SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: (Date of earliest event reported): March 27, 2000
eSOFTBANK.COM, INC.
-------------------------------------------------------
(Exact name of Registrant as specified in its charter)
1-12293
-------------------------
(Commission file number)
Nevada 87-0394313
---------------------------- ---------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation)
Flat A, United Plaza, 5022 Binhe Main Street
Fution District, Shenzhen, PRC 518026
---------------------------------------------------
(Address of principal executive offices) (Zip code)
011-86-755-255-1130
----------------------------------------------------
(Registrant's telephone number, including area code)
-----------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 1. Change in Control of Registrant
As a result of the acquisition of World Concept Development Limited and its
Subsidiaries, control of our company shifted to the former shareholders of World
Concept Development Limited. The new controlling shareholder and the other
shareholders who own five percent (5%) or more of our outstanding common stock
are as follows:
Name Number of Shares Held Percentage
Directly and Beneficially
---------- --------------------------- -----------
Dr. Lan Hong Bing 5,781,460 45.17%
Best Asia Investment Limited 747,200 5.84%
Asia Concept Development Limited 840,600 6.57%
China Enterprise Federation 672,480 5.25%
World Concept Holding Limited 1,120,800 8.76%
Metrolink Holdings Limited 790,000 6.19%
Item 2. Acquisition or Disposition of Assets
On March 27, 2000, we entered into an Exchange Agreement (the Exchange)
with World Concept Development Limited (World), an independent third party. By
means of the Exchange, we acquired 100% of the issued and outstanding shares of
World in exchange for 9,300,000 post reverse split shares of our stock. In
addition to the common stock, we also issued to the shareholders of World
3,000,000 warrants at $3.00 per share exercisable at anytime between March 27,
2000 and March 26, 2000; 2,000,000 warrants at $4.00 per share exercisable at
anytime after March 26, 2001 and before March 27, 2002; and 2,000,000 warrants
at $5.00 per share exercisable at anytime after March 26, 2002 and before March
27, 2003. Immediately, prior to the Exchange, we effected a one for five reverse
stock split and changed the name of our Company to eSoftbank.com, Inc.
The Exchange has been accounted for using the purchase method of accounting
which means that this is a reverse acquisition whereby eSoftBank.com, Inc. is
deemed to be the acquiror in the business combination. Our existing shareholders
will retain a 27% voting interest in the combined entity following the Exchange.
World, a development stage enterprise, was incorporated on October 27, 1999, in
the British Virgin Islands. World incorporated its wholly owned subsidiary
eSoftbank Networks (Shenzhen) Co. Ltd. (Shenzhen) on December 30, 1999, in the
Peoples' Republic of China (PRC). World and Shenzhen were incorporated to effect
a merger, exchange of capital stock, asset acquisition or other business
combination with a domestic or foreign, private or publicly held business. As of
December 31, 1999, World had not commenced any formal business operations and
the only activity related to the Company's formation.
2
<PAGE>
On February 21, 2000, World, via Shenzhen, acquired 9.52% of the outstanding
capital of SiTech Hainan Limited. (SiTech), a company related through common
ownership and management from Dr. Hongbing Lan, a director and shareholder of
both World and SiTech for approximately $62,650. On the same date, Shenzhen
acquired an additional 42.86% of SiTech from SiTech Hainan Holding Co., Ltd.
(Holdings), a company related through common ownership and management, for
approximately $280,000. SiTech is a software designer and markets both packaged
and custom designed Internet-related software applications. Since both entities
involved in the acquisition were under common control, the transaction was
accounted for at historical cost in a manner similar to that in
pooling-of-interests accounting. The consolidated financial statements include
the results of operations for World and its subsidiary from their inception.
On February 21, 2000, Shenzhen also acquired an 80% of the newly issued and
outstanding stock of eSoftbank (Beijing) Software Systems Co., Ltd. (Beijing), a
PRC company, from Holdings for an initial capital investment of approximately
$116,000. The remaining 20% of Beijing is owned by Mr. Hongyu Lan, the brother
of Dr. Hongbing Lan.
Item 7. Financial Statements & Exhibits
a. Financial Statements of Businesses Acquired
1. Financial Statements of World Concept Development Limited and
Subsidiary as of December 31, 1999.
a. Independent Auditor's Report F-1
b. Consolidated Balance Sheet F-2
c. Consolidated Statement of Operations F-3
d. Consolidated Statement of Stockholders' Equity F-4
e. Consolidated Statement of Cash Flows F-5
f. Notes to Consolidated Financial Statements F-6 - F-8
2. Financial Statements of SiTech Hainan Limited for the years ended
December 31, 1998 and 1999.
a. Independent Auditor's Report F-9
b. Statements of Income F-10
c. Statements of Changes in Shareholders' Equity F-13
d. Balance Sheets F-14
e. Statements of Cash Flows F-15
f. Notes to Financial Statements F-16 - F-22
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ESOFTBANK.COM, INC.
By: /s/
--------------------
Date: June 2, 2000
4
<PAGE>
C O N T E N T S
Page
-------
Independent Auditor's Report F-1
Consolidated Balance Sheet F-2
Consolidated Statement of Operations F-3
Consolidated Statement of Stockholders' Equity F-4
Consolidated Statement of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Stockholders and the Board of Directors
World Concept Development Limited and Subsidiary
(Development Stage Enterprise)
We have audited the accompanying consolidated balance sheet of World Concept
Development Limited and Subsidiary (Development Stage Enterprise) as of
December 31, 1999, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the period from October 27,
1999 (inception) to December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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 World Concept
Development Limited and Subsidiary (Development Stage Enterprise) as of December
31, 1999, and the results of its operations and its cash flows for the period
from October 27, 1999 (inception) to December 31, 1999, in conformity with
generally accepted accounting principles in the United States of America.
S/Blackman Kallick Bartelstein, LLP
Chicago, Illinois
May 1, 2000
<PAGE>
WORLD CONCEPT DEVELOPMENT LIMITED
AND SUBSIDIARY
(Development Stage Enterprise)
Consolidated Balance Sheet
December 31, 1999
ASSETS
Cash $ 1,000
---------
Total Assets $ 1,000
=========
STOCKHOLDERS' EQUITY
Common stock, par value $1.00 issued and
outstanding - 1,000 shares $ 1,000
---------
Total Stockholders' Equity $ 1,000
=========
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
<PAGE>
WORLD CONCEPT DEVELOPMENT LIMITED
AND SUBSIDIARY
(Development Stage Enterprise)
Consolidated Statement of Operations
Period from October 27, 1999 (Inception)
to December 31, 1999
No Activity.
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
WORLD CONCEPT DEVELOPMENT LIMITED
AND SUBSIDIARY
(Development Stage Enterprise)
Consolidated Statement of Stockholders' Equity
Period from October 27, 1999 (Inception)
to December 31, 1999
Total
Common Stock Stockholders'
Shares Amount Equity
-------- -------- ----------------
Issuance of Common Stock 1,000 $ 1,000 $ 1,000
------- --------- -------
Balance December 31, 1999 1,000 $ 1,000 $ 1,000
======= ========= =======
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
WORLD CONCEPT DEVELOPMENT LIMITED
AND SUBSIDIARY
(Development Stage Enterprise)
Consolidated Statement of Cash Flows
Period from October 27, 1999 (Inception)
to December 31, 1999
Cash Flows from Financing Activities:
Proceeds from issuance of common stock to founding
and other stockholders $ 1,000
-----------
Net Cash Provided by Financing Activities 1,000
-----------
Net Increase in Cash 1,000
Cash, Beginning of Period -
-----------
Cash, End of Period $ 1,000
===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
WORLD CONCEPT DEVELOPMENT LIMITED
AND SUBSIDIARY
(Development Stage Enterprise)
Notes to Consolidated Financial Statements
Period from October 27, 1999 (Inception)
to December 31, 1999
1. Organization and Principal Activities
World Concept Development Limited (the "Company"), a development stage
enterprise, was incorporated on October 27, 1999, in the British Virgin Islands
(BVI). The company incorporated its wholly owned subsidiary eSoftbank Networks
(Shenzhen) Co. Ltd. (Shenzhen) on December 30, 1999 in the Peoples' Republic of
China (PRC). The company and its wholly owned subsidiary were incorporated with
a corporate purpose to effect a merger, exchange of capital stock, asset
acquisition or other business combination with a domestic or foreign private or
publicly held business. As of December 31, 1999, the Company had not commenced
any formal business operations and the only activity to date related to the
Company's formation.
The company's ability to commence operations is contingent upon its ability to
execute the acquisitions as more fully described in Note 4.
2. Summary of Significant Accounting Policies
a. Basis of presentation
The consolidated financial statements have been prepared in accordance
with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 7, "Accounting and Reporting by Development Stage
Enterprises," which requires development stage enterprises to employ
the same accounting principles as operating companies.
F-6
<PAGE>
b. Management 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. Stockholders' Equity
Capital Stock
In October of 1999, the Company's Board of Directors authorized capital stock
consisting of 50,000 shares of common stock, $1.00 par value per share. On
December 11, 1999, the founding stockholders and other investors of the Company
purchased 1,000 shares of common stock for $1,000 in cash.
4. Subsequent Events
On February 21, 2000, the Company via its wholly owned subsidiary, Shenzhen,
acquired 9.52% of the outstanding capital of SiTech Hainan Ltd. (SiTech), a
company related through common ownership and management, from Dr. Hongbing Lan,
a director and shareholder of both the Company and SiTech, for approximately
$62,650. On the same date the Company acquired an additional 42.86% of SiTech
via Shenzhen, from SiTech Hainan Holding Co., Ltd. (Holdings), a company related
through common ownership and management, for approximately $280,000.
On February 21, 2000, the Company also acquired, via Shenzhen, 80% of the newly
issued and outstanding stock of eSoftBank (Beijing) Software Systems Co., Ltd.
(Beijing), a PRC company, for its initial capital investment of approximately
$116,000. The remaining 20% is owned by Mr. Hongyu Lan, the brother of Dr.
Hongbing Lan.
F-7
<PAGE>
4. Subsequent Events (Continued)
On March 27, 2000, the Company entered into an Exchange Agreement (Exchange)
with Natural Way Technologies, Inc. (Natural Way). Natural Way will acquire 100%
of the issued and outstanding shares of the Company in exchange for 9,300,000
post reverse split shares of Natural Way common stock. Natural Way is a listed
company traded on the Over the Counter Bulletin Board, who as of December 31,
1999 had no current operations, except for general and administrative expenses.
Prior to closing, Natural Way effected a one for five reverse split stock and
changed the name of the company to eSoftbank.com, Inc.
The Exchange has been accounted for using the purchase method of accounting as a
reverse acquisition whereby the company issuing its shares to effect a business
combination is determined to be the acquiree in the business combination. This
occurs when the shareholders of the issuer have less than a majority of voting
control of the combined entity. The company whose shareholders retain the
majority voting interest in the combined entity is presumed the acquirer. In the
current exchange, the existing shareholders of Natural Way will retain a 27%
voting interest in the combined entity on completion of the Exchange.
Accordingly, the Company is deemed to be the acquirer and the assets of Natural
Way are required to be fair valued on acquisition. As Natural Way has no assets,
other than due from stockholder, no fair value adjustments are required.
F-8
<PAGE>
SITECH HAINAN LIMITED
Index to Financial Statements
C O N T E N T S
Pages
-------
Independent Auditor's Report 9
Statements of Income 10
Statements of Changes in Shareholders' Equity 11
Balance Sheets 12
Statements of Cash Flows 13
Notes To Financial Statements 14-20
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Shareholders and the Board of Directors
SiTech Hainan Limited
We have audited the accompanying balance sheets of SiTech Hainan Limited as of
December 31, 1998 and 1999, and the related statements of income, changes in
shareholders' equity and cash flows for the years then ended. 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 generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of SiTech Hainan Limited as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
S/Blackman Kallick Bartelstein, LLP
Chicago, Illinois
March 31, 2000
F-9
<PAGE>
SITECH HAINAN LIMITED
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1999
1998 1999 1999
------ ------ ------
REVENUE 2,219,719 4,085,198 $ 492,192
COST OF SALES (608,131) (959,890) (115,649)
----------- ---------- -----------
GROSS PROFIT 1,611,588 3,125,308 376,543
SELLING AND ADMINISTRATIVE EXPENSES (451,532) (914,900) (110,229)
----------- ---------- -----------
INCOME FROM OPERATIONS 1,160,056 2,210,408 266,314
TOTAL OTHER INCOME (EXPENSE), NET 22,305 (1,915) (231)
----------- ---------- -----------
INCOME BEFORE TAXES 1,182,361 2,208,493 266,083
TAXES 124,646 249,921 30,111
----------- ---------- -----------
NET INCOME 1,057,715 1,958,572 $ 235,972
=========== ========== ===========
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE>
SITECH HAINAN LIMITED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
Additional
Share paid-in Reserve Retained
capital capital funds Earnings Total
Rmb Rmb Rmb Rmb Rmb
---------- ------------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 2,100,000 207,274 106,000 252,561 2,665,835
Net income - - - 1,057,715 1,057,715
Reserve fund - - 159,707 ( 159,707) -
Balance at December 31, 1998 2,100,000 207,274 265,707 1,150,569 3,723,550
Net income - - 1,958,572 1,958,572
Reserve fund - - 319,000 (319,000) -
Balance at December 31, 1999 2,100,000 207,274 584,707 2,790,141 5,682,122
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE>
SITECH HAINAN LIMITED
BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
<TABLE>
1998 1999 1999
------ ------ ------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash 34,687 621,051 $ 74,825
Deposits and other 995,839 1,047,357 126,188
Advances to employees 546,201 433,878 52,275
Costs and estimated earnings in excess of
billings on uncompleted contracts 398,692 - -
Due from shareholder 1,084,038 1,485,426 178,967
----------- ----------- ----------
TOTAL CURRENT ASSETS 4,372,287 5,602,042 674,945
----------- ----------- ----------
NON-CURRENT ASSETS
Product development costs, net 348,796 822,272 99,069
Fixed assets 671,097 759,533 91,510
----------- ----------- ----------
TOTAL NON-CURRENT ASSETS 1,019,893 1,581,805 190,579
----------- ----------- ----------
TOTAL ASSETS 5,392,180 7,183,847 $865,524
=========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - 159,900 $19,265
Accrued expenses
Employee fringe benefits 178,200 274,888 33,119
Other 28,931 29,063 3,502
Customer deposits 124,445 105,098 12,662
Billings in excess of costs and estimated
earnings on uncompleted contracts 555,708 - -
Taxes payable 261,076 467,734 56,354
Other payable 215,476 204,548 24,644
Due to director 304,794 260,494 31,385
----------- ----------- ----------
TOTAL CURRENT LIABILITIES 1,668,630 1,501,725 180,931
----------- ----------- ----------
SHAREHOLDERS' EQUITY
Registered capital - No par value; issued and
outstanding-2,100,000 shares 2,100,000 2,100,000 253,012
Additional Paid-in capital 207,274 204,274 24,973
Reserve funds 265,707 584,707 70,447
Retained earnings 1,150,569 2,790,141 336,161
----------- ----------- ----------
TOTAL SHAREHOLDERS' EQUITY 3,723,550 5,682,122 684,593
----------- ----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 5,392,180 7,183,847 $ 865,524
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
SITECH HAINAN LIMITED
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
1998 1999 1999
------ ------ ------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income 1,057,715 1,958,572 $ 235,972
----------- ----------- ---------
Adjustments to reconcile net income to net cash (used in)
Depreciation 134,326 169,273 20,394
Amortization of product development costs 93,558 123,364 14,863
(Increase) decrease in
Accounts receivable (310,423) (701,500) (84,518)
Deposits and other (694,849) (51,518) (6,207)
Costs and estimated earnings in excess of
billings on uncompleted contracts 156,037 398,692 48,035
Increase (decrease) in
Accounts payable and accrued expenses 152,638 452,450 54,512
Billings in excess of costs and estimated
earnings on uncompleted contracts 124,744 (555,708) (66,952)
Net borrowings from (repayments to) director 304,794 (44,300) (5,337)
----------- ----------- ---------
Total Adjustments (899,458) (116,271) (14,008)
----------- ----------- ---------
Net cash provided by Operating Activities 158,257 1,842,301 221,964
----------- ----------- ---------
Capital expenditures (309,649) (257,709) (31,049)
Capitalized expenditures for product development costs (211,483) (596,840) (71,909)
Net advances to shareholders (892,713) (401,388) (48,360)
Net repayments from directors 66,052 - -
----------- ----------- ---------
Net Cash Used in Investing (1,347,793) (1,255,937) (151,318)
----------- ----------- ---------
Net (Decrease) Increase in Cash (1,189,536) 586,364 70,646
Cash, Beginning of Year 1,224,223 34,687 4,179
----------- ----------- ---------
Cash, End of Year 34,687 621,051 $ 74,825
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
SITECH HAINAN LIMITED
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1999
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
SiTech Hainan Limited ("the Company") was incorporated in the People's
Republic of China ("the PRC") and is owned 47.6% by Hainan Economic
Information Centre, 42.9% by SiTech Holding (Hainan) Company Limited and
9.5% by Dr. Lan Hongbing Lan.
The Company is engaged in the businesses of network system design and
software development in the PRC.
2. BASIS OF PRESENTATION
The financial statements are prepared in accordance with generally accepted
accounting principles in the United States of America ("US GAAP"). The
basis of accounting differs from that used in the statutory financial
statements in the PRC which are prepared in accordance with the accounting
principles generally accepted in the PRC.
The following material adjustments were made to present the financial
statements to conform with US GAAP:
- All projects were recorded on the percentage of completion method.
- All costs related to software projects are expensed up to the date of
technological feasibility. After that date, all associated costs are
capitalized until the software is available for use or sale. The
capitalized costs are then amortized over a three year period.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash
Substantially all of the Company's cash is held at China Construction
Bank as of December 31, 1999. The Company believes it is not exposed
to any significant credit risk on cash.
(b) Fixed assets and depreciation
Fixed assets are stated at cost less accumulated depreciation.
Depreciation of fixed assets is calculated on the straight-line basis
to write off the costs less estimated residual value of each asset
over its estimated useful life. The principal annual rates used for
this purpose are as follows:
Office and computer equipment 20%
Furniture and fixtures 20%
F-14
<PAGE>
SITECH HAINAN LIMITED
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Land lease rights and depreciation
Land lease rights in the PRC are stated at cost less accumulated
amortization. Amortization of land lease rights is calculated on the
straight-line basis over the lesser of their estimated useful life or
the lease term. The principal annual rate used for this purpose is
1.5%.
(d) Product development costs
The Company capitalizes costs incurred for the production of computer
software developed for sale to outside parties. Capitalized costs
include direct labor and related overhead for software produced by the
Company. All costs in the software development process which are
classified as research and development are expensed as incurred until
technological feasibility has been established. Once technological
feasibility has been established, such costs are capitalized until the
software has completed beta testing and is generally available for
sale. Amortization, a cost of revenue, is provided on a
product-by-product basis, using the straight-line method over three
years, commencing the month after the date of product release.
Annually, the Company reviews and expenses the unamortized cost of any
feature identified as being impaired. The Company also reviews
recoverability of the total unamortized cost of all features and
software products in relation to estimated relevant other revenues
and, when necessary, makes an appropriate adjustment to net realizable
value.
Capitalized product development costs consist of the following:
1998 1999 1999
Rmb Rmb US$
------- ------- --------
Balance, beginning of year 230,871 348,796 $ 42,023
Costs capitalized 211,483 596,840 71,909
Costs amortized (93,558) (123,364) (14,863)
--------- --------- ----------
Balance, end of year 348,796 822,272 $ 99,069
========= ========= ==========
The accumulated amortization of product development costs related to
the production of computer software totalled Rmb 216,922 and Rmb
93,558 at December 31, 1999 and 1998, respectively.
Included in cost of sales are research and development costs totalling
Rmb 389,375 and Rmb 297,118 in the years ended December 31, 1999 and
1998, respectively.
F-15
<PAGE>
SITECH HAINAN LIMITED
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) Revenue recognition
Long-term contracts
The Company reports income from contracts on the
percentage-of-completion method of accounting. The determination of
completion is based upon the proportion of costs incurred to total
estimated costs for such contracts. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Administrative and general costs are expensed in the
period incurred and are not allocated to contracts in process.
Software
The Company recognizes income from the sale of computer software when
the merchandise is shipped.
(f) Income taxes
Income taxes are provided under the provisions of Statement of
Financial Accounting Standards No. 109.
(g) Management 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.
(h) Advertising
Advertising is expensed the first time the advertising takes place.
Advertising expense was Rmb 116,062 and Rmb 0 for 1999 and 1998,
respectively.
(i) Foreign currency translation
Foreign currency transactions denominated in foreign currencies are
translated into Renminbi ("Rmb") at the respective applicable rates of
exchange. Monetary assets and liabilities denominated in foreign
currencies are translated into Rmb at the applicable rate of exchange
at the balance sheets date. The resulting exchange gains or losses are
credited or charged to the statements of income.
Translation of amounts from Rmb into United States dollars ("US$") for
the convenience of the reader has been made at the unified exchange
rate (see Note 10) on December 31, 1999 of US$ 1.00 : Rmb 8.30. No
representation is made that the Rmb amounts could have been, or could
be, converted into US$ at that rate on the above dates or at any other
date.
F-16
<PAGE>
SITECH HAINAN LIMITED
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1999
4. TAXATION
The Company is subject to PRC business tax at the applicable effective tax
rate (5% for both 1999 and 1998) for income derived from services rendered.
The Company enjoys profits tax exemptions for two years from 1997 which was
the first adjusted-for-tax profitable year and a 50% reduction on the
standard tax rate of 15% for the consecutive three years in accordance with
provincial and national regulations on certain industries.
5. FIXED ASSETS
1998 1999 1999
------ ------ ------
Cost
Land lease rights 211,225 211,225 $ 25,449
Office and computer equipment 815,509 1,020,052 122,898
Furniture and fixtures 107,085 160,252 19,307
---------- ---------- ---------
1,133,819 1,391,529 167,654
---------- ---------- ---------
Less : Accumulated depreciation and
Land lease rights 13,876 16,960 2,043
Office and computer equipment 427,429 561,568 67,659
Furniture and fixtures 21,417 53,468 6,442
---------- ---------- ---------
462,722 631,996 76,144
---------- ---------- ---------
Net book value 671,097 759,533 $ 91,510
========== ========== =========
The land lease rights are held in the PRC for 67 years from March 1,
1995.
F-17
<PAGE>
SITECH HAINAN LIMITED
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1999
6. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
1998 1999 1998
------ ------ ------
<S> <C> <C> <C>
Costs incurred on uncompleted contracts 466,290 - $ -
Estimated earnings 1,540,634 - -
------------ -------- -------
2,006,924 - -
Less billings to date (2,163,940) - -
------------ -------- -------
(157,016) - $ -
============ ======== =======
Included in the accompanying balance sheets
under the following captions:
Costs and estimated earnings in
excess of billings on uncompleted contracts 398,692 - $ -
Billings in excess of costs and estimated
earning on uncompleted contracts (555,708) - -
------------ -------- -------
(157,016) - $ -
============ ======== =======
</TABLE>
7. RELATED PARTY BALANCES AND TRANSACTIONS
<TABLE>
Name of related party Existing relationship with the Company
---------------------- ---------------------------------------
<S> <C>
Hainan Economic Information Centre Government agency in Hainan Province and
is controlled by provincial government.
SiTech Holding (Hainan) Company Limited Common ownership - Dr. Hongbing Lan
Dr. Hongbing Lan Director and shareholder
SoftBank (Shenzhen) Networks Co., Ltd. Subsidiary of World Concept Development, Ltd.
</TABLE>
Name of parties and 1998 1999 1999
nature of transactions Rmb Rmb US$
------------------------ ------- ------- ------
Dr. Hongbing Lan, director and
shareholder-Travel and trip
expenses paid on behalf of
the Company (304,794) (260,494) $ (31,385)
SiTech Holding (Hainan) Company
Limited, Shareholder-Cash advances 1,084,038 1,485,426 $ 178,967
F-18
<PAGE>
SITECH HAINAN LIMITED
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1999
7. RELATED PARTY BALANCES AND TRANSACTIONS (Continued)
The balances with the director and a shareholder are unsecured,
interest-free and repayable on demand.
The Company jointly developed and designed two projects with its
shareholder, SiTech Holding (Hainan), which generated gross revenue of Rmb
199,310 and Rmb 81,961 in 1999 and 1998, respectively.
8. RESERVE FUNDS
In accordance with the PRC Companies Law, the Company is required to
transfer a percentage of its profit after taxation, as determined in
accordance with PRC accounting standards and regulations, to the surplus
reserve funds. The surplus reserve funds are comprised of the statutory
surplus reserve fund and the public welfare fund. Subject to certain
restrictions set out in the PRC Companies Law, the statutory surplus
reserve fund may be distributed to shareholders in the form of share bonus
issues and/or cash dividends. The public welfare fund is non-distributable
and must be used for capital expenditures on staff welfare facilities.
9. MAJOR CUSTOMERS
For the year ended December 31, 1999, sales to each of two major customers
amounted to more than 10% of total sales. The amount of revenue from each
such customer was Rmb 1,955,000 and Rmb 800,000. For the year ended
December 31, 1998, there were three such customers and the revenue from
each amounted to Rmb 850,000, Rmb 400,000 and Rmb 249,601. The receivable
balances for major customers were Rmb 0 and Rmb 770,000 as of December 31,
1999 and 1998, respectively.
10. OPERATING RISKS
(a) Country risk
As substantially all of the Company's activities were conducted in the PRC,
the Company is subject to special considerations and significant risks not
typically associated with companies operating in North America and Western
Europe. These include risks associated with, among others, the political,
economic and legal environments and foreign currency exchange. The
Company's results may be adversely affected by changes in the political and
social conditions in the PRC, and by changes in governmental policies with
respect to laws and regulations, inflationary measures, currency conversion
and remittance abroad, and rates and methods of taxation, among other
things. In addition, a significant portion of the Company's prior revenue
was denominated in Rmb, which must be converted into other currencies
before remittance outside the PRC. Both the conversion of Rmb into foreign
currencies and the remittance of foreign currencies abroad require
approvals of the PRC government.
F-19
<PAGE>
SITECH HAINAN LIMITED
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1999
10. OPERATING RISKS (Continued)
(b) On January 1, 1994, the PRC government introduced a single rate of
exchange as quoted daily by the People's Bank of China (the "Unified
Exchange Rate").
The quotation of the exchange rates does not imply free convertibility of
Rmb into Hong Kong dollars or other foreign currencies. All foreign
exchange transactions continue to take place either through the Peoples'
Bank of China or other banks authorized to buy and sell foreign currencies
at the exchange rates quoted by the People's Bank of China. Approval of
foreign currency payments by the People's Bank of China or other
institutions requires submitting a payment application form together with
suppliers' invoices, shipping documents and signed contracts.
11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
1998 1999 1999
Rmb Rmb US$
------- --------- ---------
Cash payments of taxes 81,777 36,176 $4,359
12. SUBSEQUENT EVENT (Unaudited)
On February 21, 2000, e SoftBank (Shenzhen) Networks Co., Ltd. acquired
42.9% of the stock of the Company from SiTech Holding (Hainan) Company
Limited for Rmb 2,320,000 and 9.5% from Dr. Hongbing Lan for Rmb 520,000.
The Company's receivable from SiTech Holding (Hainan) Company Limited of
Rmb 1,485,426 was fully repaid at that time from the proceeds of this sale.
F-20
