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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): January 20, 2005
Medina Coffee, Inc.
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(Exact Name of Registrant as Specified in Charter)
Nevada 000-49712 88-0442833
- ---------------------------- ------------------------ -------------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
BAK Industrial Park, No. 1 BAK Street
Kuichong Town, Longgang District
Shenzhen, Peoples Republic of China 518119
Ph: (86-755) 8977-0093
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(Address of Principal Executive Offices)
12890 Hilltop Road, Argyle, Texas 76226
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(Former Name or Former Address, if Changed since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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SECTION 1--REGISTRANT'S BUSINESS AND OPERATIONS
Item 1.01. Entry into a Material Definitive Agreement
On January 20, 2005, Medina Coffee, Inc., a Nevada corporation,
completed a stock exchange transaction with the stockholders of BAK
International, Ltd., a company incorporated under the laws of Hong Kong ("BAK
International"). The exchange was consummated under Nevada law and pursuant to
the terms of that certain Securities Exchange Agreement dated effective as of
January 20, 2005 (the "Exchange Agreement"). A copy of the Exchange Agreement is
filed as an exhibit to this Current Report on Form 8-K.
Pursuant to the Exchange Agreement, the Company issued 39,826,075
shares of its common stock, par value $0.001 per share, to the stockholders of
BAK International, representing approximately 97.2% of the Company's
post-exchange issued and outstanding common stock, in exchange for 100% of the
outstanding capital stock of BAK International. Immediately, after giving effect
to the exchange, the Company had 40,978,533 shares of its common stock
outstanding. Pursuant to the exchange, BAK International became a wholly-owned
subsidiary of the Company. The Company presently carries on the business of
Shenzhen BAK Battery Co., Ltd., a Chinese corporation and BAK International's
wholly-owned subsidiary ("BAK Battery").
The shares of the Company's common stock issued to stockholders of BAK
International in connection with the exchange were not registered under the
Securities Act of 1933, as amended (the "Securities Act") and, as a result, are
"restricted securities" that may not be offered or sold in the United States
absent registration or an applicable exemption from registration. Certificates
representing these shares contain a legend stating the same. The Company has
relocated its executive offices to those of BAK Battery at BAK Industrial Park,
No. 1 BAK Street, Kuichong Town, Longgang District, Shenzhen, People's Republic
of China, and its telephone number is (86-755) 8977-0093.
The Company issued a press release on January 20, 2005 regarding the
stock exchange transaction. The press release and the stock exchange agreement
are filed herewith as Exhibits and are incorporated herein in their entirety by
this reference.
SECTION 2--FINANCIAL INFORMATION
Item 2.01. Completion of Acquisition or Disposition of Assets.
THE SHARE EXCHANGE
On January 20, 2005, the Company, BAK International and the
stockholders of BAK International consummated the transactions contemplated by
the Exchange Agreement. The Exchange Agreement specified that the Company would
acquire all 39,826,075 shares of the issued and outstanding stock of BAK
International in exchange for the issuance of 39,826,075 shares of the common
stock of the Company. On the exchange closing date, the Company issued an
aggregate of 39,826,075 shares of its common stock to the stockholders of BAK
International, representing 97.2% of the Company's issued and outstanding common
stock immediately following the exchange. All of the Company's business
operations are now conducted through BAK International's wholly-owned subsiary,
BAK Battery.
DESCRIPTION OF THE COMPANY'S PREDECESSOR BUSINESS
The Company originally began operations as a Nevada corporation known
as Medina Copy, Inc. The Company was incorporated in Nevada on October 4, 1999
and subsequently changed its name to Medina Coffee, Inc. ("Medina"), on October
6, 1999. Medina commenced operations on December 1, 2002 and was considered a
development stage company. Medina was formed originally for the purpose of
building a retail specialty coffee business that sold specialty coffee and
espresso drinks through company owned and operated espresso carts. Medina
incurred operating losses since its inception and therefore looked to combine
with a privately-held company that was profitable or that management considered
to have growth potential.
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DESCRIPTION OF CURRENT BUSINESS
Except as otherwise indicated by the context, references in this
Current Report to "we," "us," or "our" are to the combined business of Medina
and its wholly-owned direct subsidiary, BAK International, and its wholly-owned
subsidiary, BAK Battery. References to "China" or to the "PRC" are references to
the People's Republic of China.
General
Our current operations were originally a business division of our
affiliate, BAK Battery, which was originally formed as a Chinese limited
liability company in August 2001. As of January 17, 2005, all legal procedures
of BAK International's acquisition of 100% of the equity shares in BAK Battery
were completed. Thereafter, we entered into a stock exchange transaction on
January 20, 2005 with the stockholders of BAK International, pursuant to which
we acquired from them all of the issued and outstanding common capital stock of
BAK International in exchange for 39,826,075 shares of our common stock. As a
result of this exchange transaction, we succeeded to the operations of BAK
International and BAK Battery.
Overview
We presently serve as a holding company for our China-based
subsidiaries, BAK International and BAK Battery. Our subsidiaries are focused on
the manufacture, commercialization and distribution of a wide variety of
standard and customized lithium ion rechargeable batteries for use in a wide
array of applications. We also have internal research and development facilities
engaged primarily in furthering lithium ion related technologies. We believe
that our technologies allow us to offer batteries that are flexibly configured,
lightweight and generally achieve longer operating time than many competing
batteries currently available. We have focused on manufacturing a family of
replacement lithium batteries for mobile phones. We also supply rechargeable
lithium ion and lithium polymer batteries for use in various other portable
electronic applications, including high-power handset telephones, laptop
computers, digital cameras and video camcorders, MP3's, electric bicycles and
general industrial applications.
We manufacture three types of batteries: steel cell, aluminum cell and
cylindrical cell. We deliver our products to packing plants operated by third
parties where the bare cells are packed in accordance with specifications
established by certain manufacturers of mobile phones and other electronic
products. We operate sales and service branches in six principal coastal cities
and Beijing in the PRC. The majority of our income is generated from the sale of
steel cells. However, we believe there is growth potential for aluminum and
cylindrical cells because of their wide applications. Our current growth
strategy includes entering into the original equipment manufacture, or OEM,
battery market for top mobile phone brands, portable electronic appliances and
electric bicycles worldwide. We are also developing a program for producing
lithium polymer battery cells as well as high power lithium ion battery cells,
which will allow us inroads into additional battery markets such as those for
electric bicycles, power tools and hybrid electric vehicles.
Our Business Strategy
We seek to maintain and strengthen our position as a provider of
lithium ion batteries and related services while increasing the breadth of our
product line and improving the quality of our products. In order to achieve our
objective, we plan to pursue the key strategies described below.
o Continuing to be a cost leader in an increasingly competitive
market. We believe we can ensure competitive pricing by
integrating a labor intensive production process with
high-tech, proprietary manufacturing equipment. We believe our
experience in designing and updating key manufacturing
equipment and operating such equipment at a low cost gives us
a cost advantage over our competitors.
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o Taking advantage of our ready production capacity and allowing
for increased production capacity. We believe our production
capacity makes us more reliable, flexible and responsive in
terms of fulfilling our customers' requirements than other
providers. As such, existing and potential competitors may
find it more difficult to compete with our production
capabilities. The completion of our new manufacturing
facility, projected mid 2005, should only enhance our
production capacity.
o Enhanced R & D activities. Upon completion of our new
facility, we will have the space to enhance our existing R & D
capabilities through the addition of state of the art
equipment and experienced personnel.
o Developing our OEM business. We believe that by entering the
original equipment manufacture, or OEM, market for lithium and
other types of battery cells, we will be able to significantly
increase revenues. As such, we have been preparing for
Motorola's QSR certification which will give us the right to
serve as an OEM provider for Motorola's products. We believe
that obtaining Motorola's QSR Certification will position us
to provide lithium batteries to other multinational
corporations whose products require such batteries. We believe
that our entry into the OEM market for lithium ion batteries
is important to our continued growth because the market for
replacement batteries is becoming saturated.
o Expanding our product lines to capture new market
opportunities. We are seeking to produce lithium polymer and
high power lithium ion battery cells that can be used in
electric bicycles, power tools and hybrid electric vehicles.
By entering these markets, we believe we can achieve future
revenue growth and improved profit margins.
Principal Products and Services
Lithium Ion Battery
We produce rechargeable lithium ion batteries. Rechargeable lithium ion
batteries are used primarily for mobile telephones, camcorders, MP3 players,
digital cameras, electric bicycles and general industrial applications.
We began producing steel case lithium ion batteries in 2002. Our
product mix now consists of 69% steel case battery cells, 30% aluminum battery
cells, and 1% cylindrical battery cells, which all come in a broad variety of
battery types.
Services
We have built a sales and service network covering six principal
coastal cities and Beijing in the PRC. Our service capabilities include a
24-hour customer response. Our other services include providing battery testing
and test reporting; providing training courses regarding quality control and
battery usage; gathering customer opinions on our products and services;
evaluating customer requirements and fulfilling appropriate requests.
BAK has two strategic policies for sales and service:
o BAK has built a sales and service network to cover six principal
coastal cities in China, and also has a branch in Beijing.
o Our service capabilities include 24-hour customer response.
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Features
Performance standards. We believe our products meet or exceed
international standards. Our lithium ion batteries have high capacity, low
internal resistance, and a safety guarantee. Certificates or approvals we have
received include: EU's CE attestation; UL authentication; International
Organization for Standardization 9001: 2000, a quality management system
certification, and International Organization for Standardization 14001: 1996,
an environmental management system certification; and certificates from the
major cell phone manufacturers of China, including China Saibao (the CEPREI
certification body); Amoi Electronics Co., Ltd.; China Datang (Group)
Corporation; Konka Group Co., Ltd.; Tianyu Communication Technology (Kunshan)
Co., Ltd.; and Shenzhen Telsda Mobile Communication Industry Development Co.,
Ltd.
Longer usage time and higher discharge rates. We believe our battery
has a higher discharge voltage so that it can provide a longer talking time for
mobile phone users. Our products have a higher discharge capacity than other
battery products. Therefore, with the same capacity, our battery can therefore
provide a longer talking time. The higher discharge capacity is especially
useful for mobile phones with color screens, which have a high demand on the
battery's continuous discharge voltage.
Performance at lower temperatures. Our lithium ion batteries perform
well from -20 Celsius to +60 Celsius. At a temperature as low as -20 Celsius the
batteries release 95% of the battery energy at 0.2C rate; and over 90% of the
battery energy can be discharged at 1.0C. This feature allows improved cell
phone battery duration, particularly in northern areas of the PRC.
Suppliers
The main components of lithium ion batteries are the cathode, anode,
separator, and electrolyte. We have built a complete supply chain, putting
together a group of material and equipment suppliers, primarily Chinese, except
for ENTEK (a separator supplier in the US), from whom we buy on a purchase order
basis.
Cathode material is primarily LiCoO2; LiMnO4 and LiCo1-xNixO2 are also
used as cathode materials. Anode material mainly consists of carbon materials
such as graphite, sourced primarily in China. The separator material is imported
from Japan and the US. There are sufficient supplies of electrolytes in China,
and we believe the quality to be very good. The table below describes the key
sources of our key materials.
As of September 30, 2004, our key material suppliers and key equipment
suppliers were as follows:
Key Material Suppliers
Key Material Suppliers
- ------ ------------------ ------------------------------------------------------
Item Materials Main suppliers
- ------ ------------------ ------------------------------------------------------
1 Case and caps Roofer Group Company, Yijinli technology company
Shenzhen Tongli Precision Stamping Products Co., Ltd.,
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2 Cathode materials CITIC Guoan
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3 Anode materials Shanghai Shan Shan, Changsha graphite
- ------ ------------------ ------------------------------------------------------
4 Aluminum foil Aluminum Corporation of America, Shanghai
- ------ ------------------ ------------------------------------------------------
5 Copper foil Huizhou United Copper Foil
- ------ ------------------ ------------------------------------------------------
6 Electrolyte Zhangjiagang Guotai-Huarong New Chemical Materials
Co., Ltd
- ------ ------------------ ------------------------------------------------------
7 Separator Ube Industries, ENTEK, CELGARD
- ------ ------------------ ------------------------------------------------------
Key Equipment Suppliers
- ------ -------------------------------- ----------------------------------------
Item Instruments Suppliers
- ------ -------------------------------- ----------------------------------------
1 Coating machine Beijing 706 Factory
- ------ -------------------------------- ----------------------------------------
2 Mixer Guangzhou Hongyun Machine
- ------ -------------------------------- ----------------------------------------
3 Press machine SevenStar Huachuang
- ------ -------------------------------- ----------------------------------------
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4 Ultrasonic spot welding machine Zhenjiang Tianhua Machinery and
Electrical Co., Ltd.
- ------ -------------------------------- ----------------------------------------
5 Laser seam welder Wuhan Chutian Laser Group
- ------ -------------------------------- ----------------------------------------
6 Vacuum oven Jiangshu Wujiang Songling
- ------ -------------------------------- ----------------------------------------
7 Electrolyte filling machine BAK (internally developed)
- ------ -------------------------------- ----------------------------------------
8 Aging equipment Guangzhou Qingtian Industrial Co., Ltd.
- ------ -------------------------------- ----------------------------------------
9 Testing and sorting equipment Guangzhou Qingtian Industrial Co., Ltd.
- ------ -------------------------------- ----------------------------------------
Sales and Marketing
Marketing Strategies. We have two key marketing strategies. Our first
strategy is to be a leader in the worldwide replacement battery market. We
believe we can secure and enhance our market share because of the quality of our
products and our ability to maintain high production volume with low production
cost. Our second marketing strategy is to enter the OEM market. To enter into
this market we will be required to gain approvals from key international
manufacturers, including Motorola, Inc. and NingBo Bird Co., Ltd, each of which
are currently reviewing our products. Approval from Motorola represents the
first step to entering the international OEM market.
Our Current Market. We have developed a sales and service network based
in six principal coastal cities and Beijing in the PRC. Our products have also
been exported to the United States, Canada, South Africa, Japan, Singapore,
Taiwan, and Hong Kong. From 2001 to 2003, our annual sales have grown from $3
million to approximately $64 million for the year ended September 30, 2004. As
of September 30, 2004, approximately 68% of sales were domestic, while 32% were
made internationally.
Competition
We face competition in the production of lithium ion batteries not only
within China but also from other parts of the world, particularly Japan and
Korea. Sony Corp. first commercialized lithium ion batteries in 1992. However,
Japan's market share of lithium ion battery production has decreased since 2000.
We believe we are currently the seventh largest lithium ion battery manufacturer
in the world, with a monthly output capacity of 15 million pieces and current
monthly production of 11.8 million pieces. We also believe we are the second
largest manufacturer in the Chinese market.
We believe the following are the leading global manufacturers of
lithium ion batteries:
o Japan - Sanyo Electric Co., Sony Corp., Matsushita Electric Industrial
Co., Ltd. (Panasonic), GS Group, NEC Corporation and Hitachi Ltd.;
o Korea - LG Chemical Ltd. and Samsung Electronics Co., Ltd.; and
o China - BYD Co. Ltd., Shenzhen BAK Battery Co., Ltd., Tianjin Lishen
Battery Joint-Stock Co., Ltd., Henan Huanyu Group and Harbin Coslight
Technology International Group Co., Ltd.
We compete with these companies by striving to provide a higher quality
product at a lower cost. We believe that by doing business in China we enjoy
competitive advantages over similar companies doing business in Japan and Korea,
including abundant labor resources, low cost raw materials and better access to
China's extensive mobile phone market.
Customers
Our ten largest clients, based on orders, account for 51% of our sales,
predominantly in China. Our 30 largest clients, based on orders, account for 85%
of our sales, predominantly in China. At present, the bulk of our sales are in
the replacement cell phone battery market. Over the past three years, we have
developed relationships with key customers, including Konka Group Co., Ltd.,
SCUD (Fujian) Electronics Co., Ltd., Desay Power Tech. Co., Ltd. and Shenzhen Ya
Litong Electronic Co., Ltd.
5
Research and Development
We operate a state of the art research and development center
performing proprietary research that has resulted in two issued patents in the
PRC and 40 in the application process. We also outsource certain of our research
and development matters to ChangChun Applied Chemistry Research Institute of the
China Scientific Institute, Tstinghua University, JiLin University, the
Electrochemistry Department of XiaMen University and Shenzhen University. In our
in-house facility we employ over 100 staff members, led by three government
recognized specialists. Upon the approval of the National Ministry of Personnel
in October 2002, a Postdoctoral Workstation was established. The establishment
of the Workstation serves as recognition by the PRC government of the strong
capabilities of our in-house research team. The research and development center
focuses research on projects relating to liquid lithium ion batteries, high
power lithium ion batteries, solid lithium polymer ion batteries, and
cylindrical and rectangular lithium ion batteries.
During fiscal 2004 and 2003, we expended $328,779 and $116,789,
respectively, on our research and development efforts. We anticipate devoting
approximately $4.6 million on research and development activities in 2005.
Employees
The following table summarizes the functional distribution of our
employees as of September 30, 2003 and 2004:
Department 2003 2004
Officers 9 10
Comprehensive Management 64 197
Human Resources 8 19
Marketing 51 67
PMS Department 14 21
Technical Department 10 46
Research & Development 58 107
Purchasing 8 29
Financial Department 8 18
PMC Department 19 45
After Sales Department 9 33
Quality Control 85 242
Engineering 27 99
Manufacturing 2637 5428
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TOTALS 3007 6362
None of our personnel are represented under collective bargaining
agreements. We consider our relations with our employees to be good.
Facilities
We currently lease 5,500 m2 in the aggregate for office space and
manufacturing facilities. We lease 3,000 m2 for office space and manufacturing
operations pursuant to a lease which runs from June 1, 2003 to June 10, 2008.
Our rent due under that lease is $2,468 a month. We also lease 2,500 m2 for
office space and manufacturing facilities pursuant to a lease with a term
beginning December 16, 2004 and ending December 16, 2006. We owe lease payments
of $2,329 a month during the term of this second lease.
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In addition, we have begun construction of manufacturing facilities,
warehousing and packaging facilities, dormitory space and administrative offices
at the BAK Industrial Park. We anticipate the completion of construction of
these facilities by June 2005. At present, we have no payment obligations
related to these facilities, however, upon completion of construction, we will
have monthly payments due in satisfaction of our permanent construction
financing.
Upon completion of the construction of the BAK Industrial Park, we will
cease to lease the 5,500 m2 that we currently lease for office space and
manufacturing facilities. We will face no material penalties when we cancel
these leases.
Legal Proceedings
We are not a party to any legal proceedings, nor are we aware of any
contemplated proceedings.
Intellectual Property and Proprietary Rights
We rely primarily on a combination of copyright laws and contractual
restrictions to establish and protect our intellectual property rights. We
currently have two issued patents in the PRC and 40 are in the application
process. We require our management and key technical personnel to enter into
agreements requiring them to keep confidential all information relating to our
customers, methods, business and trade secrets during and after their employment
with us.
We have very strict control over the core technologies for which we can
not apply for patents. Every employee who is related to these proprietary
technologies must sign "special technology non-disclosure agreement". We have
also established an internal department to protect property rights. In this
department, there are professionals including attorneys, engineers, information
managers and archives managers responsible for the application and protection of
proprietary rights. We have also developed a series of rules regarding "property
right non-disclosure", "property right archives management", "information
collection and analysis" and "innovation encouragement". While we actively take
steps to protect our proprietary rights, such steps may not be adequate to
prevent the infringement or misappropriation of our intellectual property. This
is particularly the case in China where the laws may not protect our proprietary
rights as fully as in the United States. Infringement or misappropriation of our
intellectual property could materially harm our business. BAK Battery has
registered the following Internet and WAP domain name WWW.BAK.COM.CN (the
English version of our website can be found at WWW.BAK.COM.CN.EN).
CAUTIONARY STATEMENTS
You should carefully consider the following risks and the other
information set forth elsewhere in this Current Repor, including our financial
statements and related notes.. If any of these risks occur, our business,
financial condition and results of operations could be adversely affected. As a
result, the trading price of our common stock could decline, perhaps
significantly.
Risks Related to Our Business
The rechargeable battery business is highly competitive.
We are subject to competition from manufacturers of traditional
rechargeable batteries, such as nickel-cadmium batteries, from manufacturers of
rechargeable batteries of more recent technologies, such as nickel-metal hydride
and liquid electrolyte, as well as from companies engaged in the development of
batteries incorporating new technologies. Other manufacturers of lithium ion
batteries currently include Sanyo Electric Co., Sony Corp., Matsushita Electric
Industrial Co., Ltd. (Panasonic), GS Group, NEC Corporation, Hitachi Ltd., LG
Chemical Ltd., Samsung Electronics Co., Ltd., BYD Co. Ltd., Tianjin Lishen
Battery Joint-Stock Co., Ltd., Henan Huanyu Group and Harbin Coslight Technology
International Group Co., Ltd.
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Many companies with substantially greater resources are developing a
variety of battery technologies, such as lithium polymer and fuel cell
batteries, which are expected to compete with our existing product lines
technology. Other companies undertaking research and development activities of
solid-polymer batteries have already developed prototypes and are constructing
commercial scale production facilities. If these companies successfully market
their batteries before the introduction of our products, there could be a
material adverse effect on our business, financial condition and results of
operations.
We depend on continued demand for our products.
A substantial portion of our business depends on the continued demand
for those products that use lithium ion batteries, which in turn cause demand
for our products. Therefore, our success depends significantly upon the success
of those products in the marketplace. We are subject to many risks beyond our
control that influence the success or failure of such products.
Because of the specialized, technical nature of the business, we are highly
dependent on certain members of management, marketing, engineering and technical
staff.
The loss of these services or these members could have a material
adverse effect on our business, financial condition and results of operations.
In addition to developing the manufacturing capacity to produce high volumes of
advanced rechargeable batteries, we must attract, recruit and retain a sizeable
workforce of technically competent employees. Our ability to pursue effectively
our business strategy will depend upon, among other factors, the successful
recruitment and retention of additional highly skilled and experienced
managerial, marketing, engineering and technical personnel. We cannot assure
that we will be able to retain this type of personnel.
Rapid growth of our battery business could significantly strain management,
operations and technical resources.
If we are successful in obtaining rapid market growth of our batteries,
we will be required to deliver large volumes of quality products to customers on
a timely basis at a reasonable cost to those customers. Such demand can also
create working capital issues for us, as we need increased liquidity to fund
purchases of raw materials and supplies. We cannot assure, however, that
business will rapidly grow or that our efforts to expand manufacturing and
quality control activities will be successful or that we will be able to satisfy
commercial scale production requirements on a timely and cost-effective basis.
We will also be required to continue to improve our operations, management and
financial systems and controls. The failure to manage growth effectively could
have an adverse effect on our business, financial condition and results of
operations.
Lithium ion batteries pose certain safety risks that could affect our business.
Due to the high energy density inherent in lithium batteries, our
batteries can pose certain safety risks, including the risk of fire. Although we
incorporate safety procedures in research, development and manufacturing
processes that are designed to minimize safety risks, we cannot assure that
accidents will not occur. Any accident, whether at the manufacturing facilities
or from the use of the products, may result in significant production delays or
claims for damages resulting from injuries. Due to the fact that we have no
product liablity insurance, these types of losses could have a material adverse
effect on our business, financial condition and results of operations.
National, state and local laws impose various environmental controls on
the manufacture, storage, use and disposal of lithium batteries and/or of
certain chemicals used in the manufacture of lithium batteries. Although we
believe that our operations are in substantial compliance with current
environmental regulations and that, except as noted below, there are no
environmental conditions that will require material expenditures for clean-up at
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the present or former facilities or at facilities to which we send waste for
disposal, there can be no assurance that changes in such laws and regulations
will not impose costly compliance requirements on us or otherwise subject us to
future liabilities. There can be no assurance that additional or modified
regulations relating to the manufacture, transportation, storage, use and
disposal of materials used to manufacture our batteries or restricting disposal
of batteries will not be imposed or how these regulations will affect us or our
customers.
We depend on certain suppliers, and any disruption with those suppliers could
have an adverse affect on our business.
Certain materials used in products are available only from a limited
number of suppliers. Additionally, we may elect to develop relationships with a
single or limited number of suppliers for materials that are otherwise generally
available. We have volume purchase agreements with our major suppliers. Although
we believe that alternative suppliers are available to supply materials that
could replace materials currently used and that, if necessary, we would be able
to redesign our products to make use of such alternatives, any interruption in
the supply from any supplier could delay product shipments and adversely effect
our relationships with our customers.
We cannot control the cost of our raw materials, which may adversely impact our
profit margin and financial position.
Our principal raw materials are liquid electrolyte and lithium cobalt
oxide. The prices for these raw materials are subject to market forces largely
beyond our control, including energy costs, organic chemical feedstocks, market
demand, and freight costs. The prices for these raw materials have varied
significantly, including a significant increase in the year ended September 30,
2004, and may vary significantly in the future. We may not be able to adjust our
product prices, especially in the short term, to recover the costs of increases
in these raw materials. Our future profitability may be adversely affected to
the extent we are unable to pass on higher raw material and energy costs to our
customers.
If we experience customer concentration, we may be exposed to all of the risks
faced by our remaining material customers.
Our largest customer accounts for 13.62% of our revenues for the nine
months ended September 30, 2004. Unless we maintain multiple customer
relationships, it is likely that we will experience periods during which we will
be highly dependent on a limited number of customers. Dependence on a few
customers could make it difficult to negotiate attractive prices for our
products and could expose us to the risk of substantial losses if a single
dominant customer stops conducting business with us. Moreover, to the extent
that we are dependent on any single customer, we are subject to the risks faced
by that customer to the extent that such risks impede the customer's ability to
stay in business and make timely payments to us.
Our business is highly dependent upon proprietary technologies.
Our success depends on the knowledge, ability, experience and
technological expertise of our employees and on the legal protection of patents
and other proprietary rights. We claim proprietary rights in various unpatented
technologies, know-how, trade secrets and trademarks relating to products and
manufacturing processes. We cannot guarantee the degree of protection these
various claims may or will afford, or that competitors will not independently
develop or patent technologies that are substantially equivalent or superior to
our technology. We protect our proprietary rights in our products and operations
through contractual obligations, including nondisclosure agreements. There can
be no assurance as to the degree of protection these contractual measures may or
will afford. We have had patents issued and have patent applications pending in
China. We cannot assure (i) that patents will be issued from any pending
applications, or that the claims allowed under any patents will be sufficiently
broad to protect our technology, (ii) that any patents issued to us will not be
challenged, invalidated or circumvented, or (iii) as to the degree or adequacy
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of protection any patents or patent applications may or will afford. If we are
found to be infringing third party patents, there can be no assurance that we
will be able to obtain licenses with respect to such patents on acceptable
terms, if at all. The failure to obtain necessary licenses could delay product
shipment or the introduction of new products, and costly attempts to design
around such patents could foreclose the development, manufacture or sale of
products.
We depend on factories to manufacture our products, which may be insufficiently
insured against damage or loss.
We have no direct business operation, other than our ownership of our
subsidiaries located in China, and our results of operations and financial
condition are currently solely dependent on our subsidiaries' factories in
China. We do not currently maintain insurance to protect against damage and loss
to our manufacturing facility, machinery and other leasehold improvements.
Therefore, any material damage to, or the loss of, any of our factories due to
fire, severe weather, flooding or other cause, and such damage or loss would
have a material adverse effect on our financial condition, business and
prospects.
We face risks related to product warranty claims.
We typically offer warranties ranging from six to eight months against
any defects due to product malfunction. We provide for a reserve for this
potential warranty expense, which is based on an analysis of historical warranty
issues. There is no assurance that future warranty claims will be consistent
with past history, and in the event we experience a significant increase in
warranty claims, there is no assurance that the reserves are sufficient. This
could have a material adverse effect on our business, financial condition and
results of operations.
Our holding company structure creates restrictions on the payment of dividends.
We have no direct business operations, other than our ownership of our
subsidiaries. While we have no current intention of paying dividends, should we
decide in the future to do so, as a holding company, our ability to pay
dividends and meet other obligations depends upon the receipt of dividends or
other payments from our operating subsidiaries and other holdings and
investments. In addition, our operating subsidiaries, from time to time, may be
subject to restrictions on their ability to make distributions to us, including
as a result of restrictive covenants in loan agreements, restrictions on the
conversion of local currency into U.S. dollars or other hard currency and other
regulatory restrictions. If future dividends are paid in Renminbi, fluctuations
in the exchange rate for the conversion of Renminbi into U.S. dollars may
adversely affect the amount received by U.S. stockholders upon conversion of the
dividend payment into U.S. dollars.
Our short term debt obligations may affect our liquidity and capital resources.
As of September 30, 2004 we had approximately U.S. $50 million in short
term loans and notes payable maturing at or prior to September 30, 2005. If we
fail to obtain extensions of the maturity dates of these obligations, our
overall liquidity and capital resources will be adversely affected as a result
of our efforts to satisfy these obligations.
We have not obtained the certificate of land use right for our BAK Industrial
Park.
We have not obtained the certificate of land use right for the property
and facilities located at BAK Industrial Park, No. 1 BAK Street, Kuichong Town,
Longgang District, Shenzhen, People's Republic of China. We are negotiating with
the government regarding this matter. We have paid approximately U.S. $278,000
for construction and area preparation costs. We have, however, been granted
permission to, and have commenced construction of, our new production facility.
Although we anticipate receiving the certificate of land use right, our business
will be materially adversely affected if our application for a certificate of
land use right is not approved, because we could be obligated to vacate the
premises and relocate to new facilities.
10
Risks Related to Doing Business in China
Our operations are located in China and may be adversely affected by changes in
the political and economic policies of the Chinese government.
Our business operations may be adversely affected by the political
environment in the PRC. The PRC has operated as a socialist state since 1949 and
is controlled by the Communist Party of China. In recent years, however, the
government has introduced reforms aimed at creating a "socialist market economy"
and policies have been implemented to allow business enterprises greater
autonomy in their operations. Changes in the political leadership of the PRC may
have a significant effect on laws and policies related to the current economic
reforms program, other policies affecting business and the general political,
economic and social environment in the PRC, including the introduction of
measures to control inflation, changes in the rate or method of taxation, the
imposition of additional restrictions on currency conversion and remittances
abroad, and foreign investment. These effects could substantially impair our
business, profits or prospects in China. Moreover, economic reforms and growth
in the PRC have been more successful in certain provinces than in others, and
the continuation or increases of such disparities could affect the political or
social stability of the PRC.
Although we believe that the economic reform and the macroeconomic
measures adopted by the Chinese government have had a positive effect on the
economic development of China, we cannot predict the future direction of these
economic reforms or the effects these measures may have on our business,
financial position or results of operations. In addition, the Chinese economy
differs from the economies of most countries belonging to the Organization for
Economic Cooperation and Development, or OECD. These differences include:
o economic structure;
o level of government involvement in the economy;
o level of development;
o level of capital reinvestment;
o control of foreign exchange;
o methods of allocating resources; and
o balance of payments position.
As a result of these differences, our business may not develop in the same way
or at the same rate as might be expected if the Chinese economy were similar to
those of the OECD member countries.
The Chinese government exerts substantial influence over the manner in which we
must conduct our business activities.
The PRC only recently has permitted provincial and local economic
autonomy and private economic activities. The government of the PRC has
exercised and continues to exercise substantial control over virtually every
sector of the Chinese economy through regulation and state ownership.
Accordingly, government actions in the future, including any decision not to
continue to support recent economic reforms and to return to a more centrally
planned economy or regional or local variations in the implementation of
economic policies, could have a significant effect on economic conditions in the
PRC or particular regions thereof, and could require us to divest ourselves of
any interest we then hold in Chinese properties or joint ventures. Any such
developments could have a material adverse effect on our business, operations,
financial condition and prospects.
In addition, while we do not believe it is a likely event, the Chinese
government may decide not to grant a renewal of BAK Battery's renewable
operating tenure upon its expiration on August 3, 2011. While we believe that
renewing the operating tenure is a simple administrative matter, a failure to
renew BAK Battery's renewable operating tenure could have a material adverse
effect on our business, operations, financial condition and prospects.
11
The favorable tax treatment in Shenzhen is projected to end in the near future,
which, when effective, will adversely impact our profit margin and results of
operations.
The current tax rate in Shenzhen is 15% of profits. However, Shenzhen
is an economic development zone. As such, the tax rate for foreign invested
enterprises like us is adjusted to promote development. Under the current tax
scheme, foreign invested enterprises do not owe any tax during the first two
years following the time at which they become profitable. For the next following
three years, foreign invested enterprises owe 50% of the current tax rate, or
7.5%. Thereafter, foreign invested enterprises owe the full tax rate, unless
they qualify and apply for other reduced tax programs. Under this format, we
currently pay 7.5%. We will likely begin to pay the 15% mandated maximum on
January 1, 2007. Once this increase becomes effective, our profit margin and
financial position will experience a concordant negative adjustment.
A downturn in the Chinese economy may slow down our growth and profitability.
The growth of the Chinese economy has been uneven across geographic
regions and economic sectors. There can be no assurance that growth of the
Chinese economy will be steady or that any downturn will not have a negative
effect on our business. Our profitability will decrease if expenditures for
lithium ion batteries decrease due to a downturn in the Chinese economy.
Future inflation in China may inhibit economic activity in China and adversely
affect our operations.
In recent years, the Chinese economy has experienced periods of rapid
expansion and high rates of inflation which have led to the adoption by the PRC
government, from time to time, of various corrective measures designed to
restrict the availability of credit or regulate growth and contain inflation.
While inflation has moderated since 1995, high inflation may in the future cause
the PRC government to impose controls on credit and/or prices, or to take other
action, which could inhibit economic activity in China, and thereby adversely
affect our business operations and prospects in the PRC.
Any recurrence of severe acute respiratory syndrome, or SARS, or another
widespread public health problem, could adversely affect our business and
results of operations.
A renewed outbreak of SARS or another widespread public health problem
in China, where all of our revenue is derived, and in Shanghai, where our
operations are headquartered, could have a negative effect on our operations.
Our operations may be impacted by a number of health-related factors, including
the following:
o quarantines or closures of some of our offices which would severely
disrupt our operations,
o the sickness or death of our key officers and employees, and
o a general slowdown in the Chinese economy.
Any of the foregoing events or other unforeseen consequences of public
health problems could adversely affect our business and results of operations.
Restrictions on currency exchange may limit our ability to receive and use our
revenues effectively.
Because almost all of our future revenues may be in the form of
Renminbi, any future restrictions on currency exchanges may limit our ability to
use revenue generated in Renminbi to fund any future business activities outside
China or to make dividend or other payments in U.S. dollars. Although the
Chinese government introduced regulations in 1996 to allow greater
convertibility of the Renminbi for current account transactions, significant
restrictions still remain, including primarily the restriction that
12
foreign-invested enterprises may only buy, sell or remit foreign currencies,
after providing valid commercial documents, at those banks authorized to conduct
foreign exchange business. In addition, conversion of Renminbi for capital
account items, including direct investment and loans, is subject to governmental
approval in China, and companies are required to open and maintain separate
foreign exchange accounts for capital account items. We cannot be certain that
the Chinese regulatory authorities will not impose more stringent restrictions
on the convertibility of the Renminbi, especially with respect to foreign
exchange transactions.
The value of our securities will be affected by the foreign exchange rate
between U.S. dollars and Renminbi.
The value of our common stock will be affected by the foreign exchange
rate between U.S. dollars and Renminbi. For example, to the extent that we need
to convert U.S. dollars into Renminbi for our operational needs and should the
Renminbi appreciate against the U.S. dollar at that time, our financial position
and the price of our common stock may be adversely affected. Conversely, if we
decide to convert our Renminbi into U.S. dollars for the purpose of declaring
dividends on our common stock or for other business purposes and the U.S. dollar
appreciates against the Renminbi, the U.S. dollar equivalent of our earnings
from our subsidiaries in China would be reduced.
Until 1994, the Renminbi experienced a gradual but significant
devaluation against most major currencies, including U.S. dollars, and there was
a significant devaluation of the Renminbi on January 1, 1994 in connection with
the replacement of the dual exchange rate system with a unified managed floating
rate foreign exchange system. Since 1994, the value of the Renminbi relative to
the U.S. Dollar has remained stable and has appreciated slightly against the
U.S. dollar. Countries, including the U.S., have argued that the Renminbi is
artificially undervalued due to China's current monetary policies and have
pressured China to allow the Renminbi to float freely in world markets.
If any devaluation of the Renminbi were to occur in the future, our
returns on our operations in China, which are expected to be in the form of
Renminbi, will be negatively affected upon conversion to U.S. dollars. Although
we attempt to have most future payments, mainly repayments of loans and capital
contributions, denominated in U.S. dollars, if any increase in the value of the
Renminbi were to occur in the future, our products sales in China and in other
countries may be negatively affected.
We may be unable to enforce our rights due to policies regarding the regulation
of foreign investments in China.
The PRC's legal system is a civil law system based on written statutes
in which decided legal cases have little value as precedents, unlike the common
law system prevalent in the United States. The PRC does not have a
well-developed, consolidated body of laws governing foreign investment
enterprises. As a result, the administration of laws and regulations by
government agencies may be subject to considerable discretion and variation, and
may be subject to influence by external forces unrelated to the legal merits of
a particular matter. China's regulations and policies with respect to foreign
investments are evolving. Definitive regulations and policies with respect to
such matters as the permissible percentage of foreign investment and permissible
rates of equity returns have not yet been published. Statements regarding these
evolving policies have been conflicting and any such policies, as administered,
are likely to be subject to broad interpretation and discretion and to be
modified, perhaps on a case-by-case basis. The uncertainties regarding such
regulations and policies present risks which may affect our ability to achieve
our business objectives. We cannot assure you that we will be able to enforce
any legal rights we may have under our contracts or otherwise. Our failure to
enforce our legal rights may have a material adverse impact on our operations
and financial position, as well as our ability to compete with other companies
in our industry.
13
It may be difficult for stockholders to enforce any judgment obtained in the
United States against us, which may limit the remedies otherwise available to
our stockholders.
Substantially all of our assets are located outside the United States.
Almost all of our current operations are conducted in China. Moreover, all of
our directors and officers are nationals or residents of China. All or a
substantial portion of the assets of these persons are located outside the
United States. As a result, it may be difficult for shareholders to effect
service of process within the United States upon these persons. In addition,
there is uncertainty as to whether the courts of China would recognize or
enforce judgments of United States courts obtained against us or such officers
and/or directors predicated upon the civil liability provisions of the
securities law of the United States or any state thereof, or be competent to
hear original actions brought in China against us or such persons predicated
upon the securities laws of the United States or any state thereof.
Risks Related to our Common Stock
The market price for our common stock may be volatile.
The market price for our common stock is likely to be highly volatile
and subject to wide fluctuations in response to factors including the following:
o actual or anticipated fluctuations in our quarterly operating results,
o announcements of new services by us or our competitors,
o changes in financial estimates by securities analysts,
o conditions in the lithium ion battery market,
o changes in the economic performance or market valuations of other
companies involved in lithium ion battery production,
o announcements by our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments,
o additions or departures of key personnel,
o potential litigation, or
o conditions in the mobile telephone market.
In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are not related to the operating
performance of particular companies. These market fluctuations may also
materially and adversely affect the market price of our common stock.
Stockholders could experience substantial dilution.
We may issue additional shares of our capital stock to raise additional
cash for working capital. If we issue additional shares of our capital stock,
our stockholders will experience dilution in their respective percentage
ownership in us.
We have no present intention to pay dividends.
Neither during the preceding two fiscal years nor during the nine month
period ended September 30, 2004 did we pay dividends or make other cash
distributions on our common stock, and we do not expect to declare or pay any
dividends in the foreseeable future. Should we decide in the future to do so, as
a holding company, our ability to pay dividends and meet other obligations
depends upon the receipt of dividends or other payments from our operating
subsidiaries and other holdings and investments. In addition, our operating
subsidiaries, from time to time, may be subject to restrictions on their ability
to make distributions to us, including as a result of restrictive covenants in
loan agreements, restrictions on the conversion of local currency into U.S.
dollars or other hard currency and other regulatory restrictions. We intend to
retain any future earnings for working capital and to finance current operations
and expansion of our business.
14
A large portion of our common stock is controlled by a small number of
stockholders.
A large portion of our common stock is held by a small number of
stockholders. As a result, these stockholders are able to influence the outcome
of stockholder votes on various matters, including the election of directors and
extraordinary corporate transactions including business combinations. In
addition, the occurrence of sales of a large number of shares of our common
stock, or the perception that these sales could occur, may affect our stock
price and could impair our ability to obtain capital through an offering of
equity securities. Furthermore, the current ratios of ownership of our common
stock reduce the public float and liquidity of our common stock which can in
turn affect the market price of our common stock.
There is currently a limited trading market for our common stock.
Our common stock is traded in the over-the-counter market through the
Over-the-Counter Electronic Bulletin Board. There is currently an active trading
market for our common stock; however, there can be no assurance that an active
trading market will be maintained. We cannot assure you that our common stock
will ever be included for trading on any stock exchange or through any other
quotation system (including, without limitation, the NASDAQ Stock Market).
We are likely to remain subject to "penny stock" regulations.
As long as the trading price of our common stock is below $5.00 per
share, the open-market trading of our common stock will be subject to the "penny
stock" rules. The "penny stock" rules impose additional sales practice
requirements on broker-dealers who sell securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of securities and
have received the purchaser's written consent to the transaction before the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the broker-dealer must deliver, before the transaction, a disclosure
schedule prescribed by the Securities and Exchange Commission relating to the
penny stock market. The broker-dealer also must disclose the commissions payable
to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements must be sent
disclosing recent price information on the limited market in penny stocks. These
additional burdens imposed on broker-dealers may restrict the ability of
broker-dealers to sell the common stock and may affect a stockholder's ability
to resell the common stock.
Stockholders should be aware that, according to Securities and Exchange
Commission Release No. 34-29093, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include (i) control
of the market for the security by one or a few broker-dealers that are often
related to the promoter or issuer; (ii) manipulation of prices through
prearranged matching of purchases and sales and false and misleading press
releases; (iii) boiler room practices involving high-pressure sales tactics and
unrealistic price projections by inexperienced sales persons; (iv) excessive and
undisclosed bid-ask differential and markups by selling broker-dealers; and (v)
the wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequent investor losses. Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.
We are responsible for the indemnification of our officers and directors.
Our Bylaws provide for the indemnification of our directors, officers,
employees, and agents, under certain circumstances, against attorney's fees and
15
other expenses incurred by them in any litigation to which they become a party
arising from their association with or activities on behalf of us. This
indemnification policy could result in substantial expenditures, which we may be
unable to recoup.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Current Report contains forward-looking statements that involve
risks and uncertainties. These statements relate to future events or our future
financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "could," "expect," "plan,"
"intend," "anticipate," "believe," "estimate," "predict," "potential," or
"continue," or the negative of such terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, you should specifically consider various
factors, including the risks outlined in the "Cautionary Statements" section
beginning on page 7 in this Current Report. These factors may cause our actual
results to differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. We are under no duty to update
any of the forward-looking statements after the date of this Current Report to
conform such statements to actual results or to changes in our expectations.
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information about our executive officers
and directors and their respective ages and positions as of January 20, 2005.
The directors listed below will serve until the next annual meeting of the
Medina stockholders:
NAME AGE POSITION HELD
---- --- -------------
Xiangqian Li 36 Director, Chairman of the Board, President and
Chief Executive Officer
Yongbin Han 35 Chief Financial Officer and Secretary
Huanyu Mao 53 Chief Technical Officer
Xiangqian Li has served as our Director, Chairman of the Board,
President and Chief Executive Officer since January 20, 2005. Mr. Li has been
Chairman of Board of Directors and General Manager of BAK Battery since April
2001 and has also served as BAK Battery's general manager since December 2003.
Previously, Mr. Li served as (i) Chairman of the Board of Directors and General
Manager of Shenzhen BAK Li-ion Battery Co., Ltd. from December 2000 until March
2001; (ii) as Chairman of the Board of Directors and General Manager of Jilin
Province Huaruan Technology Company Limited by Stocks ("Huaruan") from March
2001 until June 2001; and (iii) as Chairman of the Board of Directors of Huaruan
from June 2001 until June 2003. Prior to 2001 Mr. Li was self employed. Mr. Li
graduated from Lanzhou Railway Institute and holds a Bachelors degree in gas
engineering. He is pursuing a Doctorate of quantity economics from Jilin
University.
Yongbin Han has served as our Chief Financial Officer and Secretary
since January 20, 2005. Mr. Han is a Chinese certified public accountant and
certified tax agent. Mr. Han has been Deputy General Manager of BAK Battery
since April 2003. In that capacity he oversees the finance and accounting
department. Previously, Mr. Han served as (i) Deputy General Manager of Huaruan
from January 2002 until April 2003 and (ii) Department Manager of Zhonghongxin
Jianyuan Accounting Firm from July 1995 until July 2001. Mr. Han graduated from
Changchun Tax Institute with a Bachelors degree in accounting.
16
Huanyu Mao has served as our Chief Technical Officer since January 20,
2005. Dr. Mao has been Chief Scientist of BAK Battery since September 2004. From
1997 until September 2004 Dr. Mao served as Chief Engineer of Tianjin Lishen
Company. Dr. Mao graduated from Memorial University of Newfoundland, Canada and
received a Doctorate degree in electrochemistry in conducting polymers.
Board Composition and Committees
The board of directors is currently composed of one member, Xiangqian
Li. All Board action requires the approval of a majority of the directors in
attendance at a meeting at which a quorum is present. We intend to expand our
board to include "independent" directors.
We currently do not have standing audit, nominating or compensation
committees. We intend, however, to establish an audit committee and a
compensation committee of the board of directors as soon as practicable. We
envision that the audit committee will be primarily responsible for reviewing
the services performed by our independent auditors, evaluating our accounting
policies and our system of internal controls. The compensation committee will be
primarily responsible for reviewing and approving our salary and benefits
policies (including stock options), including compensation of executive
officers.
Director Compensation
At present we do not pay our directors a fee for attending scheduled
and special meetings of our board of directors. We intend to reimburse each
director for reasonable travel expenses related to such director's attendance at
board of directors and committee meetings. As noted above, we intend to expand
our board to include "independent" directors. It is anticipated that the
appointment of independent members of our board will require us to pay fees
comparable to those paid by other public companies in our peer group.
Indebtedness of Directors and Executive Officers
None of our directors or officers or their respective associates or
affiliates is indebted to us.
Involvement in Certain Legal Proceedings
In the normal course of business, various claims are made against us.
At this time, in the opinion of management, there are no pending claims the
outcome of which are expected to result in a material adverse effect on our
consolidated financial position or results of operations.
Family Relationships
There are no family relationships among our directors or officers.
Executive Compensation
The following Summary Compensation Table sets forth all cash
compensation paid to our chief executive officer for services rendered in all
capacities to us during the noted periods. No executive officers received a
total annual salary and bonus compensation in excess of $100,000.
Summary Compensation Table
Name and
Principal Restricted Securities
Underlying Stock Underlying All Other
Positions Year Salary Bonus Awards Options Compensation
---------- ---- ------ ----- ---------- ---------- ------------
Xiangqian Li 2004 -0- -0- NA NA NA
2003 -0- -0- NA NA NA
2002 -0- -0- NA NA NA
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 20, 2005, certain
information with respect to the beneficial ownership of our common stock by (i)
each director and officer of Medina, (ii) each person known to Medina to be the
beneficial owner of five percent or more of the outstanding shares of common
stock of Medina, and (iii) all directors and officers of Medina as a group.
Unless otherwise indicated, the person or entity listed in the table is the
beneficial owner of, and has sole voting and investment power with respect to,
the shares indicated. Certain principal stockholders are selling stockholders in
this offering.
Amount and Nature of Beneficial Ownership (1)
---------------------------------------------
Number Percent of
Name of Beneficial Owner of Shares (2) Voting Stock (3)
- ------------------------ ------------- ----------------
Xiangqian Li 21,233,437 (4) 51.8%
Huanyu Mao 249,805 *
Yongbin Han 312,256 *
Directors and executive officers as a group (3 persons) 21,795,498 53.2%
- -------------------------
*Denotes less than 1% of the outstanding shares of common stock.
(1) On January 20, 2005, there were 40,978,533 shares of common stock
outstanding and no issued and outstanding preferred stock. Each person
named above has the sole investment and voting power with respect to
all shares of common stock shown as beneficially owned by the person,
except as otherwise indicated below.
(2) Under applicable SEC rules, a person is deemed to be the "beneficial
owner" of a security with regard to which the person directly or
indirectly, has or shares (a) the voting power, which includes the
power to vote or direct the voting of the security, or (b) the
investment power, which includes the power to dispose, or direct the
disposition, of the security, in each case irrespective of the person's
economic interest in the security. Under these SEC rules, a person is
deemed to beneficially own securities which the person has the right to
acquire within 60 days through the exercise of any option or warrant or
through the conversion of another security.
(3) In determining the percent of voting stock owned by a person on January
20, 2005, (a) the numerator is the number of shares of common stock
beneficially owned by the person, including shares the beneficial
ownership of which may be acquired within 60 days upon the exercise of
options or warrants or conversion of convertible securities, and (b)
the denominator is the total of (i) the 40,978,533 shares in the
aggregate of common stock outstanding on January 20, 2005, and (ii) any
shares of common stock which the person has the right to acquire within
60 days upon the exercise of options or warrants or conversion of
convertible securities. Neither the numerator nor the denominator
includes shares which may be issued upon the exercise of any other
options or warrants or the conversion of any other convertible
securities.
(4) Mr. Li is a party to an Escrow Agreement pursuant to which he has
agreed to place 2,179,550 shares of his common stock into escrow for
the benefit of the selling stockholders in the event we fail to satisfy
certain "performance thresholds", as defined in the Escrow Agreement,
which Escrow Agreement is filed with this Current Report statement as a
material exhibit. Mr. Li is also a party to a Lock-up Agreement
pursuant to which he has agreed, except for distributions of his shares
of common stock required under the Escrow Agreement, not to transfer
his common stock for a period commencing January 20, 2005 and ending
twelve months after the listing of our common stock on a national stock
exchange or national quotation medium. The Lock-up Agreement is filed
with this Current Report as a material exhibit.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
We have several outstanding short term bank notes payable to the
Agricultural Bank of China, Shenzhen branch, the Shenzhen Development Bank and
the China Minsheng Bank, Shenzhen branch, respectively, the proceeds of which
were used primarily to fund the operations of our manufacturing facility located
18
at the BAK Industrial Park. At September 30, 2004, we had aggregate amounts due
and payable under these debt facilities of $45,661,000. The debt facilities bear
interest at rates ranging from 4.536% to 5.841% and have maturity dates ranging
from five to twelve months. This indebtedness is guaranteed by both Xiangqian
Li, our President and Chief Executive Officer, and Julin Provincial Huaruan
Technology Company Limited by Shares, or Huaruan, a PRC company. Mr. Li is the
controlling shareholder and an executive officer of Huaruan. Except as disclosed
above, we have no other business relationships with Huaruan. Neither Mr. Li nor
Huaruan received or is entitled to receive any consideration for the above
referenced guarantees.
On October 18, 2003, we acquired intangible assets, including a patent
and other patent rights, from Huaruan, an entity controlled by Xiangqian Li, our
President and Chief Executive Officer. The total consideration paid to Huaruan
was $3.86 million. The consideration paid to Huaruan was recorded at fair market
value, as determined by an independent appraisal firm.
On September 30, 2004, BAK Battery entered into a Financial Consulting
Agreement with HFG International, Ltd., a PRC representative office, pursuant to
which HFG International agreed to provide BAK Battery with consulting help in
implementing an organizational structure that would facilitate accessing the
capital markets of the United States. In consideration for these services, HFG
International was paid a fee of $400,000 in conjunction with the consummation of
BAK Battery's private placement. Timothy P. Halter, our former Chief Executive
Officer, is the principal shareholder and an executive officer of HFG
International.
SECTION 3--SECURITIES AND TRADING MARKETS
Item 3.02. Unregistered Sales of Equity Securities.
Set forth below is information regarding recent issuances and sales of
our securities without registration. No such sales involved the use of an
underwriter, no advertising or public solicitation were involved, the securities
bear a restrictive legend and no commissions were paid in connection with the
sale of any securities.
On January 20, 2005 we completed a stock exchange transaction with the
stockholders of BAK International, Ltd., a Hong Kong company ("BAK
International"). The exchange was consummated under Nevada law pursuant to the
terms of a Securities Exchange Agreement dated effective as of January 20, 2005
by and among Medina, BAK International and the stockholders of BAK
International. Pursuant to the Securities Exchange Agreement, we issued
39,826,075 shares of our common stock, par value $0.001 per share, to the
stockholders of BAK International, representing approximately 97.2% of our
post-exchange issued and outstanding common stock, in exchange for 100% of the
outstanding capital stock of BAK International. We presently carry on the
business of Shenzhen BAK Battery Co., Ltd., a Chinese corporation and BAK
International's wholly-owned subsidiary, or BAK Battery.
The foregoing shares were issued in private transactions or private
placements intending to meet the requirements of one or more exemptions from
registration. In addition to any noted exemption below, we relied upon
Regulation S, Regulation D and Section 4(2) of the Securities Act of 1933, as
amended (the "Act"). The investors were not solicited through any form of
general solicitation or advertising, the transactions being non-public
offerings, and the sales were conducted in private transactions where the
investor identified an investment intent as to the transaction without a view to
an immediate resale of the securities; the shares were "restricted securities"
in that they were both legended with reference to Rule 144 as such and the
investors identified they were sophisticated as to the investment decision and
in most cases we reasonably believed the investors were "accredited investors"
as such term is defined under Regulation D based upon statements and information
supplied to us in writing and verbally in connection with the transactions. We
never utilized an underwriter for an offering of our securities and no sales
commissions were paid to any third party in connection with the above-referenced
sales.
19
SECTION 4--CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Item 4.01. Changes in Registrant's Certifying Accountant.
On January 20, 2005, the Company dismissed George Stewart, C.P.A. as
its independent registered public accounting firm as part of the change of
control transaction reported under Item 5.01 of this Current Report. The
Company's Board of Directors approved the dismissal of George Stewart, C.P.A. on
January 20, 2005. As a result of the change in control, BAK International became
the accounting survivor for reporting purposes.
No accountant's report on the financial statements for the fiscal years
ended December 31, 2003 and 2002, respectively, contained an adverse opinion or
a disclaimer of opinion or was qualified or modified as to uncertainty, audit
scope or accounting principles, except a going concern opinion expressing
substantial doubt about the ability of the Company to continue as a going
concern. No additional disclosure regarding this uncertainty is provided as such
uncertainty does pertain to BAK International, the accounting survivor following
the recapitalization referenced in Item 1.01 of this Current Report.
During the Company's two most recent fiscal years (ended December 31,
2004 and 2003) and from January 1, 2005 to the date of this Report, there were
no disagreements with the Company's independent registered accounting firm on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. There were no reportable events, as
described in Item 304(a)(1)(iv)(B) of Regulation S-B, during the Company's two
most recent fiscal years (ended December 31, 2004 and 2003) and from January 1,
2005 to the date of this Report.
Effective January 20, 2005, the Company appointed Schwartz Levitsky
Feldman L.L.P., as its independent registered public accounting firm.
SECTION 5--CORPORATE GOVERNANCE AND MANAGEMENT
Item 5.01. Changes in Control of Registrant.
See Item 1.01 above.
For accounting purposes, the exchange is being treated as a reverse
acquisition, because the stockholders of BAK International own a majority of the
issued and outstanding shares of common stock of the Company immediately
following the exchange. Due to the issuance of the 39,826,075 shares of the
Company's common stock, a change in control of the Company occurred on January
20, 2005, the date of the consummation of the exchange.
Except as described in the Item 1.01 and in this Current Report in Item
5.02 under the caption "Certain Relationships and Related Party Transactions,"
no arrangements or understandings exist among present or former controlling
stockholders with respect to the election of members of the board of directors
of the Company, and to the knowledge of the Company, no other arrangements exist
that might result in a change of control of the Company.
Item 5.02. Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers.
Pursuant to the Exchange Agreement, at the closing of the Exchange, the
membership of the board of directors of the Company was increased from one (1)
to two (2) directors, and Xiangqian Li was appointed to serve as a member of the
Company's board of directors; thereafter, Mr. Halter resigned as a director of
the Company. Also under the terms of the Exchange Agreement, all existing
officers resigned as officers of the Company effective immediately following the
closing of the Exchange transaction, and Xiangqian Li was elected as Chairman of
the Board, President and Chief Executive Officer, Yongbin Han was elected as
Chief Financial Officer and Secretary and Huanyu Mao was elected as Chief
Technological Officer.
See also "Directors and Executive Officers" and "Certain Relationships
and Related Party Transactions" under Item 2.01 above.
20
Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
The Board of Directors of the Company adopted Amended and Restated
Bylaws (the "New Bylaws") effective January 20, 2005. The material changes in
the New Bylaws are as follows:
(1) The Company's registered office was fixed in Article I of the
previous bylaws (the "Old Bylaws"), but Section 1.1 of the New
Bylaws provides that the registered office will be such office
as set forth from time to time in the Company's Articles of
Incorporation or an amendment thereto.
(2) According to Section 2 of Article II of the Old Bylaws, the
annual meeting of the shareholders was to be held on the 1st
of July, but Section 2.2 of the New Bylaws provides that the
annual meeting shall be held on a date determined by the Board
of Directors.
(3) Section 2.4 of the New Bylaws provides that special meetings
of the shareholders may be called by the President or
Secretary at the request in writing of the holders of not less
than thirty percent (30%) of all the shares issued,
outstanding and entitled to vote. Section 3 of Article II of
the Old Bylaws required the request of not less than ten
percent (10%) of the voting power of the Company.
(4) According to Section 2.6 of the New Bylaws, quorum at a
meeting of shareholders consists of the holders of
thirty-three percent (33%) of the shares entitled to vote
rather than a majority of the shares entitled to vote, as
provided in Section 7 of Article II of the Old Bylaws.
(5) A proxy to be used at a meeting of the shareholders must bear
a date not more than six (6) months prior to such meeting, as
provided in Section 2.8 of the New Bylaws, rather than eleven
(11) months, as provided in Section 9 of Article II of the Old
Bylaws.
(6) The New Bylaws do not list express powers of the Company's
management, unlike Section 1 of Article III of the Old Bylaws.
Instead, according to Section 3.1 of the New Bylaws, the Board
of Directors generally may exercise all such powers of the
Company and do all such lawful acts and things that are not
required to be done by the shareholders.
(7) Section 3.5 of the New Bylaws provides that all vacancies in
the Board of Directors are to be filled by the Board of
Directors. Section 4 of Article III of the Old Bylaws,
however, provided that the shareholders could elect a director
to fill a vacancy not filled by the Board of Directors.
(8) Section 3.11 of the New Bylaws provides that no contract or
transaction between the Company and one or more of its
directors or officers is void if certain criteria is met. The
Old Bylaws did not contain a similar provision.
(9) Section 5.6 of the New Bylaws provides that the Board of
Directors may authorize executive employment contracts. The
Old Bylaws did not contain a similar provision.
(10) The New Bylaws include descriptions for the powers and duties
of assistant secretaries (Section 5.11) and assistant
treasurers (Section 5.13), which the Old Bylaws did not
include.
(11) Section 5.14 of the New Bylaws provides that the Company may
secure a bond to protect it from loss in the event of
defalcation by any of its officers. The Old Bylaws did not
contain a similar provision.
21
(12) Section 6.2 of the New Bylaws provides what steps may be taken
to replace lost certificates. The Old Bylaws did not contain a
similar provision.
(13) Section 6.3 of the New Bylaws provides the process for
transferring shares of stock. The Old Bylaws did not contain a
similar provision.
(14) Section 7.1 of the New Bylaws provides that dividends of the
Company's shares may be declared by the Board of Directors.
The Old Bylaws did not contain a similar provision.
(15) Section 7.2 of the New Bylaws provides that the Board of
Directors may create a reserve out of the surplus of the
Company in order to provide for contingencies. The Old Bylaws
did not contain a similar provision.
(16) Section 7.3 of the New Bylaws provides that meetings of
directors, shareholders or committee members may take place by
means of conference telephone or similar equipment. The Old
Bylaws did not contain a similar provision.
(17) Section 7.5 of the New Bylaws provides that the fiscal year of
the Company will be fixed by resolution of the Board of
Directors. The Old Bylaws did not contain a similar provision.
(18) Section 7.8 of the New Bylaws provides that the Company may
purchase and maintain insurance on behalf of the Company and
any person whom it has the power to indemnify. The Old Bylaws
did not contain a similar provision.
(19) Section 7.10 of the New Bylaws provides that the Company's
bylaws may be amended by the Board of Directors. Section 1 of
Article VI of the Old Bylaws allowed for the shareholders to
amend the bylaws.
(20) Section 7 of Article IV of the Old Bylaws provided that the
President is ex-officio a member of all of the standing
committees. The New Bylaws do not contain a similar provision.
(21) Section 4 of Article V of the Old Bylaws provided that the
Board of Directors shall send an annual report to the
shareholders no later than 120 days after the close of the
fiscal year. The New Bylaws do not contain a similar
provision.
(22) Section 7 of Article V of the Old Bylaws provided that the
president or any vice president and the secretary or assistant
secretary are authorized to vote on behalf of the Company any
shares of another corporation held by the Company. The New
Bylaws do not contain a similar provision.
The Board of Directors approved on January 20, 2005 a change in the
Company's fiscal year end from December 31 to September 30. This change is being
effectuated in connection with the exchange transaction described in Item 1.01
above. The report covering the transition period will be filed on a Form 10-K
for the year ended September 30, 2004.
Section 9--Financial Statements and Exhibits
Item 9.01. Financial Statements and Exhibits
Exhibits. The following Exhibits have been filed as a part of this
Current Report:
Exhibit
Number Description
- ------ -----------
3.1* Articles of Incorporation of the Registrant.
3.2* Articles of Amendment.
22
3.3+ Amended and Restated Bylaws.
3.4* Bylaws
10.1+ Securities and Exchange Agreement by and among BAK
International, Ltd., Medina Coffee, Inc. and the stockholders
of BAK International, Ltd. dated as of January 20, 2005.
10.2+ Escrow Agreement by and among Medina Coffee, Inc., the selling
stockholders, Xiangqian Li, and Securities Transfer
Corporation dated as of January 20, 2005.
10.3+ Lock-up Agreement by and between Medina Coffee, Inc. and
Xiangqian Li dated as of January 20, 2005.
10.4+ Form of Subscription Agreement.
10.5+ Summary of Sales Agreement by and between Shenzhen BAK Battery
Co., Ltd. and Zhongshan Mingji Battery Co., Ltd. dated as of
October 25, 2003.
10.6+ Summary of Purchase Agreement by and between Shenzhen BAK
Battery Co., Ltd. and Luhua Technology (Shenzhen) Co., Ltd.
dated as of April 14, 2004.
10.7+ Summary of Purchase Agreement by and between Shenzhen BAK
Battery Co., Ltd. and Beijing CITIC Guoan Mengguli Electricity
Supply Ltd. Co. dated as of September 30, 2004.
10.8+ Summary of Revolvable Credit Facilities Agreement by and
between Shenzhen BAK Battery Co., Ltd. and Longgang Division,
Shenzhen Branch, Agricultural Bank of China dated as of June
27, 2003.
10.9+ Summary of Guaranty Contract of Maximum Amount by and between
Longgang Division, Shenzhen Branch, Agricultural Bank of China
and Jilin Provincial Huaruan Technology Company Limited by
Shares dated as of June 27, 2003.
10.10+ Summary of Comprehensive Credit Facilities Agreement of
Maximum Amount by and between Shenzhen BAK Battery Co., Ltd.
and Longgang Division, Shenzhen Branch, Agricultural Bank of
China dated as of April 5, 2004.
10.11+ Summary of Guaranty Contract of Maximum Amount by and among
Longgang Division, Shenzhen Branch, Agricultural Bank of
China, Development and Construction (Group) Company Limited by
Shares of Changchun Economic & Technology Development
District, Jilin Provincial Huaruan Technology Company Limited
by Shares and Xiangqian Li dated as of April 5, 2004.
10.12+ Summary of Comprehensive Credit Facilities Agreement by and
between Shenzhen BAK Battery Co., Ltd. and Longgang Division,
Shenzhen Development Bank dated as of April 1, 2004.
10.13+ Summary of Guaranty Contract of Maximum Amount by and among
Longgang Division, Shenzhen Development Bank, Development and
Construction (Group) Company Limited by Shares of Changchun
Economic & Technology Development District, Jilin Provincial
Huaruan Technology Company Limited by Shares, Xiangqian Li,
Yanlong Zou, Fenghua Li, Jimin Li, Jiajun Huang, Baicheng
Zhou, Jinghui Wang, Yongbin Han, Shuquan Zhang, Xinrong Yang,
Yunfei Li and Weiqiang Zhang dated as of April 1, 2004.
10.14+ Summary of Comprehensive Credit Facilities Agreement by and
between Shenzhen BAK Battery Co., Ltd. and Longgang Division,
Shenzhen Branch, China Minsheng Bank dated as of January 14,
2004.
23
10.15+ Summary of Guaranty Contract of Maximum Amount by and among
Longgang Division, Shenzhen Branch, China Minsheng Bank, Jilin
Provincial Huaruan Technology Company Limited by Shares and
Xiangqian Li dated as of November 15, 2003.
10.16+ Summary of Loan Agreement by and between Shenzhen BAK Battery
Co., Ltd. and Shenzhen Branch, Industrial Bank dated as of
March 11, 2004.
10.17+ Summary of Guaranty Agreement by and between Shenzhen Branch,
Industrial Bank and Shenzhen High-Tech Investment Service Co.
dated as of March 10, 2004.
10.18+ Summary of Related Transaction Agreement by and between
Shenzhen BAK Battery Co., Ltd. and Jilin Provincial Huaruan
Technology Company Limited by Shares dated as of October 18,
2003.
10.19+ Summary of Loan Agreement by and between Shenzhen BAK Battery
Co., Ltd. and Longgang Division, Shenzhen Development Bank
dated as of April 1, 2004.
16.1+ Letter on Change in Certifying Accountant.
99.1+ Press Release.
- ----------------------
* Previously filed as an exhibit to Registration Statement on Form SB-1
(#333-41124) filed with the Commission on July 10, 2000.
+ Filed herewith.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Medina Coffee has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Medina Coffee, Inc.
/s/ Xiangqian Li
---------------------------
Xiangqian Li, President and
Chief Executive Officer
DATED: January 20, 2005
25
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3.1* Articles of Incorporation of the Registrant.
3.2* Articles of Amendment.
3.3+ Amended and Restated Bylaws.
3.4* Bylaws
10.1+ Securities and Exchange Agreement by and among BAK
International, Ltd., Medina Coffee, Inc. and the stockholders
of BAK International, Ltd. dated as of January 20, 2005.
10.2+ Escrow Agreement by and among Medina Coffee, Inc., the selling
stockholders, Xiangqian Li, and Securities Transfer
Corporation dated as of January 20, 2005.
10.3+ Lock-up Agreement by and between Medina Coffee, Inc. and
Xiangqian Li dated as of January 20, 2005.
10.4+ Form of Subscription Agreement.
10.5+ Summary of Sales Agreement by and between Shenzhen BAK Battery
Co., Ltd. and Zhongshan Mingji Battery Co., Ltd. dated as of
October 25, 2003.
10.6+ Summary of Purchase Agreement by and between Shenzhen BAK
Battery Co., Ltd. and Luhua Technology (Shenzhen) Co., Ltd.
dated as of April 14, 2004.
10.7+ Summary of Purchase Agreement by and between Shenzhen BAK
Battery Co., Ltd. and Beijing CITIC Guoan Mengguli Electricity
Supply Ltd. Co. dated as of September 30, 2004.
10.8+ Summary of Revolvable Credit Facilities Agreement by and
between Shenzhen BAK Battery Co., Ltd. and Longgang Division,
Shenzhen Branch, Agricultural Bank of China dated as of June
27, 2003.
10.9+ Summary of Guaranty Contract of Maximum Amount by and between
Longgang Division, Shenzhen Branch, Agricultural Bank of China
and Jilin Provincial Huaruan Technology Company Limited by
Shares dated as of June 27, 2003.
10.10+ Summary of Comprehensive Credit Facilities Agreement of
Maximum Amount by and between Shenzhen BAK Battery Co., Ltd.
and Longgang Division, Shenzhen Branch, Agricultural Bank of
China dated as of April 5, 2004.
10.11+ Summary of Guaranty Contract of Maximum Amount by and among
Longgang Division, Shenzhen Branch, Agricultural Bank of
China, Development and Construction (Group) Company Limited by
Shares of Changchun Economic & Technology Development
District, Jilin Provincial Huaruan Technology Company Limited
by Shares and Xiangqian Li dated as of April 5, 2004.
10.12+ Summary of Comprehensive Credit Facilities Agreement by and
between Shenzhen BAK Battery Co., Ltd. and Longgang Division,
Shenzhen Development Bank dated as of April 1, 2004.
10.13+ Summary of Guaranty Contract of Maximum Amount by and among
Longgang Division, Shenzhen Development Bank, Development and
Construction (Group) Company Limited by Shares of Changchun
Economic & Technology Development District, Jilin Provincial
Huaruan Technology Company Limited by Shares, Xiangqian Li,
Yanlong Zou, Fenghua Li, Jimin Li, Jiajun Huang, Baicheng
Zhou, Jinghui Wang, Yongbin Han, Shuquan Zhang, Xinrong Yang,
Yunfei Li and Weiqiang Zhang dated as of April 1, 2004.
10.14+ Summary of Comprehensive Credit Facilities Agreement by and
between Shenzhen BAK Battery Co., Ltd. and Longgang Division,
Shenzhen Branch, China Minsheng Bank dated as of January 14,
2004.
10.15+ Summary of Guaranty Contract of Maximum Amount by and among
Longgang Division, Shenzhen Branch, China Minsheng Bank, Jilin
Provincial Huaruan Technology Company Limited by Shares and
Xiangqian Li dated as of November 15, 2003.
10.16+ Summary of Loan Agreement by and between Shenzhen BAK Battery
Co., Ltd. and Shenzhen Branch, Industrial Bank dated as of
March 11, 2004.
10.17+ Summary of Guaranty Agreement by and between Shenzhen Branch,
Industrial Bank and Shenzhen High-Tech Investment Service Co.
dated as of March 10, 2004.
10.18+ Summary of Related Transaction Agreement by and between
Shenzhen BAK Battery Co., Ltd. and Jilin Provincial Huaruan
Technology Company Limited by Shares dated as of October 18,
2003.
10.19+ Summary of Loan Agreement by and between Shenzhen BAK Battery
Co., Ltd. and Longgang Division, Shenzhen Development Bank
dated as of April 1, 2004.
16.1+ Letter on Change in Certifying Accountant.
99.1+ Press Release.
- ----------------------
* Previously filed as an exhibit to Registration Statement on Form SB-1
(#333-41124) filed with the Commission on July 10, 2000.
+ Filed herewith.