UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File Number 000-7619
POWERSOFT TECHNOLOGIES, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 93-0636333
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(State or other jurisdiction of (I.R.S. Employer
corporation or organization) Identification No.
1281 Alberni Street, Vancouver, British Columbia Canada V6E 4R4
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(Address of Principal Executive Offices)(Zip Code)
Registrant's telephone number, including area code: (604) 685-8318
650 West Georgia Street, Suite 1088, Vancouver, British Columbia Canada V6B 4N8
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(Former name, former address and
former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of November 9, 1999, 15,559,542 shares of common stock, $.01 par value, were
issued and outstanding.
POWERSOFT TECHNOLOGIES, INC.
FORM 10-Q
FOR THE
QUARTER ENDED SEPTEMBER 30, 1999
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 1999 and December 31, 1998........................... 3
Condensed Consolidated Statements of Operations for the
nine months and three months ended September 30, 1999 and 1998..... 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1999 and 1998...................... 6
Notes to the Condensed Consolidated Financial Statements........... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................... 16
Signature Page............................................................... 17
2
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
POWERSOFT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(United States Dollars)
September 30, December 31,
1999 1998
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ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 22,602 $ 66,249
Available-for-sale securities (note 3) ............................. 1,751,950 439,290
Accounts receivable, trade, less allowance for doubtful
accounts of $0 in 1999 and 1998 .................................. 31,171 29,830
Prepaid and other current assets ................................... 23,237 2,960
Amounts receivable from related parties ............................ 21,024 15,632
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Total current assets ............................................... 1,849,984 553,961
PROPERTY, PLANT AND EQUIPMENT, NET ..................................... 668,846 661,805
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Total assets ........................................................... $2,518,830 $1,215,766
========== ==========
See accompanying notes to the unaudited consolidated financial statements.
3
POWERSOFT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - continued
(Unaudited)
(United States Dollars)
September 30, December 31,
1999 1998
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LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Mortgage loans payable - current portion .......................... $ 115,936 $ 109,159
Accounts payable .................................................. 98,031 96,967
Margin loan payable (note 5) ...................................... 3,060,771 3,136,264
Accrued expenses and other liabilities ............................ 31,821 80,091
Amounts payable to related parties ................................ 2,679,588 1,861,216
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Total current liabilities: ........................................ 5,986,147 5,283,697
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Long-term liabilities:
Mortgage loans payable ............................................ 718,287 710,277
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Total liabilities ............................................... 6,704,434 5,993,974
Commitments and contingencies
Shareholders' deficit:
Preferred stock, $5 par value, 25,000,000 shares
authorized; unissued ............................................ -- --
Common stock, $.01 par value, 30,000,000 shares
authorized; issued and outstanding
1999 and 1998 (15,559,542 shares) ............................... 155,595 155,595
Additional paid-in capital ........................................ 5,385,296 5,385,296
Accumulated deficit ............................................... (7,698,429) (6,981,436)
Unrealized loss on available-for-sale securities .................. (2,043,420) (3,356,080)
Cumulative exchange adjustments ................................... 15,354 18,417
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Total shareholders' deficit ....................................... (4,185,604) (4,778,208)
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Total liabilities and shareholders' deficit ........................... $ 2,518,830 $ 1,215,766
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See accompanying notes to the unaudited consolidated financial statements.
4
POWERSOFT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(Unaudited)
(United States Dollars)
Nine Months Ended September 30, Three Months Ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Rental income .................................. $ 250,136 252,180 84,771 79,429
Investment income (expense) .................... 772 (15,741) 92 (18,620)
Other Income ................................... 4,894 -- 1,253 --
------------ ------------ ------------ ------------
Total revenues .............................. 255,802 236,439 86,116 60,809
------------ ------------ ------------ ------------
Expenses:
Depreciation ................................... 29,391 31,941 11,797 10,647
Legal and professional fees .................... 55,560 9,499 36,875 5,182
Consulting fees ................................ -- 62,500 -- --
Consulting fees paid to a
related company .............................. 375,000 375,000 125,000 125,000
Interest expense ............................... 324,579 375,410 134,917 160,905
Land lease ..................................... 56,314 56,132 19,051 17,959
Rental estate
management fees ............................. 15,973 17,214 5,404 5,068
Utilities ...................................... 9,510 -- 71 --
Other operating and
administrative expenses ...................... 106,468 133,947 47,428 57,305
------------ ------------ ------------ ------------
Total expenses .............................. 972,795 1,061,643 380,543 382,066
------------ ------------ ------------ ------------
Net income (loss) .................................. (716,993) (825,204) (294,427) (321,257)
------------ ------------ ------------ ------------
Other comprehensive income
(loss), net of tax:
Foreign exchange gain (loss) ................... (3,063) 11,860 (4,030) 42,270
Reversal of stock issued for
consulting services .......................... -- 62,500 -- --
Unrealized gain (loss) on
available for sale securities ................ 1,312,660 (1,071,834) 969,920 (626,663)
------------ ------------ ------------ ------------
Other comprehensive income ..................... 1,309,597 (997,424) 965,890 (584,393)
------------ ------------ ------------ ------------
Comprehensive income (loss) .................... $ 592,604 (1,822,678) 671,463 (905,650)
============ ============ ============ ============
Earnings (loss) per share
(basic and diluted): ............................. $ (0.05) (0.05) (0.02) (0.02)
============ ============ ============ ============
Weighted average number
of shares of common stock
outstanding ...................................... 15,559,542 15,559,542 15,559,542 15,559,542
============ ============ ============ ============
See accompanying notes to the unaudited consolidated financial statements.
5
POWERSOFT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(United States Dollars)
Nine Months Ended September 30,
1999 1998
---- ----
Cash flow from operating activities:
Net loss .............................................................. $(716,993) $(825,204)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization ..................................... 29,391 31,941
Consulting fee paid in common stock ............................... -- 62,500
Changes in working capital components:
Accounts receivable ............................................. (1,341) (17,897)
Inventories ..................................................... -- --
Prepaid and other current assets ................................ (20,277) 8,974
Amounts receivable from related parties ......................... (5,392) 8,652
Accounts payable and accrued expenses ........................... (47,206) (37,793)
Accrued interest ................................................ -- 24,487
Security deposits payable ....................................... -- (141)
Amounts payable to related parties .............................. 818,372 641,839
Exchange difference ............................................. (3,063) 15,211
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Net cash provided by (used in) operating activities ............. 53,491 (87,521)
Cash flow from investing activities:
Investments in property and equipment ............................... (36,432) --
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Net cash provided by (used in) investing activities ............. (36,432) --
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Cash flow from financing activities:
Increase (decrease) in margin loan payable ......................... (75,493) 101,843
Increase in mortgage loan payable ................................... 14,787 --
Mortgage loan repaid ................................................ -- (17,798)
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Net cash provided by (used in) financing activities ............. (60,706) 84,045
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Net decrease in cash and cash equivalents ............................. (43,647) (3,386)
Cash and cash equivalents at beginning of period ................... 66,249 36,173
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Cash and cash equivalents at end of period ......................... $ 22,602 $ 32,787
========= =========
See accompanying notes to the unaudited consolidated financial statements.
6
POWERSOFT TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(United Stated Dollars)
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. The
unaudited condensed consolidated financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. The
unaudited condensed consolidated financial statements and the notes
thereto should be read in conjunction with the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998. In the opinion of the management of the
Company, the accompanying unaudited condensed consolidated financial
statements reflect all adjustments necessary to a fair statement of the
results for the interim periods presented. All adjustments are of a
normal recurring nature.
The results of operations for the three and nine month periods ended
September 30, 1999 are not necessarily indicative of the results to be
expected for the full year.
The unaudited condensed statements of operations for the three and nine
month periods ended September 30, 1998 have been reclassified to
conform to the 1999 presentation.
2. GOING CONCERN
These condensed consolidated financial statements have been prepared on
the going concern basis of accounting which assumes the Company will
realize its assets and discharge its liabilities in the normal course
of business. The Company is currently operating at a loss and has
minimal in net tangible assets. Should the Company be unable to
continue as a going concern it may be required to realize its assets
and settle its liabilities at amounts substantially different from the
current carrying values.
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POWERSOFT TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(United Stated Dollars)
2. GOING CONCERN - continued
The Company's ability to continue as a going concern is dependent on
continued financial support from its principal shareholder, Fai H.
Chan, who has signed a letter of financial support to the Company.
3. AVAILABLE-FOR-SALE SECURITIES
The cost and approximate market value of investment securities were as
follows:
September 30, December 31,
1999 1998
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Corporate equity securities:
Cost $ 3,795,370 3,795,370
Less gross unrealized losses (2,043,420) (3,356,080)
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Estimated fair value $ 1,751,950 439,290
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Carrying value $ 1,751,950 439,290
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All investment securities are pledged to secure the Company's margin
loan payable (see note 5).
Included in the above securities are 48,535,276 shares at September 30,
1999, and December 31, 1998, representing 3.9 percent of the
outstanding common stock of Heng Fung Holdings Company Limited ("Heng
Fung"). These securities were acquired in 1997 at a cost of $3,811,208
and had a carrying value of $1,751,950 at September 30, 1999, and
$439,290 at December 31, 1998. Fai H. Chan and Robert Trapp, directors
of Heng Fung, are also officers, directors and/or shareholders of the
Company.
The investment securities held by the Company are not subject to any
contractual or statutory resale restrictions and any portion of these
securities can be reasonably expected to qualify for sale within one
year.
8
POWERSOFT TECHNOLOGIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(United Stated Dollars)
4. SALE OF ASSETS
On January 18, 1999, the Company entered into an agreement with SAR
Trading Limited ("SAR") wherein SAR agreed to buy and the Company
agreed to sell all of its interests in the majority of its subsidiaries
for approximately $4,838,000 in the form of the assumption of certain
liabilities. In consideration of the assumption of liabilities, the
Company agreed to issue two notes payable to SAR in the amounts of
$1,000,000 and $3,838,000. The $1,000,000 note will be immediately
convertible into 20,000,000 common shares of the Company. The
$3,838,000 note will be convertible into shares of common stock of the
Company, in minimum increments of $250,000 each, at the average 15 day
trading price at the option of the Company by giving seven trading days
notice in writing to SAR. SAR is owned 100% by Fai H. Chan. On June 18,
1999, the Company agreed to offset $1,365,278 due from related parties
against the $3,838,000 note. The agreements with SAR were subject to
shareholder approval, which was obtained on November 10, 1999. This
transaction essentially liquidates the operations of the Company and
transfers control of the Company to SAR.
5. MARGIN LOAN PAYABLE
The margin loan payable is collateralized by the Company's investment
securities with a carrying value of $1,751,950 (1998: $439,290). The
loan is payable on demand.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements of the Company and the related notes thereto,
and other financial information that is included elsewhere herein or
incorporated by reference.
Introduction
The Company was originally incorporated in 1958 and until June 1994 had been
engaged in a business other than the businesses it presently operates.
The Company owns an apartment building in North Vancouver, British Columbia, and
until June 1995 the Company's operations were comprised of that single segment.
In 1995 and 1996, the Company, through various subsidiaries, acquired certain
interests in People's Republic of China (PRC), including:
(i) Min You, which has an option to lease a production line in
Cangzhou Factory for cement manufacturing;
(ii) a 70% interest in Wuhan, a PRC container manufacturer;
(iii)an interest in the Duck Farm pursuant to which the Company
operated a duck farm in PRC; and
(iv) an option to form Heng Li in order to develop a commercial
building in Zhangjiagang Free Trade Zone, PRC.
In the fourth quarter of 1997, the Company determined that it would discontinue
substantially all of its operations in PRC. The divestiture included (i) the
transfer of 81% of the Company's interest in Min You to two unrelated parties;
(ii) effecting an agreement to reverse the acquisition of a 70% interest in
Wuhan; (iii) the termination of the Company's interest in the Duck Farm; and
(iv) the termination of the Heng Li joint venture agreement.
The Company retained a 19% interest in Min You, but full provisions have been
made against the remaining cost of investment in Min You, and 100% of the
outstanding capital stock of Vancouver Hong Kong Properties Ltd., which owns and
operates the apartment building.
On January 18, 1999, the Company entered into an agreement with SAR Trading
Limited ("SAR") wherein SAR agreed to buy and the Company agreed to sell all of
its interests in the majority of its subsidiaries for approximately $4,838,000
in the form of the assumption of certain liabilities. In consideration of the
assumption of liabilities, the Company agreed to issue two notes payable to SAR
in the amounts of $1,000,000 and $3,838,000. The $1,000,000 note will be
immediately convertible into 20,000,000 common shares of the Company. The
$3,838,000 note will be convertible into shares of common stock of the Company,
in minimum increments of $250,000 each, at the average 15 day trading price at
the option of the Company by giving seven trading days notice in writing to SAR.
10
SAR is owned 100% by Fai H. Chan. On June 18, 1999, the Company agreed to offset
$1,365,278 due from related parties against the $3,838,000 note. The agreements
with SAR were subject to shareholder approval which was obtained on November 10,
1999. This transaction essentially liquidates the operations of the Company and
transfers control of the Company to SAR.
Results of Continuing Operations
Included in other comprehensive income (loss) for the three months ended
September 30, 1999 and 1998 is $965,890 and $(584,393) respectively. For the
nine months ended September 30, 1999 and 1998, other comprehensive income (loss)
was $1,309,597 and $(997,474), respectively. The components of net comprehensive
income (loss) were primarily unrealized gains and losses on available for sale
securities and currency exchange adjustments.
Nine months ended September 30, 1999 compared to the nine months ended September
30, 1998:
There were no significant changes in the revenues and expenses attributable to
the operation of the apartment building owned and operated by Vancouver Hong
Kong Properties Ltd. between the nine months ended September 30, 1999 and nine
months ended September 30, 1998.
Investment income increased from a loss of $15,741 for the nine months ended
September 30, 1998 to a gain of $772 for the nine months ended September 30,
1999. The Company did not engage in investment activity during the nine months
ended September 30, 1999. This is because of the uncertainty related to the
international securities markets. The net investment loss for the nine months
ended September 30, 1998 consists primarily of a loss due to the expiration of
warrants, net of interest income.
Interest expense decreased from $375,410 for the nine months ended September 30,
1998 to $324,579 for the comparable period in 1999. This is due to the decrease
in the interest rate of the margin loans payable. The outstanding balance of
margin loans payable amounted to $3,060,771 and $3,136,264 at September 30, 1999
and December 31, 1998, respectively. Other operating and administrative expenses
decreased from $133,947 for the nine months ended September 30, 1998 to $106,468
for the nine months ended September 30, 1999. The decrease is primarily due to
the implementation of cost control measures regarding expenses.
The Company's net loss was $716,993 for the nine months ended September 30, 1999
as compared to a net loss of $825,204 for the nine months ended September 30,
1998. This trend of lower losses is also reflected in the decrease in the
expenses described above.
Three months ended September 30, 1999 as compared to the three months ended
September 30, 1998:
There were no significant changes in the revenues and expenses attributable to
the operation of Vancouver Hong Kong's real estate between the three months
ended September 30, 1999 and three months ended September 30, 1998.
Investment income increased from a loss of $18,620 for the three months ended
September 30, 1998 to income of $92 for the three months ended September 30,
1998. The Company did not engage in investment activity during the three months
ended September 30, 1999 or 1998. This is because of the uncertainty related to
the international securities markets. The net investment loss amounting to
11
$18,620 for the three months ended September 30, 1998 consists primarily of a
loss due to the expiration of warrants.
The Company's net loss was $294,427 for the three months ended September 30,
1999, as compared to a net loss of $321,257 for the three months ended September
30, 1998. The reasons for this trend are the reductions in other operating and
administrative expenses and interest expense, and the offsetting increase in
legal and professional fees.
Inflation
The effect on inflation on the Company's operations is not material and is not
anticipated to have any material effect in the future.
Liquidity and Capital Resources
The net cash provided by operating activities for the nine months ended
September 30, 1999 amounted to $53,491. The Company meets its working capital
requirements from the proceeds of margin loans and the collection of amounts
from related parties.
During the nine months ended September 30, 1999, the Company made additional
cash investments in facilities of $36,432.
The net cash used in financing activities amounted to $60,706 for the nine
months ended September 30, 1999. This is due primarily to the decrease in the
margin loan payable.
The net cash provided by operating activities for nine months ended September
30, 1999 amounted to $53,491. This was primarily due to the operating losses
experienced of $716,993, net of an increase in amounts payable to related
parties of $818,372.
As discussed in Note 2 of the notes to the condensed consolidated financial
statements, the Company's operating losses and deficiency in net tangible assets
raise substantial doubts concerning the Company's ability to continue as a going
concern. However, the Company's principal shareholder has agreed to continue to
provide the Company with necessary financial support.
12
Regional Economic Developments
Several countries in Asia have recently experienced significant adverse economic
developments including substantial exchange rate fluctuations, inflation, social
unrest, increased interest rates, reduced economic growth rates, corporate
bankruptcies, declines in the market value of shares listed on stock exchanges,
emergency loan agreements with the International Monetary Fund and
government-imposed austerity measures. To date, neither PRC nor Hong Kong has
experienced these developments.
The Year 2000
The Year 2000 issue refers to the fact that many computer systems were
originally programmed using two digits rather than four digits to identify the
applicable year. When the year 2000 occurs, these systems could interpret the
year as 1900 rather than 2000. Unless hardware, system software and applications
are corrected to be Year 2000 compliant, computers and the devices they control
could generate miscalculations and create operational problems. Various systems
could be affected ranging from complex information technology ("IT") computer
systems to non-IT devices such as an individual machine's programmable logic
controller.
The Company has an informal contingency plan for its applications. The Company
is working continually with the third party suppliers of software and related
services in resolving Year 2000 issues. The Company's formal contingency plans
are currently being developed in conjunction with these suppliers. Testing is
complete. The Company will continue to monitor the progress of the suppliers in
the resolution of Year 2000 issues and continue to evaluate the necessity of an
independent contingency plan.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
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27.1 Financial Data Schedule for September 30, 1999
(b) Reports on Form 8-K:
There were no Current Reports on Form 8-K filed during the
quarter ended September 30, 1999.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POWERSOFT TECHNOLOGIES, INC.
Dated: November 18, 1999 By: /s/ Robert H. Trapp
------------------------------
Robert H. Trapp
Secretary and Treasurer
14