SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-17250
GETGOMAIL.COM INC.
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(formerly Electrocon International Inc.)
(Exact name of Registrant as specified in its charter)
British Virgin Islands
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(Jurisdiction of incorporation or organization)
Prosperity Centre
8/F, Block B
77 Container Port Road
Kwai Chung
New Territories, Hong Kong
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the
Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Shares,
$0.0001 par value per share
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act: NONE
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Indicate the number of outstanding shares of each of the Issuer's classes
of capital or common stock as of the close of the period covered by the annual
report: 9,210,920 Common Shares, par value $0.0001, were issued and outstanding
as of December 31, 1999.
Indicate by check mark whether the registrant: (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark which financial statement item the Registrant has
elected to follow:
Item 17 [ ] Item 18 [X]
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TABLE OF CONTENTS
Part I Page
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Item 1 Description of Business........................................ 1
Item 2 Description of Property........................................ 19
Item 3 Legal Proceedings.............................................. 20
Item 4 Control of Registrant.......................................... 21
Item 5 Nature of Trading Market....................................... 21
Item 6 Exchange Controls and Other Limitations
Affecting Security Holders................................... 22
Item 7 Taxation....................................................... 22
Item 8 Selected Financial Data........................................ 23
Item 9 Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 25
Item 10 Directors and Officers of Registrant............................ 30
Item 11 Compensation of Directors and Officers.......................... 32
Item 12 Options to Purchase Securities from Registrant
or Subsidiaries............................................... 32
Item 13 Interest of Management in Certain Transactions.................. 34
Part II
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Item 14 Description of Securities to be Registered...................... 36
Part III
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Item 15 Defaults upon Senior Securities................................. 36
Item 16 Changes in Securities and Changes in Security
for Registered Securities..................................... 36
Part IV
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Item 17 Financial Statements............................................ 36
Item 18 Financial Statements............................................ 36
Item 19 Financial Statements and Exhibits............................... 37
This Annual Report on Form 20-F contains forward-looking statements. These
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those anticipated in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in the section entitled "Risk Factors"
under Item 1 - "Description of Business."
Readers should not place undue reliance on forward-looking statements,
which reflect management's view only as of the date of this Report. The Company
undertakes no obligation to publicly revise these forward-looking statements to
reflect subsequent events or circumstances. Readers should also carefully review
the risk factors described in other documents the Company files from time to
time with the Securities and Exchange Commission.
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PART I
Item 1. DESCRIPTION OF BUSINESS
As used in this Annual Report, "China" refers to all parts of the People's
Republic of China other than the Special Administrative Region of Hong Kong. The
term "Company" refers to Getgo Mail.Com Inc. and, where the context so requires
or suggests, its direct and indirect subsidiaries.
The Company
Getgo Mail.Com Inc. ("the Company") was incorporated in March 1988 under
the name "Electrocon International Inc." as a limited liability International
Business Company under the laws of the British Virgin Islands to serve as a
holding company for the Company's wholly owned subsidiary, Electrocon Products
Limited ("EPL"), a Hong Kong corporation. The Company subsequently changed its
name to Getgo Mail.Com on October 14, 1999. As an International Business
Company, the Company is prohibited from doing business with persons resident in
the British Virgin Islands, from owning real estate in the British Virgin
Islands and from acting as a bank or insurance company. The Company was
incorporated in the British Virgin Islands principally to facilitate trading in
its shares. The government of Hong Kong imposes duty on the transfer of
securities of Hong Kong corporations. No such duty is imposed by the British
Virgin Islands, and the Company is also exempt from income tax in the British
Virgin Islands. The Company's corporate administrative matters are conducted
through its registered agent, HWR Services Limited, Craigmuir Chambers, P.O. Box
71, Road Town, Tortola, British Virgin Islands. The Company's principal
executive offices are located at Prosperity Centre, 8/F, Block B, 77 Container
Port Road, Kwai Chung, New Territories, Hong Kong; telephone: 852-2481-6022;
facsimile: 852-2481-5817.
The Company is a diversified, Hong Kong-based holding company. Prior to
1999, the Company conducted operations through its subsidiaries primarily in the
following separate business segments:
o the distribution of semiconductor products (primarily computer chips),
personal computer products, and non computer related products such as
digital signal processors, digital video disc servo chips, point of
sale modem chips and micro controller units, to small and medium-sized
manufacturers located in Hong Kong and China;
o the distribution of golf carts, irrigation products and systems,
fertilizer and turf equipment to golf clubs in Hong Kong, Macau and
China;
As a new course of business, in 1999 the Company acquired certain license
rights under two patent license agreements (the "Patent License Agreements")
with Visual Access Technologies, Inc. ("VAT"). These license agreements grant
the right to the Company for the development, manufacture, use and sale of Getgo
Mail(TM) Cards and enabling software for use by customers of providers of voice,
email, data and facsimile messaging services. With the proprietary technology
acquired under these license agreements the Company intends to complete the
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development and begin manufacturing of a credit card size device that permits a
user to access voice data and store and retrieve the data from the device much
as if it were in standard e-mail format. The Company believes that this
technology will provide the user with substantially more convenience in
retrieving voice-messaging data. The Company's new subsidiary, Getgo Mail USA is
the entity that conducts operations for this new product. The Company has
completed a working prototype of the Getgo Mail(TM) Card. The Company is in the
process of completing development of the enabling software that will permit
commercial use of the card.
The Company's principal operating entities are EPL, Bothgreat Technology
Limited ("Bothgreat") and GETGO MAIL.COM USA INC ("Getgo Mail USA"). In
addition, the Company changed the name of its subsidiary Electrocon Instruments
Limited to Getgo Mail.Com, Limited in September 1999. There have been no
operating activities in this subsidiary to date. As a result of the Company's
changing focus, the operating activity of certain other subsidiaries of the
Company has diminished and the Company has transferred any remaining activity
into other subsidiaries of the Company with active operations. China Electrocon
Ltd. ("CEL") and Electrocon Overseas Limited ("EOL") have no operating activity
and are dormant. Electrocon (PRC) Limited ("EPRC") had limited activity in 1999
and management anticipates that this subsidiary will become dormant after the
end of the current fiscal year.
Electrocon Products Limited
EPL, the operating entity through which the Company conducts its chip
distribution business, was incorporated under the laws of Hong Kong as a limited
liability company in 1978 and became a wholly-owned subsidiary of the Company in
May 1988. (See "Computer Chip Distribution Business.") EPL's total 1999 sales,
including sales to affiliates, were approximately $13.6 million. EPL sells the
chips produced by a number of well-known computer chip producers to small and
medium-sized manufacturers in Hong Kong and China. EPL serves as a distributor
for Texas Instruments Asia Limited ("TI HK"), the Hong Kong subsidiary of Texas
Instruments Incorporated, to sell TI HK's broad-based computer chip product
lines in the Hong Kong market. In 1996 TI HK supplied approximately 87% of the
computer chips sold by the Company. However, during 1997, the Company
experienced a decline in the margins relating to the DRAM product line of
computer chips purchased from TI HK. Accordingly, in order to avoid exposure to
volatile prices and other high risk factors associated with the DRAM product
line supplied by TI HK, the Company made a strategic decision to drop that
product. As a result, the Company bought only 47% of its chips from TI HK in
1997, 36% in 1998 and 37% in 1999. EPL also serves as the distributor for Zilog,
Inc., Linfinity Microelectronics Inc. and TDK Semiconductor Corporation in Hong
Kong and China. The Company intends to continue to seek new markets in China
that utilize these products. See "Computer Chip Distribution Business."
Bothgreat Technology Limited
In 1993, EPL acquired 90% of the now-outstanding common stock of Bothgreat,
a Hong Kong corporation, from two officers and directors of the Company. EPL
subsequently acquired the remaining 10% of Bothgreat. Bothgreat is a distributor
of golf course irrigation products, systems and irrigation installation
contracts and turf equipment for sales in Hong Kong, Macao and China. During
1999, Bothgreat's total sales were approximately $4.0 million.
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Getgo Mail USA, Inc.
Getgo Mail USA, a British Virgin Islands international business company,
was formed in January 2000 as a wholly owned subsidiary of the Company for the
purpose of the development and the marketing and distribution of the Getgo
Mail(TM) Card. The Company acquired the rights under the Patent License
Agreements in return for the issuance to VAT of 450,000 shares of the Company's
common stock. The Company valued these shares at $465,625 for the purpose of
calculating the cost of the patent licenses based upon the quoted market price
of the Company's common stock on the date of issuance of the shares. Getgo Mail
USA incurred development costs for the Getgo Mail(TM) Card of approximately
$34,000 in 1999. While the Getgo Mail(TM) Card is still in final-stage
prototype development, the Company began some marketing activities effective May
1, 2000. The Company has not earned any revenues to date from this product.
The Company has announced that upon a registration statement being deemed
effective by the Securities and Exchange Commission (the "SEC") registering the
shares of common stock of its wholly owned subsidiary GetgoMail.Com USA Inc.,
the Company will distribute 90% of the issued and outstanding shares of the
subsidiary to its shareholders. Presently, the Company has not filed such a
registration statement with the SEC, nor can there be any assurances that such a
registration statement would become effective, if filed.
Electrocon (PRC) Limited
EPRC, a Hong Kong corporation, was formed in 1993 as a wholly-owned
subsidiary of EPL for the purpose of marketing and distributing the TI line of
chips in China. The function of the EPRC liaison office, which is located in
Shenzhen, China, was, historically, to contact new customers and to take orders
on behalf of EPL. The operating revenues of this subsidiary substantially
diminished in 1998 and 1999 because the Company has begun to substantially shift
all operating activity back into EPL. The Company's management anticipates that
EPRC will become dormant after the end of the fiscal year ending December 31,
2000, once all operating activity has been shifted into EPL. EPRC's total 1999
sales, including sales to affiliates, were approximately $13,000. These sales
amounts are consolidated with those of EPL for financial reporting purposes.
Computer Chip Distribution Business
The Company, principally through EPL and EPRC, is engaged in the
distribution and sale of computer chips in Hong Kong and China. The Company acts
as agent or distributor for a number of well-known computer chip manufacturers
in Hong Kong, the United States and elsewhere. The Company's customers are
primarily small and medium-sized manufacturers or traders located in Hong Kong
and China. The Company's customers historically have used the chips in a variety
of electronic products, principally personal computers and consumer electronics
products. The Company, however, has begun to recently promote its modem chips
for uses also in intelligent home appliances, tax collection machines, IC cards
and point of sale machines. The Company's computer chip distribution business
accounted for approximately 77% of its operating revenues for the year ended
December 31, 1999. Management of the Company intends to continue their efforts
to reduce the Company's dependence on commodity chips used in the manufacture of
clocks and other commodity products and to concentrate on more profitable lines
of chips. See "Suppliers" and "Competition."
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The Company sells hundreds of types of chips, from standard "commodity"
chips to "high-tech" microprocessors. "Commodity" chips include various large
volume and low technology content chips and accounted for approximately 68% of
the revenues of the Company from sales of computer chips. The remaining
"high-tech" class of computer chips sold by the Company include custom and
semi-custom chips, such as ASICs (application specific integrated circuits),
programmable logic devices, standard cell components and chips with gate arrays.
Sales of these computer chips accounted for the remaining 32% of the computer
chips revenue of the Company. There was no shortage of chips in 1999, and there
was a continuous supply of all variety of chips.
Customers and Marketing
The Company's computer chip customers, all in Hong Kong and China, are
primarily small and medium-sized manufacturers and traders who purchase chips
for use in a variety of electronic products. These products include personal
computers and peripherals (approximately 8%), consumer electronics, including
voice prom and optocouplers (approximately 34%), telecommunications
(approximately 33%) and other products (approximately 25%). The Company supplies
over 150 customers in Hong Kong and 110 customers in China. Total sales of chips
and electronic spare parts were approximately $13.6 million during 1999 compared
to approximately $16.7 million in 1998. The decline in the Company's revenues
from its computer chip business in 1999 was primarily due to the fact that sales
of the TI Asia line of commodity chips declined from the previous fiscal year.
See "Suppliers," below.
One customer, Skyworth (Group) Co. accounted for approximately 12% of the
Company's chip sales during 1999. The Company does not believe that the loss of
this customer will have a material adverse impact on its revenues and earnings.
The Company estimates that the worldwide computer chip industry grew in
1999 by approximately 11.8%. The Company's revenue from its chip business,
however, declined by approximately 18.5% during 1999, primarily as a result of
continued repurcussions from the Company's decision to discontinure certain
lines of its computer chip distribution business in 1998. (See "Suppliers,"
below.) The Company forecasts that chip demand will continue to grow in the
entire Eastern Asian region and that China will offer the greatest potential for
growth during the next several years. The Company has established a liaison
office in Shenzhen, PRC with the intent of benefiting from opportunities that
may arise in China.
For the most part, advertising and market promotion expenses for particular
products for which the Company acts as a distributor are incurred by the chip
manufacturers who supply the chips to the Company. The Company's costs for
marketing such products are thus minimal.
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Suppliers
In Hong Kong, the Company represents, either as distributor or agent,
several of the world's largest compputer chip manufacturers. The Company has
done business with TI HK for over 17 years. TI HK supplied approximately 87% of
the computer chips sold by the Company in the year ended December 31, 1996.
During 1997, the Company experienced a decline in the margins relating to the
DRAM product line of computer chips purchased from TI HK. Accordingly, in order
to avoid exposure to volatile prices and other high risk factors associated with
the DRAM product line supplied by TI HK, the Company made a strategic decision
to drop that product. As a result, the Company bought only 47% of its chips from
TI HK in 1997, 36% in 1998 and 37% in 1999. The Company also represents TDK
Semiconductor Corporation (which supplied approximately 15% of the chips sold by
the Company during 1999) and numerous California companies, including Zilog,
Inc. (which supplied approximately 35% of the chips sold by the Company during
1999), and Linfinity Microelectronics (which supplied approximately 10% of the
chips sold by the Company during 1999). The Company represents these
manufacturers on a non-exclusive basis in Hong Kong and China.
Most of the Company's arrangements with its chip suppliers are evidenced by
formal distributorship or sales representative agreements that are typically
non-exclusive and are for a period of one year. The Company's agreements with
its suppliers authorize the Company to represent or carry the product lines of
these chip manufacturers in Hong Kong and China. To date, the Company has not
experienced any problems in renewing most agreements, and the Company believes
that it has a reasonably stable relationship with its suppliers. The Company has
no set return policies with its existing suppliers.
Seasonality and Backlog
The seasonal cycles in the Company's business are related to the seasonal
cycles in the electronics business generally and the types of finished products
made with chips supplied by the Company. Sales of the Company's chips that are
incorporated into toys, clocks and radios, for example, generally increase from
April through October, as the manufacturers of these consumer products increase
their production in anticipation of the Christmas holiday season. Sales of the
Company's chips used in computers are steady throughout the year. To facilitate
fast, "off-the-shelf" delivery, the Company currently maintains an average
inventory of approximately four weeks of sales. As of December 31, 1999, the
Company's inventory of chips was valued at approximately $1.1 million.
Approximately 80% of these inventories represent the most commonly sold
commodity items and have a relatively fast turnover. The remaining 20%
represents custom and semi-custom items or add-on cards. New and improved chips
are constantly being developed. As a consequence, inventories of chips can be
rendered obsolete within relatively short periods of time. Although the Company
has not regularly experienced technological obsolescence in its inventories, it
did provide for approximately $22,000 of inventory in 1999 as obsolete and,
therefore, of no further value to the Company.
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Transportation
At present, the Company incurs minimal transportation costs in its chip
distribution business, as its customers are located in Hong Kong and China. The
Company bears all transportation costs on shipments of chips from local
suppliers in Hong Kong to customers in Hong Kong and China. The Company paid
approximately $117,000 in transportation costs in 1999. Transportation costs may
increase somewhat if the Company further expands its business into China or
other countries.
Competition
The sale and marketing of computer chips is a highly competitive business.
The Company's major competitors are other authorized distributors and agents for
the products the Company represents as well as other product lines. A number of
the major manufacturers, such as Motorola, National Semiconductor Ltd., Toshiba
and NEC, also market their own products. These companies, however, sell
primarily to larger customers, while the Company markets to small and
medium-sized customers. The Company's major competitors in Hong Kong are Arrow
China, Atek Electronics and WPI HK Ltd. in Hong Kong, and Gold Insignia, Arrow
China and WPI HK Ltd. in China. In addition to these main competitors, the
Company estimates that there is an extremely large number of small to
medium-sized companies that compete with the Company. These companies have lower
overheads than the Company and are, therefore, able to aggressively price their
product. The Company's success in the market is primarily due to its product
reliability, technical support and excellent customer service rather than its
price competiveness.
The Company has not yet marketed its Getgo Mail(TM) Card. The Company has
developed a prototype, but as yet, has not completed the development work on the
enabling software that permits the user to integrate the product with its
hardware. When the Company begins to market this product it anticipates that its
competition will be Palm Inc. (Palm Pilot) and other manufacturers of cellular
phone products and wap phones, a type of cellular phone that is capable of
downloading e-mail from Internet Service Providers.
The level of competition is likely to increase as current competitors
increase the sophistication of their offerings and as new participants enter the
market. In the future, as the Company expands its product offerings, it expects
to encounter increased competition. Many of the Company's current and potential
competitors have longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial, marketing and other
resources than the Company does and may enter into strategic or commercial
relationships with larger, more established and well-financed companies. Certain
of the Company's competitors may be able to enter into such strategic or
commercial relationships on more favorable terms. Further, certain of the
Company's competitors may offer services at or below cost. In addition, new
technologies and the expansion of existing technologies may increase competitive
pressures on the Company. Increased competition may result in reduced operating
margins and loss of market share. Management is optimistic that the Company's
product solution will be able to compete favorably with that of other providers
with respect to the following:
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o Patent protection;
o lower cost design;
o providing greater functionality and access to leading technologies and
protocols, which in turn enables customers to choose the protocol that
best suits their end-users' needs; and
o enabling customers to maintain brand control, thereby enhancing their
brand identity.
Despite the Company's efforts it may not be able to compete successfully
against its competitors, and competitive pressures could have a material adverse
effect on the Company's business,
Turf and Irrigation Business
In 1993, EPL acquired 90% of the now-outstanding common stock of Bothgreat
Technology Limited ("Bothgreat"), a Hong Kong corporation that was controlled by
Edward Y.F. Ting and Frederick T.F. Ko, both of whom were officers and directors
of the Company. Bothgreat was organized in 1992 to act as a distributor of golf
turf and irrigation systems to businesses in China. Bothgreat currently acts as
a non-exclusive distributor for several American companies that manufacture such
products, such as Rain Bird, John Deere and Club Car, Inc. Bothgreat's
distributorship agreements are one-year agreements covering China (south of the
Pearl River delta) and Macau. Bothgreat previously had a distributor agreement
with J.R. Simplot; however, in January 1999, J.R. Simplot elected not to renew
that agreement.
In 1999 Bothgreat's net sales were approximately $4.0 million, with an
operating loss of approximately $332,000. Of the approximately 65 customers of
Bothgreat, no one customer accounted for 10% or greater of the net sales for
1999.
In April 1998, the Company acquired all of the assets and business of
Flownet Irrigation Engineering Services Company in exchange for 300,000 shares
of the Company's common stock. At the time of the acquistion the pump service
capability obtained by the Company through this transaction provided a solution
to the problems of the Company's various irrigation projects in China. However,
with the decline in the Asian economy and the resulting impact on the Company's
turf and irrigation business, the Company sold these assets in August 1999 to a
company beneficially owned by Mr. Edward Ting, a director of the Company. The
total consideration for the sale was $150,000, resulting in a loss of $49,255.
The Company subsequently remitted the total consideration received for these
assets to Mr. Ting as partial payment of loans he had made to the Company.
Unified Messaging Business
On July 1, 1999, the Company entered into a patent license agreement (the
"July 1 Agreement") with Visual Access Technologies, Inc. ("VAT"), a New York
corporation. Under this agreement, the Company received certain rights to
manufacture, use and sell the Getgo Mail(TM) Card and to develop, manufacture,
use and sell certain enabling software that operates in conjunction with the
Getgo Mail(TM) Card.
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Under the July 1 Agreement, the Company received the following:
o an exclusive license to manufacture, use and sell Getgo Mail(TM)cards
in Asia;
o a non-exclusive license to manufacture Getgo Mail(TM)cards for sale
outside of Asia;
o a non-exclusive license in Asia to manufacture, use and sell enabling
software supporting the functionality of Getgo Mail(TM) cards; and
o a non-exclusive license to develop and sell ASIC products that perform
the functionality of a Getgo Mail(TM) Card and which are intended to
be embedded into such devices as cell phones, personal digital
assistants ("PDA") and other portable and desktop devices.
In addition, upon achieving additional stipulations in the July 1 Agreement
and subject to further negotiations regarding the issuance of additional shares
of the Company's common stock to VAT, the Company expects that it will also be
able to acquire the exclusive license to sell the Getgo Mail product and
supporting software in United States.
The Company entered into a second license agreement with VAT on October 14,
1999 (the "October 14 Agreement," the July 1 Agreement and the October 14
Agreement collectively the "Patent License Agreements"). The October 14
Agreement permits the Company to manufacture, use and sell the visual access
program as "application specific integrated circuits ("ASIC"). These custom
ASICs are expected to perform the specific function of remote visual access
messaging from a server, allowing for the retrieval and linking of voice mail
and e-mail messages to a cellular phone, PDA, laptop computer or other
communications device. Both the enabling software and the Getgo Mail(TM) card
are expected to work together with proprietary encryption.
It is the Company's current plan to first establish a demand for the Getgo
Mail(TM) card with commercial customers such as large Internet service providers
and then develop a market for an ASIC product that would be designed and built
to a customer's specifications and used in that customer's product. There can be
no assurance that a demand will develop for an ASIC product that performs the
specific function of remote visual access messaging from a server, allowing for
the retrieval and linking of voice mail and e-mail messages to a cellular phone,
PDA or laptop computer.
As consideration for the patent licenses received under the Patent License
Agreements, the Company issued 250,000 shares of the Company's unregistered
common stock on July 1, 1999 to VAT. The Company also issued 140,000 shares of
the Company's unregistered common stock on October 14, 1999 and issued to VAT
and additional 60,000 shares of the Company's unregistered common stock on
December 21, 1999 under the terms of the December 14 Agreement. The Company
valued these shares at $465,625 for the purpose of calculating the cost of the
patent licenses based upon the quoted market price of the Company's common stock
on the date of issuance of the shares. VAT subsequently transferred the shares
received in these transactions among its stockholders. In addition, the Company
has agreed to pay VAT royalty payments based upon the number of Getgo Mail(TM)
Cards and ASICs sold pursuant to the licenses.
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Since July 1, 1999, upon the acquisition of the Patent License Agreements,
the Company has turned its focus to the Unified Messaging market. The Company
has developed a working prototype for a new line of credit card size Unified
Messaging product capable of receiving and sending Internet remote voice mail,
e-mail and facsimile message downloads through a cellular phone or landline
telephone. The Company expects to market this product as the Getgo Mail(TM)
Card. It is anticipated that the GETGO Mail(TM) Card will snap into a cell phone
or landline phone for automatic downloading. The proprietary software associated
with this product, called the "Visual Access Platform," is expected to allow
voice data to be stored within an e-mail box and to be formatted with the
original caller's identity. This information can then be seen on the GETGO
Mail(TM) Card's screen and will be directly accessible as if it were standard
e-mail.
The Company's licensed technology permits it to make and sell other
products that provide a visual listing of voice mail and a link to the
corresponding voice mail message through an Internet visual access platform.
Although standard e-mail and facsimile messages have header formats that
identify the original sender, standard voice mail does not. With the Company's
licensed technology, a format for establishing original sender headers for
voicemail stored in e-mail boxes will be available, thus allowing for access to
voice mail and the original sender's identity as conveniently as if it were an
e-mail. The Company has the exclusive patent license to sell the product and
supporting software throughout Asia. The Company has not yet acquired the
exclusive license to this technology in any other parts of the world but those
areas described above.
The Getgo Mail(TM) Card enabling software is expected to be incorporated at
the server level, and allow visual identification of callers' identities and
selective access to their linked recorded voice message. Management expects that
this will be an improvement for the user over existing Unified Messaging
capability. This is because the Getgo Mail(TM) Card and the enabling software
will eliminate the need to listen to the actual message to determine the
caller's identity. Nor will the user need to listen to the messages sequentially
or chronologically, thereby saving time and effort. Additionally, the voice
message is expected to be linked to pre-stored data in a database. This will
permit the user, when listening to the message, to view relevant information,
such as facsimile number, alternate phone number, etc., that might not have been
left in the audio message. Depending on several factors including production
volume and parts availability, and based upon initial engineering prototyping
design, management believes the Getgo Mail(TM) Card will be able to be produced
inexpensively. The Company has developed a working prototype of the card and is
presently modifying the enabling software to permit interface with user
hardware.
The resources required to support the development of the Getgo Mail(TM)
Card/Unified Messaging business are significant and the Patent License Agreement
is indicative of a significant departure from the Company's two historical
business segments.
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Other Investments and Activities
On August 2, 1999 the Company sold all assets related to its pump services
operations previous acquired from the Flownet Irrigation Engineering Services
Company. The Company received total consideration of $150,000, resulting in a
loss on the investment of $49,255. Other than the transaction described above,
the Company did not acquire or dispose of any other investments or engage in any
other business activities during the fiscal year ended December 31, 1999.
Government Regulation
United States export laws impose restrictions on the export and re-export
of all U.S.-origin goods and technology, whether shipped directly from the U.S.
or from foreign subsidiaries or affiliates of U.S. companies. The primary
purpose of these restrictions is to prevent certain strategic goods and
technology from being delivered to communist and other "restricted"
destinations. Thus, exporters may generally ship U.S.-origin goods and
technology only under an export license granted by the United States Department
of Commerce and only upon receipt from the importer of certain representations
as to the final destination of the goods or technology being shipped. Further,
neither the exporter, the importer nor any other person may, without Department
of Commerce approval, re-export U.S.-origin goods or technology or foreign
products containing U.S.-origin parts or components or based on technical data
of U.S.-origin from the authorized destination to any other restricted
destination. Since most of the Company's chip suppliers are either U.S.
companies or subsidiaries or affiliates of U.S. companies, and its customers use
U.S.-origin components, virtually all of the chips sold by the Company are
subject to U.S. export laws. U.S. export laws also apply to the components (and
end products using these components) obtained from U.S. suppliers for the
Company's electronics business.
The export and import of goods into and out of Hong Kong must be made under
a license granted by the Hong Kong government. The Company may also be subject
to the import, export and trading laws of other countries where it does or may
do business.
A violation of any export, import or trading law by the Company or any of
its affiliates or suppliers that results in the denial of export or trading
privileges to any of such parties could have a material adverse effect on the
Company and its operations. The Company believes that it is in compliance with
all applicable export, import and trading laws and that it has taken all steps
necessary to ensure continued compliance with such laws. The Company is also not
aware of any denial orders restricting the ability of any of its suppliers from
exporting chips or components to the Company. However, there can be no assurance
that such an order will not be issued in the future.
Although there are currently few laws and regulations directly applicable
to the Internet and commercial unified messaging products and services, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet or commercial unified messaging products and services covering
issues such as user privacy, pricing, content, copyrights, distribution,
antitrust and characteristics and quality of products and services. Further, the
growth and development of the market for online unified messaging may prompt
calls for more stringent consumer protection laws that may impose additional
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burdens on those companies conducting business online. The adoption of any
additional laws or regulations may impair the growth of the Internet or
commercial online services, which could, in turn, decrease the demand for our
products and services and increase our cost of doing business, or otherwise have
a material adverse effect on our business, operating results and financial
condition. Moreover, the applicability to the Internet of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes, libel and personal privacy is uncertain and may take years to
resolve. Any such new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to our business
or the application of existing laws and regulations to the Internet could have a
material adverse effect on our business, operating results and financial
condition.
Employees
As of March 31, 2000, the Company employed 36 persons on a full-time basis,
of whom 25 were associated with its chip distribution business, eight were
associated with its turf and irrigation equipment business, and three were
associated with its unified messaging business. The Company and its subsidiaries
are not parties to any material labor contract or collective bargaining
agreement.
Licenses, Franchises, Concessions and Royalty Agreements
As of December 31, 1999, the Company has no licenses, franchises,
concessions or royalty agreements that are material to its business as a whole,
except for the distributorship and sales representative agreements with its chip
and golf related products suppliers and the Patent License Agreements with VAT.
Patents and Trademarks
As of December 31, 1999, except for the patent rights acquired under the
Patent License Agreements, the Company does not hold and has not applied for any
patents or trademarks in the United States or other countries.
The Company regards its patent rights, copyrights, service marks,
trademarks, trade secrets and similar intellectual property acquired under the
Patent License Agreements as critical to its success. The Company will rely on
patent, trademark and copyright law, trade secret protection and confidentiality
and/or license agreements with its employees, customers, partners and others to
protect our proprietary rights. The Company has applied for, but has received no
registered trademarks or service marks to date. It may be possible for
unauthorized third parties to copy certain portions of our products or reverse
engineer or obtain and use information that we regard as proprietary. Certain
end-user license provisions protecting against unauthorized use, copying
transfer and disclosure of the licensed program may be unenforceable under the
laws of certain jurisdictions and foreign countries.
The Company is not aware if the patents rights acquired under the Patent
License Agreements will be challenged or invalidated. In addition, the laws of
some foreign countries do not protect proprietary rights to the same extent, as
do the laws of the United States. There can be no assurance that our means of
protecting our proprietary rights in the United States or abroad will be
adequate or that companies with which we compete will not independently develop
similar technology.
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Other parties may assert, from time to time, infringement claims against
us. The Company may also be subject to legal proceedings and claims from time to
time in the ordinary course of our business, including claims of alleged
infringement of the trademarks and other intellectual property rights of third
parties by us and our licensees.
In the future, if we add certificate technology to our systems, we may
license additional technology from third-party vendors. We cannot be certain
that these third-party content licenses will be available to us on commercially
reasonable terms or that we will be able to successfully integrate the
technology into our products and services. These third-party licenses may expose
us to increased risks, including risks associated with the assimilation of new
technology, the diversion of resources from the development of our own
proprietary technology and our inability to generate revenues from new
technology sufficient to offset associated acquisition and maintenance costs.
The inability to obtain any of these licenses could result in delays in product
development until equivalent technology can be identified, licensed and
integrated. Any such delays in services could cause our business, financial
condition and operating results to suffer.
Certain Foreign Issuer Considerations
Transfer of Sovereignty over Hong Kong to China. The principal executive
offices of the Company and all operations and assets of the Company are located
in Hong Kong and China. Prior to July 1, 1997, Hong Kong was a British Crown
Colony with responsibility for administering its own internal affairs. After
several years of negotiations concerning Hong Kong's future, Great Britain and
China signed (December 1984) and ratified (May 1985) the Sino-British Joint
Declaration on the Future of Hong Kong (the Sino-British Agreement). Pursuant to
the Sino-British Agreement, Hong Kong was restored to China on July 1, 1997.
Ownership of Real Property. All land in Hong Kong is owned by the
Government of the Hong Kong Special Administrative Region (the Government).
Prior to July 1, 1997, the Government granted Crown Leases to persons, firms and
corporations on the basis of an annual crown rental payment and other terms and
conditions therein contained. Crown Leases were freely assignable during their
term. In implementation of the Sino-British Agreement, the New Territories
Leases (Extension) Ordinance was enacted and came into effect on April 25, 1988.
Pursuant to that Ordinance, all leases in the New Territories of Hong Kong were
extended up to June 30, 2047. Such extension was at no premium but was subject
to an annual fee equivalent to 3% of the ratable value of the property to be
charged with effect from the date on which the original lease would have
expired.
The land ownership system in China is similar to Hong Kong, in which all
land is owned by the government. The Chinese government and its various
government instrumentalities grant leases to persons, firms and corporations on
the basis of an annual rental payment and other terms and conditions. Such
leases are generally freely transferable during their term.
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Enforceability of Certain Civil Liabilities and Certain Foreign Issuer
Considerations. The Company is a British Virgin Islands holding corporation.
Outside the United States, it may be difficult for investors to enforce
judgments against the Company obtained in the United States in any action
brought against it under the securities laws of the United States, including
actions predicated upon civil liability provisions of the United States
securities laws. In addition, most of the Company's officers and directors
reside outside the United States and most of the assets of these persons and of
the Company are located outside of the United States. As a result, it may be
difficult or impossible for investors to effect service of process within the
United States upon such persons, or to enforce against the Company or such
persons judgments obtained in United States courts predicated upon the liability
provisions of the United States securities laws. The Company has been advised by
its British Virgin Islands counsel and by its Hong Kong counsel that there is
substantial doubt as to the enforceability against the Company or any of its
directors and officers located outside the United States in original actions or
in actions for enforcement of judgments of United States courts of liabilities
predicated solely on the civil liability provisions of the United States
securities laws.
The Company has been advised by its counsel that no treaty exists between
Hong Kong or the British Virgin Islands and the United States providing for the
reciprocal enforcement of foreign judgments. However, the courts of Hong Kong
and the British Virgin Islands are generally prepared to accept a foreign
judgment as evidence of a debt due. An action may then be commenced in Hong Kong
or the British Virgin Islands for recovery of this debt. A Hong Kong or British
Virgin Islands court will only accept a foreign judgment as evidence of a debt
due if: (i) the judgment is for a liquidated amount in a civil matter; (ii) the
judgment is final and conclusive and has not been stayed or satisfied in full;
(iii) the judgment is not directly or indirectly for the payment of foreign
taxes, penalties, fines or charges of a like nature (in this regard, a Hong Kong
or British Virgin Islands court is unlikely to accept a judgment for an amount
obtained by doubling, trebling or otherwise multiplying a sum assessed as
compensation for the loss or damage sustained by the person in whose favor the
judgment was given); (iv) the judgment was not obtained by actual or
constructive fraud or duress; (v) the foreign court has taken jurisdiction on
grounds that are recognized by the common law rules as to conflict of laws in
Hong Kong or the British Virgin Islands; (vi) the proceedings in which the
judgment was obtained were not contrary to natural justice; (vii) the
proceedings in which the judgment was obtained, the judgment itself and the
enforcement of the judgment are not contrary to the public policy of Hong Kong
or the British Virgin Islands; (viii) the person against whom the judgment is
given is subject to the jurisdiction of the Hong Kong or the British Virgin
Islands court; and (ix) the judgment is not on a claim for contribution in
respect of damages awarded by a judgment that does not satisfy the foregoing.
Enforcement of a foreign judgment in Hong Kong or the British Virgin Islands may
also be limited or affected by applicable bankruptcy, insolvency, liquidation,
arrangement, moratorium or similar laws relating to or affecting creditors'
rights generally and will be subject to a statutory limitation of time within
which proceedings may be brought.
Under United States law, majority and controlling shareholders generally
have certain fiduciary responsibilities to the minority shareholders.
Shareholder action must be taken in good faith and actions by controlling
shareholders that are obviously unreasonable may be declared null and void. The
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British Virgin Islands law protecting the interests of the minority shareholders
may not be as protective in all circumstances as the law protecting minority
shareholders in United States jurisdictions. While British Virgin Islands law
does permit a shareholder of a British Virgin Islands company to sue its
directors derivatively, i.e. in the name of and for the benefit of the company
and to sue the company and its directors for his benefit and the benefit of
others similarly situated, the circumstances in which any such action may be
brought and the procedures and defenses that may be available in respect of any
such action may result in the rights of shareholders of a British Virgin Islands
company being more limited than those rights of shareholders in a United States
company.
Risk Factors
THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND SECTION 21E
OF THE SECURITIES EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT"). ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS
AS A RESULT OF THE RISK FACTORS SET FORTH BELOW. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER, TOGETHER WITH THE OTHER INFORMATION APPEARING IN THIS ANNUAL
REPORT, THE FOLLOWING FACTORS, AMONG OTHERS, IN EVALUATING THE COMPANY AND ITS
BUSINESS.
Important Factors Related to Forward-Looking Statements and Associated
Risks. The Company may from time to time make written or oral forward-looking
statements. Written forward-looking statements may appear in documents filed
with the Securities and Exchange Commission (the "Commission"), in press
releases and in reports to shareholders. The forward-looking statements included
herein are based on current expectations that involve a number of risks and
uncertainties. These forward-looking statements are based on assumptions that
competitive conditions affecting the Company will not change materially or
adversely, that demand for the Company's products will be strong, that the
Company will retain existing key management personnel, that the Company's
forecasts will accurately anticipate market demand and that there will be no
material adverse change in the Company's operations or business. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate and, therefore, there
can be no assurance that the results contemplated in forward-looking information
will be realized.
In addition, as disclosed elsewhere under other risk factors, the business
and operations of the Company are subject to substantial risks which increase
the uncertainty inherent in such forward-looking statements. In light of the
significant uncertainties inherent in the forward-looking information included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved. The Private Securities Reform Act of 1995
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contains a safe harbor for forward-looking statements on which the Company
relies in making such disclosures. In connection with this "safe harbor" the
Company is hereby identifying important factors that could cause actual results
to differ materially from those contained in any forward-looking statements made
by or on behalf of the Company. Any such statement is qualified by reference to
the cautionary statements included in this Annual Report on Form 20-F.
China and Hong Kong and the Sino-British Agreement. The principal executive
and corporate offices of the Company and all operations and assets of the
Company are located in Hong Kong and China. Prior to July 1, 1997, Hong Kong was
a British Crown Colony with responsibility for administering its own internal
affairs. Sovereignty over Hong Kong was transferred effective July 1, 1997 to
China. Although management believes that any changes in conditions in Hong Kong
are not likely to have a material effect upon the Company, there can be no
assurance as to the continued stability of political, economic or commercial
conditions in Hong Kong, and any instability could have an adverse impact on the
Company's business.
The Hong Kong dollar and the United States dollar have been fixed at
approximately 7.80 Hong Kong dollars to $1.00 U.S. since 1983. The Chinese
government has expressed its intention in the basic law to maintain the
stability of the Hong Kong currency. There can be no assurance that this will
continue and the Company could face increased currency risks if the current
exchange rate mechanism is changed.
Internal Political and Other Risks. The Company maintains several branches
in China and serves as distributor of certain products in China. As a result,
the Company's operations and assets are subject to significant political,
economic, legal and other uncertainties associated with doing business in China.
Changes in policies by the Chinese government resulting in changes in laws,
regulations or the interpretation thereof, confiscatory taxation, restrictions
on imports and sources of supply, import duties, corruption, currency
revaluations or the expropriation of private enterprise could materially and
adversely affect the Company. Under Deng Xiaoping's leadership, the Chinese
government pursued economic reform policies including the encouragement of
private economic activity and greater economic decentralization. With the death
of Deng Xiaoping there can be no assurance that the Chinese government will
continue to pursue such policies, that such policies will be successful if
pursued, that such policies will not be significantly altered from time to time
or that business operations in China would not become subject to the risk of
nationalization, which could result in the total loss of investment in that
country. Economic development may be limited as well by the imposition of
austerity measures intended to reduce inflation, the inadequate development of
infrastructure and the potential unavailability of adequate power, water
supplies, transportation and communications. If for any reason the Company were
required to discontinue doing business in China, the Company's profitability
would be substantially impaired.
Uncertain Legal System and Application of Laws. The legal system of China
relating to foreign investments is both new and continually evolving, and
currently there can be no certainty as to the application of its laws and
regulations in particular instances. China does not have a comprehensive system
of laws. Enforcement of existing laws or agreements may be sporadic and
implementation and interpretation of laws inconsistent. The Chinese judiciary is
relatively inexperienced in enforcing the laws that exist, leading to a higher
than usual degree of uncertainty as to the outcome of any litigation. Even where
adequate law exists in China, it may not be possible to obtain swift and
equitable enforcement of that law.
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Inherent Risks of Doing Business in China. Conducting business in China is
inherently risky. Corruption, extortion, bribery, pay-offs, theft and other
fraudulent practices are common in China. There can be no assurance that the
Company will not suffer losses relating to such practices.
Relations Between China and Taiwan. Relations between China and Taiwan have
been unresolved since Taiwan was established in 1949. The general election in
Taiwan in 1996 heightened tensions between them. Although not directly a threat
to the Company, peaceful and normal relations between China and its neighbors
reduces the potential for events which could have an adverse impact on the
Company's business.
Asian Economic Problems. Recently, several countries in Southeast Asia have
experienced a significant devaluation of their currencies and decline in the
value of their capital markets. In addition, several Asian countries have
experienced a number of bank failures and consolidations. The Company does not
believe that the declines in Southeast Asia will affect the demand for the
Company's products. However, because the Company sells most of its products in
Hong Kong dollars and pays for most of its products in U.S. dollars, a
devaluation in the Hong Kong dollar, if such were to occur despite assurances to
the contrary by the Chinese government, would have a material adverse effect on
the Company's operations. Investors are cautioned that there can be no assurance
that the decline in Southeast Asia will not have a material adverse effect on
the Company's business, financial condition, results of operations or market
price of its securities.
Dependence on Limited Major Suppliers. TI HK supplied approximately 87% of
the computer chips sold by the Company in the year ended December 31, 1996.
During 1997, the Company experienced a significant decline in the margins
relating to the DRAM product line of computer chips purchased from TI HK.
Accordingly, in order to avoid exposure to volatile prices and other high risk
factors associated with the DRAM product line supplied by TI HK, the Company
made a strategic decision in 1997 to drop that product. As a result, the Company
bought only 47% of its chips from TI HK in 1997, 36% in 1998 and 37% in 1999.
Discontinuance of the TI HK DRAM product line had a material adverse effect on
the Company's net revenues, declining from approximately $53.5 million in 1996
to approximately $18,000 in 1999.. The Company has added additional suppliers of
computer chips to manage this risk. However, there can be no assurance that the
Company will succeed in maintaining business relationships with these new
suppliers, or that the amount of revenues generated from selling the product of
these new suppliers will ever be sufficient to replace the revenues lost by
discontinuing the DRAM line of computer chips. Further, the Company is unable at
this time to determine if its new unified messaging business segment will ever
produce sufficient revenues to replace the decline in revenues from computer
chips.
Dependence on Key Personnel. The Company's future performance will depend
to a significant extent upon the efforts and abilities of certain members of
senior management as well as upon the Company's ability to attract and retain
other qualified personnel. In particular, the Company is largely dependent upon
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the continued efforts of Mr. Edward Ting, the Company's President, Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer and Chairman
of its Board of Directors, and Mr. Clement Cheung, Secretary, Treasurer and a
director of the Company. To the extent that the services of Mr. Ting or Mr.
Cheung would be unavailable to the Company, the Company would be required to
obtain other personnel to perform the duties that they otherwise would perform.
There can be no assurance that the Company would be able to employ another
qualified person or persons, with the appropriate background and expertise, to
replace Mr. Ting or Mr. Cheung on terms suitable to the Company.
Potential Fluctuations in Operating Results. The Company's quarterly and
annual operating results are affected by a wide variety of factors that could
materially and adversely affect net sales, gross profit and profitability. This
could result from any one or a combination of factors, many of which are beyond
the control of the Company. Results of operations in any period should not be
considered indicative of results to be expected in any future period, and
fluctuations in operating results may also result in fluctuations in the market
price of the Company's Common Stock.
New Business Segment. Unified Messaging is an emerging technology that
developed as a result of the recent proliferation of Internet technology. There
can be no assurance that the Company will be able to develop a working Getgo
Mail(TM) Card, manufacture it in marketable quantities or sell sufficient
quantities to produce a profit. There also can be no assurance that the Company
will be successful in obtaining qualified strategic corporate partners that
provide Unified Messaging services as the Company intends to pursue in its
business strategy or if such strategic partners are obtained that a profitable
relationship will be formed or that Unified Messaging using the Getgo Mail(TM)
Card will be attractive to consumers.
Dependence on General Economic Trends. The Company's computer chip and
distribution division sells electronic products to manufacturers and other
customers in Hong Kong and China, who utilize them in a variety of consumer and
industrial end-use products such as personal computers and peripheral computer
products, organizers, audio equipment, toys, watches and industrial equipment.
Large portions of these end-use products are eventually sold in the United
States market. Thus, a severe recession in the U. S. economy might have the
effect of decreasing the demand for these products, which in turn might have the
effect of decreasing the demand for the computer chip and other electronic
products. As a result, a severe downturn in the U. S. economy could have a
substantial negative impact on the Company's business. Due to the cyclical
nature of the semiconductor industry, the Company has focused on the
diversification of its product mix and has expanded to other products, such as
the irrigation, golf, turf and fertilizer products presently sold by the
Company. The Company will continue to seek the distribution of other products to
counterbalance, to the extent possible, these economic cycles.
Need for Additional Financing. The Company's new unified messaging business
segment is capital intensive due to the development stage of the product. The
Company raised proceeds of $1,237,500, net of offering expenses, in a private
placement of its common stock and warrants. The Company received $396,000 of the
proceeds in November 1999 and $841,500 of the proceeds in April 2000. These
funds have been allocated generally to develop the working prototype of the
Getgo Mail(TM) Card and for the working capital needed to develop the
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unified messaging business segment. Management believes that the Company's
current cash reserves, together with cash generated from operations, will enable
it to fund its operations until at least December 2001. If the Company's
activities do not generate sufficient cash flow to fund its operations, the
Company will require additional financing. The Company has no commitments for
any future financing and there can be no assurance that the Company will be able
to obtain additional financing in the future from either debt or equity
financings, bank loans or other sources on acceptable terms or at all. If
available, any additional equity financings may be dilutive to the Company's
stockholders and any debt financings may contain restrictive covenants and
additional debt service requirements, which could adversely affect the Company's
operating results. If the Company is unable to obtain necessary financing, it
may be required to significantly curtail its activities.
Enforceability of Civil Liabilities. The Company is a holding corporation
organized as an International Business Company under the laws of the British
Virgin Islands and its principal operating subsidiary is organized under the
laws of Hong Kong, where the Company's principal executive offices are also
located. Outside the United States, it may be difficult for investors to enforce
judgments against the Company obtained in the United States in actions brought
against the Company, including actions predicated upon civil liability
provisions of federal securities laws. In addition, most of the Company's
officers and directors reside outside the United States and most of the assets
of these persons and of the Company are located outside of the United States. As
a result, it may not be possible for investors to effect service of process
within the United States upon such persons, or to enforce against the Company or
such persons judgments predicated upon the liability provisions of U.S.
securities laws. The Company has been advised by its Hong Kong counsel and its
British Virgin Islands counsel that there is substantial doubt as to the
enforceability against the Company or any of its directors or officers located
outside the United States in original actions or in actions for enforcement of
judgments of U.S. courts of liabilities predicated solely on the civil liability
provisions of federal securities laws.
Certain Legal Consequences of Incorporation in the British Virgin Islands.
The Company is organized under the laws of the British Virgin Islands.
Principles of law relating to matters affecting the validity of corporate
procedures, the fiduciary duties of the Company's management, directors and
controlling shareholders and the rights of the Company's shareholders differ
from, and may not be as protective of shareholders as, those that would apply if
the Company were incorporated in a jurisdiction within the United States.
Directors of the Company have the power to take certain actions without
shareholder approval, including an amendment of the Company's Memorandum or
Articles of Association, a change in the Company's authorized capital and
certain fundamental corporate transactions, including reorganizations, certain
mergers or consolidations, and the sale or transfer of assets. In addition,
there is doubt that the courts of the British Virgin Islands would enforce
liabilities predicated upon U.S. securities laws.
Exemptions under the Exchange Act as a Foreign Private Issuer. The Company
is a foreign private issuer within the meaning of rules promulgated under the
Exchange Act. As such, and though its Common Stock is registered under Section
12(g) of the Exchange Act, it is exempt from certain provisions of the Exchange
Act applicable to United States public companies including: the rules under the
Exchange Act requiring the filing with the Commission of quarterly reports on
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Form 10-Q or current reports on Form 8-K, the sections of the Exchange Act
regulating the solicitation of proxies, consents or authorizations in respect to
a security registered under the Exchange Act and the sections of the Exchange
Act requiring insiders to file public reports of their stock ownership and
trading activities and establishing insider liability for profits realized from
any "short-swing" trading transaction (i.e., a purchase and sale, or sale and
purchase, of the issuer's equity securities within six months or less). Because
of the exemptions under the Exchange Act applicable to foreign private issuers,
shareholders of the Company are not afforded the same protections or information
generally available to investors in public companies organized in the United
States.
Volatility of Stock Price. The markets for equity securities have been
volatile and the price of the Company's Common Stock has been and could continue
to be subject to wide fluctuations in response to quarter to quarter variations
in operating results, news announcements, trading volume, sales of Common Stock
by officers, directors and principal shareholders of the Company, general market
trends and other factors.
Item 2. DESCRIPTION OF PROPERTY
British Virgin Islands
The registered office of the Company is located Craigmuir Chambers, P.O.
Box 71, Road Town, Tortola, British Virgin Islands. Only corporate
administrative matters are conducted at such office, through the Company's
registered agent, HWR Services Limited. The material properties of the Company
and its subsidiaries, both owned and leased, are described below.
Hong Kong
Commercial Property. Since October 1989, the Company's principal executive
offices have been located in the Prosperity Centre, Kwai Chung, Hong Kong. This
facility, consisting of approximately 7,500 square feet, houses the Company's
executive offices and warehouse space. The Company leases the space through EPL
from an unaffiliated company for a base rent of approximately $6,250 per month
and additional expenses of approximately $2,936 per month in maintenance and
other fees. The lease expires on September 6, 2001.
Residential Property. Since 1991, the Company has provided a director,
Mr. Edward Ting, with a leased accommodation in Hong Kong for his use. This
property, located on Broadcast Street in Hong Kong, consists of approximately
1,000 square feet and the rental rate is approximately $2,000 per month. The
property is leased on a monthly basis under an oral arrangement. See Item 11,
"Compensation of Officers and Directors," Item 13, "Interest of Management in
Certain Transactions," and Note 13 to the Financial Statements included
herewith.
Since October, 1998, the Company has provided its Secretary and Treasurer,
Mr. Clement Cheung, with leased accomodation in Hong Kong for his use. This
property is located in the Chai Wan District, Hong Kong,and consists of
approximately 726 square feet. The monthly rental rate is approximately $1,600
per month. The term of the lease is October 1, 1998 until September 30, 2000.
See Item 11, "Compensation of Officers and Directors," Item 13, "Interest of
Management in Certain Transactions," and Note 13 to the Financial Statements
included herewith.
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China
The Company leases a commercial property consisting of approximately 1,762
square feet at Bellview Tower, Lo Hu District, Shenzhen City, Guangdong
Province, China which it utilizes for its China liaison office. The property is
owned by Mr. Clement Cheung, a Director of the Company. The Company pays a
monthly rent of approximately $2,821 pursuant to a three-year lease which
expires May 31, 2003. See Item 13, "Interest of Management in Certain
Transactions."
Item 3. LEGAL PROCEEDINGS
The Company is not aware of any legal proceedings contemplated by any
governmental authority involving the Company, its subsidiaries or their
property. No director, officer or affiliate of the Company or any associate of a
director, officer or affiliate of the Company is an adverse party or has an
adverse interest in any legal proceedings involving the Company or its
subsidiaries. The Company and its ordinary subsidiaries are not parties to any
material legal proceedings other than routine litigation incidental to their
businesses, nor are there any pending material legal proceedings with respect to
the property of the Company and its subsidiaries.
Item 4. CONTROL OF REGISTRANT
The Company is not directly or indirectly owned or controlled by another
corporation or by any foreign government. The following table sets forth, as of
June 1, 2000, the beneficial ownership of the Company's Common Stock by each
person known by the Company to own beneficially more than 10% of the Common
Stock of the Company outstanding as of such date and by the officers and
directors of the Company as a group. Except as otherwise indicated, all shares
are owned directly.
Identity of Amount Percent of
persons or groups Beneficially Owned Class
------------------------- ------------------ ----------
Group consisting of 2,522,500 shares(1),(2) 25.00%
Edward Ting, Viola Ting
and David Nominees
Limited
Officers and directors 2,977,500 shares (2)(3) 29.06%
as a group (3 persons)
-------------
(1) Of these shares, 1,677,500 shares are owned outright by Edward Ting, an
officer and director of the Company, and 305,000 shares are owned outright
by his wife, Viola Ting. Mr. Ting is deemed to be the beneficial owner of
the Common Stock held by Viola Ting. Mr. Ting disclaims ownership of the
Common Stock owned by his wife.
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(2) Does not include 365,163 shares held by an entity of which Edward Ting and
Clement Cheung are officers and directors.
(3) Includes 310,000 shares held by an entity of which a director of the
Company may be presumed to have voting control.
There are no arrangements known to the Company the operation of which may
at a subsequent date result in a change in control of the Company.
Item 5. NATURE OF TRADING MARKET
The Company's Common Stock is traded only in the United States
over-the-counter market. The Common Stock has been quoted on the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ")
under the trading symbol "GTGO."
The table set forth below presents the range, on a quarterly basis, of high
and low sale prices per share of Common Stock as reported by NASDAQ for the last
two fiscal years and for the first two quarters of the fiscal year ending
December 31, 2000. The quotations represent prices between dealers and do not
include retail markup, markdown or commissions and may not necessarily represent
actual transactions.
Quarter Ended High Low
------------- ---- ---
Fiscal 1998
March 31, 1998 $2.06 $1.00
June 30, 1998 $1.13 $0.59
September 30, 1998 $0.56 $0.28
December 31, 1998 $0.38 $0.19
Fiscal 1999
March 31, 1999 $0.38 $0.13
June 30, 1999 $1.47 $0.16
September 30, 1999 $2.81 $2.50
December 31, 1999 $1.19 $1.13
Fiscal 2000
March 31, 2000 $2.88 $2.41
June 30, 2000 $1.75 $1.56
Transfer Agent. The transfer agent for the Company's securities is
Corporate Stock Transfer, Inc., Denver, Colorado.
-21-
<PAGE>
Item 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no exchange control restrictions on payments of dividends on the
Company's Common Stock or on the conduct of the Company's operations either in
Hong Kong, where the Company's principal executive offices are located, or the
British Virgin Islands, where the Company is incorporated. Other jurisdictions
in which the Company conducts operations may have various exchange controls.
Taxation and repatriation of profits regarding the Company's China operations
are regulated by Chinese laws and regulations. To date, these controls have not
had and are not expected to have a material impact on the Company's financial
results. There are no material British Virgin Islands laws which impose foreign
exchange controls on the Company or that affect the payment of dividends,
interest or other payments to nonresident holders of the Company's securities.
British Virgin Islands law and the Company's Memorandum and Articles of
Association impose no limitations on the right of nonresident or foreign owners
to hold or vote the Company's securities.
Item 7. TAXATION
No reciprocal tax treaty regarding withholding exists between the United
States and the British Virgin Islands. Under current British Virgin Islands law,
dividends, interest or royalties paid by the Company to individuals are not
subject to tax as long as the recipient is not a resident of the British Virgin
Islands. If the Company were to pay a dividend, the Company would not be liable
to withhold any tax, but shareholders would receive gross dividends, if any,
irrespective of their residential or national status.
Dividends, if any, paid to any United States resident or citizen
shareholder would be treated as dividend income for United States federal income
tax purposes. Such dividends would not be eligible for the 70%
dividends-received deduction allowed to United States corporations on dividends
from a domestic corporation under Section 243 of the United States Internal
Revenue Code of 1986 (the "Internal Revenue Code"). Various Internal Revenue
Code provisions impose special taxes in certain circumstances on non-United
States corporations and their shareholders. Shareholders of the Company are
urged to consult their tax advisors with regard to such possibilities and their
own tax situation.
In addition to United States federal income taxation, shareholders may be
subject to state and local taxes upon their receipt of dividends.
Item 8. SELECTED FINANCIAL DATA
The selected financial information set forth below is derived from the
audited Consolidated Financial Statements of the Company, which are prepared in
accordance with generally accepted accounting principles in the United States of
America ("U.S. GAAP") and stated in United States dollars. The Consolidated
Financial Statements at December 31, 1998 and 1999 and for the fiscal years
ended December 31, 1997, 1998 and 1999 have been audited by independent auditors
and appear elsewhere herein. The Consolidated Financial Statements at December
31, 1995, 1996 and 1997 and for the fiscal years ended December 31, 1995 and
-22-
<PAGE>
1996 also have been audited by independent auditors but do not appear in this
Annual Report. The selected consolidated financial data are qualified in their
entirety by reference to, and should be read in conjunction with, the
Consolidated Financial Statements, related Notes and Item 9, "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Annual Report.
The Company prepares its financial statements in U.S. dollars for the
following reasons: (i) the Company is incorporated in the British Virgin
Islands, whose currency is the U.S. dollar; (ii) the Company conducts the
majority of its business transactions in U.S. dollars; and (iii) the exchange
rate between the Hong Kong dollar and the United States dollar has been fixed at
approximately 7.80 Hong Kong dollars to $1.00 U.S. since 1983. Accordingly,
there are no material adjustments on the translation of Hong Kong dollar amounts
into U.S. dollar amounts.
23
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
(Stated in United States dollars)
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1999
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Statement of
Operations Data:(1)
Net revenues $ 45,094,812 $ 53,510,211 $ 29,086,564 $ 22,338,588 $ 17,620,343
Gross profit 4,666,282 3,431,425 3,274,858 3,750,792 3,143,190
Selling, administrative (3,227,311) (3,563,450) (3,502,226) (4,003,868) (4,349,782)
and general expenses
Loss on disposal of a
business -- -- -- -- (49,255)
Income (loss)
from operations 1,438,971 (132,025) (227,368) (253,076) (1,255,847)
Other income (expense), Net 233,676 (21,840) (118,437) (396,323) (211,214)
Income (loss)
before income taxes 1,672,647 (153,865) (345,805) (649,399) (1,467,061)
Income tax (benefit)
expenses 261,865 (106,086) 21,041 23,906 (45,472)
Net income (loss)
before minority
interest 1,410,782 (47,779) (366,846) (673,305) (1,421,589)
Minority interest (32,211) -- -- -- --
Net income (loss) $ 1,378,571 $ (47,779) $ (366,846) $ (673,305) $ (1,421,589)
Basic income (loss)
Per share $ 0.2095 $ (0.0073) $ (0.054) $ (0.091) $ (0.178)
-24-
<PAGE>
Selected Financial Data
(Stated in United States dollars)
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1999
------------- ------------- ------------- ------------- -------------
Balance Sheet Data (1)
Accounts Receivable-Net 4,101,452 4,791,683 5,738,649 4,366,540 2,264,855
Inventories 3,498,279 4,444,163 3,394,900 2,425,248 1,636,567
Total Current
Assets 11,869,356 13,464,919 13,165,590 11,287,450 8,284,233
Fixed Assets-Net 1,138,983 1,100,213 1,004,794 670,251 323,281
Total Assets 13,266,160 14,827,854 14,393,400 12,468,763 9,540,664
Total Current
Liabilities 11,147,000 12,913,878 11,860,603 10,307,547 7,257,397
Non-Current
Liabilities 168,679 11,274 25,148 45,472 29,417
Stockholders'
Equity 1,950,481 1,902,702 2,507,649 2,115,744 2,258,850
</TABLE>
----------------------
(1) Assets and liabilities are translated into United States dollars using the
approximate rate of exchange ruling at the balance sheet date. Income and
expenses are translated at the average rate in effect during the period.
The exchange rate has remained fixed at approximately 7.80 Hong Kong
dollars to $1.00 U.S. since 1983.
(2) Based on 7,978,465 weighted average number of shares outstanding for the
year ended December 31, 1999; 7,370,009 for the year ended December 31,
1998; 6,780,844 for the year ended December 31, 1997; 6,624,211 for the
year ended December 31, 1996; and 6,579,082 for the year ended December 31,
1995.
The Company has no set dividend policy, and future dividends, if any, will
depend on the Company's net income, financial position and capital requirements,
economic and market conditions, industry standards and other factors.
Accordingly, there is no assurance that future dividends will be paid.
Item 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Item 8, "Selected Financial Data" and the Consolidated Financial Statements and
Notes thereto appearing elsewhere in this Annual Report.
-25-
<PAGE>
Overview
During 1999, the Company derived its revenues from two primary facets of
operations, namely distribution and sales of computer chips in Hong Kong and
China, and the distribution and sales and installation of turf and irrigation
equipment in China, Hong Kong and Macau. Also, during 1999, the Company began
development of its unified messaging business.
Computer Chip Business. The Company is currently an agent and distributor
for a number of well-known suppliers of computer chips through EPL. In 1999, as
in previous years, the Company purchased the majority of its chips from TI HK.
(See Item 1, "Description of Business--Computer Chip Distribution Business.")
The Company's distribution and representation agreements with these
manufacturers are typically non-exclusive and for a period of one year, at which
time they are renewable. These agreements authorize the Company to represent or
carry the product lines of these chip manufacturers in Hong Kong and China
The Company now sells to over 150 small and medium-size Hong Kong customers and
approximately 110 small and medium-size Chinese customers. Net sales in 1999
from this business segment were approximately $13.6 million.
Turf and Irrigation Equipment Business. The Company commenced its business
of distributing and selling turf and irrigation equipment in China in 1993. The
products include Rain Bird irrigation systems and John Deere and Club Car golf
cart and utility vehicles. The Company supplies Rain Bird irrigation systems to
golf courses in Hong Kong and Macau, and sells golf and turf equipment to over
65 golf courses in Hong Kong, China and Macau. In 1997, the Company was also
appointed as a non-exclusive John Deere Agricultural Dealer, selling their
agricultural equipment and parts in China. Net sales in 1999 from this business
were approximately $4.0 million.
Unified Messaging Business: The Company began development of its working
prototype of the Getgo Mail(TM) Card in 1999. The Company had not placed the
card into production at December 31, 1999 and, therefore, had not yet earned any
revenues in this business segment. As of December 31, 1999, the Company had
incurred approximately $34,000 in development costs for the Getgo Mail(TM) Card
product. Development costs of the Company are included with other selling,
general and administrative expenses of the Company.
Results of Operations
The following table sets forth selected income data as a percentage of net
revenues for the fiscal years indicated.
Year ended December 31,
---------------------------------
Income Statement Data 1997 1998 1999
---- ---- ----
Net revenue 100.0% 100.0% 100.0%
Cost of sales (88.7) (83.2) (82.2)
Gross profit 11.3 16.8 17.8
Selling, administrative and
general expenses (12.0) (17.9) (25.0)
Loss on disposal of business -- -- (0.3)
Loss from operations (0.7) (1.1) (7.1)
Other income (expense), net (0.4) (1.8) (1.2)
Loss before income tax (1.2) (2.9) (8.3)
Income tax (expense) benefit (0.1) (0.1) 0.3
Net loss (1.3) (3.0) (8.0)
-26-
<PAGE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net revenue. Net revenue from different industry segments were as follows:
1998 1999 % Change
---- ---- --------
Computer chip business $16,698,983 13,612,926 -18.5%
Turf and irrigation
equipment business 5,639,605 4,007,417 -28.9%
--------- --------- ------
$22,338,588 $17,620,343 -21.1%
Our computer chip business continued to feel the impact of the Asian
financial crisis and too much production capacity in 1999. Although the
microprocessor market was expected to rebound in the Asia Pacific region during
the fourth quarter of 1998, the global impact of weak Asian economies resulted
in the key computer chip markets not strengthening until the last quarter of
1999. The oversupply of manufacturing capacity kept average selling prices low
and eroded revenue growth. As a result, our revenues from the chip distribution
business for 1999 for were $13,612,926, down 18.5% from 1998.
The sluggishness in our turf and irrigation equipment business continued in
1999 largely due to the Asian financial crisis. The golf industry in the region
incured declining revenues, and irrigation installation projects from our
customers were either abandoned or postponed due to financial difficulties.
However, the declines in revenues from the irrigation installation projects were
offset by increased revenue from equipment distribution from the Company's other
distributor contracts. As a result of these factors, our revenues from this
segment in 1999 were $4,007,369, down 28.9%.
Gross Profits. Gross profits from the different industry segments were as
follows:
1998 1999 % Change
---- ---- --------
Computer chip business $2,074,036 1,932,851 -6.8%
Turf and irrigation equipment
business $1,676,756 1,210,339 -27.8%
---------- --------- ------
$3,750,792 3,143,190 -16.2%
The decline in gross profits was attributable to the reasons explained
above.
Selling, administrative and general expenses. Selling, administrative and
general expenses were $ 4,349,782 in 1999 compared to $ 4,003,868 in 1998,
representing an 8.6% increase. The increase primarily was due to provisions
created for bad and doubtful accounts of ($683,057), expenses related to raising
capital ($346,375), and stock bonus to employees (42,020). This was offset by a
reduction in staffing costs of $246,940 and business travel costs of $304,164.
-27-
<PAGE>
Loss on disposal of a business. In 1999, the Company divested its interest
in Flownet Irrigation Engineering Services Company Limited for $150,000. The
sale resulted in a loss of $49,255.
Other income (expenses), net. The details of other income (expenses), net
are as follows:
Year Ended December 31,
1998 1999
---- ----
Interest income 224,438 220,875
Interest expenses (537,310) (515,164)
Share of losses of an affiliated company (121,296) (2,234)
Others, net 37,845 85,309
--------- ---------
$(396,323) $(211,214)
========= =========
Interest expense, net of interest income, increased slightly from 1998 to
1999 primarily as a result of increases in short-term borrowing rates. The
Company's share oflosses in CEL dcreased substantially from 1998 to 1999 because
CEL ceased operating activity in the latter part of 1998 following substantial
losses from its operations. The increase in the "Others net" classification is
primarily a result of the receipt of a refund of $56,793 from the pension fund
and pump service income of $17,207.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net revenue. Net revenue from different industry segments were as follows:
1997 1998 % Change
---- ---- --------
Semiconductor Business $23,151,881 $16,698,983 (27.9)%
Turf and Irrigation
Equipment Business 5,934,683 5,639,605 (5.0)%
------------- ------------- -------
$29,086,564 $22,338,588 (23.2)%
Total revenues from the chip distribution business for the year were
$16,698,983, a decrease of approximately 28%, due primarily to lower prices in
DRAMs and, to a lesser extent, to a near collapse in the global market for
memory chips. This had an impact on the Company's financial performance. It is
not the first time the memory market has experienced such volatility, and it
probably will not be the last. This is the reason the Company has been working
to reduce its exposure to this commodity-type business for a number of years -
investing instead in differentiated products being manufactured by other reputed
chip makers such as Zilog, TDK and Linfinity.
Net revenue from the turf and irrigation equipment business decreased by 5%
due primarily to the loss of JR Simplot distributorship, and to a lesser extent,
to the sluggishness in the industry following the economic crisis in Asia.
-28-
<PAGE>
Gross Profits. Gross profits from the different industry segments were as
follows:
1997 1998 % Change
---- ---- --------
Computer chip business $2,219,479 $2,074,036 (6.6)%
Turf and irrigation equipment
business $1,055,379 $1,676,756 58.9%
---------- ---------- -----
$3,274,858 $3,750,792 14.5%
The decline of 7% in gross profit in the computer chip business was due to
the reasons explained above. The overall improvement in gross profit and margin
was attributable to a tremendous increase in the gross profit in the turf and
irrigation equipment business. Several long-term projects that the Company had
committed last year yielded good returns.
Selling, administrative and general xpenses. Selling, administrative and
general expenses were $4,003,868 in 1998 compared to $3,502,226 in 1997,
representing a 14% increase. This increase was primarily due to provisions
created for bad and doubtful accounts ($135,774) and obsolete inventory
($113,515) in the Company's core subsidiaries, as well as stock warrant expenses
($75,000).
Other income (expenses), net. The details of other expenses, net, are as
follows:
Year Ended December 31,
1997 1998
---- ----
Interest income $ 229,252 $ 224,438
Interest expense (461,329) (537,310)
---------
Share of losses of an affiliated company (37,475) (121,296)
Others, net 151,115 37,845
--------- ---------
$(118,437) $(396,323)
========= =========
Interest expenses increased because the Company had to borrow from one of
its directors on a short-term basis. The Company's share of losses in CEL
increased substantially because CEL ceased operating activity in the later part
of 1998 following substantial losses from its operations during 1998.
The Company's future operating results may be affected by a number of
factors, including, but not limited to, sales price erosion, uncertainties
relative to Asian economic conditions, its ability to effectively integrate
acquired products and operations in China, its ability to successfully maintain
or increase market share and its ability to effectively manage fixed and
variable expense growth relative to revenue growth.
Liquidity and Capital Resources.
Over the last three years, the Company lost $355,053 in operations before
depreciation, amortization and other non-cash items, and used $553,713 in
additional working capital resulting in $908,766 of cash flows used in
operations. In addition, the Company generated $347,431 from other normal
business operations including sale of property, plant and equipment ($431,364),
cash (net) acquired from purchase of a business ($67,755), and purchase of
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<PAGE>
property, plant and equipment ($151,688). The Company also used $132,396 for
repayments of its obligations under capital lease, repayment of short-term
borrowings of $269,817, and its restricted cash by $234,945. This was financed a
loan from a related party of $500,000, advances from directors aggregating
$299,134, new bank loan of $195,562, and proceeds from a private stock placement
of $330,675. This resulted in a net increase in cash of $126,878.
In 1999, the Company lost $57,104 in operations before depreciation,
amortization and other non-cash items, and generated $127,849 in additional
working capital resulting in $70,745 being generated in operating activities. In
addition, the Company used funds for the purchase of property, plant and
equipment amounting to $38,536; lost $32,802 from the disposal of Flownet;
and received $93,150 from the disposal of property, plant and equipment. These
resulted in $21,812 being generated from investing activities. The Company also
used $9,744 and $797,579 for repayments of its obligations under capital lease
and short-term borrowings, respectively, and increased its restricted cash by
$227,931. This was financed by advances from a director aggregating $164,143, a
new bank loan of $195,562, and from the proceeds of a private stock placement of
$330,675. This resulted in a net increase in cash of $203,545.
Currently, the Company does not have any material commitments for capital
expenditures.
The Company is not aware of any commitments, contingencies or events within
its control that may significantly change its ability to generate sufficient
cash from internal or external sources to meet its needs.
Foreign Currency Exchange.
Uncertainty in world economies and the expectations for higher U.S.
interest rates caused a gradual strengthening of the U.S. dollar during the
period. Most of the Company's total revenue was derived from sales in Asia. The
net income effect of foreign currency exchange rate fluctuations versus the U.S.
dollar on the Asian operation was minimal.
Item 10. DIRECTORS AND OFFICERS OF REGISTRANT
The directors and executive officers of the Company are identified below.
The directors are elected at the annual meeting of shareholders and each serves
until his successor takes office or until his earlier death, resignation or
removal. The officers serve at the pleasure of the Board of Directors of the
Company.
Name Age Position with the Company
---- --- -------------------------
Derrin R. Smith Ph.D. 44 President, Chief Executive Officer,
Chairman of the Board and
Director
Edward Y. F. Ting 53 Director
Clement W. K. Cheung 44 Secretary, Treasurer and Director
Chris G. Mendrop 48 Director
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<PAGE>
DERRIN R. SMITH, PH.D. became the President, Chief Executive Officer, Chief
Financial Officer and a director and Chairman of the Board of the Company on
July 4, 2000. Dr. Smith has over 17 years of experience developing and directing
strategic high technology programs and enterprises. This background includes
domestic and international (Asia, South America and Middle East) activities for
both government and the private sector. Prior to joining the Company, Dr. Smith
operated his own private company, DRS Sciences, Inc. from 1992 to the present.
DRS Sciences, Inc. is engaged primarily in providing consulting services in the
design and development of computer software, the integration of such software
with the hardware platforms utilized by his clients and investment banking
services for high technology ventures. In June 1998, Dr. Smith's company entered
into an agreement with CeBourn Ltd., an investment banking firm specializing in
telecommunications, software and high technology, under which Dr. Smith served
as CeBourn's chief economist. Dr. Smith devoted his time substantially full time
to CeBourn Ltd. under this agreement from May 1998 to May 2000. Prior to
commencing active operations of his own company, Dr. Smith was employed by
M.I.T.R.E. Corporation in various capacities. Concurrently with the above
positions, Dr. Smith provided consulting services to several companies.
EDWARD Y. F. TING has served as a director of the Company since its
inception. Prior to July 4, 2000, Mr. Ting also served as President, Chief
Executive Officer, Chief Financial Officer, Chief Operating Officer and Chairman
of the Board for the Company, at which date Mr. Ting resigned those positions.
CLEMENT CHEUNG was elected a director of the Company in October 1992 and
appointed Secretary and Treasurer in August 1996. Mr. Cheung joined EPL in 1990
as an accounting and administrative manager. Prior to joining EPL, Mr. Cheung
was the controller for Econ Electronics Limited, which was acquired by the
Company in 1990.
CHRIS G. MENDROP was appointed a director of the Company in March 1998. Mr.
Mendrop is the Chief Executive Officer of Blake Street Group LLC, Blake Street
Securities LLC and Blake Street Advisors LLC (collectively the "Blake Street
Group"). He has served as the Chief Executive Officer of each of the companies
included in the Blake Street Group since those companies were formed in January,
March and July 1998. From July 1992 until January 1998, Mr. Mendrop was Chief
Executive Officer of Corporate Development Capital, Inc., an investment advisory
and financial consulting firm located in Denver, Colorado. Mr. Mendrop holds a
Masters of Business Administration degree in Finance from the University of
Colorado.
No family relationship exists among any of the named directors and
executive officers. Except as described herein, no arrangement or understanding
exists between any such director or officer and any other persons pursuant to
which any director or executive officer was elected as a director or executive
officer of the Company.
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<PAGE>
Item 11. COMPENSATION OF DIRECTORS AND OFFICERS
The following table sets forth certain information as to each of the
Company's executive officers and directors whose cash compensation exceeded
$60,000 and for all executive officers as a group for the year ended December
31, 1999:
<TABLE>
<CAPTION>
Cash Non-Cash
Name of Individual Capacities in Which Served Compensation Compensation
------------------ -------------------------- ------------ ------------
<S> <C> <C> <C>
Edward Y.F. Ting Director $139,000 $23,441(1,2)
Clement W. K. Cheung Secretary, Treasurer and Director $ 52,500 $20,000(3)
All directors and
officers as a group (4 persons) $191,500 $43,441
---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Ting served as the President, Chief Executive Officer, Chief Operating
Officer ,Chief Financial Officer and Chariman of the board of directors
during the entire fiscal year ended December 31, 1999. Mr. Ting
subsequently resigned from those positions as of July 4, 2000, remaining as
a director of the Company.
(2) Reflects the value of housing provided to Mr. Ting during fiscal 1999. (See
Item 13, "Interest of Management in Certain Transactions.")
(3) Reflects the value of housing provided to Mr. Cheung during fiscal 1999.
(See Item 13, "Interest of Management in Certain Transactions.")
In 1996, the Company instituted a defined contribution retirement plan
which covers the employees of Bothgreat and EPL located in Hong Kong. The plan
provides for annual contributions by the Company of 5% of eligible compensation
of employees based on longth of service. The Company and its subsidiaries set
aside $20,666 pursuant to the plan for the fiscal year ended December 31, 1999,
and $26,037 pursuant to the plan for the fiscal year ended December 31, 1998.
As of August 1999, the Company terminated its defined contribution plan and
distributed all its assets to eligible employees.
Item 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
The Company has granted options to employees and various individuals. A
description of the options granted by the Company is as follows:
In August 1999, the Company granted to various employees and individuals
options to purchase 588,500 shares of common stock of the Company. These options
vest and expire over a four-year period. Twenty-five percent of the options vest
and become exercisable September 1, 1999 at an exercise price of 1.00 per share
and expire on December 31, 2000. Twenty-five percent of the options vest and
become exercisable January 1, 2001 at an exercise price of $1.30 per share and
expire on December 31, 2001. Twenty-five percent of the options vest and become
exercisable January 1, 2002 at an exercise price of $1.65 per share and expire
on December 31, 2002. The final twenty-five percent of the options vest and
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<PAGE>
become exercisable January 1, 2003 at an exercise price of $2.00 per share and
expire on December 31, 2003. Mr. Edward Ting received 160,000 of the options and
Mr. Clement Cheung received 120,000 of the options. The right to acquire these
shares is cumulative and may not be assigned. These options expire upon
termination of employment with the Company.
In September 1999, the board of directors granted Mr. Edward Ting an option
to purchase 400,000 shares of the Company's common stock. The options expire
September 20, 2009 and are exercisable at $1.25 per share.
In November 1999, the board of directors granted Mr. Edward Ting an option
to purchase 100,000 shares of the Company's common stock. The options expire
November 9, 2009 and are exercisable at $1.75 per share.
In November 1999, the board of directors granted Mr. Chris Mendrop an
option to purchase 50,000 shares of the Company's common stock. The options
expire November 10, 2004 and are exercisable at $2.00 per share.
In connection with a private placement of the Company's common stock in
November 1999, the board of directors agreed to grant an option to purchase
50,000 shares of the Company's common stock to designees of Blake Street
Securities, LLC, the placement agent for the Company's recent private placement
of its securities. The options will expire ten years from the date of grant and
will be exercisable at $0.50 per share. The board of directors has also granted
Mr. Chris Mendrop and Mr. John Callea options to each purchase 75,000 shares of
the Company's common stock. These options expire August 11, 2009 and are
exercisable at $0.50 per share. Mr. Mendrop is a director of the Company and
both Mr. Mendrop and Mr. Callea are principals of Blake Street Securities, LLC.
The board of directors has issued 50,000 shares of the Company's common
stock to Henry F. Schlueter and has also granted Mr. Schlueter an option to
purchase an additional 100,000 shares of the Company's common stock, in
connection with his legal work for the Company. The options expire August 11,
2009 and are exercisable at $0.50 per share. Mr. Schlueter is counsel for the
Company.
On February 14, 2000, the board of directors granted to a former consultant
of the Company an option to purchase 62,500 shares of the Company's common stock
at an exercise price of $1.00 per share. The option is exercisable for a period
of two years.
In July 2000, the board of directors granted Dr. Derrin Smith an option to
purchase 100,000 shares of the Company's common stock. The options vest
immediately and expire December 31, 2005 and are exercisable at $2.00 per share.
Also in July 2000, the board of directors granted Dr. smith an additional option
to purchase 2,000,000 shares of the Company's common stock. These additional
options vest as follows: 250,000 vest on December 31, 2000 and are exercisable
at $2.00 per share; 250,000 vest on March 31, 2001 and are exercisable at $2.00
per share; 250,000 vest on June 30, 2001 and are exercisable at $3.00 per share;
250,000 vest on September 30, 2001 and are exercisable at $3.00 per share;
250,000 vest on December 31, 2001 and are exercisable at $4.00 per share;
250,000 vest on March 31, 2002 and are exercisable at $4.00 per share; 250,000
vest on June 30,2002 and are exercisable at $5.00 per share; and 250,000 vest on
September 30, 2002 and are exercisable at $5.00 per share. These options were
granted to Dr. Smith in connection with his employment with the Company
effective July 4, 2000.
Item 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Since 1992, the Company has provided a director, Edward Ting, with a leased
accommodation in Hong Kong for his use. This property, located on Broadcast
Street in Hong Kong, consists of approximately 1,000 square feet, and the rental
rate is approximately $2,000 per month. The property is leased on a monthly
basis under an oral arrangement.
-33-
<PAGE>
Since October 1998, the Company has provided its Secretary and Treasurer,
Mr. Clement Cheung, with leased accomodations in Hong Kong for his use. This
property is located in the Chai Wan District, Hong Kong,and consists of
approximately 726 square feet. The monthly rental rate is approximately $1,600
per month. The term of the lease is October 1, 1998 until September 30, 2000.
The Company leases a commercial property in Bellview Tower, Lo Hu District,
Shenzhen City, China from Clement Cheung, the Secretary and Treasurer of the
Company. The Company pays a monthly rent of approximately $2,821 pursuant to a
three-year lease that expires on May 31, 2000. Rent paid by the Company to Mr.
Ting amounted to $33,846 in each of 1999, 1998 and 1997.
In March 1998, Bothgreat obtained a standby letter of credit for one of its
suppliers from a bank. The letter of credit was collateralized by a security
interest in a $500,000 deposit owned by Glas-Aire Industries Group Ltd.
("Glas-Aire"). At that time, Mr. Edward Ting was Chief Executive Officer,
Chairman of the Board of Directors and a principal shareholder of Glas-Aire and
Chris G. Mendrop and Clement Cheung were directors of Glas-Aire. As
consideration for Glas-Aire agreeing to provide the security for the letter of
credit, the Company agreed as follows: (i) to issue to Glas-Aire a warrant
exercisable for a period of five years from March 25, 1998 to purchase 250,000
shares of the Company's Common Stock at an exercise price of $1.00 per share
during the first year, $1.10 per share during the second year, $1.20 per share
during the third year, $1.50 per share during the fourth year and $1.75 per
share during the fifth year; (ii) to pay Glas-Aire a fee in the amount of 1% of
the collateral, or $5,000, payable in advance for the six month period beginning
on the date the letter of credit was issued by the bank and an additional fee of
1%, also payable in advance, for the six-month period immediately following the
initial six-month period, if the collateral continued to be utilized for the
letter of credit, with the understanding that the collateral would be made
available by Glas-Aire to collateralize the letter of credit for a period not to
exceed one year; and (iii) the pledge to Glas-Aire by Mr. Ting of all shares of
Glas-Aire common stock owned by him, his wife or under his control. In November
1998, the Company defaulted on the letter of credit and $250,000 of the
collateral was seized, resulting in the Company being indebted to Glas-Aire in
the amount of $250,000. In December 1998, Glas-Aire made a loan to the Company
in the principal amount of $500,000 and $250,000 of the loan proceeds was used
to repay Glas-Aire for the seized collateral for the letter of credit. This loan
was evidenced by a promissory note, bore interest at the rate of 10% per annum,
unless a default occurred in which case the interest rate would increase to 12%,
and was payable on demand. The loan was secured by a first priority lien on
212,331 shares of Glas-Aire common stock owned by Mr. Edward Ting and a second
priority lien on the remaining 301,584 shares of Glas-Aire common stock owned by
Edward and Viola Ting which had previously been pledged to secure the letter of
credit arrangement.
-34-
<PAGE>
In April 1999, Mr. Edward Ting purchased the promissory note from Glas-Aire
in order to enable him to sell his Glas-Aire shares that were encumbered by the
debt. As a result, the Company became indebted at that time to Mr. Ting in the
amount of $500,000, plus accrued interest. In addition, Glas-Aire transferred
the warrant to Mr. Ting.
In August 1999, the company disposed of its entire investment in Flownet
Irrigation Engineering Services Company to Bright Prospects Holdings Limited, a
company beneficially owned by Mr. Edward Ting. At the time of this transaction,
the obligation to Mr. Ting under the Glas-Aire promissory note was reduced by
$225,000 based upon the following events:
o the $150,000 consideration for the sale of the Flownet assets to be
received by the Company from Bright Prospects Holdings Limited was,
instead, used to offset $150,000 of principal on the promissory note; and
o the Company converted $100,000 of debt due to Mr. Ting into equity and
issued 200,000 shares of the Company's common stock to Mr. Ting as payment
for the debt. A portion of this conversion, $75,000, was used to reduce the
balance of the Glas-Aire promissory note due to Mr. Ting. The remaining
$25,000 of debt converted to equity pertained to short term loans made to
the Company by Mr. Ting.
On November 11, 1999, Mr. Ting exercised the warrant received from
Glas-Aire in the April 1999 transaction at $1.10 per share. In lieu of Mr.
Ting's cash payment for exercise of the warrant, the remaining principal amount
of the Glas-Aire promissory note due to Mr. Ting was reduced by $275,000. As a
result of these transactions, the Company has fully settled all amounts due Mr.
Ting under the Glas-Aire promissory note.
In 1999, a director advanced $164,143 to the Company. These advances were
made interest-free and without repayment terms. At December 31, 1999 the Company
owed the director $274,134.
In 1999, the Company issued 95,500 shares of its common stock as a bonus to
its employees and directors. Of the 95,500 shares, two directors received 23,500
shares. Further, in 1999, the Company granted options to purchase 1,138,500
shares of common stock of the Company to certain employees. Of these options,
the Company granted options to the directors to purchase 830,000 shares of its
common stock.
During 1999, there were no other material transactions, and none are
presently proposed, to which the Company or any of its subsidiaries was or is to
be a party, in which either (i) any director or officer of the Company, or (ii)
any corporation or foreign corporation directly or indirectly owning or
controlling the Company or (iii) any relative or spouse of any of the foregoing,
or any relative of such spouse, who has the same home as such person or who is a
director or officer of any subsidiary of the Company had or is to have a direct
or indirect material interest.
-35-
<PAGE>
PART II
Item 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not Applicable.
PART III
Item 15. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
Item 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
There have been no material modifications in the constituent instruments
defining the rights of the holders of any class of the Company's registered
securities or any material limitations in the rights evidenced by any class of
the Company's registered securities.
PART IV
Item 17. FINANCIAL STATEMENTS
Not Applicable.
Item 18. FINANCIAL STATEMENTS
Reference is made to Item 19(a) for a list of all financial statements
filed as part of this Annual Report on Form 20-F, which are hereby incorporated
by this reference and made a part hereof.
-36-
<PAGE>
Item 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) The following Financial Statements are filed as part of this Annual
Report:
Page
Report of Independent Auditors on the F-1
Consolidated Financial Statements for Years Ended
December 31, 1999, 1998 and 1997
Consolidated Balance Sheets at December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the Years
Ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1999, 1998 and 1997 F-6
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-9
(b) Financial Statements schedules.
All schedules are omitted as they are not applicable.
(c) The Exhibits are filed as part of this Annual Report:
Exhibit Number Description
-------------- -----------
__ Patent License Agreement on Web Mail Cards dated
July 1, 1999 between Visual Access
Technologies, Inc. and the Company.
__ Patent License Agreement - ASIC dated October 14, 2000
between Visual Access Technologies, Inc. and the Company.
-37-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange
Act of 1934, the registrant certifies that it meets all the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GETGOMAIL.COM INC.
Date: July 17, 2000 By: /s/ Derin R. Smith, Ph.D.
---------------------------------------
Derrin R. Smith, Ph.D. President,
Chief Executive Officer, and
Chairman of the Board
-38-
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
Consolidated Financial Statements
For the years ended December 31, 1999, 1998 and 1997
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
CONTENTS PAGE (S)
-------- -------
Independent Auditors' Report F-1
Consolidated Balance Sheets at December 31, 1999 and 1998 F-2 & 3
Consolidated Statements of Operations for the years
ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997 F-6 & 7
Notes to Consolidated Financial Statements F-8 - 24
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
GETGO MAIL.COM INC.
---------------------------------------------
(Formerly Electrocon International Inc.)
We have audited the accompanying consolidated balance sheets of Getgo Mail.Com
Inc. (formerly Electrocon International Inc.) and subsidiaries as of December
31, 1999 and 1998 and the related consolidated statements of operations,
stockholders' equity and cash flows for the three years in the period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 referred to above present
fairly, in all material respects, the financial position of the Company and its
subsidiaries at December 31, 1999 and 1998 and the results of their operations
and their cash flows for the three years in the period ended December 31, 1999
in conformity with accounting principles generally accepted in the United States
of America.
Hong Kong
June 23, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------------------------------------------------------------
(Amounts stated in United States Dollars) December 31,
----------------------------------------- ------------
NOTES 1999 1998
----- ---- ----
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 507,535 $ 303,990
Restricted cash 8 3,728,454 3,956,385
Accounts receivable:
- Trade, less allowance for doubtful accounts of
$643,182 (1998: $212,028) 1,977,581 3,866,119
- Affiliated company, less allowance for doubtful
accounts of $355,841 (1998: $103,938) - 280,146
- Others 287,274 220,275
Inventories 3 1,636,567 2,425,248
Costs in excess of billings on construction contracts 4 61,368 153,808
Prepaid expenses and deposits 85,454 81,479
----------- -----------
Total current assets 8,284,233 11,287,450
Property and equipment, net 6 323,281 670,251
Investment in an affiliated company - 2,234
Investments in Golf Club memberships, at cost 494,154 410,055
Intangible assets 7 438,996 98,773
----------- -----------
Total assets $9,540,664 $12,468,763
=========== ===========
See notes to consolidated financial statements.
F-2
<PAGE>
GETGO MAIL.COM.INC.
-------------------
(Formerly Electrocon International Inc.)
CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------------------------------------------------------------
(Amounts stated in United States Dollars)
December 31,
------------
NOTES 1999 1998
----- ---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings 8 $ 4,683,717 $ 5,481,296
Current portion of obligation under capital leases 9 - 9,744
Bank loan - due within one year 8 166,145 -
Loan from related party 10 - 500,000
Accounts payable and accrued expenses
- Trade 1,835,817 3,769,818
- Others 246,401 337,467
Billings in excess of costs on construction contracts 5 51,183 74,231
Amount due to director 13 274,134 134,991
----------- -----------
Total current liabilities 7,257,397 10,307,547
Bank loan - due after one year 8 29,417 -
Deferred income taxes 12 - 45,472
----------- -----------
Total liabilities 7,286,814 10,353,019
----------- -----------
Commitments and contingencies 14
Stockholders' equity
Common stock, par value $0.0001 per share;
authorized 20,000,000 shares;
issued and outstanding 1999: 9,210,920 shares
and 1998: 7,460,420 shares 921 746
Additional paid-in capital 7,783,517 6,223,997
Accumulated deficit (5,493,244) (4,071,655)
Accumulated other comprehensive loss (37,344) (37,344)
----------- -----------
Total stockholders' equity 2,253,850 2,115,744
----------- -----------
Total liabilities and stockholders' equity $9,540,664 $12,468,763
=========== ===========
See notes to consolidated financial statements.
F-3
<PAGE>
GETGO MAIL.COM.INC.
-------------------
(Formerly Electrocon International Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------------------------------------------------------------------------------------
(Amounts stated in United States Dollars)
Year ended December 31,
-----------------------
NOTES 1999 1998 1997
----- ---- ---- ----
Net revenue $17,620,343 $22,338,588 $29,086,564
Cost of sales (14,477,153) (18,587,796) (25,811,706)
----------- ----------- -----------
Gross profit 3,143,190 3,750,792 3,274,858
Selling, administrative and general expenses (4,349,782) (4,003,868) (3,502,226)
Loss on disposal of a business (49,255) - -
----------- ----------- -----------
Loss from operations (1,255,847) (253,076) (227,368)
Interest income 220,875 224,438 229,252
Interest expense (515,164) (537,310) (461,329)
Equity in loss of an affiliated company (2,234) (121,296) (37,475)
Other income 11 85,309 37,845 151,115
----------- ----------- -----------
Loss before income taxes (1,467,061) (649,399) (345,805)
Income tax (benefit) expense 12 (45,472) 23,906 21,041
----------- ----------- -----------
Net loss $ (1,421,589) $ (673,305) $ (366,846)
=========== =========== ===========
Basic loss per share $ (0.178) $ (0.091) $ (0.054)
=========== =========== ===========
Weighted average number of shares outstanding 7,978,465 7,370,009 6,780,844
=========== =========== ===========
See notes to consolidated financial statements.
F-4
<PAGE>
GETGO MAIL.COM.INC.
-------------------
(Formerly Electrocon International Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------------------------------
(Amounts stated in United States Dollars)
Common stock Accumulated Total
------------ Additional other stock-
Shares paid-in Accumulated comprehensive holders'
outstanding Amount capital deficit loss equity
----------- ------ ------- ------- ---- ------
Balance at January 1, 1997 6,624,211 $662 $4,970,888 $(3,031,504) $(37,344) $1,902,702
Issuance of stock bonus
to employees (Note 1) 70,000 7 39,368 - - 39,375
Stock issued in settlement
of payable (Note 1) 466,209 47 932,371 - - 932,418
Loss for the year - - - (366,846) - (366,846)
--------- ------- --------- ---------- ------- ---------
Balance at December 31, 1997 7,160,420 716 5,942,627 (3,398,350) (37,344) 2,507,649
Stock issued on purchase of
business (Note 1) 300,000 30 206,370 - - 206,400
Issuance of warrant (Note 10) - - 75,000 - - 75,000
Loss for the year - - - (673,305) - (673,305)
--------- ------- --------- ---------- ------- ---------
Balance at December 31, 1998 7,460,420 746 6,223,997 (4,071,655) (37,344) 2,115,744
Issuance of stock for
purchase of patent licenses (Note 1) 450,000 45 465,580 - - 465,625
Issuance of stock to legal
advisor and consultants (Note 1) 435,000 43 221,332 - - 221,375
Stock issued in settlement of loan from
a director (Note 1) 200,000 20 99,980 - - 100,000
Issuance of stock bonus to employees
(Note 1) 95,500 10 42,010 - - 42,020
Issuance of stock and warrants
pursuant to private placement (Note 1) 320,000 32 330,643 - - 330,675
Stock issued on exercise of
warrants (Note 1) 250,000 25 274,975 - - 275,000
Issuance of stock options to legal
advisor and consultants (Note 15) - - 125,000 - - 125,000
Loss for the year - - - (1,421,589) - (1,421,589)
--------- ------- --------- ---------- ------- ---------
Balance at December 31, 1999 9,210,920 $921 $7,783,517 $(5,493,244) $(37,344) $2,253,850
========= ======= ========= ========== ======= =========
See notes to consolidated financial statements.
F-5
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------------------------------------------------
(Amounts stated in United States Dollars)
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net loss $ (1,421,589) $ (673,305) $ (366,846)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Share of loss of an affiliated company 2,234 121,296 37,475
Issuance of stock bonus to employees 42,020 - 39,375
Issuance of stock to consultants and legal advisor 221,375 - -
Issuance of warrant (Note 10) - 75,000 -
Issuance of stock options to consultants and
legal advisor (Note 15) 125,000 - -
Depreciation and amortization 98,610 149,230 142,852
(Loss) gain on disposal of property and equipment 188,406 (31,786) -
Loss on disposal of business 49,255 - -
Provision for doubtful accounts 683,057 135,774 28,039
Deferred income taxes (45,472) 23,906 21,041
Changes in assets and liabilities:
Accounts receivable 1,328,727 954,564 (975,005)
Decrease in amount due from affiliated company 28,243 - -
Inventories 788,681 969,652 1,049,263
Costs in excess of billings on construction contracts 92,440 (153,808) 145,010
Prepaid expenses and deposits (71,679) (19,496) 57,878
Prepaid income taxes - 41,311 49,084
Accounts payable and accrued expenses (2,015,515) (1,765,676) (1,108,570)
Billings in excess of costs on construction contracts (23,048) (75,830) 150,061
---------- ---------- ----------
Net cash provided by (used in) operating activities 70,745 (249,168) (730,343)
---------- ---------- ----------
Cash flows from investing activities:
Purchase of business, net of cash acquired - 100,557 -
Disposal of business, net of cash disposal (32,802) - -
Proceeds from disposal of property and equipment 93,150 338,214 -
Additions to property and equipment (38,536) (68,050) (45,102)
---------- ---------- ----------
Net cash provided by (used in) investing activities 21,812 370,721 (45,102)
---------- ---------- ----------
Balance carried forward $ 92,557 $ 121,553 $ (775,445)
---------- ---------- ----------
See notes to consolidated financial statements.
F-6
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------------------------------------------------
(Amounts stated in United States Dollars)
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Balance carried forward $ 92,557 $ 121,553 $(775,445)
---------- ---------- ----------
Cash flows from financing activities:
Payment of obligations under capital leases (9,744) (12,713) (109,939)
(Decrease) increase in short-term borrowings (797,579) (285,023) 812,785
Increase (decrease) in restricted cash 227,931 (242,011) (220,865)
Stock issued on private placement 330,675 - -
Advances from director 164,143 134,991 127,639
New bank loan 195,562 - -
Repayment of advances from director - (127,639) -
Loan from related party - 500,000 -
---------- ---------- ----------
Net cash provided by (used in) financing activities 110,988 (32,395) 609,620
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 203,545 89,158 (165,825)
Cash and cash equivalents at beginning of year 303,990 214,832 380,657
---------- ---------- ----------
Cash and cash equivalents at end of year $ 507,535 $ 303,990 $ 214,832
========== ========== ==========
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest paid $ 515,164 $ 556,014 $ 451,464
Income taxes (refund) - (41,311) (49,084)
Non cash transactions:
Stock issued in settlement of payable - - 932,418
Stock issued for purchase of business - 206,400 -
Stock issued in settlement of loan from a director 100,000 - -
Stock issued on exercise of warrants settled by
reduction in loan payable 275,000 - -
Golf Club memberships acquired in lieu of settlement
of accounts receivable 84,099 313,000 -
Reduction of loan from a director on disposal of business 150,000 - -
========== ========== ==========
Purchase of business:
Fair value of assets acquired $ - $ 121,037 $ -
Stock issued (206,400) -
Cash received - 44,411 -
Goodwill on purchase - 116,204 -
---------- ---------- ----------
Liabilities assumed $ - $ 75,252 $ -
========== ========== ==========
Disposal of business:
Fair value of assets disposed of $ (208,807) $ - $ -
Consideration by means of directors' loan set off 150,000 - -
Loss on disposal 49,255
---------- ---------- ----------
Liabilities disposed of $ (9,552) $ - $ -
========== ========== ==========
See notes to consolidated financial statements.
F-7
</TABLE>
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Amounts stated in United States Dollars)
1. ORGANIZATION AND ACTIVITIES
The Company was formed under the name of Electrocon International, Inc. in
March 1988 as an International Business Company under the laws of the
British Virgin Islands. The Company subsequently changed its name to Getgo
Mail.Com Inc. on October 14, 1999.
The Company is a diversified, Hong Kong-based holding company that conducts
operations through its subsidiaries, all wholly-owned, primarily in two
separate business segments - the distribution of semiconductor products
(primarily computer chips) to small and medium-sized manufacturers located
in the Hong Kong Special Administrative Region ("Hong Kong") of the
People's Republic of China ("PRC") and in other regions of the PRC and the
distribution of golf carts, irrigation products and systems, fertilizer and
turf equipment to golf clubs in Hong Kong and the PRC.
During 1999, the Company acquired certain patent rights for the
development, manufacture, use and sale of web mail cards and enabling
software for use by customers of providers of voice, email data and
facsimile messaging services. The Company began development of the working
prototype of the Getgo MailTM Card and incurred $34,018 in development
costs in 1999. The Company had not placed the card into production at
December 31, 1999 and has not yet earned any revenues from this new
business segment.
On June 10, 1997, the Company issued 70,000 shares of its common stock as
bonuses to employees. These shares were valued at $39,375 for the purpose
of calculating stock compensation to employees based on the quoted market
price of the Company's common stock of $0.5625 on the date of issuance.
On September 30, 1997, the Company issued 466,209 shares of its common
stock to a creditor at a price of $2 per share for the settlement of debt
amounting to $932,418.
On April 10, 1998, the Company acquired the entire interest in Flownet
Irrigation Service Company ("Flownet"), an unincorporated business in Hong
Kong, for a total consideration of $161,989, which was satisfied by the
issue of 300,000 shares of Common stock less a cash adjustment received of
$44,411. The major activity of the acquired business is the provision of
irrigation engineering services. The acquisition has been accounted for as
a purchase and accordingly, the assets and liabilities of the acquired
business have been recorded at their estimated fair value at the date of
acquisition. The excess of purchase price over the estimated fair value of
the net assets acquired, in the amount of $102,671 has been recorded as
goodwill and is amortized over 5 years. On August 2, 1999, the Company
disposed of the entire interest in Flownet to a company beneficially owned
by Mr. Edward Ting, Chief Executive Officer and a shareholder of the
Company, for a total consideration of $150,000, resulting in a loss of
$49,255. The total consideration was remitted to Mr. Ting in partial
payment of the amount due to him.
F-8
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
(Amounts stated in United States Dollars)
1. ORGANIZATION AND ACTIVITIES - continued
On July 1 and December 21, 1999, the Company issued 250,000 and 200,000
shares of its common stock respectively to Visual Access Technologies,
Inc., an unrelated company, for the purchase of two patent licenses. Those
shares were valued at a total amount of $465,625 for the purpose of
calculating the costs of the patent licenses based on the quoted market
price of the Company's common stock of $0.5625 and $1.625 on the respective
date of issuance.
On July 15 and August 12, 1999, the Company issued 125,000 and 310,000
shares of its common stock, respectively, to consultants and a legal
advisor. Those shares were valued at a total amount of $221,375 for the
purpose of calculating stock compensation to non-employees based on the
quoted market price of the Company's common stock of $0.531 and $0.50 on
the respective dates of issuance.
On August 12, 1999, the Company issued 200,000 shares of its common stock
to a director at a price of $0.50 per share for reduction of the amount due
to the director amounting to $100,000.
On August 31, 1999, the Company issued 95,500 shares of its common stock as
bonuses to employees and two directors. These shares were valued at $42,020
for the purpose of calculating stock compensation to employees based on the
quoted market price of the Company's common stock of $0.44 on the date of
issuance.
On November 11, 1999, the Company offered through a private placement,
500,000 units each consisting of two shares of its common stock and one
warrant at a price of $2.75 per unit. Each warrant is exercisable to
purchase one share of common stock at $3.50 per share and is exercisable
until November 30, 2000. On December 16, 1999, the Company sold 160,000
units and issued 320,000 shares of its common stock and 160,000 warrants
and received net proceeds of $330,675.
On November 11, 1999, the Company issued 250,000 shares of common stock
upon exercise of warrants held by a director at $1.10 per share. Settlement
of the exercise price of the warrants was made by the reduction in the
amount of $275,000 of loan due to him by the Company (Note 10).
The consolidated financial statements of the Company and its subsidiaries
have been prepared in accordance with generally accepted accounting
principles in the United States of America ("U.S. GAAP") which differ from
those used in the statutory accounts of most of its subsidiaries. There are
no material differences between the U.S. GAAP amounts and the amounts used
in the statutory accounts of the subsidiaries.
F-9
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
(Amounts stated in United States Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The consolidated financial statements include
the accounts of the Company and its subsidiaries. Intercompany balances and
transactions are eliminated on consolidation. Investments in affiliated
companies, owned 20% to 50% inclusive, are accounted for using the equity
method.
Cash and cash equivalents - Cash and cash equivalents include cash on hand,
cash accounts, interest bearing savings accounts and time certificate of
deposit accounts with an original maturity of three months or less.
Inventories - Inventories, which comprise electronic components and spare
parts held for resale, are stated at the lower of cost or market. Cost,
which comprises direct materials, sub-contracting charges and freight, is
calculated using the weighted-average method.
Construction contracts - Construction contracts are stated at cost plus
estimated profit, less provision for any foreseeable losses and progress
billings. Cost includes direct materials, direct labor and allocated
overhead expenses. Where construction costs incurred plus aggregate
estimated profits less foreseeable losses exceed the progress billings, the
excess is shown in the balance sheet under current assets. For contracts
where progress billings exceed construction costs incurred plus aggregate
estimated profits less foreseeable losses, the excess amount is shown in
the balance sheet under current liabilities.
Property and equipment - Property and equipment is stated at cost less
accumulated depreciation. The costs of major improvements are capitalized
whereas the costs of maintenance and repairs are expensed in the year
incurred. Depreciation and amortization are provided on the declining
balance method, at the following rates per annum:
Furniture, fixtures and office equipment 15% - 25%
Motor vehicles 25%
Motor vessels 15%
Leasehold improvements 15%
Valuation of long-lived assets - The Company periodically evaluates the
carrying value of long-lived assets to be held and used, including goodwill
and other intangible assets, when events and circumstances warrant such a
review. The carrying value of a long-lived asset is considered impaired
when the anticipated undercounted cash flow from such asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Losses on long-lived assets to be
disposed of are determined in a similar manner, except that fair market
values are reduced for the costs to dispose.
F-10
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
(Amounts stated in United States Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Net loss per share - Basic loss per share and is computed by dividing net
loss attributable to common stockholders by the weighted average of common
shares outstanding for the period.
At December 31, 1999, 1998 and 1997, the Company had securities outstanding
which could potentially dilute basic earnings per share in the future.
Diluted loss per share has not been presented since the impact would have
been anti-dilutive. The effect of the instruments noted below on
outstanding common shares is as follows:
Year ended December 31,
----------------------------------------
1999 1998 1997
---- ---- ----
Outstanding options 1,438,500 - 741,672
Warrants 160,000 250,000 -
--------- -------- --------
1,598,500 250,000 741,672
========= ======== ========
Revenue recognition - The Company recognizes revenue from the sale of goods
and services at the time when shipments of products and services rendered
are made to customers and provides an allowance for estimated costs
associated with returns of non-conforming products. Profits from
construction contracts which are expected to last for over one year are
recognized under the percentage-of-completion method, using progress
billings in relation to estimated total revenue of the contracts to measure
the stage of completion. Estimated profit is recognized only when a
contract is more than 20% completed at the balance sheet date.
Income taxes - Deferred income taxes are provided using the asset and
liability method. Under this method, deferred income taxes are recognised
for all significant temporary differences and classified as current or
non-current based upon the classification of the related asset or liability
in the financial statements. A valuation allowance is provided to reduce
the amount of deferred tax assets if it is considered more likely than not
that some portion of, or all of, the deferred tax asset will not be
realized.
Foreign currency translation - Assets and liabilities of foreign
subsidiaries are translated at year end exchange rates, while revenues and
expenses are translated at average currency exchange rates during the year.
Adjustments resulting from translating foreign currency financial
statements are reported as a separate component of stockholders' equity.
Gains or losses from foreign currency transactions are included in the
statement of operations.
Post-retirement and post-employment benefits - The Company does not provide
post-retirement benefits, other than pensions, and post-employment
benefits, if any, are not significant.
Stock-based compensation - The Company accounts for stock-based awards
using the intrinsic value based method in accordance with Accounting
Principles Board Option No. 25, "Accounting for Stock Issued to Employees."
Under the intrinsic method, compensation cost for stock options is measured
as the excess, if any, of the quoted market price of the Company's stock at
the measurement date over the exercise price.
F-11
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
(Amounts stated in United States Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Concentration of credit risk - The Company sells to customers located in
Hong Kong and other regions of the PRC. The Company grants credit to all
qualified customers on an unsecured basis but does not believe it is
exposed to any undue concentration of credit risk to any significant
degree.
Comprehensive income - In 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive
income, its components and accumulated balance. Comprehensive income is
defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Since the Company did
not have any items of comprehensive loss in the years reported, the net
loss reported in the consolidated statements of operations is equivalent to
total comprehensive loss.
Derivative instruments - In 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This SFAS establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and hedging activities and requires recognition of all
derivative instruments as assets or liabilities and requires measurement of
those instruments at fair value. The Company will required to adopt SFAS
No. 133 in January, 2001. The Company has not yet completed the analysis of
the impact this standard will have on the Company's financial position and
results of operations.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
3. INVENTORIES
The components of inventories were as follow:
December 31,
------------
1999 1998
---- ----
Finished goods $1,533,105 $2,176,867
Raw materials and spare parts 103,462 248,381
--------- ---------
$1,636,567 $2,425,248
========= =========
F-12
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
(Amounts stated in United States Dollars)
4. COSTS IN EXCESS OF BILLINGS ON CONSTRUCTION CONTRACTS
Costs in excess of billings on construction contracts included the
following:
December 31,
------------
1999 1998
---- ----
Costs incurred $579,404 $652,769
Add: Estimated profit 420,014 265,864
-------- --------
999,418 918,633
Less: Progress billings (938,050) (764,825)
-------- --------
$ 61,368 $153,808
======== ========
5. BILLINGS IN EXCESS OF COSTS ON CONSTRUCTION CONTRACTS
Billings in excess of costs on construction contracts included the
following:
December 31,
------------
1999 1998
---- ----
Costs incurred $ 62,214 $ 59,614
Add: Estimated profit 82,180 61,732
-------- --------
144,394 121,346
Less: Progress billings (195,577) (195,577)
-------- --------
$(51,183) $ (74,231)
======== ========
F-13
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
(Amounts stated in United States Dollars)
6. PROPERTY AND EQUIPMENT, NET
December 31,
------------
1999 1998
---- ----
Cost
Furniture, fixtures and office equipment $ 587,224 $ 561,317
Motor vessels -- 477,148
Motor vehicles 208,852 254,425
Leasehold improvements 115,714 115,714
----------- -----------
Total 911,790 1,408,604
Less: Accumulated depreciation and amortization (588,509) (738,353)
----------- -----------
$ 323,281 $ 670,251
=========== ===========
Included in property and equipment are the following assets acquired under
capital leases:
December 31,
------------
1999 1998
---- ----
Cost
Motor vehicles $ -- $ 54,282
Less: Accumulated amortization -- (15,938)
-------- --------
$ -- $ 38,344
======== ========
7. INTANGIBLE ASSETS
December 31,
------------
1999 1998
---- ----
Patent licenses $ 465,625 $ --
Goodwill on purchase of business (note 1) -- 116,204
Less: Amortization (26,629) (17,431)
--------- ---------
$ 438,996 $ 98,773
========= =========
F-14
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
(Amounts stated in United States Dollars)
8. SHORT-TERM BORROWINGS AND BANK LOAN
The outstanding amounts at the balance sheet dates represent bank loan,
overdrafts, letters of credit and trust receipts loan balances with various
banks. The facilities and the amounts utilized at the balance sheet dates
are as follows:
December 31,
------------
1999 1998
---- ----
Credit facilities granted $5,487,947 $6,089,744
========== ==========
Utilized $4,879,279 $5,481,296
========== ==========
Weighted average interest
rate on borrowings
at end of year 11.5% 10.8%
========== ==========
The Company maintains bank credit lines in Hong Kong for use in its
operations in Hong Kong and other regions of the PRC. Interest rates are
generally based on the banks' prime lending rates, and cost of funds and
the credit lines are normally subject to annual review. At December 31,
1999 the above banking facilities were secured by bank deposits of
approximately $3.7 million. In addition, at December 31, 1999 a director
has pledged personal bank deposits to a bank as collateral for facilities
of approximately $2.26 million provided to the Company of which
approximately $2.11 million was utilized at the balance sheet date. No
charges have been made in respect of the provision of the collateral.
9. OBLIGATIONS UNDER CAPITAL LEASES
Obligations under capital leases consist of the following:
December 31,
------------
1999 1998
---- ----
Capital leases at 7.25% per annum, due in
installments to June 1999 $ - $ 3,582
Capital lease at 12.75% per annum, due in
installments to October 1999 - 6,162
------- -------
- 9,744
Less: Current portion of
obligations under capital leases - 9,744
------- -------
$ - $ -
======= =======
F-15
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
(Amounts stated in United States Dollars)
10. LOAN FROM RELATED PARTY
In March 1998, a subsidiary obtained a standby letter of credit for one of
its suppliers from a bank. The letter of credit was collateralized by a
security interest in a $500,000 deposit owned by Glas-Aire Industries Group
Ltd. ("Glas-Aire"). At that time, Mr. Edward Ting was Chief Executive
Officer, Chairman of the Board of Directors and a principal shareholder of
Glas-Aire and Chris G. Mendrop and Clement Cheung were directors of
Glas-Aire. As consideration for Glas-Aire agreeing to provide the security
for the letter of credit, the Company agreed as follows: (i) to issue to
Glas-Aire a warrant exercisable for a period of five years from March 25,
1998 to purchase 250,000 shares of the Company's Common Stock at an
exercise price of $1.00 per share during the first year, $1.10 per share
during the second year, $1.20 per share during the third year, $1.50 per
share during the fourth year and $1.75 per share during the fifth year;
(ii) to pay Glas-Aire a fee in the amount of 1% of the collateral, or
$5,000, payable in advance for the six month period beginning on the date
the letter of credit was issued by the bank and an additional fee of 1%,
also payable in advance, for the six-month period immediately following the
initial six-month period, if the collateral continued to be utilized for
the letter of credit, with the understanding that the collateral would be
made available by Glas-Aire to collateralize the letter of credit for a
period not to exceed one year; and (iii) the pledge to Glas-Aire by Mr.
Ting of all shares of Glas-Aire common stock owned by him, his wife or
under his control. The Company has recognized expense of $75,000 in 1998 in
respect of the warrant. In November 1998, the Company defaulted on the
letter of credit and $250,000 of the collateral was seized, resulting in
the Company being indebted to Glas-Aire in the amount of $250,000. In
December 1998, Glas-Aire made a loan to the Company in the principal amount
of $500,000 and $250,000 of the loan proceeds was used to repay Glas-Aire
for the seized collateral for the letter of credit. This loan was evidenced
by a promissory note, bore interest at the rate of 10% per annum, unless a
default occurred in which case the interest rate would increase to 12%, and
was payable on demand. The loan was secured by a first priority lien on
212,331 shares of Glas-Aire common stock owned by Mr. Edward Ting and a
second priority lien on the remaining 301,584 shares of Glas-Aire common
stock owned by Edward and Viola Ting which had previously been pledged to
secure the letter of credit arrangement. In April 1999, Mr. Edward Ting
purchased the promissory note from Glas-Aire in order to enable him to sell
his Glas-Aire shares which were encumbered by the debt. In addition,
Glas-Aire transferred the warrant to Mr. Ting. In November 1999, Mr. Ting
exercised all of the warrants to purchase 250,000 shares of the Company at
$1.10 per share which was settled by reduction of the principal amount of
the promissory note due to Mr. Ting by $275,000. The remaining promissory
note of $225,000 was settled by the Company issuing shares to Mr. Ting and
by Mr. Ting receiving the proceeds from the sale of an unincorporated
business (Note 1).
11. OTHER INCOME
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Foreign exchange gain $ - $ - $ 64,668
Other 85,309 37,845 86,447
------- ------- --------
$85,309 $37,845 $151,115
======= ======= ========
F-16
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
(Amounts stated in United States Dollars)
12. INCOME TAXES
Under current law, the Company's income is not subject to taxation in the
British Virgin Islands. The Hong Kong subsidiaries' income tax provision
has been calculated by applying the Hong Kong statutory income tax rates of
16%, 16% and 16.5% for the years ended December 31, 1999, 1998 and 1997 to
the subsidiaries' estimated taxable income which was earned in or derived
from Hong Kong during the respective years. Each company in Hong Kong files
a separate tax return and tax losses are available only against that
company's taxable income. The Company is not subject to income tax in other
regions of the PRC.
The provision for income taxes represents Hong Kong taxation as follows:
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Current year provision $ - $ - $ -
Deferred tax (credit) charge (45,472) 23,906 21,041
------- ------- -------
Total income tax (benefit) expense $(45,472) $23,906 $21,041
======= ======= =======
A reconciliation of income tax provision (credit) to the amount computed by
applying the Hong Kong statutory income tax rates to loss before income
taxes in the consolidated statements of operations is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Hong Kong statutory tax rate 16% 16% 16.5%
Income tax at Hong Kong statutory
rate on pre-tax loss $(264,095) $(72,237) $(71,080)
Operating loss not subject to income tax 218,623 96,143 92,121
--------- -------- --------
$ (45,472) $ 23,906 $ 21,041
========= ======== ========
</TABLE>
At the balance sheet date, the major components of deferred income tax
liabilities are as follows:
December 31,
------------
1999 1998
---- ----
Tax loss carry forwards $488,137 $ 245,092
Depreciation (38,289) (64,681)
Valuation allowances (449,848) (225,883)
-------- --------
Deferred income tax liability $ - $ (45,472)
======== ========
At December 31, 1999 the Company had tax losses of $3,050,000 which are
available for carry forward indefinitely.
F-17
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
(Amounts stated in United States Dollars)
13. RELATED PARTY TRANSACTIONS
Related party transactions not described elsewhere in these financial
statements are as follows:
a) Since 1992, the Company has provided a director, Mr. Edward Ting, with
leased accommodation on a monthly basis for his use at a monthly
rental of approximately $2,000.
b) Since October 1998, the Company has provided a director, Mr. Clement
Cheung, with leased accommodation for his use at a monthly rental of
approximately $1,600. The term of the lease is from October 1, 1998 to
September 30, 2000.
c) The Company leases residential accommodation from a director at a
monthly rental of approximately $2,821 under a lease which is
renewable on an annual basis. Rental expense amounted to $33,846 in
each of 1999, 1998 and 1997, respectively.
d) Mr., Edward Ting advanced the Company on an interest free basis
$164,143 in 1999, $134,991 in 1998 and $127,639 in 1997. At December
31, 1999 and 1998, the Company owed Mr. Edward Ting an amount of
$274,134 and $134,991, respectively. The loan advances have no fixed
repayment terms.
e) Sales by the Company to China Electrocon Limited, a 50% held
affiliate, totaled $81,000 in 1997.
14. OPERATING LEASE COMMITMENTS
The Company leases premises under operating leases expiring through
September 2001. Rental expense under operating leases was $172,519 in 1999,
$170,788 in 1998 and $219,679 in 1997. As of December 31, 1999, future
minimum rental payments under operating leases were as follows:
2000 $105,979
2001 50,000
--------
Total minimum lease payments $155,979
========
F-18
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
(Amounts stated in United States Dollars)
15. STOCK OPTION PLANS
In 1995, the Company granted stock options to officers and employees of the
Company to purchase up to 2,225,017 shares of common stock at exercise
prices from $1.00 to $1.50 per share. These options were exercisable at
various dates from 1995 and 1998 and at December 31, 1998, all such options
had expired.
On August 31, 1999, the Company granted to various employees and two
directors options to purchase 588,500 shares of common stock of the
Company. These options vest and expire over a four-year period. Twenty-five
percent of the options vest and become exercisable September 1, 1999 at an
exercise price of $1 per share and expire on December 31, 2000. Twenty-five
percent of the options vest and become exercisable January 1, 2001 at an
exercise price of $1.30 per share and expire on December 31, 2001.
Twenty-five percent of the options vest and become exercisable January 1,
2002 at an exercise price of $1.65 per share and expire on December 31,
2002. The final twenty-five percent of the options vest and become
exercisable January 1, 2003 at an exercise price of $2 per share and expire
on December 31, 2003. The right to acquire these shares is cumulative and
non-assignable. These options expire upon termination of employment with
the Company.
On September 21 and November 10, 1999, the Company granted Mr. Edward Ting
options to purchase 400,000 and 100,000 shares, respectively, of the
Company's common stock. These options expire September 20, 2009 and
November 9, 2009 and are exercisable at $1.25 and $1.75 per share,
respectively.
On November 11, 1999, the Company granted Mr. Chris Mendrop, a director of
the Company, an option to purchase 50,000 shares of the Company's common
stock. These options expire November 10, 2004 and are exercisable at $2 per
share.
No stock compensation relating to these options was calculated as the
exercise price was in excess of the quoted market price for the Company's
common stock on the date the options were granted.
F-19
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
(Amounts stated in United States Dollars)
15. STOCK OPTION PLANS - continued
In August 1999, the Company granted stock options to consultants and a
legal advisor to purchase 300,000 shares of common stock at a price of
$0.50 per share. These options expire 10 years from the date of grant and
shall be exercisable at the price of $0.50 per share. The right to acquire
the shares is cumulative and transferable. These options were valued at
$125,000 for the purpose of calculating compensation to non-employees.
The following summarizes the stock options outstanding:
Weighted
Number average
of shares exercise price
--------- --------------
At January 1, 1997 1,483,344 $1.48
Expired (741,672) 1.46
--------- -----
December 31, 1997 741,672 1.50
Expired (741,672) 1.50
--------- -----
December 31, 1998 - -
Options granted 1,438,500 1.25
--------- -----
December 31, 1999 1,438,500 $1.25
========= =====
The grant-date weighted average fair value of the options granted in
1999 is estimated to be $0.50 per share using the Black-Scholes option
pricing model with the following assumptions: (a) risk-free interest
rate 5.4%; (b) weighed average expected life - 6.76 years (c) expected
volatility - 80% and (d) expected dividend yield - Nil.
Additional information on options outstanding at December 31,1999 is as
follows:
<TABLE>
<CAPTION>
Options exercisable
Options outstanding as of December 31, 1999 as of December 31, 1999
------------------------------------------- -----------------------
Weighted average Weighted Weighted
Range of Number remaining average Number average
exercise prices outstanding contractual life exercise price exercisable exercise price
----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$0.50 - 1.00 447,125 7.04 $0.66 447,125 $0.66
1.25 - 1.65 694,250 6.82 1.35 400,000 1.25
1.75 - 2.00 297,125 6.19 1.92 150,000 1.83
--------- ------- ------- ------- -------
1,438,500 6.76 $1.25 997,125 $1.08
========= ======= ======= ======= =======
</TABLE>
The Company has accounted for the stock options granted to employees using
the intrinsic value methods. Had the Company adopted the fair value based
method of accounting for stock options provided under SFAS No.123,
"Accounting for Stock-Based Compensation", proforma net loss and loss per
share would have been approximately $1,977,072 and $(0.248) per share for
year ended December 31, 1999. The effect on net loss and loss per share is
insignificant for years ended December 31, 1998 and 1997.
F-20
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
(Amounts stated in United States Dollars)
16. EMPLOYEE BENEFIT PLAN
The employees of the entities located in Hong Kong are covered under a
defined contribution plan covering all full-time monthly-paid permanent
employees. The plan provides for annual contributions by the Company of 5%
of eligible compensation of employees based on length of service. The
expense related to the above plan was $20,666 in 1999, $26,037 in 1998 and
$33,319 in 1997.
As of August 27, 1999, the Company terminated its defined contribution plan
and distributed all its assets to eligible employees.
17. SUPPLEMENTARY INFORMATION
Movements on allowances for doubtful accounts are as follows:
<TABLE>
<CAPTION>
Balance at Charged to Balance
beginning cost and at
of year expenses end of year
------- -------- -----------
<S> <C> <C> <C>
Year ended December 31, 1999 $315,966 $683,057 $999,023
======== ======== ========
Year ended December 31, 1998 $180,192 $135,774 $315,966
======== ======== ========
Year ended December 31, 1997 $152,153 $ 28,039 $180,192
======== ======== ========
</TABLE>
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107
"Disclosures 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. The estimates
presented herein are not necessarily indicative of the amounts that the
Company could realize in a current market exchange. The carrying amounts of
cash and cash equivalents, inventories, accounts receivable, accounts
payable and short-term borrowings and bank loan are reasonable estimates of
their fair value.
F-21
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
(Amounts stated in United States Dollars)
19. SEGMENT INFORMATION
The Company's operations comprise the distribution of electronic components
in Hong Kong and the distribution of golf equipment and installation of
golf course irrigation and drainage systems in Hong Kong and in other
regions of the PRC. The geographical and industrial distribution of sales,
operating income (loss) and assets, major customers and suppliers for the
years ended December 31, 1999, 1998 and 1997 are shown as follows:
<TABLE>
<CAPTION>
Geographical segments
Other
regions of
Hong Kong the PRC Total
--------- ------- -----
Year ended December 31, 1999:
<S> <C> <C> <C>
Net revenues $13,612,926 $4,007,417 $17,620,343
Operating loss (646,608) (609,239) (1,255,847)
Total assets 7,309,720 2,230,944 9,540,664
Long-lived assets 714,037 542,394 1,256,431
=========== =========== ===========
Year ended December 31, 1998:
Net revenues $10,557,498 $11,781,090 $22,338,588
Operating income (loss) 93,676 (346,752) (253,076)
Total assets 8,741,455 3,727,308 12,468,763
Long-lived assets 646,157 532,922 1,179,079
=========== =========== ===========
Year ended December 31, 1997:
Net revenues $16,438,529 $12,648,035 $29,086,564
Operating income (loss) 66,811 (294,179) (227,368)
Total assets 8,864,269 5,529,131 14,393,400
Long-lived assets 921,216 182,964 1,104,180
=========== =========== ===========
F-22
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
(Amounts stated in United States Dollars)
19. SEGMENT INFORMATION - continued
Business segments
Distribution Distribution
and sale of and installation
semi-conductors of golf
and electronic equipment
spare parts and systems Total
----------- ----------- -----
Year ended December 31, 1999:
Net revenues $13,612,926 $4,007,417 $17,620,343
Operating loss (924,076) (331,771) (1,255,847)
Total assets as of December 31 7,565,474 1,975,190 9,540,664
Capital expenditure 36,435 2,101 38,536
Depreciation and amortization 68,899 29,711 98,610
=========== =========== ===========
Year ended December 31, 1998:
Net revenues $16,698,983 $5,639,605 $22,338,588
Operating income (loss) 91,266 (344,342) (253,076)
Total assets as of December 31 9,138,068 3,330,695 12,468,763
Capital expenditure 18,798 49,252 68,050
Depreciation and amortization 97,453 51,777 149,230
=========== =========== ===========
Year ended December 31, 1997:
Net revenues $23,151,881 $5,934,683 $29,086,564
Operating income (loss) 61,950 (289,318) (227,368)
Total assets as of December 31 10,333,770 4,059,630 14,393,400
Capital expenditure 22,263 22,839 45,102
Depreciation and amortization 117,563 25,289 142,852
=========== =========== ===========
</TABLE>
Major customers and suppliers
One single customer, Skyworth (Group) Co. accounted for approximately 12%
of the total sales on distribution and sale of semi-conductors and
electronic spare parts for the year ended December 31, 1999. No single
customer accounted for 10% or more of total sales for the years ended
December 31, 1999, 1998 and 1997. The Company's principal suppliers are
Texas Instruments Asia Limited and Zilog Inc. and TDK Semiconductor
Corporation which represented, respectively, 33%, 41% and 16% in 1999, 32%,
25% and 15% in 1998 and 47%, 13% and 12% in 1997 of total purchases.
F-23
<PAGE>
GETGO MAIL.COM INC.
-------------------
(Formerly Electrocon International Inc.)
(Amounts stated in United States Dollars)
20. SUBSEQUENT EVENTS
On February 14, 2000, the Company granted a former consultant of the
Company an option to purchase 62,500 shares of the Company's common stock
at an exercise price of $1 per share. The option is exercisable for a
period of two years.
On April 6, 2000, the Company sold the remaining 340,000 units offered
through a private placement dated November 11, 1999 (as described in Note
1). The Company issued 680,000 shares of common stock and 340,000 warrants
and received net proceeds of $841,500.
F-24
