UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT
Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
Commission File No. 333-70156
CIRMAKER TECHNOLOGY CORPORATION
-------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Nevada 98-0228169
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1230 Avenue of the Americas, 7th Floor New York, NY 10020
----------------------------------------------------------------------
(Address of Principal Executive Offices)
(917) 639-4098
----------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
The number of shares outstanding of each of the issuer's classes of common
equity, as of October 30, 2003 are as follows:
Class of Securities Shares Outstanding
------------------- ------------------
Common Stock, $0.001 par value 25,783,949
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
CIRMAKER TECHNOLOGY CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2003
(UNAUDITED)
Assets
------
Current assets
Cash and cash equivalents $ 216,628
Restricted cash 461,564
Trade accounts receivable 6,211,432
Inventory 2,575,578
Deferred income taxes and other current assets 758,399
------------
Total current assets 10,223,601
Long-term investments 1,056,394
Property, plant and equipment - net 6,119,460
Deferred income taxes and other assets 228,929
------------
Total assets $ 17,628,384
============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Current portion of long-term debt $ 292,009
Notes payable 3,445,666
Trade accounts payable 3,137,087
Accrued expenses and other payables 1,183,251
Due to stockholders 415,475
------------
Total current liabilities 8,473,488
Long-term debt 1,495,408
------------
Total liabilities 9,968,896
------------
Minority interest 1,533,483
------------
Commitments and contingencies
Stockholders' equity
Preferred stock -
Common stock 25,808
Additional paid-in capital 6,318,503
Deficit (81,628)
Accumulated other comprehensive income - foreign currency
translation adjustment (136,654)
------------
6,126,029
Less : treasury stock (24)
------------
Total stockholders' equity 6,126,005
------------
Total liabilities and stockholders' equity $ 17,628,384
============
The accompanying notes are an integral part of the condensed
consolidated financial statements.
1
CIRMAKER TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended Three Months Ended
September 30, September 30,
------------- -------------
2003 2002 2003 2002
---- ---- ---- ----
Net sales $ 11,372,279 $ 11,888,184 $ 3,363,091 $ 4,547,859
Cost of goods sold 9,414,551 10,833,974 2,615,703 4,213,534
------------ ------------ ------------ ------------
Gross profit 1,957,728 1,054,210 747,388 334,325
Operating expenses 1,386,338 1,502,196 486,588 706,277
------------ ------------ ------------ ------------
Income (loss) from
operations 571,390 (447,986) 260,800 (371,952)
Other income (expense)-net (184,233) (110,518) (183,325) (246,971)
------------ ------------ ------------ ------------
Income (loss) before non-
operating expenses,
income tax and minority
interest 387,157 (558,504) 77,475 (618,923)
Non-operating expenses
reorganization expenses 310,411 - 310,411 -
------------ ------------ ------------ ------------
Income (loss) before
income tax and
minority interest 76,746 (558,504) (232,936) (618,923)
Provision (credit) for income
tax 19,392 (76,038) (59,566) (236,637)
------------ ------------ ------------ ------------
Income (loss) before
minority interest 57,354 (482,466) (173,370) (382,286)
Minority interest 98,866 - 49,223 -
------------ ------------ ------------ ------------
Net loss $ (41,512) $ (482,466) $ (222,593) $ (382,286)
============ ============ ============ ============
Loss per common share $ .00 $ (.02) $ (.01) $ (.01)
============ ============ ============ ============
Weighted average number
of common shares
outstanding 25,783,949 25,783,949 25,783,949 25,783,949
============ ============ ============ ============
The accompanying notes are an integral part of the condensed
consolidated financial statements.
2
CIRMAKER TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
September 30,
-------------
2003 2002
---- ----
Net cash provided by (used in) operating activities $ (27,713) $ 841,846
------------ ------------
Cash flows from investing activities:
Short-term investments 12,791 (273,960)
Purchase of property, plant and equipment (282,552) (803,536)
Long-term investments (893,000) -
------------ ------------
Net cash used in investing activities (1,162,761) (1,077,496)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 61,784 664,536
Proceeds from common stock issued 475,427 -
Increase (decrease) in due to stockholders 415,475 (515,489)
Repayment of long-term debt (64,013) (186,049)
Restricted cash in banks 197,544 (13,988)
------------ ------------
Net cash provided (used in) financing activities 1,086,217 (50,990)
------------ ------------
Effects of changes in foreign exchange rate (45,045) 341,839
------------ ------------
Net increase (decrease) in cash and cash equivalents (149,302) 55,199
Cash and cash equivalents at beginning of the period 365,930 20,355
------------ ------------
Cash and cash equivalents at end of the period $ 216,628 $ 75,554
============ ============
Supplemental disclosures of cash flows:
Cash paid for interest expense $ 183,778 $ 154,966
============ ============
Cash paid for income taxes $ 143,377 $ 175,886
============ ============
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
CIRMAKER TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-QSB and item 310 of Regulation SB. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The consolidated operating results for the nine months ended
September 30, 2003 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003. For further information, refer
to the financial statements and footnotes thereto included in the Form 8-K/A for
the year ended December 31, 2002, filed on September 22, 2003.
1. BUSINESS DESCRIPTION AND ACQUISITION
CIRMAKER TECHNOLOGY CORPORATION
Cirmaker Technology Corporation, a Nevada corporation (the "Company"),
formerly called Wrestle - Plex Sports Entertainment Group, Ltd., was
incorporated on June 1, 2000. Prior to March 21, 2003, the Company had been
a development stage company devoting all of its efforts towards effecting a
business combination with an operating entity.
On December 3, 2002, the Company entered into a stock purchase agreement
(the "Purchase Agreement"), with Cirmaker Industry Co., Ltd. ("Cirmaker
Taiwan"). Pursuant to the Purchase Agreement, on March 21, 2003 (the
"Acquisition Date") the Company acquired approximately 75.3% of the issued
and outstanding capital stock of Cirmaker Taiwan. As the other stockholders
of Cirmaker Taiwan continue to exchange their Cirmaker Taiwan shares for
shares of the Company pursuant to the Purchase Agreement, the Company may
eventually make Cirmaker Taiwan a wholly-owned subsidiary.
CIRMAKER TAIWAN
Cirmaker Taiwan was incorporated under the Company Law of the Taiwan,
Republic of China ("R.O.C.") on June 18, 1984.
Cirmaker Taiwan is in the business of manufacturing a wide variety of
electronic parts and components for sales primarily in the Asian markets.
Its products include digital TV receivers (set top boxes), computer heat
dispersion systems, electronic terminals, computer chips and various other
electronic parts and accessories.
4
CIRMAKER TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS DESCRIPTION AND ACQUISITION (Continued)
ACQUISITION OF CIRMAKER TAIWAN
Pursuant to the Purchase Agreement, Cirmaker Taiwan's stockholders,
exchanged 16,100,000 shares of Cirmaker Taiwan capital stock (approximately
75.3% of the outstanding Cirmaker Taiwan capital stock), for 8,050,000
shares of the Company's common stock a (2 for 1 stock exchange) on the
Acquisition Date. At September 30, 2003, from the 8,050,000 shares to be
issued, there were 24,051 remaining shares of the Company that have not yet
been exchanged with the Cirmaker Taiwan stockholders. Cirmaker Taiwan will
continue to negotiate with other stockholders to exchange their Cirmaker
Taiwan shares for shares of the Company pursuant to the Purchase Agreement,
and the Company may eventually make Cirmaker Taiwan a wholly-owned
subsidiary.
The Purchase Agreement has not yet been approved by the Taiwan Ministry of
Economic Affairs. The Company is currently working on obtaining this
approval from the Taiwanese government and determining what consequences
the non-approval has, if any, on the Company. Such non-approval may impose
certain restrictions on the Company, which may have an adverse effect on
the Company's operations, financial condition and prospects.
Since the former stockholders of Cirmaker Taiwan and their related or
affiliated parties now own a majority of the issued and outstanding shares
of the common stock of the Company subsequent to the merger and have
appointed the current board of directors, this acquisition was accounted
for as a recapitalization of Cirmaker Taiwan, whereby Cirmaker Taiwan is
deemed to be the accounting acquirer and has adopted the capital structure
of the Company. The Company has changed its fiscal year end to December 31,
to match that of Cirmaker Taiwan as the accounting acquirer. Due to the
recapitalization of Cirmaker Taiwan, all reference to the shares of
Cirmaker Taiwan's common stock, have been restated to reflect the
equivalent number of total shares of the Company's outstanding common stock
on a post-acquisition basis.
The Company did not have any assets or liabilities prior to the Acquisition
Date. All financial information included in this Form 10-QSB report, prior
to the Acquisition Date is the financial information of Cirmaker Taiwan, as
if Cirmaker Taiwan had been the registrant. The financial information since
the Acquisition Date, is that of the Company and its subsidiaries,
consolidated.
5
CIRMAKER TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS DESCRIPTION AND ACQUISITION (Continued)
ACQUISITION OF CIRMAKER TAIWAN (Continued)
After the Acquisition Date, Cirmaker Taiwan created three wholly-owned
subsidiaries. These subsidiaries are called Masterwealth Limited
("Masterwealth"), a British Virgin Islands corporation, Cirmaker Technology
Corp. ("Technology"), a British Virgin Islands corporation, and Evergreat
Technology Corp. ("Evergreat"), a Mauritius corporation. In addition,
Masterwealth and Evergreat each have a wholly owned subsidiary corporation
organized in the Peoples Republic of China ("PRC") with each of these PRC
corporations having the same name as its parent (collectively "Cirmaker
PRC"). Cirmaker PRC has generally not yet commenced its operations. The
total assets and liabilities reported by Cirmaker PRC at September 30,
2003, were $632,819 and $532,965, respectively. Cirmaker PRC is expected to
commence their full operations in the fourth quarter of 2003. Cirmaker PRC
is expected to manufacture and distribute its products, particularly set
top boxes, in the PRC. The Company expects to make future significant
capital investments and expand its business operations in PRC. The Company
is currently seeking to obtain approval from the Taiwan Ministry of
Economic Affairs, of the formation of, and the Company's investment in,
Masterwealth Limited, and its PRC subsidiary.
Reorganization expenses are primarily professional fees that were incurred
that related to the acquisition and SEC filings. Total reorganization
expenses for the nine months ended September 30, 2003 were $310,411.
BUSINESS RISK
The Company has obtained various patents for its products. Intellectual
property protection measures may not be sufficient to prevent
misappropriation of the technology, or competitors may independently
develop technologies that are substantially equivalent or superior to the
Company's technology. Legal systems of many foreign countries, including
Taiwan and PRC, do not protect intellectual property rights to the same
extent as the legal system of the United States. If the Company cannot
adequately protect the proprietary information and technology, the
business, financial condition and results of operations could be materially
or adversely affected.
6
CIRMAKER TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS DESCRIPTION AND ACQUISITION (Continued)
CONTROL BY PRINCIPAL STOCKHOLDERS
The directors, executive officers of the Company and their related or
affiliated parties own, beneficially and in the aggregate, the majority of
the voting power of the outstanding shares of common stock of the Company.
Accordingly, if the directors, executive officers and related or affiliated
parties, voted their shares uniformly, they would have the ability to
control the approval of most corporate actions, including increasing the
authorized capital stock of the Company and the dissolution, merger or sale
of the Company's assets.
STOCK TRANSACTIONS - 2003
The Company had 15,008,000 shares of common stock issued and outstanding
prior to issuing 8,050,000 additional shares to the Cirmaker Taiwan
shareholders on the Acquisition Date. Prior to the Acquisition Date, one
stockholder held 10,000,000 shares of the Company's common stock. This
stockholder sold 9,977,500 of such shares to five individual investors, who
shortly thereafter, resold these shares to several individual Taiwanese
investors in transactions exempt from the registration requirements of the
Securities Act of 1933, pursuant to Regulation S promulgated thereunder.
Many of these investors are either related to or affiliated with the former
stockholders of Cirmaker Taiwan, who now collectively are the controlling
stockholders of the Company.
During the first quarter of 2003, prior to the Acquisition Date, the
Company also issued 2,500,000 shares of restricted common stock to
consultants for consulting services rendered, in anticipation of the
transactions contemplated by the Agreement. Management currently believes
that all 2,500,000 shares were issued prior to the Acquisition Date for
services rendered prior to the Acquisition Date. If management finds that
these shares were issued subsequent to the Acquisition Date, or the
services were rendered to the Company subsequent to the Acquisition Date,
the Company will amend this Form 10-QSB and the prior quarterly reports
that were filed since the Acquisition Date so that this report and those
reports, as amended, properly reflect the consulting expense.
One of these consultants was also retained to assist the Company in raising
a total of $5,000,000, through the issuance of 2,500,000 shares of
restricted common stock in a proposed private placement transaction
pursuant to Regulation S under the Securities Act of 1993 ("Private
Placement"). In connection with the Private Placement, the Company issued
250,000 shares of restricted common stock, with aggregate gross proceeds
from the sales of $500,000. The remaining 2,250,000 shares were not sold in
the Private Placement.
7
CIRMAKER TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements for all periods presented include the
financial statements of the Company, which include the Company, from the
Acquisition Date going forward, Cirmaker Taiwan and Cirmaker PRC. The
consolidated statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. All
significant intercompany transactions have been eliminated.
MINORITY INTEREST IN SUBSIDIARIES
The Company records minority interest expense, which reflects the portion
of the consolidated earnings of Cirmaker Taiwan, which are applicable to
various stockholders owning an approximately 25% minority interest in
Cirmaker Taiwan.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements, and reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
SIGNIFICANT ESTIMATES
Several areas require significant management estimates relating to
uncertainties for which it is reasonably possible that there will be a
material change in the near term. The more significant areas requiring the
use of management estimates related to valuation of accounts receivable and
inventory reserves, contingent liabilities, fair value of long term
investments, impairment of long-lived assets, fair value of services for
stock based compensation and the useful lives for amortization and
depreciation.
RESTRICTED CASH
At September 30, 2003 the Company had cash that was restricted and
classified as a current asset totaling $461,564. The restricted cash
serves as collateral for various open letters of credit and short term
bank loans. This cash is held in custody by the issuing bank and is
restricted as to withdrawal or use. Income from these investments is
paid to the Company.
8
CIRMAKER TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCKHOLDERS' LOANS
The caption "Due to Stockholders" are loans that are unsecured,
non-interest bearing and have no fixed terms of repayment and are therefore
deemed payable on demand.
LOSS PER SHARE
Basic loss per common share ("LPS") is calculated by dividing net loss by
the weighted average number of common shares outstanding during the period.
Diluted earnings per common share are calculated by adjusting the weighted
average outstanding shares, assuming conversion of all potentially dilutive
stock investments.
The numerator and denominator used in the basic and diluted LPS of common
stock computations are presented in the following table:
Nine months ended Three months ended
September 30, September 30,
------------- -------------
2003 2002 2003 2002
---- ---- ---- ----
Numerator For
Basic and
Diluted LPS
Net loss to
common
shareholders $ (41,512) $ (482,466) $ (222,593) $ (382,286)
========== ========== ========== ==========
Denominator For
Basic and
Diluted LPS
Weighted
average
shares of
common
stock
outstanding 25,783,949 25,783,949 25,783,949 25,783,949
=========== =========== =========== ===========
LPS - Basic and
Diluted $ .00 $ (.02) $ (.01) $ (.01)
========== =========== =========== ===========
COMPREHENSIVE LOSS
The Company, under SFAS No. 130 is required to report the changes in
shareholders' equity from all sources during the period, including
accumulated foreign currency translation adjustments. Cumulative
translation loss included in stockholders' equity at September 30, 2003
was $136,654.
9
CIRMAKER TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. LONG-TERM INVESTMENTS
Details of long-term investments are summarized as follows:
Percentage of
Name of Investee Amount Ownership
---------------- ------ ---------
Supentown International $ 161,394 1.1%
Inc.
Ve Cast, Inc. 420,000 8.4%
IDN Telecom Inc. 475,000 3.6%
----------
$1,056,394
==========
In December 2002, Cirmaker Taiwan entered into an "Investment and
Cooperation Agreement" with IDN Telecom, Inc. and its affiliated company Ve
Cast, Inc. (collectively "IDN"), whereby Cirmaker Taiwan agreed to
manufacture set top boxes in accordance to IDN's specifications
(technology), which are to be sold by IDN through its various affiliations
in PRC. The agreement specifies that the Company make a total investment of
$25,000,000, with an initial investment of $5 million in 2003 and $20
million during the year 2004. This total investment is contingent on IDN
making total sales of 4,000,000 units of set top boxes by the end of 2006
and Cirmaker Taiwan attaining a specified minimum profit on these sales.
The Company is required to manufacture and deliver to IDN a minimum number
of set top boxes by certain specified delivery dates. This agreement
remains in effect even though the Company has not made the specified
$2,000,000 partial investment, that was required by this agreement by
June 30, 2003. For the nine months ended September 30, 2003, the Company
sold 180 set top box units for $11,960.
4. LONG-TERM DEBT
Long-term debt consisted of notes payable to two banks at interest rates
ranging from 2.82% to 8.46%. The total net book value of assets used as
collateral for long-term debt and notes payable - short term bank loans,
totaled $4,804,248 at September 30, 2003.
Total interest expense incurred and charged to expense was $172,526 and
$154,966 for the nine months ended September 30, 2003 and 2002,
respectively.
5. INCOME TAXES
The Taiwan tax system imposes a 25% corporate income tax to corporate
earnings. In addition, any undistributed current earnings, on a tax basis,
of the Company can be subject to an additional 10% corporate income tax if
the earnings are not distributed before a specific time.
10
CIRMAKER TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. INCOME TAXES (Continued)
Cirmaker Taiwan also collects and pays a 5% value - added tax ("VAT") on
certain sales and purchases.
Cirmaker Taiwan's corporate income tax returns through 2000 have been
reviewed and approved by the Taiwan Tax Authority.
6. STOCK
As of September 30, 2003, the Company had 100,000,000 shares of common
stock that were authorized, 25,808,000 shares of common stock that were
issued and 25,783,949 shares of common stock that were outstanding, all
with a par value of $.001 per share.
The Company is authorized to issue 50,000,000 shares of preferred stock,
with a par value of $.001 per share. There was no preferred stock
outstanding at September 30, 2003.
The Company has agreements with some of the stockholders that contain
restrictions on the transfer and other disposition of the stock.
On August 5, 2003 stock subscription rights were granted, pursuant to
Regulation S, promulgated under the Securities Act of 1933, to Universal
Securities Corp. for the purchase of 8,500,000 shares of the Company's
common stock. A total of 7,500,000 of the shares may be acquired on or
before December 31, 2003 at a subscription price of $0.80 per share and the
remaining 1,000,000 of the shares may be acquired on or before December 31,
2003, at a subscription price of $1.50 per share.
7. RETAINED EARNINGS
The Company Law of the ROC requires that Cirmaker Taiwan set aside an
annual "legal reserve" equal to 10% of its annual net income (less the
losses of prior years, if any). Legal reserve shall be appropriated each
year until the accumulated legal reserve equals the paid-in capital. Legal
reserve may be used to reduce or offset deficit; also, when the legal
reserve has reached 50% of paid-in capital, up to 50% of the legal reserve
may be transferred to paid-in capital.
8. COMMITMENTS AND CONTINGENCIES
As of September 30, 2003, the balance of the unused letter of credits
amounted to $2,215,427.
11
CIRMAKER TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. RESTATEMENT
Cirmaker Taiwan is in the process of restating its audited financial
statements for 2002 and 2001, to correct the prior periods' misstatements.
Certain material misstatements related to revenue recognition, the
valuation of accounts receivable and the deferred income tax asset and
liability reported in the audited financial statements for the periods
ended December 31, 2002 and 2001.
Summarized below is the detail of the amounts previously reported in the
audited balance sheets and income statements, in the Company's SEC Filing
Form 8-K/A, for the years ended December 31, 2002 and 2001 and the amounts
that are currently anticipated by management to appear in the restated
audited financial statements for the same period.
Year Ended Year Ended
December 31, 2002 December 31, 2001
----------------- -----------------
Previously Previously
Statement of Income Reported Restated Change Reported Restated Change
- -------------------- -------- -------- ------ -------- -------- ------
Net sales $18,330,322 $19,041,048 $ 710,726 $12,199,258 $11,421,234 $(778,024)
Cost of goods sold 16,357,509 16,752,609 395,100 9,883,869 9,451,169 (432,700)
----------- ----------- ----------- ----------- ----------- ---------
Gross profit 1,972,813 2,288,439 315,626 2,315,389 1,970,065 (345,324)
Selling, general &
administrative 1,659,450 1,875,219 215,769 1,980,161 1,980,161 -
----------- ----------- ----------- ----------- ----------- ---------
Net income (loss)
From operations 313,363 413,220 99,857 335,228 (10,096) (345,324)
Other income
(expense) (214,106) (214,106) - (421,817) (421,817) -
----------- ----------- ----------- ----------- ----------- ---------
Income (loss)
before taxes 99,257 199,114 99,857 (86,589) (431,913) (345,324)
Provision (credit) for
income taxes 24,814 305,299 280,485 (30,556) (116,556) (86,000)
----------- ----------- ----------- ----------- ----------- ---------
Net income (loss) $ 74,443 $ (106,185) $ (180,628) $ (56,033) $ (315,357) $(259,324)
=========== =========== =========== =========== =========== =========
Loss per share basic
and diluted $ .00 $ .00 $ (.01) $ .00 $ (.01) $ (.01)
=========== =========== =========== =========== =========== =========
Balance Sheets
Assets $16,862,761 $13,404,881 $(3,457,880) $13,644,348 $13,385,024 $(259,324)
=========== =========== =========== =========== =========== =========
Liabilities $ 9,525,788 $ 6,623,863 $(2,901,925) $ 6,423,378 $ 6,423,378 $ -
Stockholders' equity 7,336,973 6,781,018 (555,955) 7,220,970 6,961,646 (259,324)
----------- ----------- ----------- ----------- ----------- ---------
Total liabilities and
stockholders'
equity $16,862,761 $13,404,881 $(3,457,880) $13,644,348 $13,385,024 $(259,324)
=========== =========== =========== =========== =========== =========
12
CIRMAKER TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. RESTATEMENT (Continued)
The increases and decreases to the balance sheet components are due to the
cumulative net effect to retained earnings from all of the above prior
period adjustments are as follows:
Retained earnings 12/31/01 $ 325,393
Cumulative effect through 12/31/01 (259,324)
----------
Retained earnings - restated 12/31/01 66,069
Net change - year ended 12/31/02 (106,185)
----------
Retained earnings - restated 12/31/02 $ (40,116)
==========
SEC FORM 10Q-SB RESTATEMENTS - 2003
The Company is in the process of amending its prior periods' 2003 quarterly
reports. The prior reports did not report the minority interest that owns
approximately a 25% interest in Cirmaker Taiwan. The minority interest that
will be reported on the Consolidated Balance Sheet will be $1,484,260 and
$1,457,387 at June 30, 2003 and March 31, 2003, respectively. The minority
interest to be reported on the Statements of Operations will be $49,643 and
$22,770 for the six and three months ended June 30, 2003 and March 31,
2003, respectively.
13
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements and information relating to
us that are based on the beliefs of our management as well as assumptions made
by, and information currently available to, our management. When used in this
report, the words "anticipate", "believe", "estimate", "expect", "intend",
"plan" and similar expressions, as they relate to us or our management, are
intended to identify forward-looking statements. These statements reflect
management's current view of us concerning future events and are subject to
certain risks, uncertainties and assumptions, including among many others: the
risk factors described below under "Item 2. Management's Discussion and Analysis
or Plan of Operation - Risk Factors that May Affect Future Operating Results",
our potential inability to raise additional capital, our potential inability to
satisfy our contractual commitments with IDN Telecom, Inc. or our other
potential failure to realize the potential benefits of our arrangement with IDN
Telecom, our potential inability to compete with other companies that may be
more experienced and better capitalized than us, changes in domestic and foreign
laws, regulations and taxes, changes in economic conditions, uncertainties
related to the legal systems in our target markets, including, China's legal
system and economic, political and social events in China and other target
markets, foreign relations between Taiwan, China and our other potential target
markets, a general economic downturn, a downturn in the securities markets,
Securities and Exchange Commission regulations which affect trading in the
securities of "penny stocks," and other risks and uncertainties. Should any of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described in this
report as anticipated, estimated or expected.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
BACKGROUND
Our corporate name is Cirmaker Technology Corporation. We were incorporated
in the State of Nevada under the name Wrestle-plex Sports Entertainment Group,
Ltd. on June 1, 2000. During the period from our inception until December 2002
we operated as a development stage sports entertainment provider, specifically
in the area of professional wrestling.
On December 3, 2002, we entered into a stock purchase agreement with
Cirmaker Industry Co. Ltd. (Cirmaker Taiwan), a corporation organized under the
Company Law of the Republic of China (Taiwan) in 1984. Pursuant to the stock
purchase agreement, we have acquired 75.3% of the issued and outstanding capital
shares of Cirmaker Taiwan. As the other stockholders of Cirmaker Taiwan continue
to exchange their Cirmaker Taiwan shares for shares of our common stock pursuant
to the stock purchase agreement, we may acquire the remaining shares and thereby
make Cirmaker Taiwan a wholly-owned subsidiary. The acquisition of our initial
interest in Cirmaker Taiwan was consummated in March, 2003. The business
operations of Cirmaker Taiwan have now become our primary focus.
Historically, Cirmaker Taiwan has been in the business of manufacturing a
wide variety of electronic parts and components. Our current products include
electronic terminals, electronic blocks and accessories, electronic panel
control and locking components, power distribution blocks and accessories,
electronic timer and relay sockets, optical fiber connectors and adapters, car
audio components, DVD players, electrical cooling fans and systems for laptop
and personal computers, electrical tools and similar devices. More recently,
Cirmaker Taiwan has focused its efforts on two primary product lines, digital TV
receivers and computer heat dispersion systems.
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OUR PRODUCTS
Digital TV Receivers
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We have developed the capability of supplying components and systems that
will be necessary to create a national digital television broadcasting network
in China. In this effort, through an agreement with IDN Telecom, Inc., we have
been working with China's State Administration of Radio Film and Television -
SARFT - and China's Ministry of Information and Industry (MII).
We have delivered the first batch of digital TV receiver units (set top
boxes) and have received a purchase order from Herbei Province for the
manufacture and delivery of an additional 197,000 units to be delivered by
January, 2004. The contract value for these additional 197,000 units together
with a front end platform is estimated to be approximately US$13.6 million and
the order represents the second of what we expect to be a series of orders under
a delivery agreement signed earlier this year between us and IDN Telecom. Our
agreement with IDN Telecom provides that we will manufacture, deliver and
maintain 4,000,000 digital set-top boxes in China over the next three years.
As the newest addition to our electronic product line, our set top boxes
can convert analog television broadcast signals into digital formats, as well as
receive and convert digital and streaming media signals. This type of digital
receiver device is required for television subscribers wishing to convert analog
signals to digital signals and receive digital programming. Management believes
we are the only manufacturer operating in China to have the current capacity to
produce in volume a device that meets all the required standards of Chinese
broadcasting agencies and authorities, and we believe that we are therefore in a
position to receive the required network license from SARFT before any other
company. We are also poised to distribute our system worldwide as it complies
with all international HDTV standards for high definition television. The system
receives, processes, stores and broadcasts analog, digital and streaming media
signals, and it supports pay-per-view as well as video-on-demand channel
signals.
Computer Heat Dispersion Systems
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We have recently developed improved technology for our electrical cooling
systems. Since March 2003, we have increased shipments of our cooling systems to
major computer manufacturers. We believe that the industry trend is toward the
manufacture of smaller laptop and desktop personal computers with larger memory
capability and faster central processing unit speeds. Along with this growing
trend, we expect an increase in the need for smaller and more effective cooling
components and systems.
Currently, we are participating in the development of high-end
nano-technology which uses a special semiconductor alloy to cool computer
systems more quickly and efficiently. Management believes that this technology
could replace all current cooling exchange units which are traditionally fan
engine based units. This new product, if and when complete, could enable a
reduction in the general use of more expensive heat resistant computer parts by
computer manufacturers, as well as eliminate fan engine noise and reduce cooling
component size by half of its current norm.
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RESEARCH AND DEVELOPMENT
We have recently been involved in a research and development effort to
develop a digitally capable television receiver box that includes efficient
technology transfer techniques and optimal compatibility standards, as well as
specific design processes. Our development efforts have resulted in a high-tech
product that is capable of meeting the growing demand for a digital television
receiver that can simultaneously support SDTV, EDTV, HDTV and MPEG streaming
media signals and formats via broadcast, cable modem or Ethernet, or broadband
Internet transfer.
Our recent research and development efforts to improve our laptop and
personal computer CPU cooling systems have resulted in an improved and less
expensive method for computer cooling. In conjunction with other computer
manufacturers, we have begun to develop and produce improved electronic cooling
components called elastomeric pads that are essentially high-efficiency thermal
dispersion units. This advanced technology is made possible, in part, by
combining the elastomeric pads with new alloys, creating greatly increased
thermal diffusion coefficients. While no assurance can be given, management
expects that this new technology will become the industry standard for computer
cooling systems.
As a result of our research and development work, we hold patents for the
computer CPU cooling systems in Taiwan, Japan and the P.R.C. with pending patent
applications in Korea and the U.S.A.
ASSETS
At September 30, 2003, we had cash of $216,628 as compared to $365,930 as
of December 31, 2002. The decrease in cash reflects high costs of reorganization
associated with our reverse merger, rebuilding our support organization in the
U.S., and paying cash for the raw materials inventory (copper) for our CPU
cooling systems products.
At September 30, 2003, trade accounts receivable totaled $6,211,432 as
compared with $5,594,252 as of December 31, 2002. Receivables have increased as
a percentage of annualized sales over the prior year nine month period due to
longer payment terms associated with our CPU cooling systems business.
Fixed assets, net of accumulated depreciation, totaled approximately
$6,119,460 as of September 30, 2003 compared to $6,104,777 as of December 31,
2002. We invested approximately $282,552 in the last nine months in fixed
assets, including the acquisition of a press machine and other equipment. We
also held long-term investments at September 30, 2003 of $1,056,394. We had
$461,564 in restricted cash which is cash held in reserve to meet debt
covenants. Inventory was $2,575,578 at September 30, 2003 compared to $2,742,855
at December 31, 2002. The decline in inventory is due to the change in business
focus to CPU Heat Dispersion Systems, which are higher profit margin products
and made to order, and away from DVD and VCD player production. We no longer
need to keep in inventory the semi-finished goods for DVD and VCD production.
LIABILITIES AND STOCKHOLDERS' EQUITY
As of September 30, 2003, we had accounts payable of $3,137,087 as compared
to $3,694,055 as of December 31, 2002. As previously discussed, the change in
business focus to CPU Heat Dispersion Systems has resulted in a higher amount of
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cash purchases of raw materials such as copper, brass and aluminum. This has
significantly decreased our accounts payable compared to the prior year.
Management expects accounts payable and receivable to increase in the
future as a result of increased orders of CPU cooling systems for laptop and
notebook computers. As of September 30, 2003, the long-term debt less current
maturities was $1,495,408 as compared to $1,597,954 as of December 31, 2002.
RESULTS OF OPERATIONS AND CASH FLOWS
We generated $11,372,279 and $3,363,091 in sales revenue during the nine
and three month periods ended September 30, 2003, respectively and $11,888,184
and $4,547,859 during the same two periods in the prior year. The decrease was
due to a higher proportion than expected of the new CPU cooling systems sales in
our product mix and a reduced dependence on our traditional lower margin
products.
Although sales declined, gross margins increased to $1,957,728 and $747,388
during the nine and three month periods ended September 30, 2003, respectively,
from $1,054,210 and $334,325 during the same two periods in the prior year. The
increase is due to higher gross margins on the company's new CPU cooling systems
products
Operating expenses were $1,386,338 and $486,588 during the nine and three
month periods ended September 30, 2003, respectively, and were $1,502,196 and
$706,277 during the same periods in the prior year. The decline in expenses is
due to the decline in sales. Operating expenses have not changed in proportion
to sales since the prior periods.
As of September 30, 2003, we maintained $216,628 in cash and cash
equivalents. During the nine months ended September 30, 2003 we used $27,713 in
operating activities. During the same period we also used $1,162,761 in
investing activities for the purchase of equipment and investments and our
financing activities provided $1,086,217 mainly from the sale of common stock
and an increase in short-term loans.
LIQUIDITY
Cash flows have been negative due to repayment of our debts during the
period off-setting the positive operating cash flows. Thus, we have been
utilizing loans from a shareholder and our bank to support operations.
Management believes that these loans and collections of accounts receivable will
contribute to support our business activities over the coming 12 months.
However, a recent agreement with IDN Telecom, Inc. has obligated us to invest
$25 million through the end of 2004 with IDN Telecom which will be used for the
assembly and sale of set top boxes for local cable TV in China. Management
expects that this investment, as well as other manufacturing costs, will be met
through a combination of increased revenues from product sales and the sale of
our common stock in private or public offerings. Currently, we have not received
a firm commitment on any such financing and management can provide no assurance
that such a commitment will be obtained. Management is actively seeking such
financing.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
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liquidity, capital expenditures or capital resources that is material to
investors.
CRITICAL ACCOUNTING POLICIES
Preparation of our financial statements requires management to make
judgments, assumptions, and estimates regarding uncertainties that affect the
reported amounts of assets, liabilities, stockholders' equity, revenues and
expenses. Note 2 of the Notes to the Condensed Consolidated Financial Statements
describes the significant accounting policies used in preparation of the
Condensed Consolidated Financial Statements. The most significant areas
involving management judgments and estimates are described below. Actual results
in these areas could differ materially from management's estimates under
different assumptions or conditions.
Revenue Recognition
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We recognize substantially all of our revenues and record the sale when
products are shipped and title passes to the customer and collection is
reasonably assured.
Trade Receivables
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Trade receivables are carried at original invoice amount less an estimate
made for doubtful receivables based on a review of all outstanding amounts on a
monthly basis. Management determines the allowance for doubtful accounts by
regularly evaluating individual customer receivables and considering a
customer's financial condition and credit history, and current economic
conditions. Trade receivables are written off when deemed uncollectible upon
evaluation of such account by management.
Inventories
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Inventories are stated at the lower of cost or market. The majority of
inventory values are based upon standard costs which approximate weighted
average costs. Standard costs are revised at the beginning of each year. The
effects of resetting standards and operating variances incurred during each
period are allocated between inventories and cost of sales. Management regularly
reviews inventory for obsolescence to determine whether a write-down is
necessary. Various factors are considered in making this determination,
including recent sales history and predicted trends, industry market conditions
and general economic conditions.
Long-lived Assets
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Long-lived assets, which primarily include property, plant and equipment,
are reviewed for impairment whenever events and changes in business
circumstances indicate the carrying value of the assets may not be recoverable.
If we determine that the carrying value of the long-lived asset may not be
recoverable, a permanent impairment charge is recorded for the amount by which
the carrying value of the long-lived asset exceeds its fair value. Fair value is
generally measured based on a discounted cash flow method using a discount rate
determined by management to be commensurate with the risk inherent our current
business model.
Retirement Plans
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Retirement plan expense and obligations are dependent on assumptions used
in calculating such amounts. These assumptions include discount rate, rate of
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compensation increases and expected return on plan assets. In accordance with
U.S. generally accepted accounting principles, actual results that differ from
the assumptions are accumulated and amortized over future periods. While
management believes that the assumptions used are appropriate, differences in
actual experience or changes in assumptions may affect our retirement plan
obligations and future expense.
Income Taxes
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Income tax expense and deferred tax assets and liabilities reflect
management's assessment of actual future taxes to be paid on items reflected in
the financial statements. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which the temporary differences
between the consolidated financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the period
that includes the enactment date. No provision is made for U.S. income taxes on
the undistributed earnings of non-U.S. subsidiaries. These earnings are
permanently invested or indefinitely retained because they are essential for
continuing international operations.
OUTLOOK
During the remaining quarter of 2003 and into 2004, management plans to
continue to enhance our position as a provider of electronic components and
systems to a variety of industries. We will also begin to fulfill our existing
and projected customer orders for advanced digital television receivers,
primarily in major cities located in China. In addition, we will continue with
the development and sale of our electrical cooling systems for laptop and
personal computers.
We continue to seek capital that will enable us to complete existing and
projected sales orders and in order to satisfy our obligations under our
agreement with IDN Telecom.
RISK FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.
If any of the following risks actually occur, our business, financial
condition, results of operations or product market share could be materially
adversely affected. In such case, the trading price of our common stock could
decline and you could lose all or part of your investment.
We may be required to restate our financial statements to reflect a significant
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expense that is not currently reflected.
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During the first quarter of 2003, prior to the reverse acquisition of
Cirmaker Taiwan, we issued 2,500,000 shares of restricted common stock to
consultants for consulting services rendered in anticipation of the transactions
contemplated by our agreement with Cirmaker Taiwan. Management currently
believes that all 2,500,000 shares were issued prior to the date of the reverse
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merger for services rendered prior to such date. If management finds that these
shares were issued subsequent to the closing of the reverse acquisition, or the
services were rendered to us subsequent to such date, the Company will amend
this Form 10-QSB and the prior quarterly reports that were filed since the
Acquisition Date so that this report and those reports, as amended, properly
reflect the consulting expense. The total amount of the expense could be
significant. See also note 9 to the financial statements that are included in
this quarterly report for a description of our planned restatement of prior
financial statements that were included in previous quarterly reports.
Our failure to obtain approval of the reverse acquisition of Cirmaker Taiwan
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from the Taiwan Ministry of Economic Affairs may have an adverse effect on us.
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Our reverse acquisition of Cirmaker Taiwan was subject to the approval of
the Taiwan Ministry of Economic Affairs. We did not obtain approval from this
Taiwanese governmental agency at the time of the reverse acquisition. We are
currently seeking this approval and management is seeking to determine what
consequences our failure to obtain approval may have on us. Such failure may
impose certain restrictions on us, which may adversely affect us.
We need substantial additional capital to satisfy our obligations under the IDN
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Telecom agreement.
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We expect that our agreement with IDN Telecom will be a significant source
of future revenues for us. Our agreement with IDN Telecom requires us to invest
$25 million through the end of 2004 with IDN Telecom. These funds will be used
by IDN Telecom for the assembly and sale of set top boxes for local cable TV in
China. We do not currently have enough capital to satisfy our obligations under
the IDN Telecom agreement. Management expects that this investment, as well as
other manufacturing costs, will be met through a combination of increased
revenues from product sales and the sale of our common stock in private or
public offerings. However, we have not received a firm commitment on any such
financing and management can provide no assurance that such a commitment will be
obtained. If we do not satisfy our obligations under the IDN Telecom agreement
we will lose this potentially significant source of future revenues.
Our success depends in large part on whether or not our products will be
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accepted by consumers in our target markets.
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Our business strategy is currently focused on two products, digital TV
receivers and computer heat dispersion systems. We have been developing the
components and systems that will be necessary to create a national digital
television broadcasting network in China and our ultimate success depends in
large part upon the full development of a national digital television
broadcasting network in China. There are many obstacles to the creation of a
national digital television broadcasting network in China, including, consumer
acceptance, compliance with governmental regulations and the need to obtain
governmental approvals, including, obtaining a network license from SARFT. If
efforts to establish a digital television broadcasting network in China fail,
our results of operations and prospects would be materially adversely affected.
With regard to our computer heat dispersion system product line, we have
spent considerable resources developing high-end nano-technology which applies a
special semiconductor alloy that cools computer systems more quickly and
efficiently. Future sales of our computer heat dispersion systems using this
technology, when fully developed, will depend in large part on whether this new
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technology is accepted by consumers and manufacturers as a replacement for the
current cooling exchange units which are traditionally fan engine based units.
If the market does not accept this new technology our results of operations and
prospects would be materially adversely affected.
Rapid technological changes and short product life cycles in our industry could
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harm our business.
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The technology underlying our products and other products in our industry,
in general, is subject to rapid change, including the potential introduction of
new types of products and technologies, which may have a material adverse impact
upon our business. We will need to maintain an ongoing research and development
program, and our potential future success, of which there can be no assurances,
will depend in part on our ability to respond quickly to technological advances
by developing and introducing new products, successfully incorporating such
advances in existing products, and obtaining licenses, patents, or other
proprietary technologies to be used in connection with new or existing products.
We expended approximately $67,647 for research and development expenses for the
year ended December 31, 2002. There can be no assurance that our research and
development will be successful or that we will be able to foresee and respond to
such advances in technological developments and to successfully develop
additional products. Additionally, there can be no assurances that the
development of technologies and products by competitors will not render our
products or technologies non-competitive or obsolete.
We face potentially fierce competition.
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There are many companies with substantially more resources than we have,
that manufacture and distribute digital TV receivers and computer heat
dispersion systems. Most of our potential competitors have substantially greater
capital, marketing and development capabilities and human resources than we have
and will likely represent significant competition for us. The foregoing
conditions create a rigorous competitive climate for us and increase the risk
that our products will be unable to compete successfully with other potential
marketers of these products. Our competitors may succeed in developing products
that are more effective or less costly than any that may be developed by us and
may also prove to be more successful than us in technology, marketing and sales.
Our largest target sales market is in China and there are several significant
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risks relating to conducting operations in China.
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Our largest target consumer market is in China. We also expect to make
investments in China in the future. Therefore, our business, financial condition
and results of operations are to a significant degree subject to economic,
political and social events in China.
Governmental policies in China could impact our business.
Since 1978, China's government has been and is expected to continue
reforming its economic and political systems. These reforms have resulted in and
are expected to continue to result in significant economic and social
development in China. Many of the reforms are unprecedented or experimental and
may be subject to change or readjustment due to a number of political, economic
and social factors. We believe that the basic principles underlying the
political and economic reforms will continue to be implemented and provide the
framework for China's political and economic system. New reforms or the
readjustment of previously implemented reforms could have a significant negative
21
effect on our operations. Changes in China's political, economic and social
conditions and governmental policies which could have a substantial impact on
our business include:
* new laws and regulations or new interpretations of those laws and
regulations;
* the introduction of measures to control inflation or stimulate growth;
* changes in the rate or method of taxation;
* the imposition of additional restrictions on currency conversion and
remittances abroad; and
* any actions which limit our ability to develop, manufacture or sell
our products in China, or to finance and operate our business in
China.
Economic policies in China could negatively impact our business.
The economy of China differs from the economies of most countries belonging
to the Organization for Economic Cooperation and Development in various
respects, such as structure, government involvement, level of development,
growth rate, capital reinvestment, allocation of resources, self-sufficiency,
rate of inflation and balance of payments position. In the past, the economy of
China has been primarily a planned economy subject to one and five-year state
plans adopted by central government authorities and largely implemented by
provincial and local authorities. These plans set production and development
targets.
Since 1978, increasing emphasis had been placed on decentralization and the
utilization of market forces in the development of China's economy. Economic
reform measures adopted by China's government may be inconsistent or
ineffectual, and we may not in all cases be able to capitalize on any reforms.
Further, these measures may be adjusted or modified in ways that could result in
economic liberalization measures that are inconsistent from time to time, from
industry to industry or across different regions of the country. China's economy
has experienced significant growth in the past decade. This growth, however, has
been accompanied by imbalances in China's economy and has resulted in
significant fluctuations in general price levels, including periods of
inflation. China's government has implemented policies from time to time to
increase or restrain the rate of economic growth, control periods of inflation
or otherwise regulate economic expansion. While we may be able to benefit from
the effects of some of these policies, these policies and other measures taken
by China's government to regulate the economy could also have a significant
negative impact on economic conditions in China with a resulting negative impact
on our business.
China's entry into the WTO creates uncertainty.
China formally became the 143rd member of the World Trade Organization
(WTO), the multilateral trade body, on December 11, 2001. Entry into the WTO
will require China to further reduce tariffs and eliminate other trade
restrictions. While China's entry into the WTO and the related relaxation of
trade restrictions may lead to increased foreign investment, it may also lead to
increased competition in China's markets from international companies. The
impact of China's entry into the WTO on China's economy and our business is
uncertain.
Uncertainty relating to China's legal system could negatively affect us.
China has a civil law legal system. Decided court cases do not have binding
legal effect on future decisions. Since 1979, many new laws and regulations
covering general economic matters have been promulgated in China. Despite this
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activity to develop the legal system, China's system of laws is not yet
complete. Even where adequate law exists in China, enforcement of contracts
based on existing law may be uncertain and sporadic and it may be difficult to
obtain swift and equitable enforcement, or to obtain enforcement of a judgment
by a court of another jurisdiction. The relative inexperience of China's
judiciary in many cases creates additional uncertainty as to the outcome of any
litigation. Further, interpretation of statutes and regulations may be subject
to government policies reflecting domestic political changes.
The deterioration of relations between Taiwan and China could negatively affect
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our business.
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The main target market for our products is mainland China and other
locations in the Asia-Pacific region. For decades, potential conflict in the
Taiwan Strait has remained a serious threat to the stability of the Asia-Pacific
region. Even today, when trade, business, and unofficial contacts between China
and Taiwan are rapidly expanding, China has not renounced the use of force
against Taiwan. If relations between China and Taiwan deteriorate or if any
material conflicts between the two nations arise, our ability to continue to do
business in China may diminish and our projected sales to China may
significantly decrease or be eliminated altogether. Accordingly, such
deterioration in relations could have a material adverse effect on our business.
You will likely suffer significant dilution. We do not intend to pay any
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dividends for the foreseeable future.
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We will likely need to issue additional shares of our capital stock in the
future in order to raise capital to satisfy our obligations to IDN Telecom and
to otherwise carry out our business plan. Upon the issuance of these shares you
will experience dilution in the net tangible book value of your common stock. We
have never paid dividends and do not intend to pay any dividends in the
foreseeable future.
A limited public market exists for the trading of our securities.
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Our common stock is quoted on the NASD Over-the-Counter Bulletin Board. As
a result, investors may find it difficult to dispose of, or to obtain accurate
quotations of the price of, our securities. This lack of information limits the
liquidity of our common stock, and likely will have an adverse effect on the
market price of our common stock and on our ability to raise additional capital.
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Our stock is a penny stock and there are significant risks related to buying and
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owning penny stocks.
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Rule 15g-9 under the Securities Exchange Act of 1934 imposes additional
sales practice requirements on broker-dealers that sell non-Nasdaq listed
securities except in transactions exempted by the rule, including transactions
meeting the requirements of Rule 506 of Regulation D under the Securities Act
and transactions in which the purchaser is an institutional accredited investor
(as defined) or an established customer (as defined) of the broker or dealer.
For transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, this rule may
adversely affect the ability of broker-dealers to sell our securities and may
adversely affect your ability to sell any of the securities you own.
The Securities and Exchange Commission regulations define a "penny stock"
to be any non-Nasdaq equity security that has a market price (as defined in the
regulations) of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to some exceptions. For any transaction by a
broker-dealer involving a penny stock, unless exempt, the rules require
delivery, prior to any transaction in a penny stock, of a disclosure schedule
prepared by the SEC relating to the penny stock market. Disclosure is also
required to be made about commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in
penny stocks. Our market liquidity could be severely adversely affected by these
rules on penny stocks.
Our management does not have significant public company experience and our
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success will depends on hiring and retaining qualified personnel.
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None of the members of our management team has any significant experience
as a member of management of a public reporting company whose securities are
publicly traded. As a result, we have incurred increased costs for service
providers who assist us in our efforts to comply with U.S. federal securities
laws and to otherwise assist us in our U.S. operations and our entry into the
U.S. capital markets. If our management team is unable to quickly develop the
skill set required by a member of management of a publicly-traded reporting
company or if we are unable to hire persons having adequate public company
experience, our disclosure controls and procedures may become inadequate and
potentially significant liabilities could result.
Our success depends on continuing to hire and retain qualified personnel,
and if we are not successful in attracting and retaining these personnel, our
business will be harmed. Competition for qualified employees is intense, and the
process of recruiting personnel with the combination of skills and attributes
required to execute our business strategy can be difficult, time-consuming and
expensive. There can be no assurance that we will be able to continue to attract
and retain qualified personnel necessary for the development of our business.
The loss of the services of existing personnel as well as the failure to recruit
additional key management and technical personnel in a timely manner would be
materially detrimental to our marketing and development programs and to our
business.
In addition, the success of our business depends in significant part upon
the continued contributions of key technical and senior management personnel,
many of whom would be difficult to replace. The loss of any key employee, the
24
failure of any key employee to perform satisfactorily in his or her current
position or our failure to attract and retain other key technical and senior
management employees could have a significant negative impact on our operations.
There are several risks relating to the infringement of our proprietary
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technology.
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We have obtained patents for our computer CPU cooling systems in Taiwan,
Japan and China, and we have pending patent applications in South Korea and the
U.S.A. Additional patents may not be issued on our pending patent applications
and our issued patents may not be upheld. We cannot guarantee that these and
other intellectual property protection measures will be sufficient to prevent
misappropriation of our technology or that our competitors will not
independently develop technologies that are substantially equivalent or superior
to ours or otherwise obtain access to our know-how or that others will not be
issued patents which may prevent the sale of our products or require licensing
and the payment of significant fees or royalties by us for the pursuit of our
business. In addition, the legal systems of many foreign countries, including
China, do not protect intellectual property rights to the same extent as the
legal system of the United States. If we are unable to adequately protect our
proprietary information and technology, our business, financial condition and
results of operations could be materially adversely affected.
Furthermore, litigation may be necessary to enforce and protect our
intellectual property rights. Any intellectual property litigation could be
costly and could cause diversion of management's attention from the operation of
our business. Adverse determinations in any litigation could result in the loss
of our proprietary rights, subject us to significant liabilities or require us
to seek licenses from third parties that may not be available on commercially
reasonable terms, if at all. We could also be subject to court orders preventing
us from manufacturing or selling our products, which could adversely affect our
business.
Our stock is very volatile and subject to significant fluctuations.
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Our stock price could be subject to wide fluctuations in the future in
response to many events or factors, including those discussed in the preceding
risk factors relating to our operations, as well as:
* actual or anticipated fluctuations in operating results;
* changes in expectations as to future financial performance or changes
in financial estimates or buy/sell recommendations of securities
analysts;
* changes in governmental regulations or policies in China;
* our, or a competitor's, announcement of new products or technological
innovations; and
* the operating and stock price performance of other comparable
companies.
General market conditions and domestic or international macroeconomic
factors unrelated to our performance may also affect our stock price. For these
reasons, investors should not rely on recent trends to predict future stock
prices or financial results. In addition, following periods of volatility in a
company's securities, securities class action litigation against a company is
sometimes instituted. This type of litigation could result in substantial costs
and the diversion of management time and resources.
25
ITEM 3. CONTROLS AND PROCEDURES.
Within 90 days of the filing of this Form 10-QSB, an evaluation was carried
out under the supervision and with the participation of our management,
including Bill Liao, our President and Principal Financial Officer and Charles
R. Skeele, our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures. Disclosure controls and
procedures are procedures that are designed with the objective of ensuring that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, such as this Form 10-QSB, is recorded, processed,
summarized and reported within the time period specified in the Securities and
Exchange Commission's rules and forms. Based on that evaluation, management
concluded that as of September 30, 2003, and as of the date that the evaluation
of the effectiveness of our disclosure controls and procedures was completed,
our disclosure controls and procedures were effective to satisfy the objectives
for which they are intended.
There were no changes in our internal control over financial reporting
identified in connection with the evaluation performed that occurred during the
fiscal quarter covered by this report that has materially affected or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On August 5, 2003, Universal Securities Corp., a corporation organized
under the Belize International Business Companies Act, entered into two separate
subscription agreements with us relating to the purchase, in the aggregate, of
up to 8,500,000 shares of our common stock. The subscription rights provided to
Universal under these subscription agreements have not yet been exercised by
Universal and Universal is not obligated to exercise these rights. Accordingly,
to date, we have not issued any shares of our common stock to Universal and
Universal has not funded any amounts to us.
The first subscription agreement relates to the purchase by Universal of
1,000,000 shares of our common stock at a subscription price of $1.50 per share.
The subscription right may be exercised by Universal on or before December 31,
2003.
The second subscription agreement relates to the purchase by Universal of
up to 7,500,000 shares of our common stock at a subscription price of $0.80 per
share. This subscription right must also be exercised on or before December 31,
2003.
We believe that the issuance of these subscription rights to Universal is
exempt from the registration requirements of the Securities Act of 1933 by
reason of Regulation S promulgated thereunder because, among other things,
Universal is not a U.S. Person (as defined in Regulation S) and the offer and
sale of the subscription rights took place offshore. If the subscription rights
are exercised by Universal, we believe that the issuance of the underlying
common stock will be similarly exempt.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Regulation S Subscription Agreement, dated August 5, 2003, between
Cirmaker Technology Corporation and Universal Securities Corp. relating to
subscription rights for 1,000,000 shares of common stock.
26
10.2 Regulation S Subscription Agreement, dated August 5, 2003, between the
Cirmaker Technology Corporation and Universal Securities Corp. relating to
subscription rights for 7,500,000 shares of common stock, as amended by
Amendment No. 1 to Regulation S Subscription Agreement, dated as of
September 19, 2003.
31.1 Certification of Principal Executive Officer filed pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer filed pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32 Certification of Principal Executive Officer and Principal Financial
Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
We filed a current report on Form 8-K/A on August 14, 2003 that amended a
prior current report on Form 8-K that we filed to disclose the replacement of
our then auditors, Morgan & Co. with new auditor Beckstead and Watts, LLP.
We filed a current report on Form 8-K/A on September 22, 2003 that amended
a prior current report on Form 8-K that we filed to report a change of control
and the appointment of new directors.
We filed a current report on Form 8-K on October 7, 2003 to disclose the
replacement of then auditors, Beckstead and Watts, LLP with our new and current
auditors Livingston, Wachtell & Co., LLP.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CIRMAKER TECHNOLOGY CORPORATION
Date: November 19, 2003 By: /s/ Bill Liao
----------------------------
Bill Liao
President
28
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
10.1 Regulation S Subscription Agreement, dated August 5, 2003, between
Cirmaker Technology Corporation and Universal Securities Corp.
relating to subscription rights for 1,000,000 shares of common stock.
10.2 Regulation S Subscription Agreement, dated August 5, 2003, between
the Cirmaker Technology Corporation and Universal Securities Corp.
relating to subscription rights for 7,500,000 shares of common stock,
as amended by Amendment No. 1 to Regulation S Subscription Agreement,
dated as of September 19, 2003.
31.1 Certification of Principal Executive Officer filed pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer filed pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Principal Executive Officer and Principal Financial
Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.