylaws of the Company and the Asia SuperNet Corporation
Articles of Incorporation and Bylaws materially modify the rights of
shareholders which are generally provided under the CBCA and the DGCL in the
areas of cumulative voting and preemptive rights of shareholders, required
shareholder vote on certain matters and indemnification obligations of a
corporation to its directors, officers and agents, and the material differences
in that regard between them have been described above. See "Comparisons Between
the Asia SuperNet Corporation Articles of Incorporation and the Delaware
Certificate of Incorporation."
Conditions to Effectiveness of the Reincorporation. The effectiveness of
the Reincorporation is subject to approval of the Reincorporation Proposal by
the requisite number of the Shareholders.
Certain Federal Income Tax Consequences. The following is a summary of the
material anticipated federal income tax consequences of the Reincorporation to
Shareholders. This summary is based on the federal income tax laws as now in
effect and as currently interpreted. This summary does not take into account
possible changes in tax laws or interpretations thereof, after the date hereof,
including amendments to applicable statutes, regulations and proposed
regulations or changes in judicial or administrative rulings, some of which may
have a retroactive effect. This summary does not purport to address all aspects
of the possible federal income tax consequences of the Reincorporation and is
not intended as tax advice to any person. In particular, and without limiting
the foregoing, this summary does not consider the federal income tax
consequences to Shareholders in light of their individual investment
circumstances or to holders subject to special treatment under the federal
income tax laws (for example, life insurance companies, financial institutions,
tax-exempt organizations regulated investment companies and foreign taxpayers).
The summary does not address any consequences of the Reincorporation under any
state, local, or foreign income and other tax laws.
No ruling will be obtained from Internal Revenue Service regarding the
federal income tax consequences to the Company or the Shareholders as a result
of the Reincorporation.
If approved by the Shareholders and effected, the Reincorporation will
qualify as a "recapitalization," as described in Section 368(a)(1)(F) of the
Code and the following consequences should generally result:
40
<PAGE>
o no gain or loss should be recognized by the Shareholders, the Company
or Asia SuperNet Corporation as a result of the Reincorporation;
o the aggregate tax basis of the Asia SuperNet Corporation Common Stock
received by each Shareholder in the Reincorporation should be equal to
the aggregate tax basis of the Common Stock surrendered by such
Shareholder in exchange therefor; and
o the holding period of the Asia SuperNet Corporation Common Stock
received by each Shareholder should include the period for which such
Shareholder held the Common Stock surrendered in exchange therefor,
provided that such Common Stock was held by such Shareholder as a
capital asset as of the effective date of the Reincorporation.
Each Shareholder is encouraged to consult its own tax advisor regarding the
specific tax consequences of the Reincorporation to such Shareholder, including
the application and effect of federal, state, local and foreign income, and
other tax laws.
Vote Required; Appraisal Rights; Recommendation of the Board of Directors.
In order to effect the Reincorporation Proposal, the requisite number of
Shareholders must approve the Merger Agreement. The approval of the Merger
Agreement requires, under Sections 252 and 251 of the DGCL and the Asia SuperNet
Corporation Articles of Incorporation, that a quorum exist and that a majority
of the Company's outstanding Common Stock vote in favor of the Reincorporation
Proposal. Pursuant to Section 262 of the DGCA, stockholders of the Company have
appraisal rights available with respect to this proposal A copy of this section
is attached to this Proxy Statement as Exhibit A. Each stockholder electing to
demand the appraisal of such stockholder's shares shall deliver to the Company,
before the taking of the vote on this proposal, a written demand for appraisal
of such stockholder's shares. Such demand will be sufficient if it reasonably
informs the Company of the identity of the stockholder and that the stockholder
intends to demand the appraisal of such stockholder's shares. A proxy or vote
against the proposal shall not constitute such a demand.
The Board of Directors recommends that you vote in favor of the
Reincorporation Proposal. In the absence of instructions to the contrary,
proxies solicited in connection with this proxy statement will be so voted.
41
<PAGE>
PROPOSAL NUMBER THREE
SUBSIDIARY SALE PROPOSAL
On January 18, 1999, the Company entered into an agreement to sell
substantially all of its subsidiaries, and, as a result, all of its assets, to
SAR Trading Limited. This agreement, as amended, is attached as Exhibit B to
this Proxy Statement. SAR is engaged in the business of investment holdings. Its
principal executive offices are located at Tropic Isle Building, P.O. Box 438,
Road Town, Tortola, British Virgin Islands and its telephone number is:
852-2258-6888. SAR is a company wholly owned by Fai H. Chan, an officer,
director and shareholder of the Company. As consideration for the subsidiaries,
SAR has agreed to assume $4,838,000 of certain liabilities of the subsidiaries.
The subsidiaries of the Company and their principal business are as
follows:
o Vancouver Hong Kong Properties Limited, a Canadian corporation engaged
in the business of property investments.
o Heng Fai Management Inc., a British Virgin Islands corporation engaged
in the business of management.
o Heng Fai China & Asia Industries Limited, a Hong Kong corporation
engaged in the business of investment holdings.
o Heng Fai China Industries Limited, a Hong Kong corporation engaged in
the business of investment holdings.
o Worldwide Container Company Limited, a Hong Kong corporation engaged
in the business of investment holdings.
o Heng Fai China Industries Acquisition Limited, a Hong Kong corporation
is not currently engaged in business.
o Greatly Hong Kong Limited, a Hong Kong corporation engaged in the
business of investment holdings.
o Changhou Min You Cement Co., Ltd., a corporation organized in the
People's Republic of China engaged in the business of cement
manufacturing.
The debt payable to SAR will be in the following form:
o $1,000,000 note convertible into the Company's Common Stock at a
conversion price of $0.05 per share; and
42
<PAGE>
o $2,472,722 non-interest bearing note convertible into the Company's
Common Stock (at the average trading price of the Company's Common
Stock) upon seven days' prior notice to SAR (convertible only in
increments of $250,000 or more).
The Company executed the SAR Agreement because management desires to purge
its balance sheet of its liabilities and to refocus the operations of the
Company away from the operations of its subsidiaries and towards Internet based
operations.
If the SAR Agreement is approved by the shareholders the transfer of the
subsidiaries will be treated under purchase accounting rules.
At December 31, 1998, the unaudited pro forma effect carrying out the SAR
agreement as if they had occurred on that date and assuming all notes are
converted into common stock is summarized as follows:
June 30, June 30,
1999 Pro forma 1999
(actual) adjustments (pro forma)
-------- ----------- ---------
Total assets $ 1,568,210 $ 168,871 (1) $ 371,803
(1,365,278)(2)
=========== =========== ===========
Total current liabilities $ 4,670,442 $(4,488,781)(1) $ 181,661
Mortgage loans 727,096 (727,096)(1) --
payable
Notes payable -- 3,837,550 (1) 2,472,272
(1,365,278)(2)
----------- ----------- -----------
Total liabilities 5,397,538 (2,743,605) 2,653,933
----------- ----------- -----------
Shareholders' deficit $(3,829,328) 1,546,748(1) $(2,282,580)
=========== =========== ===========
(1) To reflect the effect of the sale of all the interests in majority of
its subsidiaries by way of the assumption of the liabilities and the
effect of the issuance of the note payable and the conversion of the
$1,000,000 note into 20,000,000 common shares of the Company.
(2) To reflect the effect of setting off the amounts due from related
parties of $1,365,278 with the $3,838,000 note payable. The amounts
due from related parties arise from the de-consolidation of the
subsidiaries sold and represented intercompany receivables.
43
<PAGE>
The sale of the subsidiaries to SAR effectively eliminates all activity of
the Company and accordingly, all revenue and expense amounts. The pro forma
statement of operations for the Company would reflect zero balances for all
significant line items. Therefore, the pro forma statement of operations has not
been presented.
The Board of Directors recommends a vote in favor of the approval of the
Subsidiary Sale Proposal. In the absence of instructions to the contrary,
proxies solicited in connection with this proxy statement will be so voted. A
majority of the votes cast on this proposal are required for approval of the
proposal.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Deloitte Touche Tohmatsu, the Company's principal
independent accountants for the three fiscal years ended December 31, 1998, are
not expected to be present at the Meeting.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the next annual
meeting of the Company's stockholders must be received by the Company within a
reasonable time prior to the mailing of the proxy statement for such Meeting but
no later than October 1, 1999.
Proxies that confer discretionary authority will not be able to be voted on
stockholder proposals which stockholders do not request be included in the
Company's proxy statement to be used in connection with the Company's next
Annual Meeting of Stockholders if by July 13, 2000, the stockholder provides the
Company with advance written notice of such proposal. Therefore, if a
stockholder fails to so notify the Company of such a stockholder proposal by
July 13, 2000, proxies that confer discretionary authority will be able to be
voted when the proposal is presented at the next Annual Meeting of Stockholders.
SOLICITATION OF PROXIES
The cost of soliciting proxies, including the cost of preparing, assembling
and mailing this proxy material to stockholders, will be borne by the Company.
Solicitations will be made only by use of the mails, except that, if necessary
to obtain a quorum, officers and regular employees of the Company may make
solicitations of proxies by telephone or electronic facsimile or by personal
calls. Brokerage houses, custodians, nominees and fiduciaries will be requested
to forward the proxy soliciting material to the beneficial owners of the
Company's shares held of record by such persons and the Company will reimburse
them for their charges and expenses in this connection.
44
<PAGE>
OTHER BUSINESS
The Company's Board of Directors does not know of any matters to be
presented at the Meeting other than the matters set forth herein. If any other
business should come before the Meeting, the persons named in the enclosed form
of Proxy will vote such Proxy according to their judgment on such matters.
BY ORDER OF THE BOARD OF DIRECTORS
ROBERT H. TRAPP, SECRETARY
Denver, Colorado
October 19, 1999
45
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
Report and Financial Statements
For the year ended December 31, 1998
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
REPORT AND FINANCIAL STATEMENTS
For the Year Ended December 31, 1998
CONTENTS
PAGES
Report of Independent Auditors F - 3
Consolidated Balance Sheets F - 4
Consolidated Statements of Income and Comprehensive Income F - 6
Consolidated Statements of Shareholders' Deficit F - 8
Consolidated Statements of Cash Flows F - 9
Notes to the Consolidated Financial Statements F - 11
F - 2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To The Board of Directors and Shareholders of
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
We have audited the accompanying consolidated balance sheets of Powersoft
Technologies, Inc. (the "Company") and its subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of income and comprehensive
income, shareholders' deficit and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Powersoft Technologies, Inc. and
its subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 1998 in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
financial statements, the Company's recurring losses from operations and minimal
net tangible assets raise substantial doubt as to its ability to continue as a
going concern, however, the principal shareholder has committed to continue
providing financial support. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As discussed in note 16(b), the accompanying 1998 financial statements have been
restated.
Deloitte Touche Tohmatsu
/s/ Deloitte Touche Tohmatsu
Hong Kong
April 16, 1999 (except as to note 16(a) as to which the date is June 18, 1999
and note 16(b) as to which the date is October 6, 1999)
F - 3
<PAGE>
<TABLE>
<CAPTION>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
CONSOLIDATED BALANCE SHEETS
(United States Dollars)
As of December 31,
ASSETS 1998 1997
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................. $ 44,949 $ 36,173
Available-for-sale securities (note 5) ................ 439,290 1,507,345
Accounts receivable, trade, less allowance for doubtful
accounts of $0 in 1998 and 1997 ..................... 29,830 7,521
Prepaid and other current assets ...................... 24,260 32,153
Amounts receivable from related parties (note 9) ...... 15,632 18,950
---------- ----------
Total current assets .................................. 553,961 1,602,142
PROPERTY, PLANT AND EQUIPMENT, NET (NOTE 6) .............. 661,805 785,920
---------- ----------
Total assets ............................................. $1,215,766 $2,388,062
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
F - 4
<PAGE>
<TABLE>
<CAPTION>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
CONSOLIDATED BALANCE SHEETS-continued
(United States Dollars)
As of December 31,
LIABILITIES AND SHAREHOLDERS' DEFICIT 1998 1997
- ------------------------------------- ---- ----
<S> <C> <C>
Current liabilities:
Mortgage loans payable - current portion (note 10) ........... $ 109,159 $ 115,251
Accounts payable ............................................. 96,967 48,701
Margin loan payable (note 8) ................................. 3,136,264 3,058,295
Accrued expenses and other liabilities ....................... 80,091 154,756
Amounts payable to related parties (note 9) .................. 1,861,216 904,756
----------- -----------
Total current liabilities: ................................... 5,283,697 4,281,759
----------- -----------
Long-term liabilities:
Mortgage loans payable (note 10) ............................. 710,277 837,966
----------- -----------
Commitments and contingencies (note 15)
Shareholders' deficit:
Preferred stock, $5 par value, 25,000,000 shares
authorized; unissued ....................................... -- --
Common stock, $.01 par value, 30,000,000 shares
authorized; issued and outstanding 1998 and 1997;
15,559,542 shares .......................................... 155,595 155,595
Additional paid-in capital ................................... 5,385,296 5,385,296
Accumulated deficit .......................................... (6,981,436) (5,904,303)
Unrealized loss on available-for-sale securities (note 5) .... (3,356,080) (2,307,267)
Cumulative exchange adjustments .............................. 18,417 1,516
----------- -----------
(4,778,208) (2,669,163)
Common stock issued for consulting services to be
received (note 7) .......................................... -- (62,500)
----------- -----------
Total shareholders' deficit .................................. (4,778,208) (2,731,663)
----------- -----------
Total liabilities and shareholders' deficit ..................... $ 1,215,766 $ 2,388,062
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F - 5
<PAGE>
<TABLE>
<CAPTION>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(United States Dollars)
Year ended December 31,
1998 1997 1996
---- ---- ----
Revenues:
Rental income ....................................... $ 307,327 $ 346,528 $ 336,644
Interest ............................................ 1,011 515 1,490
Investment income - securities ...................... -- 210,380 56,552
Others .............................................. 12,292 14,498 34,172
----------- ----------- -----------
Total revenues ......................................... 320,630 571,921 428,858
----------- ----------- -----------
Expenses:
Depreciation ........................................ 35,186 41,161 41,815
Legal and professional fees ......................... 31,620 149,900 82,831
Consulting fees (note 7) ............................ 62,500 272,250 1,368,567
Consulting fees paid to a related company
(note 9) ......................................... 500,000 500,000 500,000
Interest on long-term debt .......................... -- -- 85,990
Interest on short-term debt ......................... 492,804 309,201 35,446
Investment banking fees ............................. -- 164,252 --
Utilities ........................................... 47,806 23,522 48,924
Foreign exchange (gain) loss ........................ (5) (1,695) 10,477
Land lease .......................................... 71,115 80,321 80,321
Real estate management fees ......................... 21,625 36,784 13,056
Salaries ............................................ -- 4,527 4,358
Traveling ........................................... -- 17,717 40,841
Other operating and administrative expenses ......... 135,112 191,399 177,964
----------- ----------- -----------
Total expenses ......................................... 1,397,763 1,789,339 2,490,590
----------- ----------- -----------
Loss from continuing operations ........................ (1,077,133) (1,217,418) (2,061,732)
----------- ----------- -----------
(Continued)
See accompanying notes to the consolidated financial statements.
F - 6
<PAGE>
<CAPTION>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME-continued
(United States Dollars)
Year ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discontinued operations (note 3)
Loss from Cangzhou cement ........................... $ -- $ (157,117) $ (62,487)
Gain on disposal of Cangzhou cement ................. -- 148,775 --
Loss from Wuhan ..................................... -- (248,210) (241,208)
Gain on reversal of Wuhan acquisition ............... -- 307,442 --
Share of loss for the investment in Duck Farm ....... -- (107,229) --
Loss on disposal of the investment in Duck Farm ..... -- (194,095) --
------------ ------------ ------------
Loss from discontinued operations ...................... -- (250,434) (303,695)
------------ ------------ ------------
Loss before income taxes ............................... (1,077,133) (1,467,852) (2,365,427)
Provision for income taxes (note 12) ................... -- -- --
------------ ------------ ------------
Loss before minority interest .......................... (1,077,133) (1,467,852) (2,365,427)
Minority interest from discontinued operations ......... -- 74,463 77,099
------------ ------------ ------------
Net loss ............................................... (1,077,133) (1,393,389) (2,288,328)
------------ ------------ ------------
Other comprehensive income (loss), net of tax:
Foreign exchange adjustments ........................ 16,901 (5,452) --
Unrealized loss on available-for-sale securities .... (1,048,813) (2,228,442) (34,884)
------------ ------------ ------------
Other comprehensive loss ............................... (1,031,912) (2,233,894) (34,884)
------------ ------------ ------------
Comprehensive loss ..................................... $ (2,109,045) $ (3,627,283) $ (2,323,212)
============ ============ ============
Loss per share (basic and diluted):
From continuing operations .......................... $ (0.07) $ (0.08) $ (0.18)
Effect of discontinued operations ................... -- (0.01) (0.02)
------------ ------------ ------------
Net loss per share .................................. $ (0.07) $ (0.09) $ (0.20)
============ ============ ============
Weighted average number of shares of
common stock outstanding ............................ 15,559,542 14,873,091 11,223,288
============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F - 7
<PAGE>
<TABLE>
<CAPTION>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(United States Dollars)
Common stock
-----------------------
Number Additional Accumulated
of shares Amount paid-in capital deficit
--------- ------ --------------- -----------
<S> <C> <C> <C> <C>
At December 31, 1995 ................. 10,859,542 $ 108,595 $ 2,812,546 $ (2,288,328)
Issued to effect
a consulting
agreement
(note 11a) ........................ 400,000 4,000 895,750 --
Amortization of
consulting fees ................... -- -- -- --
Issued for
acquisition of a
subsidiary
(note 11b) ........................ 727,272 7,273 992,727 --
Net loss ............................. -- -- -- (2,288,328)
Other comprehensive loss:
Unrealized loss
on securities
available-for-sale .............. -- -- -- --
----------- ----------- ----------- -----------
At December 31, 1996 ................. 11,986,814 119,868 4,701,023 (4,510,914)
Private placements
(note 11) ......................... 1,700,000 17,000 1,003,000 --
Private placements
(note 11) ......................... 2,500,000 25,000 575,000 --
Issue to effect a
consulting
agreement (note 11e) .............. 100,000 1,000 99,000 --
Amortization of
consulting fees ................... -- -- -- --
Redemption to reverse
the purchase
of a subsidiary
(note 11f) ........................ (727,272) (7,273) (992,727) --
Net loss ............................. -- -- -- (1,393,389)
Other comprehensive loss:
Unrealized loss
on securities
available-for-
sale ............................ -- -- -- --
----------- ----------- ----------- -----------
At December 31, 1997 ................. 15,559,542 155,595 5,385,296 (5,904,303)
Amortization of ...................... -- -- -- --
consulting fees
Net loss ............................. -- -- -- (1,077,133)
Other comprehensive income (loss):
Unrealized loss
on securities
available-for-sale .............. -- -- -- --
Foreign exchange
translation
adjustment ...................... -- -- -- --
----------- ----------- ----------- -----------
At December 31, 1998 ................. 15,559,542 $ 155,595 $ 5,385,296 $(6,981,436)
=========== =========== =========== ===========
See accompanying notes to the consolidated financial statements.
F - 8(a)
<PAGE>
<CAPTION>
Accumulated other
comprehensive loss
----------------------------- Common
Unrealized stock issued
loss on Cumulative for consulting
available for exchange services to be
sale securities adjustments received Total
--------------- ----------- -------------- -----
<S> <C> <C> <C> <C>
At December 31, 1995 ................. $ (43,941) $ 6,968 $ (703,567) $ (41,985)
Issued to effect
a consulting
agreement
(note 11a) ........................ -- -- (899,750) --
Amortization of
consulting fees ................... -- -- 1,368,567 1,368,567
Issued for
acquisition of a
subsidiary
(note 11b) ........................ -- -- -- 1,000,000
Net loss ............................. -- -- -- (2,288,328)
Other comprehensive loss:
Unrealized loss
on securities
available-for-sale .............. -- (34,884) -- (34,884)
----------- ----------- ----------- -----------
At December 31, 1996 ................. (78,825) 6,968 (234,750) 3,370
Private placements
(note 11) ......................... -- -- -- 1,020,000
Private placements
(note 11) ......................... -- -- -- 600,000
Issue to effect a
consulting
agreement (note 11e) .............. -- -- (100,000) --
Amortization of
consulting fees ................... -- -- 272,250 272,250
Redemption to reverse
the purchase
of a subsidiary
(note 11f) ........................ -- (5,452) -- (1,005,452)
Net loss ............................. -- -- -- (1,393,389)
Other comprehensive loss:
Unrealized loss
on securities
available-for-
sale ............................ (2,228,442) -- -- (2,228,442)
----------- ----------- ----------- -----------
At December 31, 1997 ................. (2,307,267) 1,516 (62,500) (2,731,663)
Amortization of ...................... -- -- 62,500 62,500
consulting fees
Net loss ............................. -- -- -- (1,077,133)
Other comprehensive income (loss):
Unrealized loss
on securities
available-for-sale .............. (1,048,813) -- -- (1,048,813)
Foreign exchange
translation
adjustment ...................... -- 16,901 -- 16,901
----------- ----------- ----------- -----------
At December 31, 1998 ................. $ (3,356,080) $ 18,417 $ -- $(4,778,208)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F - 8(b)
<PAGE>
<TABLE>
<CAPTION>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(United States Dollars)
Year ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss ............................................... $(1,077,133) $(1,393,389) $(2,288,328)
Adjustments to reconcile net loss to net
cash used in operating activities:
Minority interest .................................. -- (74,463) (77,099)
Depreciation and amortization ...................... 35,186 208,214 194,939
Consulting fees .................................... 562,500 772,250 1,868,567
Allowance for doubtful accounts .................... -- -- 70,258
Available-for-sale securities written off .......... 19,242 -- --
Provision for stock obsolescence ................... -- -- 52,322
Gain on disposal of a subsidiary ................... -- (148,775) --
Gain on the reversal of the purchase
of a subsidiary .................................. -- (307,442) --
Loss on investment in Duck Farm .................... -- 301,324 --
Changes in working capital components:
Accounts receivable .............................. (22,309) (3,033,177) (1,021,123)
Inventories ...................................... -- 2,364,197 (1,935,180)
Prepaid and other current assets ................. 29,193 (799,162) 4,851
Amounts receivable from related parties .......... 3,318 (1,653,988) (124,800)
Value added taxes recoverable .................... -- (177,674) (611,790)
Accounts payable ................................. 48,266 649,881 576,792
Bills payable .................................... -- (481,928) 722,892
Accrued expenses and other liabilities ........... (74,665) 414,288 206,679
Foreign exchange difference ...................... (6,664) -- --
Amounts payable to related parties ............... 456,460 (703,752) 487,258
Prepaid rental ................................... -- 28,916 28,683
----------- ----------- -----------
Net cash used in operating activities .................. (26,606) (4,034,680) (1,845,079)
----------- ----------- -----------
Cash flow from investing activities:
Purchase of available-for-sale securities .............. -- (6,098,426) (264,688)
Proceeds from sale of available-for-sale securities .... -- 3,044,970 28,308
Purchase of property, plant and equipment .............. -- (91,414) (158,987)
Cash acquired on purchase of subsidiary (note 4) ....... -- -- 21,940
Cash given up on the reversal of the purchase
of a subsidiary ...................................... -- (142,973) --
Proceeds from disposal of a subsidiary ................. -- 8,657 --
----------- ----------- -----------
Net cash used in investing activities ..................... -- (3,279,186) (373,427)
----------- ----------- -----------
(Continued)
See accompanying notes to the consolidated financial statements.
F - 9
<PAGE>
<CAPTION>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS-continued
(United States Dollars)
Year ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flow from financing activities:
Common stock issued for cash ........................... $ -- $ 1,620,000 $ --
Increase in margin loan payable ........................ 77,969 2,569,102 243,081
Repayment of margin loan ............................... -- -- (28,308)
Increase in short-term borrowings ...................... -- 3,056,287 1,092,930
Repayment of mortgage loans ............................ (21,287) (20,446) (18,770)
Repayment in long-term payable ......................... -- (45,163) (2,671)
Advance from a minority shareholder .................... -- -- 1,047,502
----------- ----------- -----------
Net cash provided by financing activities ................. 56,682 7,179,780 2,333,764
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ...... 30,076 (134,086) 115,258
Cash and cash equivalents at beginning of year ............ 36,173 170,259 55,001
----------- ----------- -----------
Cash and cash equivalents at end of the year .............. $ 66,249 $ 36,173 $ 170,259
=========== =========== ===========
Cash paid during the year for:
Interest ............................................... $ 458,171 $ 301,972 $ 184,078
=========== =========== ===========
Non-cash financing activities:
Advances from a related party for investment
in Duck Farm (note 3) ................................ $ -- $ 301,324 $ --
=========== =========== ===========
Issuance of common stock for consulting services ....... $ -- $ 100,000 $ 1,368,567
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F - 10
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars)
1. ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS
On March 23, 1998, the Company changed its name from Heng Fai China
Industries, Inc. to Powersoft Technologies, Inc. (the Company).
On December 31, 1998, the Company and its subsidiaries' principal activity
is the operation of a rental property in North Vancouver, British Columbia
in Canada. Changes in the property market in that location could have a
material impact on the Company. See Note 13 for information on the
geographic location of the Company's assets.
At December 31, 1998, details of the subsidiary companies, all of which are
wholly-owned, are as follows:
<TABLE>
<CAPTION>
Place of
Incorporation/
Name of subsidiary Establishment Principal activities
--------------------------------------------- -------------- ---------------------
<S> <C> <C>
Heng Fai China & Asia Industries Limited Hong Kong Investment holding
Heng Fai China Industries Acquisition Limited Hong Kong Inactive
Heng Fai China Industries Limited Hong Kong Investment holding
Greatly Hong Kong Limited Hong Kong Investment holding
Worldwide Container Company Limited Hong Kong Investment holding trading
Vancouver Hong Kong Properties Ltd. Canada Property investment
and management
America & China Business Development Inc. Canada Inactive
Heng Fai Management Inc. British Virgin Provision of management
Islands Services
</TABLE>
The Company holds certain investments in marketable equity securities,
which are carried at fair value. Future changes in the market value of
these securities could materially affect the Company's financial position.
2. GOING CONCERN
These consolidated financial statements have been prepared on the going
concern basis of accounting which assumes the Company will realize its
assets and discharge its liabilities in the normal course of business. The
Company is currently operating at a loss and has minimal net tangible
assets. Should the Company be unable to continue as a going concern it may
be required to realize its assets and settle its liabilities at amounts
substantially different from the current carrying values.
F - 11
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
2. GOING CONCERN-continued
The Company's ability to continue as a going concern is dependent on the
continued financial support of its principal shareholder, Fai H. Chan, who
has signed a letter of financial support to the Company.
3. ACQUISITIONS, REVERSAL AND DISPOSAL
During 1996 and 1995 the Company made two acquisitions both of which have
either been reversed or disposed of in 1997. The acquisitions were
accounted for as a purchase and their operating results were included in
the consolidated statements of income from their respective dates of
acquisition.
On September 4, 1996, through a wholly-owned subsidiary, the Company
acquired a 70% interest in Wuhan Monkey King Container Co., Ltd. ("Wuhan")
in exchange for 727,272 shares of the Company's restricted common stock. No
goodwill arose on the acquisition. Wuhan is a joint venture incorporated in
the People's Republic of China ("PRC") which was formed to engage in the
design, manufacture, lease and repair of standard and non-standard
containers and related steel structure products.
As a result of the unsatisfactory performance of Wuhan in both 1996 and
1997, the Company effected an agreement on December 29, 1997 to reverse the
acquisition by returning a 70% interest in Wuhan to redeem the 727,272
shares of restricted common stock previously issued for the acquisition.
The 1997 results of Wuhan have been disclosed under discontinued operations
and the comparatives have been restated accordingly. In 1998, the change in
ownership in Wuhan had been approved by the relevant government authorities
in PRC.
Revenues from the discontinued operation in Wuhan were $2,934,871 and
$1,082,317 in 1997 and 1996, respectively.
On January 9, 1995, the Company acquired from Fai H. Chan, an officer,
director and stockholder of the Company, 100% of the issued ordinary share
capital of Heng Fai China & Asia Industries Limited ("Heng Fai Asia") in
exchange for nominal consideration. Heng Fai Asia through its wholly-owned
subsidiaries had various options to acquire interests in various lease
interests or operating joint ventures in the PRC, but otherwise had no
material assets and liabilities or operations at the time of acquisition.
F - 12
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
3. ACQUISITIONS, REVERSAL AND DISPOSAL-continued
Heng Fai Asia, through its wholly-owned subsidiary, Cangzhou Min You Cement
Co., Ltd. (the "Cangzhou Cement") formed in January 1995 exercised its
option to enter into a lease, for a period of five years commencing January
1, 1995, of a production line at the Hebei Cangzhou City Chemical
Corporation Factory (the "Cangzhou Factory"). Cangzhou Cement was entitled
to lease the production line for five years for a rental of RMB1.2 million
($144,288) payable through expenditures, which were made in 1995, to
renovate and modernize the Cangzhou Factory.
On December 10, 1997, the Company disposed of a 75% and a 6% interest in
the Cangzhou Cement to the Chinese joint venture partner and an
unaffiliated company for a consideration of $nil and $8,657, respectively.
At December 31, 1997, the Company's interest in Cangzhou Cement has been
reduced from 100% to 19% and full provision was made against the remaining
cost of investment in the Cangzhou Cement. The change in ownership in
Cangzhou Cement has been approved by the relevant government authorities in
PRC.
Revenues from the discontinued operation in Cangzhou Cement were $306,398
and $540,191 in 1997 and 1996, respectively.
Heng Fai Asia's other options lapsed in 1995.
In January 1997, the Company acquired from Fai H. Chan, an officer,
director and stockholder of the Company, 100% of the issued ordinary share
capital of Greatly Hong Kong Limited ("Greatly HK") in exchange for nominal
consideration. Greatly HK had a 25% interest in Hebei Cherry Valley Duck
Ltd. ("Duck Farm"), a cooperative joint venture established in the PRC
which was engaged in the management and operation of a duck farm in PRC.
The investment was wholly financed by an interest free, short-term advance
of RMB2,500,000 from Fai H. Chan. Other than the investment in the Duck
Farm and the advance from Fai H. Chan, Greatly HK had no other material
assets and liabilities or operations at the time of acquisition.
As a result of the unsatisfactory performance of the Duck Farm, Greatly HK
effected an agreement in December 1997 to dispose of its 25% interest in
the Duck Farm at a consideration of $nil. In 1998, the change in ownership
in the Duck Farm was approved by the relevant government authorities in
PRC.
The share of 1997 results and the loss on disposal of the Duck Farm have
been disclosed under discontinued operations.
F - 13
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
3. ACQUISITIONS, REVERSAL AND DISPOSAL-continued
On March 3, 1997, the Company acquired from Fai H. Chan, an officer,
director and stockholder of the Company, 100% of the issued ordinary share
capital of Heng Fai China Industries Acquisition Limited ("Heng Fai
Acquisition") in exchange for nominal consideration. Heng Fai Acquisition
had an option to form a cooperative joint venture in the PRC, but otherwise
had no material assets and liabilities or operations at the time of
acquisition.
Heng Fai Acquisition had entered into a conditional agreement (the
"Agreement") with an unaffiliated party in PRC, (the "PRC Party") to
establish a joint venture, in Zhangjiagang Free Trade Zone, PRC. However,
the Agreement was not completed and the registration of the joint venture
was canceled during 1997.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States. The following sets forth the significant accounting principles
utilized in the preparation of the consolidated financial statements:
Principles of consolidation - The consolidated financial statements of
Powersoft Technologies, Inc. include the assets, liabilities, revenues and
expenses of the Company and all its subsidiaries. All material intercompany
transactions and balances have been eliminated.
Cash and cash equivalents - The Company's cash and cash equivalents include
cash on hand and short-term bank deposits, with original maturities of
three months or less.
The following supplemental schedule summarizes the fair value of assets
acquired, cash paid net of cash acquired, common stock issued and the
liabilities assumed in conjunction with the acquisition of equity interests
in subsidiaries in 1996:
Fair value of non-cash assets acquired $ 5,083,943
Cash acquired 21,940
Common stock issued (100,000)
------------
Liabilities assumed $ 4,105,883
============
Investment securities - The Company has classified the marketable equity
securities it holds as available-for-sale. Accordingly, pursuant to
Statement of Financial Accounting Standard No. 115 the securities are
measured at fair value, with unrealized gains and losses, net of applicable
taxes, reported as a separate component of equity.
F - 14
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-continued
Property, plant and equipment - Properties, plant and equipment are stated
at cost. Depreciation and amortization is based on the respective estimated
useful lives as calculated on the following bases:
Building in Canada 5% declining balance method
Leasehold land Amortized over the term of the lease,
which expires on May 31, 2032 using
the straight line method.
Furniture and equipment 10% to 20% straight line method
Upon sale or retirement, the costs and related accumulated depreciation or
amortization are eliminated from the accounts and any resulting gain or
loss is included in income.
Foreign currency translation - Financial statements of international
subsidiaries are translated into U.S. dollars using the exchange rate at
each balance sheet date for assets and liabilities and a weighted average
exchange rate for each period for revenue and expenses. Where the local
currency is the functional currency, translation adjustments are recorded
as a separate component of shareholders' (deficit) equity.
Revenues recognition - Rental income is recognized on a straight-line basis
over the periods of the leases. Investment income from the sale of
securities is recognized on the transaction date when title of the
securities has passed. Dividend income from investments is recognized when
shareholders' rights to receive payment have been established.
Income taxes - Certain items are treated differently for financial
reporting purposes than for income tax purposes. Pursuant to the provision
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", deferred tax is provided, under the liability method, for
the resulting temporary differences between the financial reporting and tax
bases of assets and liabilities, using the currently enacted tax rates.
Loss per common share - Basic earnings (loss) per common share has been
calculated based upon the net earnings (loss) available to common
stockholders divided by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per common share
would not be different than basic earnings (loss) per common share due to
the fact that including the potential common shares would result in
antidilution as a result of the loss from continuing operations.
F - 15
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
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 the disclosures 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
these estimates.
Reclassifications - Certain prior year amounts have been reclassified to
conform to the current year's presentation.
Effects of recent accounting standards - In 1998 the Company adopted
Statement of Financial Accounting Standards (SFAS) No.130, "Reporting
Comprehensive Income", SFAS No.131, "Disclosures about Segments of an
Enterprise and Related Information" and SFAS No.132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits".
SFAS No. 130 requires that an enterprise reports, by major components and
as a single total, the change in its net assets during the period from
non-owner sources. The Company has presented its comprehensive income
(loss) in the consolidated statements of income.
SFAS No. 131, which superseded SFAS No. 14, "Financial Reporting for
Segments of Business Enterprise," establishes standards for the way that
public enterprises report information about operating segments in financial
statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. The adoption of SFAS No. 131 did not require any changes to the
Company's existing financial statement disclosures.
SFAS No.132 amends the disclosure requirements for pensions and other
postretirement benefits. The adoption of SFAS No.132 had no significant
impact on the Company's current financial statement disclosures.
New accounting standards not yet adopted - The Financial Accounting
Standards Board has issued a new standard SFAS No.133, "Accounting for
Derivative Instruments and Hedging Activities." Management has not yet
completed the analysis of the impact this would have on the financial
statements of the Company.
F - 16
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
5. AVAILABLE-FOR-SALE SECURITIES
The cost and approximate market value of investment securities were as
follows:
As of December 31,
Corporate equity securities: 1998 1997
---- ----
Cost $ 3,795,370 $ 3,814,612
Less: Gross unrealized losses (3,356,080) (2,307,267)
----------- -----------
Estimated fair value $ 439,290 $ 1,507,345
=========== ===========
Carrying value $ 439,290 $ 1,507,345
=========== ===========
All investment securities are pledged to secure the Company's margin loan
payable (See note 8).
Included in the above securities are 48,535,276 shares at December 31, 1998
(1997: 48,535,276 shares) representing 3.9% (1997: 3.9%) of the outstanding
common stock of Heng Fung Holdings Company Limited, ("Heng Fung"). These
securities were acquired in 1997 at a cost of $3,814,612 and had a carrying
value of $439,290 at December 31, 1998 and $1,507,345 at December 31, 1997.
Fai H. Chan and Robert H. Trapp, directors of Heng Fung, are also officers,
directors and/or shareholders of the Company.
The investment securities held by the Company are not subject to any
contractual or statutory resale restrictions and any portion of these
securities can be reasonably expected to qualify for sale within one year.
F - 17
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
6. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
As of December 31,
1998 1997
---- ----
Buildings $ 639,718 $ 722,538
Leasehold land 514,334 580,922
Furniture and equipment 11,347 11,347
--------- ----------
Total 1,165,399 1,314,807
Less: Accumulated depreciation and amortization (503,594) (528,887)
--------- ---------
$ 661,805 $ 785,920
========= =========
7. DEFERRED EXPENDITURE
(a) In June 1995, the Company entered into a consulting agreement with a
previously unaffiliated party pursuant to which it received various
investor relations and financial advisory services. The consulting
agreement had a term of 12 months, subject to earlier termination
thereof or renewal for subsequent periods. Pursuant to the terms of
the agreement, the Company: (a) in June 1995, issued to the consultant
an aggregate of 260,000 shares of common stock and (b) was obligated
to issue to the consultant 20,000 shares of common stock each month
during the term of the agreement.
The unamortized portion of the amount recorded for the 260,000 shares
of common stock initially issued brought forward from 1995 of $703,567
was fully amortized in 1996 and recognized as consulting fees.
During 1996, 100,000 shares of common stock were issued to the
consultant pursuant to the terms of the agreement in (b) above. The
value attributable to the 100,000 shares of common stock issued of
$581,000 was charged to the statement of income in 1996 and recognized
as consulting fees.
F - 18
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
7. DEFERRED EXPENDITURE-continued
(b) In September 1996, the Company entered into a consulting agreement
with another previously unaffiliated party pursuant to which it
received various investor relations and financial advisory services.
The consulting agreement had a term of 12 months, subject to earlier
termination thereof or renewal for subsequent periods. Pursuant to the
terms of the agreement, the Company issued an aggregate of 300,000
shares of common stock to the consultant in September 1996. The value
attributable to the 300,000 shares of common stock issued was
$319,500, which had been capitalized and was amortized over the 12
months term of the consulting agreement.
The unamortized portion of the amount recorded for the 300,000 shares
of common stock initially issued brought forward from 1996 of $234,750
was fully amortized in 1997 and recognized as consulting fees.
(c) In August 1997, the Company entered into a consulting agreement with a
previously unaffiliated party pursuant to which it received various
investor relations and financial advisory services. The consulting
agreement had a term of 12 months, subject to earlier termination
thereof or renewal for subsequent periods. Pursuant to the terms of
the agreement, the Company was obligated to issue 100,000 shares of
common stock to the consultant.
During 1997, 100,000 shares of common stock were issued to the
consultant pursuant to the terms of the agreement above. The value
attributable to the 100,000 shares of common stock issued was
$100,000, which has been capitalized and was being amortized over the
12-month term of the consulting agreement. The unamortized portion of
the amount recorded for the 100,000 shares of common stock issued is
presented as a reduction of shareholders' equity.
During 1998, the unamortized portion of the amount recorded for the
62,500 shares of common stock issued brought forward from 1997 was
fully amortized and recognized as consulting fees.
8. MARGIN LOAN PAYABLE
The margin loan payable is collateralized by the Company's investment
securities with a carrying value of $439,290 (1997: $1,507,345). The loan
is payable on demand and bears interest at Hong Kong best lending rate
(12.5% at December 31, 1998) plus 3.5% per annum.
F - 19
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
9. RELATED PARTY TRANSACTIONS
At the balance sheet date the Company had the following balances with
related parties, which are interest-free, payable on demand and unsecured
unless otherwise stated:
As of December 31,
1998 1997
---- ----
Amounts receivable from:
Parties related to certain directors $ 15,632 $ 18,950
========== =========
Amounts payable to:
Certain directors $ 901,097 $ 620,067
Parties related to certain directors 960,119 284,689
---------- ---------
$ 1,861,216 $ 904,756
========== =========
In addition at December 31, 1998 and 1997, the second mortgage of $77,579
and related interest payable of $25,368 and $38,623, respectively, are
payable to the Silverstein Foundation, Inc., a Panama company, in which Mr.
Fai H. Chan's children have beneficial ownership interests. The related
interest expense was $8,269 in 1998, $7,774 in 1997 and $8,947 in 1996.
On November 1, 1996, the Company entered into a 10 year consulting and
managerial agreement with Tight Hold Investment Limited ("Tight Hold"), a
company in which Fai H. Chan has a beneficial ownership interest. According
to the consulting and managerial agreement, Tight Hold shall provide
consulting and managerial services to the Company in return for an annual
consulting fee of $500,000. Consulting fees paid to Tight Hold during years
ended December 31, 1998, 1997 an 1996 were $500,000, $500,000 and $500,000,
respectively.
On February 1, 1997, the Company issued an aggregate of 1,700,000 shares of
common stock at $0.60 per share to Fai H. Chan (1,300,000 shares), Ronald
M. Lau (100,000 shares), Robert H. Trapp (100,000 shares) and Keow Y. Chan
(200,000 shares) pursuant to private placements for aggregate proceeds of
$1,020,000. Except for Keow Y. Chan who is Fai H. Chan's wife, all of the
above parties were directors of the Company at that time. (See note 11
(c)).
F - 20
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
9. RELATED PARTY TRANSACTIONS-continued
On June 25, 1997, the Company issued 2,500,000 shares of common stock at
$0.24 per share to Fai H. Chan pursuant to a private placement for proceeds
of $600,000. (See note 11 (d)).
The Company maintains deposits in accounts at American Pacific Bank and Fai
H. Chan is an officer and a director of such bank.
10. MORTGAGE LOANS PAYABLE
As of December 31,
1998 1997
----- ----
First mortgage, principal due monthly through
June 15, 2003 with fixed interest at 6.70% $ 741,857 $ 865,594
Second mortgage, principal payable on demand
with interest at Canadian prime (6.00% as at
December 31, 1998) plus 4% 77,579 87,623
-------- --------
819,436 953,217
Less: current portion (109,159) (115,251)
-------- --------
$ 710,277 $ 837,966
======== ========
The mortgage loans are denominated in Canadian dollars. The maturities of
the mortgage loans as of December 31, 1999 are as follows:
1999 $ 109,159
2000 33,596
2001 36,019
2002 38,474
2003 602,188
--------
$ 819,436
========
The Company has pledged property with a net book value of $652,560 (1997:
$775,834) at December 31, 1998 to secure the mortgage loans.
F - 21
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
11. CAPITAL STOCK
During the three years ended December 31, 1998 there were several changes
of the Company's capital as set forth below:
In 1996,
a) the Company issued 100,000 and 300,000 shares of common stock at $5.81
and $1.0625, respectively, pursuant to consulting agreements (See
notes 7 (a) and (b)).
b) the Company issued 727,272 shares of common stock at $1.375 to acquire
a 70% interest in a subsidiary (See note 3).
In 1997,
c) the Company issued 1,700,000 shares of common stock to related parties
at $0.60 per share pursuant to private placements for proceeds of
$1,020,000. (See note 9)
d) the Company issued 2,500,000 shares of common stock to Fai H. Chan at
$0.24 per share pursuant to a private placement for proceeds of
$600,000. (See note 9)
e) the Company issued 100,000 shares of common stock at $1.00 per share
pursuant to a consulting agreement (see note 7(c)).
f) the Company redeemed 727,272 shares of common stock at $1.375 to
reverse the purchase of a 70% interest in a subsidiary (See note 3).
There were no transactions in the Company's capital during 1998.
As of December 31, 1998, there were also outstanding warrants to purchase
an aggregate of 296,443 shares of common stock, at an exercise price of
$3.20 per share through September 2, 1999. No warrants were issued or
exercised during 1998.
F - 22
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
12. INCOME TAXES
No provision for income taxes has been made as the Company and its
subsidiaries had losses for all years presented.
At December 31, 1998 certain of its subsidiaries had operating tax loss
carry forwards for income tax purposes, which may be applied to reduce
future taxable income of the same company. At December 31, 1998 there were
tax loss carryforwards in Hong Kong Special Administrative Region ("Hong
Kong") of approximately $455,000 with no expiration date.
The Company has established a valuation allowance for the entire amount of
these losses. There were no other material temporary differences.
The Company has not filed corporate income tax returns in the United States
for the periods ended June 30, 1996, June 30, 1997, June 30, 1998 and
December 31, 1998. The returns are in the process of being completed and
will be filed as soon as possible. The Company does not anticipate
significant penalties, taxes or interest.
F - 23
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
13. SEGMENT INFORMATION
<TABLE>
<CAPTION>
Rental Investment
For the year ended December 31, 1998 Income Income Consolidated
- ------------------------------------ ------ ---------- ------------
<S> <C> <C> <C>
Revenues .................................. $ 307,327 $ 13,303 $ 320,630
--------- ---------- ----------
Income (loss) from operations ............. 80,714 (25,154) 55,560
General corporate expenses ................ (639,889)
Interest Expense .......................... (492,804)
----------
Loss from continuing operations ........... (1,077,133)
----------
Discontinued operations:
Cement ................................. --
Containers ............................. --
Investment in Duck Farm ................ --
Loss from discontinued operations.......... --
----------
Loss before income taxes .................. $(1,077,133)
==========
Identifiable assets:
Continuing operations .................. $ 703,003 $ 474,435 $ 1,177,438
Discontinued operations:
Cement .............................. --
Containers .......................... --
Investment in Duck Farm ............. --
----------
1,177,438
Corporate assets ....................... 38,328
----------
$ 1,215,766
==========
Supplemental information
Depreciation ........................... $ 34,346 $ 840 $ 35,186
========== ========== ==========
Capital expenditures ................... $ -- $ -- $ --
========== ========== ==========
</TABLE>
F - 24
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
13. SEGMENT INFORMATION - continued
<TABLE>
<CAPTION>
Rental Investment
For the year ended December 31, 1997 Income Income Consolidated
- ------------------------------------ ------ ---------- ------------
<S> <C> <C> <C>
Revenues .................................. $ 346,528 $ 225,393 $ 571,921
---------- ---------- ----------
Income (loss) from operations ............. 116,404 138,794 255,198
General corporate expenses ................ (1,163,415)
Interest Expense .......................... (309,201)
----------
Loss from continuing operations ........... (1,217,418)
----------
Discontinued operations:
Cement ................................. (8,342)
Containers ............................. 59,232
Investment in Duck Farm ................ (301,324)
----------
Loss from discontinued operations ......... (250,434)
----------
Loss before income taxes .................. (1,467,852)
==========
Identifiable assets:
Continuing operations .................. $ 803,754 $ 1,531,620 $ 2,335,374
Discontinued operations:
Cement .............................. --
Containers .......................... --
Investment in Duck Farm ............. --
----------
2,335,374
Corporate assets ....................... 52,688
----------
$ 2,388,062
Supplemental information: ==========
Depreciation ........................... $ 40,320 $ 841 $ 41,161
========== ========== ==========
Capital expenditures ................... $ -- $ -- $ --
========== ========== ==========
</TABLE>
F - 25
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
13. SEGMENT INFORMATION - continued
<TABLE>
<CAPTION>
Rental Investment
For the year ended December 31, 1996 Income Income Consolidated
- ------------------------------------ ------ ---------- ------------
<S> <C> <C> <C>
Revenues .................................. $ 336,644 $ 92,214 $ 428,858
---------- ---------- ----------
Income (loss) from operations ............. 85,883 (59,955) 25,928
General corporate expenses ................ (1,966,224)
Interest Expense .......................... (121,436)
----------
Loss from continuing operations ........... (2,061,732)
----------
Discontinued operations:
Cement ................................. (62,487)
Containers ............................. (241,208)
Investment in Duck Farm ................ --
----------
Loss from discontinued operations ......... (303,695)
----------
Loss before income taxes .................. $(2,365,427)
==========
Identifiable assets:
Continuing operations .................. $ 787,920 $ 710,307 $ 1,498,227
Discontinued operations:
Cement .............................. 395,955
Containers .......................... 8,560,939
Investment in Duck Farm ............. --
----------
$10,455,121
Corporate assets ....................... 170,259
----------
$10,625,380
==========
Supplemental information:
Depreciation ........................... $ 41,395 $ 420 $ 41,815
========== ========== ==========
Capital expenditures ................... $ -- $ 3,363 $ 3,363
=========== =========== ===========
</TABLE>
F - 26
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
13. SEGMENT INFORMATION - continued
The following is a summary of information regarding the Company's
continuing operations by geographical area for each of the three years
ended December 31, 1998:
1998 1997 1996
---- ---- ----
Revenue:
North America ............... $ 312,119 $ 360,030 $ 342,112
Hong Kong ................... 8,511 211,891 86,746
------------ ------------ ------------
$ 320,630 $ 571,921 $ 428,858
============ ============ ============
Operating income (loss):
North America ............... $ 80,714 $ 116,404 $ 91,351
Hong Kong ................... (517,958) (170,407) (186,859)
General corporate expenses .. (639,889) (1,163,415) (1,966,224)
------------ ------------ ------------
$ (1,077,733) $ (1,217,418) $ (2,061,732)
============ ============ ============
Identifiable assets:
North America ............... $ 703,003 $ 803,754 $ 787,920
PRC ......................... -- -- 8,956,894
Hong Kong ................... 474,435 1,531,620 710,307
Corporate assets ............ 38,328 52,688 170,259
------------ ------------ ------------
$ 1,215,766 $ 2,388,062 $ 10,625,380
============ ============ ============
14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of the SFAS No. 107
"Disclosure about Fair Value of Financial Instruments". The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required in interpreting market data to develop
estimates of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts that the Company could realize in
a current market exchange.
F - 27
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS-continued
The carrying amounts of cash and cash equivalents, short-term borrowings,
current portion of mortgage loans payable and margin loan payable, are a
reasonable estimate of their fair value due to the short maturity of the
instruments. The fair value for the available-for-sale securities is based
primarily on quoted market prices and such securities are carried at fair
value.
15. COMMITMENTS AND CONTINGENCIES
The Company had no capital commitments as of December 31, 1998.
The Company leases land in North Vancouver, British Columbia on which the
Company's rental property is located. The annual rent of CDN$110,000
($71,115) is fixed until May 31, 2010. The Company has the option to extend
the lease to May 31, 2032 at a rent to be negotiated.
Total rental expense charged to operations was $85,365 in 1998, $125,201 in
1997 and $131,813 in 1996.
At December 31, 1998, the minimum future rental commitments under
non-cancelable leases payable over the remaining lives of the leases are:
1999 $ 71,115
2000 71,115
2001 71,115
2002 71,115
2003 71,115
2004 through 2010 456,321
--------
$ 811,896
========
F - 28
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
16. SUBSEQUENT EVENTS (RESTATED)
(a) On January 18, 1999, the Company entered into an agreement with SAR
Trading Limited ("SAR") wherein SAR agreed to buy and the Company
agreed to sell all of its interests in the majority of its
subsidiaries for approximately $4,838,000 in the form of the
assumption of certain liabilities. In consideration of the assumption
of liabilities, the Company agreed to issue two notes payable to SAR
in the amounts of $1,000,000 and $3,838,000. The $1,000,000 note will
be immediately convertible into 20,000,000 common shares of the
Company. The $3,838,000 note will be convertible into shares of common
stock of the Company, in minimum increments of $250,000 each, at the
average 15 day trading price at the option of the Company by giving
seven trading days notice in writing to SAR. SAR is owned 100% by Fai
H. Chan. On June 18, 1999, the Company agreed to offset the $1,365,278
amount due from related parties against the $3,838,000 note payable.
The agreements are subject to shareholder approval.
(b) On February 5, 1999, 13,700,000 shares of common stock of the Company
were issued erroneously to SAR in exchange for a portion of the debt
that is to be issued pursuant to the agreements with SAR. Because the
agreements have not yet been approved by the Company's shareholders,
the 13,700,000 shares of common stock have been canceled.
At December 31, 1998, the unaudited pro forma effect of the above
events as if they had occurred on that date and assuming all notes are
converted into common stock is summarized as follows:
December 31, December 31,
1998 Pro forma 1998
(actual) adjustments (pro forma)
------------ ----------- -----------
Total assets ................... $ 1,215,766 $ 185,690 (1) $ 36,178
(1,365,278) (2)
=========== =========== ===========
Total current liabilities ...... $ 5,283,697 $(4,488,781) (1) $ 794,916
Mortgage loans payable ......... 710,277 (710,277) (1) --
Notes payable .................. -- 3,838,000 (1) 2,472,722
(1,365,278) (2)
----------- -----------
Total liabilities .............. 5,993,974 3,267,638
----------- -----------
Shareholders' deficit $(4,778,208) 1,546,748 (1) $(3,231,460)
=========== =========== ===========
F - 29
<PAGE>
POWERSOFT TECHNOLOGIES, INC.
(Formerly known as Heng Fai China Industries, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-continued
(United States Dollars)
16. SUBSEQUENT EVENTS - continued
(1) To reflect the effect of the sale of all the interests in
majority of its subsidiaries by way of the assumption of the
liabilities and the effect of the issuance of the note
payable and the conversion of the $1,000,000 note into
20,000,000 common shares of the Company.
(2) To reflect the effect of setting off the amounts due from
related parties with the $3,838,000 note payable. The
amounts due from related parties arise from the
de-consolidation of the subsidiaries sold and represented
intercompany receivables.
(c) On February 12, 1999, the Company entered into a Technology
License and Services Agreement (the "Agreement") with Cyber
Construction Company, Inc. ("Cyber"). Cyber has developed and
continues to develop certain software applications, methods,
operating procedures, Internet infrastructure design and Internet
site template development (collectively the "Technology"). The
Agreement grants a nontransferable license to the Company to use
and execute this Technology developed by Cyber, along with
related services, for the Company's customers. The Company agrees
to grant and transfer to Cyber, as a consideration of the license
and related services, its preferred stock with a face value of
$10 million, as part of an issuance of up to $50 million of its
preferred shares. The Company has agreed that upon the sooner of
(i) the licensing or acquisition of technologies utilizing the
$50 million proceeds from the sale of preferred shares; or (ii)
February 13, 2001. The transaction contemplated by the agreement
has not yet been consummated and consequently, has not yet been
recorded.
F - 30
<PAGE>
EXHIBIT A
APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to subsection (d)
of this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in favor
of the merger or consolidation nor consented thereto in writing pursuant to
ss.228 of this title shall be entitled to an appraisal by the Court of Chancery
of the fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder: means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss.251 (other than a merger effected pursuant to ss.251(g)
of this title), ss.252, ss.254, ss.257, ss.258, ss.263 or ss.264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to ss.ss.251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the Nation Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
A-1
<PAGE>
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss.253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of 1
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
1 such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of 1 such stockholder's
shares. A proxy or vote against the merger or consolidation shall not constitute
such a demand. A stockholder electing to take such action must do so by a
separate written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidations has become
effective; or
(2) If the merger or consolidation was approved pursuant to ss.228 or
ss.253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of sock of such constituent corporation, and shall
include in such notice a coy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such holders of
any class or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing such notice,
A-2
<PAGE>
demand in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such notice
did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a second
notice before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw 1 such stockholder's demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after the effective
date of the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after 1 such stockholder's written request for such a statement is received by
the surviving or resulting corporation or within 10 days after the expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
A-3
<PAGE>
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register of Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register of Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that 2 such stockholder is not entitled to appraisal rights under
this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall also be so made to each such stockholder, in the case
of holders of uncertified stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties ad the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
A-4
<PAGE>
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded 1 appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided however, that if
no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of 1 such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
339, L. '98, eff. 7-1-98.)
- ------------------------
Ch. 339 L. '98, eff. 7-1-98, added matter in italic and deleted "his" 1 and
"he." 2
A-5
<PAGE>
EXHIBIT B
AMENDMENT TO ASSET SALE AGREEMENT
This first amendment to the January 18, 1999 Asset Sale Agreement between
Powersoft Technologies, Inc., Vendor, and SAR Trading Limited, Purchaser, is
made and entered into this 18th day of June, 1999 by and between:
POWERSOFT TECHNOLOGIES, INC.
1088-650 West Georgia Street
PO Box 11586
Vancouver, B.C.
Canada V6B 4N8
(hereinafter "Vendor")
AND
SAR TRADING LIMITED
Tropic Isle Building
P.O. Box 438
Road Town, Tortola
British Virgin Islands
(hereinafter "Purchaser")
RECITALS
A. The original January 18, 1999 agreement (Original Agreement) is attached
hereto as Exhibit A and is incorporated herein by reference.
B. Vendor and Purchaser desire to amend the Original Agreement.
NOW THEREFORE, the parties hereto agree as follows:
1. The Vendor shall, and does hereby, sell 100% of its VHKP, HFCA,
HFCI, HFCIA, HFM, WCC and GHK shares to the Purchaser. In
consideration of the Purchaser's assumption of liabilities
totaling U.S. $3,472,722.00 from the Vendor subsidiaries, namely
VHKP, HFCA, HFCI, HFCIA, HFM, WCC and GHK, the Vendor hereby
agrees to issue two notes payable to the Purchaser for a total of
U.S. $3,472,722.00.
2. Note I shall be for U.S.$1,000,000.00, to be converted into
shares at $0.05 (five cents) per share immediately upon receipt.
B-1
<PAGE>
3. Note II shall be for U.S. $2,472,722.00. This amount represents
$3,838,000.00 payable by Vendor to Purchaser, (as agreed upon in
the original Asset Sale Agreement dated January 18, 1999), less
$1,365,278.00, which has since become payable by Purchaser to
Vendor as the result of an assignment agreement attached hereto
as Exhibit B.
4. Note II shall be non-interest bearing and can be convertible into
the Vendor share at fifteen trading days average price at the
option of the Vendor by giving seven trading days notice in
writing to the Purchaser. The Note can be converted at a minimum
of $250,000.00 per conversion.
5. The Vendor warrants to the Purchaser that, at the time of
closing, the liability will not exceed U.S.$3,472,722.00.
IN WITNESS WHEREOF the Parties hereto execute this amendment, which shall be
effective as of the 18th day of June, 1999.
POWERSOFT TECHNOLOGIES, INC.
//s// Robert H. Trapp
- -------------------------------------------
Robert H. Trapp, Director
POWERSOFT TECHNOLOGIES, INC.
SAR TRADING LIMITED
//s// Fai H. Chan
- -------------------------------------------
Fai H. Chan, Director
SAR TRADING LIMITED
B-2
<PAGE>
PROXY
POWERSOFT TECHNOLOGIES INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD 15, 1999
The undersigned hereby constitutes and appoints Fai H. Chan and Robert H.
Trapp, and each of them, the true and lawful attorneys and proxies of the
undersigned with full power of substitution and appointment, for and in the
name, place and stead of the undersigned, to act for and to vote all of the
undersigned's shares of $0.01 par value common stock ("Common Stock") of
Powersoft Technologies Inc. (the "Company") at the Annual Meeting of
Stockholders (the "Meeting") to be held in the Board Room of eVision USA.Com,
Inc., One Norwest Center, 1700 Lincoln Street, 31st Floor, Denver, Colorado
80203, on , 1999, at 10:00 a.m. Mountain Time, and at all adjournment(s) thereof
for the following purposes:
1. Election of Directors;
[ ] FOR THE DIRECTOR [ ] WITHHOLD AUTHORITY TO VOTE
NOMINEES LISTED BELOW FOR ALL NOMINEES LISTED
(EXCEPT AS MARKED TO
THE CONTRARY BELOW)
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.
Fai H. Chan
Robert H. Trapp
2. reincorporate the Company by changing the state of incorporation from
Delaware to Colorado by the adoption of a Plan and Agreement of Merger
pursuant to which the Company will effectuate a 30 to 1 reverse split
of its common stock and will be merged with and into Asia SuperNet
Corporation, a Colorado corporation, which is a wholly owned
subsidiary of the Company formed specifically for the purpose of the
reincorporation and which shall be the surviving corporation;
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
3. approve an agreement between the Company and SAR Trading Limited
("SAR"), a company wholly owned by Fai H. Chan, an officer, director
and majority stockholder of the Company, whereby the Company agreed to
sell and SAR agreed to purchase all of the operating subsidiaries of
the Company in consideration for which the Company agreed to issue SAR
$3,472,272 of convertible debt net of related party accounts
receivable of $1,365,278; and
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
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<PAGE>
4. transact such other business as may lawfully come before the Meeting
or any adjournment(s) thereof.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
The undersigned hereby revokes any proxies as to said shares heretofore
given by the undersigned and ratifies and confirms all that said attorneys and
proxies lawfully may do by virtue hereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THEN THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
AT THE MEETING FOR THE ELECTION OF THE DIRECTORS AND FOR THE OTHER ITEMS LISTED
ABOVE.
It is understood that this proxy confers discretionary authority in respect
to matters not known or determined at the time of the mailing of the Notice of
Annual Meeting of Stockholders to the undersigned. The proxies and attorneys
intend to vote the shares represented by this proxy on such matters, if any, as
determined by the Board of Directors.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders and the Proxy Statement and Annual Report to Stockholders
furnished therewith.
Dated and Signed:
, 1999
--------------------------------------
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---------------------------------------------
Signature(s) should agree with the name(s)
stenciled hereon. Executors, administrators,
trustee, guardians and attorneys should so
indicate when signing. Attorneys should
submit powers of attorney.
2
