EXHIBIT 23.1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Guangdong Gosun Communication Equipment Sales Co., Ltd.
(**************)
We have audited the accompanying consolidated balance sheets of Guangdong
Gosun Communication Equipment Sales Co., Ltd. ("the Company") as of December 31,
2000 and 1999 and the related consolidated statements of income, owners' equity
and cash flows for the year ended December 31, 2000 and the period from August
16, 1999 to 31 December 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly in all material respects, the consolidated financial position of
Guangdong Gosun Communication Equipment Sales Co., Ltd. as of December 31, 2000
and 1999 and the consolidated results of its operations and its cash flows for
the year ended December 31, 2000 and the period from August 16, 1999 to
December 31, 1999, in conformity with generally accepted accounting principles
in the United States of America.
/s/ BDO International
Certified Public Accountants
Hong Kong, March 15, 2001
GUANGDONG GOSUN COMMUNICATION EQUIPMENT SALES CO., LTD.
**************
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, December 31,
2000 1999
------------------ ------------------
US$ US$
Current assets
Cash and cash equivalents 158,927 290,493
Accounts receivable 152,498 -
Advances to suppliers 224,019 9,951
Other receivables (Note 2) 325,130 73,673
Income taxes recoverable 4,272 -
Inventories (Note 3) 780,798 131,365
Amounts due from affiliates (Note 5) 504,401 110,859
------------------ ------------------
Total current assets 2,150,045 616,341
Advance capital contribution (Note 5) 59,179 -
Amounts due from affiliates (Note 5) 501,551 -
Deposits 199,746 12,951
Property, plant and equipment, net (Note 4) 476,551 235,588
------------------ ------------------
Total assets 3,387,072 864,880
================== ==================
LIABILITIES AND OWNERS' EQUITY
Current liabilities
Accounts payable 725,049 -
Accrued employee compensation and benefits 34,500 2,857
Other payables and accrued expenses (Note 9) 912,855 443,393
Amounts due to affiliates (Note 5) 17,448 128,994
Note payable (Note 7) - 133,400
Short term bank loans (Note 8) 483,092 -
------------------ ------------------
Total current liabilities 2,172,944 708,644
Amount due to equity owner (Note 6) 156,401 -
------------------ ------------------
Total liabilities 2,329,345 708,644
------------------ ------------------
Commitments and contingencies (Note 12)
Owners equity
Paid-in capital 893,720 193,237
Retained earnings (accumulated loss) (Note 11) 113,697 (37,001)
------------------ ------------------
Total owners equity 1,007,417 156,236
------------------ ------------------
Minority interest 50,310 -
------------------ ------------------
Total liabilities and owners equity 3,387,072 864,880
================== ==================
*****On behalf of the Board
- --------------------------------------------------- ---------------------------------------------------
**Director: ***** ****Financial Controller: *****
See accompanying notes to the consolidated financial statements.
GUANGDONG GOSUN COMMUNICATION EQUIPMENT SALES CO., LTD.
**************
CONSOLIDATED STATEMENTS OF INCOME
January 1, 2000 August 16, 1999
to to
December 31, December 31,
2000 1999
----------------- ----------------
US$ US$
Revenue
Sales of goods, net 11,852,766 29,201
Agency service (Note 1 and 5) 2,344,905 52,001
14,197,671 81,202
----------------- ----------------
Cost of revenue
Cost of goods sold 11,214,573 40,578
Agency service 564,608 -
----------------- ----------------
11,779,181 40,578
----------------- ----------------
Gross profit 2,418,490 40,624
Other operating income, net 87,958 3,942
2,506,448 44,566
Selling expenses 1,555,294 78,803
General and administrative expenses 801,631 2,764
----------------- ----------------
Operating income (loss) 149,523 (37,001)
----------------- ----------------
Other income (expenses)
Interest income 2,276 -
Interest expenses (11,178) -
----------------- ----------------
Total other expenses, net (8,902) -
----------------- ----------------
Income before income taxes 140,621 (37,001)
Income taxes (Note 10) - -
----------------- ----------------
Net income (loss) 140,621 (37,001)
Minority interest 10,077 -
----------------- ----------------
Net income (loss) 150,698 (37,001)
================= ================
*****On behalf of the Board
- --------------------------------------------------- ---------------------------------------------------
**Director: ***** ****Financial Controller: *****
See accompanying notes to the consolidated financial statements.
GUANGDONG GOSUN COMMUNICATION EQUIPMENT SALES CO., LTD.
**************
CONSOLIDATED STATEMENTS OF OWNERS' EQUITY
Retained
earnings Total
Paid in (accumulated owners'
capital loss) equity
-------------- ----------------- --------------
US$ US$ US$
Balance, August 16, 1999 - - -
Contribution of capital, August 16, 1999 193,237 - 193,237
Net loss for the period from
August 16, 1999 to December 31, 1999 - (37,001) (37,001)
-------------- ----------------- --------------
Balance, December 31, 1999 193,237 (37,001) 156,236
Net income for the year ended
December 31, 2000 - 150,698 150,698
Contribution of capital 700,483 - 700,483
-------------- ----------------- --------------
Balance, December 31, 2000 893,720 113,697 1,007,417
============== ================= ==============
See accompanying notes to the consolidated financial statements
GUANGDONG GOSUN COMMUNICATION EQUIPMENT SALES CO., LTD.
**************
CONSOLIDATED STATEMENTS OF CASH FLOWS
January 1, 2000 August 16, 1999
to to
December 31, December 31,
2000 1999
----------------- -----------------
US$ US$
Cash flows from operating activities
Net income (loss) 140,621 (37,001)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation 75,977 4,824
Increase (decrease) from changes in
Accounts receivable (152,498) -
Advances to suppliers (214,068) (9,951)
Other receivables (438,252) (86,624)
Income taxes receivable (4,272) -
Inventories (353,503) 2,035
Amounts due from affiliates (1,191,023) (110,859)
Accounts payable 725,049 -
Accrued employee compensation and benefits 31,643 2,857
Other payables and accrued expenses 469,462 443,393
Note payable (133,400) -
----------------- -----------------
Net cash provided by (used in) operating activities (1,044,264) 208,674
----------------- -----------------
Cash flows from investing activities
Acquisition of property, plant and equipment (316,939) (240,412)
Advance capital contribution (59,179) -
----------------- -----------------
Net cash used in investing activities (376,118) (240,412)
----------------- -----------------
Cash flows from financing activities
Advances from (repayment to) affiliates, net (111,546) 128,994
Capital contributed by minority interest of subsidiary 60,386 -
Capital contribution 700,483 193,237
Advances from equity owner 156,401 -
Proceeds from short term bank loan 724,638 -
Repayment of short term bank loan (241,546) -
----------------- -----------------
Net cash provided by financing activities 1,288,816 322,231
----------------- -----------------
Net increase (decrease) in cash and cash equivalents (131,566) 290,493
Cash and cash equivalents, beginning of period 290,493 -
----------------- -----------------
Cash and cash equivalents, end of period 158,927 290,493
================= =================
Supplemental disclosure of cash flow information
Interest paid 11,178 -
Income taxes paid 4,272 -
Supplemental disclosure of significant non-cash transactions
Acquisition of inventories from an affiliate 295,930 133,400
See accompanying notes to the consolidated financial statements.
GUANGDONG GOSUN COMMUNICATION EQUIPMENT SALES CO., LTD.
**************
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation and Summary of Significant Accounting Policies
Reorganisation
Guangdong Gosun Communication Equipment Sales Co., Ltd. ("Gosun" or "the
Company") was organized under the laws of the People's Republic of China ("the
PRC") as a private limited liability company on September 15, 2000 to acquire
and continue the businesses conducted by Guangdong Gosun Communication Chain
Operation Company Limited ("Guangdong Chain Operation") and Guangzhou Jiexun
Communication Equipment Limited ("Jiexun"), both private limited liability
companies established under the laws of the PRC.
Guangdong Chain Operation was established on August 16, 1999 and Jiexun was
established on December 29, 1999. On August 22, 2000, the owners of Jiexun
contributed their entire equity interest in Jiexun in exchange for equity
interests in Guangdong Chain Operation. Further, on September 19, 2000 the
owners of Guangdong Chain Operation contributed their entire equity interests in
Guangdong Chain Operation in exchange for equity interests in Gosun.
The above reorganization is a re-organization of entities under common
control and is accounted for in a manner similar to pooling-of-interest. As a
result, the financial statements present the financial positions, the related
results of operation, owners' equity, and cash flows of the Company as if the
companies had been combined for all periods presented.
On September 20, 2000, together with Beijing Gosun Equipment Co., Ltd.,
Guangdong Chain Operation formed Shanghai Gosun Communication Chain Operation
Co., Ltd. ("Shanghai Chain Operation"), a private limited liability company
established under the laws of the PRC. Guangdong Chain Operation holds 66.7%
and Beijing Gosun Equipment Co., Ltd. holds the remaining 33.3%. The majority
owner of Guangdong Chain Operation has a significant interest in Beijing Gosun
Equipment Co., Ltd.
Business Conducted
The principal activities of the Company and its subsidiaries are the retail
sale and distribution of telecommunication equipment and related products, and
acting as an agent of cellular and paging services providers. Guangdong Chain
Operation is a primary agent of a related company, Guangdong Gosun Communication
Development Company Limited ("GGCD"), a paging service provider in the PRC and
a licensed primary agent of China Mobile Communications Corporation ("China
Mobile"), one of two exclusive cellular communications providers in the PRC. As
of December 31, 2000, Guangdong Chain Operation has twenty-one directly owned
chain stores operating in the PRC.
The Guangdong Chain Operation commenced its business on December 1, 1999 by
acquiring the assets of two retail stores from Guangdong Provincial Gosun
Communication Technology Development Corporation ("GPGCTD"), a prior trading arm
of the Guangdong provincial government which had since been dissolved.
Inventories were acquired from GPGCTD in two tranches at agreed upon prices
determined by the Company and GPGCTD totalling US$429,330 which approximated
their market values at the dates of acquisition of December 1, 1999 and January
1, 2000, respectively. The senior management of the Company had been members of
the senior management of GPGCTD.
GUANGDONG GOSUN COMMUNICATION EQUIPMENT SALES CO., LTD.
**************
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation and Summary of Significant Accounting Policies -
Continued
Basis of Accounting and Principles of Consolidation
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States of America ("U.S.
GAAP"). All material intercompany transactions have been eliminated.
Foreign Currency Translation and Transactions
The functional currency of the Company is Renminbi ("RMB") and the financial
records are maintained and the financial statements prepared in RMB.
Foreign currency transactions during the period are translated into United
States dollars ("US$") at the exchange rates ruling at the transaction dates.
Gain and loss resulting from foreign currency transactions are included in the
income statement. When assets, liabilities and equity denominated in RMB are
translated into US$, translation adjustments are included as a component of
owners' equity. Exchange rates between US$ and RMB were fairly stable during
the periods presented. Due to the stability of the exchange rates, there was no
adjustment in owners' equity.
For the purpose of preparing these financial statements, the financial
statements in RMB have been translated into US$ at US$1.00 = RMB8.28.
Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at cost. Depreciation is computed
using the straight-line method to allocate the cost of depreciable assets over
their estimated useful lives.
Estimated
Useful Life
(in years)
---------------
Leasehold improvements 4
Motor vehicles 4
Office equipment 4-10
When assets are disposed of, the related cost and accumulated depreciation
thereon are removed from the accounts and any resulting gain or loss is included
in operations.
Long-lived Assets
The Company periodically reviews their long-lived assets for impairment based
upon the estimated undiscounted future cash flows expected to result from the
use of the asset and its eventual disposition. When events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable, the asset is written down to its net realizable value.
GUANGDONG GOSUN COMMUNICATION EQUIPMENT SALES CO., LTD.
**************
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation and Summary of Significant Accounting Policies -
Continued
Inventories
Inventories are stated at the lower of cost or market. Cost is calculated
using the first in first out method. Market value is determined by reference to
the sales proceeds of items sold in the ordinary course of business after the
balance sheet date or to management estimates based on prevailing market
conditions.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash accounts, interest-
bearing savings accounts, and time certificates of deposit with an original
maturity of three months or less.
Revenue Recognition
Revenue from goods sold is recognized when the risk of loss for goods is
passed to the buyer, which is at the time of delivery. Agency service income is
recognized when the services on which the agency service income is calculated
are provided.
Income Taxes
Income taxes are accounted for using the liability method, which requires an
entity to recognize deferred tax liabilities and assets. Deferred income taxes
are recognized based on the differences between the tax bases of assets and
liabilities and their reported amounts in the financial statements, which will
result in taxable or deductible amounts in future years. Further, the effects
of enacted tax laws or rate changes are included as part of deferred tax expense
or benefit in the year that covers the enactment date. A valuation allowance
will be provided when there is an uncertainty that a deferred tax benefit will
be realized.
Fair Value of Financial Instruments
The carrying amounts of certain financial instruments, including cash,
accounts receivable and payable approximate their fair values as of December 31,
2000 and December 31, 1999 because of the relatively short-term maturity of
these instruments. Fair value of the amounts due to or from affiliates cannot
be readily determined because of the nature of the related party transactions.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
GUANGDONG GOSUN COMMUNICATION EQUIPMENT SALES CO., LTD.
**************
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation and Summary of Significant Accounting Policies -
Continued
Pensions and Other Postretirement Benefits
No retirement or postretirement benefits are provided other than a statutory
defined contribution plan. According to PRC statutory requirements, the Company
and its subsidiaries have to contribute 11% to 22.5% of the basic salaries of
employees as retirement benefits to a government agency. The amount contributed
was US$18,863 and nil for the year ended December 31, 2000 and the period from
August 16, 1999 to December 31, 1999, respectively. All contributions are dealt
with in the income statements.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies
to recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized as income in the period of
change. SFAS No. 133 as amended by SFAS No. 138 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The adoption of SFAS
No. 133 has not had a significant effect on the financial statements.
Staff Accounting Bulletin 101 ("SAB 101"), Revenue Recognition in Financial
Statements, summarizes some of the SEC's interpretations of the application of
generally accepted accounting principles to revenue recognition. Revenue
recognition under SAB 101 was initially effective for the Company's first
quarter 2000 financial statements. However, SAB 101B, which was released June
26, 2000, delayed adoption of SAB 101 until no later than the fourth fiscal
quarter 2000. Changes resulting from SAB 101 require that a cumulative effect
of such changes for 1999 and prior years be recorded as an adjustment to net
income on January 1, 2000 plus adjust the statement of operations for the three
months ended in the quarter of adoption. The adoption of SAB 101 has not had a
significant effect on the financial statements.
GUANGDONG GOSUN COMMUNICATION EQUIPMENT SALES CO., LTD.
**************
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Other Receivables
December 31, December 31,
2000 1999
-------------- --------------
US$ US$
Advances to staff 125,471 72,464
Deposits to suppliers 18,478 -
Value added tax recoverable 83,419 -
Others 97,762 1,209
-------------- --------------
325,130 73,673
============== ==============
December 31, December 31,
2000 1999
-------------- --------------
US$ US$
Merchandise 780,798 131,365
============== ==============
Note 4 - Property, Plant and Equipment, net
Property, plant and equipment consists of:
December 31, December 31,
2000 1999
-------------- --------------
US$ US$
Leasehold improvements 313,478 221,408
Motor vehicles 126,733 14,300
Office equipment 117,141 4,704
-------------- --------------
557,352 240,412
Less accumulated depreciation 80,801 4,824
-------------- --------------
476,551 235,588
============== ==============
Depreciation charged to operations was US$75,977 and US$4,824 for the year
ended December 31, 2000 and for the period from August 16, 1999 to December 31,
1999, respectively.
GUANGDONG GOSUN COMMUNICATION EQUIPMENT SALES CO., LTD.
**************
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Due from and to affiliates
The majority owner of the Company owns significant interests in several other
companies including Guangdong Gosun Communication Development Company Limited
("GGCD"), Guangdong Gosun Network Science & Technology Inc. ("GGNST"), Beijing
Gosun Communication Development Co., Ltd. ("BGCD"), Shanghai Gosun Network
Science & Technology Co., Ltd. ("SGNST"), Guangdong Gosun Internet Information
Industry Co. Ltd. ("GGIII"), Guangdong Provincial Gosun Communication Guangzhou
Limited ("GPGCG"), and Guangzhou City Gosun Communication Technology Company
Limited ("GCGCT").
The following is a summary of balances with affiliated companies:
December 31, December 31,
2000 1999
------------ ------------
Due from affiliates: US$ US$
Guangdong Gosun Communication Development Company Limited
("GGCD") 244,793 110,859
Guangdong Gosun Network Science & Technology Inc.
("GGNST") 412,179 -
Beijing Gosun Communication Development Co., Ltd. ("BGCD") 18,773 -
Shanghai Gosun Network Science & Technology Co., Ltd.
("SGNST") 68,986 -
Guangdong Gosun Internet Information Industry Co., Ltd.
("GGIII") 89,372 -
Dongguan Gosun Network Science & Technology Co., Ltd.
("DGNST") 171,849 -
------------ ------------
1,005,952 110,859
============ ============
December 31, December 31,
2000 1999
------------ ------------
Due from affiliates: US$ US$
Guangdong Gosun Internet Information Industry Co., Ltd.
("GGIII") 17,448 -
Guangdong Provincial Gosun Communication Guangzhou Limited
("GPGCG") - 120,773
Guangzhou City Gosun Communication Technology
Company Limited ("GCGCT") - 8,221
------------ ------------
17,448 128,994
============ ============
From time to time, funds were advanced to or obtained from the above related
companies. The amounts due to or from these companies are interest-free,
unsecured and without fixed terms of repayment.
GUANGDONG GOSUN COMMUNICATION EQUIPMENT SALES CO., LTD.
**************
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Due from and to affiliates - Continued
GGCD operates a paging service in Guangzhou. The Company earned agency
service income from GGCD for the provision of services to their subscribers by
way of facilitating accounts opening and collection of subscriber fees. The
agency service income earned was US$774,398 and US$52,000 for the periods from
January 1, 2000 to December 31, 2000 and from August 16, 1999 to December 31,
1999, respectively. The amounts due from GGCD represent unpaid agency fees and
expenses paid on behalf of GGCD to be recovered.
GGNST is the parent company of a group of companies carrying on paging
service and internet service provider ("ISP") business. The amounts due from
GGNST represent temporary cash advance.
SGNST is an ISP in Shanghai established in late 2000. It shares office space
and staff with Shanghai Chain Operation. For the year ended December 31, 2000,
operating expenses in the amount US$53,247 was charged to SGNST on an equal
sharing basis.
GGIII operates an ISP business. The Company acquired internet network cards
from GGIII amounting to US$39,146 as merchandise for resale during the year.
The amount due to GGIII represents unpaid purchase cost and amount due from
GGIII represents temporary cash advance.
DGNST is a company jointly established by Guangdong Chain Operation and GGIII
on January 11, 2001 of which Guangdong Chain Operation owns 49%. An amount of
RMB490,000, equivalent to US$59,179, was advanced to DGNST in December 2000 for
capital contribution. In addition, inventories totalling US$60,328 were sold to
DGNST. The amounts due from DGNST represent funds held for capital
contribution, outstanding purchase price of inventories and expenses paid on
behalf of DGNST to be recovered.
Note 6 - Amount Due to Equity Owner
Amount due to equity owner represents cash advanced from a brother of the
majority owner. The amount due is interest-free, unsecured and without fixed
terms of repayment.
Note 7 - Note Payable
As described in Note 1, Guangdong Chain Operation acquired inventories from
GPGCTD at a consideration of RMB3,554,848, equivalent to US$429,330, which was
an agreed upon price determined by both parties and which approximated the
market values of the inventories as at dates of acquisition. The purchase
consideration was satisfied by an interest-free and unsecured note payable to
GPGCTD of that amount and it was fully repaid in May 2000. GPGCTD, which had
since been dissolved, had been a trading arm of the Guangdong provincial
government. The senior management of the Company had been members of the senior
management of GPGCTD.
GUANGDONG GOSUN COMMUNICATION EQUIPMENT SALES CO., LTD.
**************
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Short Term Bank Loans
Short term loans are obtained from creditworthy commercial banks in PRC to
finance operations. The loan is guaranteed by an affiliate, Guangdong Gosun
Network Science & Technology Inc.. Details of the bank loans are as follows:
Outstanding Prevailing Maturity
December 31, 2000 principal interest rate date
---------------------------
US$
RMB equivalent
Loan 1 2,000,000 241,546 5.115% 25 March 2001
Loan 2 2,000,000 241,546 5.3625% 20 August 2001
------------ ----------
4,000,000 483,092
============ ==========
Loan interest charged to operations for the year ended December 31, 2000 was
US$9,938.
Note 9 - Other Payables and Accrued Expenses
December 31, December 31,
2000 1999
------------ ------------
US$ US$
Security deposits from staff 139,007 -
Security deposits from sub-agents 162,591 -
Deposits received from suppliers 30,193 -
Advances from customers 75,305
Temporary loans from staff 224,420 -
Accrued expenses 114,778 42,719
Temporary advance from GPGCTD - 241,546
Value added tax payable 20,349 -
Accrued office renovation costs 67,745 156,020
Others 78,467 3,108
------------ ------------
912,855 443,393
============ ============
The security deposits from staff and sub-agents, deposits received from
suppliers, advances from customers and temporary loans from staff are interest-
free.
GUANGDONG GOSUN COMMUNICATION EQUIPMENT SALES CO., LTD.
**************
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Income Taxes
The standard enterprise income tax rate in PRC is 33% of which 30% is
attributable to the central government and 3% to the provincial government.
Newly established commercial enterprises, on application and approval by the tax
bureau, are exempted from enterprise income taxes in respect of income earned
during their first year of operation. The Company and its subsidiaries are in
different stages of enjoying the above tax incentive program.
Significant components of the Company's estimated deferred tax assets and
liabilities as of December 31, 2000 and 1999 are as follows:
December 31, December 31,
2000 1999
------------------ -----------------
US$ US$
Deferred tax assets
Net operating loss carry forward 26,527 -
Pre-operating expenses written off 7,223 -
Depreciation 15,028 -
------------------ -----------------
Total deferred tax assets 48,778 -
Valuation allowance for net deferred tax assets (48,778) -
------------------ -----------------
Net deferred tax assets - -
================== =================
The principal differences between taxes on income computed at the applicable
statutory income tax rates and recorded income tax expenses are as follows:
January 1, August 16,
2000 2000
to to
December 31, December 31,
2000 1999
------------------ -----------------
Statutory tax rates applied to income before -
income taxes 46,405
Changes in valuation allowance 36,568 -
Income tax incentive program (82,847) -
Others (126) -
------------------ -----------------
- -
================== =================
GUANGDONG GOSUN COMMUNICATION EQUIPMENT SALES CO., LTD.
**************
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Restrictions on Retained Earning in PRC
In accordance with relevant PRC regulations, all local entities are required
to appropriate 10% of its net income after income taxes to the statutory surplus
reserve, and 5% to 10% of its net income after income taxes to the statutory
staff welfare fund. Under PRC accounting principles, both appropriations must
be made before the distribution of dividends to equity owners.
The statutory surplus reserve is non-distributable in nature but can be used
to offset previous years' losses or be converted into paid-in capital. The
statutory staff welfare fund is also non-distributable and can be used only for
the collective benefit of employees such as the construction of dormitories,
cafeteria and other employee welfare facilities. Both reserves to be classified
as retained earnings in the financial statements. As of December 31,2000, no
profit appropriations to the reserves have yet been made by the Company and its
subsidiaries.
Note 12 - Commitments and Contingencies
Lease Commitments
Future minimum lease payments under operating leases with non-cancelable
lease terms in excess of one year are as follows:
US$
Year ending December 31,
2001 459,891
2002 434,573
2003 276,588
2004 193,354
2005 and thereafter 61,643
-----------
1,426,049
===========
Rental expense was US$362,254, and US$13,264 for the year ended December
31,2000 and the period from August 16, 1999 to December 31, 1999, respectively.
There are no other material commitments and contingencies as of December 31,
2000.
Note 13 - Subsequent Events
On January 12, 2001, the shareholders of Holmes Microsystems, Inc. ("HOMM"),
a company listed on the Over-the-Counter Bulletin Board, entered into an
exchange agreement with the equity owners of Gosun. Pursuant to the Exchange
Agreement, the Gosun equity owners will transfer all of their equity interests
in Gosun to HOMM in exchange for 89% of the issued and outstanding shares of
HOMM after giving effect to the share exchange.
GUANGDONG GOSUN COMMUNICATION EQUIPMENT SALES CO., LTD.
**************
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Auditors 1
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Owners' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6 - 15
GUANGDONG GOSUN COMMUNICATION EQUIPMENT SALES CO., LTD.
**************
Consolidated Financial Statements
For the year ended December 31, 2000 and the
period from August 16, 1999 to December 31, 1999