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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1999
COMMISSION FILE NO. 0-25658
KALAN GOLD CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
COLORADO 84-1357927
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
SUITE 11.02, 11TH FLOOR, MENARA MERAIS
NO. 1, JALAN 19/3
46300 PETALING JAYA
SELANGOR, MALAYSIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
011 (603) 756-7026
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: _______
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.00001 PER SHARE PAR VALUE
Indicate by check mark whether the Company (1) 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 Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: No: X
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form and no disclosure will be
contained, to the best of Company's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $1,782,749
The aggregate market value of the voting stock of the Company held by
non-affiliates as of December 31, 1999 was approximately $9,269,582.
The number of shares outstanding of the Company's common stock, as of
May 10, 2000, was 97,290,999.
Documents incorporated by reference: None
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
HISTORICAL DEVELOPMENT
Kalan Gold Corporation (the "Company"), is a Colorado corporation. The
principal business address of the Company is Suite 11.02, 11th Floor, Menara
Merais, No. 1, Jalan 19/3, 46300 Petaling Jaya Selangor, Malaysia. The
Company was originally incorporated on September 19, 1985 as a gas
exploration company under the name Knight Natural Gas, Inc. The Company's
name was changed to "Kalan Gold Corporation" in November 1996.
On April 20, 1999, the Company acquired 100% of the issued and outstanding
common stock of Animated Electronic Industries Sdn Bhd, a private company
organized under the laws of Malaysia ("AEI"). Under the terms of the
acquisition, the Company was required to divest all of the assets and
liabilities of the Company. The acquisition was accomplished through a reverse
merger whereby the Company merged with and into AEI and AEI became a
wholly-owned subsidiary of the Company (the "Reverse Acquisition"). Under the
terms of the Reverse Acquisition, the Company was to issue an aggregate of
87,000,000 shares of its common stock to the former stockholders of AEI. The
Company was subsequently notified by AEI that an aggregate of 83,320,000 shares
of its common stock were issued to the former stockholders of AEI and an
additional 3.68 million shares were improperly issued to the financial advisor,
Michael Gillies and the Company's former legal counsel, David Wagner &
Associates, P.C. The Company is attempting to recover the 3.68 million shares
from such persons and has, on January 26, 2000, issued a stop transfer order
with respect to such 3.68 million shares. A description of the legal action
initiated by the Company to recover the shares is described under `Item 3 -
Legal Proceedings' of this report. As a result of the Reverse Acquisition, the
former AEI shareholders obtained ownership of approximately 88% of the Company's
common stock.
AEI was incorporated in October 1988 under the Malaysian Companies Act of
1965 (the "Malaysian Companies Act"). Prior to the Reverse Acquisition, AEI's
principal business was in the design, assembly and marketing of video
telecommunications and surveillance equipment. AEI currently has two
subsidiaries: Perwimas Telecommunications Sdn Bhd ("PTSB") and Vistel (Malaysia)
Sdn Bhd.
PTSB, a 70%-owned subsidiary of AEI, was incorporated in January 1993 under
the Malaysian Companies Act. In June 1997, PTSB obtained a 10-year
telecommunications license from the Malaysian Ministry of Energy Communications
& Multimedia to operate a national wireless broadband communication network in
Malaysia. The network is being designed to support high speed Internet Protocol
data transport services, interactive distance learning, live news coverage,
emergency field services, remote video surveillance, on-site progress
monitoring, energy conservation and building management. The license is
described in Part I of this report under "Regulations" and "Effect of
Regulations on the Company".
Vistel (Malaysia), a 51%-owned subsidiary of AEI, was incorporated in May
1995 under the Malaysian Companies Act. The company is principally an investment
holding company.
As of December 31, 1999, the Company had a total of 94,990,999 shares of
common stock issued and outstanding. The Company has not been subject to any
bankruptcy, receivership or similar proceeding.
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BUSINESS
Since its inception in 1988, AEI was primarily involved in the design,
assembly and marketing of video telecommunications and surveillance equipment.
In 1999, the Company expanded its business into the provision of consulting
services for the design and development of interactive multimedia websites, and
content production.
In 2000, the Company intends to further expand its business to include the
provision of broadband multimedia communication services to the corporate and
mass retail markets. Presently, the Company is in the process of building a
wireless broadband network, "VISIONET", in Malaysia and the Company plans to
seek to acquire additional broadband licenses and spectrum rights in other
markets in Asia. In an effort to provide flexibility and to reduce the Company's
operating costs, VISIONET will be deployed using the Local Multipoint
Distribution Service ("LMDS") technology. The LMDS technology is described in
Part I of this report under "VISIONET - the Broadband Network."
The Company's business plans involve the creation of a network that will consist
of:
- a fixed wireless spectrum in the 24.0 to 29.5 GHz frequency band; and
- roof access to numerous buildings in major cities in Malaysia for the
installation of transceivers and antennas for its wireless broadband
network.
To that end, in addition to building its own network, the Company hopes to
enter into a strategic alliance with a company in Malaysia which owns a national
fiber optic network that can be integrated with the Company's broadband network.
The Company is currently developing a portal called www.visionetwork.com to
host applications and services developed by the Company and third parties. The
Company plans to be able to offer such content both to broadband users in
Malaysia and the rest of the world.
The Company is also developing customer-specific content for its broadband
network. For example, the Company has been commissioned to develop web sites
with multimedia applications, which include e-commerce capabilities, for a
discount retailer. The Company hopes to undertake other initiatives in content
development, including setting up a complete multimedia content production
facility, back lot support services, and other ancillary facilities, in the
future.
In the long term, the Company intends to enter into strategic alliances
with broadband equipment manufacturers to assemble set-top boxes, transceivers
and wireless modems. The Company expects that equipment manufacturers, primarily
from the United States, will provide the Company with technology and expertise
to set up contract manufacturing assembly lines. The Company also intends to
seek to enter into distribution agreements with equipment manufacturers to act
as their sole distributor in the majority of countries in Asia.
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SERVICES
The Company hopes that its broadband network will allow the Company to
offer the following integrated communications and information services:
- high speed Internet Protocol data transport;
- online business content, including live news coverage, emergency field
services, remote video surveillance, on-site progress monitoring,
energy conservation and building management;
- online application hosting services, such as online shopping;
- web design, web hosting and content development services;
- a complete production support facility to be built in Malaysia which
is expected to include backlot, stages, lighting, post production
facilities and conference rooms;
- in connection with equipment manufacturers, the sale of customer
premises equipment, including wireless modems, transceivers and
set-top boxes.
VISIONET - THE BROADBAND NETWORK
The Company expects to focus on deploying its network infrastructure for
its wireless digital broadband network in the Central Region of Malaysia
where the country's capital, Kuala Lumpur, is located. The Company intends to
utilize a technology called Local Multipoint Distribution Service ("LMDS"),
which is a point-to-multipoint broadband communications technology. LMDS uses
the super-high "millimeter" portion of the airwaves for integrated
communications services. Due to the relatively large bandwidth of the LMDS
signal, LMDS systems have the capacity to provide interactive voice, video
and data services.
High-speed data services are limited by bandwidth capacity of copper
wire networks, which are currently provided by incumbent local exchange
companies. While fiber optic trunk networks have been laid throughout
Malaysia, the availability of "last-mile" fiber connections to homes and
commercial buildings currently are limited due to the high costs of
installing fiber to individual homes and offices. The Company believes that
VISIONET, which is a fixed wireless network, can provide a cost-effective way
to deliver broadband services across the last mile to the customer's home or
office.
The Company has successfully completed a "link budget" test in the first
quarter of 2000. The test was designed to determine the optimum transmission
range under adverse weather conditions and the subscriber capacity per cell. The
test results will form the basis for the proposed implementation of VISIONET to
cover the Central Region of Malaysia, popularly known as the Klang Valley, where
Kuala Lumpur and the Multimedia Super Corridor (the "MSC") are located. The
Company currently plans to launch the "pilot" for VISIONET in June 2000.
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The Company hopes that the commercial launch of VISIONET will occur in the
third quarter of 2000. The Company is currently negotiating with building owners
to obtain roof access to install antennas and transceivers on major buildings in
the Klang Valley. The Company expects to utilize buildings that are owned by
local municipal councils to act as cell sites for its network. Network traffic
will be routed via wireless transmission located on a cell site, which has a
direct line of sight to the transceivers installed at the customers' premises.
These cell sites will act as aggregation points for the distribution of network
traffic.
The Company hopes to enter into a strategic alliance with Fiberail Sdn Bhd,
a 60%-owned subsidiary of Telekom Malaysia, a Malaysian company ("Fiberail"),
whereby the Company's wireless broadband network would be integrated with
Fiberail's existing fiber optic trunk network. Fiberail owns an existing fiber
optic trunk network that has been laid along the national railway grid
connecting major towns and cities in Malaysia. The Company believes that such a
strategic alliance could serve to connect its cell sites and switching
facilities to the Company's Network Management Center. The Company is currently
negotiating with Fiberail on the terms and conditions of such a strategic
alliance.
Ultimately, the Company hopes to provide its customers with access to a
broad range of applications and services offered by visionetwork.com and the
Internet using a television or personal computer. To access the Company's
services through a television, a customer would need a set-top box, wireless
modem, and transceiver. To access the Company's network through a personal
computer, a customer would need a Network Interface Card and software.
STRATEGIC ALLIANCES
On April 7, 2000, the Company executed a Letter of Intent with an equipment
manufacturer, EER Systems Inc. of Virginia ("EER"), pursuant to which the
Company would be able to obtain a long-term supply of the "best of breed"
transceivers and system integration services. The Company hopes to enter into a
definitive long-term supply agreement with EER. In addition, the Company hopes
to enter into a strategic alliance with EER relating to the joint implementation
of a Pan Asian broadband network sometime before the commercial launch of the
VISIONET network.
The Company is currently negotiating with a wireless broadband modem
manufacturer for a long-term supply of "best of breed" wireless modems.
On October 6, 1997, the Company entered into a Memorandum of Understanding
with Fiberail under which the parties agreed to collaborate with respect to the
integration of the Company's wireless broadband network with Fiberail's fiber
optic network. The Memorandum of Understanding contemplates that the parties
will seek to implement the integration of their respective networks through a
strategic alliance and, as described above, the parties are currently
negotiating the terms and conditions of such a strategic alliance.
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BUSINESS MODEL
The Company is attempting to position itself as an integrated
communications services provider offering a robust network, multimedia content
and other related applications and services.
WIRELESS BROADBAND NETWORK
As discussed earlier, the Company hopes to make VISIONET widely available
throughout major towns and cities in Malaysia. Initially, the Company plans to
deploy VISIONET in the populous Klang Valley. The Company hopes that the
strategic alliances referred to above will permit the Company to offer
comprehensive national network coverage and to integrate existing fiber optic
networks with the Company's broadband network.
The MSC, which is funded by the Government of Malaysia, is a major part of
Malaysia's goal to become an industrialized country by 2020. The MSC currently
includes a new city center, new government administrative center and a
residential and commercial area, as well as the international airport in Sepang.
The MSC is equipped with a 2.5 Gbps to 10 Gbps digital fiber optic backbone. The
Company believes that the MSC will attract and generate residential and business
customers who will demand efficient, effective high-speed data transmission
capability. The Company believes that demand for broadband capacity will
increase in the growing financial and commercial center of the MSC and that
there is therefore a significant opportunity for a wireless broadband network
that can service that demand.
The Company intends to rapidly build out its network to obtain a
"first-to-market" advantage as well as reduce its deployment costs by
integrating with Fiberail's network to bring VISIONET only to areas where there
is a demand for broadband services. The Company hopes to exploit this advantage
by delivering a broad range of services including high-speed Internet access and
other content-rich applications.
The Company hopes to begin signing up customers by the end of the second
quarter of 2000. In this respect, the Company has made initial contacts with
large Malaysian companies and the response has been encouraging.
CONTENT DEVELOPMENT
To provide the Company's network with content-rich applications, the
Company is developing e-commerce portals on behalf of its customers. Content
development is not only limited to web site development, but may include the
creation of virtual private networks, archiving and hosting services, and
customer-specific programming. The Company is currently negotiating with a U.S.
based content provider to obtain technical assistance in the field of
programming and web site architecture. If a strategic alliance with an
established content provider materializes, the Company hopes to be able to
create a "critical mass" of multimedia content for delivery to its customers via
the Company's planned broadband network.
In addition to successfully completing the strategic alliances referred to
above, the Company's ability to develop and provide content is dependent upon
the Company acquiring real estate on which to build a multimedia content
production center. AEI is negotiating to acquire a 60% equity interest in a
company that owns land located in the state of Pahang, Malaysia, on which land
the Company would propose to build the production center. If the Company can
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obtain such land, and if the Company can successfully build a multimedia content
production support center, the Company hopes to be able to provide the following
services to its customers:
- On-site scenic design and construction
- On-site prop shop
- Video post production
- Grip and lighting services
- Platform boom lifts
- Conference rooms
- Production offices
- Bungalows and offices
The Company currently expects that the cost of setting up such a multimedia
content production center will be at least $7 million.
NETWORK AND CUSTOMER PREMISES EQUIPMENT
Among other things, the success of the Company's business plan is dependent
upon the Company's ability to obtain and provide network and customer premises
equipment that is necessary for the operation of the Company's planned broadband
network. The Company hopes to be able to obtain network and customer premises
equipment in Malaysia through licensing agreements and joint ventures with
equipment manufacturers.
FUTURE PLANS
If the Company is successful in providing broadband network services in
Malaysia, the Company's long-term goal is to replicate the business, financial
and technical model of VISIONET in other countries, especially in Asia.
Successfully deploying any such network depends on a large number of
unpredictable factors, which include the Company's ability to raise capital, the
Company's technical ability, the cost of acquiring broadband licenses and
spectrum rights, the regulatory framework and climate in each country, and the
Company's relationship with local telecommunication service providers, among
many other things.
COMPETITION
The telecommunications and multimedia industries are highly competitive.
The Company faces potential competition from well-known global communications
companies, other existing telecommunications service providers, satellite
broadcast operators, and start-up companies, among many others. The Company had
hoped that its license would help the Company obtain a "first-to-market"
advantage, however the Company now believes that the Government of Malaysia will
issue new telecommunications licenses to other companies after March 31, 2000.
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In Malaysia, there are at least six telecommunications service providers
offering telephony services. The Company expects that it will face significant,
direct competition from incumbents and other telecommunication start-ups once
the Government of Malaysia begins to award additional spectrum rights.
The Company does not believe that the use or availability of raw materials
will be a material factor in the Company's activities.
RISK FACTORS
To the Company's knowledge, no company has ever attempted to create a
wireless broadband network in Malaysia. As a result, the Company faces a
significant number of risks and uncertainties associated with executing its
business plan, only some of which the Company can currently anticipate. These
risks and uncertainties may impair the Company's progress and profitability. The
risks described below are intended to highlight risks that are specific to the
implementation and operation of a wireless broadband network, but are not the
only risks that the Company faces. Additional risks and uncertainties, including
those generally affecting the global economy, the political and economic climate
in Malaysia and the rest of Asia, the industry in which the Company operates,
the public securities market, and risks that the Company currently deems
immaterial may ultimately impair its business and results of operations.
This report includes forward-looking statements, which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of numerous factors,
including those described below and elsewhere in this Item 1, Item 6
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and in other portions of this report.
IF THE COMPANY'S LICENSE IS ALTERED OR REVOKED, THE COMPANY WOULD BE UNABLE TO
IMPLEMENT ITS BUSINESS PLAN.
The Company believes that the wireless broadband license the Company has
obtained from the Government of Malaysia is material to the Company's business.
Any material alteration or revocation of the license would have a material
adverse effect on the Company and would prevent the Company from implementing
its business plan. As described earlier, the Government of Malaysia has the
unilateral right to revoke the Company's license upon thirty days' notice. In
addition, while the Company currently believes that it has the only license
granted by the Government of Malaysia, the Government may issue additional
licenses to the Company's competitors, which could also have a material adverse
effect on the Company.
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THE COMPANY EXPECTS TO INCUR NET LOSSES FOR THE EXTENDED FUTURE.
The Company expects to incur substantial and growing net losses over the
next several years to fund the growth of the Company's business. The Company's
ability to stem its losses and achieve and maintain profitability is dependent
on many factors, including:
- the Company's ability to execute its business plan over an extended
period of time;
- the general state of the communications markets;
- competition in the Company's target markets;
- the success of competing technologies; and
- the general state of the financial markets.
As a result, the Company cannot give any assurances that the Company will be
profitable in the future.
IF THE COMPANY IS UNABLE TO SUCCESSFULLY IMPLEMENT ITS BUSINESS PLAN, THE
COMPANY'S FINANCIAL CONDITION WOULD BE IMPAIRED.
If the Company is unable to successfully implement its business plan, the
Company's financial condition and performance would be impaired. The Company's
business plan and strategy include numerous elements that may be difficult or
costly to execute, and the Company may not be successful in implementing these
elements. For example, the Company's success is dependent on its ability to
successfully build and operate its VISIONET system, and the Company can provide
no assurances that it can successfully do so. Even if the Company is able to
successfully build and operate its VISIONET system, there may be insufficient
demand for the Company's services, in which event the Company will not generate
sufficient revenues to offset the Company's planned expenditures, thereby having
an adverse effect on the Company's business operations and financial condition.
FIXED WIRELESS COMMUNICATION SERVICES ARE RELATIVELY NEW AND NOT WIDELY USED,
AND MAY NOT RECEIVE WIDE MARKET ACCEPTANCE.
The broadband services to be offered by the Company are relatively new and
are not widely used anywhere in the world. Such services may not receive wide
market acceptance. In addition, the Company competes with a wide variety of
alternative communications solutions that include:
- fiber optic lines;
- satellite-based and other wireless systems, including Multichannel
Multipoint Distribution Service; and
- digital subscriber line (DSL) technology, which allows for high speed
transmission over traditional copper lines.
The Company's failure to gain wide market acceptance of its fixed wireless
services relative to these or other technologies may render the Company unable
to implement its business plan or meet its operational and financial objectives,
and may have an adverse effect on the Company's business operations and
financial condition.
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THE FAILURE OF THIRD PARTIES WITH WHOM THE COMPANY DOES BUSINESS TO MEET THE
COMPANY'S REQUIREMENTS COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS.
The Company's business plan and operations rely on the Company's ability to
obtain services provided by other communications companies. The failure of one
or more of these companies to meet the Company's needs could adversely affect
the Company's business and results of operations. Some of these companies may
also be the Company's competitors and, accordingly, in the future, they may be
unwilling to provide the Company with the services it requires. These companies
may also decide to dedicate their resources and networks to other communications
companies or to facilitate their own growth and, as a result, elect to scale
back or terminate the services they provide to the Company. The failure of any
of these third parties to perform could prevent or delay the creation and
implementation of the Company's VISIONET network, limit the types of services
the Company can provide to its customers and potential customers and adversely
impact the Company's relationship with its customers. Any of these occurrences
could have an adverse effect on the Company's business, results of operations
and financial condition.
DEPENDENCE UPON LIMITED SUPPLIERS OF LMDS EQUIPMENT.
Currently, there are only a few LMDS equipment suppliers that produce
network infrastructure and customer premises equipment. The Company may be
unable to obtain LMDS equipment at a cost-effective price. In addition, the
Company may not be able to obtain reasonable alternatives to LMDS equipment.
Changing technologies may also result in lack of proper equipment support by
manufacturers. A delay in obtaining necessary equipment and/or unreasonably high
equipment prices would negatively impact the Company's ability to implement its
business plan and provide its service to subscribers and higher equipment prices
would adversely affect the Company's operating results and could damage future
marketing efforts.
FAILURE TO OBTAIN ACCESS RIGHTS TO BUILD THE COMPANY'S NETWORK WOULD ADVERSELY
AFFECT THE COMPANY'S ABILITY TO IMPLEMENT ITS BUSINESS PLAN.
The Company may not be able to obtain access rights to the number or type
of buildings that are required to deploy the Company's broadband network. In
order to build a network and reach customers, the Company needs access to
buildings where the Company's antennas will be placed. Failure to secure access
rights on a timely basis would prevent the Company from implementing its
business plan and could have an adverse effect on the Company's business and
financial condition. In addition, the Company needs certain governmental
approvals prior to building certain critical facilities, including repeater
stations, and placing the Company's antennas on high-rise buildings.
ABILITY TO RAISE CAPITAL IN THE FUTURE ON A TIMELY BASIS MAY ADVERSELY AFFECT
OUR ABILITY TO FUND OUR OPERATIONS.
The Company will require substantial capital to fund its planned capital
expenditures and operations. The Company does not expect to be able to generate
sufficient cash from operations to provide the necessary capital to execute the
Company's business plan. If the Company is unable to generate sufficient cash
from its operations or raise capital as needed, the Company will be unable to
pursue or execute its current business plan and fund its operations.
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THE COMPANY'S BUSINESS AND INDUSTRY ARE SUBJECT TO EXTENSIVE REGULATIONS THAT
COULD CHANGE AT ANY TIME AND RESTRICT THE COMPANY'S ABILITY TO COMPETE WITH ITS
COMPETITORS.
The Malaysian communications industry (including spectrum allocation and
usage) is highly regulated by the Malaysian government. Regulations that govern
the Company's business could change at any time, which could adversely affect
the way the Company conducts its business and its ability to continue to conduct
its business in the manner it has planned. The Company may incur substantial
costs in complying with these regulations, and failure to comply with applicable
rules and regulations could result in the Company having to pay penalties or its
license being revoked by the government. In addition, changes in regulations
could also increase competition, which may have an adverse effect on the
Company's business and results of operations.
FAILURE TO HIRE OR RETAIN QUALIFIED PERSONNEL COULD HURT THE COMPANY'S BUSINESS.
The Company's future success and performance is dependent on its ability to
identify, hire, train and retain experienced technical and marketing personnel.
The Company faces significant competition for employees with the skills required
for its business. There can be no assurance that the Company will succeed in
attracting and retaining the services of qualified and experienced technical and
marketing personnel.
THE MARKETS IN WHICH THE COMPANY OPERATES ARE VERY COMPETITIVE AND INCREASED
COMPETITION COULD ADVERSELY AFFECT THE COMPANY.
The Company faces intense competition with regional, national and global
companies in the markets in which the Company intends to operate and may not be
able to effectively compete in these markets. Many of the Company's competitors
are well-established and have large and well-developed networks and systems,
long-standing relationships with customers and suppliers, greater name
recognition and have, or have access to, significantly greater financial,
technical and marketing resources. Many of these companies have the ability to
subsidize competing services with revenues from a variety of other services.
Moreover, the growing consolidation of companies and the formation of strategic
alliances within the communications and media industries (including the recently
announced MCI WorldCom/Sprint and America Online/Time Warner mergers) could give
rise to more powerful competitors.
THE INTERNATIONAL NATURE OF THE COMPANY'S OPERATIONS SUBJECT THE COMPANY TO
SPECIAL RISKS.
The Company currently intends to operate primarily in Malaysia and perhaps
elsewhere in Asia. The Company therefore faces special risks related to
operating in international markets, which the Company may not be able to
overcome. The following are some of the risks inherent in doing business in
Malaysia and other non-U.S. markets:
- unanticipated changes in regulatory requirements, tariffs, customs,
duties and other trade barriers;
- limitations on the Company's flexibility in structuring foreign
investments imposed by regulatory authorities;
- longer payment cycles and problems in collecting accounts receivable;
- political and economic risks;
- translation and transaction exposure from fluctuations in exchange
rates of other currencies; and
- potentially adverse tax and cash flow consequences resulting from
operating in multiple countries with different laws and regulations.
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REGULATION
The business operations of PTSB are regulated by both the Malaysian
Ministry of Energy Communications & Multimedia (MECM) (formerly known as the
Ministry of Energy Telecommunications & Post) and the Communications and
Multimedia Commission ("CMC") of Malaysia. PTSB's license is governed by the
Malaysian Communications & Multimedia Act 1998 ("Act 588") which became
effective on April 1, 1999. This new Act, which has superseded the
Telecommunications Act of 1950 and the Broadcasting Act of 1988, is to provide
for and to regulate the converging communications and multimedia industries in
Malaysia.
Under Malaysian law, PTSB has the option of registering its existing
wireless broadband license under Act 588 or maintaining the terms of the license
under the repealed Act. The Company believes that it would be more advantageous
to register its license under the new Act, and has on March 3, 2000 registered
with the CMC its intention to register its license under the new Act. The
registration is effective on the date of filing with the CMC.
While the Company believes that Act 588 is the most significant
industry-specific governmental regulations that apply to the Company's business,
the Company is subject to a large number of other laws in different countries
and localities.
EFFECT OF REGULATIONS ON THE COMPANY
The Company currently expects that both CMA 1998 and CMCA 1998 ("Act 589"),
which came into effect after the Company's broadband license was granted, will
have a net positive influence on the Company's participation in the multimedia
industry. These Acts have broadened the scope of permissible business operations
for industry participants by providing new opportunities, particularly in
telephony, multimedia and Internet Protocol compatible communications. The
Company hopes that it will benefit because the Acts compel all
telecommunications network operators to accord equal access service to their
customers. With equal access, customers who are registered with one
telecommunications network operator will have the option to use the services of
any other network operator and be invoiced separately by the respective operator
for the services used.
The Company believes that it is presently the only company in Malaysia to
be granted a wireless video communication network ("WVCN") license to deliver
interactive multimedia applications and services. This exclusivity may cease
when the government of Malaysia lifts the current freeze on applications for new
licenses on March 31, 2000.
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CONDITIONS OF LICENSE GRANTED TO PTSB
On May 28, 1997, PTSB was granted a license to establish, maintain and
operate a telecommunications system for the provision of broadband
communications services throughout Malaysia. Under the license agreement, the
services the Company is permitted to provide include the following:
- - interactive distance learning
- - live news coverage
- - remote video surveillance
- - emergency field services
- - on-site progress monitoring; and
- - energy conservation and building management.
The provision of additional services is subject to the prior written
approval of the Director General of Telecommunications.
The license granted to the Company is for an initial ten-year term. Under
the terms of the License Agreement, the terms and conditions of the license are
subject to review from time to time by the Minister of Energy Communications and
Multimedia, and the Minister may add, vary or revoke any terms or condition
imposed on the Company. The key provisions of the License Agreement are outlined
below:
(i) Payment of Fees - The Company is required to pay the following
amounts to the Ministry of Energy Communications & Multimedia
at the following times: (a) on the date the License was
granted, the sum of RM 50,000 (U.S. $19,250, based on an
exchange rate of RM3.80: US$1.00 as at March 31, 2000); and
(b) beginning on December 31, 1997 and annually thereafter a
renewal fee in an amount equal to 0.08% of the Company's
annual audited gross sales subject to an annual minimum of RM
5,000 (US$1,316 based on an exchange rate of RM3.80 : US$1.00
as of March 31, 2000) per year. The amount of the annual
license fee is subject to review by the Minister of Energy
Communications and Multimedia after the first three years. As
of the year ended December 1999, the Company had paid all
amounts that were payable under the License.
(ii) Connection of Other Systems and Apparatus - The Company must
allow any person or organization to connect peripheral
equipment or apparatus to VISIONET for the transmission and
receiving of any messages within or amongst its private
premises, provided that the person or organization shall have
earlier entered into an agreement with the Company stipulating
terms and conditions, relevant charges and equipment
specifications for such connection.
(iii) Network Security - The Company must adequately ensure that:
(a) there is no obstruction or intervention of the Company's
network; (b) the Company does not interfere with the working
of other telecommunications systems or the radio
communications services of the Government of Malaysia or the
Malaysian Armed Forces or any other station licensed by the
Government; and (c) the Company complies with all regulations,
directives and orders given by the Telecommunications
Authority of Malaysia and the International Telecommunications
Union regarding the transmission and use of bandwidth and
frequencies.
<PAGE>
(iv) Price Control - The Minister reserves the right to establish
price control arrangements for the relevant service provided
by the Company with which the Company is required to comply.
The Company must maintain separate financial data and accounts
for the WVCN services and must submit such data to the
Minister upon request.
(v) Content - The Company must comply with any terms and
conditions imposed by any relevant governmental authorities
with respect to programming content.
(vi) Transferability - The Company is not permitted to assign,
transfer, sublet or otherwise dispose of its rights, duties,
liabilities, obligations and privileges under the WVCN license
to any person, except with the prior written consent of the
Minister.
(vii) Contracts with Third Parties to Operate or Provide Licensed
System or Services - Where the Company has entered into or
intends to enter into any joint venture, association, contract
or arrangement with a third party, the effect of which would
be to permit the third party to operate or provide the
Company's services, the Company must seek the Minister's
approval.
(viii) Compliance with the Law - The Company must observe and comply
with the CMA 1998 (or any Regulations made thereunder), the
International Telecommunications Convention and any other
treaty or convention to which Malaysia is a party. Nothing in
the WVCN license can have the effect of varying the Company's
obligations to obtain any other licenses, permits or approvals
that may be required under the laws of Malaysia.
For example, the Company is required to obtain approval from
the Standards & Research Institute of Malaysia (the "SIRIM")
for the Company's proposed network transmission and customer
premises equipment prior to the importation and installation
of such equipment in Malaysia. The Company does not currently
anticipate any difficulty in obtaining approval from the SIRIM
for the proposed network transmission and customer premises
equipment because the Company believes that the technical and
performance specifications of the relevant equipment conforms
to the standards established by the International
Telecommunications Union, of which Malaysia is a member.
(ix) Exceptions and Limitations on Obligation - The Company shall
not be held to have failed to comply with an obligation
imposed upon it by or under the WVCN license if and to the
extent that the Director General is satisfied that that it is
prevented from complying with those obligations for the
following reasons: (a) the malfunction or failure of any
apparatus or equipment where the Director General determines
that reasonable measures were taken beforehand; (b) the act or
omission of any national authority or international
organization; or (c) any other factor which, in the opinion of
the Director General is beyond the Company's reasonable
control and which notwithstanding the exercise by it of
reasonable diligence and foresight, the Company was unable to
prevent or overcome.
<PAGE>
(x) Revocation of WVCN License - The Minister may at any time
revoke the WVCN license by thirty days notice in writing given
to the Company at its registered office in any of the
following circumstances: (a) if any fee payable is unpaid
thirty days after it becomes due whether a notice in writing
has been given to the Company or not; (b) upon breach of any
Conditions imposed in the WVCN license; (c) if the Company
enters into receivership or liquidation; or whether voluntary
or involuntary save for the purpose of amalgamation or
reconstruction; (d) if the Company ceases to carry on its
business; or (e) if any action was taken for voluntary winding
up or dissolution of the Company or any order pursuant to the
Malaysian Companies Act 1965 is made for the compulsory
winding up or dissolution of the Company.
In the event that the WVCN license is not renewed or revoked, the Company will
not be entitled to any payment of compensation whatsoever from the Ministry for
any loss or damage that may have been incurred or suffered by the Company. The
determination of the license will not prejudice or affect the right of the MECM
to receive any sum due to the MECM for any breach or non-performance of any of
the conditions set out in the license.
RESEARCH & DEVELOPMENT COSTS
In the last two fiscal years, the Company has not spent any significant
funds on research and development activities. This is expected to change during
2000 when the Company expects to undertake joint research and development work
with equipment manufacturers based in the United States.
ENVIRONMENTAL LAWS
To date, the Company has not incurred any material costs for compliance
with any prevailing environmental laws of Malaysia or the United States.
PATENTS AND TRADEMARKS
The Company has no other patent, except for a patent for digital image
display technology that the Company acquired from Synervest Sdn Bhd, a company
controlled by Mustaffa Yacob, a director of PTSB. The Company has entered into a
sale and purchase agreement with an unrelated third party who would acquire the
patent for aggregate cash consideration of $492,105. The Company's subsidiary,
PTSB, has registered the name "VISIONET" as its service tradename and trademark
with the Malaysian Registry of Trade Marks and Patents. No other intellectual
property registration is pending.
EMPLOYEES
At December 31, 1999, the Company had 10 full-time employees and 12
part-time employees. The Company currently plans to embark on an aggressive
recruitment effort in the first six months of 2000 in an effort to prepare
for the targeted launch of VISIONET in the third quarter of 2000.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES.
Between January 1, 1999 and June 30, 1999, the Company's principal office
was located at Tower II, Suite 100, 12835 E. Arapahoe Road, Englewood, Colorado
80112. Following the Reverse Acquisition, on July 1, 1999, the Company's
principal executive office was relocated to Malaysia. The Company recently
relocated its principal executive office to Menara Merais, No. 1 Jalan 19/3
46300 Petaling Jaya Selangor, Malaysia from its prior location at No. 60A Jalan
19/3 46300 Petaling Jaya Selangor, Malaysia. The Company owns office furniture
and equipment with a net book value of $36,716 as of December 31, 1999.
The Company has no other properties and the Company believes that its
existing and planned facilities are adequate for its current requirements and
that suitable additional space will be available as needed to accommodate future
expansion of its operations.
ITEM 3. LEGAL PROCEEDINGS.
Following the Reverse Acquisition, certain disputes arose between the
Company and Sanford Altberger, Michael Raisch and David Wagner, the Company's
former President, Treasurer and legal counsel, respectively, each of whom
either directly and/or beneficially owns common stock of the Company. Those
disputes involved, among other things, the issuance of 1,840,000 shares of
the Company's common stock to an entity controlled by Mr. Wagner (the
"Disputed Shares") at the time of the Reverse Acquisition, bills for
pre-acquisition legal services, recovery of the Company's historical
corporate records, and various claims of alleged misrepresentations in
connection with the Reverse Acquisition. On December 14, 1999, these parties
conducted a voluntary mediation and agreed to settle all of their disputes
arising out of the Reverse Acquisition. The mediator's Amended Settlement
Memorandum (the "Settlement Memorandum") confirming the parties' agreement is
filed as an exhibit to this Form 10-KSB. The Settlement Memorandum provided,
among other things, for (i) the payment by the Company to Mr. Wagner of
$150,000 for attorneys' fees owed and in exchange for the transfer to the
Company of the Disputed Shares, (ii) the purchase by the Company of the
outstanding shares of common stock then owned by Messrs. Altberger, Raisch
and Wagner (excluding the Disputed Shares referred to in clause (i) above) at
a price of $1.00 per share and (iii) the delivery by Messrs. Altberger,
Raisch and Wagner of the Company's historical corporate records.
In mid-January 2000, Messrs. Altberger and Raisch repudiated the Settlement
Memorandum, and Mr. Wagner refused to close the settlement transactions. On
January 24, 2000, the Company filed an action in the Arapahoe County, Colorado,
District Court, titled KALAN GOLD CORP. V. SANFORD ALTBERGER, MICHAEL RAISCH,
DAVID J. WAGNER, DAVID J. WAGNER & ASSOCIATES, P.C., DAVID WAGNER & ASSOCIATES
DEFINED BENEFITS PLAN, MARION LIMITED LIABILITY COMPANY AND VERONICA BROWNELL,
Case No. 00CV0172, seeking to (1) recover actual and consequential damages the
Company incurred as a result of the defendants' breach of the Settlement
Memorandum; (2) obtain a decree of specific performance requiring Messrs.
Altberger, Raisch and Wagner to perform their obligations under the Settlement
Memorandum; (3) recover the Company's attorneys' fees and costs incurred in
enforcing the Settlement Memorandum; and (4) recover the Company's historical
corporate records and the Disputed Shares.
On March 3, 2000, the Company filed a motion to voluntarily dismiss,
without prejudice, all of its claims against Messrs. Altberger and Raisch, which
motion the court granted on March 7, 2000. As part of the agreement to dismiss
its claims, Messrs. Altberger and Raisch represented and warranted to the
Company that they do not have any of its corporate records in their possession,
custody or control.
<PAGE>
On March 16, 2000, the defendants David J. Wagner, David J. Wagner &
Associates, P.C., David Wagner & Associates Defined Benefits Plan, Marion
Limited Liability Company and Veronica Brownell (the "Wagner defendants") filed
their answer and two counterclaims against the Company. The first counterclaim
seeks approximately $193,000 in attorneys' fees that David J. Wagner &
Associates, P.C. alleges the Company owes for legal services, the major portion
of which were rendered prior to the Reverse Acquisition, and the second
counterclaim seeks a declaration removing a stop transfer order the Company
issued to its stock transfer agent with respect to shares of common stock held
in the names of the Wagner defendants. The Company responded to the
counterclaims on April 10, 2000 asking the court to dismiss them because they
were all settled under the Settlement Memorandum and are therefore invalid as a
matter of Colorado law.
In addition, on January 21, 2000, the Arapahoe County District Court issued
an order to show cause directing the Wagner defendants to appear and show cause
why the court should not direct them to return to the Company the Company's
corporate records and the Disputed Shares. The hearing with respect to such
order to show cause commenced on March 17, 2000 and was continued to April 24,
2000. On April 24, 2000, the Arapahoe County District Court declined to direct
the turnover of the Company's personal property. The court relied in part on the
fact that the Company was protected due to the fact that it issued a stop
transfer order to its transfer agent with respect to the 1,840,000 shares of
stock that were the subject of the Settlement Memorandum.
The Company intends to prosecute the case vigorously and believes it has
meritorious claims and defenses. The Company has set aside US$150,000 as a
contingency for its liability to the Wagner defendants. The Company can give no
assurances concerning the outcome of the dispute, but believes that the outcome
of this litigation will not have a material adverse effect on the Company's
business and results of operations.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matter to a vote of the Company's security
holders during the fourth quarter of the fiscal year covered by this report.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since January 1997, the Company's securities have traded on the
over-the-counter (OTC) "Bulletin Board" market under the symbol, "KNGC". Before
then, the Company's securities had never been listed for trading on any market.
The table below sets forth the range of high and low bid quotations of the
Company's common stock as publicly reported by Marketguide during the Company's
1999 fiscal year. The following bid price market quotations represent prices
between dealers and do not include retail markup, markdown, or commissions;
hence, they may not represent actual transactions.
<TABLE>
<CAPTION>
Fiscal Year 2000 High Low
----- -----
<S> <C> <C>
First Quarter $1.56 $0.23
Fiscal Year 1999 High Low
------ -----
First Quarter $1.25 $0.38
Second Quarter $2.25 $0.38
Third Quarter $1.69 $0.31
Fourth Quarter $0.56 $0.19
Fiscal Year 1998 High Low
----- -----
First Quarter $0.75 $0.88
Second Quarter $0.75 $0.84
Third Quarter $0.90 $1.00
Fourth Quarter $1.75 $1.88
</TABLE>
As of March 15, 2000, 97,290,999 shares of the Company's common stock were
outstanding and the number of holders of record of the Company's common stock at
that date was approximately 120. However, the Company estimates that it has a
significantly greater number of shareholders because a substantial number of the
Company's shares are held in "street name" by the Company's market makers. On
May 12, 2000, the closing trade price for the Company's common stock was $0.75
per share.
Under the Company's Articles of Incorporation, holders of common stock are
entitled to receive such dividends as may be declared by the Company's Board of
Directors. No dividends on the common stock were paid by the Company during the
periods reported herein.
RECENT SALE OF UNREGISTERED SECURITIES
The following securities that were not registered under the Securities Act
of 1933, as amended, have been issued or sold by the Company during the past
three years:
(i) As at January 1, 1997, the Company's issued share capital was 7,053,499. The
Company had also granted non-compensatory options to purchase 312,500 shares of
common stock to the officers of the Company. During 1997 and 1998, 37,500 and
200,000 stock options were exercised, respectively.
<PAGE>
(ii) In October 1998, the Company issued a total of 2,300,000 shares of its
common stock to the following parties in exchange for four licenses to gold
properties in the African country of Burkina Faso:
<TABLE>
<S> <C>
Ovorvi Overseas Corporation 1,300,000*
Great Western Finance Inc 1,000,000*
</TABLE>
*These shares have been returned and were cancelled in April 1999, prior to
the Reverse Acquisition.
(iii) In October 1998, the Company issued 700,000 shares of its restricted
common stock to Michael Raisch, who was at the time the Company's Treasurer and
a Director, and Orovi Corporation, a company controlled by Sanford Altberger,
who was at the time the Company's President and a Director, in exchange for
forgiveness of debt as follows:
<TABLE>
<S> <C>
Orovi Corporation 465,000
Michael Raisch 235,000
-------
700,000
=======
</TABLE>
(iv) On April 20, 1999, the Company issued an aggregate of 83,320,000 shares of
common stock to stockholders of AEI and 3,680,000 shares of common stock to its
financial advisor and former lawyers in connection with the Reverse Acquisition.
(v) On February 24, 2000, the Company issued an aggregate of 2,300,000 shares of
common stock to Mr. Wan Malek Ibrahim in a private placement for cash
consideration of $1,150,000 at 50 cents per share. Proceeds from this private
placement were used to repay advances made to the Company by Mr. Patrick Lim and
LSH Asset Holdings Sdn Bhd.
The issuances of securities described above were made in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act for
transactions not involving a public offering.
SAFE HARBOR STATEMENT
This Form 10-KSB and other reports filed by the Company from time to time
with the Securities and Exchange Commission, as well as the Company's press
releases, contain or may contain forward-looking statements and information that
are based upon beliefs of, and information currently available to, the Company's
management, as well as estimates and assumptions made by the Company's
management. Forward-looking statements can be identified by the use of
forward-looking terminology such as "believes", "may", "should", "anticipates",
"estimates", expects", "future", "intends", "hopes", "plans" or the negative
thereof. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that could cause actual results of the Company
to vary materially from historical results or from any future results expressed
or implied in such forward-looking statements.
Such factors include, among others, the following: revocation of the
Company's license, ability to successfully implement its business plans, market
acceptance of fixed wireless broadband services, ability to obtain services
provided by other communications companies, limited suppliers of LMDS equipment,
failure to obtain roof access, the ability of the Company to raise capital on a
timely basis, the Company's business is subject to existing and future
government regulations, failure to retain qualified personnel, competitive
pressures and potentially adverse tax and cash flow consequences resulting from
operating in multiple countries with different laws and regulations, ability to
maintain profitability in the future and general economic and business
conditions in Malaysia. The Company does not undertake to update, revise or
correct any forward-looking statements.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company was incorporated in 1985 in the state of Colorado and had no
revenue-generating operations until the Reverse Acquisition by Animated
Electronic Industries Sdn Bhd ("AEI") on April 20, 1999. As a result of the
Reverse Acquisition, AEI became a wholly-owned subsidiary of the Company. This
acquisition has been treated as a recapitalization of AEI with AEI as the
acquirer. The consolidated financial statements for 1999 include the accounts of
AEI and its Malaysian subsidiaries and the accounts of Kalan Gold Corporation
from the date of the reverse acquisition. The consolidated financial statements
for 1998 include the accounts of AEI and its Malaysian subsidiaries.
The Company currently provides multimedia content production and the design
and development of websites. The Company hopes to be able to provide other
broadband multimedia communication services that include the operation of a
wireless digital broadband network, VISIONET, and the sale of customer premises
equipment.
REVENUE
Revenue for 1999 was primarily derived from the production of multimedia
programs; design and consulting services for web-site development and network
engineering services; and consulting fees for project management services. In
1998, the Company was principally engaged in the marketing of video
telecommunication and surveillance devices, and revenue was primarily derived
from the sales of such equipment.
The Company hopes to be able to derive its revenue from development and
production of interactive multimedia contents, web hosting, operation of a
wireless broadband network and sale of customer premises equipment. In the
future, the Company anticipates that its revenue will be generated mainly from
the following sources:
1. Fees for development and production of multimedia content;
2. Fees for design and development of interactive web site;
3. Web site hosting services and annual maintenance fees;
4. Advertising revenues from banner advertisements, event sponsorship and pay
per view;
5. Sales of customer premises equipment;
6. Usage fees from customers using its wireless broadband network;
7. Sale of archived information; and
8. A share of the revenue from on-line e-commerce through strategic
partnerships and joint ventures.
COST OF SALES
Cost of sales for 1999 and 1998 mainly consist of purchase cost of video
telecommunication and surveillance devices. Following the Company's business
plans, the Company anticipates that the costs of sales in future periods will be
comprised of: -
1. Production costs for development and production of multimedia content
design and development of interactive web site such as licensing costs and
the costs of employing consultants as required on a project basis from time
to time.
2. Costs for assembly and distribution cost of customer premises equipment.
<PAGE>
COMPARISON AND ANALYSIS OF RESULTS FOR YEARS ENDED DECEMBER 31, 1999 AND 1998.
Total revenue increased by $590,338, or 50%, to $1,782,749 for the year
ended December 31, 1999 from $1,192,411 for the year ended December 31, 1998.
This increase in 1999 is partly due to an improvement in the economic conditions
experienced by most countries in Asia in 1999 in comparison to the difficult
economic conditions in Asia in 1998. As economic conditions did not permit the
Company to deploy its wireless broadband network immediately after being granted
the license to operate VISIONET, the Company concentrated on the design,
assembly and marketing of video telecommunications and surveillance
equipment in 1998. With the gradual economic improvement in 1999, the Company
moved its focus to the development and production of multimedia content and
provision of consulting services to companies seeking to establish an
interactive multimedia website.
In 1999, 86% of the Company's revenue was generated from six major
customers and 85% of total revenue in 1998 was generated from one customer. In
addition, 75% and 85% of the Company's revenue in 1999 and 1998, respectively,
was derived from companies that are affiliated with or related to the Company.
Although the Company recognizes that there is significant reliance on major
customers, the Company believes that this is due to the pioneer nature of the
Company's business in the development and production of multimedia content. With
the deployment of VISIONET in 2000 and the development of other aspects of the
Company's business as outlined in Item 1, the Company hopes to be able to reduce
this reliance on a few major customers in 2000.
Costs of sales decreased by $1,043,353, or 99%, to $14,512 in 1999 from
$1,057,865 in 1998 following the change in emphasis of the Company's business
from the sale of telecommunications equipment to the development and
production of multimedia content. The development and production of
multimedia content for 1999 has a higher profit margin because it only
utilizes the Company's existing manpower and facilities. As a result, gross
profit increased from $134,546 for the year ended December 31, 1998 to
$1,768,237 for the year ended December 31, 1999, an improvement of $1,633,691,
or 1214%.
Sales and marketing expenses increased by $6,378, or 60%, to $16,985 for
the year ended December 31, 1999 from $10,607 for the year ended December 31,
1998. This increase is mainly a result of higher expenses on promotion and
marketing incurred to promote the Company's business of developing and
producing multimedia programs and provision of design and consulting services
for interactive website development. For the current financial year,
management expects the expenses on sales and marketing to increase
significantly following the proposed launch of VISIONET.
Depreciation increased by $44,897, or 44%, to $147,975 for the year ended
December 31, 1999 from $103,078 for the year ended December 31, 1998. This
increase is due to the purchase of communications equipment during the fourth
quarter of 1999 for the deployment of VISIONET, which is currently anticipated
to occur during the third quarter of 2000.
General administration expenses increased by $291,301, or 222%, to $422,567
for the year ended December 31, 1999 from $131,266 for the year ended December
31, 1998. These expenses mainly consisted of general and administrative costs,
including rent, legal costs and personnel costs. The increase in 1999 was
primarily due to $181,295 of legal fees incurred in connection with the dispute
between two former officers and directors and the former corporate attorney of
the Company and the post-merger management as disclosed under Item 3 of this
Form 10-KSB.
<PAGE>
Included in general administration expenses for 1999 were management fees
of $70,000 paid to a company in which Mr. Patrick Lim, the President and Chief
Executive Officer of the Company, has a financial interest. The management fee
was charged on the basis of time spent for the administration and management
services provided to the Company.
Interest expense increased by $44,223, or 234% to $63,125 for the year
ended December 31, 1999 from $18,902 for the year ended December 31, 1998. This
interest primarily relates to the Company's capital lease commitments. At the
Company's request, the lessor agreed to an extension on the repayment period in
1998 to enable the Company to secure additional working capital financing. The
increase in interest expense is principally attributable to the impact of the
rescheduled lease terms, which commenced only in 1999.
During the year ended December 31, 1998, the Company had adopted the
accounting policy of immediate write off for goodwill arising from consolidation
and had written off goodwill arising from consolidation of $704,318. No write
off was required in the year ended December 31, 1999.
For the year ended December 31, 1999 the Company has reserved $3,035,539
for allowance on doubtful receivables. As 59% of the Company's accounts
receivable were aged more than 90 days as of December 31, 1999, the Company
has sought and obtained written undertakings and schedules of repayments in
respect of all its accounts receivable for full settlement of outstanding
balances by August 31, 2000 through monthly repayment. As of March 31, 2000,
the Company had received monthly payment promptly in respect of its accounts
receivable in accordance with the schedules of repayments. However, as the
Company did not receive in full the monthly payments that were due for April
2000, the Company has reserved $3,035,539 for allowance on doubtful
receivables as there is doubt about the recoverability of the balance
outstanding. The Company recognizes that its aggressive credit policy that
provided for lenient credit terms and an extended credit period to its
customers created uncertainty on the recoverability of its accounts
receivable. The Company will, however, continue to pursue vigorously the
collection of all its outstanding accounts receivable. To the extent the
Company is able to collect a portion or all of the outstanding receivables
for which provision has been made, the provision will be reversed
progressively if and when the Company receives such payment. There was no
provision for allowance on doubtful receivables in 1998.
Operating expenses increased by $2,718,020, or 281% to $3,686,191 in 1999
compared with $968,171 in 1998. The increase was mainly due to the provision for
allowance on doubtful receivables.
Gain on disposal of tangible assets of $99,680 in 1999 relates to the
disposal of analogue video communication equipment. In 1998, the Company
disposed tangible and intangible assets used in operations of a subsidiary,
that has since been disposed for gains of $830,769 (tangible assets) and
$416,411 (intangible assets). These assets, comprising analogue video
hardware and peripherals and a patent for image display, were disposed, as
these items were no longer relevant to the Company's operations upon the
disposal of the said subsidiary.
The Company provided for taxation of $84,436 in 1999 and zero sum in 1998.
There was no income tax for the Company's operations in 1999 as the income was
derived in Malaysia, which was legislated to be a tax-free year for Malaysian
corporations by the Government of Malaysia. For 1998, the Company was not
subject to income tax as it posted an operating loss of $129,307 excluding the
write-off of goodwill on consolidation.
The taxation charge in 1999 consist of provision for deferred tax
arising from the timing difference between the capital allowance claimed from
the Inland Revenue and the depreciation charged by the Company.
<PAGE>
In 1998, in an effort to streamline its businesses, the Company disposed
of three subsidiaries that were no longer relevant to its core activities.
These subsidiaries were MHSB Research & Development Sdn Bhd, Vistel (Asia)
Sdn Bhd and Educasia Sdn Bhd. All three subsidiaries were operating at a loss
at the time the Company disposed of them and the Company recognized a loss on
the operations of the disposed subsidiaries of $387,640 and a disposal loss
of $514,827.
Liquidity and Capital Resources
As of the end of the reporting period, the Company had cash and cash
equivalents of $3,959. All operations were funded from internally generated
funds and working capital advanced from time to time by the principal
shareholder, director and officer of the Company. These advances bear no
interest and have no fixed terms of repayment.
As of December 31, 1999, the Company owed Mr. Lim, the Chief Executive
Officer, President and a Director of the Company, $551,695 and as of December
31, 1998, the Company owed Mr. Lim $563,432, in each case for short-term cash
advances made to the subsidiary of the Company for working capital purposes from
time to time. Additionally, as at December 31, 1999 and as at December 31, 1998,
the amount owing to a company in which Mr. Lim has a financial interest amounted
to $311,428 and $212,142, respectively. This amount was for short-term cash
advances made to the Company and its subsidiaries for working capital purposes
from time to time. These amounts are unsecured, bear no interest and have no
fixed terms of repayment.
For the year ended December 31, 1999, net cash used in operating activities
was $126,991, mainly due to the purchase of communications equipment during the
fourth quarter of 1999 amounting to $1,226,961 from a related party as
settlement for amount due to the Company. This investment in tangible fixed
assets was made in anticipation of VISIONET being commercially deployed sometime
in the third quarter of 2000. In 1998, net cash used in operating activities of
$2,345,912 was mainly due to the net increase in trade and other accounts
receivable of $1,118,545. Accounts receivable increased from $1,047,076 on
December 31, 1998 to $1,565,625 on December 31, 1999. This increase is due to
the Company adopting an aggressive credit policy that provided for lenient
credit terms and an extended credit period for its customers. The Company
adopted this policy to develop its business in the production and development of
multimedia content.
Accounts receivable consists of sales of goods and fees receivables for
production of multimedia programs and Intranet and management and consulting
services. In order to attract customers, the Company has pursued an
aggressive credit policy and extended lenient credit terms to all its
customers, including related parties. As at December 31, 1999, 59% of
accounts receivable were aged more than 90 days old and 77% of accounts
receivable were due from companies or parties that are related to or
affiliated with the Company. The Company has worked with its customers to
reschedule payments on these overdue accounts receivable. It has also sought
and obtained written undertakings from all its customers for full settlement
of outstanding accounts receivable by August 2000. However, due to financial
difficulties experienced by its customers, primarily as a result of the Asian
economic crisis, the Company is unsure of whether it will be able to collect
its outstanding accounts receivable. As a prudent measure, the Company made a
provision of $3,035,539 for allowance on doubtful receivables. The Company's
management plans to continue to pursue collection of these doubtful
receivables. As discussed above, following the expected deployment of
VISIONET in 2000, the Company hopes that its dependence on affiliated or
related parties will be reduced.
Other accounts receivable as at December 31, 1999 included an overdue
amount of $1,785,239 that relates to sales proceeds arising from the disposal
of investments and fixed assets, of which $1,391,007 was due from Synervest Sdn
Bhd, a company controlled by Mustaffa Yacob,
<PAGE>
a director of PTSB. The Company expects to collect this amount by August 31,
2000 and has received a written undertaking from Synervest Sdn Bhd for full
settlement of such amount.
Cash provided by investing activities of $130,611 in 1999 was due to
disposal of fixed assets. In 1998, net cash provided by investing activities of
$219,215 was attributable to disposals of subsidiaries and the related assets
in the Company. These subsidiaries were disposed of as their operations were no
longer relevant to the Company's core activities.
The Company expects to incur capital expenditures ranging between $10.0
million to $15.0 million during 2000 in connection with the launch and
build-out of network infrastructure to support the operation of VISIONET.
Although the Company has not committed to any capital expenditures, nor has
the Company's Board of Directors approved any capital expenditures, the
Company believes that investment in infrastructure is a necessary and logical
step towards the Company's plan to deploy its wireless network.
The Company intends to source these funds internally and through equity
or debt financing. There is, however, no assurance that the Company will be
able to obtain sufficient financing on terms reasonably acceptable to the
Company, or at all. The Company will continuously evaluate its financing
requirements and may decide to consider alternative modes of financing.
No dividends on the common stock were paid by the Company for the two
years reported herein.
Y2K COMPLIANCE
As of the date of this Annual Report, the Company did not experience any
Y2K compliance problems and all computer software appears to be functioning
properly.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The audited financial statements of the Company being furnished in response
to this Item are contained in a separate section of this Report beginning on
page F-1.
ITEM 8. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements on accounting and financial disclosures with
the Company's previous accountant, Cordovano and Harvey, P.C., or the Company's
present accountant, Arthur Andersen & Co., during the reporting period.
Cordovano and Harvey, P.C. resigned on February 11, 2000 and Arthur Andersen &
Co. was engaged as the Company's independent accountant on February 11, 2000.
The Company's financial statements for the last two years prepared by Cordovano
and Harvey, P.C. contained a "going concern" opinion.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The Directors and Executive Officers of the Company, and their respective
ages and positions held in the Company, as of May 10, 2000 are as follows:-
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
---- --- -------------
<S> <C> <C>
Wan Abdul Razak bin Muda 63 Chairman and Director
Patrick Soon-Hock Lim 50 President, Chief Executive Officer and Director
Valerie Hoi-Fah Looi 41 Secretary and Director
Charles W. Pollard 42 Director (1)
Paddy Bowie 74 Director (1)
Chee-Hong, Leong 34 Acting Chief Financial Officer/Treasurer
Wan Malek Ibrahim 52 Executive Chairman and Director of PTSB
</TABLE>
- --------------
(1) Mr. Charles W. Pollard and Mrs. Paddy Bowie joined the Board of Directors
on February 7 and February 24, 2000, respectively.
(2) The Company's Directors will serve in such capacity until the next annual
meeting of the Company's shareholders or until their successors have been
elected and qualified. The officers serve at the discretion of the
Company's Directors. There are no family relationships among the Company's
officers and directors, nor are there any arrangements or understandings
between any of the directors or officers of the Company or any other person
pursuant to which any officer or director was or is to be selected as an
officer or director.
MR. WAN ABDUL RAZAK BIN MUDA, 63, has served as the Chairman of the Board of the
Company since April 1999. He is also the Chairman and Director of Tiong Nam
Transport Holdings Bhd, a Malaysian public land cargo transportation and
warehousing company. In addition, since February 1993, Mr. Muda has been the
Chairman of the Board of AEI and PTSB and since May 1995, Mr. Muda has been the
Chairman of the Board of Vistel (Malaysia). Prior to joining Tiong Nam Transport
Holding Bhd in 1992, Mr. Muda had served in the Malaysian Police Force for 34
years. He joined the Malaysian Police Force as a police cadet after completing
senior high school. As part of his training, he attended numerous courses
conducted by the Royal Malaysian Police Training College and rose from the rank
and file to his last position as the Chief Police Officer of the state of
Terengganu, Malaysia.
<PAGE>
MR. PATRICK SOON-HOCK LIM, 50, currently serves as President and Chief Executive
Officer of the Company, positions he has held since the closing of the Reverse
Acquisition in April 1999. Mr. Lim has been the Managing Director at AEI since
August 1988 and has been involved in the multimedia industry for the past 10
years. Mr. Lim earned his Masters in Science from Reading University, United
Kingdom in 1974.
MS. VALERIE HOI-FAH LOOI, 41, has served as the Corporate Secretary since the
closing of the Reverse Acquisition in April 1999 and, in such position, she is
responsible for corporate affairs and human resources of Kalan and AEI. Ms. Looi
has also served as the Senior Vice President, Corporate Affairs at AEI, a
position she has held since joining AEI in 1990. She has over 10 years of
experience in corporate affairs. Ms. Looi holds a Diploma in Management from the
Malaysian Institute of Management, Malaysia.
MRS. PADDY BOWIE, 74, joined the Board of the Company in February 2000. Mrs.
Bowie is currently the Managing Director of Paddy Schubert, a business
consulting firm which she founded in 1980. She earned her Diploma in Education
from Oxford University, United Kingdom in 1948 and a Masters in English from
Manchester University, United Kingdom in 1946.
MR. CHARLES W. POLLARD, 42, joined the Board in February 2000. He has been the
Managing Director of Omni Air International Inc ("OMNI"), a U.S.-based airline
based in Oklahoma, since March 1997. Prior to joining OMNI, Mr. Pollard served
as President and Chief Executive Officer of World Airways, Inc. from October
1987 to March 1997. Mr. Pollard also practiced corporate law in the Washington,
D.C. office of Skadden, Arps, Slate, Meager & Flom, an international law firm
where he was an associate specializing in corporate finance, project finance and
mergers and acquisition. He is a member of the District of Columbia Bar and
received a Bachelor of Arts in Economics from Saint Auselm College, a Masters in
Public Administration from Syracuse University and a Doctorate of Law from
George Washington University Law Center.
MR. CHEE-HONG LEONG, 34, Fellow of Association of Chartered Certified
Accountants, United Kingdom has been the Acting Chief Financial Officer of the
Company since February 7, 2000. Mr. Leong is also the Corporate Finance Manager
of AEI, a position he has held since joining AEI in January 2000. He is
responsible for the financial and administrative functions of the Company. Prior
to joining AEI, Mr. Leong was the Assistant Accounts Manager at Industrial
Concrete Product from April 1994 to December 1999. Mr. Leong earned his Bachelor
of Arts in Accounting at Ulster University in Northern Ireland in 1989 and
qualified as a Chartered Certified Accountant with the Association of Chartered
Certified Accountants in 1994.
MR. WAN MALEK IBRAHIM, 52, has served as the Executive Chairman and Director of
PTSB since February 14, 2000. Mr Ibrahim is also a non-executive director of
World Airways, Inc., a position he has held since 1992. He was the Managing
Director of Malaysian Airline Systems Bhd ("MAS"), a position he held from April
1994 until his retirement in March 1999. Since his retirement, he has remained
on the board of MAS as a non-executive director. Mr Ibrahim graduated from the
University of Malaya in 1971 with a Bachelor of Arts in Chinese Studies.
The Company does not pay fees to members of the board of directors and
presently has no plans to pay directors' fees. The Company intends to grant
stock options to members of the board of directors who are not employees of the
Company or any subsidiary of the Company ("Outside Directors"). The Company
hopes that such grants of stock options will encourage ownership of capital
stock of the Company by Outside Directors and will be necessary in order to
attract and retain qualified persons to serve on the Company's Board. Presently,
Wan Abdul Razak bin Muda, Charles Pollard and Paddy Bowie are Outside Directors
of the Company.
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934.
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the "34
Act"), requires the Company's officers and directors and persons who own
beneficially more than ten percent of the Company's Common Stock to file initial
reports of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Based solely on a review of copies of the Section 16(a)
reports furnished to the Company and written representations by certain
reporting persons, the Company believes that all of the Company's officers and
directors, and all persons owning more than ten percent of the Company's Common
Stock have filed the subject reports, if required, on a timely basis during and
with respect to the fiscal year ended December 31, 1999, except that:-
(i.) LSH Asset Holdings Sdn. Bhd and Mr. Patrick Soon-Hock Lim filed in
November 1999, Forms 3 required to have been filed in April 1999; and
filed in November 1999, Forms 4 required to be filed in August 1999.
(ii.) Ms. Valerie Hoi-Fah Looi filed in November 1999, Forms 3 and 4 required
to have been filed in April 1999 and August 1999, respectively.
(iii.) Mr. Wan Abdul Razak bin Muda filed in November 1999, a Form 3 required
to have been filed in April 1999.
(iv.) Mr. Ahmad Fauzi Zahari filed in November 1999 a Form 3 required to have
been filed in August 1999. He has yet to file a Form 4 required to have
been filed in December 1999.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth the Summary Compensation Table for the Chief
Executive Officer and other executive officers who were serving as executive
officers at the end of the last completed fiscal year and whose salary and bonus
aggregated at in excess of $100,000. No other compensation not covered in the
following table was paid or distributed by the Company to such persons during
the period covered. Employee Directors receive no additional compensation for
service on the Board of Directors of the Company. Outside Directors received no
compensation from the Company as such during this period, except as indicated
below.
The Company (under former management prior to the Reverse Acquisition) had
granted a stock option to Mr. Raisch, the former Secretary-Treasurer and a
Director, for 75,000 common shares at $.02 per share until November 14, 2001. By
a letter agreement entered into between the Registrant and Mr. Raisch, this
option has been cancelled.
As of the date hereof, the Company has no other options issued or
outstanding. The Company has no retirement, pension, profit sharing, stock
option, insurance or other similar programs. There were no long-term
compensation plans, awards, options nor any other compensation offered by the
Company.
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR ANNUAL
- --------------------------- ---- COMPENSATION
--------------
SALARY BONUS
------ -----
<S> <C> <C> <C>
Patrick Soon-Hock Lim 1999 $7,895 (1)
President, Chief Executive 1998 Not applicable
Officer and Director 1997 Not applicable
Sanford Altberger 1999 $-- (2)
Former President 1998 $--
and Director 1997 $--
</TABLE>
- -------------
(1) Mr. Lim became President, Chief Executive Officer and a Director of the
Company on April 20, 1999 in connection with the Reverse Acquisition.
Amounts received in 1999 represent director's fee from AEI for the year
ended December 31, 1999.
(2) Mr. Altberger was the President of the Company until April 20, 1999 when he
was replaced by Mr. Lim in connection with the Reverse Acquisition. Orovi
Corporation, a private company controlled by Mr. Altberger, advanced loans
to the Company from time to time for operational purposes. As of January 1,
1998, the Company owed Orovi Corporation $84,926. An additional $41,300 was
advanced through December 31, 1998. The balance owed, plus accrued
interest, was satisfied by the Company issuing 465,000 shares of its common
stock as payment of the debt in 1998.
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has no employment agreements with its Chief Executive Officer
and other executive officers. However, its wholly-owned subsidiary, AEI, and
Chee Hong Leong had entered into a letter agreement, dated December 8, 1999,
with respect to Mr. Leong's appointment as Corporate Finance Manager of AEI.
Under the letter agreement, Mr. Leong will receive a basic salary of $18,947 per
year and be entitled to unspecified stock option grants to be awarded by Kalan
Gold Corporation in the future. Either party may terminate the letter agreement
by giving the other party one month's prior written notice.
AEI and Ms. Valerie Hoi-Fah Looi entered into a letter agreement dated
January 1, 1999 with respect to Ms. Looi's redesignation as Senior Vice
President of Corporate Affairs at AEI. Under the letter agreement, Ms. Looi will
receive a basic salary of $13,578 per year subject to review by the Company from
time to time.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following sets forth the number of shares of the Company's common stock
beneficially owned by (i) each person who, as of March 15, 2000, was known by
the Company to own beneficially more than five percent (5%) of its common stock;
(ii) each of the Directors and Executive Officers of the Company and (iii) the
Directors and Executive Officers of the Company as a group. As of March 15,
2000, there were 97,290,999 common shares issued and outstanding.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES OF PERCENT OF
OF BENEFICIAL OWNER(1) BENEFICIAL OWNER (2) CLASS
- --------------------------------------------------------------------------------
<S> <C> <C>
Patrick Soon-Hock Lim 50,445,000 (3) 51.84
Wan Abdul Razak bin Muda 300,000 (4) *
Valerie Hoi-Fah Looi 4,700,000 4.83
Wan Malek Ibrahim (5) 4,200,000 (6) 4.32
Charles W. Pollard 0 *
Paddy Bowie 0 *
---------- -----
All Officers and Directors as
a Group (6 persons) 59,645,000 61.31
========== =====
</TABLE>
- -----------------
* Less than 1%.
(1) The address for each beneficial owner is c/o Kalan Gold Corporation, 60A
Jalan 19/3, 46300 Petaling Jaya, Selangor, Malaysia.
<PAGE>
(2) The inclusion herein of any shares of common stock as beneficially owned
does not constitute an admission of beneficial ownership of those shares.
Unless otherwise indicated, each person listed above has sole investment
and voting power with respect to the shares listed.
(3) Includes (a) 8,000,000 shares directly owned by Mr. Lim's wife, (b)
8,000,000 shares directly owned by Mr. Lim's son and (c) 25,245,000 shares
owned by LSH Asset Holdings Sdn Bhd, a corporation controlled by Mr. Lim
and his wife.
(4) Of such shares (i) 60,000 are beneficially owned by Mr. Muda's spouse and
(ii) 60,000 are held by each of Mr. Muda's three daughters.
(5) Mr. Ibrahim is the Executive Chairman and a Director of PTSB.
(6) Includes 1,250,000 shares owned by Mr. Ibrahim's spouse.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has significant related party transactions with the following
entities:
LSH ASSET HOLDINGS SDN BHD ("LSH")
LSH is a company wholly owned by the Company's Chief Executive Officer and
President and Director, Mr. Patrick Lim and Mr. Lim's wife. During the year
ended December 31, 1999, LSH billed the Company $70,000 for management fees.
During the year ended December 31, 1998, the Company purchased tangible fixed
assets, including computer, studio and communications equipment valued at
$254,342 from LSH. In addition, the cost of goods sold for 1998 included
communications equipment purchased from LSH valued at $1,002,963. LSH also made
short term advances to the Company from time to time for working capital
purposes. As at December 31, 1999, the amount owing to LSH was $311,428 and at
December 31, 1998, the amount owing to LSH was $212,142. This amount is
unsecured, bears no interest and has no fixed terms of repayment and is recorded
in the financial statements as "due to a company in which a director has
financial interest".
VISIONEWS ASIA SDN BHD ("VASB")
During the year ended December 31, 1999, the Company billed VASB total fees
of $238,796 for production of multimedia programs. The Company also billed VASB
a total amount of $32,491 in 1999 for administration fee and subletting a
portion of the Company's premises to VASB. The amount due from VASB, included
under Accounts Receivable as at December 31, 1999, was $86,848. The Company also
purchased communications equipment valued at $1,226,961 from VASB in 1999. For
the year ended December 31, 1998, the Company sold telecommunications equipment
to VASB for a total value of $1,012,927 and billed VASB a total amount of $8,010
for administration fee and subletting a portion of the Company's premises. The
amount outstanding as at December 31, 1998 included under Accounts Receivable
was valued at $1,046,944. The terms of repayment for the amount due from VASB
are similar to terms accorded to the Company's other existing customers. Mr.
Patrick Lim is a director of VASB and owns a 40% equity interest in VASB. Mr.
Mustaffa Yacob, who is a director of PTSB, is also a director of VASB and owns a
20% equity interest in VASB. VASB has given a written undertaking to the Company
to settle progressively all amounts due to the Company as at December 31, 1999
by August 2000. All transactions between the Company and VASB were in Ringgit
Malaysia, the local currency of Malaysia.
<PAGE>
SYNERVEST SDN BHD ("SSB")
During the year ended December 31, 1999, the Company billed SSB for project
consulting fees totaling $197,897 for design and development work on multimedia
website and Internet Protocol based Extranet. The Company also billed SSB a
total amount of $23,748 in 1999 for administration fee. The amount outstanding
included in Accounts Receivable as at December 31, 1999 was $92,105. The terms
of repayment for the amount due from SSB are similar to terms accorded to the
Company's other existing customers. The Company also acquired a patent for
digital image display technology from SSB in 1999, for an aggregate purchase
price of $448,567 as consideration for settlement of an amount owing by SSB. The
Company entered into a Sales and Purchase Agreement on May 4, 2000 with an
unrelated third party to acquire this patent from the Company for consideration
of $492,105 (RM1,870,000). The Company received a deposit of $4,921 (RM18,700)
from the prospective purchaser on May 5, 2000. Pursuant to the terms of the
Sales and Purchase Agreement, the balance of the purchase price is required to
be paid by June 30, 2000. Mustaffa Yacob is a director of SSB and holds a 60%
equity interest in SSB.
As at December 31, 1999, an overdue amount of $1,391,007 from SSB was
included in Other Accounts Receivable and as at December 31, 1998, an overdue
amount of $1,720,665 from SSB was included in Other Accounts Receivable. This
amount primarily arose in the year ended December 31, 1998 when the Company
sold to SSB tangible and intangible assets used in the operations of a
subsidiary, that has since been disposed. These assets, comprising analog
video hardware and peripherals and a patent for image display, were sold to
SSB for a total sum of $1,661,175.
SSB has given a written undertaking to the Company to settle
progressively all amounts due to the Company as at December 31, 1999 by
August 2000. All transactions between the Company and Synervest were in
Ringgit Malaysia, the local currency of Malaysia.
KHIDMAT MAKMUR SDN BHD ("KMSB")
Mustaffa Yacob is a director of KMSB and holds a 30% equity interest in
KMSB. During the year ended December 31, 1999, the Company billed KMSB for
project consulting fees totaling $456,601 for design and development work on
multimedia website. The amount outstanding included in Accounts Receivable as
at December 31, 1999 was $455,382. The terms of repayment for the amount due
from KMSB are similar to terms accorded to the Company's other existing
customers. KMSB has given written undertaking to the Company to settle
progressively all amounts due to the Company as at December 31, 1999 by
August 2000. All transactions between the Company and KMSB were in Ringgit
Malaysia, the local currency of Malaysia.
MY ARCHITECT ("MYA") AND MY DRAUGHTING SERVICES ("MDS")
Mustaffa Yacob is the principal partner of MYA and MDS. During the year
ended December 31, 1999, the Company billed MYA $290,368 and MDS $154,742
for design and development work on multimedia website. The Company also sold
to MYA a video communications system valued at $130,610 in 1999. The amount
outstanding included in Accounts Receivable as at December 31, 1999 was
$419,855 for MYA and $154,329 for MDS. The terms of repayment for the amount
due from MYA and MDS are similar to terms accorded to the Company's other
existing customers. Both firms have given written undertakings to the Company
to settle progressively all amounts due to the Company as at December 31,
1999 by August 2000. All transactions between the Company and both firms were
in Ringgit Malaysia, the local currency of Malaysia.
<PAGE>
PATRICK LIM
As of December 31, 1999 and December 31, 1998, the Company owed the
President and Chief Executive Officer of the Company, Mr. Patrick Lim, $551,695
and $563,432, respectively, for short-term cash advances made to the subsidiary
of the Company for working capital purposes from time to time. The amount owing
to Mr. Lim is unsecured, bears no interest and has no fixed terms of repayment
and is recorded in the financial statements as "due to a director".
OROVI CORPORATION
The Company entered into a verbal agreement effective September 1, 1997 to
rent office space from Orovi Corporation, a private company controlled by
Sanford Altberger, the former President and a Director of the Company, effective
September 1, 1997. The agreement required monthly rental payments of $1,000 per
month. This agreement was terminated on June 30, 1999.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<S> <C>
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3A to
the Company's Form 10-SB filed with the SEC on March 6, 1995.)
3.2 Articles of Amendment (Incorporated by reference to Exhibit 3B to the
Company's Form 10-SB filed with the SEC on March 6, 1995.)
3.3 Bylaws (Incorporated by reference to Exhibit 3C to the Company's Form
10-SB filed with the SEC on March 6, 1995.)
3.4 Articles Of Amendment to change name from Knight Natural Gas to Kalan
Gold Corporation. (Incorporated by reference to Exhibit 3.4 to the
Company's Form 10-KSB filed with the SEC on April 14, 2000.)
10.1 Amended Settlement Memorandum, dated December 14, 1999, as confirmed by
Judge Jim R. Carrigan of the Judicial Arbiter Group in Denver.
(Incorporated by reference to Exhibit 10.1 to the Company's Form 10-KSB
filed with the SEC on April 14, 2000.)
10.2 Agreement and Plan of Reorganization, dated April 20, 1999, between
Kalan Gold Corporation and Animated Electronic Industries Sdn. Bhd.
(Incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K/A dated April 20, 1999, as filed with the SEC on July
2, 1999.)
10.3 Employment Letter Agreement, dated January 1, 1999, between Valerie Looi
and Animated Electronic Industries Sdn. Bhd. (Incorporated by reference
to Exhibit 10.3 to the Company's Form 10-KSB filed with the SEC on April
14, 2000.)
10.4 Employment Letter Agreement, dated December 8, 1999, between Leong Chee
Hong and Animated Electronic Industries Sdn. Bhd. (Incorporated by
reference to Exhibit 10.4 to the Company's Form 10-KSB filed with the
SEC on April 14, 2000.)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
21.1 List of Subsidiaries (Incorporated by reference to Exhibit 10.1 to the
Company's Form 10-KSB filed with the SEC on April 14, 2000.)
27.1 Financial Data Schedule
99.1 Letter from Arthur Andersen & Co. dated April 14, 2000 (Incorporated by
reference to Exhibit 10.1 to the Company's Form 10-KSB filed with the
SEC on April 14, 2000.)
</TABLE>
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Kalan Gold Corporation
Dated: May 15, 2000 By: /s/ Patrick Soon-Hock Lim
---------------------------
Patrick Soon-Hock Lim
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ----------------------------- -------------------------------- ------------
/s/ Patrick Soon-Hock Lim President, Chief Executive May 15, 2000
- ----------------------------- Officer and Director
(Principal Executive Officer)
/s/ Chee Hong Leong Acting Chief Financial Officer May 15, 2000
- ----------------------------- (Principal Financial Officer and
Principal Accounting Officer)
/s/ Wan Abdul Razak bin Muda Chairman and Director May 15, 2000
- -----------------------------
/s/ Looi Hoi Fah Director May 15, 2000
- -----------------------------
/s/ Paddy Bowie Director May 15, 2000
- -----------------------------
/s/ Charles W. Pollard Director May 16, 2000
- -----------------------------
<PAGE>
KALAN GOLD CORPORATION
INDEX TO FINANCIAL STATEMENTS.
<TABLE>
<S> <C>
Independent Accountant's Report .................................... F1
Consolidated Balance Sheets as of December 31, 1999 and 1998 ....... F2
Consolidated Statements of Operations, Years Ended December 31, 1999
and 1998 ........................................................... F3
Consolidated Statements of Cash Flow, Years Ended December 31, 1999
and 1998 ........................................................... F4
Consolidated Statements of Changes in Shareholders' Equity ......... F6
Notes to Consolidated Financial Statements ......................... F7
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF KALAN GOLD CORPORATION:
We have audited the accompanying consolidated balance sheets of KALAN GOLD
CORPORATION (a Colorado corporation) and subsidiaries ("the Company") as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, 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 the auditing standards generally
accepted in the United States. 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 the management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As mentioned in Note C to the financial statements, the Company has
acquired certain fixed assets and a patent from related parties as settlement of
receivables owed by these parties. The company could not provide to us,
supporting documentation to evidence that these fixed assets and patent were
recorded at fair market values at the time of settlement of the receivables in
accordance with the requirements of accounting principles generally accepted in
the United States.
In our opinion, except for any adjustments that may be necessary should
supporting documentation be available as referred to above, the financial
statements referred to above present fairly, in all material respects, the
financial position of KALAN GOLD CORPORATION and subsidiaries as of December 31,
1999 and 1998 and the results of their operations and their cash flows for the
years then ended in conformity with the accounting principles generally accepted
in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note R to the
financial statements, the Company (1) suffered a loss from continuing operations
of $1,845,670 in 1999; (2) had negative cash flows from operating activities of
$126,991 and $2,345,912 in 1999 and 1998, respectively; and (3) has an
accumulated deficit of $1,413,853 in 1999. In addition, 75% and 85% of the
Company's revenues in 1999 and 1998 have been generated from entities that are
affiliated with or related to the Company. These circumstances raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note R. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/ Signed /
ARTHUR ANDERSEN
May 15,2000
Kuala Lumpur
F1
<PAGE>
KALAN GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
----------- -----------
$ $
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 3,959 339
Accounts receivable, net of reserve for bad debts of $194,737 162,369 132
(1998:Nil)
Accounts receivable - related or affiliated parties, net of reserve 148,684 1,046,944
for bad debts of $1,059,835 (1998:Nil)
Other accounts receivable, net of reserve for bad debts of $389,960 4,272 406,277
(1998:Nil)
Other accounts receivable - related or affiliated parties, net of . -- 1,720,665
reserve for bad debts of $1,391,007 (1998:Nil)
Inventories 6,786 6,786
Patent 448,567 --
----------- -----------
Total current assets 774,637 3,181,143
TANGIBLE FIXED ASSETS
Net book value 1,683,926 635,871
----------- -----------
Total Assets 2,458,563 3,817,014
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Others accounts payable & accrued liabilities 409,841 78,545
Interest payable 29,148 --
Amount due to a company in which a director has financial interest 311,428 212,142
Amount due to a director 551,695 563,432
Obligation under capital leases 13,660 18,093
----------- -----------
Total current liabilities 1,315,772 872,212
----------- -----------
LONG TERM LIABILITIES
Obligation under capital leases 152,473 125,114
Deferred tax 84,436 --
----------- -----------
Total long term liabilities 236,909 125,114
----------- -----------
MINORITY INTERESTS -- 337,993
SHAREHOLDERS' EQUITY
Preferred stock, $0.10 par value, 1,000,000 shares authorized, -- --
-0- shares issued and outstanding
Common stock, $.00001 par value, 100,000,000 shares
Authorized, 94,990,999 shares issued and outstanding 950 870
Additional paid-in capital 2,262,438 2,318,718
(Accumulated deficit)/Retained profit (1,413,853) 95,862
Foreign currency translation reserve 56,347 66,245
----------- -----------
Total shareholders' equity 905,882 2,481,695
=========== ===========
Total liabilities and shareholders' equity 2,458,563 3,817,014
=========== ===========
</TABLE>
F2
<PAGE>
KALAN GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Year Ended
December 31
-------------------------------
1999 1998
------------ ------------
$ $
<S> <C> <C>
REVENUES
Sales of communication equipment 27,706 1,189,025
Consulting and production fees receivable 1,755,043 3,386
------------ ------------
1,782,749 1,192,411
------------ ------------
Less: Cost of Sales
Cost of goods sold (14,512) (1,057,865)
------------ ------------
(14,512) (1,057,865)
------------ ------------
Gross Profit 1,768,237 134,546
Less: Operating expenses
Sales and marketing 16,985 10,607
Depreciation 147,975 103,078
General operation and administration 422,567 131,266
Interest 63,125 18,902
Goodwill on consolidation written off -- 704,318
Reserve for bad debts 3,035,539 --
------------ ------------
Total operating expenses 3,686,191 968,171
------------ ------------
Operating Loss (1,917,954) (833,625)
Add: Other income
Gain on disposal of tangible assets 99,680 830,769
Gain on disposal of intangible assets -- 416,411
Gain on disposal of investment -- 3,066
Other income 57,040 27,025
------------ ------------
(Loss)/Income from continuing operations and consolidated subsidiaries (1,761,234) 443,646
before taxation and minority interests
Taxation (84,436) --
------------ ------------
(Loss)/Income from continuing operations and consolidated subsidiaries (1,845,670) 443,646
before minority interests
Minority interests 335,955 (9,602)
------------ ------------
Net (loss)/income from continuing operations (1,509,715) 434,004
------------ ------------
Less: Losses from operations of disposed subsidiaries
net of zero tax -- (387,640)
Loss on disposal of subsidiaries net of zero tax -- (514,827)
------------ ------------
Losses from operations of disposed subsidiaries and disposal of -- (902,467)
subsidiaries
------------ ------------
------------ ------------
Net loss applicable to common shareholders (1,509,715) (468,423)
============ ============
Number of common shares outstanding 94,990,999 94,990,999
Basic (loss)/earnings per share (0.02) 0.00
</TABLE>
F3
<PAGE>
KALAN GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For The Years Ended
December 31
-----------------------------
1999 1998
----------- -----------
$ $
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (1,509,715) (468,423)
Adjustments to reconcile net earnings to net cash used
In operating activities:
Depreciation 147,975 103,078
Reserve for bad debts 3,035,539 --
Increase in deferred tax liabilities 84,436 --
Gain on disposal of fixed assets (99,680) (830,769)
Gain on disposal of investments -- (3,066)
Gain on disposal of patent -- (416,411)
Minority shares of loss on disposal of subsidiary companies -- 430,296
Minority shares of (loss)/income from consolidated subsidiaries (335,955) 9,602
Goodwill on consolidation written off -- 704,318
Translation difference - cash and bank balances in foreign (2) 9
currency
Translation difference - others (11,934) 14,974
Changes in assets and liabilities:
Increase in receivables (1,852,374) (1,118,545)
Increase/(decrease) in payables 414,719 (798,339)
Decrease in inventories -- 27,364
----------- -----------
Net Cash used in operating activities (126,991) (2,345,912)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of fixed assets 130,611 --
Purchase of fixed assets -- (307,506)
Proceeds from disposal of investments in subsidiaries -- 528,764
Purchase of investment -- (232,986)
Proceeds from disposal of investments -- 236,052
Purchase of patent -- (5,109)
----------- -----------
Net cash provided by investing activities 130,611 219,215
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares of common stock -- 2,156,494
Payment of obligation under capital leases -- (29,772)
----------- -----------
Net cash provided by financing activities -- 2,126,722
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,620 25
Cash and cash equivalent, beginning of period 339 314
----------- -----------
Cash and cash equivalent, end of period 3,959 339
=========== ===========
</TABLE>
F4
<PAGE>
KALAN GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For The Years Ended
December 31
--------------------
1999 1998
------- -------
$ $
<S> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest during the period 33,977 18,902
======= =======
Cash paid for income taxes 0 0
======= =======
</TABLE>
During the year ended December 31, 1999, the Company had, with consent from
the lessor, deferred payment of interest for capital leases amounting to $29,148
to year 2000.
NON-MONETARY TRANSACTIONS:
During the year ended December 31, 1999, the Company acquired communication
equipment and a patent for digital image display for $1,226,961 and $448,567,
respectively, as settlement for the same amount of accounts receivable due from
companies that are related or affiliated with the Company. The assets were
stated in the financial statements at the cost of transfer. No gain or loss was
recognized in the financial statements, as the value of the assets acquired was
equal to the amount of debts being settled.
F5
<PAGE>
KALAN GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Profit/
Preferred Stock Common Stock (Accumulated Foreign
--------------- ----------------- Additional loss) from Accumulated Currency
Par Par Paid-in AEI and its loss of the Translation
Shares Value Shares Value capital subsidiaries Company Reserve Total
------ ----- ---------- ----- ---------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 -- -- 4,833,333 48 163,046 564,285 -- -- 727,379
Issue of AEI shares for cash -- -- 82,166,667 822 2,155,672 -- -- -- 2,156,494
to shareholders of AEI
Differences arising from -- -- -- -- -- -- -- 66,245 66,245
translation of financial statement
of foreign subsidiaries
Net loss for the year ended -- -- -- -- -- (468,423) -- -- (468,423)
December 31, 1998
---- ----- ---------- ----- ---------- ----------- --------- -------- -----------
BALANCE, DECEMBER 31, 1998 -- $ -- 87,000,000 $ 870 $2,318,718 $ 95,862 -- $ 66,245 $ 2,481,695
Adjustment in connection with -- -- 7,990,999 80 (56,280) -- -- -- (56,200)
the issue of shares of common
stocks for the reverse
acquisition by Animated
Electronic Industries Sdn Bhd
on April 20, 1999
Differences arising from -- -- -- -- -- -- -- (9,898) (9,898)
translation of financial statement
of foreign subsidiaries
Net loss for the year ended -- -- -- -- -- (1,190,174) (319,541) -- (1,509,715)
December 31, 1999
---- ----- ---------- ----- ---------- ----------- --------- -------- -----------
BALANCE, DECEMBER 31, 1999 -- $ -- 94,990,999 $ 950 $2,262,438 $(1,094,312) $(319,541) $ 56,347 $ 905,882
==== ===== ========== ===== ========== =========== ========= ======== ===========
</TABLE>
F6
<PAGE>
KALAN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: ORGANIZATION AND BUSINESS
The Company was incorporated under the laws of the State of Colorado on
September 19, 1985. On April 20, 1999, the Company was to issue 87,000,000
shares of its common stock in exchange for 100 percent of the outstanding shares
of common stock of Animated Electronic Industries SDN. BHD. ("AEI"), a company
incorporated on October 6, 1988 under the Malaysian Companies Act of 1965. The
Company was subsequently notified by AEI that an aggregate of 83,320,000 shares
of its common stock were issued to the former stockholders of AEI and an
additional 3.68 million shares were improperly issued to the financial advisor,
and the Company's former legal counsel. The Company is attempting to recover the
3.68 million shares from such persons and has, on January 26, 2000, issued a
stop transfer order on the 3.68 million shares. A description of the legal
action initiated by the Company to recover the shares is described under the
`Note N - Pending Litigation' of the financial statements. As a result of this
stock acquisition, AEI became a wholly owned subsidiary of the Company. This
acquisition has been treated as a recapitalization of AEI with AEI as the
acquirer (reverse acquisition).
AEI has two subsidiary companies, Perwimas Telecommunication Sdn Bhd ("PTSB")
and Vistel (Malaysia) Sdn Bhd ("VMSB"), both of which were incorporated in
Malaysia.
PTSB holds a wireless broadband multimedia network licence granted by the
Ministry of Energy, Communications & Multimedia of Malaysia operating under the
name, VISIONET. PTSB is licensed to provide network facilities and services for
two-way wireless broadband multimedia application which include distance
learning, live news coverage, remote video surveillance, emergency field
services (e.g. telemedicine, etc.), on-site progress monitoring, energy
conservation and building management.
VMSB has been an investment holding company since its inception.
The Company's revenue for 1999 was primarily derived from the production of
multimedia programs; design and consulting services for web-site development and
network engineering services; and consulting fees for project management
services. In 1998, the Company was principally engaged in the marketing of video
telecommunication and surveillance devices, and revenue was primarily derived
from the sales of such equipment. The Company hopes to be able to provide other
broadband multimedia communication services that include the operation of a
wireless digital broadband network, VISIONET, and the sale of customer premises
equipment.
NOTE B: SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENTS AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared from records maintained
in Malaysia, the Company's principal place of business.
The Company's consolidated financial statements have been accounted for under
the purchase method of consolidation that includes the results of operations of
the subsidiaries' business from the date of acquisition. Net assets of the
subsidiaries are recorded at their fair value to the Company at the date of
acquisition. All significant inter-company accounts and transactions have been
eliminated on consolidation.
F7
<PAGE>
The consolidated financial statements for 1999 include the accounts of AEI and
its Malaysian subsidiaries and the accounts of Kalan Gold Corporation from the
date of the reverse acquisition. The consolidated financial statements for 1998
include the accounts of AEI and its Malaysian subsidiaries.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in hand and federally insured amounts
maintained in a checking account at a bank.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially could subject the Company to
concentrations of credit risk consist largely of trade and other accounts
receivable. Included in other accounts receivable as at December 31, 1999 was
an overdue amount of $1,698,902 that relates to sales proceeds arising from
the disposal of investments and fixed assets, of which $1,391,007 was due
from Synervest Sdn Bhd, a company controlled by a director of PTSB. Of the
Company's accounts receivable as at December 31, 1999, 59% were aged over 90
days old and 77% were from companies that are related to or affiliated with
the Company. This situation arose largely from the Company's adoption of an
aggressive credit policy that provided lenient credit terms and an extended
credit period for its customers. Where the Company evaluates that the debt
has been overdue, the Company will seek to obtain a letter of undertaking
from its debtors as a form of security. For the year ended December 31, 1999
the Company has reserved $3,035,539 for allowance on doubtful receivables. As
59% of the Company's accounts receivable were aged more than 90 days as of
December 31, 1999, the Company has sought and obtained written undertakings
and schedules of repayments in respect of all its accounts receivable for
full settlement of outstanding balances by August 31, 2000 through monthly
repayment. As of March 31, 2000, the Company has received monthly payment
promptly in respect of its accounts receivable in accordance with the
schedules of repayments. However, as the Company did not receive in full the
monthly payments that were due for April 2000, the Company has reserved
$3,035,539 for allowance on doubtful receivables as there is doubt over the
recoverability of the balance outstanding. The Company will, however,
continue to pursue vigorously the collection of all its outstanding accounts
receivable. There was no reserve for doubtful receivables in 1998.
TRANSLATION OF CURRENCIES
The functional currency of the Company's subsidiaries is the local currency. The
financial statements of these subsidiaries are translated to United States
dollars using year-end rates of exchange for assets and liabilities, and average
rates of exchange for the year for revenues, costs, and expenses. Translation
gains/(losses), which are deferred and accumulated, is treated as a component of
shareholders' equity.
The following exchange rates of Ringgit Malaysia (RM) into U.S. Dollars (USD)
were used in preparing the financial statements.
<TABLE>
<S> <C> <C> <C>
January 1, 1998 3.8800 January 1, 1999 3.7797
December 31, 1998 3.7797 December 31, 1999 3.8000
Average 1998 3.9144 Average 3.7899
</TABLE>
The reporting currency used in the financial statements is USD unless otherwise
stated.
F8
<PAGE>
REVENUE RECOGNITION
Revenue represents the net invoiced value of goods sold or fees receivables for
production of multimedia programs and Intranet and management and consulting
services. The Company recognizes revenue from the sales of goods in the period
where significant risks and rewards of ownership has been transferred to its
customers. The Company recognizes revenue from the provision of services when
there is no significant uncertainty regarding the consideration to be received
and in the associated costs to be incurred.
(LOSS)/EARNINGS PER COMMON SHARE
Earnings/(loss) per common share are determined in accordance with SFAS No. 128,
"Earnings Per Share" (EPS). SFAS No. 128 requires the presentation of two EPS
amounts, basic and diluted. Basic EPS is calculated by dividing net income by
the weighted average number of common shares outstanding for the period. Diluted
EPS includes the dilution that would occur if outstanding stock options and
other dilutive securities were exercised and is comparable to the EPS the
Company has historically reported. The diluted EPS calculation excludes the
effect of stock options when their exercise prices exceed the average market
price over the period. As there were no exercisable outstanding stock options in
1999 and 1998, the Company did not compute the diluted EPS for both years.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and tax
basis of assets and liabilities for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled. Deferred taxes are
also recognized for operating losses that are available to offset future
taxable income and tax credits that are available to offset future federal
income taxes.
FIXED ASSETS AND DEPRECIATION
Fixed assets are stated at cost less depreciation. Depreciation is calculated on
a straight line method over the expected useful lives of the asset concerned.
Depreciation expense is not included in cost of goods sold or other operating
expenses in the Consolidated Statements of Operations. The principal annual
rates of depreciation are:
<TABLE>
<S> <C>
Motor Vehicles, Office Equipment, Furniture & Fittings, 20%
Computer software
Tools & Equipment, Video Communication hardware &
peripherals, Office renovation 10%
</TABLE>
Routine expenses for maintenance and repair are expensed as incurred.
Expenditures that results in enhancement of the value or in extension of the
useful life of fixed assets are capitalized.
F9
<PAGE>
ASSETS UNDER CAPITAL LEASES
The Company records assets acquired under capital leases as tangible fixed
assets and the corresponding obligation under capital leases as liability. The
initial recording value of a capital lease is the lesser of the fair value of
the leased assets or the present value of the minimum lease payments, excluding
any portion representing executory costs and profit thereon. The asset recorded
under capital leases is depreciated in a manner consistent with the Company's
depreciation policy for other owned assets.
GOODWILL ON CONSOLIDATION AND AMORTIZATION
Goodwill on consolidation arise in the accounts of AEI from the difference
between the fair value and the net tangible assets of its subsidiaries at the
date of acquisition and the purchase price. Goodwill arising on consolidation is
written off in 1998.
INVENTORIES
Inventories, which comprised accessories for production of multimedia programs,
are stated at the lower of cost and net realizable value. Cost is determined on
a first-in-first-out basis.
EMPLOYERS ACCOUNTING FOR PENSIONS, POST-RETIREMENT BENEFITS OTHER THAN PENSIONS,
AND POST-EMPLOYMENT BENEFITS
SFAS No.87: "Employers accounting for pensions", SFAS No. 106: "Employers
accounting for post-retirement benefits other than pensions" and SFAS No. 112:
"Employers accounting for post-employment benefits" do not apply to the
financial statements as the Company has no such plan in place as at December 31,
1999.
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. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified
for comparative purposes to conform to the presentation in the current year
financial statements.
F10
<PAGE>
NOTE C: RELATED PARTY TRANSACTIONS
The Company has significant related party transactions with the following
entities:
LSH ASSET HOLDINGS SDN BHD ("LSH")
LSH is a company wholly owned by the Company's Chief Executive Officer and
President and Director, Mr. Patrick Lim and Mr Lim's wife. During the year ended
December 31, 1999, LSH billed the Company $70,000 for management fees. During
the year ended December 31, 1998, the Company purchased tangible fixed assets,
including computer, studio and communications equipment valued at $254,342 from
LSH. In addition, the cost of goods sold for 1998 included communications
equipment purchased from LSH valued at $1,002,963. LSH also made short term
advances to the Company from time to time for working capital purposes. As at
December 31, 1999 and as at December 31, 1998, the amount owing to LSH was
$311,428 and $212,142, respectively. This amount is unsecured, bears no interest
and has no fixed terms of repayment and is recorded in the financial statements
as "due to a company in which a director has financial interest".
VISIONEWS ASIA SDN BHD ("VASB")
During the year ended December 31, 1999, the Company billed VASB total fees of
$238,796 for production of multimedia programs. The Company also billed VASB a
total amount of $32,491 in 1999 for administration fee and sub-letting a portion
of the Company's premises to VASB. The amount due from VASB, included under
Accounts Receivable as at December 31, 1999, was $86,848. The Company also
purchased communications equipment valued at $1,226,961 from VASB in 1999. For
the year ended December 31, 1998, the Company sold telecommunications equipment
to VASB for a total value of $1,012,927 and billed VASB a total amount of $8,010
for administration fee and sub-letting a portion of the Company's premises. The
amount outstanding as at December 31, 1998 included under Accounts Receivable
was valued at $1,046,944. The terms of repayment for the amount due from VASB is
similar to terms accorded to the Company's other existing customers. Mr. Patrick
Lim is a director of VASB and owns a 40% equity interest in VASB. Mr. Mustaffa
Yacob, who is a director of PTSB, is also a director of VASB and owns a 20%
equity interest in VASB. VASB has given a written undertaking to the Company to
settle progressively all amounts due to the Company as at December 31, 1999 by
August 2000. All transactions between the Company and VASB were in Ringgit
Malaysia, the local currency of Malaysia.
SYNERVEST SDN BHD ("SSB")
During the year ended December 31, 1999, the Company billed SSB for project
consulting fees totaling $197,897 for design and development work on multimedia
website and Internet Protocol based Extranet. The Company also billed SSB a
total amount of $23,748 in 1999 for administration fee. The amount outstanding
included in Accounts Receivable as at December 31, 1999 was $92,105. The terms
of repayment for the amount due from SSB are similar to terms accorded to the
Company's other existing customers. The Company also acquired a patent for
digital image display technology from SSB in 1999, for an aggregate purchase
price of $448,567 as consideration for settlement of an amount owing by SSB. The
Company entered into a Sales and Purchase Agreement on May 4, 2000 with a third
party to acquire this patent from the Company for consideration of $492,105
(RM1,870,000). The Company received a deposit of $4,921 (RM18,700) from the
acquirer on May 5, 2000. Pursuant to the terms of the Sales and Purchase
Agreement, the balance of the purchase price is required to be paid by June 30,
2000. Mustaffa Yacob is a director of SSB and holds a 60% equity interest in
SSB.
F11
<PAGE>
As at December 31, 1999 and as at December 31, 1998, an overdue amount of
$1,391,007 and $1,720,665, respectively, from SSB was included in Other Accounts
Receivable. This amount primarily arose in the year ended December 31, 1998 when
the Company sold to SSB tangible and intangible assets used in the operations of
a subsidiary, that has since been disposed. These assets, comprising analog
video hardware and peripherals and a patent for image display, were sold to SSB
for a total sum of $1,661,175.
SSB has given a written undertaking to the Company to settle progressively all
amounts due to the Company as at December 31, 1999 by August 2000. All
transactions between the Company and Synervest were in Ringgit Malaysia, the
local currency of Malaysia.
KHIDMAT MAKMUR SDN BHD ("KMSB")
Mustaffa Yacob is a director of KMSB and holds a 30% equity interest in KMSB.
During the year ended December 31, 1999, the Company billed KMSB for project
consulting fees totaling $456,601 for design and development work on multimedia
website. The amount outstanding included in Accounts Receivable as at December
31, 1999 was $455,382. The terms of repayment for the amount due from KMSB are
similar to terms accorded to the Company's other existing customers. KMSB has
given written undertaking to the Company to settle progressively all amounts due
to the Company as at December 31, 1999 by August 2000. All transactions between
the Company and KMSB were in Ringgit Malaysia, the local currency of Malaysia.
MY ARCHITECT ("MYA") AND MY DRAUGHTING SERVICES ("MDS")
Mustaffa Yacob is the principal partner of MYA and MDS. During the year ended
December 31, 1999, the Company billed MYA $290,368 and MDS $154,742 for
design and development work on multimedia website. The Company also sold to
MYA a video communications system valued at $130,610 in 1999. The amount
outstanding included in Accounts Receivable as at December 31, 1999 was
$419,855 for MYA and $154,329 for MDS. The terms of repayment for the amount
due from MYA and MDS are similar to terms accorded to the Company's other
existing customers. Both firms have given written undertakings to the Company
to settle progressively all amounts due to the Company as at December 31,
1999 by August 2000. All transactions between the Company and both firms were
in Ringgit Malaysia, the local currency of Malaysia.
PATRICK LIM
As of December 31, 1999, the Company owed the President and Chief Executive
Officer of the Company, Mr. Patrick Lim, $551,695 and as of December 31,
1998, the Company owed Mr. Lim $563,432, in each case for short-term cash
advances made to the subsidiary of the Company for working capital purposes
from time to time. The amount owing to Mr. Lim is unsecured, bears no
interest and has no fixed terms of repayment and is recorded in the financial
statements as "due to a director".
OROVI CORPORATION
The Company entered into a verbal agreement effective September 1, 1997 to rent
office space from Orovi Corporation, a private company controlled by Sanford
Altberger, the former President and a Director of the Company, effective
September 1, 1997. The agreement required monthly rental payments of $1,000 per
month. This agreement was terminated on June 30, 1999.
F12
<PAGE>
NOTE D: PATENT
As of December 31, 1999, the Company's Current Assets included a patent for
digital image display technology acquired from SSB as disclosed under Note C:
Related Party Transactions. As disclosed under NOTE C: RELATED PARTY
TRANSACTIONS, the Company entered into a Sales and Purchase Agreement on May 4,
2000 with an unrelated third party to acquire this patent from the Company for
aggregate cash consideration of $492,105 (RM1,870,000). The Company collected
$4,921 (RM18,700) from the purchaser on May 5, 2000 and expects to complete this
disposal by June 30, 2000, the date by which the balance of the total
consideration is required to be paid under the terms of the Sale and Purchase
Agreement. Therefore, the Company had not amortized the cost of the patent in
the financial statements for the year ended December 31, 1999 as it is to be
disposed of in 2000.
NOTE E: FIXED ASSETS
<TABLE>
<CAPTION>
Fixed assets consisted of: December 31, December 31,
1999 1998
----------- -----------
$ $
<S> <C> <C>
Office equipment 72,095 72,095
Furniture and fittings 23,235 23,235
Tools and equipment 152,997 152,997
Video Communication hardware and peripherals 1,777,128 617,592
Computer software 138,048 138,048
Office renovation 11,010 11,010
----------- -----------
2,174,513 1,014,977
Less: Accumulated depreciation (490,587) (379,106)
----------- -----------
$ 1,683,926 $ 635,871
=========== ===========
</TABLE>
The net book value for each class of fixed assets is as follows:
<TABLE>
<S> <C> <C>
Office equipment $ 33,066 $ 46,286
Furniture and fittings 3,847 7,902
Tools and equipment 83,944 95,570
Video communication hardware and peripherals 1,551,796 410,868
Computer software 5,522 68,689
Office renovation 5,751 6,556
---------- ----------
$1,683,926 $ 635,871
========== ==========
</TABLE>
Depreciation for the years ended December 31, 1999 and 1998 amounted to $147,975
and $103,078, respectively.
All assets are stated at cost, including communications equipment purchased from
VASB in December 1999 for a price of $1,226,961.
F13
<PAGE>
NOTE F: CAPITAL LEASE OBLIGATIONS
Certain telecommunications and other assets are leased from a single lessor
under various equipment lease financing facilities. Such leases have been
accounted for as capital leases. At the Company's request, the lessor agreed to
an extension on the repayment period in 1998 to enable the Company to secure
additional working capital financing. The rescheduled lease terms for all
capital leases commenced on December 1998 and are payable on a monthly basis
with the final payment due on November 2006. The Company shall inherit the legal
title to all assets under capital leases, upon settlement of the final minimum
lease payment on November 2006.
Future minimum lease payments on these capital leases are as follows:
<TABLE>
<CAPTION>
Year Ending December 31 December 31, December 31,
1999 1998
----------- -----------
$ $
<S> <C> <C>
2000 36,284 18,093
2001 36,284 36,479
2002 36,284 36,479
2003 36,284 36,479
2004 36,284 36,479
2005 onwards 69,517 124,755
-------- --------
Total payments 250,937 288,764
Less: Amount representing interest (84,804) (145,557)
-------- --------
Present value of minimum lease payments 166,133 143,207
======== ========
</TABLE>
The carrying value of assets under capital leases was $251,028 and $293,266 at
December 31, 1999 and 1998 respectively, and is included in property and
equipment. Amortization of these assets is included in depreciation expense.
NOTE G: SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Company is authorized to issue one million shares of preferred stock, par
value $.10 per share, which may be issued in series with such designations,
preferences, stated values, rights, qualifications or limitations as determined
by the Board of Directors.
OTHER TRANSACTIONS
On October 28, 1998, the Company (under the pre-reverse acquisition
management) issued 1,300,000 shares of its $.00001 par value restricted
common stock in exchange for the license rights to four gold properties. On
March 31, 1999, the transaction was rescinded, therefore, the rights were
returned and the shares were cancelled as of October 28, 1998. Accordingly,
the accounting for the transaction was reversed and the transaction does not
appear in the Company's books.
F14
<PAGE>
On October 28, 1998, the Company (under the pre-reverse acquisition
management) issued 1,000,000 shares of its $.00001 par value restricted
common stock in exchange for services valued at a cost of $50,000 as
determined by the board of directors. On April 10, 1999, the transaction was
rescinded as of October 28, 1998 as the services did not provide a benefit to
the Company. Accordingly, the accounting for the transaction was reversed and
the transaction does not appear in the Company's books.
In October 1998, the Company (under the pre-reverse acquisition management)
issued an aggregate of 700,000 shares of its restricted common stock to
Michael Raisch, who at the time was the Company's Treasurer and a Director,
and to Orovi Corporation, a company controlled by Sanford Altberger, who was
at the time the Company's President and a Director, in exchange for
forgiveness of debt as follows:
<TABLE>
<S> <C>
Orovi Corporation 465,000
Michael Raisch 235,000
-------
700,000
=======
</TABLE>
NOTE H: STOCK OPTIONS
The Company (under the pre-reverse acquisition management) had granted a stock
option to Mr. Raisch, the former Secretary, Treasurer and a Director of the
Company, for 75,000 common shares at $.02 per share until November 14, 2001. By
a letter agreement dated April 26, 2000, between the Company and Mr. Raisch,
this option has been cancelled.
NOTE I: INCOME TAXES
Temporary differences and carry forwards that give rise to deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
December 31 December 31
1999 1998
----------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS
Net operating loss carry forward 292,307 268,925
Unutilized tax allowable depreciation 0 64,889
Deferred interest payment 8,183 0
Deferred legal fees 52,500 0
-------- --------
352,990 333,814
Less: Valuation allowance (352,990) (246,700)
-------- --------
Deferred tax asset net of allowance 0 87,114
DEFERRED TAX LIABILITIES
Depreciation (84,436) (87,114)
-------- --------
NET DEFERRED TAX LIABILITY (84,436) 0
======== ========
</TABLE>
F15
<PAGE>
The provision for income tax expense consists of the following:
<TABLE>
<S> <C> <C>
Malaysia's income tax
Current 0 0
Deferred 84,436 0
United State's federal income tax
Current 0 0
Deferred 0 0
United State's state and local income tax
Current 0 0
Deferred 0 0
------ ------
84,436 0
====== ======
</TABLE>
For fiscal year 1999, the entire income of the Company was derived from its
operations in Malaysia. No tax provision has been made as 1999 was legislated to
be a tax-free year for Malaysian corporations by the Malaysian Government.
For 1998, the Company was not liable for any income tax as it posted an
operating loss of $129,307.
The valuation allowance offsets the net deferred tax asset for which there is no
assurance of recovery. The valuation allowance will be evaluated at the end of
each year, considering positive and negative evidence about whether the deferred
tax asset will be realized. At that time, the allowance will either be increased
or reduced; reduction could result in the complete elimination of the allowance
if positive evidence indicates that the value of the deferred tax assets is no
longer impaired and the allowance is no longer required. The net operating loss
carry forward consists of $79,370 arising from the Company's operations in
Malaysia and $206,069 arising from the Company's activities in Colorado. The net
operating loss carry forward that relates to operations in Malaysia can be
carried forward indefinitely while the net operating loss carry forward that
relates to the Company's activities in Colorado expires through the year 2019.
As the Company's principal place of business for 1999 and 1998 was solely in
Malaysia, the Company was only liable for income tax in Malaysia.
NOTE J: FOREIGN CURRENCY TRANSLATION RESERVE
Foreign currency translation reserve arises from translating the foreign
subsidiaries in Malaysia at different rates from the start of the year with the
year-end. The rates used to calculate this reserve is disclosed in the Note of
Accounting Policies. The calculation of this reserve is incorporated as part of
the Consolidated Changes in Shareholders' Equity, $56,347, and $66,245 for 1999
and 1998, respectively.
F16
<PAGE>
NOTE K: ACCOUNTS PAYABLE IN FOREIGN CURRENCY
The Company has the following payables in RM, the functional currency of the
Company's subsidiaries in Malaysia:
<TABLE>
<CAPTION>
1999 1998
------------------------ ------------------------
RM $ RM $
<S> <C> <C> <C> <C>
Others accounts payable & accrued liabilities 499,209 131,371 296,875 78,545
Interest payable 110,762 29,148 -- --
Amount due to a company in which a director has financial 880,616 231,741 801,835 212,142
interest
Amount due to a director 2,096,442 551,695 2,129,604 563,432
Obligation under capital leases 631,306 166,133 541,281 143,207
</TABLE>
NOTE L: SUBSEQUENT EVENT
Mr. Charles W. Pollard and Mrs. Paddy Bowie joined the Board Of Directors on
February 7 and February 24, 2000, respectively.
On February 24, 2000, the Company issued an aggregate of 2,300,000 shares of
restricted common stock to Mr. Wan Malek Ibrahim in a private placement for cash
consideration of $1,150,000 at 50 cents per share. Proceeds from this private
placement were used to repay advances made to the Company by Mr. Patrick Lim and
LSH Asset Holdings Sdn Bhd.
On March 15, 2000, AEI and Merais Sdn Bhd (a Malaysian corporation) entered into
a Tenancy Agreement to lease office and roof space at Menara Merais, Petaling
Jaya at a monthly rental fee of $1,600. The lease period shall be for a first
term of two years with an option to renew for a second term of another one year.
On May 4, 2000, AEI entered into a sale and purchase agreement with an unrelated
third party for the disposal of a patent that AEI had acquired from SSB, a
company that is related to the Company, in 1999, for aggregate cash
consideration $492,105 (RM1,870,000). Under the terms of the sale and purchase
agreement, AEI received a sum of $4,921 (RM18,700) on May 5, 2000, following the
execution of the Agreement and the balance of $487,184 (RM1,851,300) is required
to be paid by June 30, 2000.
NOTE M: COMMITMENTS AND CONTINGENCIES
On October 6, 1997, the Company entered into a Memorandum of Understanding with
Fiberail Sdn Bhd, a 60%-owned subsidiary of Telekom Malaysia, a Malaysian
company ("Fiberail") under which the parties agreed to collaborate with respect
to the integration of the Company's wireless broadband network with Fiberail's
fiber optic trunk network that has been laid along the national railway grid
connecting major towns and cities in Malaysia. The Memorandum of Understanding
contemplates that the parties will seek to implement the integration of their
respective networks through a strategic alliance and, the parties are currently
negotiating the terms and conditions of such a strategic alliance.
On April 7, 2000, the Company executed a Letter of Intent with an equipment
manufacturer, EER Systems Inc. of Virginia ("EER"), pursuant to which the
Company would be able to obtain a long-term supply of the "best of breed"
transceivers and system integration services. The Company hopes to enter into a
definitive long-term supply agreement with EER. In addition, the Company hopes
to enter into a strategic alliance with EER relating to the joint implementation
of a Pan Asian broadband network sometime before the commercial launch of the
VISIONET network.
F17
<PAGE>
The Company expects to incur capital expenditures ranging from $10.0 million to
$15.0 million during 2000 in connection with the official launch and build-out
of VISIONET. As of the date of this Report, capital expenditures have been
planned, but no funds have been committed. In addition, the Company has not
entered into any commitments to fund this business plan. The Company is not
aware of any contingent liability that may have a material impact on the
financial statements for the year ended December 31, 1999.
NOTE N: PENDING LITIGATION
Following the Reverse Acquisition, certain disputes arose between the Company
and the Company's former President, Treasurer and legal counsel each of whom
either directly and/or indirectly beneficially owns common stock of the Company.
Those disputes involved, among other things, the issuance of 1,840,000 shares of
the Company's common stock to an entity controlled by the former legal counsel
(the "Disputed Shares") at the time of the Reverse Acquisition, bills for
pre-acquisition legal services, recovery of the Company's historical corporate
records, and various claims of alleged misrepresentations in connection with the
Reverse Acquisition. On December 14, 1999, these parties conducted a voluntary
mediation and agreed to settle all of their disputes arising out of the Reverse
Acquisition. In mid-January, however, the former President and Treasurer
repudiated the settlement and the former legal counsel refused to close the
settlement transactions. On January 24, 2000, the Company filed an action
against these parties in the Arapahoe County, Colorado, District Court.
On March 3, 2000, the Company filed a motion to voluntarily dismiss, without
prejudice, all of its claims against the former President and Treasurer, which
motion the court granted on March 7, 2000.
On March 16, 2000, the former legal counsel and certain parties (the
"Defendants") filed two counterclaims against the Company. The first
counterclaim seeks approximately $193,000 in attorneys' fees that the former
legal counsel alleges the Company owes for legal services the major portion of
which were rendered prior to the Reverse Acquisition, and the second
counterclaim seeks a declaration removing a stop transfer order the Company
issued to its stock transfer agent with respect to shares of common stock held
in the names of the Defendants. The Company responded to the counterclaims on
April 10, 2000 asking the court to dismiss them because they were all settled
under the settlement memorandum and are therefore invalid as a matter of
Colorado law.
In addition, on January 21, 2000, the Arapahoe County District Court issued an
order to show cause directing the Defendants to appear and show cause why
the court should not direct them to return to the Company the Company's
corporate records and the Disputed Shares. The hearing with respect to such
order to show cause commenced on March 17, 2000 and was continued to April 24,
2000. On April 24, 2000, the Arapahoe County District Court declined to direct
the turnover of the Company's personal property. The court relied in part on the
fact that the Company was protected due to the fact that it issued a stop
transfer order to its transfer agent with respect to the 1,840,000 shares of
stock that were the subject of the Settlement Memorandum.
The Company intends to prosecute the case vigorously and believes it has
meritorious claims and defenses. The Company has set aside US$150,000 as a
contingency for its liability to the Defendants. The Company can give no
assurances concerning the outcome of the dispute, but believes that the outcome
of this litigation will not have a material adverse effect on the Company's
business and results of operations.
F18
<PAGE>
NOTE O: RESTATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31 1998.
For the year ended December 31 1998, the consolidated financial statements for
AEI, which was prepared under Malaysian generally accepted accounting
principles, reflected a deferred gain of $4,446,748 (RM: 17,406,348). This
deferred gain arose from the disposal of 10% of the Company's investment in PTSB
to a third party. The Company rescinded this disposal in December 1999 due to
failure of the third party to fulfill its obligations. Therefore, the gain on
disposal was reversed and the retained earnings restated in the year ended
December 31, 1999.
In addition, for the year ended December 31 1998, the Company had amortized
goodwill on consolidation over 15 years in the consolidated financial statements
for AEI. In the year ended December 31, 1999, the Company had adopted the
accounting policy of immediate write-off of goodwill on consolidation against
shareholders' equity.
The Company has prepared the consolidated financial statements on the basis that
there was no disposal and that the accounting policy on the immediate write-off
of goodwill was adopted in 1998. As a result, the retained earnings of 1998 are
restated as follows:
<TABLE>
<CAPTION>
RM $
<S> <C> <C>
Profit, after minority interest following 1998 18,163,810 4,640,255
financial statements
Deferral gains on partial disposal of investment (17,406,348) (4,446,748)
in a subsidiary company
Goodwill on consolidation written off (2,732,754) (704,318)
Amortization of goodwill on consolidation 165,924 42,388
----------- -----------
Restated loss after minority interest (1,809,368) (468,423)
Retained earnings brought forward 2,189,426 564,285
----------- -----------
Restated retained earnings carried forward 380,058 95,862
=========== ===========
</TABLE>
NOTE P: REVENUE
The Company's revenue can be analyzed as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
Revenue generated from related parties:
My Architect 290,368
Khidmat Makmur Sdn Bhd 456,601
Synervest Sdn Bhd 197,897
Visionews Asia Sdn Bhd 238,796 1,012,927
My Draughting Services 154,742
Revenue generated from others 444,345 179,484
---------- ----------
$1,782,749 $1,192,411
========== ==========
</TABLE>
In 1999, 86% of the Company's revenue was generated from six major customers and
85% of total revenue in 1998 was generated from one customer. In addition, 75%
and 85% of the Company's revenue in 1999 and 1998, respectively, was derived
from companies that are affiliated with or related to the Company.
F19
<PAGE>
NOTE Q: SEGMENT REPORTING
The Company does not include segment reporting in the financial statements as
the Company had functioned as a single operating unit in 1999 and 1998.
The Company's revenue for years ended December 31, 1999 and 1998 was generated
mainly from a single principal activity as stated in the Statements of
Operations. In 1999, the Company's main activity was the provision of consulting
and production services for multimedia website, while in 1998, the Company was
mainly engaged in the marketing of video telecommunications and surveillance
equipment. The Company generated all of its revenue in Malaysia. The Company's
major customers which individually accounted for more than 10% of the Company's
revenue for 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
SALES OF GOODS:
Visionews Asia Sdn Bhd -- 1,012,927
CONSULTING AND PRODUCTION SERVICES FOR MULTIMEDIA WEBSITE:
My Architect 290,368 --
Khidmat Makmur Sdn Bhd 456,601 --
Synervest Sdn Bhd 197,897 --
Trinexus Sdn Bhd 195,258 --
Visionews Asia Sdn Bhd 238,796 --
</TABLE>
NOTE R: GOING CONCERN
The Company is in the process of building a wireless broadband network in
Malaysia and plans to seek to acquire additional licenses and spectrum rights in
other Asian markets. As in the establishment of many other new businesses, there
are various risk factors including competition, technology availability and
market acceptance risks. The Company requires substantial amounts of capital to
establish its business and expects to incur substantial losses over the next few
years.
The Company suffered a loss from continuing operations of $1,845,670 in 1999,
has negative cash flows from operating activities of $126,991 and $2,345,912 in
1999 and 1998 respectively and has an accumulated deficit of $1,413,853 in 1999.
Management is taking steps to minimize and manage these risks and raise the
necessary financing to ensure that the Company and subsidiaries are able to
continue to operate as going concern.
F20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KALAN GOLD
CORPORATION CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE RELATED
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,959
<SECURITIES> 0
<RECEIVABLES> 3,350,864
<ALLOWANCES> (3,035,539)
<INVENTORY> 6,786
<CURRENT-ASSETS> 774,637
<PP&E> 1,683,926
<DEPRECIATION> 490,587
<TOTAL-ASSETS> 2,458,563
<CURRENT-LIABILITIES> 1,315,772
<BONDS> 0
0
0
<COMMON> 950
<OTHER-SE> 904,932
<TOTAL-LIABILITY-AND-EQUITY> 2,458,563
<SALES> 1,782,749
<TOTAL-REVENUES> 1,782,749
<CGS> 14,512
<TOTAL-COSTS> 3,686,191
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,125
<INCOME-PRETAX> (1,761,234)
<INCOME-TAX> 84,436
<INCOME-CONTINUING> (1,845,670)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,509,715)
<EPS-BASIC> (0.02)
<EPS-DILUTED> 0
</TABLE>
