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As filed with the Securities and Exchange Commission on November 12, 1997
Registration No.333-
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BRIGHTON TECHNOLOGIES CORPORATION
(Name of Small Business Issuer in Its Charter)
DELAWARE 7373 87-0460452
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification Number)
Incorporation or
Organization)
6 PEARL COURT
ALLENDALE, NEW JERSEY 07401
(201) 818-2889
(Address and Telephone Number of Principal Executive Offices)
KIT KUNG, CHAIRMAN
BRIGHTON TECHNOLOGIES CORPORATION
6 PEARL COURT
ALLENDALE, NEW JERSEY 07401
(201) 818-2889
(Name, Address, and Telephone Number of Agent For Service)
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Copies of all communications to:
DAVID L. FICKSMAN, ESQ. ALAN I. ANNEX, ESQ.
LOEB & LOEB LLP ROBERT S. MATLIN, ESQ.
1000 WILSHIRE BOULEVARD, SUITE 1800 CAMHY KARLINSKY & STEIN LLP
LOS ANGELES, CALIFORNIA 90017 1740 BROADWAY, 16TH FLOOR
TELEPHONE: (213) 688-3400 NEW YORK, NEW YORK 10019-4315
FACSIMILE: (213) 688-3460 TELEPHONE: (212) 977-6600
FACSIMILE: (212) 977-8389
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Approximate Date of Proposed Sale to the Public: As soon as practicable after
the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
===================================================================================================
Proposed
Maximum Proposed
Titles of Each Class of Amount to be Offering Maximum
Securities to be Registered Registered Price Aggregate Amount of
Per Offering Registration
Security(2) Price(2) Fee
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Units, each consisting of one share of
Common Stock, $.001 par value, and one
Redeemable Warrant to purchase one
share of Common Stock(1)................ 1,437,500 $5.00 $7,187,500 $2,178.03
- ---------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share, issuable upon exercise of
Redeemable Warrants(4).................. 1,437,500 $6.00 $8,625,000 $2,613.64
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Representative's Warrants............... 125,000 $.0001 $12.50 (3)
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Units issuable upon exercise of the
Representative's Warrants(5)............ 125,000 $6.00 $750.000 $ 227.27
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Common Stock, par value $.001 per
share, underlying the Redeemable
Warrants included in the
Representative's Warrants............... 125,000 $6.00 $750,000 $ 227.27
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Total................................... $5,246.27
===================================================================================================
(1) Based on the offering of 1,250,000 Units and 187,500 Units pursuant to the
over-allotment.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended ("Securities Act").
(3) No Fee is required pursuant to Rule 457(g) under the Securities Act.
(4) Issuable upon the exercise of Redeemable Warrants to be offered to the
public. Pursuant to Rule 416 under the Securities Act, this Registration
Statement covers any additional shares of Common Stock which may become
issuable by virtue of the anti-dilution provisions of new Redeemable
Warrants.
(5) These Units are identical to the Units offered to the public. Pursuant to
Rule 416 under the Securities Act, this Registration Statement also covers
any additional Units which may become issuable by virtue of the
anti-dilution provisions of the Representative's Warrants.
(6) Issuable upon the exercise of the Redeemable Warrants included in the
Representative's Warrants. Pursuant to Rule 416 under the Securities Act,
this Registration Statement also covers any additional shares of Common
Stock which may become issuable by virtue of the anti-dilution provision of
the Redeemable Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION ("COMMISSION"), ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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PROSPECTUS
SUBJECT TO COMPLETION, DATED _______________, 1997
1,250,000 UNITS
[LOGO] BRIGHTON TECHNOLOGIES CORPORATION
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT
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Brighton Technologies Corporation (the "Company") is hereby
offering (the "Offering") 1,250,000 units (the "Units"), each Unit consisting of
one share of common stock (the "Common Stock"), $.001 par value per share, and
one redeemable Common Stock purchase warrant (the "Warrants"). The Units, the
Common Stock and the Warrants are sometimes referred to as the "Securities." The
Common Stock and the Warrants included in the Units may not be separately traded
until _______________, 1998, unless earlier separated upon three days' prior
written notice from National Securities Corporation (the "Representative") to
the Company at the sole discretion of the Representative. Each Warrant entitles
the holder thereof to purchase one share of Common Stock (a "Warrant Share") at
an exercise price of 120% of the offering price per Unit at any time commencing
_______________, 1998 until _______________, 2003, unless earlier redeemed. The
Warrants are subject to redemption by the Company at a price of $0.10 per
Warrant at any time commencing _______________, 1998, on thirty days prior
written notice, provided that the closing price per share of the Common Stock
has equaled or exceeded $_______________ (150% of the offer price) for twenty
consecutive trading days within the thirty-day period immediately preceding such
notice. See "DESCRIPTION OF SECURITIES" and "UNDERWRITING."
It is currently estimated that the initial public offering price
per Unit will be between $_____ and $_____. The Company has applied to have the
Units quoted on the Nasdaq SmallCap Market under the symbol "BRTU." The Common
Stock is presently quoted on the OTC Electronic Bulletin Board under the symbol
"BRTK." See "UNDERWRITING" for a discussion of the factors to be considered in
determining the initial public offering price of the Units. On __________, 1997,
the closing bid price of the Common Stock, as reported on the OTC Electronic
Bulletin Board, was $________ per share. See "MARKET PRICE FOR THE COMMON STOCK"
and "DIVIDEND POLICY." ----------
THE SECURITIES OFFERED HEREBY INVOLVE SUBSTANTIAL
RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE
[ ] AND "DILUTION" BEGINNING ON PAGE [ ].
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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==================================================================================================
Underwriting
Discounts and Proceeds to
Price to Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------------------------
Per Unit $ $ $
- --------------------------------------------------------------------------------------------------
Total (3) $ $ $
==================================================================================================
(1) Does not include additional compensation to be received by the
Representative as representative of the several underwriters (the
"Underwriters") consisting of a non-accountable expense allowance equal to
3% of the total price to the public. In addition, the Company has agreed to
indemnify the Underwriters against certain civil liabilities, including
liabilities under the Securities Act. See "UNDERWRITING."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $______, excluding the Representative's non-accountable expense
allowance.
(3) The Underwriters have been granted an option, expiring 45 days from the date
of this Prospectus, to purchase up to 187,500 additional Units from the
Company, solely to cover over-allotments, if any. If the over-allotment
option is exercised in full, the Total Price to the Public, Underwriting
Discounts and Commissions and proceeds the Company will be $__________,
$__________ and $__________, respectively, See "UNDERWRITING."
The Securities are being offered by the Underwriters named herein on a firm
commitment basis subject to prior sale, when, as and if delivered to and
accepted by the Underwriters, and subject to approval to certain legal matters
by their counsel and subject to certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify the Offering and to reject any
order in whole or in part. It is expected that delivery of certificates
representing the Units will be made at the offices of National Securities in
Seattle, Washington on or about __________, 1997.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is __________, 1997
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[PHOTOGRAPHS]
The Company is not currently a reporting company under the Securities Exchange
Act of 1934, as amended ("Exchange Act"). The Company intends to furnish its
shareholders with annual reports containing audited financial statements and
interim reports as it deems appropriate. The Company's year end is December 31.
In addition, as of the date of this Prospectus, the Company will be subject to
the information requirements of the Exchange Act, and in accordance therewith,
will file reports, proxy statements and other information with the Commission.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS, ON
THE NASDAQ SMALLCAP MARKET OR OTHERWISE, WHICH STABILIZE, MAINTAIN OR OTHERWISE
AFFECT THE MARKET PRICE OF THE COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY
OVER-ALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR AND PURCHASE SHARES
OF COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by the more detailed information and financial statements and the
related notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information contained in this Prospectus (i) assumes that the
Underwriters' over-allotment option will not be exercised and (ii) gives
retroactive effect to a reverse stock split of 1 for 3 as a result of which the
10,450,820 outstanding Common Stock of the Company as of October 17, 1997 were
converted into 3,483,666 shares of Common Stock ("Reverse Stock Split"). This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed in the forward-looking statements. Factors that might cause a
difference include, but are not limited to, those discussed in "Risk Factors."
THE COMPANY
The Company currently operates in two business segments: (i) computer
network integration, and (ii) distribution of industrial equipment. The Company
is also developing an on-line securities trading network for the Securities
Trading Automated Quotations System (the "STAQ Exchange"), which the Company
expects to be operational in late 1998. The Company provides such services and
equipment primarily to customers in the People's Republic of China ("PRC" or
"China"), as well as other Pacific Basin countries. The Company believes that it
has a strong reputation as an independent full service provider of computer
network integration services and as a distributor of industrial equipment in
China. This belief is based on several factors, including the Company's and its
predecessor's experience in designing and installing computer networks and
importing industrial equipment into China since 1981. Building on its operating
experience in China, the Company formed a Chinese joint venture to develop,
design, install and maintain a nationwide computerized multi-market securities
quotation and trading network in China. (Hereinafter, reference to the Company
shall include its subsidiaries unless the context otherwise requires).
The Company intends to maintain its focus on the Chinese market place
and its business strategy is focused as follows:
o Emphasis on network integration in the banking and finance industries
o Commercialization of the on-line securities trading network
o Expansion of the industrial equipment distribution business to meet
customer demand
Banking and Finance Oriented Information Technology. As the Chinese economy
continues to grow and the standard of living increases in China, the Company
believes that there will be an increased demand for consumer oriented financial
services such as automated teller machines ("ATMs") and retail outlets that
accept credit card transactions. The Company's strategy has been to meet this
increasing demand in the Chinese marketplace by installing wireless
telecommunications networks suitable for high volume transactions that require
instant responses, such as ATM transactions, credit card verifications,
clearance and settlements. Historically, the Company's gross margin on contracts
for computer network integration for such wireless telecommunication systems has
been at least 40 percent. The Company currently has contracts with the
Industrial and Commercial Bank of China, the largest retail bank in China, to
design and install wireless telecommunication networks for clearance and
settlements for six of its bank branches. The Company believes that as market
demand for ATMs and retail outlets that accept credit card transactions
increases, it will be able to secure additional contracts in this area.
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Securities Quotation and Trading Network. The Company is the owner of a 90%
interest in Beijing Brighton Staq Electronic System Company Limited
("Brighton-STAQ"), a PRC registered Sino-Hong Kong joint venture. The remaining
10% interest is owned by a company controlled by the STAQ Exchange, one of four
national securities exchanges in China, located in Beijing. The purpose of
Brighton-STAQ is to develop, design, install and maintain a nationwide
computerized multi-market securities quotation and trading network, similar to
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") in the U.S., for trading of stocks listed on the Shanghai, Shenzhen
and STAQ Exchange (the "STAQ On-line Network"). The Company's initial plans are
to offer the STAQ On-line Network to the 550 stock brokerages (operating 2,200
offices) that are members of the STAQ Exchange in the cities of Beijing,
Chongqing, Guangzhou, Shanghai and Shenzhen, with plans to eventually market the
STAQ On-line Network to all 2,800 stock brokerages (operating over 10,000
offices) in China. The Company expects to initially charge an installation fee
of $6,000 and a monthly maintenance fee of $1,000 for each terminal installed at
the stock brokerages. The STAQ On-line Network project is currently in the
testing phase. The Company expects to commercialize the STAQ On-line Network in
the first quarter of 1998.
Equipment Distribution. Industrial equipment distribution accounts for a
substantial portion of the current revenues and operating income of the Company.
The types of industrial equipment which the Company has been marketing in China
include machine tools, such as machine center and grinder measurement devices,
and heavy machinery, such as gantry mills, pressing machine production lines and
dyes transfer automation systems. The Company is the exclusive distributor for
Milltronics Manufacturing Company (a U.S. company), Normac Incorporated (a U.S.
company), ALO Teknik AB (a Swedish company), Royal Master Grinders, Inc. (a U.S.
company) and K.O. Lee Company (a U.S. company) for the sale of their industrial
equipment in China. In addition to representing these manufacturers, the Company
has adopted the strategy of increasing sales by searching for industrial
equipment from manufacturers worldwide that meet both the customer's technical
specifications and budget. The Company will continue its past practice of
gradually increasing the size of its sales team to meet customer demand for
industrial equipment.
CORPORATE STRUCTURE
The Company conducts its business through two principal
subsidiaries: The Brighton Industries Corporation, a Delaware corporation
("BIC"), and Brighton Electronics Corporation Limited, the Company's Hong Kong
registered subsidiary ("BECL"). BIC acts as distributor of third-party
manufactured industrial equipment to customers in Pacific Basin countries, with
primary distribution to customers in China. BECL is an investment and holding
company for Asian-based investments focusing on data transfer networks and
industrial equipment related ventures in the Pacific Basin region. BECL holds
investments in five second-tier subsidiaries, four of which are companies
organized under the laws of Hong Kong and one of which is a Chinese joint
venture company.
The Company's executive offices are located at 6 Pearl Court,
Allendale, New Jersey 07401, and its telephone number is (201) 818-2889.
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THE OFFERING
Securities Offered by the Company................. 1,250,000 Units, each Unit consisting of one
share of Common Stock and one Warrant.
Warrants.......................................... Each Warrant will entitle the holder thereof to
purchase one share of Common Stock. The Warrants
are exercisable commencing _______________, 1998,
unless earlier redeemed, for one share of Common
Stock each, at an exercise price of 120% of the
offering price per Unit in the Offering. The
Warrants may not be separately traded until
______________, 1998, unless earlier separated
upon three days prior written notice by the
Representative to the Company at the discretion
of the Representative. The Warrants are redeemable
by the Company at $0.10 per Warrant at any time
commencing _______________, 1998, on thirty days
prior written notice, provided that the closing sale
price per share for the Common Stock has equaled or
exceeded $__________ (150% of the offer price) for
twenty consecutive trading days within the thirty-day
period immediately preceding such notice. See
"DESCRIPTION OF SECURITIES."
Offering Price.................................... $_________ per Unit
Common Stock Outstanding:
Prior to the Offering........................ 3,495,333 shares
After the Offering(1)........................ 4,745,333 shares
- --------------------
(1) Does not include: (i) 1,250,000 shares of Common Stock issuable upon
exercise of the Warrants; (ii) 125,000 shares of Common Stock issuable upon the
exercise of the Representative's Warrants; or (iii) up to 187,500 shares of
Common Stock issuable upon exercise of Warrants and Common Stock issuable upon
the exercise of the Underwriters' Over-Allotment Option.
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Use of Proceeds................................... To complete the investment required to commercialize
the STAQ On-line Network project and for general
working capital. See "USE OF PROCEEDS."
Risk Factors...................................... The Offering involves a substantial degree of risk,
including the entry of the Company into a new business
in China, discretionary use of proceeds, general risks
associated with operating in China, possible
regulatory constraints and possible need for additional
financing. See "RISK FACTORS."
NASDAQ Market Symbols............................ Common Stock.............................. "BRTK"
Units .................................... "BRTU"
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SUMMARY FINANCIAL INFORMATION
The following table sets forth (i) for the periods indicated and
at the dates indicated historical summary financial information of the Company
and (ii) adjusted historical balance sheet information of the Company as of June
30, 1997. The historical information contained in the table as of December 31,
1996 and for the years ended December 31, 1995 and 1996 has been derived from
audited financial statements, and is qualified in its entirety by, and should be
read in connection with, "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION," the audited financial statements (and notes thereto) and other
financial and statistical information of the Company appearing elsewhere in this
Prospectus. The historical statements of operations and balance sheet data as of
June 30, 1997 and for the six months ended June 30, 1996 and 1997, have been
derived from unaudited financial statements. The financial statements as of June
30, 1997 and for the six months ended June 30, 1996 and 1997 are unaudited;
however in the opinion of management all adjustments (consisting solely of
normal recurring adjustments) necessary for a fair presentation of the financial
statements for interim periods have been made. The results of interim periods
are not necessarily indicative of the results to be obtained in a full fiscal
year. The accompanying historical as adjusted unaudited balance sheet data is
adjusted to give effect to the Offering as if it had occurred on June 30, 1997.
The following data gives retroactive effect to a 1 for 3 reverse stock split
which was effective on October 17, 1997. All share and per share data have been
restated for all periods presented to reflect this split.
Years Ended Six Months Ended
December 31, June 30,
------------------------ -------------------------
1995(1) 1996 1996 1997
---------- ---------- ---------- ----------
STATEMENT OF OPERATIONS
DATA:
Revenues $8,370,537 $8,006,260 $5,496,964 $4,535,865
Gross profit 2,205,336 2,220,753 1,040,701 1,330,721
Operating income (loss) 557,320 465,724 236,892 (90,461)
Income (loss) before
income taxes and
minority interests 560,644 514,750 297,259 (66,966)
Net income (loss) 172,347 198,524 141,375 (30,024)
Net income (loss) per
common share:
Primary and fully diluted .06 .06 .05 (.01)
Weighted average
number of common
shares and common share
equivalents outstanding:
Primary 3,025,000 3,101,896 3,025,000 3,467,630
Fully diluted 3,025,000 3,140,672 3,066,155 3,547,339
(1) As restated (see "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION-OVERVIEW").
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June 30, 1997
----------------------------
December 31, Historical
1996 Historical As Adjusted(2)
---- ----------- --------------
BALANCE SHEET
DATA:
Working capital (deficiency) $ (879,481) $ (667,134) $
Total assets 10,187,068 6,683,432
Total liabilities 9,602,032 5,796,388
Stockholders' equity 585,036 887,044
(2) Gives effect to the sale of 1,250,000 Units offered hereby.
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RISK FACTORS
An investment in the securities offered hereby involves a
substantial degree of risk. Prospective investors, prior to making an investment
decision, should carefully consider the following risk factors. This Prospectus
contains forward-looking statements within the meaning of the `safe harbor'
provisions of the Private Securities Litigation Reform Act of 1995. Reference is
made in particular to the description of the Company's plans and objectives for
future operations, assumptions underlying such plans and objectives and other
forward-looking statements included in "PROSPECTUS SUMMARY," "USE OF PROCEEDS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS" and "BUSINESS" in
this Prospectus. Such statements are based on management's current expectations
and are subject to a number of factors and uncertainties which could cause
actual results to differ materially from those described in the forward-looking
statements. Factors which could cause such results to differ materially from
those described in the forward-looking statements include those set forth in the
risk factors below.
RISKS RELATING TO OPERATIONS IN CHINA. The Company conducts
substantially all its marketing and sales, and provides its services to,
end-users in China. The Company expects to continue to focus its efforts on the
Chinese market. As such, there are risks involved with the conduct of the
Company's business in China, including the following:
Internal Political Risks. During the past decade and a half, the
Chinese Government has implemented a program of reform, and is expected to
continue to open its economic and political systems. Such reforms have resulted
in significant economic growth and social progress. Many of the reforms are
unprecedented or experimental and are expected to be refined and improved upon.
Other political, economic and social factors may also lead to further
readjustment of the reform measures. This refinement and readjustment process
may not have a positive effect on the operations of the Company. The Company's
results at times may also be adversely affected by changes in China's political,
economic and social conditions, and/or by changes in the policies of the Chinese
Government, such as changes in laws and regulations (or the interpretation
thereof), including those with respect to trade with the United States,
Sino-foreign joint ventures, the introduction of measures to control inflation,
changes in the rate or method of taxation, imposition of additional restrictions
on currency conversion and remittances abroad and others.
Over the past years, there has been an increasing focus on
attracting foreign investment into China. There can be no assurance that the
Chinese Government will continue with the policy of encouraging foreign
investment in the Company's businesses, nor that the maximum levels of foreign
percentage holding allowed for joint ventures will be continued.
Government Control Over the Economy and Inflation. The economy of
China differs from the economies of most countries belonging to the Organization
for Economic Cooperation and Development ("OECD") in such respects as structure,
government involvement, level of development, growth rate, capital reinvestment,
allocation of resources, self-sufficiency, rate of inflation and balance of
payments position, among others. For almost 40 years, the economy of China has
been primarily a planned economy subject to one-, five- and 10-year State Plans.
Pursuant to such State Plans, various Central Government agencies with
jurisdiction over different industries and local Governments at various levels
formulate and implement more specific plans applicable to their respective
industries and localities. Although the majority of productive assets in China
are still owned by the Chinese Government, which relies on state-owned
enterprises for a substantial portion of its revenue, in recent years the
portion of the Chinese economy subject to State Plans has been diminishing.
Nevertheless, at times, the economic reform measures adopted by the Chinese
Government may be inconsistent or ineffectual and, therefore, the Company may
not be able at times to capitalize on such reforms.
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The Chinese economy has experienced significant growth in the
past five years, but such growth has been uneven both geographically and among
various sectors of the economy. Economic growth has also been accompanied by
rising inflation. The Chinese Government has implemented policies from
time-to-time to restrain the rate of such economic growth and control inflation
in order to achieve coordinated economic development. In July 1993, the Central
Government adopted a number of measures to strengthen "macroeconomic control" of
the economy, including increasing interest rates on bank loans and deposits, and
postponing certain planned price reforms. Despite some successes in controlling
economic expansion and the inflation rate, the Central Government has stated its
intention to slow further economic growth in order to combat inflation which has
seen prices rise more than 20% in some years.
A significant portion of the economic activity in China is
related to exports and may therefore be affected by developments in the
economies of China's principal trading partners. The United States annually
reconsiders the renewal of "Most Favored Nation" ("MFN") trading status for
China, which provides China with trading privileges available to trading
partners of the United States. If trade relations between China and the United
States were to deteriorate for any reason, the Company could be adversely
affected.
Restrictions on Currency Conversions. The Company's income from
the STAQ On-line Network project will be received or realized in the Chinese
currency, Renminbi, although the Company will be required to compute and report
its results of operations in U.S. dollars. Accordingly, changes in the Renminbi
against the U.S. dollar, will result in corresponding changes in the U.S. dollar
value of the Company's assets denominated in Renminbi, and will change the U.S.
dollar value of income and dividends received or to be received in Renminbi. The
Company does not currently engage in hedging transactions and does not intend to
do so in the future.
During the last five years, the value of the Renminbi generally
has experienced a gradual but significant devaluation against most major
currencies. On January 1, 1994, the official exchange rate was abolished and a
new managed floating-rate foreign exchange system was implemented. Although the
Renminbi to U.S. dollar exchange rate has been stable since January 1, 1994 and
the Central Government has stated its intention to intervene in the future to
support the value of the Renminbi, there can be no assurance that exchange rates
will not again become volatile or that the Renminbi will not further decline in
value against the U.S. dollar.
Both the conversion of Renminbi into foreign currencies and the
remittance of foreign currencies abroad require Chinese Government approvals.
The Company believes that it will be able to obtain all required approvals for
the conversion and remittance abroad of foreign currency necessary to support
the operations of the Company and distribute dividends to stockholders should
the Company elect to do so. However, such approvals do not guarantee the
availability of foreign currency, and, no assurance can be given that the
Company will be able to convert sufficient amounts of foreign currencies in
China's foreign exchange markets. See "BUSINESS-STAQ ON-LINE NETWORK."
Restrictions on Repatriation of Foreign Currency. Foreign
investment enterprises may generally remit out of China profits or dividends
derived from a source within China, subject to the availability of foreign
currency. Except for such profits or dividends, remittance out of China by
foreign investment enterprises of any other amount (including proceeds from a
disposition of an investment in China) is subject to the approval of
governmental regulatory agencies and the availability of foreign currency. In
addition, if there were to be a deterioration in China's balance of payments, or
for other reasons, China could impose restrictions on foreign currency
remittances abroad. No assurance can be given that the Company will be able to
remit out of China amounts due the Company from any Sino-foreign joint venture
with which the Company may engage in business.
Legal System. Since 1979, many laws and regulations governing
economic matters in general have been promulgated in China. Despite these
efforts in developing the legal system, China does not have a comprehensive
system of laws. In addition, the enforcement of existing laws may be uncertain
and sporadic, and implementation
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and interpretation thereof inconsistent. The Chinese judiciary is relatively
inexperienced in enforcing the laws that exist, leading to a higher than usual
degree of uncertainty as to the outcome of any litigation. Even where adequate
laws exists in China, it may be difficult to obtain swift and equitable
enforcement of such laws, or to obtain enforcement of a judgment by a court of
another jurisdiction. The Chinese legal system is based on written statutes and,
therefore, decided legal cases are without binding legal effect, although they
are often followed by judges as guidance. The interpretation of Chinese laws may
be subject to policy changes which reflect domestic political changes.
As the Chinese legal system develops, the promulgation of new
laws, changes to existing laws and the pre-emption of local regulations by
national laws may adversely affect the Company's businesses. The general effect
of legislation over the past 18 years, however, has been to significantly
enhance the protection afforded to foreign investment enterprises in China.
However, there can be no assurance that changes in such legislation or
interpretation thereof will not have an adverse effect upon the businesses and
prospects of the Company.
The Company's activities in China are by law subject, in certain
cases, to administrative review and approval by various national and local
agencies of the Chinese government. In particular, part of the Company's current
operations and the realization of its future expansion programs in China will be
subject to Chinese government approvals.
Enforceability of Judgements. China has not entered into treaties
or arrangements providing for the recognition and enforcement of judgements of
courts in most other countries. Accordingly, it may be difficult to secure
recognition and enforcement in China for the judgements of courts in such
jurisdictions.
Foreign Trade Corporations. In order to conduct the distribution
business in China, the Company must make most of its sales through foreign trade
corporations ("FTC's") which are legally authorized by the Chinese Government to
conduct import business. Although purchasing decisions are made by the end-user,
which is obligated to pay the applicable purchase prices, the Company enters
into a formal purchase contract with only the FTC. The FTC's make purchases on
behalf of the end-users. By virtue of its direct contractual relationship with
the FTC's, rather than the end-user, the Company is to some extent dependent
upon the continuing existence of the contractual compliance by the FTC's until
the particular transaction has been consummated. The Company's business,
however, is not dependent on any single FTC or end-user. Although sales to
certain industries involve repeat transactions with FTC's that operate in those
industries, the Company does not believe that it is dependent upon relations
with any particular FTC or that the loss of relations with any particular FTC
would have a material adverse affect on the Company. Rather, FTC's, which earn
commissions in transactions, compete with each other for the right to handle
end-users' business. See "BUSINESS-INDUSTRIAL EQUIPMENT DISTRIBUTION BUSINESS."
Hong Kong: Transfer of Sovereignty. BECL, the Company's
investment and holding company for Asian based investments for information and
industrial equipment related ventures in the Pacific Basin region, is a Hong
Kong registered company. As a result, the Company's results of operations and
financial condition may be influenced by the political situation in Hong Kong
and by the general state of the Hong Kong economy. On July 1, 1997, sovereignty
over Hong Kong was transferred from the United Kingdom to China, and Hong Kong
became a Special Administrative Region of China (an "SAR"). As provided in the
Sino-British Joint Declaration on the Question of Hong Kong and the Basic Law of
the Hong Kong SAR of China (the "Basic Law"), the Hong Kong SAR is to have its
own legislature, legal and judicial system and full economic autonomy for 50
years. Based on the current political conditions and the Company's understanding
of the Basic Law, the Company does not believe that the transfer of sovereignty
over Hong Kong will have a material adverse impact on the Company's financial
and operating environment. There can be no assurance, however, that changes in
political or other conditions will not result in such an adverse impact. See
"BUSINESS-BUSINESS DEVELOPMENT."
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BRINGING BRIGHTON-STAQ TO COMMERCIALIZATION. It is management's
belief that Brighton-STAQ represents the primary growth opportunity for the
Company. Consequently, the future success of the Company depends to a
substantial extent on the successful implementation of the Brighton-STAQ joint
venture. While the Company and its predecessor have been in business for more
than 16 years, the Brighton-STAQ joint venture is inherently a new business for
the Company. The Company projects that the Brighton-STAQ will not be profitable
until, at least, after the first year of commercialization. Prospective
investors, therefore, have no historical financial information about
Brighton-STAQ upon which to evaluate the Company's performance in this business
and investment in the Units offered hereby. The likelihood of the success of
Brighton-STAQ must be considered in light of the problems, expenses,
difficulties and delays frequently encountered in connection with the formation
of a new business. See "BUSINESS-STAQ ON-LINE NETWORK."
China's Securities Industry Related Risk. Although the Chinese
government has introduced new laws and regulations since January 1, 1994 to
modernize its securities market, China does not have a well-developed,
consolidated body of law governing the securities industry. As China continues
to develop its securities market, changes to existing laws, regulations and
policies (or in the application or enforcement thereof), the adoption of new
laws, and the pre-emption of local regulations by national laws may adversely
affect Brighton-STAQ. See "GOVERNMENT CONTROL OVER THE ECONOMY AND INFLATION."
Dependence on Strategic Relationship. The Company, through its
subsidiary, operates Brighton-STAQ as a joint venture company with Beijing
Huazheng Electronic Technology Co., Ltd. ("Huazheng"), a Chinese registered
Sino-Hong Kong equity joint venture company. Huazheng is a company controlled by
the STAQ Exchange in Beijing. It is Huazheng's affiliation with the STAQ
Exchange that provides Brighton-STAQ with access to the STAQ Exchange. The
deterioration of this strategic relationship would have a material adverse
effect on Brighton-STAQ and would potentially limit the Company's ability to
continue to design, install and maintain the STAQ On-line Network. There can be
no assurance that the Company's relationship with its strategic partner will
remain on agreeable terms or that the Company's partner will not end its
relationship with the Company by selling its interest in Brighton-STAQ. See
"BUSINESS-STAQ ON-LINE NETWORK."
Limited Duration of Joint Venture. Brighton-STAQ has a term of 12
years. To the extent that the Company is unable to either extend the term of the
joint venture in 2006 or replace the revenues generated from its operations, the
Company's future earnings may be adversely affected. Although the Company
expects to be able to extend the term of Brighton-STAQ, there can be no
assurance that the Company will be successful in extending the term of the joint
venture or establish new arrangements sufficient to replace such lost revenues.
See "BUSINESS-STAQ ON-LINE NETWORK."
Right of Huazheng to buy up to 49% of Brighton-STAQ. The Company
and Huazheng have a verbal agreement that Huazheng has the right during the term
of Brighton-STAQ, under certain financial performance criteria to be agreed upon
by the parties, to acquire up to an additional 10% of Brighton-STAQ annually, at
market valuation, up to a total ownership of 49%. The parties have not agreed on
the mechanism for determining such performance criteria. If Huazheng decides to
exercise this right at a time when Brighton-STAQ is profitable, the Company's
operating results and anticipated growth may be adversely affected. Also, the
mechanism for determining market valuation (yet to be negotiated between the
parties) at the time Huazheng exercises its acquisition right may possibly be
unfavorable to the Company. See "BUSINESS-STAQ ON-LINE NETWORK."
Construction and Operation of the STAQ On-line Network. In order
for the STAQ On-line Network to be fully operational, additional Chinese
governmental approvals will be required. Even in the event that the Company
obtains all necessary governmental approvals related to and has adequate
financing to fund construction and operation of the STAQ
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On-line Network, Brighton-STAQ may experience difficulties and delays relating
to the construction and operation of such network system. There can be no
assurance that such network system will be completed in a timely manner, if at
all, or that financing will be sufficient to complete or to operate the STAQ
On-line Network. The failure to achieve these goals may have a material adverse
effect upon the liquidity, working capital requirements and anticipated growth
of the Company's business operations. See "BUSINESS-STAQ ON-LINE NETWORK."
Dependence on The People's Daily as Satellite Provider. The
operation of the STAQ On-line Network is dependent on satellite service provided
by The People's Daily, the major newspaper serving China. The Company is
currently negotiating a three-year contract for satellite services with The
People's Daily and expects to finalize the contract by the end of October 1997.
The People's Daily is not a commercial provider of satellite service and itself
subscribes to Asia Satellite Telecommunications Co. Ltd. in Hong Kong for lease
of a C-Band transponder and China Telecommunications Broadcast Satellite
Corporation in Beijing for lease of a Ku-Band transponder. The Company is
dependent on The People's Daily's transponder lease agreements with the
commercial satellite service providers. If The People's Daily's transponder
lease agreements were to terminate for any reason, the Company will need to
subscribe for satellite service from a commercial provider at substantially
higher cost to the Company. See "BUSINESS-STAQ ON-LINE NETWORK."
Additional Capital Requirements. Capital, in addition to the net
proceeds from the Offering, may be required to fund the capital expenditures,
development and construction costs and working capital requirements related to
the Company's development of the STAQ On-line Network. The Company cannot
predict the extent to which additional capital may be required for those
purposes and there can be no assurance that the Company will be able to obtain
such additional capital on terms acceptable to the Company. To the extent that
future financing requirements are satisfied through the issuance of equity
securities, prospective investors may experience significant dilution in the net
book value of the Units offered hereby.
In addition, the projected capital requirements to complete the
STAQ On-line Network exceed Brighton-STAQ's current authorized total investment
amount. Under Chinese law, the Company may not make capital contributions in
excess of authorized total investment amounts (currently $1,600,000) without the
consent of relevant Chinese Governmental approval authorities. The Company has
decided for practical reasons to delay application until funds from the Offering
are available. Although the Company currently expects that the required
governmental approvals will be obtained and the Company will be able to obtain
financing when necessary to expand capacity to meet projected targets, such
approval and ability of the Company to obtaining financing are beyond the
control of Brighton-STAQ and the Company. There can be no assurance that such
approval will be granted. If such approval is not obtained, the ability of
Brighton-STAQ to meet its projected future business targets may be materially
adversely impacted. See "BUSINESS-STAQ ON-LINE NETWORK" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS."
Competition. The STAQ On-line Network may potentially compete
with the Shanghai and Shenzhen Stock Exchanges as both the exchanges maintain
their own on-line securities quotation and trading system. Management believes
that it is unlikely that either of the two exchanges would compete with the STAQ
On-line Network because the STAQ Exchange and the Shanghai and Shenzhen Stock
Exchanges are under common control and the development of the STAQ On-line
Network complements the two stock exchanges. No assurances can be given that
competition from these exchanges will not arise.
In addition, other businesses experienced in the systems
management and computer network integration business as well as the wireless
communications business, such as Dow Jones Markets, Inc., Reuters Limited and
Bloomberg L.P., may compete with the Company. These competitors have greater
marketing and development budgets than the Company and have greater capital
resources than the Company. There can be no assurance that the Company will be
successful in commercializing the STAQ On-line Network.
DEPENDENCE ON NEW PRODUCTS AND TECHNOLOGIES. The Company's
network integration and STAQ On-line Network business segments operate in an
industry that is characterized by fast-changing technology. As a
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result, the Company will be required to expend substantial funds for and commit
significant resources to the conduct of continuing product development,
including research and development activities and the engagement of additional
engineering and other technical personnel. Any failure by the Company to
anticipate or respond adequately to technological developments, customer
requirements, or new design and production techniques, or any significant delays
in product development or introduction, could have a material adverse effect on
the operating results of the Company.
The Company's future operating results will depend to a
significant extent on its ability to identify, develop, and market enhancements
or improvements to existing network integration applications as well as to
introduce new product lines that compare favorably on the basis of time to
introduction, cost and performance with the product lines offered by
competitors. The success of new product lines depend on various factors,
including proper market segment selection, utilization of advances in
technology, innovative development of new product concepts, timely completion
and delivery, efficient and cost-effective features, and market acceptance.
Because of the complexity of the design and implementation process required by
the Company's integration services, the Company may experience delays from time
to time in completing the design and implementation of improvements to existing
network systems or the introduction of new network integration applications. In
addition, there can be no assurance that any new network integration application
will receive or maintain customer or market acceptance. The Company's future
operating results would be adversely affected in the event that it is unable to
design and implement enhancements to existing network systems or introduce new
network integration applications on a timely and cost-effective basis. See
"BUSINESS -- COMPUTER NETWORK INTEGRATION AND STAQ ON-LINE NETWORK."
Complex network integration systems, such as those developed by
the Company and incorporated third party hardware and software programs, often
encounter development delays and occasionally contain errors that are discovered
only after network systems have been installed and used by many different
customers in a variety of business operations. Significant development delays in
the future may result in increased product development costs, delays in market
acceptance, loss of sales, and reduction of market share, which could have a
material adverse effect on the Company's operating results. Although the Company
conducts extensive testing of its network integration applications and systems,
there can be no assurance that the Company will successfully detect and
eliminate all programming errors.
CHANGE IN PRODUCT MIX. Historically, the Company has derived a
substantial portion of its revenue from the sale and integration of hardware and
software developed by others. The resale of hardware products manufactured by
third parties is extremely competitive and involves relatively low profit
margins. The sale of software developed by others also involves relatively low
profit margins and exposes the Company to various risks, including product
performance and market acceptance of such products as well as the strategies of
the product developers, over which the Company has little control.
The Company has changed its business strategy to emphasize the
development of its own network system in an effort to increase the relative
percentage of revenue it will derive from offering network services for
securities trading on the STAQ Exchange. The Company has completed testing of
the STAQ On-line Network using land telephone lines and is in the process of
bringing it to commercialization. There can be no assurance, however, that the
Company will be successful in commercializing the STAQ On-line Network. The
failure of the Company to successfully develop and market the STAQ On-line
Network could have a material adverse effect on the Company.
See "BRINGING BRIGHTON-STAQ TO COMMERCIALIZATION."
MANAGEMENT OF CHANGE IN BUSINESS. The Company currently is
experiencing a period of significant growth in the development of the STAQ
On-line Network. The Company's ability to effectively manage this change in its
business operations will require it to enhance its operational, financial, and
management systems; to expand its facilities and equipment; and to successfully
hire, train, and motivate additional employees, including
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the technical personnel necessary to develop the STAQ On-line Network and to
integrate new software systems with evolving hardware technologies. The failure
of the Company to manage effectively the change in its business focus could have
a material adverse effect on the Company.
DEPENDENCE ON KEY CUSTOMERS. The Company's industrial equipment
customers vary from year to year, but, historically, significant portions of its
revenues are from a limited number of customers. The Company expects that
significant portions of future revenues from this business segment will continue
to be generated by a limited number of customers. The Company's inability to
secure individual contracts for significant industrial equipment may result in
substantial reduction in business volume and would adversely affect operating
results. China Henan Light Industrial Products Import and Export Corporation, a
BECL customer, accounted for 17% of the Company's revenues in 1996 and Honest
Fortune International, Ltd., a BIC customer, accounted for 10% of the Company's
revenues in 1995.
CHINA NATIONAL CONTRACT. The Company's contract with China
National Chemical Construction Company ("China National") which accounted for
34% and 13% of the Company's revenues for the years ended December 31, 1995 and
1996, respectively, is a turn-key contract. Contracts of this nature are
generally discrete projects, and the Company does not anticipate repeat business
from China National after the completion of the contract in 1997. The Company
does not currently have or plan to have any projects of this nature in the
foreseeable future. See "BUSINESS-CHINA NATIONAL."
COMPETITION. The network integration and equipment distribution
businesses are highly competitive in China and includes competition from
distributors and service providers from around the world. Certain of the
Company's competitors have considerably greater financial, marketing, personnel
and other resources than the Company, as well as greater experience and customer
recognition than the Company. In the wireless system integration area, the
Company competes with Multipoint, Inc., a U.S. company, and Kb/Tel, SA, a
Mexican company, who offer wireless telecommunication equipment offering
identical features as the Aria Wireless System. In the equipment distribution
area, the Company competes with other independent distributors, as well as
manufacturers such as Cincinnati Milacron, Inc. and Ingersoll-Rand Company.
There can be no assurance that the Company will be able to successfully compete
with its competitors.
DEPENDENCE ON KEY PERSONNEL. The Company depends to a large
extent on the abilities and relationships of its Chairman, President, Chief
Executive Officer and principal stockholder, Kit Kung. Mr. Kung does not have an
employment agreement with the Company (see "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT"). The loss of Mr. Kung as an officer and
director could have a material adverse effect on the Company's business. In
addition, there is strong competition for qualified technical and management
personnel in the information, systems management and communications industries,
and the loss of key technical and management personnel or an inability to
continue to attract, retain and motivate key personnel could adversely affect
the Company's business. There can be no assurance that the Company will be able
to retain its existing key personnel or attract additional qualified personnel.
The Company does not have a key-person life insurance policy on Mr. Kung or any
employee of the Company. The Company will, prior to the completion of the
Offering, obtain and maintain a $2,000,000 term life insurance policy covering
Kit Kung which names the Company as the sole beneficiary. See "MANAGEMENT."
CONTROL BY KIT KUNG. Upon the consummation of the Offering, Kit
Kung will own approximately 59.7% of the issued and outstanding Common Stock,
assuming the Warrants have not been converted into Common Stock, or 47.3% of the
issued and outstanding Common Stock, assuming the Warrants have been converted
into Common Stock. Accordingly, Kit Kung will be able to significantly influence
the Company's business and affairs. This concentration of ownership may have the
affect of delaying, deferring or preventing a change in control of the Company.
See "PRINCIPAL STOCKHOLDERS."
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DISCRETIONARY USE OF PROCEEDS. The Company intends to use all of
its net proceeds from the Offering to finance commercialization of the STAQ
On-line Network project except for approximately $____________ which the Company
intends to use for working capital and general corporate purposes. However,
delays or difficulties in project development could cause the Company to use
such net proceeds for general corporate purposes. The Company's management will,
therefore, retain broad discretion in allocating all of the net proceeds of the
Offering. See "USE OF PROCEEDS."
NO DIVIDENDS AND NONE ANTICIPATED. The Company has not paid any
dividends on its Common Stock since it acquired all of the issued and
outstanding capital stock of BIC and BECL, effective November 11, 1996, and does
not intend to pay dividends in the foreseeable future. Earnings of the Company,
if any, not paid as dividends are expected to be retained to finance the
expansion of the Company's business. The payment of dividends on its Common
Stock in the future will depend on the results of operations, financial
condition, capital expenditure plans and other cash obligations of the Company
and will be at the sole discretion of the Board of Directors. See "DIVIDEND
POLICY" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS."
NEED FOR ADDITIONAL FINANCING. Based on the Company's operating
plan, management believes that the proceeds from the Offering, together with
borrowings that will be available under its existing credit facility or any
replacement credit facility and anticipated cash flow from operations, will be
sufficient to meet the Company's anticipated cash needs and to finance its plans
for the STAQ On-line Network project for at least the next 12 months from the
date of this Prospectus. Thereafter, the Company anticipates that it may require
additional financing to meet its plans for the STAQ On-line Network project. No
assurance can be given that the Company will be successful in obtaining
additional financing on favorable terms, if at all. If the Company is unable to
obtain additional financing, its ability to meet its plans for the STAQ On-line
Network project beyond 12 months could be materially adversely affected. The
Company has financed its operations to date primarily from cash flow from
operations, related party loans and private sales of equity. See "USE OF
PROCEEDS," "CAPITALIZATION," "CERTAIN TRANSACTIONS" and "MANAGEMENT'S DISCUSSION
AND ANALYSIS OR PLAN OF OPERATIONS."
DILUTION. Upon completion of the Offering, prospective investors
of the Units will experience dilution in net tangible book value of their
investment in the Company of $____ per share of Common Stock. See "DILUTION."
NO PRIOR MARKET FOR THE UNITS; DETERMINATION OF OFFERING PRICE.
Prior to the Offering, there has been no public market for the Units. While the
Company has applied for the listing of the Units on the Nasdaq SmallCap Market,
there can be no assurance that an active trading market for the Units will be
established, or if so established, sustained. The initial offering price for the
Units has been arbitrarily determined through negotiation between the Company
and the Representative based on such factors as the business potential and
earnings prospects of the Company and prevailing market conditions. Such price
may not be indicative of the market price of the Units after the Offering has
been consummated. See "UNDERWRITING." The trading price of the Company's Units
may be highly volatile and could be subject to significant fluctuations in
response to variations in the Company's quarterly operating results and other
factors. In addition, the stock market is subject to price and volume
fluctuations affecting the market price for the securities of many companies
generally, which fluctuations often are unrelated to operating results.
ANTI-TAKEOVER CONSIDERATIONS. The Board of Directors has the
authority to issue up to Five Million (5,000,000) shares of preferred stock, par
value $.001 per share and to establish the rights and preferences of such
shares. Such issuance could occur without action by the holders of the Common
Stock and the holders of the Units. Such preferred stock could have voting and
conversion rights that adversely affect the voting power of the holders of Units
and/or Common Stock, or could result in one or more classes of outstanding
securities that would
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have dividend, liquidation or other rights superior to those of the Units and/or
Common Stock. Issuance of such preferred stock may have an adverse effect on the
then prevailing market price of the Units and/or Common Stock. This authority,
together with certain provisions in the Company's Restated Certificate of
Incorporation and By-Laws, may delay, deter or prevent a change in control of
the Company, may discourage bids for the Units and/or Common Stock at a premium
over the market price of the Units and/or Common Stock, and may adversely affect
the market price of, and the voting and other rights of the holders of, Units
and/or the Common Stock. Additionally, the Company is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law
("Delaware Law"), which prohibits the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
Section 203 could have the effect of delaying or preventing a change of control
of the Company. See "DESCRIPTION OF SECURITIES."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering,
there will be 4,745,333 shares of Common Stock outstanding, of which 3,093,837
shares of Common Stock will be "restricted" securities within the meaning of the
Securities Act and may not be sold in the absence of registration under the
Securities Act or an exemption therefrom, including the exemptions contained in
Rule 144 under the Securities Act. Without regard to the "Lock-Up Agreements"
with the Representative, referred to below, such shares will become available
for sale under Rule 144 at various times commencing 90 days from the date of
this Prospectus. No prediction can be made as to the effect, if any, that future
sales of shares of Common Stock will have on the market price of the shares of
Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock, or the perception that these sales could occur, could adversely
affect prevailing market prices for the Common Stock and could impair the
ability of the Company to raise additional capital through the sale of its
equity securities or through debt financing. The Company and its officers,
directors and current stockholders have agreed to enter into agreements
("Lock-Up Agreements") under which they will agree not to sell or otherwise
dispose of any of their shares of Common Stock or other securities of the
Company for a period of thirteen (13) months commencing upon the date of this
Prospectus, without the prior written consent of the Representative. See
"UNDERWRITING" and "SHARES ELIGIBLE FOR FUTURE SALE."
POSSIBLE DELISTING FROM NASDAQ SYSTEM AND MARKET ILLIQUIDITY.
While the Units meet the Nasdaq listing requirements and are expected to be
initially quoted on the Nasdaq SmallCap Market, there can be no assurance the
Company will meet the criteria for continued listing. For continued listing on
the Nasdaq SmallCap Market, a company would need to have, among other things,
(A) net tangible assets of $2,000,000, (B) a market capitalization of
$35,000,000, or net income for two of the last three fiscal years of $500,000,
(C) a minimum market value of public float of $1,000,000 and (D) a minimum bid
price of $1.00 per share. Additionally, for both initial listing and continued
listing on the Nasdaq SmallCap Market, companies would be required to have at
least two independent directors, and an Audit Committee, a majority of the
members of which must be independent directors.
If the Company's Common Stock were delisted from Nasdaq, it could
become subject to Rule 15g-9 under the Exchange Act and be considered a "penny
stock" under such Rule, which imposes additional sales practice requirements on
broker-dealers that sell such delisted securities to persons other than
established customers and "accredited investors" (generally, individuals with a
net worth in excess of $1,000,000 or annual incomes exceeding $200,000 or
$300,000 together with their spouses). For transactions covered by Rule 15g-9, 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
the sale. Consequently, Rule 15g-9 may adversely affect the ability of
broker-dealers to sell the Company's Common Stock or Units and may adversely
affect the ability of purchasers in the Offering to sell in the secondary market
any of the Units or Common Stock acquired.
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PENNY STOCK REGULATION. Broker-dealer practices in connection
with transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Commission. Penny stocks generally are equity securities with a
price of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the Nasdaq system, provided that current price
and volume information with respect to transactions in such securities is
provided by the exchange or system). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules generally require that prior to a transaction in a penny
stock the broker-dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. If the Units do not qualify for quotation
on the Nasdaq SmallCap Market, or if it qualifies and is later delisted from
such Market and has a price of less than $5.00 per Unit, then unless another
exemption is available, the Units and the underlying Common Stock would be
subject to the penny stock rules. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules. If the Securities become
subject to the penny stock rules, investors in the Offering may find it more
difficult to sell their Securities.
ADVERSE CONSEQUENCES ASSOCIATED WITH WARRANTS. The Company has
reserved 1,250,000 shares of Common Stock for issuance upon exercise of the
Warrants, and 125,000 shares of Common Stock for issuance upon the exercise of
the Representative's Warrants. Holders of such Warrants are likely to exercise
them when, in all likelihood, the Company could obtain additional capital on
terms more favorable than those provided thereby. Furthermore, such Warrants may
adversely affect the terms on which the Company could obtain additional capital.
Should a significant portion of such Warrants be exercised, the resulting
increase in the amount of Common Stock in the public market may have the effect
of reducing the per share market price thereof.
See "SHARES ELIGIBLE FOR FUTURE SALE."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants
are subject to redemption by the Company at a price of $0.10 per Warrant under
certain conditions at any time commencing __________, 1998, on thirty days prior
written notice. If the Warrants are redeemed, Warrant holders will lose their
right to exercise the Warrants except during the 30 day redemption period. Upon
receipt of notice of redemption, Warrant holders would be required to: (i)
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so, (ii) sell the Warrants at the then market
price, if any, when they might otherwise wish to hold the Warrants, or (iii)
accept the redemption price, which is likely to be substantially less than the
market value of the Warrants at the time of redemption.
See "DESCRIPTION OF SECURITIES -- WARRANTS."
STOCKHOLDERS INABILITY TO VOTE ON OR REVIEW TRANSACTIONS. As is
customary under the Delaware Law, the Board of Directors, not the stockholders,
of the Company have authority to review many types of prospective business
transactions and approve or disapprove of the same. As such, the stockholders of
the Company may not have the opportunity to review the terms of any prospective
transactions nor review the financial statements of any entities relating to any
such transactions.
REPRESENTATIVE'S INFLUENCE ON THE MARKET. A significant number of
Units offered hereby may be sold to customers of the Underwriter. Such customers
subsequently may engage in transactions for the sale or purchase of such
securities through or with the Underwriter. Although they have no obligation to
do so, the Underwriters intend to make a market in the Units and may otherwise
effect transactions in such securities. If they participate in such market, the
Underwriter may exert a dominating influence on the market, if one develops, for
the Units. Such market-making activity may be discontinued at any time.
Moreover, if the Underwriter exercises the
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Warrants, they may be required under the Exchange Act to temporarily suspend
market-making activities. The price and liquidity of the Units may be
significantly affected by the degree, if any, of the Underwriter's participation
in such market. See "UNDERWRITING."
21
22
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units in the
Offering are estimated to be _______________, after deducting estimated selling
commissions and other expenses associated with the Offering. The Company intends
to use such net proceeds as set forth below:
OFFERING
AMOUNT PERCENTAGE
Commercialization of
the STAQ On-line Network Project $ 4,000,000 %
Working capital $ %
----------- ------
TOTAL $ 100.00%
=========== ======
The commercialization of the STAQ On-line Network, currently in
the testing phase of linking Beijing, Chongqing, Shanghai and Shenzhen to the
STAQ Exchange, requires $3,000,000 for the necessary satellite-linking equipment
and $1,000,000 in related costs for establishing operations in the cities of
Beijing, Chongqing, Shanghai and Shenzhen, such as wireless systems, office
facilities, office equipment and personnel. See "BUSINESS-STAQ ON-LINE NETWORK."
The foregoing allocations are estimates only and are subject to
revision from time-to-time to meet the Company's requirements. Pending full
utilization of the proceeds of the Offering, the Company may invest the net
proceeds in insured interest-bearing savings accounts, U.S. Government
obligations, insured Certificates of Deposit or other insured short-term
investments of similar quality. See "RISK FACTORS - ADDITIONAL CAPITAL
REQUIREMENTS," "- DISCRETIONARY USE OF PROCEEDS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS" and "BUSINESS-STAQ ON-LINE NETWORK."
22
23
MARKET PRICE FOR THE COMMON STOCK
The Company was formed as a result of a reverse acquisition,
effective November 11, 1996, whereby the Company acquired all of the issued and
outstanding capital stock of BIC and BECL from their shareholders in exchange
for the issuance by the Company of a controlling interest in the Company to such
shareholders (the "Reverse Merger"). Since November 12, 1996, the Company's
Common Stock has been listed for trading on the OTC Electronic Bulletin Board
under the symbol "BRTK." (As a result of the Reverse Stock Split, the Common
Stock will trade under the symbol "BRTKD" for 30 days from the effective date of
the Reverse Stock Split (October 17, 1997), after which the symbol will revert
back to "BRTK.") Prior to that date, the Company's Common Stock traded under the
symbol "ZNTX." The trading market is limited and sporadic and should not be
deemed to constitute an "established trading market."
The following table sets forth the range of bid prices of the
Company's common stock as quoted on the OTC Electronic Bulletin Board during the
periods indicated. Such prices reflect prices between dealers in securities and
do not include any retail markup, markdown or commission and may not necessarily
represent actual transactions. The information set forth below was provided by
Nasdaq Trading & Market Services. All prices reflect the 1-for-3 reverse stock
split effective November 11, 1996 and the Reverse Stock Split.
FISCAL YEAR ENDED DECEMBER 31, 1996 (1) HIGH LOW
- --------------------------------------- ---- ---
Quarter Ended March 31, 1996 $45.00 $ 9.00
Quarter Ended June 30, 1996 31.50 31.50
Quarter Ended September 30, 1996 (2) (2)
Period from October 1, 1996 - November 11, 1996 20.82 11.25
Period from November 12, 1996 - December 31, 1996 21.39 18.75
FISCAL YEAR ENDING DECEMBER 31, 1997
- ------------------------------------
Quarter Ended March 31, 1997 21.00 16.14
Quarter Ended June 30, 1997 17.64 9.75
Quarter Ended September 30, 1997 15.38 7.13
Period from October 1, 1997 - November 10, 1997 7.13 6.00
(1) Not available prior to 1/1/96.
(2) Not available.
On November 10, 1997, the closing bid price for the Common Stock as
reported by OTC Electronic Bulletin Board was $6.
As of the date of this Prospectus, the number of security holders of
record of the Company's Common Stock was 91. As of such date, 3,495,333 shares
were outstanding.
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24
DIVIDEND POLICY
The Company has not paid dividends on the Common Stock since its
acquisition of all of the issued and outstanding capital stock of BIC and BECL,
effective November 11, 1996, and does not anticipate paying dividends on its
Common Stock in the foreseeable future. It is the present policy of the Board of
Directors to retain all earnings to provide for the future growth of the
Company. Earnings of the Company, if any, not paid as dividends are expected to
be retained to finance the expansion of the Company's business. The payment of
dividends on its Common Stock in the future will depend on the results of
operations, financial condition, capital expenditure plans and other cash
obligations of the Company and will be at the sole discretion of the Board of
Directors. See "DESCRIPTION OF SECURITIES."
24
25
DILUTION
The following discussion and tables allocate no value to the
Warrants contained in the Units. The difference between the public offering
price per share of Common Stock and the pro forma net tangible book value per
share of Common Stock after the Offering constitutes the dilution per share of
Common Stock to investors in the Offering. Net tangible book value per share of
Common Stock on any given date is determined by dividing the net tangible book
value of the Company (total tangible assets less total liabilities) on such date
by the number of shares of Common Stock outstanding on such date.
At June 30, 1997, the net tangible book value of the Company was
$____________, or $________ per share of Common Stock. After giving effect to
the conversion of the demand note payable into shares of Common Stock, the pro
forma net tangible book value of the Company on June 30, 1997 would have been
$____________ or $_____ per share of Common Stock. After giving effect to the
sale of the __________ shares of Common Stock included in the Units offered by
the Company hereby (less underwriting discounts and estimated expenses of the
Offering), the pro forma net tangible book value of the Company at June 30, 1997
would have been $____________ or $_____ per share, representing an immediate
increase in net tangible book value of $_____ to existing stockholders and an
immediate dilution of $_____ per share to the purchasers of Units in the
Offering.
The following table illustrates the dilution to prospective
investors on a per-share basis:
Offering price..................................................... $
Net tangible book value before pro forma adjustments.......... $
Increase attributable to pro form adjustments................. ______
Pro forma net tangible book value before the Offering......... $
Increase attributable to prospective investors................ ______
Pro forma net tangible book value after the Offering............... ______
Dilution to prospective investors..................................
======
The following table sets forth, as of June 30, 1997, with respect to (i)
the existing stockholders, (ii) the holders of the convertible notes payable,
and (iii) the purchasers of Common Stock constituting part of the Units in the
Offering, a comparison of the number and percentage of shares of Common Stock
acquired from the Company, the amount and percentage of consideration paid and
the average price per share:
Average
Shares Purchased Total Consideration Price Per
Number Percentage Amount Percentage Share
Existing Stockholders................... $ $
Holders of Convertible Notes Payable ...
Public Stockholders.....................
Total................................... 100.0% 100.0%
======== ====== ======= ======
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26
CAPITALIZATION
The following table sets forth the actual short term debt and
capitalization of the Company as of June 30, 1997 and as adjusted to reflect the
sale of Units at an assumed offering price of $________ per Unit. See "USE OF
PROCEEDS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION."
JUNE 30, 1997
--------------------------
ACTUAL AS ADJUSTED
-------- -----------
Short term debt:
Convertible demand note payable (1).......... $635,603
Note payable(2).............................. 155,000
--------
Total short term debt payable................ 790,603
--------
Stockholders' equity:
Preferred Stock, $.001 par value
5,000,000 shares authorized, none issued and
outstanding................................
Common Stock, $.001 par value
100,000,000 shares authorized, 3,482,107
shares outstanding; ______(3)
shares issued and outstanding as adjusted.. 3,482 ________
Contributed capital........................ 1,836,981 ________
Accumulated deficit........................ (928,919) ________
Unearned compensation cost................. (24,500)
-------
Stockholders' equity...................... 887,044 ________
----------
Total short term debt capitalization...... $1,677,647 $
========== ========
(1) The note is payable upon demand, bears interest at 5% per annum and is
convertible into shares of Common Stock at prevailing market rates.
(2) The note bears interest at 10% per annum, with interest to accrue until the
due date of February 25, 1998. Thereafter, the note will be payable upon
demand, with interest at 12% per annum.
(3) Does not include: (i) 1,250,000 shares of Common Stock issuable upon
exercise of the Warrants; (ii) 125,000 shares of Common Stock issuable upon
the exercise of the Representative's Warrants; or (iii) up to 187,500 shares
of Common Stock issuable upon exercise of Warrants and Common Stock issuable
upon the exercise of the Underwriters' Over-Allotment Option.
26
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW:
Effective November 11, 1996, the Company acquired all of the
issued and outstanding capital stock of BIC and BECL from Kit Kung and Hong Yun
(the "Brighton Shareholders") in exchange for the issuance by the Company of an
approximate 88% controlling interest in the Company to the Brighton
Shareholders. The acquisition of BIC and BECL by the Company was accounted for
as a recapitalization of BIC and BECL, with BIC and BECL as the acquirer
(reverse acquisition). This transaction was consummated to facilitate the
consolidation of the operating companies (BIC and BECL) owned by the Brighton
Shareholders into one entity. Accordingly, the historical financial statements
consist of the combined financial statements of BIC and BECL for all periods
presented. The consolidated financial statements include the accounts of BIC, a
United States-based company, and BECL, a Hong Kong-based holding company with
controlling interests in four Hong Kong subsidiaries and three Hong Kong joint
ventures (see "Item 1. Description of Business - Business Development.") All
common share and per share amounts presented herein have been adjusted to
reflect the 1 for 3 reverse stock split effective November 11, 1996, as well as
the 1 for 3 reverse stock split effective October 17, 1997.
BIC is a distributor of third party manufactured industrial,
telecommunication and computer equipment and technological processes to
customers in the PRC and other Pacific Basin countries. BECL is an investment
and holding company whose subsidiaries and joint ventures are involved in (i)
the buying, selling and installation of computer and industrial equipment, and
(ii) the marketing, sale and service of wireless telecommunication equipment
used for credit card approval and authorization systems in the PRC and other
Pacific Basin countries. In addition, the Company is developing the STAQ On-line
Network for the STAQ Exchange, which is not yet operational. Accordingly, the
Company considers its current operations to be in two business segments -
Equipment Distribution and Networking.
On April 15, 1994, BIC entered into a long-term contract with
estimated revenues of $11,000,000 with China National to provide aid in the
design and construction of a sodium bichromate production plant in Chongqing,
Sichuan Province, PRC, with an annual production capacity of 20,000 metric tons.
Although this contract and the work related to it was outside the ordinary scope
of the Company's equipment distribution business, given its size and complexity,
because of certain third party technology that was available to the Company at
that time, the Company was able to successfully bid on the contract. Contracts
of this nature are project based and since the Company's current focus is on
developing other business opportunities in the PRC, the Company does not
anticipate engaging in additional projects of this type or size in the
foreseeable future. Revenue from this contract has been recognized in the years
ended December 31, 1994, 1995, and 1996, and the six months ended June 30, 1997,
and revenue is expected to continue to be recognized through the year ending
December 31, 1998. This contract was temporarily suspended in February 1996
by the municipal government due to environmental concerns relating to China
National's proposed methodology for waste disposal by the plant. The revised
proposal for waste management submitted by China National was approved by the
municipal government and the temporary suspension was lifted in January 1997.
The contract resumed following the lifting of the temporary suspension.
The China National contract accounted for approximately 34% and
13% of revenues for the years ended December 31, 1995 and 1996, respectively,
and approximately 67% and 28% of equipment distribution revenues for the years
ended December 31, 1995 and 1996, respectively. In addition, during 1995 and
1996, a different customer in each such year accounted for approximately 10% and
17% of revenues, respectively. The Company has historically relied on a limited
number of customers for a substantial portion of its total revenues. In
addition, substantially all of the Company's business is currently conducted
with or in the PRC. The Company expects that a significant portion of its future
revenues will continue to be generated by a limited number of customers in the
PRC. The loss of any of these customers or any substantial reduction in business
volume with any of these customers, or any political or economic difficulties
between the United States and the PRC could have a material adverse effect on
future results of operations.
The following tables set forth certain historical operating data
for the periods presented. The 1995 financial statements
27
28
were restated to reflect the correction of depreciation expense recorded on
project equipment, accounting for losses related to joint ventures, and to
appropriately recognize revenue from certain long-term projects. As a result,
net income for the year ended December 31, 1995 was reduced by $258,353.
The following table sets forth certain historical operating date
for the periods presented:
Years Ended December 31, Six Months Ended June 30,
------------------------------------------ ----------------------------------------------
1995 1996 1996 1997
-------------------- ------------------- ------------------------- -------------------
Amount % Amount % Amount % Amount %
---------- ---- ---------- ----- ---------- ------ ----------- -----
Revenues $8,370,537 100.0 $8,006,260 100.0 $5,496,964 100 $ 4,535,865 100.0
Cost of Revenues 6,165,201 73.6 5,785,507 72.3 4,456,263 81.1 3,205,144 70.7
General and
Administrative Expenses 1,648,016 19.7 1,755,029 21.9 803,809 14.6 1,146,601 25.3
Consulting Fees 274,581 6.0
---------- ----- ---------- ----- ---------- ----- ----------- -----
Operating Income (Loss) 557,320 6.7 465,724 5.8 236,892 4.3 (90,461) (2.0)
Total Other Income, Net 3,324 -- 49,026 .6 60,367 1.1 23,495 .5
---------- ----- ---------- ----- ---------- ----- ----------- -----
Income (Loss) Before Income
Taxes and Minority
Interests 560,644 6.7 514,750 6.4 297,259 5.4 (66,966) (1.5)
Provision (Benefit) for
Income Taxes 444,000 5.3 309,000 3.8 133,176 2.4 (31,000) (.7)
Minority Interests 55,703 .7 (7,226) (.1) (22,708) (.4) 5,942 .1
---------- ----- ---------- ----- ---------- ----- ----------- -----
Net Income (Loss) $ 172,347 2.1 $ 198,524 2.5 $ 141,375 2.6 $ (30,024) (.7)
========== ===== ========== ===== ========== ===== =========== =====
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29
Revenues from the United States consist primarily of revenues from equipment
distribution export sales to the Far East, while revenues from the Far East
based operations consist of revenues from both equipment distribution and
networking.
GEOGRAPHIC AREA INFORMATION
Years Ended December 31, Six Months Ended June 30,
---------------------------------------- -----------------------------------------
1995 1996 1996 1997
------------------ ------------------- ------------------- --------------------
Amount % Amount % Amount % Amount %
---------- ----- ---------- ----- ---------- ------ ----------- ------
Revenues:
United States $6,497,541 77.6 $6,039,716 75.4 $4,081,042 74.2 $3,953,366 87.2
Far East 1,872,996 22.4 1,966,544 24.6 1,415,922 25.8 582,499 12.8
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total $8,370,537 100.0 $8,006,260 100.0 $5,496,964 100.0 $4,535,865 100.0
========== ===== ========== ===== ========== ===== ========== =====
Operating
Income (Loss):
United States $ 927,375 166.4 $ 730,875 156.9 $ 212,590 89.7 $ 339,517 184.4
Far East (370,055) (66.4) (265,151) (56.9) 24,302 10.3 (155,397) (84.4)
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total $ 557,320 100.0 $ 465,724 100.0 $ 236,892 100.0 $ 184,120(1) 100.0
========== ===== ========== ===== ========== ===== ========== =====
BUSINESS SEGMENT INFORMATION
Years Ended December 31, Six Months Ended June 30,
---------------------------------------- -----------------------------------------
1995 1996 1996 1997
------------------ ------------------- ------------------- --------------------
Amount % Amount % Amount % Amount %
---------- ----- ---------- ----- ---------- ------ ----------- ------
Revenues:
Networking $4,102,746 49.0 $4,341,827 54.2 $2,638,543 48.0 $1,617,221 35.7
Equipment
Distribution 4,267,791 51.0 3,664,433 45.8 2,858,421 52.0 2,918,644 64.3
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total $8,370,537 100.0 $8,006,260 100.0 $5,496,964 100.0 $4,535,865 100.0
========== ===== ========== ===== ========== ===== ========== =====
Operating
Income:
Networking $ 309,891 55.6 $ 251,209 53.9 $ 113,708 48.0 $ 78,105 42.4
Equipment
Distribution 247,429 44.4 214,515 46.1 123,184 52.0 106,015 57.6
---------- ---- ---------- ----- ---------- ---- --------- -----
Total $ 557,320 100.0 $ 465,724 100.0 $ 236,892 100.0 $ 184,120(1) 100.0
========== ===== ========== ===== ========== ===== ========== =====
(1) Operating income (loss) for both Geographic Area Information and Business
Segment Information exclude business development consulting fees of
$274,581.
29
30
Consolidated Results of Operations
SIX MONTHS ENDED JUNE 30, 1996 AND 1997:
Revenues. Revenues for the six months ended June 30, 1997 were
$4,535,865, as compared to $5,496,964 for the six months ended June 30, 1996, a
decrease of $961,099 or 17.5%. The decrease in revenues of $961,099 in 1997 as
compared to 1996 consisted of a decrease of $1,021,322 or 38.7% from networking,
which was offset in part by a nominal increase of $60,233 or 2.1% from equipment
distribution. For the six months ended June 30, 1997 and 1996, revenues from
equipment distribution represented approximately 64.3% and 52.0% of revenues,
respectively, and revenues from networking represented approximately 35.7% and
48.0% of revenues, respectively.
The primary reason for the decrease in revenues from networking in 1997
as compared to 1996 was management's decision to allocate personnel and
resources in 1997 to continue the development of the STAQ On-line Network (see
"Description of Business - STAQ On-line Network"), which, due to the Company's
limited capital and operating resources, required the Company to reduce its
sales efforts with respect to the networking business segment.
For the six months ended June 30, 1997 and 1996, the China National
contract accounted for approximately 46% and 0% of revenues, respectively, and
approximately 71% and 0% of equipment distribution revenues, respectively.
Revenues from the China National contract were approximately $2,066,000 for the
six months ended June 30, 1997, and $0 for the six months ended June 30, 1996
due to the project's temporary suspension (which suspension was imposed in
February 1996 and was lifted in January 1997).
Networking revenues include revenues from the sale and installation of
the Aria Wireless System. During the six months ended June 30, 1997, the Company
completed six agreements with the Industrial and Commercial Bank of China
("ICBC") to provide and install the Aria Wireless System for ATM linkage
progressively as transaction automation is introduced within the bank's entire
system comprising over 600 branches in the PRC. For the six months ended June
30, 1997, revenues from the sale and installation of the Aria Wireless System
were $987,103 or 61.0% of networking revenues. The Company did not have any
revenues from the sale and installation of the Aria Wireless System during the
six months ended June 30, 1996.
For the six months ended June 30, 1997, United States revenues from
export sales to the Far East decreased by $127,676 or 3.1%, to $3,953,366 in
1997 from $4,081,042 in 1996, and revenues from operations based in the Far East
decreased by $833,423 or 58.9%, to $582,499 in 1997 from $1,415,922 in 1996. For
the six months ended June 30, 1997 and 1996, export sales' revenues from the
United States represented approximately 87.2% and 74.2% of revenues,
respectively, and revenues from the Far East operations represented 12.8% and
25.8% of revenues, respectively.
Gross Profit. Gross profit for the six months ended June 30, 1997
increased by $290,020 or 27.9%, to $1,330,721 or 29.3% of revenues, as compared
to $1,040,701 or 18.9% of revenues for the six months ended June 30, 1996.
Despite a decrease in revenues in 1997 as compared to 1996 of 17.5%, gross
profit increased as a result of improvement in gross margin, which was primarily
a result of increased progress on the completion of the China National contract
in early 1997, and improved gross margins from certain equipment distribution
contracts.
General and Administrative Expenses. Excluding consulting fees of
$247,581 as described below, general and administrative expenses increased by
$342,792 or 42.6% to $1,146,601 or 25.3% of revenues for the six months ended
June 30, 1997, as compared to $803,809 or 14.6% of revenues for the six months
June 30, 1996, primarily as a result of increases in employee compensation and
occupancy costs incurred to develop the STAQ On-line Network in particular and
to expand operations in general.
During the six months ended June 30, 1997, the Company incurred
consulting fees aggregating $274,581 for certain legal, professional,
consulting and other costs incurred in connection with the Company's ongoing
business development activities. The Company did not incur any similar costs
during the six months ended June 30, 1996. The Company does not expect that this
category of costs will continue at these levels in 1998 subsequent to the
completion of the offering. Included in the $274,581 of consulting fees is
$175,000 of costs pursuant to a consulting agreement with a consulting firm as
described below in "Consulting Fees."
30
31
Operating Income (Loss). For the six months ended June 30, 1997,
operating loss was ($90,461) as compared to operating income of $236,892 for
the six months ended June 30, 1996, and operating income (loss) as a percent of
revenues was (2.0%) in 1997 as compared to 4.3% in 1996. The Company incurred an
operating loss in 1997 as compared to operating income in 1996 primarily as a
result of increased general and administrative expenses related to business
development activities.
For the six months ended June 30, 1997 and 1996, operating income from
equipment distribution represented approximately 3.6% and 4.3% of equipment
distribution revenues, respectively, and operating income from networking
represented approximately 4.8% and 4.3% of networking revenues, respectively.
For the six months ended June 30, 1997 and 1996, operating income from
the United States export sales to the Far East represented approximately 8.6%
and 5.2% of such revenues, respectively, and operating income (loss) from Far
East based operations represented approximately (26.7%) and 1.7% of Far East
revenues, respectively.
Miscellaneous Income. During the six months ended June 30, 1996,
miscellaneous income aggregated $70,841, and included nonrecurring license
income of $44,871. Miscellaneous income was $8,099 for the six months ended June
30, 1997.
Consulting Fees. On February 25, 1997, the Company entered into a
consulting agreement with a financial consulting firm for business advisory
services. Pursuant to that agreement, the Company paid the consulting firm
$25,000 and issued a one-year note for $150,000 for services rendered. The note
is unsecured, bears interest at 10% per annum, with interest to accrue until the
due date of February 25, 1998. Thereafter, such note will become payable upon
demand, with interest at 12% per annum.
If the Company does not complete a debt or equity financing by
February 25, 1998, then the Company will have the option of converting the note,
including accrued interest, into its common stock, with the value of such common
shares to be calculated at 75% of the market price on such date. The maximum
number of common shares that the Company will be required to reserve and issue
as full settlement for the note, including accrued interest, will be 75,000
shares. Such shares, if issued, will be restricted and will have piggyback
registration rights.
If the Company completes a private financing by February 25,
1998, then the noteholder will have the option of converting the note, including
accrued interest, into the same debt or equity instrument issued in connection
with such private financing. If the Company completes a secondary public
offering by February 25, 1998, the noteholder will have the option of converting
the balance of the note, including interest, into the same securities issued in
connection with the secondary public offering at the offering price. Such
securities, if issued, will be restricted and will have piggyback registration
rights. In addition, the noteholder will have the right to elect one member of
the Company's board of directors.
31
32
Income Taxes. For the six months ended June 30, 1997, the benefit from
income taxes was ($31,000) or 46.3% of the loss before income taxes and minority
interests, as compared to a provision for income taxes of $133,176 or 44.8% of
income before income taxes and minority interests for the six months ended June
30, 1996, primarily as a result of a lower valuation allowance relating to
foreign tax loss carryforwards. Accordingly, the Company's consolidated
effective tax rate is increased by the effects of valuation allowances
established against net operating losses generated by BECL subsidiaries, the
realization of which cannot be considered more likely than not.
The Company is subject to different tax rates and tax laws because it
operates in various distinct jurisdictions. As a result, the Company may not
necessarily be able to offset its income earned in one jurisdiction against
losses incurred in another jurisdiction. Therefore, the Company anticipates that
its consolidated effective tax rate may vary significantly between periods.
Net Income (Loss). The net loss for the six months ended June 30, 1997
was ($30,024) or ($.01) per share, as compared to net income of $141,375 or $.05
per share for the six months June 30, 1996.
CONSOLIDATED RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996:
Revenues. Revenues for the year ended December 31, 1996 were
$8,006,260, as compared to $8,370,537 for the year ended December 31, 1995, a
decrease of $364,277 or 4.4%. The decrease in revenues of $364,277 in 1996 as
compared to 1995 consisted of a decrease in revenues from equipment distribution
of $603,358 or 14.1%, which was partially offset by an increase in revenues from
networking of $239,081 or 5.8%. For the years ended December 31, 1996 and 1995,
revenue from equipment distribution represented approximately 45.8% and 51.0% of
revenues, respectively, and revenues from networking represented approximately
54.2% and 49.0% of revenues, respectively.
Equipment distribution revenues for the year ended December 31, 1996
decreased primarily because of the temporary suspension imposed by the municipal
government from February 1996 to January 1997 relating to the previously
described contract with China National. Revenue from this long term contract is
included in the Company's equipment distribution business segment, and is
recognized using the percentage of completion method. As a result of the
project's temporary suspension, revenue from this contract was reduced by
approximately $1,810,000 in 1996 as compared to 1995, from approximately
$2,850,000 in 1995 to $1,040,000 in 1996. As a result of the lifting of the
temporary suspension in January 1997, the Company expects to recognize revenue
from this contract of approximately $6,400,000 during 1997.
United States revenues from export sales to the Far East consist
primarily of revenues from equipment distribution, while revenues from
operations based in the Far East consist of revenues from both equipment
distribution and networking. For the year ended December 31, 1996, revenues from
the United States export sales decreased by $457,825 or 7.0%, to $6,039,716 in
1996 from $6,497,541 in 1995, and revenues from the Far East operations
increased by $93,548 or 5.0%, to $1,966,544 in 1996 from $1,872,996 in 1995. For
the years ended December 31, 1996 and 1995, revenues from the United States
export sales represented approximately 75.4% and 77.6% of consolidated revenues,
respectively, and revenues from the Far East operations represented
approximately 24.6% and 22.4% of consolidated revenues, respectively.
Gross Profit. Gross profit for the year ended December 31, 1996 was
$2,220,753 or 27.7% of revenues, as compared to $2,205,336 or 26.3% of revenues
for the year ended December 31, 1995. The increase in the gross margin from 1995
to 1996 was primarily a result of the increase in revenues from networking, both
on an absolute basis and as a percentage of revenues.
General and Administrative Expenses. General and administrative
expenses increased by $107,013 or 6.5%, to $1,755,029 or 21.9% of revenues for
the year ended December 31, 1996, as compared
32
33
to $1,648,016 or 19.7% of revenues for the year ended December 31, 1995,
primarily as a result of increases in employee compensation and occupancy costs
incurred to develop the STAQ On-line Network in particular and to expand
operations in general. These increased costs were offset in part by decreases in
travel and lodging and miscellaneous costs.
Operating Income. For the year ended December 31, 1996, operating
income decreased by $91,596 or 16.4% to $465,724, as compared to $557,320 for
the year ended December 31, 1995, and operating income as a percent of revenues
decreased to 5.8% in 1996 from 6.7% in 1995. The reduction in operating income
in 1996 as compared to 1995 reflects a decrease in revenues, primarily from the
China National contract, increased start-up and marketing costs in the
networking business segment and increased general and administrative costs.
For the years ended December 31, 1996 and 1995, operating income from
equipment distribution represented approximately 5.9% and 5.8% of equipment
distribution revenues, respectively, and operating income from networking
represented approximately 5.8% and 7.6% of networking revenues, respectively.
The decrease in operating income from equipment distribution of $32,914 or 13.3%
in 1996 as compared to 1995 reflects a decrease in revenues, primarily from the
China National contract, and the decrease in operating income from networking of
$58,682 or 18.9% in 1996 as compared to 1995 reflects an increase in various
operating costs.
For the years ended December 31, 1996 and 1995, operating income from
the United States represented approximately 12.1% and 14.3% of United States
revenues, respectively, and operating loss from the Far East represented
approximately 13.5% and 19.8% of Far East revenues, respectively. The decrease
in operating income from the United States of $196,500 or 21.2% in 1996 as
compared to 1995 was a result of the decrease in revenues, primarily from the
China National contract, and the decrease in operating loss from the Far East of
$104,904 or 28.3% in 1996 as compared to 1995 was a result of an increase in
revenues.
Income Taxes. For the year ended December 31, 1996, the provision for
income taxes was $309,000 or 60.0% of income before income taxes and minority
interests, as compared to $444,000 or 79.2% of income before income taxes and
minority interests for the year ended December 31, 1995, primarily as a result
of a lower valuation allowance relating to foreign tax loss carryforwards.
Accordingly, the Company's effective tax rate is increased by the effects of
valuation allowances established against net operating losses generated by BECL
subsidiaries, the realization of which cannot be considered more likely than
not.
The Company is subject to different tax rates and tax laws because it
operates in various distinct jurisdictions. As a result, the Company may not
necessarily be able to offset its income earned in one jurisdiction against
losses incurred in another jurisdiction. Therefore, the Company anticipates that
its consolidated effective tax rate may vary significantly between periods.
Net Income. Net income for the year ended December 31, 1996 was $198,524
($.06 per share), as compared to net income of $172,347 ($.06 per share) for the
year ended December 31, 1995.
CONSOLIDATED FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES:
Operating. For the six months ended June 30, 1997, the Company's
operations utilized cash resources of $1,576,867, as compared to utilizing cash
resources of $583,782 for the six months ended June 30, 1996. The Company had a
net working capital deficit of ($667,134) at June 30, 1997, as compared to a net
working capital deficit of ($879,481) at December 31, 1996, reflecting a current
ratio of .88:1 at June 30, 1997 as compared to .91:1 at December 31, 1996. The
Company's operations utilized an increased amount of cash
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resources in 1997 as compared to 1996 as a result of increased activity with
respect to the China National contract.
For the year ended December 31, 1996, the Company's cash flow
from operations was $2,741,329, as compared to $599,233 for the year ended
December 31, 1995. The Company had a net working capital deficit of ($879,481)
at December 31, 1996, as compared to a net working capital deficit of
($2,819,778) at December 31, 1995, reflecting current ratios of .91:1 and .48:1,
respectively. The Company's operating cash flow improved substantially in 1996
as compared to 1995 primarily as a result of improved project management that
focused on cash collection.
Accounts receivable increased by $1,185,943 to $1,339,318 at
December 31, 1996, from $153,375 at December 31, 1995. Included in the accounts
receivable balance at December 31, 1996 is approximately $512,000 due from a
Hong Kong-based customer on an unsecured basis, which represents approximately
38% of total accounts receivable. Management is currently discussing the timing
of the settlement of this accounts receivable with the customer and expects that
it will be paid in full during the latter part of 1997. During the six months
ended June 30, 1997, accounts receivable levels remained relatively constant,
and the Company collected approximately $101,000 of the accounts receivable
balance from the Hong Kong-based customer.
Investing. During the years ended December 31, 1995 and 1996, the
Company purchased fixed assets aggregating $1,352,434 and $154,484,
respectively, primarily in the form of project equipment which will be utilized
in completing future projects. Other than equipment which the Company purchases
in the fulfillment of its contracts, the Company has no capital expenditure
commitments, except with regard to the Brighton-STAQ project into which it has
already invested $1,600,000 (see "Description of Business - Brighton-STAQ"). The
Company owns a 90% interest in the joint venture developing the Brighton-STAQ
project, and is obligated to provide additional funding of approximately
$4,000,000 during the latter part of 1997 and early 1998. The Company is in
discussions with various parties regarding funding this obligation, and it
currently expects to meet its funding obligation through the sale of its equity
securities, although there can be no assurances that the Company will be
successful in this regard.
The restricted cash balances decreased by $1,555,425, from
$2,636,000 at December 31, 1996 to $1,080,575 at June 30, 1997, as a result of
the utilization of a portion of the restricted cash balances to fulfill certain
equipment contract obligations related to the China National contract during the
six months ended June 30, 1997.
Restricted cash balances, which represent prepayments by
customers that are restricted to pay project related current liabilities and
commitments, increased by $2,036,000 during 1996, from $600,000 at December 31,
1995 to $2,636,000 at December 31, 1996. The restricted cash balance at December
31, 1996 secures, in part, irrevocable letters of credit aggregating $746,230
that the Company had issued for contingent commitments on equipment purchases.
Financing. During January 1996, the Company entered into a
convertible demand note agreement with a third party, with interest at 5% per
annum. The note had a principal balance outstanding of $620,101 and $635,603 at
December 31, 1996 and June 30, 1997. The note is convertible into shares of
common stock at prevailing market prices. The Company is currently negotiating
with the note holder to convert a portion of this demand note into common stock.
During December 1996, the Company sold 33,333 shares of common
stock in a private transaction for aggregate proceeds of $450,000, less costs of
$259,824, generating net proceeds of $190,176. Subsequently, during the six
months ended June 30, 1997, the Company sold an additional 24,007 shares of
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common stock for aggregate proceeds of $352,948, less costs of $45,416,
generating net proceeds of $307,532. Such costs consist of payments to various
related and unrelated parties as compensation for services rendered. In
addition, the Company issued 6,089 shares of common stock with a value of
$89,504 to various individuals and firms for services rendered with respect to
capital raising activities. Included in the costs of $259,824 in 1996 and
$45,416 in 1997 are payments of $105,731 and $11,931, respectively, to Orient
Financial Services Limited, a Hong Kong-based company in which Nils A. Ollquist,
a director of the Company, is a principal.
During the six months ended June 30, 1997, the Company granted
3,333 shares of restricted common stock to an employee. The aggregate value of
the shares of $49,000 was recorded as a reduction to stockholders' equity as
unearned compensation cost and is being amortized, as earned, during the year
ended December 31, 1997. At June 30, 1997, the balance of unearned compensation
costs was $24,500.
In order to meet its working capital requirements, the Company
has periodically received funding from Kit Kung, the Chairman of the Board of
Directors, President and Chief Executive Officer, and his family members. The
Company has also periodically made advances to the principals and officers of
the Company. Such advances are unsecured and generally bear no stated interest
rate or terms of repayment. As of December 31, 1995 and 1996, amounts due from
Kit Kung and his family members aggregated $0 and $43,239, respectively;
outstanding receivables from other related parties aggregated $8,220 and
$15,884, respectively; and amounts due to Kit Kung and his family members
aggregated $2,612,896 and $227,298, respectively. During the year ended December
31, 1995, Kit Kung and his family members had advanced $1,612,041 to the
Company, and during the year ended December 31, 1996, the Company had repaid
$1,118,625 of such advances. During the years ended December 31, 1995 and 1996,
advances to other related parties aggregated $518,322 and $43,239, respectively,
and during the year ended December 31, 1996, $424,872 of accounts receivable
from related parties was repaid.
In December 1996, Kit Kung contributed $1,266,973 of net
borrowings, consisting of $1,515,076 of amounts owed by the Company to Kit Kung
less $248,103 of amounts owed to the Company, to contributed capital.
During the six months ended June 30, 1997, the Company advanced
$325,001 to Kit Kung and his family members and repaid amounts due Kit Kung and
his family members aggregating $182,513, resulting in receivables from
stockholders and related parties of $360,124 and a payable to stockholders of
$44,785 at June 30, 1997.
The Company is in the process of renegotiating the terms of
certain aspects of technological licensing arrangements that it entered into in
conjunction with the China National contract (see "Description of Business -
Industrial Equipment Distribution"). The contractual value of services currently
under negotiation is approximately $450,000. The inability of the Company to
fulfill contractual terms of long-term projects or to negotiate favorable
arrangements on the use or distribution of licensed technology may have a
material adverse effect on the Company's results of operations and financial
condition.
The Company anticipates, based on currently proposed plans and
assumptions relating to its operations, that its projected cash flow provided by
operations, supplemented with borrowings from related parties as necessary, will
be sufficient to support operations at current levels for at least the next 12
months. However, the Company requires additional capital in connection with the
Brighton-STAQ project (see "Description of Business - STAQ On-line Network"),
which the Company anticipates obtaining from the net proceeds of the Offering
and from subsequent debt and/or equity financings. To the extent that the
Company is unable to timely fund its $4,000,000 commitment to fund the
Brighton-STAQ project, the Company's interest in the project may be reduced or
eliminated, which would adversely affect the potential future profitability of
this project as it relates to the Company's consolidated results of operations.
If the Company
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were to be unable to fund the continuing development of the Brighton-STAQ
project, project equipment aggregating $1,331,588 at June 30, 1997 would be
liquidated at net realizable value and the resulting loss, if any, would be
charged to operations.
INFLATION AND CURRENCY MATTERS:
In recent years, the PRC economy has experienced periods of rapid
economic growth as well as high rates of inflation, which in turn has resulted
in the periodic adoption by the PRC government of various corrective measures
designed to regulate growth and contain inflation. Since 1993, the PRC
government has implemented an economic program designed to control inflation,
which has resulted in the tightening of working capital available to PRC
business enterprises. The success of the Company depends in substantial part on
the continued growth and development of the PRC economy.
Since the Company's contracts are generally denominated in U.S.
dollars and are generally of short duration, the Company is not subject to any
economic exposure from the effects of inflation in the PRC. However, the
Brighton-STAQ project will be subject to the effects of inflation in the PRC.
Foreign operations are subject to certain risks inherent in
conducting business abroad, including price and currency exchange controls, and
fluctuations in the relative value of currencies. Changes in the relative value
of currencies occur periodically and may, in certain instances, materially
affect the Company's results of operations and the ability of customers to
satisfy obligations owed to the Company. In addition, PRC currency is not freely
convertible into foreign currencies. All foreign exchange transactions involving
PRC currency must take place either through the Bank of China or other
institutions authorized to buy and sell foreign exchange, or at a Foreign
Exchange Adjustment Center. The ability to convert PRC currency is subject to
the availability of foreign currencies.
RECENT ACCOUNTING PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is effective for financial
statements issued for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods presented. Under the new
requirements, the Company will be required to present "basic" earnings per share
and "diluted" earnings per share. Basic earnings per share does not include the
dilutive effect of stock options and warrants. The Company does not expect that
adoption of this statement will have a material effect on reported earnings per
share.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 129, "Disclosure of Information about Capital Structure," which is
effective for financial statements issued for periods ending after December 15,
1997. The new standard reinstates various disclosure requirements previously in
effect under Accounting Principles Board Opinion No. 15, which has been
superseded by this statement. The Company does not expect that adoption of this
statement will have a material effect on its current disclosures and
presentation.
In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income," which is effective for
financial statements issued for periods ending after December 15, 1997. Earlier
application is permitted. This statement establishes standards for the reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income consists of net income and
other comprehensive income. Other comprehensive income
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refers to revenues, expenses, gains and losses that under generally accepted
accounting principles are included in comprehensive income but are excluded from
net income. The Company does not expect that adoption of this statement will
have a material effect on its current disclosures and presentation.
In June 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which is effective for financial statements issued for periods
ending after December 15, 1997. This statement discusses how to report operating
segments and certain information about a public company's products and services,
the geographic areas in which it operates, and its major customers. The Company
does not expect that adoption of this statement will have a material effect on
its current disclosures and presentation.
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BUSINESS
GENERAL
The Company currently operates in two business segments, (i)
computer network integration and (ii) distribution of industrial equipment. The
Company is also developing an on-line securities trading network for the STAQ
Exchange, which the Company expects to be operational in late 1998. The Company
provides such services and equipment primarily to customers in China, as well as
other Pacific Basin countries. The Company believes that it has a strong
reputation as an independent full service provider of computer network
integration services and a distributor of industrial equipment in China. This
belief is based on several factors, including the Company's and its
predecessor's experience in designing and installing computer networks and
importing industrial equipment in China since 1981. Building on its operating
experience in China, the Company formed a Chinese joint venture to develop,
design, install and maintain a nationwide computerized multi-market securities
quotation and trading network in China.
BUSINESS STRATEGY
The Company intends to maintain its focus on the Chinese market
place and its business strategy is focused as follows:
o Emphasis on network integration in the banking and finance
industries
o Commercialization of the on-line securities trading
network
o Expansion of the industrial equipment distribution
business to meet customer demand
Banking and Finance Oriented Information Technology. As the Chinese economy
continues to grow and the standard of living increases in China, the Company
believes that there will be an increased demand for consumer oriented financial
services such as ATMs and retail outlets that accept credit card transactions.
The Company's strategy has been to meet this increasing demand in the Chinese
marketplace by installing wireless telecommunications networks suitable for high
volume transactions that require instant responses, such as ATM transactions,
credit card verifications, clearance and settlements, in China. Historically,
the Company's gross margin on contracts for computer network integration for
such wireless telecommunication systems has been at least 40 percent. The
Company currently has contracts with the Industrial and Commercial Bank of China
to design and install wireless telecommunication networks for clearance and
settlements for six of its bank branches. The Company believes that as market
demand for ATMs and retail outlets that accept credit card transactions
increases, it will be able to secure additional contracts in this area.
Securities Quotation and Trading Network. The Company is the owner of a 90%
interest in Brighton-STAQ, a PRC registered Sino-Hong Kong joint venture. The
remaining 10% interest is owned by a company controlled by the STAQ Exchange,
one of four national securities exchanges in China, located in Beijing. The
purpose of Brighton-STAQ is to develop, design, install and maintain the STAQ
On-line Network. The Company's initial plans are to offer the STAQ On-line
Network to the 550 stock brokerages (operating 2,200 offices) that are members
of the STAQ Exchange in the cities of Beijing, Chongqing, Guangzhou, Shanghai
and Shenzhen, with plans to eventually market the STAQ On-line Network to all
2,800 stock brokerages (operating over 10,000 offices) in China. The Company
expects to initially charge an installation fee of $6,000 and a monthly
maintenance fee of $1,000 for each terminal installed at the stock brokerages.
The STAQ On-line Network project is currently in the testing phase. The Company
expects to commercialize the STAQ On-line Network in the first quarter of 1998.
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Industrial Equipment Distribution. Industrial equipment distribution accounts
for a substantial portion of the current revenues and profits of the Company.
The type of industrial equipment which the Company has been marketing in China
include machine tools, such as machine center and grinder measurement devices,
and heavy machinery, such as gantry mills, pressing machine production lines and
dyes transfer automation systems. The Company is the exclusive distributor for
Milltronics Manufacturing Company (a U.S. company), Normac Incorporated (a U.S.
company), ALO Teknik AB (a Swedish company), Royal Master Grinders, Inc. (U.S.
company) and K.O. Lee Company (a U.S. company) for the sale of their industrial
equipment in China. In addition to representing these manufacturers, the Company
has adopted the strategy of increasing revenues by searching for industrial
equipment from manufacturers worldwide that meet both the customer's technical
specifications and budget. The Company will continue its past practice of
gradually increasing the size of its sales team to meet customer demand for
industrial equipment.
COMPUTER NETWORK INTEGRATION
MARKET OVERVIEW
China's information technology market has enjoyed significant
growth and will likely grow at an increasing rate in the next decade as market
demand for Western style modernization increases. In particular, growth will be
most significant for system engineering services that provide customized
products tailoring to customer's specifications. The following are the market
factors which will contribute to this growth:
(1) DEVELOPMENT OF LARGE SCALE INFORMATION
"INFRASTRUCTURES": The Chinese Central Government has
made "informationization" of the economy a priority of
its most recent five year plan, and is planning to
invest substantial amounts of capital in numerous
information super-highway type projects such as the
"Golden" projects(1).
(2) GROWING DEMAND FOR COMPLEX INFORMATION SYSTEMS FROM
OTHER LARGE INFRASTRUCTURE PROJECTS: Continuous
investment in large-scale infrastructure in areas such
as power generation and transportation will drive demand
for information technology systems. One example is the
Three Gorges Dam hydro-electric project, where the
information technology system is estimated to cost in
the area of $30,000,000.
(3) GROWING DEMAND FOR INFORMATION TECHNOLOGY SYSTEMS FROM
ENTERPRISES AND GOVERNMENT AGENCIES: As the Chinese
economy develops and matures, enterprises and
governmental agencies will need to utilize information
technology systems to become competitive with their
counterparts in more developed countries.
- ------------------------
(1) China's State Council plans to develop the country's information
infrastructure by 2000. The plan, know as the China National Information
Infrastructure was implemented at the end of 1993 and is characterized by a
series of "Golden" Projects, including the Golden Bridge, Golden Taxation,
Golden Customs and Golden Card Projects. The Golden Bridge Project's goal is to
link, via a telecommunication network, all the cables of the Ministry of Posts
and Telecommunications and special telecommunication grids of other ministries
and official departments. The telecommunication network is expect to digitally
transmit documents, sound and pictures used for serving China's finance,
customs, foreign trade, tourism, meteorology, communication, State security,
science and technology and other information businesses. The Golden Tax and
Golden Customs Projects are extensions of the Golden Bridge Project. The Golden
Card Project is consumer oriented and expected to modernize the China's payment
and cashing services with the introduction and popularization of credit cards
and other related media and decrease the amount of cash in circulation.
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and governmental agencies will neet to utilize
information technology systems to become competitive
with their counterparts in more developed countries
In addition, due to their relative lack of technological
sophistication, Chinese customers usually require more systems engineering
services on each project than customers in more developed markets. Compared to
Western countries, China's information technology industry is relatively young,
such that most organizations do not have dedicated information technology
departments as are common in Western countries. Much of the industry's technical
resources are concentrated in companies that directly engage in the information
technology business. As a result, companies outside the industry must rely on
outside technical expertise to meet their needs. The demand for outside
technical assistance will likely increase, as most of the software packages
being developed are general platforms that require substantial customization to
meet specific needs of each organization.
OPERATIONS
The Company provides customized full service computer network and
telecommunication equipment integration, installation and maintenance for
customers in China and other Pacific Basin countries. The Company provides
integrating solutions for customers utilizing software and hardware developed by
third parties. The following examples are indicative of the Company's and its
predecessor's projects:
==========================================================================================
CUSTOMER PROJECT DESCRIPTION DATE OF EXECUTION CONTRACTUAL BILLINGS
==========================================================================================
ICBC Bank branch networking June 1993 $1,700,000
in six cities in China to
August 1997
- ------------------------------------------------------------------------------------------
Bank of China Credit card September 1992 $420,000
authorization and
processing for Beijing
Headquarters
- ------------------------------------------------------------------------------------------
Travel Industry Ticket reservation April 1993 $1,200,000
Automatic Systems system for three
of Australia (TIAS) airline companies,
linking 3,500
reservation terminals
- ------------------------------------------------------------------------------------------
Mobil Oil Credit card October 1992 $160,000/yr.
authorization and to
processing for retail September 1994
outlets across
Australia and New
Zealand
- ------------------------------------------------------------------------------------------
Shell Oil Credit card October 1992 $85,000/yr.
authorization and to
processing for retail September 1994
outlets across
Australia and New
Zealand
- ------------------------------------------------------------------------------------------
New Zealand ATM network January 1994 $1,200,000
National Bank
- ------------------------------------------------------------------------------------------
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==========================================================================================
CUSTOMER PROJECT DESCRIPTION DATE OF EXECUTION CONTRACTUAL BILLINGS
==========================================================================================
Coles Myer Credit card August 1994 $1,650,000
authorization and
processing for all
Coles Myer Stores in
Australia
- ------------------------------------------------------------------------------------------
Queensland Bank ATM network March 1993 $800,000
- ------------------------------------------------------------------------------------------
Zhongzou Hotel Hotel management September 1997 $210,000
computer system for
300-room hotel in
Zhongzou City, PRC
- ------------------------------------------------------------------------------------------
The People's Daily Office automation November 1996 $760,000
system for text
retrieval and high
speed line printer
integration
==========================================================================================
The Company completed integration of a hotel management computer
system for Zhengzhou Hotel, Zhengzhou City, China in September 1997. The Company
has developed its own software for integration of hotel management computer
systems capable of managing reservations, telephones and billings. The Company
has installed over 60 hotel management computer systems in China and Hong Kong.
The Company's customers include Regent Hotel in Hong Kong, The China Hotel in
Guangzhou, International Hotel in Beijing and JC Mandarin Hotel in Shanghai. The
Company's gross margin for installation of hotel management computer systems is
in the range of 20-25 percent.
The Company also provides computer network integration for office
automation. The Company installed a database management system for The People's
Daily in November 1996 that is capable of scanning, storing, retrieving and
typesetting texts in Chinese characters. The Company integrated software from
Chinese vendors with computer equipment manufactured by Digital Equipment
Corporation, with computer software from Oracle Corporation for database
management, as well as with high speed line printers. The Company's gross margin
for office automation projects is approximately 10 percent.
ARIA WIRELESS SYSTEM
The Company has been particularly successful in introducing
wireless telecommunication equipment manufactured by Aria Wireless Systems,
Inc., a U.S. company, which is suitable for high volume transactions that
require instant responses, such as ATM transactions, credit card verifications,
clearance and settlements ("Aria Wireless Systems"), in the Chinese market
place. The Company's gross margin on contracts for computer network integration
of the Aria Wireless Systems has been approximately 40 percent. In 1997, to
date, the Company has secured eight contracts with the Industrial and Commercial
Bank of China to customize integration of and install Aria Wireless Systems for
ATM linkage and for clearance and settlements for six of its bank branches. Four
of the contracts have been completed and two of the contracts are currently in
progress. The Company's focus in the computer network integration segment of its
business currently is in wireless telecommunication systems and it expects to
secure two additional contracts for the Aria Wireless System by the end of 1997.
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GENERAL
The Company's Aria Wireless Systems utilizes radio frequency to
transmit data in metropolitan areas within a 38 mile radius. Primary application
for the Aria Wireless System is in the financial service industry and includes
ATM linkage, credit card processing and banking data transfer. The Aria Wireless
System is the industry leader for wireless data transfer technology in on-line
transactions processing applications. There are over 230 Aria Wireless Systems
installed in 53 nations worldwide in the financial services industry.
As the Chinese economy continues to grow and the standard of
living increases in China, there will be an increased demand for consumer
oriented financial services such as ATMs and retail outlets that accept credit
card transactions. The Company believes that the Aria Wireless System is
particularly well-suited for use by the financial services industry in China
because it offers a more reliable alternative to land telephone lines for data
transmission. Unlike Western countries, the land telephone lines in China are
not yet able to support the rapid transmission of data with the accuracy and
speed required by the financial industry. The Aria Wireless System, which
utilizes radio frequencies, will assist the financial services industry to
address the demand for consumer oriented financial services.
SALES AND MARKETING
In 1995, the Company's subsidiary, BECL, signed a
Preincorporation Agreement to form a Hong Kong joint venture company, Aria
Wireless Systems (China) Limited ("Aria China"), with two U.S. companies, Aria
Wireless Systems, Inc. ("Aria, Inc.") and Valdacom, Inc. ("Valdacom"), to
market, sell and service wireless telecommunication products from Aria, Inc.
("Aria Wireless System") in the China market on an exclusive basis. The
Preincorporation Agreement provided that the Company was to receive a 65%
ownership of Aria China, and the two other parties, Aria, Inc. and Valdacom,
were to receive a 19.5% and 15.5% ownership of Aria China, respectively.
Financial difficulties at Aria, Inc. delayed formation of Aria
China. Aria, Inc. filed for reorganization under Chapter 11 of the United States
Bankruptcy Code in February 1996. On May 22, 1997, Aria, Inc. emerged from
Chapter 11 under an approved reorganization plan and with a new financial
structure. Aria China was incorporated in 1995 by the Company but has remained
inactive as the parties to the Preincorporation Agreement have, to date, not
subscribed for their respective shares. There are no immediate plans for Aria
China to complete formation or commence operations while Aria, Inc. is solving
its financial difficulties.
In the meantime, the Company has marketed and sold the Aria
Wireless Systems as a component of its network integration business and plans to
continue to such sales practice. Sales of Aria Wireless Systems by the Company
so far have been concentrated in the Beijing area. The Company has plans to
target sales of the Aria Wireless System to other large metropolitan markets in
China. The Company is the only distributor of the Aria Wireless System in China.
The Company participates in 2 to 3 trade shows per annum and
holds 2 to 3 promotional seminars per annum throughout China and follows up with
mass mailings of product catalogues to solicit contracts for its computer
network integration services business. The Company's current focus is the
network integration of the Aria Wireless Service in the banking and financial
industry. To date, the Company's customers for this business segment have all
been PRC Government owned or controlled entities, including government
ministries, universities and research facilities.
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COMPETITION
The Company competes with Multipoint, Inc., a U.S. company and
Kb/Tel, SA, a Mexican company, on a worldwide basis for the wireless system
installation and service business. Both companies manufacture wireless systems
that offer features identical to the Aria Wireless System. The Company also
competes with other manufacturers of wireless systems that offer similar
features to the Aria Wireless System.
The Company believes that its technical expertise in computer
network integration makes the Aria Wireless System more competitive than the
wireless systems offered by the other two companies. The Company has 11
engineers dedicated to installing and customizing system applications for the
Aria Wireless System to customer's specifications. It is the Company's belief
that its competitors do not have technical staff with the level of expertise of
the Company's engineers and the Company is aware that the wireless systems
installed by the Company's competitors have in the past experienced numerous
technical problems due to improper integration installation.
STAQ ON-LINE NETWORK
CHINA'S SECURITIES MARKET OVERVIEW (all conversions to U.S. dollars use the
November 10, 1997 exchange rate)
The Chinese securities market comprises four national exchanges:
Shanghai, Shenzhen, STAQ and China National Securities Trading System ("NETS").
The securities industry is regulated by two organizations: The State Council
Securities Policy Committee, which is responsible for the macro policy of the
industry, and the China Securities Regulatory Commission ("CSRC"), which is
responsible for the day-to-day regulation of the securities industry. The CSRC
dictates the stock exchange on which the shares of any Chinese company, whether
State owned or foreign owned, is listed. The CSRC also determines the terms of
the listing, including the size of the offering of securities and the price of
the offering.
Trade orders on all four national exchanges are computer matched.
Each exchange seat at each of the four exchanges is equipped with a computer
terminal for entering trade orders. Membership to the exchanges is limited to
licensed stock brokerages and only registered members can trade on the
respective exchanges. Non-members of the exchanges place orders with member
stock brokerages either personally or by telephone. Each exchange has taken a
different approach to develop its distribution system to its members. The NETS
Exchange, the Exchange under the control of the People's Bank of China that was
originally established for government bond clearing for the other national
exchanges, has been inactive for a number of years and is not further discussed.
The Shanghai Stock Exchange operates 21 sub-exchanges across
China. These sub-exchanges are linked to the main computer via satellite. A
member of the Shanghai Stock Exchange can obtain exchange seats at the main
exchange or at any of the sub-exchanges. The stock brokerages must place their
order with their floor agents by telephone. Stocks, debt instruments and
investment funds are traded on the Shanghai Stock Exchange. A seat on the
Shanghai Stock Exchange is Rmb1,000,000 ($120,754) and the annual membership fee
is Rmb500,000 ($60,376). The Shanghai Stock Exchange does not offer off-floor
on-line trading of its stocks. In 1994, 204 stocks were traded on the Shanghai
Stock Exchange with market capitalization of Rmb225.5 billion ($27.2 billion).
The annual turnover in 1994 was Rmb250 billion ($30.2 billion).
The Shenzhen Stock Exchange offers direct on-line linkage to its
central computer via satellite. Each subscriptive stock brokerage is directly
linked to one satellite station. Unlike the Shanghai Stock
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Exchange, the Shenzhen Stock Exchange allows connections at its members'
offices. Trade orders can be entered directly onto computer terminals at the
respective stock brokerages. This arrangement offers more flexibility and wider
coverage but at a substantial financial cost. The annual membership fee for the
Shenzhen Stock Exchange is Rmb600,000 ($72,452) and it charges its members an
installation charge of approximately Rmb300,000 ($36,226) to set up satellite
linkage and an annual maintenance fee of Rmb60,000 ($7,245). Stocks, debt
instruments and investment funds are traded on the Shenzhen Stock Exchange. In
1994, 127 stocks were traded on the Shanghai Stock Exchange with market
capitalization of Rmb133.4 billion ($16.1 billion). The annual turnover in 1994
was Rmb137.8 billion ($16.6 billion).
The STAQ Exchange has its main trading floor in Beijing and a
sub-exchange in Xiamen. The STAQ Exchange is the official exchange for (i)
legal-person-owned shares (C Shares), that are shares of PRC State owned
enterprises which may only be held by other PRC State-owned enterprises, and
(ii) State Treasury Bonds issued by the Ministry of Finance. In addition to
listing C Shares (total of 8 stocks) and State Treasury Bonds, the STAQ Exchange
acts as a sub-exchange for both the Shanghai and Shenzhen Stock Exchanges. A
sub-exchange functions as a branch of the main exchange. Through direct computer
linkages via satellite with both the Shanghai and Shenzhen Stock Exchanges,
members of the STAQ Exchange can directly trade stocks listed on the Shanghai
and Shenzhen Stock Exchanges from the STAQ Exchange trading floor. The annual
membership fee for the STAQ Exchange is Rmb150,000 ($18,113).
THE STAQ EXCHANGE
The STAQ Exchange was approved by the CSRC in 1992 and The Stock
Exchange Executive Council (the "SEEC"), a non-governmental advisory body to the
CSRC, was assigned the responsibility of designing and developing the STAQ
Exchange into a computer-based over-the-counter multi-point to multi-point
on-line automated quotations system for securities trading. The members of the
SEEC consist of China's largest trust and investment corporations, securities
firms, and other non-bank financial institutions authorized to engage in
securities and other financial businesses.
About 80% of all State Treasury Bonds are distributed by the
Ministry through the STAQ Exchange and 50% of all State Treasury Bond trading is
done through STAQ. Due to the restrictive ownership requirements of C Shares,
trading of C Shares is limited and sporadic. When the STAQ Exchange was first
approved as a sub-exchange for the Shanghai and Shenzhen Stock Exchanges in 1992
and in 1993, respectively, the trading volume fluctuated substantially due to
the inherent instabilities of these two fledgling exchanges which were formally
established only in 1990 and 1991, respectively. The high end trading volume for
the STAQ Exchange was approximately 3% of the Shanghai Stock Exchange and 10% of
the Shenzhen Stock Exchange. According to officials at STAQ, trading on the STAQ
Exchange has stabilized at 1.5% and 4% of the trading volume on the Shanghai and
Shenzhen Stock Exchanges, respectively, for the last three years.
Trade orders on the STAQ Exchange are entered onto the computer
terminals located on the trading floor in either Beijing or Xiamen and are
computer matched. Members telephone their floor agents to execute transactions.
According to statistics provided by officials of the STAQ Exchange, there are
currently approximately 550 licensed stock brokerages (operating approximately
2,200 offices in China) that are members of the STAQ Exchange.
BRIGHTON-STAQ
Brighton-STAQ is a PRC registered Sino-Hong Kong equity joint
venture company of which the Company owns 90% and Huazheng owns 10%.
Brighton-STAQ has its registered office and principal place of business in
Beijing and a branch office registered in Shanghai. Brighton-STAQ was formed to
develop, design, install and maintain the STAQ On-line Network.
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In 1992, the STAQ Exchange received a grant of $200,000 from the
World Bank for the development of the STAQ Exchange. The STAQ Exchange used part
of the funds to invite seven technical experts from NASDAQ to visit the STAQ
Exchange in Beijing and also asked the experts from NASDAQ to review the designs
for the national on-line securities trading system that was modeled after
NASDAQ. After reviewing the plans submitted, the NASDAQ experts confirmed that,
as presented, the designs were functionally suitable for the on-line securities
trading system as contemplated. Based on its expertise in the computer network
integration services business, the Company was invited by the STAQ Exchange to
submit designs for the computer network component of the on-line securities
trading system. The Company's designs for the STAQ On-line Network were
submitted, along with the designs of the securities trading system, for review
and approved by the NASDAQ experts.
The STAQ On-line Network will initially link remote computer
terminals installed at stock brokerages in the cities of Beijing and Chongqing
(with plans to expand linkage to Guangzhou, Shanghai and Shenzhen) to the STAQ
Exchange trading floor in Beijing. The Company anticipates that linkage will
eventually be on a nationwide level, with such expansion being driven by the
Company's estimated break-even for each city of approximately 15 terminals.
Through the use of the STAQ On-line Network, the stock brokerages will then be
able to obtain real time price quotations of shares traded on the Shanghai and
Shenzhen Stock Exchanges as well as C Shares and State Treasury Bonds and will
be able to trade through party-to-party negotiations on remote computer
terminals. The STAQ On-line Network is modeled after the on-line trading system
offered by NASDAQ in the U.S. although, unlike NASDAQ with the exception of C
Shares, no stock will be quoted solely on the STAQ Exchange.
Information displayed on the remote computer terminals will be
identical to information available on the trading floor of the STAQ Exchange in
Beijing. The operation of the STAQ On-line Network, including all software
programs installed on the remote computer terminals at the stock brokerage
houses, will be maintained and controlled by the STAQ Exchange. Brighton-STAQ's
role is to develop, design, install and maintain the STAQ On-line Network. The
Company will earn its revenue through an initial installation charge and a
monthly maintenance fee charged to the stock brokerage houses for each terminal.
The Company initially plans to charge a maintenance fee equivalent to
approximately $1,000 per month for each remote computer terminal. The
maintenance fee will be paid and denominated in Renminbi. The Company expects to
initially charge an installation fee equivalent to approximately $6,000 for
installing each remote computer terminal at the stock brokerages which will also
be paid and denominated in Renminbi.
Brighton-STAQ is authorized by the Ministry of Foreign Economic
Relations and Trade for a total investment of $1,600,000. To date, approximately
$1,600,000 has been contributed by the Company into the joint venture, with an
additional $4,000,000 expected to be required to complete the STAQ On-line
Network project (all of which will be the responsibility of the Company). To
ensure that all investment in Brighton-STAQ in excess of the authorized total
investment is adequately protected under Chinese law, it will be necessary for
the Company to submit, for approval, a request for an increase in the total
investment of the joint venture, which application will be submitted when the
funds from the Offering are available. The Company has no reason to believe that
such application would not be approved. Additional capital contributed by the
Company will be structured as loans to Brighton-STAQ such that the Huazheng's
percentage ownership in Brighton-STAQ will not be diluted.
The joint venture has a 12-year term expiring in 2006. Extension
of the term of the joint venture is subject to the approval of the Ministry of
Foreign Economic Relations and Trade, the approval authority for Sino-Hong Kong
joint venture companies. The Company will be required to submit a formal
application for extension to the Ministry six months prior to the expiration of
the term for approval. The Company has no reason to believe that such
application would not be approved. The parties have a verbal agreement that
Huazheng has the right, under certain financial performance criteria, to acquire
up to an
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additional 10% of the joint venture annually, at market valuation, up to a total
ownership interest of 49% of Brighton-STAQ.
CURRENT STATUS OF THE STAQ ON-LINE NETWORK
The Company has successfully tested the STAQ On-line Network
using dedicated land telephone lines leased from ChinaPac, a commercial arm of
the Ministry of Post and Telecommunications. In order to be fully commercially
operational, the Company intends to convert the STAQ On-line Network to
satellite linkage. The Company is negotiating a three-year arrangement with The
People's Daily, the major newspaper serving China, to subscribe for use of its
satellite service, which it will finalize pending completion of the Offering.
The Company is able to obtain services from The People's Daily at a rate of
one-third the rate generally charged by commercial providers of satellite
service because The People's Daily uses satellite communication only at night
for distribution of text, as is customary for daily newspaper publications. As a
result, its satellite communication resources are idle during daylight hours.
This provides the opportunity for the Company to lease the system, with
availability during key daylight trading hours, at very competitive rates. The
satellite transponder providers of The People's Daily are Asia Satellite
Telecommunications Co. Ltd. in Hong Kong for C-Band transponder and China
Telecommunications Broadcast Satellite Corporation in Beijing for Ku-Band
transponder.
The stock price quotations from the STAQ Exchange trading floor
in Beijing will be uplinked to The People's Daily's transponder and downlinked
to various cities then being served. After being downlinked to the various
cities, the stock price quotations will be transmitted over a wireless system
for broadcast to the remote computer terminals at the brokerages. Nodes for
receiving the data broadcasted over the wireless system will be installed at the
remote computer terminals. When a buy or sell order is executed at the remote
computer terminals, such information is transmitted back via the wireless system
and the satellite linkage to the STAQ Exchange in Beijing. The Company will own
the satellite equipment necessary for uplinking and downlinking the stock price
quotations. For local wireless communication, the Company plans to "piggyback"
on the frequencies used by the Aria Wireless Systems which it has installed for
other customers. Radio frequency is a controlled resource in China. Current
Chinese laws and regulations do not allow foreign ownership or control of radio
frequency. As a result, the Company cannot independently lease radio frequencies
from the Ministry of Post and Telecommunication to build its wireless networks.
The Company's customer, ICBC, has agreed to allot a portion of ICBC's assigned
radio frequency in Beijing and Chongqing for the Company's use for a fee of $100
per node per year.
The STAQ On-Line Network is functionally similar to other on-line
transaction processing systems the Company has designed and installed for its
financial services and hospitality industry customers. On-line transaction
processing systems are designed to provide instant responses for high volume
transactions. In the last seven years, the Company and its predecessor have
developed, designed and installed over 35 on-line transaction processing
networks in the Pacific Basin region to customer's specifications, including
credit and authorization systems, airline ticket reservation systems, ATM
networks and bank branch networking. The Company has applied this knowledge in
the design and development of the STAQ On-Line Network.
MARKETING
The Company plans to initially set up the satellite-linked STAQ
On-line Network in the cities of Beijing and Chongqing and install computer
terminals in a selected number of STAQ Exchange member stock brokerages for a
three month test period, which is anticipated to begin in January 1998. During
the test period, the STAQ On-line Network will be provided to the selected stock
brokerages for free. At the end of the test period, these stock brokerages will
have the option to subscribe for the STAQ On-line Network by executing
maintenance agreements with Brighton-STAQ. The Company plans to host a series of
seminars at
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these test sites for other traders from the STAQ Exchange member stock
brokerages during the test period to attract customers. Once the Company
establishes the STAQ On-line Network service in Beijing and Chongqing, it plans
to extend its coverage area to Shanghai, Shenzhen and Guangzhou.
The Company believes that the STAQ On-line Network will increase
the STAQ Exchange's ability to offer access to trading on the exchange.
According to officials at the STAQ Exchange, only half of its members currently
have seats on the trading floor because of the STAQ Exchange's insufficient
technical expertise and capital resources. The remaining members must
collaborate with seat members to trade. Eventually, Brighton-STAQ plans to
co-market the STAQ On-line Network by packaging it with membership to the STAQ
Exchange to all stock brokerages who are not yet members of the STAQ Exchange,
in cooperation with the STAQ Exchange.
COMPETITION - BRIGHTON-STAQ
Both the Shanghai and Shenzhen Stock Exchanges maintain their own
on-line securities quotation and trading systems for internal use and both have
the potential to compete with the STAQ Exchange for trading of securities listed
on their respective stock exchanges. The Company believes that it is unlikely
that either the Shanghai or Shenzhen Stock Exchanges would compete with the STAQ
Exchange because all three exchanges are now under common control. The Shanghai
and Shenzhen Stock Exchanges were brought under direct control of the CSRC by
the PRC State Council in August 1997 to settle conflict of interest issues among
the exchanges. In addition, as their sub-exchange, the STAQ Exchange is
contributing to the development of the Shanghai and Shenzhen Stock Exchanges.
The Company believes that the development of the STAQ On-line Network by
Brighton-STAQ will likely complement the Shanghai and Shenzhen Stock Exchanges
by increasing the volume of securities traded on both exchanges.
The Company will potentially compete with other businesses
experienced in the systems management and computer network integration business
as well as the wireless communications business, which are capable of designing,
installing and maintaining on-line transaction processing systems. The Company
believes that information providers that have entered the China market and
utilize on-line transaction processing systems in their businesses, such as Dow
Jones Markets, Inc., Reuters Limited and Bloomberg L.P., are potential
competitors of the Company. These potential competitors have greater marketing
and development budgets than the Company and have greater capital resources than
the Company. In the developed securities markets in the Pacific Basin region
(such as Hong Kong, Singapore, Japan, Malaysia, Thailand and Taiwan), Dow Jones
Markets, Inc., Reuters Limited and Bloomberg L.P. have been successful in
offering access to trading on securities markets that permit off-exchange floor
trading, currency trading as well as news and information. It should be noted
that except for China, which permits off-exchange floor trading, the stock
exchanges in the Pacific Basin region are all floor-based electronic trading
systems which do not permit off-exchange floor trading.
EQUIPMENT DISTRIBUTION BUSINESS
MARKET OVERVIEW
Beginning in the mid-1980's, China commenced economic reforms
that significantly decentralized the purchasing authority of government owned or
controlled entities with respect to imports. In response to this process of
decentralization and market orientation, increased numbers of industrial
equipment manufacturers and independent distributors have entered the Chinese
market to meet the market demand for modernization. Currently, the equipment
distribution sector in China is highly saturated with significant competition
among manufacturers and distributors from around the world.
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PRODUCTS
The Company and its predecessor have, since 1981, facilitated
United States, European and other manufacturers of industrial equipment with
access to the Chinese marketplace by providing marketing, sales and technical
services for their products. The industrial equipment which the Company has been
marketing in China are machine tools, such as machine center and grinder
measurement devices, and heavy machinery, such as gantry mills, pressing machine
production lines and dyes transfer automation systems.
The Company has signed exclusive distributor agreements with
several major manufacturers of industrial equipment (Milltronics Manufacturing
Company (a U.S. company), Normac Incorporated (a U.S. company), ALO Teknik AB (a
Swedish company), Royal Master Grinders, Inc. (a U.S. company) and K.O. Lee
Company (a U.S. company)) for the sale of their industrial equipment in China.
However, these manufacturers may sell the industrial equipment to their own
customers based outside of China for use in China, such as, sales to the
American party of a Sino-foreign joint venture company for use by the
Sino-foreign joint venture company in China. In such cases, these manufacturers
would pay the Company a sales commission of 5% of the sales price for the
Company to provide repair and servicing for the industrial equipment inside
China. The Company also sells industrial equipment for other manufacturers on a
non-exclusive basis.
The following table sets forth the Company's sales of industrial
equipment by supplier made during the ten month period ended October 31, 1997
and the Company's projected revenues in 1998 based on the Company's on-going
negotiations with customers:
====================================================================================
SUPPLIER TYPE OF INDUSTRIAL 1997 1998
EQUIPMENT
====================================================================================
Adaptive Motion Tube & pipe bending $200,000 $300,000
Control Systems machine
- ------------------------------------------------------------------------------------
Alo-Teknik AB Saw tooth grinders $750,000 $300,000
- ------------------------------------------------------------------------------------
Forest-Line Capdenac Large size milling - $1,500,000
machines
- ------------------------------------------------------------------------------------
Milltronics Machine centers $300,000 $2,000,000
Manufacturing
Corporation
- ------------------------------------------------------------------------------------
Normac, Inc. Shred grinding machines $350,000 $350,000
- ------------------------------------------------------------------------------------
Royal Master Centerless grinders $450,000 $450,000
Grinders, Inc.
- ------------------------------------------------------------------------------------
Sullair Corporation Industrial air $900,000 $1,500,000
compressors and dryers
- ------------------------------------------------------------------------------------
The Monarch Machine Vertical Machine centers $1,000,000 $1,000,000
Tool Company
====================================================================================
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CUSTOMERS
The Company's customers for industrial equipment are PRC
Government owned or controlled entities, including government ministries,
universities, research facilities and factories. The majority of the Company's
customers are metal handling and processing factories in the automotive, ship
building and aviation industries in China. The following sets forth the
Company's major customers for industrial equipment:
China National Chemical Construction Chongqing Company
Shenyang Blower Works
Shenyang Aircraft Corporation
State-owned Benxi Toolplant
China Offshore Industrial Corporation
Dongfeng-Citroen Automobile Company Ltd.
Changan Automobile Works
Shanghai Jiao Tong University
Deyang Qitong Machinery Co. Ltd.
Shenzhen Baosheng Co. Ltd.
The Company signed three major contracts with Chinese customers
for the sale of industrial equipment, as of October 29, 1997, totaling
approximately $6,980,000. The Company has been awarded a $1,690,000 contract
from Shenyang Aircraft Corporation to equip 5 heavy duty vertical machining
centers. Shenyang Aircraft Corporation is the leading aircraft manufacturer in
China and produces sections of the Boeing 737 aircraft. The Company has entered
into a contract to provide computer-controlled auto body stamping equipment to
Changan Automobile Works, a Chinese government-owned automotive manufacturer,
located in Chongqing, for $2,890,000. Changan Automobile Works is one of the
largest automotive manufacturers in China and is a long standing customer of the
Company. Delivery for the stamping equipment is scheduled for the first quarter
of 1998. The Company has contracted to provide a gantry milling machine to
Shenyang Blower Works, in Shenyang, for $2,400,000. Shenyang Blower Works is the
largest manufacturer of air blowers and air compressors for the petroleum,
chemical and electricity generating industries in China. Due to the long
manufacturing cycle for large-size machine tools, delivery to Shenyang Blower
Works is scheduled for the fourth quarter of 1998.
The equipment distribution business accounted for approximately
$4,300,000 and $3,700,000 in revenue for 1995 and 1996, respectively.
Historically, the Company has relied on a limited number of customers for a
substantial portion of its total revenues. The Company's customers vary from
year to year, but, historically, significant portions of its revenues are from a
limited number of customers. The Company expects that significant portions of
future revenues from this business segment will continue to be generated by a
limited number of customers, and revenue may vary substantially from quarter to
quarter as a result of both the large order sizes and the long lead times
characteristic of this business.
MARKETING
The Company solicits potential customers for the sale of
industrial equipment by participating in trade shows, promotional seminars and
exhibitions throughout China and following up with mass mailings of product
catalogues. At the trade shows, the Company operates a separate promotional
exhibit. When the Company receives a request for particular equipment, the
Company's sales staff in New Jersey is provided with the technical
specifications and searches for suitable equipment manufacturers in the global
market. When equipment that meets the technical specifications of the customer
is identified, a case-by-case arrangement is negotiated between the equipment
manufacturer and the Company. After a purchase agreement is signed with the
customer, the Company will purchase the equipment from the manufacturer and
resell it to the customer.
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The Company's industrial equipment distribution business sales
and support teams, based in China and New Jersey, have grown from a total of 3
employees in 1991 to 27 employees as of September 30, 1997. The Company's sales
teams in China for the industrial equipment distribution business are located in
Beijing (9 employees), Shanghai (8 employees) and Wuhan (8 employees). All
orders are sent to Beijing for approval and processing.
FOREIGN TRADE CORPORATIONS ("FTC")
Contracts for the sale of industrial equipment are entered into
between BIC or Brighton Equipment Corporation Limited, a wholly owned Hong Kong
subsidiary of BECL ("Brighton Equipment"), and the customer. The Company does
not place an order with the third party manufacturer for industrial equipment
until a sale has been made to the customer. As a result, the Company does not
generally need to warehouse inventory. In most cases, however, the Company does
take title to the industrial equipment and bears the risk of loss in the event
of non-payment by the customer.
Sales of the industrial equipment, regardless of the nature of
the customer, are made through FTC's, since Chinese domestic companies and
individuals are not permitted to trade directly with foreign companies. The
FTC's make purchases on behalf of the customers and are legally authorized by
the PRC Government to conduct import business. FTC's are chartered and regulated
by the government and were formed to facilitate foreign trade. Once the customer
selects the foreign vendor and the industrial equipment to be purchased, it
selects a FTC to carry out the necessary procedures for the import and purchase
of the equipment. The FTC's function as procurement arms for the customers.
Although the purchase decision is made by the customer, the Company enters into
formal purchase contracts with FTC's. The FTC's take title to the industrial
equipment and resell to the customers. The customers pay the FTC's in local
currency (Rmb) and the FTC's, which have access to foreign exchange, pay the
foreign vendors in U.S. dollars or other foreign currency.
By virtue of its direct contractual relationship with the FTC,
rather than the customer, the Company is to some extent dependent upon the
continuing existence of and contractual compliance by the FTC until the
particular transaction has been consummated. The Company's industrial equipment
sales business, however, is not dependent on any single FTC or customer.
Although sales by the Company to certain industries involve repeat transactions
with FTC's that operate in those industries, the Company does not believe that
it is dependent upon any particular FTC or that the loss of relations with any
particular FTC would have a material adverse effect on the Company. Rather,
FTC's, which earn commissions in transactions, compete with each other for the
right to handle the customer's business.
The Company believes that it is able to ensure that purchase
orders for industrial equipment by the customers are properly approved and
authorized when a purchase contract is signed with a FTC because the FTC will
review all necessary paperwork before executing contracts on the customer's
behalf. As an additional precaution, to date, all of the Company's direct sales
to its customers have been guaranteed by letters of credit. As a policy, the
Company will not ship any industrial equipment ordered until a bank letter of
credit is provided by the customer. As such, the Company has seldom experienced
nonpayment for industrial equipment orders and the risk of loss due to
nonpayment is negligible even though the Company takes title to the industrial
equipment. The Company has also never experienced a problem with obtaining
payment in U.S. dollars for the industrial equipment.
The customer is responsible for carrying out any necessary import
procedure for the industrial equipment, obtaining the import license and for
freight charges. The Company ships the ordered industrial equipment to the port
of entry specified by the customer. It is also the customer's responsibility to
clear the industrial equipment through customs and ship the industrial equipment
from the port of entry to the customer's
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premises. After the industrial equipment has arrived at its destination in
China, the Company arranges with the customer for the installation of the
industrial equipment and the training of the customer's personnel in the
operation of the industrial equipment. The industrial equipment is generally
warranted for a period of one year after installation. The customer is
responsible for any out of warranty service and repairs.
AFTER SALES SERVICES
In order to perform its servicing and other after-sale
responsibilities, the Company employs a staff of five engineering and technical
support personnel. The technical support engineers work out of the Company's
various offices throughout China and are trained to handle service calls
initially through advice and consultation. If necessary, the engineers travel to
the location of the unit and perform required servicing. The Company maintains
what it believes is an adequate inventory of supplies, spare parts and tools to
handle most servicing. If parts under warranty require replacement, the Company
may elect to replace that part out of its own parts inventory with the
understanding that the manufacturer would in turn replace the part in the
Company's inventory. Any post-warranty repair or servicing, charged on a time
and material basis, has historically been immaterial to the Company's business.
COMPETITION
The Company competes with other independent distributors in China
marketing similar products. Although the Company believes that it is one of the
major independent distributors of industrial equipment, there may be other
distributors with greater resources or other competitive advantages over the
Company.
In addition to other independent distributors, the Company faces
more significant competition directly from established manufacturers. With
respect to its industrial equipment, for example, the Company competes with
Cincinnati Milacron, Inc. of the US, which maintains its own direct sales force
in China. In addition, certain manufacturers, such as Ingersoll-Rand Company of
the US, are better able than the Company to establish name recognition across
industry lines as they market a wide variety of products in China under one
brand name.
Domestic Chinese entities also compete in various product areas.
Certain of these competitors, whether joint venture projects with foreign
manufacturers or all-Chinese groups, often receive preferential treatment by the
government regulatory authorities, who seek to curtail spending on imported
equipment in favor of domestic Chinese industrial development. Although the
Company competes directly with products of certain of such joint ventures and
all-Chinese groups, the Company does not believe that this preference by the
regulatory authorities is often applied to the material detriment of the
Company.
CHINA NATIONAL CONTRACT
On April 15, 1994, the Company contracted with China National to
provide engineering design and implementation for a sodium bichromate production
plant with production capacity of 20,000 metric tons. This contract and the work
related to it are outside the ordinary course of the Company's business.
However, because of certain third-party technology that was available to it at
that time, the Company was able to successfully bid on the contract. Turn-key
contracts of this nature are generally discrete projects, and the Company does
not anticipate repeat business from China National. The Company also does not
currently have or plan to have any other projects of this nature in the
foreseeable future.
The Company is responsible for the basic engineering design and
transferring to China National certain manufacturing technological know-how
licensed to the Company by AlliedSignal, Inc.
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("AlliedSignal") for use in the production of sodium bichromate, chromic
anhydride and chromium sulfate. The Company is also commissioned to procure key
production equipment on China National's behalf. To date, the Company has
completed the transfer of the basic engineering design and AlliedSignal's
technology, and procurement of key production equipment. The first and second
shipments of the equipment were made in May 1997 and October 1997, respectively.
The third (final) shipment of the equipment is scheduled for February 1998.
After construction of the plant is complete and ready to commence production
(expected to occur at the end of 1998), the Company will provide plant
commissioning services, including supervision of final construction, equipment
installation and pre-operational testing. The contract with China National
accounted for approximately 34% and 13% of the Company's revenues for the years
ended December 31, 1995 and 1996, respectively, and approximately 67% and 28% of
equipment distribution revenues for the years ended December 31, 1995 and 1996,
respectively. The decrease in revenues was due to a temporary suspension of the
project imposed by the municipal government in February 1996, due to
environmental concerns relating to China National's proposed methodology for
waste disposal by the plant. The revised proposal for waste management submitted
by China National was approved by the municipal government and the temporary
suspension was lifted in January 1997. The contract resumed following the
lifting of the temporary suspension. All payments from China National are
remitted to the Company in U.S. dollars.
BACKGROUND OF THE COMPANY
The Company was incorporated in the State of Delaware on November
4, 1988 as Sirone Corporation. On October 31, 1995, the Company changed its name
to Zentex Corporation. For a period of time prior to November 11, 1996, the
Company was engaged in the distribution in the United States and Canada of a
shampoo and conditioner treatment. In October 1996, the Company entered into an
acquisition agreement (the "Acquisition Agreement") with BIC, BECL, and the
Brighton Shareholders pursuant to which effective November 11, 1996 the Company
acquired all of the issued and outstanding capital stock of BIC and BECL from
the Brighton Shareholders in exchange for the issuance by the Company of a
controlling interest in the Company to the Brighton Shareholders (the "Reverse
Merger"). The Reverse Merger was effected to facilitate the consolidation of BIC
and BECL into one entity. Pursuant to the Reverse Merger, and in furtherance of
its new business plan, the Company's name was changed to "Brighton Technologies
Corporation," and its symbol on the OTC Electronic Bulletin Board was changed to
"BRTK."
Immediately prior to the Reverse Merger, the Company had a total
of 3,513,000 shares of Common Stock issued and outstanding. In connection with
the Reverse Merger, the Company issued to the Brighton Shareholders an aggregate
of 27,000,000 shares of Common Stock representing approximately 88% of the then
outstanding shares of Common Stock of the Company. On November 11, 1996, a
1-for-3 reverse stock split was effected. Effective October 17, 1997, a second
1-for-3 reverse stock split was effected. All Common Stock and per share data
have been restated to reflect the reverse stock splits.
Pursuant to the terms of the Acquisition Agreement, the Company
transferred to two individuals who were part of the prior management (the
"Transferees") all of its operating assets existing immediately subsequent to
the closing of the Reverse Merger (excluding the shares of BIC and BECL) in
exchange for the assumption by the Transferees of all of the liabilities of the
Company as of the closing of the Reverse Merger and the delivery of a release of
all obligations owed by the Company to an affiliate of the Transferees. In
addition, at the closing of the Reverse Merger, each member of the Company's
then Board of Directors resigned, and was replaced by representatives of the
Brighton Shareholders.
THE COMPANY'S CORPORATE STRUCTURE
The Company conducts its business through two principal
subsidiaries: BIC and BECL. BIC acts as distributor of third party manufactured
industrial equipment to customers in Pacific Basin countries with primary
distribution to customers in China. BIC established a representative in Wuhan,
China. BECL is an investment and holding company for Asian based investments
focusing on information and industrial equipment
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related ventures in the Pacific Basin region. BECL holds investments in five
second tier subsidiaries, four of which are companies organized under the laws
of Hong Kong and one is a PRC joint venture company (the percentage of ownership
of the issued and outstanding capital stock is denoted parenthetically): (i)
Brighton OLTP Systems Limited ("Brighton OLTP") (100%); (ii) Aria China 100%;
(iii) Brighton-Equipment (100%); (iv) Brighton Elevator Corporation Limited
("Brighton Elevator") (79%); and (v) Brighton-STAQ (90%). Brighton Equipment
provides computer network integration to customers in Pacific Basin countries
other than China. Brighton Elevator is a distributor of elevator and escalators
in China. Both Brighton OLTP and Aria China are inactive companies.
Brighton-STAQ is a PRC Sino-Hong Kong equity joint venture company that was
formed to develop, design, install and maintain computer equipment for an
automated securities trading and quotation system.
The following is a diagram of the Company's structure:
[DIAGRAM OF COMPANY STRUCTURE]
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GOVERNMENT REGULATION
All foreign entities, businesses, persons and all onshore foreign
investors, including Sino-foreign cooperative joint ventures, and Sino-foreign
equity joint ventures, are prohibited from managing or participating in the
management of any telecommunication business in China. In addition, all such
telecommunication businesses are prohibited from structuring any foreign
ownership of the management of such businesses. Participation in projects
engaged in the leasing service industry is also prohibited to foreign entities,
businesses, persons and all on-shore foreign investors.
The Company believes that Brighton-STAQ does not violate the
provisions of these regulations at the present time. The Company has received an
opinion from its Chinese counsel, Zhong Xin Law Office, to the effect that the
design, installation and maintenance of the STAQ On-line Network and the charge
of a related maintenance fee by Brighton-STAQ does not violate any rules of the
relevant Chinese Governmental agencies. The telecommunication services essential
to the operation of the STAQ On-line Network will be provided by domestically
licensed third-party providers (i.e., The People's Daily and ICBC). In addition,
operation of the STAQ On-line Network is controlled directly by the STAQ
Exchange. Revenue earned by Brighton-STAQ is for the maintenance and service of
the equipment for the STAQ On-line Network.
COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company has no material expenses and anticipates no material
impact on its business occasioned by compliance with environmental laws.
EMPLOYEES
The Company and its subsidiaries have approximately 130 full-time
employees of which over 80% are professionals with specialized skills. There are
32 employees based in Hong Kong, 88 based in China and 10 in the Company's
corporate office in Allendale, New Jersey U.S.A., which serves as technical
support base for the Asian operations. Of the 88 employees in China, 27 are
dedicated to sales related activities for the equipment distribution business
segment and 18 are engineering and technical support personnel in the Network
Group business segment.
PROPERTIES
NEW JERSEY. The Company and BIC currently occupy facilities
leased by BIC in Allendale, New Jersey consisting of 5,000 square feet. The
lease expires on July 31, 2001.
HONG KONG. BECL and its subsidiaries occupy facilities leased by
BECL in Quarry Bay, Hong Kong consisting of office B and D1 on the 14th floor of
Aik San Factory Building. The lease expires on February 28, 1998.
BEIJING. The facilities occupied by Brighton-STAQ in the Ritan
Office Building, Chao Yang District, Beijing are under two separate lease
agreements. Both leases expire on April 30, 1999.
SHANGHAI. Brighton-STAQ signed a two-year lease for its branch
office, effective September 1, 1997 and expiring August 31, 1999, for office
space in Shanghai, consisting of Suite D and E on the 5th Floor of the Nan Yang
Properties Building.
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SHENZHEN. The Brighton Elevator Shenzhen representative office
occupies office space in the Shenzhen Beijing Hotel in Shenzhen. The lease
expires December 30, 1997. The Company intends to renew the lease upon its
expiration.
WUHAN. The Brighton Elevator Wuhan representative office occupies
120 square feet of office space in Wuhan. The lease expires on October 1, 1998.
At such time, the BIC Wuhan representative office will assume the remainder of
the lease.
PATENTS AND TRADEMARKS
The Company owns no registered patents or trademarks. The Company
believes that its business is not materially dependent on any patent or
trademark.
LEGAL MATTERS
The Company is either a plaintiff or a defendant in several
pending legal matters. In the opinion of management, the final resolution of
these matters will not have a material adverse effect on the Company's financial
position or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table and text sets forth the names and ages of all
directors and executive officers of the Company and the key management personnel
as of September 30, 1997. The Board of Directors of the Company is comprised of
only one class. All of the directors will serve until the next annual meeting of
stockholders and until their successors are elected and qualified, or until
their earlier death, retirement, resignation or removal. Executive officers
serve at the discretion of the Board of Directors, and are appointed to serve
until the first Board of Directors meeting following the annual meeting of
shareholders. Except as otherwise noted, there are no family relationships among
directors and executive officers. Also provided is a brief description of the
business experience of each director and executive officer and the key
management personnel during the past five years and an indication of
directorships held by each director in other companies subject to the reporting
requirements under the Federal securities laws.
AGE
NAME (AS OF OCTOBER 31, 1997) POSITION
---- ------------------------ --------
BRIGHTON TECHNOLOGIES CORPORATION
Kit Kung 46 Chairman of the Board, President
and Chief Executive Officer
Nils Ollquist 41 Director and Vice President
Robert N. Weingarten 45 Chief Financial Officer
Warren Wang 49 Secretary and Chief Accounting
Officer
Hong Yun 42 Director;
Vice President/General Manager of
The Brighton Industries Corporation
(New Jersey)
Michael Muldavin 77 Director
KEY MANAGEMENT PERSONNEL
Edith Wong 47 General Manager
Brighton Electronics Corporation Ltd.
(Hong Kong)
He Ping 37 General Manager
Beijing Brighton Staq
Electronic System Company Limited
(Beijing)
Lu Jian Guo 39 General Manager
Beijing Brighton Staq Electronic
System
Company Limited - Shanghai Branch
Office (Shanghai)
Ma Yong Jun 39 Manager of Finance and
Administration
Brighton Electronic Corporation Ltd.
(Beijing)
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BACKGROUND AND EXPERIENCE
KIT KUNG has been Chairman of the Board, President and Chief
Executive Officer of the Company since October 1996. Mr. Kung is the Founder of
BECL. He was born in Shanghai and emigrated to the United States in 1974. He
re-visited China in 1980, and by 1981 was the first ever to legally export
32-bit computers from the United States into China; those first computers being
two sets of VAX computer systems from Digital Equipment Corporation. From that
profile, he established an extensive network of customers and relationships in
China. Mr. Kung graduated from Rutgers University with a degree in Physics and
is a citizen of the United States. Mr. Kung has been listed in the "Who's Who
Worldwide" publication since 1993 and the "Outstanding Americans" publication
since 1994. He is the husband of Hong Yun.
NILS A. OLLQUIST has been a director, Vice President and Chief
Financial Officer of the Company since October 1996. He is also a Principal of
Orient Financial Services Limited in Hong Kong. Mr. Ollquist has fifteen years
of experience in investment banking and corporate finance in Hong Kong, the
United States and Australia. Prior to creating Orient Financial in 1993, he
served as head of Bank of America's mergers and acquisitions group in Asia.
Before joining Bank of America in 1990, Mr. Ollquist was Director and head of
Security Pacific Australia's U.S. corporate finance and investment banking
activities. He worked for several years in Sydney with Amsterdam Rotterdam Bank
and Barclays Bank from 1980 to 1984. Prior to commencing his investment banking
career, Mr. Ollquist served for 5 years in the Australian Treasury in Canberra.
He holds degrees in Economics and Law from the Australian National University.
ROBERT N. WEINGARTEN has served as Chief Financial Officer of the
Company since November 3, 1997. From July 1992 to present, Mr. Weingarten has
been the sole shareholder of Resource One Group, Inc., a financial consulting
and advisory company. From January 1, 1997 through July 31, 1997, Mr. Weingarten
was a principal in Chelsea Capital Corporation, a merchant banking firm. From
January 1991 through December 1992, Mr. Weingarten served as a general partner
of Commerce Partners, a consulting firm specializing in financial restructurings
and business reorganizations in financial restructurings and business
reorganizations. Since 1979, Mr. Weingarten has served as a consultant with
numerous public companies in various stages of development, operation or
reorganization. Mr. Weingarten currently serves as a director of Fotoball USA,
Inc., a publicly-held company specializing in sports products, and as an officer
and director of GolfGear International, Inc., a privately-held company. Mr.
Weingarten received an M.B.A. in Finance from the University of Southern
California and a B.A. in Accounting from the University of Washington.
WARREN WANG has been Secretary and Chief Accounting Officer of
the Company since November 1996. From 1981 to 1996, he was Vice
President-Finance at Seavest, Inc. (a financial investment firm with interests
in real estate, securities, oil and gas, and other capital ventures). From 1979
to 1980, he was the Accounting Manager at Mailman Brothers. From 1977 to 1978,
he was with the CPA firm of Louis Sturz & Co. From 1975 to 1977, he was an
accountant with Western Union International, Inc. Mr. Wang is a certified public
accountant and received his B.B.A. in accounting from the Bernard M. Baruch
College of the City University of New York.
HONG YUN has been a director of the Company since October 1996.
She joined BIC's predecessor in 1982 and founded BIC in 1989 and is the
individual responsible for developing the industrial equipment business into a
significant operation. Ms. Yun is a native of Beijing and a U.S. citizen by
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naturalization. Ms. Yun graduated from Beijing University of Beijing, China
specializing in electronics engineering. She is the wife of Kit Kung.
MICHAEL MULDAVIN has been a director of the Company since October
1996. Mr. Muldavin, currently a visiting professor at the University of
California at Los Angeles, was a pioneer in China trading, having assumed
responsibility for the family trading business in Heilongjiang province before
WWII. In 1979, Mr. Muldavin was invited by the Chinese Government to establish a
joint Chinese language magazine "Science & Technology Review." In recent years,
Mr. Muldavin has been involved in a total of more than 80 joint venture
investments in China including agribusiness, automotive and media/data systems
and communications. Mr. Muldavin founded the Benchmark Company Group, an
investment consultancy and advisory firm, and has consulted on investments and
ventures in China, Russia and Vietnam since 1980. Mr. Muldavin received his B.S.
in mathematics and engineering, M.S. in economics, joint PhDs in economics and
public administration and J.D. from Harvard College. Mr. Muldavin also holds a
M.P.H. (medical care administration and epidemiology) from the University of
California, Los Angeles.
EDITH WONG joined BIC's predecessor in 1984 as the first employee
and office manager in Hong Kong. Ms. Wong is the General Manager of BECL and is
responsible for the day-to-day operations of BECL and its Hong Kong
subsidiaries. Ms. Wong received her Bachelors Degree in Business Administration
and Post-graduate Diploma in Purchasing and Supply from Polytechnic of North
London. Ms. Wong is a resident of Hong Kong.
HE PING is the General Manager of Brighton-STAQ. Mr. He joined
the Company as the Deputy General Manager and then Acting General Manager of
Brighton-STAQ project in September 1994, and was promoted to his current
position. Prior to joining the Company, Mr. He was the Business Development
Officer and Administrative Executive in the Beijing representative office of
Imperial Chemical Industry since 1993. Mr. He graduated from Beijing TV
University in 1988 and was a graduate of the China-Europe Management Institute
MBA program in 1993. Mr. He is a native of Beijing and a Chinese national.
LU JIAN GUO is based in the Brighton-STAQ Shanghai branch office
and is responsible for the Eastern China operations of the Company. Mr. Lu
joined BIC's predecessor in 1995 as the Deputy General Manager of Eastern Region
operations. Prior to joining the Company, Mr. Lu held a number of managerial
positions with Sino-Foreign joint venture companies in southern and eastern
China from 1991 to 1995. Mr. Lu graduated from Eastern Normal China University
in 1983 majoring in mechanical design. He was a lecturer for Shanghai University
from 1983 to 1991. Mr. Lu is a native of Shanghai and a Chinese national.
MA YONG JUN was employed by BECL in September 1994 as the Manager
of Finance and Administration for BIC's predecessor's and BECL's Beijing based
operations. Prior to joining Brighton, Mr. Ma worked as the Accounting Executive
and Financial Manager for Bei Chen Group, a large scale real estate company,
from 1990 to 1994. Mr. Ma has had more than eight years in managing financial
and administrative matters. Presently, Mr. Ma is responsible for the corporate
planning for the China based operations for BIC and BECL. Mr. Ma graduated from
the University of Beijing Finance & Accounting College majoring in Finance in
1986. Mr. Ma is native of Beijing and a Chinese national.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during
fiscal years ended December 31, 1995 and 1996 to the Company's Chief Executive
Officer. No officer of the Company received annual compensation in excess of
$100,000 per annum.
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SUMMARY COMPENSATION TABLE
Name and
Principal Position Year Salary
------------------ ---- ------
Kit Kung, Chairman, President and Chief 1996 $80,000
Executive Officer 1995 $80,000
COMPENSATION AGREEMENTS
There are currently no long-term employment or consulting agreements
between the Company and the executive officers or directors of the Company.
BOARD OF DIRECTORS
During the year ended December 31, 1996, no meetings of the Board of
Directors were held; all corporate actions were conducted by unanimous written
consent of the Board of Directors. Directors receive no compensation for serving
on the Board of Directors, but are reimbursed for any out-of-pocket expenses
incurred in attending board meetings. The Company had no audit, nominating or
compensation committees, or committees performing similar functions, during the
year ended December 31, 1996. Subsequent to the Offering, the Company intends to
have at least two independent directors and to form an audit committee with a
majority of the members being independent directors.
STOCK OPTION PLAN
As of October 31, 1997, the Company has not adopted a stock option
plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation includes
provisions which limit the liability of its directors. As permitted by
applicable provisions of the Delaware Law, directors will not be liable to the
Company for monetary damages arising from a breach of their fiduciary duty as
directors in certain circumstances. This limitation does not affect liability
for any breach of a director's duty to the Company or its stockholders (i) with
respect to approval by the director of any transaction from which he or she
derives an improper personal benefit, (ii) with respect to acts or omissions
involving an absence of good faith, that the director believes to be contrary to
the best interests of the Company or its stockholders, that involve intentional
misconduct or a knowing and culpable violation of law, that constitute an
unexcused pattern or inattention that amounts to an abdication of his or her
duty to the Company or its stockholders, or that show a reckless disregard for
duty to the Company or its stockholders in circumstances in which he or she was,
or should have been aware, in the ordinary course of performing his or her
duties, of a risk of serious injury to the Company or its stockholders, or (iii)
based on transactions between the Company and its directors or another
corporation with interrelated directors or based on improper distributions,
loans or guarantees under applicable sections of Delaware Law. This limitation
of directors' liability also does not affect the availability of equitable
remedies, such as injunctive relief or rescission.
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The Company has been advised that it is the position of the
Commission that insofar as the provision in the Company's Restated Certificate
of Incorporation may be invoked for liabilities arising under the Securities
Act, the provision is against public policy as expressed in the Securities Act
and is therefore unenforceable.
KEY MAN INSURANCE
The Company will, prior to the completion of the Offering, obtain and
maintain a $2,000,000 term life insurance policy covering Kit Kung which names
the Company as the sole beneficiary.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of
this Prospectus with respect to (i) the beneficial ownership of the Common Stock
of the Company by each beneficial owner of more than 5% of the outstanding
shares of Common Stock of the Company, each director, each executive officer and
all executive officers and directors of the Company as a group, (ii) the number
of shares of Common Stock owned by each such person and group and (iii) the
percent of the Company's Common Stock so owned.
As used in this section, the term beneficial ownership with respect
to a security is defined by Rule 13d-3 under the Exchange Act as consisting of
sole or shared voting power (including the power to vote or direct the vote)
and/or sole or shared investment power (including the power to dispose of or
direct the disposition of) with respect to the security through any contract,
arrangement, understanding, relationship or otherwise, subject to community
property laws where applicable. Each person has sole voting and investment power
with respect to the shares of Common Stock, except as otherwise indicated.
Beneficial ownership consists of a direct interest in the shares of Common
Stock, except as otherwise indicated.
PERCENTAGE OF PERCENTAGE OF
NUMBER OF SHARES OF OUTSTANDING COMMON OUTSTANDING COMMON
NAME AND ADDRESS OF COMMON STOCK STOCK BENEFICIALLY STOCK BENEFICIARY
BENEFICIAL OWNER BENEFICIALLY OWNED OWNED BEFORE OFFERING OWNED AFTER OFFERING
------------------- ------------------- --------------------- --------------------
Kit Kung 2,833,334(1) 81.1% 59.7%
c/o Brighton Technologies
Corporation
6 Pearl Court
Allendale, NJ 07401
Hong Yun 166,667(2) 4.8% 3.5%
c/o Brighton
Technologies Corporation
6 Pearl Court
Allendale, NJ 07401
Nils Ollquist 18,334 0.5% 0.4%
c/o Orient Financial
Services 13C, Chinaweal
Centre
414-424 Jaffe Road
Wanchai, Hong Kong
Robert N. Weingarten -- -- --
5439 Lockhurst Drive
Woodland Hills, CA 91367
Warren Wang -- -- --
c/o Brighton Technologies
Corporation
6 Pearl Court
Allendale, NJ 07401
Michael Muldavin -- -- --
c/o Brighton Technologies
Corporation
6 Pearl Court
Allendale, NJ 07401
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PERCENTAGE OF PERCENTAGE OF
NUMBER OF SHARES OF OUTSTANDING COMMON OUTSTANDING COMMON
NAME AND ADDRESS OF COMMON STOCK STOCK BENEFICIALLY STOCK BENEFICIARY
BENEFICIAL OWNER BENEFICIALLY OWNED OWNED BEFORE OFFERING OWNED AFTER OFFERING
------------------- ------------------- --------------------- --------------------
All Directors and 3,018,335 86.4% 63.6%
executive Officers as a
group
(6 persons)
(1) Does not include 166,667 shares of Common Stock owned by Hung Yun, Mr.
Kung's wife. Mr. Kung disclaims beneficial ownership of such shares.
(2) Does not include 2,833,334 shares of Common Stock owned by Kit Kung, Ms.
Yun's husband. Ms. Yun disclaims beneficial ownership of such shares.
CHANGES IN CONTROL
The Company is unaware of any contract or other arrangement, the
operation of which may at a subsequent date result in a change in control of the
Company.
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CERTAIN TRANSACTIONS
In order to meet its working capital requirements, the Company
periodically received funding from Kit Kung, the Chairman of the Board of
Directors, President and Chief Executive Officer, and his family members. The
Company has also periodically made advances to the principals and officers of
the Company. Such advances are secured and generally bear no stated interest
rate or terms of repayment. As of December 31, 1995 and 1996, amounts due from
Kit Kung and his family members aggregated $0 and $43,239, respectively;
outstanding receivables from other related parties aggregated $8,220 and
$15,884, respectively; and amounts due to Kit King and his family members
aggregated $2,612,896 and $227,298, respectively.
At December 31, 1995, BIC had a net receivable, funded by advances
from Kit Kung, from Brighton Information Systems Corporation (now known as
Greater China Corporation) of $493,751. Kit Kung had previously served as a
director and officer of Greater China Corporation until his resignation in
September 1994 but continued to serve as officer and director of certain
subsidiaries until January 1997. In partial settlement of this indebtedness, the
Company received an assignment of fixed assets and accounts receivable during
1996 valued at $381,433, resulting in a balance of $112,318. During the year
ended December 31, 1995, Kit Kung and his family members had advanced $1,612,041
to the Company, and during the year ended December 31, 1996, the Company had
repaid $1,118,625 of such advances. During the years ended December 31, 1995 and
1996, advances to other related parties aggregated $518,322 and $43,239,
respectively, and during the year ended December 31, 1996, $424,872 of accounts
receivable from related parties were repaid.
Through November 1996, BECL had $248,103 of advances to affiliates of
Greater China Corporation, which were funded by advances from Kit Kung. Kit Kung
agreed to assume responsibility for settlement of such advances (and the
previously described balance of $112,318 owed to BIC) and such amounts were
offset against advances to stockholders.
In December 1996, Kit Kung contributed approximately $1,266,973 of
net borrowings, consisting of $1,515,076 of the net amounts owed by the Company
to Kit Kung less $248,103 of amounts Kit Kung owed to the Company, to
contributed capital.
During the six months ended June 30, 1997, the Company advanced
$325,001 to Kit Kung and his family members and repaid amounts due Kit Kung and
his family members aggregating $182,513, resulting in receivables from
stockholders and related parties of $360,124 and a payable to stockholders of
$44,785 at June 30, 1997.
Subsequent to the completion of the Offering, the Company does not
intend to enter into any future transactions with Kit Kung and his family
members, and the Company intends to have all future transactions with affiliates
approved by a committee of disinterested directors.
During the year ended December 31, 1996, $105,731 was paid to Orient
Financial Services Limited, a Hong Kong-based company in which Nils A. Ollquist
is a principal: $60,000 was paid as a retainer fee with respect to advisory
services provided in relation to the reverse merger with Zentex Corporation (the
former name of the Company) and fund raising activities and $45,731 was
reimbursement of travel and related expenses. During the six months ended June
30, 1997, $15,870 was paid to Orient Financial Services Limited.
During the years ended December 31, 1995 and 1996, salaries and
incentive expenses to Kit Kung and his family members aggregated approximately
$135,000 in each of such years.
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DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized by its Restated Certificate of
Incorporation to issue an aggregate of 100,000,000 shares of Common Stock, par
value $.001 per share, and 5,000,000 shares of preferred stock, par value $.001
per share, which preferred stock may be issued with such rights, designations
and privileges (including redemption and voting rights) as the Board of
Directors may, from time to time, determine.
The following summary descriptions are qualified in their entirety by
reference to the Company's Restated Certificate of Incorporation, a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
The Company is authorized to issue 100,000,000 shares of Common
Stock, par value $.001 per share. As of the date of this Prospectus, 3,495,333
shares of Common Stock were issued and outstanding and held of record by 91
stockholders. Each stockholder is entitled to one vote per share of Common Stock
owned by such stockholder on all matters submitted to a vote of the
stockholders.
The Common Stock is not entitled to preemptive rights and is not
subject to redemption. Subject to the dividend rights of holders of any then
outstanding preferred stock, holders of Common Stock are entitled to receive
dividends at such times and in such amounts as the Board of Directors, from time
to time, may determine. Subject to the liquidation preference of any then
outstanding preferred stock, holders of Common Stock are entitled to receive, on
a pro rata basis, all remaining assets of the Company available for distribution
to the holders of Common Stock in the event of the liquidation, dissolution or
winding up of the Company.
All outstanding shares of Common Stock are, and the shares of the
Common Stock issued pursuant to the Offering will be, validly issued, fully paid
and non-assessable.
PREFERRED STOCK
The Board of Directors has the authority to cause the Company to
issue, without any further vote or action by the stockholders, up to 5,000,000
shares of preferred stock, par value $.001 per share, in one or more series, to
designate the number of shares constituting any series, and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
voting rights, rights and terms of redemption, redemption price or prices and
liquidation preferences of such series. The issuance of preferred stock may have
the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders. The issuance of preferred
stock with voting and conversion rights may adversely effect the voting power of
the holders of Common Stock, including the loss of voting control. The Company
has no present plans to issue any shares of preferred stock.
WARRANTS
The Warrants sold in the Offering will be issued pursuant to a
warrant agreement (the "Warrant Agreement") among the Company, the
Representative and Interwest Transfer Company (the "Warrant Agent"), and will be
evidenced by warrant certificates in registered form. The following summary is
qualified in its entirety by the text of the Warrant Agreement.
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Each Warrant entitles the registered holder thereof to purchase one
share of Common Stock at a price of 120% of the offering price per Unit at any
time commencing _______________, 1998 until _______________, 2003, unless
previously redeemed. The Warrants comprising part of the Units will not be
transferable separately from the Units until ____________, 1998, unless earlier
separated upon three days' prior written notice from the Representative at the
sole discretion of the Representative.
The Warrants are subject to redemption by the Company at a price of
$0.10 per Warrant, at any time commencing _______________, 1998, on 30 day's
prior written notice, provided that the closing price per share of the Common
Stock has equaled or exceeded $____________ (150% of the offer price) for twenty
consecutive trading days within the thirty-day period immediately preceding such
notice.
The exercise price of the Warrants and the number of shares of Common
Stock or other securities issuable upon the exercise thereof are subject to
adjustment in certain circumstances, including, but not limited to, any stock
dividend on the Common Stock, any subdivision, combination or reclassification
of the Common Stock, any distribution to all stockholders or rights, warrants or
options to subscribe for or purchase shares of Common Stock (or securities
convertible into Common Stock), or any distribution to all stockholders of
assets or evidence of indebtedness of the Company. Adjustments also would be
made upon a merger or consolidation where the Company is not the surviving
entity, or the sale of all or substantially all of the assets of the Company, so
as to enable warrantholders to purchase the kind and number of shares of stock
or other securities or property (including cash) receivable in such event by a
holder of the number of shares of Common Stock that might otherwise have been
purchased upon exercise of such Warrant.
The exercise price of the Warrants bears no relation to any objective
criteria of value and should not be regarded as an indication of the future
market price of the Securities offered hereby.
The Warrants do not confer upon the holder any voting or any rights
of a stockholder of the Company. Upon written notice to the warrantholders, the
Company has the right to reduce the exercise price or extend the expiration date
of the Warrants.
SECTION 203 OF DELAWARE LAW
Section 203 of the Delaware Law prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to the date
of the business combination, the transaction is approved by the board of
directors of the corporation; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock, or (iii) on or
after such date, the business combination is approved by the board of directors
and by the affirmative vote of at least 66-2/3% of the outstanding voting stock
that is not owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person, who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock. Section 203 may have a depressive
effect on the market price of the Common Stock and/or the Units.
TRANSFER AGENT
The Company has appointed Interwest Transfer Company, Salt Lake City,
Utah, as transfer agent for the Units.
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SHARES ELIGIBLE FOR FUTURE SALE
Of the 3,495,333 shares of Common Stock outstanding 3,093,837 shares
are "restricted securities" as that term is defined in Rule 144 under the
Securities Act and, under certain circumstances, may be sold without
registration pursuant to Rule 144. Generally, under Rule 144, each person
holding restricted securities of a period of one year may, every three months,
sell in ordinary brokerage transactions or to market makers an amount of shares
equal to no more than the greater of 1% of the Company's then outstanding Common
Stock or the average weekly trading volume for the four weeks prior to the
proposed sale. This limitation on the amount of shares which may be sold under
the Rule 144 does not apply to restricted securities sold for the account of a
person who is not or has not been an affiliate of the Company during the three
months prior to the sale and who has beneficially owned the restricted
securities for at least two years. The Company's officers, directors and
substantially all of its principal stockholders have agreed not to publicly sell
any securities of the Company owned by them without the written consent of the
Underwriters prior to _________________, 1998. Any sales of restricted
securities must be in compliance with Rule 144, pursuant to registration under
the Securities Act or pursuant to an exemption therefrom. The public sale of
restricted securities pursuant to Rule 144, an effective registration statement,
or otherwise, may have an adverse affect on the market price of the Common
Stock. The 401,496 share balance of the 3,495,333 shares of Common Stock
currently outstanding plus the 1,250,000 shares of Common Stock issuable upon
exercise of the Warrants are freely tradable.
UNDERWRITING
The Underwriters named below, for whom the Representative is acting
as representative, has agreed, subject to the terms and conditions of the
Underwriting Agreement between the Company and the Underwriters (the
"Underwriting Agreement"), to purchase from the Company, and the Company has
agreed to sell to the Underwriters on a firm commitment basis, the respective
number of Units set forth opposite their names:
Underwriter Number of Units
----------- ---------------
National Securities Corporation........................
-----------............................................
Total.................................................. [ ]
===============
The Underwriters are committed to purchase all of the Units offered
hereby, if any of such Units are purchased. The Underwriting Agreement provides
that the obligations of the several Underwriters are subject to conditions
precedent specified therein.
The Company has been advised by the Representative that the
Underwriters propose initially to offer the Units to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such prices less concessions not in excess of $___ per Unit.
Such dealers may re-allow a concession not in excess of $___ per Unit to certain
other dealers. After the initial public offering, the public offering price
concession and reallowance may be changed by the Representative.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make. The Company has agreed
to pay to the Representative a non-accountable expense allowance equal to [3%]
66
67
of the gross proceeds of the Offering, of which $25,000 has already been paid.
The Company has also agreed to pay all of the costs of qualifying the Units
under federal and state securities laws, together with legal and accounting
fees, printing and other costs in connection with the Offering.
The Company has granted to the Underwriters an over-allotment option
exercisable for 45 days from the date of this Prospectus, to purchase up to
187,500 Units at the initial public offering price per Unit offered hereby, less
underwriting discounts and commissions, if any (the "Over-Allotment Option").
The Underwriters may exercise this option, in whole or in part, from time to
time, solely for the purpose of covering over-allotments, if any, made in
connection with the sale of the Units. To the extent the Over-Allotment Option
is exercised in whole or in part, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase the number of Units proportionate to
its initial commitment. Such option may be exercised only for the purpose of
covering over-allotments, if any, incurred in the sale of the Units offered
hereby.
In connection with the Offering, the Company has agreed to sell to
the Representative and its designees, for nominal consideration, warrants to
purchase from the Company up to 125,000 Units (the "Representative's Warrants").
The Representative's Warrants are initially exercisable at a price of $___ per
Unit (120% of the initial public offering price per Unit) for a period of five
years commencing on the effectiveness of the Offering. The Representative's
Warrants may not be sold, transferred, assigned or hypothecated for a period of
one year from the date of this Prospectus, except to officers and directors of
the Representative. The Representative's Warrants provide for adjustments in the
number of shares of Common Stock and Warrants and in the exercise price of the
Representative's Warrants as a result of certain events, including subdivisions
and combinations of the Securities. The Representative's Warrants grant to the
holders thereof certain rights of registration for the Common Stock and Warrants
issuable upon exercise of the Representative's Warrants.
The Company and all of the officers, directors and holders of all
outstanding securities of the Company as of the date of this Prospectus have
agreed not to, without the Representative's prior written consents, sell,
transfer, assign, pledge, hypothecate or otherwise dispose of any equity
securities of the Company, or any securities convertible into, or exercisable or
exchangeable for, any equity securities of the Company, for a period of 13
months following the effective date of the Registration Statement, except
pursuant to the Over-Allotment Option. An appropriate legend shall be marked on
the reverse of the certificates representing such securities.
The Company has agreed that, for a period of five (5) years from the
date of this Prospectus, if so requested by the Representative, the Company
shall nominate and use its best efforts to cause an individual designated by the
Representative to be elected as a member of the Board of Directors of the
Company. In the event that the Representative elects not to designate a person
to serve on the Board of Directors of the Company, the Representative shall have
the right to designate one person to attend meetings of the Board of Directors
of the Company. Such person shall be entitled to attend all such meetings and to
receive all notices and other correspondence and communications sent by the
Company to members of its Board of Directors. The Company's officers, directors
and shareholders have agreed to vote their shares of Common Stock in favor of
such designee. The Representative has not yet exercised its right to designate
such a person. The Company has agreed to reimburse the designee of the
Representative for such designee's out-of-pocket expenses incurred in connection
with such designee's attendance of meetings of the Company's Board of Directors.
Prior to the Offering, there has been no public trading market for
the Units. Consequently, the initial public offering price of the Units has been
determined by negotiations between the Company and the Representative and does
not necessarily bear any relationship to the Company's asset value, net worth,
or other established criteria of value. Among the factors considered in
determining the offering price, in addition to
67
68
prevailing market conditions, were the Company's financial condition, prospects
and management. There can be no assurance however, that the price at which the
Units will sell in any public market after the Offering will not be lower than
the offering price. Neither the Representative nor any of the participants of
the underwriting group have a material relationship with the promoters, officers
and/or directors of the Company.
In connection with the Offering, certain Underwriters and selling
group members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Units. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which, such person may bid for or purchase
Units for the purpose of stabilizing its market price. The Underwriters also may
create a short position for the account of the Underwriters by selling more
Units in connection with the Offering than they are committed to purchase from
the Company, and in such case may purchase Units in the open market following
completion of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position by
exercising the Over-Allotment Option. In addition, the Representative, on behalf
of the Underwriters, may impose "penalty bids" under contractual arrangements
with the Underwriters whereby they may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of other Underwriters, the
selling concession with respect to Units that are distributed in the Offering
but subsequently purchased for the account of the Underwriters in the open
market. Any of the transactions described in this paragraph may stabilize or
maintain the price of the Units at a level above that which might otherwise
prevail in the open market. None of the transactions described in this paragraph
is required, and, if they are undertaken, they may be discontinued at any time.
The foregoing is a brief summary of the agreements described
above and does not purport to be complete. Reference is made to copies of each
such agreement which are filed as exhibits to the Registration Statement. See
"ADDITIONAL INFORMATION."
LEGAL MATTERS
The validity of the shares of Units offered hereby will be passed
upon for the Company by Loeb & Loeb LLP, Los Angeles, California. Camhy
Karlinsky & Stein LLP, New York, New York, has acted as counsel for the
Underwriters in connection with the Offering.
EXPERTS
The 1996 financial statements and schedules included in this
Prospectus and in the Registration Statement have been audited by BDO Seidman,
LLP, independent certified public accountants, to the extent and for the period
set forth in their report appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting. The 1995 financial
statements and schedules included in this Prospectus and in the Registration
Statement have been audited by Russo and Shapiro and Francis S. L. Yan & Co.,
independent certified public accountants, to the extent and for the period set
forth in their reports appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such reports given upon the
authority of said firm as experts in auditing and accounting.
68
69
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a registration statement ("Registration Statement"),
together with exhibits thereto, under the Securities Act with respect to the
Units offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, omits certain of the information set forth in the
Registration Statement in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and to the Units
offered hereby, reference is made to such Registration Statement and such
exhibits filed as a part thereof. Statements contained in this Prospectus as to
the content of any contract or other document referred to are not necessarily
complete, and in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement and exhibits can be inspected and copied at the public reference
section at the Commission's principal office, 450 5th Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, the Commission's Regional Offices located at the
Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661-2511, and 7 World Trade Center, 13th Floor, New York, New York
10048 and on the Commission's website at http://www.sec.gov. Copies may be
obtained from the Commission's principal office upon payment of the fees
prescribed by the Commission.
69
70
BRIGHTON TECHNOLOGIES CORPORATION
Brighton Technologies Corporation and Subsidiaries
Index to Consolidated Financial Statements
Sequential
Page
Numbers
----------
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
- ----------------------------------------------
Report of Independent Certified Public Accountants -
BDO Seidman, LLP
Russo and Shapiro
Consolidated Balance Sheets -
December 31, 1995 (as restated) and 1996
Consolidated Statements of Income -
Years Ended December 31, 1995 (as restated) and 1996
Consolidated Statements of Stockholders' Equity Years Ended December 31, 1995
(as restated) and 1996
Consolidated Statements of Cash Flows Years Ended December 31, 1995 (as
restated) and 1996
Notes to Consolidated Financial Statements
Years Ended December 31, 1995 (as restated) and 1996
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF
JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
Condensed Consolidated Balance Sheet -
June 30, 1997
Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 1996 and 1997
Condensed Consolidated Statements of
Stockholders' Equity
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1997
Notes to Condensed Consolidated Financial Statements
70
71
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Brighton Technologies Corporation
and Subsidiaries
Allendale, New Jersey
We have audited the consolidated balance sheet of Brighton Technologies
Corporation and Subsidiaries (the "Company") as of December 31, 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brighton Technologies
Corporation and Subsidiaries at December 31, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
- --------------------
BDO Seidman LLP
Woodbridge, New Jersey
May 29, 1997 (October 17, 1997 as
to the last paragraph of Note 8)
71
72
[RUSSO AND SHAPIRO LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Brighton Technologies Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Brighton
Technologies Corporation and subsidiaries as of December 31, 1995, and the
related statements of income, stockholder's equity and cash flows for the year
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit the
financial statements of Brighton Technologies Corporation which statements
reflect total assets of $2,634,859 as of December 31, 1995, and total revenues
of $9,872,996 for the year then ended. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Brighton Electronics Corporation Limited,
is based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 audit provides a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Brighton Technologies Corporation
and subsidiaries as of December 31, 1995, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the financial statements, the 1995 financial
statements have been restated to reflect the correction of depreciation
expenses recorded on project equipment, accounting for losses related to joint
ventures and in the recognition of revenue on certain long-term projects.
Accordingly, the Company's financial statements for the year ended December 31,
1995 have been restated to reflect the correction of these errors.
/s/ Russo and Shapiro
New York, New York
September 25, 1997
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73
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
1995
(As restated)
December 31, (Note 3) 1996
- ------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT:
Cash and cash equivalents $ 137,067 $ 716,699
Restricted cash (Note 2) 600,000 2,636,000
Accounts receivable (net of allowance for doubtful
accounts of $30,000 in 1995 and 1996) (Note 11) 153,375 1,339,318
Costs and accumulated gross profit in excess of
billings on uncompleted contracts (Note 6) 747,168 2,056,987
Receivables from stockholders and related parties (Note 4) 17,622 43,239
Prepaid expenses 529,460 310,677
Deferred taxes (Note 9) 408,000 1,315,000
Other 1,207 4,700
- ----------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,593,899 8,422,620
- ----------------------------------------------------------------------------------------------------------
FIXED ASSETS, NET (NOTE 5) 1,349,757 1,536,458
OTHER ASSETS:
Non-current accounts receivable - related parties (Note 4) 484,349 15,884
Deposits -- 9,245
Prepaid contract fees 314,375 171,875
Organization costs, net 365 30,986
- ----------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 2,148,846 1,764,448
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 4,742,745 $10,187,068
==========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 427,877 $ 958,550
Accrued expenses 252,716 313,337
Accrued licensing costs 600,000 450,000
Billings in excess of costs and accumulated gross profit
on uncompleted contracts (Note 6) 1,160,188 4,971,394
Deferred revenue -- 83,421
Demand note payable (Note 7) -- 620,101
Payable to stockholders (Note 4) 2,612,896 227,298
Taxes payable (Note 10) 360,000 1,678,000
- ----------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 5,413,677 9,302,101
- ----------------------------------------------------------------------------------------------------------
LONG-TERM:
Deferred taxes (Note 9) 263,000 156,000
Minority interests (Note 2) 136,705 143,931
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,813,382 9,602,032
- ----------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY (DEFICIT) (NOTES 4 AND 8):
Common stock; $.001 par value; shares authorized -
100,000,000; issued and outstanding - 3,025,000 and
3,448,678 in 1995 and 1996, respectively 3,025 3,449
Preferred stock; $.001 par value; shares authorized -
5,000,000; none issued and outstanding -- --
Contributed capital 23,757 1,480,482
Accumulated deficit (1,097,419) (898,895)
- ----------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,070,637) 585,036
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 4,742,745 $10,187,068
==========================================================================================================
See accompanying notes to financial statements
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74
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
1995
(As restated)
Year ended December 31, (Note 3) 1996
- -----------------------------------------------------------------------------------------------
REVENUES (NOTES 6 AND 11) $ 8,370,537 $ 8,006,260
COST OF REVENUES (NOTE 6) 6,165,201 5,785,507
- -----------------------------------------------------------------------------------------------
GROSS PROFIT 2,205,336 2,220,753
- -----------------------------------------------------------------------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries, payroll taxes and employee benefits (Note 4) 579,713 765,035
Rent and premises (Note 10) 299,365 377,154
Travel and lodging 234,565 84,402
Depreciation and amortization 6,007 38,738
Foreign transaction (gains) losses 4,615 5,268
Miscellaneous 523,751 484,432
- -----------------------------------------------------------------------------------------------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 1,648,016 1,755,029
- -----------------------------------------------------------------------------------------------
OPERATING INCOME 557,320 465,724
- -----------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense and bank fees (Note 7) (38,488) (33,170)
Interest income 27,949 37,451
Miscellaneous income 13,863 44,745
- -----------------------------------------------------------------------------------------------
3,324 49,026
- -----------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 560,644 514,750
PROVISION FOR INCOME TAXES (NOTE 9) 444,000 309,000
- -----------------------------------------------------------------------------------------------
MINORITY INTERESTS (NOTE 2) 55,703 (7,226)
- -----------------------------------------------------------------------------------------------
NET INCOME $ 172,347 $ 198,524
===============================================================================================
EARNINGS PER SHARE DATA:
Primary and fully diluted $ .06 $ .06
===============================================================================================
Weighted average shares outstanding - primary 3,025,000 3,101,896
===============================================================================================
Weighted average common shares and common
equivalents outstanding - fully diluted 3,025,000 3,140,672
===============================================================================================
See accompanying notes to financial statements.
74
75
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1995 and 1996
- -----------------------------------------------------------------------------------------------------
Common Stock Contributed Accumulated
Shares Amount Capital Deficit
- -----------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 1995 (NOTE 3) 3,025,000 $3,025 $ 23,757 $ (755,013)
Adjustment for the effect on prior
years of correction of errors
(Note 3) -- -- -- (514,753)
- -----------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 1995, AS
RESTATED (NOTE 3) 3,025,000 3,025 23,757 (1,269,766)
Net income, as restated, for 1995 -- -- -- 172,347
- -----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 3,025,000 3,025 23,757 (1,097,419)
Net shares issued in connection with
reverse merger (Note 1) 390,345 390 (390) --
Sale of common stock 33,333 34 449,966 --
Costs associated with the sale of
common stock -- -- (259,824) --
Conversion of advances from majority
stockholder (Note 4) -- -- 1,266,973 --
Net income -- -- -- 198,524
- -----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 3,448,678 $3,449 $1,480,482 $ (898,895)
- -----------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
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76
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
1995
(As restated)
Year ended December 31, (Note 3) 1996
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 172,347 $ 198,524
- -----------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 143,508 176,238
Deferred income taxes 75,000 (1,014,000)
Minority interests (55,703) 7,226
Changes in assets and liabilities:
Accounts receivable 2,299,745 (1,185,943)
Costs and accumulated gross profit in excess of billings (747,168) (1,309,819)
Other current assets (513,530) 208,941
Other assets 63,809 (38,227)
Accounts payable (1,946,011) 530,673
Billings in excess of costs and accumulated gross profits 160,013 3,811,206
Taxes payable 573,000 1,318,000
Other liabilities and deferred revenue 374,223 38,510
- -----------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 426,886 2,542,805
- -----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 599,233 2,741,329
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES (NOTE 2):
Increase in restricted cash (600,000) (2,036,000)
Purchases of fixed assets (1,352,434) (154,484)
- -----------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (1,952,434) (2,190,484)
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES (NOTE 2):
Proceeds from demand note payable -- 575,603
Issuance of common stock, net of related costs -- 190,176
Proceeds from Stockholder advances 1,612,041 --
Repayments on Stockholder advances -- (1,118,625)
Repayment of accounts receivable - related parties -- 424,872
Advances to related parties (518,322) (43,239)
- -----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,093,719 28,787
- -----------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (259,482) 579,632
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 396,549 137,067
- -----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 137,067 $ 716,699
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Taxes paid $ 221,466 $ 5,358
Interest expense paid 38,488 18,046
- -----------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
76
77
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. ORGANIZATION OF General
COMPANY
Brighton Technologies Corporation (the
"Company") serves as the ultimate parent of
Brighton Industries Corporation ("BIC"), a
United States of America based company, and
Brighton Electronics Corporation Limited
("BECL"), a Hong Kong based holding company for
two Hong Kong subsidiaries and interests in
three Hong Kong joint ventures.
On October 23, 1996, Zentex Corporation
("Zentex"), an inactive public company,
affected a reverse non-cash merger transaction
of BIC and BECL structured in the following
manner. Stockholders of BIC and BECL
transferred ownership of their shares to Zentex
in exchange for the issuance of shares
representing a controlling interest in Zentex.
Pursuant to the terms of the agreement, Zentex
transferred to the predecessor Zentex
shareholders all of its operating assets
(excluding the shares of BIC and BECL) in
exchange for the assumption of liabilities
existing immediately subsequent to the closing
of the transaction. As part of the transaction,
Zentex received a release of all obligations
owed by it to an affiliate of the predecessor
Zentex shareholders. In addition, at the
closing, each member of the predecessor Zentex
Board of Directors resigned and was replaced by
representatives of the BIC and BECL
stockholders. On November 12, 1996, Zentex was
renamed Brighton Technologies Corporation. This
transaction was consummated to facilitate the
consolidation of the operating companies of BIC
and BECL's founder and majority stockholder
(the "Stockholder) into one entity. The
Stockholder and members of his family control
the operations of the Company and its
subsidiaries. Prior to this transaction, the
Stockholder and his family had full ownership
of BIC and BECL. Since the BIC and BECL
Stockholders obtained control of the Company,
the accompanying financial statements reflect
the operations of BIC and BECL for periods
prior to the consummation of the transaction.
The issuance of shares to the predecessor
Zentex shareholders was accounted for as the
issuance of equity by the Company for no
consideration.
77
78
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
BIC, a Delaware Corporation, principally
conducts its business in the People's Republic
of China ("PRC") through registered PRC
offices, where it acts as the purchaser and
distributor of third party manufactured
industrial, telecommunication and computer
equipment and technological processes to PRC
customers. The Company is actively marketing
similar services in other Pacific basin
countries. The Company has also entered into a
long-term contract with China National Chemical
Construction Chongqing Company ("China
National") to aid in the design and
construction of a sodium bichromate production
plant in the PRC. Management does not expect to
enter into any significant long-term contracts
of this type in the future (see Note 11).
BECL is located in and incorporated in Hong
Kong and is an investment and holding company
for Asian based companies. BECL subsidiaries
are involved in the buying, selling and
installation of computer and industrial
equipment and in the development of credit card
approval and authorization systems.
One joint venture in which BECL has a 90%
interest ("STAQ") has been formed to design,
install and maintain a computer network for the
trading of securities in the PRC. The minority
interest holders of STAQ have the right to
acquire an additional 10% ownership interest
per annum (at the then determinable fair
values) up to a maximum interest of 49%. Under
the STAQ joint venture arrangements, the
Company is required to invest approximately
$4,000,000 ($1,600,000 of which has been
invested) at December 31, 1996. BECL also has
interests in two other inactive joint ventures.
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79
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
2. SUMMARY OF Business Combination and Consolidation Policy
SIGNIFICANT
ACCOUNTING POLICIES
The combination of the Company's subsidiaries,
which were previously under the common control
of the Stockholder, has been accounted for in a
manner similar to the pooling-of-interests
method of business combinations. This method
presents the Company's financial position,
results of operations and cash flows as if BIC
and BECL were combined for all periods
presented. Accordingly, the consolidated
financial statements include the accounts of
the Company and its direct subsidiaries and
joint ventures in which the Company has a
controlling interest. All intercompany accounts
and transactions have been eliminated in
consolidation.
Minority Interests
BECL consolidates the accounts of three joint
ventures in which it holds controlling
interests. Income (loss) allocable to minority
interests is recorded in the accompanying
consolidated financial statements. Operating
losses are allocated to the minority interests
only to the extent of the minority interests'
investment in these joint ventures. The Company
is responsible for losses in excess of the
minority interests' investments. At December
31, 1996, the excess of such investments over
accumulated losses was approximately $39,000.
Foreign Currencies
For BECL subsidiaries and BIC branch offices,
whose functional currency is the Hong Kong
Dollar or the PRC Renminbi, balance sheet
accounts are translated at exchange rates in
effect at the end of the year and income
statement accounts are translated at average
exchange rates for the year. Translation
adjustments are not material as of December 31,
1996 and 1995. For the majority of BIC
transactions, revenue and costs are invoiced in
U.S. dollars. Accordingly, the effects of
foreign exchange transaction gains or losses
are not material. The Company does not enter
into foreign currency forward exchange
contracts to hedge foreign currency exposures.
79
80
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
Revenue Recognition
The Company accounts for long-term contracts on
the percentage-of- completion method and income
is recognized as work on contracts progresses,
but estimated losses on contracts in progress
are charged to operations immediately. The
Company generally bills customers in accordance
with contractual terms. At December 31, 1996
and 1995, management estimated that the Company
will, at a minimum, recover its outlay for
expenses when the projects are completed.
Accordingly, no loss provisions for such
contracts were recorded during 1996 and 1995.
For short-term contracts and projects, revenue
is recognized on the accrual basis as goods are
shipped and services are performed.
Income Taxes
The Company accounts for income taxes using the
liability method, which requires an entity to
recognize deferred tax liabilities and assets
for the expected future tax consequences of
events that have been recognized in the
Corporation's financial statements or tax
returns. Under this method, deferred tax
liabilities and assets are determined based on
the difference between the financial statement
carrying amounts and tax basis of liabilities
and assets using enacted tax rates in effect in
years in which the differences are expected to
reverse.
Income tax expense (benefit) is determined on a
separate company basis and includes current
Federal, foreign and state taxes and deferred
taxes. For U.S. purposes, the Company files its
income tax returns on a cash basis.
Cash Equivalents
The Company considers all highly liquid debt
instruments with a maturity of three months or
less at the date of purchase to be cash
equivalents.
80
81
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
Restricted Cash
Cash that is restricted to pay project related
liabilities and commitments totaled $600,000
and $2,636,000 at December 31, 1995 and 1996,
respectively.
Non-Cash Investing and Financing Activities
During 1996, the Stockholder contributed
$1,266,973 of net advances owed by the Company
to contributed capital. In 1996, the Company
received fixed assets valued at $67,297 in lieu
of payments on 1995 accounts receivable
balances.
In connection with the merger described in Note
1, 390,345 shares of common stock were issued
to Zentex stockholders with no proceeds to the
Company. The increase in common stock was
offset by a reduction to contributed capital in
the accompanying financial statements.
Organization Costs
Costs incurred in connection with the
incorporation of the Company and the formation
of its current structure are capitalized and
amortized over a period of five years.
Fixed Assets
Fixed assets are carried at cost and are
depreciated over the estimated useful lives of
the related assets (generally 2 to 5 years) on
a straight line bases. The cost of leasehold
improvements is amortized over the lesser of
the length of the related leases or the
estimated useful lives of the assets. Assets
purchased, but not utilized in operations, are
not subject to depreciation.
Prepaid Contract Fees
Prepaid contract fees are principally comprised
of prepayments for services to be rendered over
the life of a long-term contract. The related
amortization expense for the years ended
December 31, 1995 and 1996 was $137,500.
81
82
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
Benefit Plans
BIC has no pension or profit sharing plans.
BECL has a defined contribution plan covering
qualified participants. The amount of
contributions for the years ended December 31,
1995 and 1996 were $13,586 and $20,416,
respectively.
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities
at the date of the financial statements and the
reported amounts of revenues and expenses
during the reporting period. The Company
utilizes estimates in measuring and projecting
revenue, costs and gross profit on long-term
contracts, in providing for an allowance for
doubtful accounts (also see Note 11) and in
recording accrued liabilities. Actual results
could differ from those estimates.
Fair Values of Financial Instruments
At December 31, 1995 and 1996, the carrying
values of cash equivalents, restricted cash,
accounts receivable (current and non-current),
related party receivables and payables,
accounts payable, demand notes payable and
long-term debt approximates fair values due to
the immediate or short-term maturity of these
financial instruments.
Earnings Per Share
Earnings per share is based on the weighted
average number of common stock shares. For
purposes of determining fully diluted earnings
per share, the conversion of the demand note
into common stock equivalents was valued using
the average sales price of the Company's common
stock sold in 1996.
82
83
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
In February 1997, the Financial Accounting
Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"). This statement is
effective for the Company's 1997 financial
statements and establishes criteria for the
calculation and presentation of "Basic" and
"Diluted" earnings per share. Based on an
assessment of its current capital structure,
management believes that adoption of SFAS 128
will not have a significant effect on the
Company's reported earnings per share.
Reclassifications
Certain prior period amounts have been
reclassified to conform with the current year
presentation (also see Note 3).
3. RESTATEMENTS The 1995 financial statements have been
restated to reflect the correction of
depreciation expense recorded on project
equipment, accounting for losses related to
joint ventures, and to appropriately recognize
revenue from certain long-term projects. In
prior periods, BIC recognized revenue on
long-term projects as certain stages of a
project were completed, rather than on a
ratable basis over the term of the entire
contract. As a result, accumulated deficit at
January 1, 1995 was increased by $514,753 and
net income for the year ended December 31, 1995
was reduced by $258,353 ($.09 per share) from
amounts previously published.
4. RELATED PARTIES Receivables and Liabilities
From time to time, the Company receives funding
from or provides funding to the Stockholder,
his family members, principals and officers.
Such advances generally bear no stated interest
rate or terms of payments.
Outstanding balances with stockholders and
related parties at December 31, 1995 and 1996
were as follows:
83
84
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
December 31, 1995 1996
---------------------------------------------------------------------
Receivables (current and non-current):
Stockholder and family members $ - $ 43,239
Brighton Information Systems
Corporation (a) and (b) 493,751 -
Other 8,220 15,884
---------------------------------------------------------------------
$ 501,971 $ 59,123
=====================================================================
Liabilities:
Stockholder and family members $2,612,896 $227,298
=====================================================================
(a) At December 31, 1995, BIC had a net
receivable, funded by the Stockholder,
from Brighton Information System
Corporation (now known as Greater China
Corporation, "Greater China") in the
amount of $493,751. The Stockholder had
previously served as a director and
officer of Greater China until his
resignation in March 1996. In partial
settlement of this indebtedness in 1996,
the Company received an assignment of
fixed assets and accounts receivable
valued at $381,433.
(b) Through November 1996, BECL had $248,103
of advances to affiliates of Greater
China, which were funded by advances
from the Stockholder. Accordingly, the
Stockholder has agreed to assume
responsibility for settlement of such
advances (and the balance owed to BIC
after the transactions described in (a)
above) and such amounts were offset
against "Advances to stockholders." In
December 1996, the Stockholder
contributed outstanding borrowings (net
of these advances) to the Company's
capital structure (see below).
Conversion of Advances
In December 1996, the Stockholder elected to
contribute $1,266,973 of net borrowings
($248,103 of amounts the Stockholder owed to
the Company and $1,515,076 of the net amounts
owed by the Company) into the Company's capital
structure.
84
85
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
Professional Fees
Fees paid to Directors and their affiliates for
financial advisory services totaled $0 and
$105,731 for the years ended December 31, 1995
and 1996, respectively. The entire amount in
1996 was charged to contributed capital (see
Note 8).
General and Administrative Expenses
Salaries and incentives expenses for the
Stockholder and members of his family totaled
approximately $135,000 in each of the years
ended December 31, 1995 and 1996.
5. FIXED ASSETS Fixed assets at December 31, 1995 and 1996 are
comprised of the following:
December 31, 1995 1996
------------------------------------------------------------
Equipment $ 18,707 $ 210,367
Furniture and fixtures 6,572 18,834
Leasehold improvements 6,850 18,027
Less: Accumulated depreciation (7,278) (42,358)
------------------------------------------------------------
24,851 204,870
Project equipment
(assets to be utilized
in completing future projects) 1,324,906 1,331,588
------------------------------------------------------------
Total $ 1,349,757 $ 1,536,458
============================================================
85
86
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
6. LONG-TERM At December 31, 1995 and 1996, costs, estimated
CONTRACTS gross profit and billings on uncompleted long-term
contracts accounted for on the percentage of completion
method are summarized as follows:
December 31, 1995 1996
-------------------------------------------------------
Costs incurred on
long-term contracts $ 4,078,131 $ 6,205,662
Estimated gross profit 834,357 1,242,824
-------------------------------------------------------
4,912,488 7,448,486
Less: Billings to date (5,325,508) (10,362,893)
-------------------------------------------------------
$ (413,020) $ (2,914,407)
=======================================================
These amounts are included in the accompanying balance
sheets under the following captions:
December 31, 1995 1996
---------------------------------------------------------
Costs and accumulated gross
profit in excess of billing
on uncompleted contracts $ 747,168 $2,056,987
Billings in excess of costs and
accumulated gross profit on
uncompleted contracts 1,160,188 4,971,394
=========================================================
7. DEMAND NOTE In 1996, BECL entered into a convertible demand note
agreement with a third party. The note is convertible to
common shares at prevailing market values. The balance
outstanding at December 31, 1996 was $620,101. The fixed
interest rate at December 31, 1996 was 5% per annum.
Interest expense for the year ended December 31, 1996
was $15,124.
The Company and the creditor are in the process of
negotiating the conversion of $440,000 of the note to
common shares.
86
87
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
8. STOCKHOLDERS' Private Placement
EQUITY
In December 1996, the Company sold 33,333 shares of
common stock in a private underwriting for aggregate net
proceeds (before the costs discussed in the following
paragraph) of approximately $450,000. In 1997, the
Company sold an additional 24,007 of common stock for
net proceeds of approximately $350,000.
Costs directly related to the completion of these
offerings amounted to $259,824 and have been charged to
contributed capital in 1996.
Public Offering
Subject to certain conditions in 1997, the Company is
considering a public offering of an unspecified number
of shares of its common stock. Proceeds from this sale,
if consummated, will be used for general corporate
purposes and investments in joint ventures.
Common Stock Reserved for Issuance
At December 31, 1996, the Company had reserved 41,333
shares for fulfilling the conversion of a demand note
payable to common stock. The conversion terms are based
on the fair market value of the Company's common stock.
Subsequent to December 31, 1996, the Company issued, at
nominal cost, 9,422 shares of common stock to various
individuals and firms. Of this issuance, 6,100 shares
related to services rendered in connection with the
Private Placement and contemplated Public Offering.
The balance of the authorized, but not outstanding,
common stock are not reserved.
Preferred Stock
The Company has 5,000,000 authorized shares of Preferred
Stock (with a par value of $.001 per share), none of
which have been issued or remained outstanding as of and
for the years ended December 31, 1995 and 1996. The
Company's Board of Directors reserves the right to
determine the ownership privileges of the Preferred
Stockholders and terms of the security prior to its
issuance.
87
88
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
Dividends
There were no dividends declared or paid on the
Company's common stock in 1995 and 1996.
Increase in Authorized Shares
In 1996, the Company's stockholders approved an
amendment to the Company's Certificate of Incorporation
to establish the number of authorized shares of common
stock of the Company at 100,000,000 shares, with a par
value of $.001 per share and also approved a three for
one stock split of the Company's common stock
outstanding at that time. On October 17, 1997, the
Company approved a one for three reverse stock split.
All share and per share data have been restated for all
periods presented to reflect these splits.
9. INCOME TAXES The domestic and foreign components of income (loss)
before income taxes and minority interests are as
follows:
December 31, 1995 1996
-------------------------------------------------------
Domestic $ 936,307 $ 764,000
Foreign (375,663) (249,250)
-------------------------------------------------------
$ 560,644 $ 514,750
=======================================================
88
89
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
The components of the provision (benefit) for income
taxes are as follows:
December 31, 1995 1996
-------------------------------------------------------
Current:
Federal $274,000 $ 988,000
Foreign 16,000 47,000
State 79,000 288,000
-------------------------------------------------------
369,000 1,323,000
-------------------------------------------------------
Deferred:
Federal 59,000 (802,000)
Foreign (87,000) (29,000)
State 16,000 (212,000)
-------------------------------------------------------
(12,000) (1,043,000)
-------------------------------------------------------
Net change in
valuation allowance 87,000 29,000
-------------------------------------------------------
Provision for income taxes $444,000 $ 309,000
=======================================================
89
90
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
The following table presents the principal reasons for
the difference between the actual income tax provision
and the tax provision computed by applying the U.S.
Federal statutory income tax rate to income before
income taxes and minority interests:
December 31, 1995 1996
--------------------------------------------------------
U.S. Federal income tax
provision at statutory rates $191,000 $ 175,000
State income taxes, net
of Federal benefit 63,000 50,000
Effects of foreign
operations and tax rate
differentials 66,000 44,000
Valuation allowance - foreign
loss carryforwards 87,000 29,000
Non-deductible losses
and expenses 30,000 7,000
Other, net 7,000 4,000
--------------------------------------------------------
Provision for income taxes $444,000 $ 309,000
========================================================
The statutory tax rates in the United States (including
applicable net state rates), Hong Kong and the PRC are
40%, 16.5% and 33%, respectively. There are no tax
holidays, exemptions and incentives afforded to the
Company for its off-shore operations.
Deferred income taxes as recorded in the accompanying
consolidated balance sheets are comprised of the
following:
90
91
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
1995 1996
- ----------------------------------------------------------------------------------------------------
December 31, Asset Liability Net ASSET LIABILITY NET
- ----------------------------------------------------------------------------------------------------
Current deferred income taxes:
Accrued
accounts
receivable $ -- $ (88,000) $ (88,000) $ -- $ (371,000) $ (371,000)
Contract
costs -- (234,000) (234,000) -- -- --
Liabilities 733,000 -- 733,000 1,706,000 -- 1,706,000
Other current -- (3,000) (3,000) -- (20,000) (20,000)
- ----------------------------------------------------------------------------------------------------
$ 733,000 $(325,000) $ 408,000 $ 1,706,000 $ (391,000) $ 1,315,000
====================================================================================================
Non-current deferred income taxes:
Foreign net
operating loss
carryforwards $ 87,000 $ -- $ 87,000 $ 116,000 $ -- $ 116,000
Deferred costs -- (258,000) (258,000) -- (146,500) (146,500)
Fixed assets -- (4,500) (4,500) -- (9,000) (9,000)
Other non-
current -- (500) (500) -- (500) (500)
Valuation
allowance (87,000) -- (87,000) (116,000) -- (116,000)
- ----------------------------------------------------------------------------------------------------
-- $(263,000) $(263,000) $ -- $(156,000) $(156,000)
====================================================================================================
At December 31, 1995 and 1996, the Company had
established a valuation allowance on the deferred tax
assets related to the foreign net operating loss
carryforwards of BECL. Reductions to the valuation
allowance will be recorded when, in the opinion of
management, BECL's ability to generate taxable income in
the future is considered more likely than not.
At December 31, 1996, the Company has net operating loss
carryforwards for Hong Kong tax purposes of
approximately $702,000, which can be carried forward
indefinitely.
91
92
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
10. COMMITMENTS AND Operating Leases
CONTINGENCIES
The Company and its subsidiaries lease administrative
office space and equipment under operating leases which
expire prior to the end of 2001. Total future minimum
lease payments as of December 31, 1996 are:
-------------------------------------------------------
1997 $284,055
1998 187,899
1999 85,817
2000 43,750
2001 25,521
-------------------------------------------------------
Total minimum lease payments $627,042
=======================================================
Rent expense and related costs for 1995 and 1996 were
$149,880 and $260,396, respectively.
Legal Matters
The Company is either a plaintiff or a defendant in
several pending legal matters. In the opinion of
management, the final resolution of these matters will
not have a material adverse effect on the Company's
financial position or results of operations.
92
93
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
Contractual Obligations
The Company may also be subject to claims and penalties
arising from failure to comply with specific
contractual requirements on the progression of
long-term projects. Management does not believe that it
has any measurable exposures related to such
contingencies at December 31, 1996. The Company is also
in the process of renegotiating the terms of certain
aspects of technological licensing arrangements. The
contractual value of services currently under
negotiation approximates $450,000. The inability of the
Company to fulfill contractual terms of long-term
projects or to negotiate favorable arrangements on the
use or distribution of licensed technology may have a
material adverse effect on the Company's financial
statements.
Letters of Credit
At December 31, 1996, the Company had issued
irrevocable letters of credit of $746,230 (included in
the determination of Restricted Cash balances at
December 31, 1996) representing contingent commitments
on equipment purchases.
11. CONCENTRATIONS Major Customers
China National accounted for approximately 34% and 13%
of revenues for the years ended December 31, 1995 and
1996, respectively. A BECL customer accounted for
approximately 17% of revenues in 1996 and a BIC
customer accounted for approximately 10% of revenues in
1995.
The Company had an unsecured accounts receivable
balance of approximately $512,000 at December 31, 1996
with a Hong Kong based customer. Management is
currently discussing the timing of the settlement of
this account receivable with the customer and expects
full payment in 1997.
93
94
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
Historically, the Company has relied on a limited
number of customers for a substantial portion of its
total revenues. The Company expects that a significant
portion of its future revenues will continue to be
generated by a limited number of customers. The loss of
any of these customers or any substantial reduction in
business volume with any of these customers could
materially adversely affect operating results.
Suppliers
The Company purchases a substantial amount of equipment
and licenses technology from a limited number of
entities. Based on the number of alternate qualified
suppliers, management does not believe that the Company
has a concentration of risks under its current
arrangements.
Geographical
The vast majority of the Company's revenues are derived
from customers based in countries outside the United
States. Such operations subject the Company to certain
operational risks. The Company's prospective results of
operations could be negatively affected by adverse
consequences arising from these risks. Although
management believes that the likelihood of such factors
occurring is remote, the possibility of unanticipated
events disrupting the Company's operations exists.
12. SEGMENT Operations by Geographic Area
INFORMATION
Net revenues, operating income (loss) and identifiable
assets from United States export sales to the Far East
and for the Company's operations based in the Far East
(principally, PRC and Hong Kong) are as follows:
December 31, 1995 United States Far East Eliminations Consolidated
- --------------------------------------------------------------------------------
Net revenues $6,497,541 $ 1,872,996 $ -- $8,370,537
Operating income
(loss) 927,375 (370,055) -- 557,320
Identifiable assets 2,574,807 2,634,859 (466,921) 4,742,745
================================================================================
94
95
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
December 31, 1996
- --------------------------------------------------------------------------------
Net revenues $6,039,716 $ 1,966,544 $ -- $ 8,006,260
Operating income
(loss) 730,875 (265,151) -- 465,724
Identifiable assets 7,152,549 4,299,370 (1,264,851) 10,187,068
================================================================================
Substantially all of the Company's United States
revenues are derived from customers based in the Far
East.
Operations by Segment
The Company's predominant businesses are equipment
distribution and networking.
Net revenues, operating income and allocated assets for
the Company's segments are as follows:
Equipment
December 31, 1995 Distribution Networking Consolidated
- --------------------------------------------------------------------------------
Net revenues $4,267,791 $4,102,746 $8,370,537
Operating income 247,429 309,891 557,320
Identifiable assets 1,757,405 2,985,340 4,742,745
Purchases of fixed assets 27,049 1,325,385 1,352,434
Depreciation and
amortization expense 5,887 120 6,007
================================================================================
95
96
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
December 31, 1996
- --------------------------------------------------------------------------------
Net revenues $3,664,433 $4,341,827 $ 8,006,260
Operating income 214,515 251,209 465,724
Identifiable assets 4,179,102 6,007,966 10,187,068
Purchases of fixed assets 20,083 134,401 154,484
Depreciation and
amortization expense 33,702 5,036 38,738
================================================================================
96
97
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30,
1997
----------
ASSETS
Current assets:
Cash and cash equivalents $ 370,117
Restricted cash 1,080,575
Accounts receivable, net 1,345,658
Costs and accumulated gross profit
in excess of billings
on uncompleted contracts 675,396
Receivables from stockholders
and related parties 360,124
Prepaid expenses 316,903
Deferred taxes 746,000
----------
Total current assets 4,894,773
----------
Fixed assets:
Project equipment 1,331,588
Furniture and equipment, net 202,871
----------
Net fixed assets 1,534,459
----------
Other assets:
Non-current accounts receivable -
related parties 24,000
Deposits 9,245
Prepaid contract fees 103,125
Deferred offering costs
(Notes 5 and 8) 90,387
Organization costs, net 27,443
----------
Total other assets 254,200
----------
Total assets $6,683,432
==========
(continued)
97
98
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (CONTINUED)
JUNE 30,
1997
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,875,837
Accrued expenses 138,019
Accrued licensing costs (Note 4) 450,000
Billings in excess of costs
and accumulated gross profit
on uncompleted contracts 1,030,225
Deferred revenue 107,438
Notes payable (Note 2) 790,603
Payable to stockholders 44,785
Taxes payable 1,125,000
---------
Total current liabilities 5,561,907
---------
Long-term liabilities:
Deferred taxes 96,500
Minority interests 137,981
---------
Total long-term liabilities 234,481
----------
Commitments and contingencies (Notes 4 and 5)
Stockholders' equity (Notes 1 and 3):
Preferred stock; $.001 par value;
shares authorized - 5,000,000;
issued and outstanding - none
Common stock; $.001 par value;
shares authorized - 100,000,000;
issued and outstanding
- 3,482,107 shares 3,482
Contributed capital 1,836,981
Accumulated deficit (928,919)
Unearned compensation cost (24,500)
----------
Total stockholders' equity 887,044
----------
Total liabilities and
stockholders' equity $6,683,432
==========
See accompanying notes to condensed
consolidated financial statements.
98
99
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30,
----------------------------
1996 1997
----------- -----------
Revenues $ 5,496,964 $ 4,535,865
Cost of revenues 4,456,263 3,205,144
----------- -----------
Gross profit 1,040,701 1,330,721
----------- -----------
General and administrative expenses:
Salaries, payroll taxes and
employee benefits 304,981 560,908
Rent and premises 133,312 218,987
Travel and lodging 133,176 110,886
Depreciation and amortization 16,227 40,314
Foreign transaction losses 3,148 7,423
Consulting fees (Note 6) (274,581)
Miscellaneous 212,965 208,083
----------- -----------
Total general and
administrative expenses 803,809 1,421,182
----------- -----------
Operating income (loss) 236,892 (90,461)
----------- -----------
Other income (expense):
Interest expense and bank fees (19,565) (28,124)
Interest income 9,091 43,520
Miscellaneous income 70,841 8,099
----------- -----------
Total other income, net 60,367 23,495
----------- -----------
Income (loss) before income taxes
and minority interests 297,259 (66,966)
Provision (benefit) for income taxes 133,176 (31,000)
Minority interests (22,708) 5,942
----------- -----------
Net income (loss) $ 141,375 $ (30,024)
=========== ===========
(continued)
99
100
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (CONTINUED)
SIX MONTHS ENDED JUNE 30,
---------------------------
1996 1997
------------- -----------
Net income (loss) per common share (Note 1):
Primary and fully diluted $ .05 $ (.01)
============ ===========
Weighted average number of common shares and
common share equivalents outstanding (Note 1):
Primary 3,025,000 3,467,630
============ =============
Fully diluted 3,066,155 3,547,339
============ =============
See accompanying notes to condensed
consolidated financial statements.
100
101
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997
COMMON STOCK UNEARNED
--------------------- CONTRIBUTED ACCUMULATED COMPENSATION
SHARES AMOUNT CAPITAL DEFICIT COST
--------- ------- ----------- ----------- ------------
Balance at December 31, 1996 3,448,678 $ 3,449 $ 1,480,482 $ (898,895)
Sale of common stock 24,007 24 352,924
Costs associated with the sale
of common stock (45,416)
Issuance of common stock for
costs associated with the
sale of common stock 6,089 6 (6)
Issuance of restricted common
stock to employee 3,333 3 48,997 $ (49,000)
Amortization of unearned
compensation 24,500
Net loss for the six months
ended June 30, 1997 (30,024)
--------- ------- ----------- ----------- ------------
Balance at June 30, 1997 3,482,107 $ 3,482 $ 1,836,981 $ (928,919) $ (24,500)
========= ======= =========== =========== ============
See accompanying notes to condensed
consolidated financial statements
101
102
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30,
----------------------------
1996 1997
----------- -----------
Cash flows from operating activities:
Net income (loss) $ 141,375 $ (30,024)
----------- -----------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 84,977 109,063
Deferred income taxes (507,000) 509,500
Minority interests 13,752 (5,950)
Non-cash compensation expense 24,500
Note payable issued
for consulting fees 150,000
Interest accrued on notes payable 29,373 20,502
Changes in operating assets
and liabilities:
Accounts receivable, net (739,233) (6,340)
Costs and accumulated
gross profit in
excess of billings on
uncompleted contracts (733,243) 1,381,591
Prepaid expenses (642,251) (6,226)
Other current assets (19,093) 4,700
Deposits (20,151)
Accounts payable 119,497 917,287
Accrued expenses (76,397) (175,318)
Billings in excess of
costs and accumulated
gross profit on
uncompleted contracts 827,144 (3,941,169)
Deferred revenue 275,468 24,017
Taxes payable 662,000 (553,000)
----------- -----------
Total adjustments (725,157) (1,546,843)
----------- -----------
Net cash used
in operating
activities (583,782) (1,576,867)
----------- -----------
(continued)
102
103
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED JUNE 30,
---------------------------------
1996 1997
------------ -----------
Cash flows from investing activities:
Decrease in restricted cash $ $ 1,555,425
Acquisition of fixed assets (1,298) (34,771)
Organization costs (211)
------------ -----------
Net cash provided by
(used in) investing activities (1,509) 1,520,654
------------ -----------
Cash flows from financing activities:
Proceeds from demand note payable 575,603
Sale of common stock, net of related costs 307,532
(Advances to) repayments from stockholder
and related parties 501,971 (325,001)
Decrease in payable to stockholders (36,140) (182,513)
Deferred offering costs (90,387)
------------ -----------
Net cash provided by
(used in) financing
activities 1,041,434 (290,369)
------------ -----------
Net increase (decrease) in cash and
cash equivalents 456,143 (346,582)
Cash and cash equivalents, at
beginning of period 137,067 716,699
------------ ------------
Cash and cash equivalents, at
end of period $ 593,210 $ 370,117
============ ============
See accompanying notes to condensed
consolidated financial statements.
103
104
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
1. Basis of Presentation
The accompanying condensed consolidated financial statements as of June
30, 1997 and for the six months ended June 30, 1996 and 1997 are unaudited but,
in the opinion of management of the Company, contain all adjustments necessary
to present fairly the financial position at June 30, 1997, the results of
operations for the six months ended June 30, 1996 and 1997, and the changes in
cash flows for the six months ended June 30, 1996 and 1997. These adjustments
are of a normal recurring nature. The accompanying condensed consolidated
financial statements include the accounts of the Company and its direct
subsidiaries and joint ventures in which the Company has a controlling interest.
All intercompany accounts and transactions have been eliminated in
consolidation.
Certain information and footnote disclosures normally included in
financial statements that have been prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission, although
management of the Company believes that the disclosures contained in these
financial statements are adequate to make the information presented therein not
misleading. For further information, refer to the Company's consolidated
financial statements and notes thereto for the years ended December 31, 1995 and
1996.
The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results of operations to be expected for the full
fiscal year ending December 31, 1997.
Net income (loss) per share for the six months ended June 30, 1996 and
1997 is based on the weighted average number of shares of common stock
outstanding for each respective period. For purposes of determining fully
diluted net income (loss) per share, the conversion of the demand note (see Note
2) into common stock equivalents was calculated using the average sales price of
the Company's common stock sold during the six months ended June 30, 1997, and
the conversion of the note payable issued for a consulting fee into common stock
equivalents was calculated at the estimated offering price.
All common share and per share amounts have been restated for all
periods presented to reflect a one-for-three reverse stock split effective
October 17, 1997.
2. Notes Payable
During 1996, Brighton Electronics Corporation Limited, a Hong Kong-based
subsidiary of the Company, entered into a convertible demand note agreement with
a third party, with interest at 5% per annum. The note is convertible into
common stock of the Company at prevailing market values. The note, including
accrued interest, had a balance of $635,603 at June 30, 1997.
On February 25, 1997, the Company entered into a consulting firm for
business advisory services. Pursuant to that agreement, the Company paid the
consulting firm $25,000 and issued a one-year note for $150,000 for services
rendered. This amount has been charged to operations in the six month period
ended June 30, 1997. The note is unsecured, bears interest at 10% per annum,
with interest to accrue until the due date of February 25, 1998. Thereafter,
such note will become payable upon demand, with interest at 12% per annum.
If the Company does not complete a debt or equity financing by February
25, 1998, then the Company will have the option of converting the note,
including accrued interest, into its common stock, with
104
105
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
the value of such common shares to be calculated at 75% of the market price on
such date. The maximum number of common shares that the Company will be required
to reserve and issue as full settlement for the note, including accrued
interest, will be 75,000 shares. Such shares, if issued, will be restricted and
will have piggyback registration rights.
If the Company completes a private financing by February 25, 1998, then
the noteholder will have the option of converting the note, including accrued
interest, into the same debt or equity instrument issued in connection with such
private financing. If the Company completes a secondary public offering by
February 25, 1998, the noteholder will have the option of converting the balance
of the note, including accrued interest, into the same securities issued in
connection with the secondary public offering at the offering price. Such
securities, if issued, will be restricted and will have piggyback registration
rights. In addition, the noteholder will have the right to elect one member of
the Company's board of directors.
3. Stockholders' Equity
Transactions affecting the Company's capital structure during the six
months ended June 30, 1997 consisted of the following:
a. The Company sold 24,007 shares of common stock for proceeds
of $352,948, and incurred related costs of $134,920 of which $45,416 was paid in
cash (including $11,931 to an affiliate of a director) and $89,504 was paid by
the issuance of 6,089 shares of common stock to various individuals and firms
for services rendered in connection therewith. The 6,089 shares of common stock
were recorded as a charge to contributed capital at par value. The values
ascribed to such shares were based on the sales price of the Company's common
stock sold in comparable periods.
b. The Company granted 3,333 shares of restricted common stock
to an employee. The aggregate value of the shares of $49,000 was recorded as a
reduction to stockholders' equity as deferred compensation cost and is being
amortized, as earned, during the year ending December 31, 1997. At June 30,
1997, the balance of unearned compensation cost was $24,500.
4. Contractual Obligations
The Company is in the process of renegotiating the terms of certain
aspects of technological licensing arrangements that it entered into in
conjunction with its contract with China National. The contractual value of
services currently under negotiation is approximately $450,000. The inability of
the Company to fulfill contractual terms of long-term projects or to negotiate
favorable arrangements on the use or distribution of licensed technology may
have a material adverse effect on the Company's consolidated financial
statements.
105
106
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
5. Deferred Offering Costs
Deferred offering costs aggregating $90,387 at June 30, 1997 represent
certain legal, accounting and underwriter costs incurred in connection with the
contemplated public sale of the Company's securities (see Note 8). These costs
have been capitalized and will be charged to stockholders' equity upon
successful completion of the offering or charged to operations if the offering
is not completed.
6. Consulting Fees
Consulting fees aggregating $274,581 were charged to operations during
the six months ended June 30, 1997 for certain professional, consulting and
other costs incurred in connection with the Company's ongoing business
development activities. Of such amount, $15,873 was paid to an affiliate of a
director during the six months ended June 30, 1997 and $175,000 was incurred
pursuant to an agreement with a consulting firm (see Note 2).
7. Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is effective for financial
statements issued for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods presented. Under the new
requirements, the Company will be required to present "basic" earnings per share
and "diluted" earnings per share. Basic earnings per share does not include the
dilutive effect of stock options and warrants. The Company does not expect that
adoption of this statement will have a material effect on reported earnings per
share.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 129, "Disclosure of Information about Capital Structure," which is
effective for financial statements issued for periods ending after December 15,
1997. The new standard reinstates various disclosure requirements previously in
effect under Accounting Principles Board Opinion No. 15, which has been
superseded by this statement. The Company does not expect that adoption of this
statement will have a material effect on its current disclosures and
presentation.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income," which is effective for financial
statements issued for periods ending after December 15, 1997. Earlier
application is permitted. This statement establishes standards for the reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income consists of net income and
other comprehensive income. Other comprehensive income refers to revenues,
expenses, gains and losses that under generally accepted accounting principles
are included in comprehensive income but are excluded from net income. The
Company does not expect that adoption of this statement will have a material
effect on its current disclosures and presentation.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
which is effective for financial statements issued for periods ending after
December 15, 1997. This statement discusses how to report operating segments and
certain information about a public company's products and services, the
geographic areas in which it operates, and its major customers. The Company does
not expect that adoption of this statement will have a material effect on its
current disclosures and presentation.
106
107
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
8. Public Offering
a. On May 7, 1997, the Company entered into a Letter of Intent
agreement with an underwriter ("Representative"), as representative of certain
underwriters ("Underwriters"), to act as managing underwriter in a firm
commitment underwriting for a proposed offering ("Offering") and sale to the
public of 1,250,000 units ("Units") of the Company's securities at an offering
price ranging from $_______ to $_______ per Unit.
Each Unit consists of one share of common stock and one redeemable
common stock purchase warrant ("Warrant") of the Company. Each Warrant entitles
the holder to purchase one share of common stock for 120% of the offering price
per Unit, subject to adjustment in certain circumstances, at any time commencing
on _________________, 1998 until ________________, 2003, unless earlier
redeemed.
The Company has granted to the Underwriters an option, exercisable for
45 days from the date of the Offering, to purchase up to 187,500 additional
Units at the Unit offering price, less the underwriting discounts and the
nonaccountable allowance, for the sole purpose of covering over-allotments, if
any.
In connection with the Offering, the Company has agreed to sell to the
Representative and its designees, for a nominal consideration, an option ("Unit
Purchase Option") to purchase up to 125,000 Units. The Unit Purchase Option is
exercisable initially at 120% of the Offering price per Unit for a period of
five years commencing on the effectiveness of the Offering.
9. Subsequent Events
a. In July 1997, the Company issued 1,500 shares of common
stock with an aggregate value of $17,438 to a consultant for services rendered.
b. Effective September 13, 1997, the Company entered into a
letter of agreement with a public relations firm to provide corporate and
investor relations for a period of six months. In conjunction therewith, the
Company issued the public relations firm a stock option to purchase 8,333 shares
of common stock with an exercise price of $7.50 per share, which was the fair
market value on the date of grant.
c. Effective October 1, 1997, the Company entered into a
consulting agreement with a firm to provide certain business development
services in exchange for 11,667 shares of Common Stock, which were issued on
November 3, 1997.
105
108
============================================================================ ==================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in
this Prospectus in connection with the offer made by this Prospectus. If 1,250,000 Units
given or made, such information or representations must not be relied upon
as having been authorized by the Company or the Underwriters. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create any implication that there has been no change in the
affairs of the Company since the date hereof. This Prospectus does not [LOGO]
constitute an offer to, or solicitation of, anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to anyone BRIGHTON
to whom it is unlawful to make such offer or solicitation. TECHNOLOGIES
CORPORATION
--------------------
TABLE OF CONTENTS
Page
Prospectus Summary............................
Risk Factors..................................
Use of Proceeds...............................
Market Price for Common Stock.................
Dividend Policy...............................
Dilution......................................
Capitalization................................ Units
Management's Discussion and Analysis
or Plan of Operations....................
Industry Overview.............................
Business Development..........................
Business......................................
Management....................................
Certain Transactions.......................... ----------
Principal Stockholders........................ PROSPECTUS
Description of Securities..................... ----------
Shares Eligible for Future Sale...............
Underwriting..................................
Legal Matters.................................
Experts.......................................
Additional Information........................
Index to Financial Statements.................
--------------------
Until __________, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities offered
hereby, whether or not participating in the Offering, may be required to
deliver a prospectus. This is in addition to the obligation of dealers ________________, 1997
to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
============================================================================ ===================================================
109
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation includes provisions
which limit the liability of its directors. As permitted by applicable
provisions of the Delaware Law, directors will not be liable to the Company for
monetary damages arising from a breach of their fiduciary duty as directors in
certain circumstances. This limitation does not affect liability for any breach
of a director's duty to the Company or its stockholders (i) with respect to
approval by the director of any transaction from which he or she derives an
improper personal benefit, (ii) with respect to acts or omissions involving an
absence of good faith, that the director believes to be contrary to the best
interests of the Company or its stockholders, that involve intentional
misconduct or a knowing and culpable violation of law, that constitute an
unexcused pattern or inattention that amounts to an abdication of his or her
duty to the Company or its stockholders, or that show a reckless disregard for
duty to the Company or its stockholders in circumstances in which he or she was,
or should have been aware, in the ordinary course of performing his or her
duties, of a risk of serious injury to the Company or its stockholders, or (iii)
based on transactions between the Company and its directors or another
corporation with interrelated directors or based on improper distributions,
loans or guarantees under applicable sections of Delaware Law. This limitation
of directors' liability also does not affect the available of equitable
remedies, such as injunctive relief or rescission.
The Company has been advised that it is the position of the Commission
that insofar as the provision in the Company's Restated Certificate of
Incorporation may be invoked for liabilities arising under the Securities Act,
the provision is against public policy and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses for the issuance and distribution of the Units
registered hereby, other than underwriting commissions, fees and
Representative's nonaccountable expense allowance are set forth in the following
table:
ITEM AMOUNT
SEC Registration Fee...................................................... $______
NASD Filing Fee........................................................... ______
Nasdaq SmallCap Market Filing Fee......................................... ______
Blue Sky Fees and Expenses................................................ ______
Transfer Agent Fees....................................................... ______
Legal Fees................................................................ ______
Accounting Fees........................................................... ______
Printing and Engraving Costs.............................................. ______
Miscellaneous............................................................. ______
Total............................................................ $
======
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following is information for all securities that the Company
has sold within the past three years without registering the securities under
the Securities Act (all share information reflect the 1 for 3 reverse stock
split effective October 17, 1997):
II-1
110
1. On November 28, 1995, the Company issued an aggregate
of 186,667 share of common stock to 24 investors. The offering was done as a
private placement pursuant to Rule 505 of Regulation D.
2. On November 30, 1995, the Company issued an aggregate
of 16,667 shares of common stock to two investors, the offering was done as a
private placement pursuant to Rule 504 of Regulation D.
3. On October 1, 1996, the Company issued an aggregate of
300,001 shares of common stock to eight investors. The offering was done as a
private placement pursuant to Rule 504 of Regulation D for a total offering
price of $60,000.
4. On October 22, 1996, the Company issued an aggregate of
2,833,333 shares of common stock to Mr. Kit Kung and 166,667 shares to Ms. Hong
Yun in connection with the Reverse Acquisition. The shares were issued pursuant
to Section 4(2) of the Securities Act.
5. On October 22, 1996, the Company issued an aggregate of
25,000 shares of common stock to a consultant for the Company in connection with
the Reverse Acquisition. The Shares were issued pursuant to Section 4(2) of the
Securities Act.
6. On November 27, 1996, the Company issued an aggregate
of 33,333 shares of common stock. The offering was done as a private placement
pursuant to Rule 504 of Regulation D for an aggregate offering price of
$500,000.
7. On March 5, 1997, the Company issued an aggregate of
9,422 shares of common stock to five consultants or employees of the Company for
services rendered. The shares were issued pursuant to Section 4(2) of the
Securities Act.
8. From March 5 through April 28, 1997, the Company issued
an aggregate of 24,007 shares of common stock to twelve investors for an
aggregate purchase price of $352,948. The offering was done as a private
placement pursuant to Rule 504 of Regulation D.
9. In July 1997, the Company issued 1,500 shares of common
stock, with an aggregate value of $17,438 to a consultant for services rendered.
10. On November 3, 1997, the Company issued 11,667
shares of common stock to a consultant, for services to be rendered, of which
10,000 shares were issued pursuant to Rule 504 of the Securities Act and 1,667
shares were issued pursuant to Rule 701 of the Securities Act.
II-2
111
ITEM 27. EXHIBITS
Exhibit
Number Title
1.1 Form of Underwriting Agreement*
2.1 Acquisition Agreement with BIC, BECL, Kit Kung and Hung Yun
3.1 Certificate of Incorporation as filed with the Delaware Secretary of
State
3.2 Certificate of Correction of Certificate of Incorporation, as filed
with the Delaware Secretary of State on January 17, 1989
3.3 Articles of Amendment to the Articles of Incorporation, as filed with
the Delaware Secretary of State on October 31, 1995
3.4 Certificate of Amendment to Certificate of Incorporation, as filed with
the Delaware Secretary of State on October 28, 1996.
3.5 Certificate of Amendment to Certificate of Incorporation, as filed with
the Delaware Secretary of State on October 10, 1997.
3.6 By-laws
4.1 Form of Common Stock Certificate*
4.2 Form of Representative's Warrant Agreement (including form of
Representative's Warrants)*
4.3 Form of Redeemable Warrant Agreement*
5.1 Opinion of Loeb & Loeb LLP*
10.1 Lease Agreement (Allendale - The Company's and BIC's facilities)
10.2 Lease Agreement (Hong Kong -- BECL's and its subsidiaries' facilities)
10.3 Lease Agreement Summary (Beijing)
10.4 Lease Agreement Summary (Beijing)
10.5 Lease Agreement Summary (Shanghai)
10.6 Lease Agreement Summary (Shenzhen)
10.7 Lease Agreement Summary (Wuhan)
10.8 Agreement with China National
10.9 Agreement with AlliedSignal
10.10 Agreement with Huazheng for establishment of Brighton-STAQ
10.11 Form of Lock-Up Agreement*
21.1 Subsidiaries of Registrant
23.1 Consent of BDO Seidman, LLP,
Independent Certified Public Accountants
23.2 Consent of Russo & Shapiro, Independent Certified Public Accountants
23.3 Consent of Francis S.L. Yan & Co., Independent Certified Public
Accountants
23.4 Consent of Loeb & Loeb LLP (included in the opinion to be filed as
Exhibit 5.1)*
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
- --------------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
II-3
112
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the Registration
Statement.
(2) To provide to the Underwriters at the closing specified
in the Underwriting Agreement (filed herewith as Exhibit 1.1) certificates in
such denominations and registered in such names as required by the Underwriters
to permit prompt delivery to each purchaser.
(3) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described above in Item 24,
or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction of the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(4) For purposes of determining any liability under the
Securities Act, to treat the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1), or (4), or 497(h) under the Securities Act as part of this
Registration Statement as of the time the Commission declared it effective.
(5) For the purpose of determining any liability under the
Securities Act, to treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in the
Registration Statement, and the offering of such securities at that time as the
initial bona fide offering of those securities.
II-4
113
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement or amendment thereto to be signed on its behalf by the
undersigned in the City of Allendale, State of New Jersey, on the ____ day of
November, 1997.
BRIGHTON TECHNOLOGIES CORPORATION
By: /s/ KIT KUNG
---------------------------------------
Kit Kung
Chairman, President and Chief
Executive Officer
II-5
114
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kit Kung, as his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, grant unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date stated.
Signature Title Date
/s/ KIT KUNG President, Chief Executive November 12, 1997
- -------------------------- Officer and Chairman of
Kit Kung the Board of Directors
(Principal Executive Officer)
/s/ NILS OLLQUIST Vice President and Director November 12, 1997
- --------------------------
Nils Ollquist
/s/ WARREN WANG Secretary and Chief November 12, 1997
- -------------------------- Accounting Officer
Warren Wang
/s/ ROBERT H. WEINGARTEN Chief Financial Officer November 12, 1997
- --------------------------
Robert H. Weingarten
/s/ HONG YUN Director November 12, 1997
- --------------------------
Hong Yun
/s/ MICHAEL MULDAVIN Director November 12, 1997
- --------------------------
Michael Muldavin
II-6