UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended June 30, 2002
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or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to ____________
Commission file number 000-24767
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Bridge Technology, Inc.
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(Exact name of registrant as specified in its charter)
Nevada 59-3065437
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12601 Monarch Street, Garden Grove, California 92841
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(Address of principal executive offices) (Zip Code)
(714) 891-6508
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Secion 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed
by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.01 Par Value - 10,898,110 shares as of June 30, 2002
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1
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
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Bridge Technology, Inc. and Subsidiaries
Consolidated Balance Sheets
DEC. 31 JUN. 30
2001 2002
(Audited) (Unaudited)
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Assets
Current assets:
Cash $ 2,413,295 $ 1,891,729
Restricted cash - 317,495
Accounts receivable less allowance
for doubtful accounts of $308,106
and $302,005 11,035,057 6,690,776
Tax refund receivable 500,000 500,000
Other receivables 76,296 189,157
Inventory 21,692,543 18,062,279
Due from related party 22,143 23,195
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Total cu,rrent assets 35,739,334 27,674,631
Property and equipment, net 2,681,018 2,516,897
Goodwill, net of amortization of
$1,242,917 and $1,242,917 1,949,417 1,949,417
Investments 198,717 89,996
Other assets 96,213 105,096
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Total assets $ 40,664,699 $ 32,336,037
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Bank overdraft $ 36,152 $ 65,709
Line of credit 9,000,000 9,504,076
Current portion of long term debt 46,901 46,901
Accounts payable, net of accrued rebates
and credits of $698,470 and $981,298 18,019,422 6,934,598
Accured taxes payable 6,440 128,905
Deferred income tax 4,097 3,201
Accrued liabilities 1,941,560 2,869,219
Current portion of related party loan 75,118 75,118
Shareholder loan 2,130,000 4,404,732
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Total current liabilities 31,259,690 24,032,459
Related party loans less current portion 914,861 895,107
Long term debt, less current portion 328,300 305,084
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Total liabilities 32,502,851 25,232,650
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2
Minority interest 820,378 865,796
Shareholders' equity:
Common stock; par value $0.01 per share,
authorized 100,000,000 shares,
10,898,110 shares outstanding 108,632 108,981
Additional paid-in capital 9,783,013 9,809,533
Related party receivable (340,000) (340,000)
Treasury stock (2,000) (2,000)
Retained earnings (accumulated deficit) (2,187,679) (3,316,576)
Accumulated other comprehensive loss (20,496) (22,347)
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Total shareholders' equity 7,341,470 6,237,591
------------ ------------
Total liabilities and shareholders' equity $ 40,664,699 $ 32,336,037
============ ============
See accompanying summary of accounting policies and notes to consolidated
financial statements.
3
Bridge Technology, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Ended Six Months Ended
-------------------------- --------------------------
June 30, June 30, June 30, June 30,
2001 2002 2001 2002
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 34,616,027 $ 26,594,227 $ 62,406,391 $ 53,884,094
Cost of sales 32,999,988 25,407,503 58,092,382 51,095,834
------------ ------------ ------------ ------------
Gross profit 1,616,039 1,186,724 4,314,009 2,788,260
Research and development 448,886 189,592 655,021 387,850
Selling, general and
administrative expense 2,162,538 1,870,743 4,220,184 3,581,482
----------- ------------ ------------ ------------
Income (loss) from
operations (995,385) (873,611) (561,196) (1,181,072)
Other income (expense):
Interest income
(expense), net (217,495) (268,708) (364,933) (461,907)
Gain on sale of investment - 215,556 - 536,427
Other income 37,362 52,771 106,210 107,835
----------- ------------ ------------ ------------
Income before
income taxes (1,175,518) (873,992) (819,919) (998,717)
Income taxes provision 57,825 23,559 159,849 84,763
----------- ------------ ------------ ------------
Net income (loss) (1,233,343) (897,551) (979,768) (1,083,480)
Minority interest (46,549) (12,465) (87,089) (45,417)
----------- ------------ ------------ ------------
Net income (loss)
applicable to common
shares $(1,279,892) $ (910,016) $ (1,066,857) $(1,128,897)
=========== ============ ============ ============
Basic weighted average
number of common
shares outstanding 10,863,186 10,875,467 10,863,186 10,869,360
=========== ============ ============ ============
Basic earnings
per share $ (0.12) $ (0.08) $ (0.10) $ (0.10)
=========== ============ ============ ============
Diluted weighted average
number of common
shares outstanding 10,863,186 10,875,467 10,863,186 10,869,360
=========== ============ ============ ============
Diluted income (loss)
per share $ (0.12) $ (0.08) $ (0.10) $ (0.10)
=========== ============ ============ ============
4
Comprehensive income
and its components
consist of the
following:
Net income $(1,279,892) $ (910,016) $(1,066,857) $(1,128,897)
Foreign currency
translation
adjustment,
net of tax (6,734) (1,618) 8,982 (1,851)
----------- ------------ ------------ ------------
Comprehensive
income $(1,286,626) $ (911,634) $(1,057,875) $(1,130,748)
=========== ============ ============ ============
See accompanying summary of accounting policies and notes to consolidated
financial statements.
5
Bridge Technology, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Six Months Ended
-------------------------
June 30, June 30,
2001 2002
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(Unaudited) (Unaudited)
Cash flows from operating activities
Net income (loss) $(1,066,857) $(1,128,897)
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 428,051 258,471
Provision for doubtful accounts 18,017 82,259
Provision for slow moving inventory 200,154 231,000
Stock compensation - 15,453
Gain on disposal of investment - (536,373)
Minority interest 87,089 45,418
Increase (decrease) from changes in
operating assets and liabilities:
Restricted cash - (317,495)
Trade receivables 6,176,730 4,262,022
Inventory (12,766,847) 3,410,680
Deferred income taxes (38,733) (896)
Other receivables 921,021 44,565
Other current assets (116,833) (166,309)
Accounts payable 1,059,033 (11,084,824)
Accured liabilities (188,989) 927,658
Income taxes payable (96,806) 122,466
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Net cash used in operating activities (5,384,970) (3,834,802)
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Cash flows from investing activities
Purchase of property, plant and equipment (1,652,397) (94,350)
Due from related party (6,962) (1,052)
Proceeds from disposal of investment - 645,094
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Net cash used in investing activities (1,659,359) 549,692
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Cash flows from financing activities
Bank overdraft - 29,557
Repayments on loans payable (107,149) (23,216)
Proceeds from line of credit 2,000,000 604,076
Repayment of line of credit - (100,000)
Proceeds from related party loans 2,341,870 2,818,215
Repayments of related party loans (800,000) (563,237)
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Net cash provided by financing activities 3,434,721 2,765,395
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6
Effect of exchange rate changes on cash 12,268 (1,851)
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Net increase in cash and cash equivalents (3,597,340) (521,566)
Cash and cash equivalents, beginning of period 4,870,836 2,413,295
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Cash and cash equivalents, end of period $ 1,273,496 $ 1,891,729
=========== ===========
Supplemental information
Cash paid during the period for:
Interest $ 371,805 $ 376,907
Income taxes 300,000 -
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See accompanying summary of accounting policies and notes to consolidated
financial statements.
Bridge Technology, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
Organization and Business
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Bridge Technology, Inc. ("The Company") was incorporated under the laws
of the State of Nevada on April 15, 1969. Starting from April 1997,
the Company registered to do business in the State of California and
is primarily engaged in development and distribution of various hardware,
software, and peripheral products used in computer systems and sales to
value added resellers and system integrators. The Company started to
enter into wireless internet business in 1999.
The Company has the following subsidiaries:
Bridge R&D, Inc. 100% Established on June 1, 1997
PTI Enclosures, Inc. 100% Merged on December 14, 1998
Pacific Bridge Net, Inc. 80% Established on August 16, 1999
and ceased operation in 2000
Autec Power Systems, Inc. 100% Merged on December 1, 1999
CMS Technology Limited 90% Acquired on January 3, 2000 (60%)
Acquired on May 15, 2000 (30%)
Bridge Technology Ningbo Co. Ltd. 100% Established on May 28, 2001
7
Note 1. - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
or interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for fair presentation have been included.
Operating results for the six months period ended June 30, 2002 are
not necessarily indicative of the results that may be expected for
the year ending December 31, 2002. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 2001.
The accompanying unaudited consolidated financial statements have been
prepared assuming that the Company will continue as a going concern.
During the year ended December 31, 2001, the Company incurred a net loss
of $2,542,000 and used cash of $3,635,000 in its operations. Management
has undertaken certain actions in an attempt to improve the Company's
liquidity and return the Company to profitability. On July 24, 2002, the
Company entered into a loan modification and extension agreement with a
commercial bank for its outstanding balance of $4 million at December
31, 2001, which was reduced by $100,000 payment made in 2002.
Pursuant to the terms of the new agreement, monthly interest only
payments are to be made through maturity, $50,000 is due by September
15, 2002 and no less than $1,000,000 is due on November 30, 2002. The
Company owns 90% of all issued and outstanding shares in CMS and
pledged 65% of all issued and outstanding shares in CMS against this
outstanding balance and the maturity date of the note has been extended
until November 30, 2002. However, if the Company makes all of the
foregoing payments on a timely basis and has not otherwise defaulted
on the loan, the maturity date for the remaining unpaid principal
balance will be extended until June 30, 2003. Additionally, management
is negotiating with the Company's major shareholders to convert
a portion of the Company's indebtedness to them into equity in order
to improve the Company's working capital position.
Operationally, management's plans include continuing actions to cut or
curb non-essential expenses and focusing on improving sales of Autec.
No assurance can be given that the Company will be successful in
extending or modifying its line of credit or that the Company will
be able to return to profitable operations.
Looking for alternatives, the Company is currently seeking for global
financing agreement with a major international bank to replace
existing credit lines in the U.S. and Hong Kong. No assurance can
be given that the alternative funding source will be available.
8
Note 2. - Income Taxes and Refund Receivable
As of December 31, 2001, a valuation allowance has been provided for that
portion of the net deferred tax asset which management cannot determine,
with reasonable certainty, that the benefit will be realized.
In July 2002, the Company filed its consolidated income tax return for
the year ended December 31, 2001 claiming tax refund of approximately
$580,000 that is expected by the Company to receive from IRS in
later September 2002.
Note 3. - Shareholders' Equity
In May 2002 the Company granted a warrant to a consultant which allows
him to purchase 15,000 shares of common stock with an exercise price
at $0.55 per share and expiration date at January 15, 2005 in lieu
of payroll payable of $9,675.
In May 2002, the Company issued aggregate 34,924 shares of common stock
to a vendor in lieu of payment for purchasing certain inventory.
The shares issued were priced at the fair market value of $0.37
and $0.32 at respective issuing dates.
In June 2002, the Company issued a warrant of purchase 30,000 share of
common stock with an exercise price of $0.55 per share and expiration
date at June 30, 2007 for settlement of a lawsuit. As result of this
issuance, the Company recorded the fair value of $5,778 for the warrant.
Note 4. - Inventory
Inventory consists of:
December 31, June 30,
2001 2002
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Service parts $ 1,633,919 $ 1,261,871
Work in process 329,730 579,923
Finished goods 20,528,669 17,971,558
Allowance for slow moving items (799,775) (1,734,473)
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$ 21,692,543 $ 18,078,879
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9
Note 5. - Goodwill
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 Goodwill and Other Intangible Assets
(SFAS 142). Under SFAS 142, Goodwill and indefinite life intangible
assets are no longer amortized but will be reviewed annually, or more
frequently if impairment indicators arise, for impairment. The Company
discontinued the amortization of its goodwill balances effective
January 1, 2002. As provided under SFAS 142, the initial testing of
goodwill for possible impairment will be completed within the first
six months of 2002 and final testing, if possible impairment has been
identifies, by the end of the year.
In accordance with SFAS 142, prior period amounts were not restated.
A reconciliation of reported net income to net income adjusted for the
exclusion of amortization of goodwill and indefinite life intangible
assets follows:
June 30,
-----------------------------
2001 2002
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Reported net loss $ (1,066,857) $ (1,128,897)
Add back: Goodwill amortization 318,454 -
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Adjusted net income (748,403) (1,128,897)
Basic weighted average number of common
stock outstanding 10,863,186 10,869,360
Basic earnings per share $ (0.10) $ (0.10)
Adjusted earnings per share $ (0.07) $ (0.10)
Diluted weighted average number of common
stock outstanding 10,863,186 10,869,360
Diluted earnings per share $ (0.10) $ (0.10)
Adjusted diluted earnings per share $ (0.07) $ (0.10)
========== ===========
The Company engaged a third-party appraisal firm to conduct a valuation
on the impairment of goodwill in August 2002. Based on the result of
valuation report provided by the valuation service firm, no impairment
was recognized as of June 30, 2002.
10
Note 6. - Legal Proceedings
On November 14, 2001, a complaint was filed by Oppenheimer Wolff &
Donnelly LLP in the Orange County Superior Court, Santa Ana, California
against the Company for fees allegedly owed by the Company. The Company
intends to vigorously defend this claim because the amount invoiced was
deemed excessive comparing to the quality of services rendered. The
estimated liability including interest, costs and statutory attorney's
fees was approximately $100,000. At December 31, 2001 the Company
has recorded liabilites for this amount. In July 2002, a non-binding
arbitration was initiated and the Company is waiting for the final
decision from the arbitrators.
On April 16, 2002, a complaint was filed by Danton Mak Esq. in the
Superior Court of Los Angeles against Autec Power Systems, Inc. for
fees allegedly owed by Autec. The matter was submitted to binding
arbitration schedule for hearing in April 2002. An estimated liability
of $136,000 has been recorded at December 31, 2001. In July 2002 this
matter has been settled for $110,000 by stipulation of four equal
payments of $27,500 due on June 1, July 1, August 1 and September 1, 2002.
On April 24, 2002 a complaint was filed against the Company in the Orange
County Superior Court, Santa Ana, California by Mason Tarkeshian for fees
alleged to be due on an acquisition which was not consummated. The
complaint sought for damage of approximately $2 million where as the Company
believes that the complaint was without merit and would be resolved in favor
of the Company. The Company tendered this case to the insurance carrier for
settlement and had not accrued any liabilities for this matter as of
December 31, 2001. In 2002, this complaint was settled by the Company's
insurance carrier and the Company. The Company's portion of contribution to
the settlement was to issue a warrant to purchase 25,000 shares of common
stock of Bridge at $0.55 per share. The Company issued that warrant in July
2002 and is awaiting the receipt of a specific and general release.
On October 1, 2001, a complaint was filed by a Trustee in U.S. Bankruptcy
Court against the Company for an alleged transfer of assets, technology,
trade secrets, confidential information, business opportunities from Allied
Web, a corporation owned by the Company's former president, which filed for
liquidation under federal bankruptcy laws on April 6, 2000. At December 31,
2001, management of the Company was unable to assess the possibility of
incurring future liability and estimate the reasonable amount of contingent
liability. Therefore, the Company did not record any accrued liability for
this matter. In July 2002, this case was settled by the Company's insurance
carrier and the Company in principal and the drafted settlement agreement
was sent to plaintiff's attorney for approval. Accordingly, the Company
accrued a contingent liability of approximately $265,000 as of June 30,
2002. The Company is waiting for the finalized document to be signed soon.
On December 12, 2001, a former shareholder of Autec Power Systems has filed
a complaint in Ventura County Superior Court against the controlling
shareholder of Autec, Mr. Winston Gu and Bridge Technology, Inc.
alleging that the complainant did not receive sufficient exchange of
shares in this acquisition by Bridge Technology, Inc. The Company
believes that the complaint is without merit and will defend it
vigorously. At December 31, 2001, management of the Company was
unable to assess the possibility of incurring future liability and
estimate the reasonable amount of contingent liability. Therefore,
the Company did not record any accrued liability for this matter at
December 31, 2001. In 2002, this complaint was dismissed by the Court
and the plaintiff is trying to re-file this case. As of August 12, 2002,
the Company is unable to predict any consequence about this matter.
11
Note 7. - Subsequent Events
In 2000, the Company obtained a revolving line of credit, as amended,
from a commercial bank with an aggregate amount of principal not to
exceed $4,000,000. Advances bear interest at the prime rate (5.25%
at December 31, 2001). The outstanding balance at December 31, 2001
was $4,000,000. Outstanding interest and principal was originally
payable no later than June 30, 2001. The revolving line of credit is
subject to certain restrictive covenants and is collateralized by
substantially all of the assets located in the US. As of December 31,
2001, the Company had not repaid the bank for amounts due under the
line of credit and, therefore, was in default. On July 24, 2002,
the Company entered into a loan modification and extension agreement
with the bank. Pursuant to the terms of the new agreement, monthly
interest only payments are to be made through maturity, $50,000 is
due by September 15, 2002 and no less than $1,000,000 is due on
November 30, 2002 and the maturity date of the note has been extended
until November 30, 2002. However, if the Company makes all of the
foregoing payments on a timely basis and has not otherwise defaulted
on the loan, the maturity date for the remaining unpaid principal
balance will be extended until June 30, 2003. In exchange for agreeing
to the modifications, the Company granted to the bank a security
interest in the 65% of all issued and outstanding common stock of CMS,
subordinated the loans due to the Company's shareholders, and issued
two warrants to the bank each of which grants the bank the right to
purchase 250,000 shares of the Company's common stock at a per share
price of $1.00. If the Company either pays off the entire $3.9
million of outstanding balance or pledges 90% of all issued and
outstanding CMS shares that the Company owns by December 31, 2002,
one of the warrants may be cancelled.
Note Payable to IBM
In 2000, the Company's 90% owned Hong Kong based subsidiary, CMS,
entered into a revolving credit arrangement with International
Business Machines Corp ("IBM") for the purposes of financing CMS'
purchases from IBM. The facility was originally set to expire
in 2001 but has been extended until October 31, 2002. Advances
under the loan arrangement are secured by CMS' receivables and
certain of its other assets, as well as by a guaranty provided by
the Company, with interest at a variable rate of prime (as
determined by the Hong Kong and Shanghai Banking Corporation)
plus 2% (11.5% at December 31, 2001) with a floor of 9%. At
December 31, 2000 and 2001, outstanding borrowings totaled $2,000,000
and $5,000,000, respectively. The arrangement also provides
restrictions on CMS' ability to transfer funds to the Company or
any other subsidiaries without IBM's written consent. At
December 31, 2000 and 2001, CMS' net assets subject to this
restriction were $6,815,003 and $8,346,680.
In July 2002, CMS paid off the entire outstanding balance of US$5
million and reduced its regular trade accounts payable to IBM
from approximately US$11.9 million at December 31, 2001 to
approximately US$3.3 million as of June 30, 2002. Consequently,
the above restriction on CMS's ability to transfer funds to the
Company and other subsidiaries will be removed with a written
acknowledgement from IBM.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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Except for historical information contained herein, the matters set forth in
this report are forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Act of 1995. These
forward-looking statements are subject to risks and uncertainties that may
cause actual results to differ materially. The Company disclaims any
obligations to update these forward-looking statements.
Results of Operations for the Three Months Ended June 30, 2002 as Compared to
the Three Months Ended June 30, 2001
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Net sales of $26,594,227 for the three months ended June 30, 2002
decreased by $8,021,800, representing approximately a 23.17% decrease,
over net sales of $34,616,027 for the same period of 2001. The decrease
was due primarily to the decrease of approximately $4 million in U.S.
operations and approximately $4 million in Asia operations.
Asia revenue for the three months ended June 30, 2002 were $20,302,572
compared to $24,203,905 for the three months ended June 30, 2001, a
decrease of $3,901,333 or 16%. The decrease relates primarily to
lower sales volume at CMS Technology Limited.
United States revenues for the three months ended June 30, 2002 were
$6,291,655 compared to $10,412,122 for the three months ended June 30,
2001, a decrease of $4,120,467 or 39.6%. Decreases relate primarily to
decreased sales at Autec Power Systems, Inc.
Revenues for the Company's distribution businesses were $24,575,198 for
the three months ended June 30, 2002 compared to $30,123,950 for the
three months ended June 30, 2001, a decrease of $5,548,752 or 18.4%.
The decrease relates primarily to decreased sales volume at CMS
Technology Limited and excluding sales generated by a former subsidiary
Newcorp Technology (Japan).
Revenues for the Company's manufacturing businesses were $2,019,029 for
the three months ended June 30, 2002 compared to $4,492,077 for the three
months ended June 30, 2001, a decrease of $2,473,048 or 55%. The
decrease relates primarily to decreased sales at Autec.
Gross profit for the three months ended June 30, 2002 was $1,186,724
decreasing by $429,315 and representing approximately a 26.6% decrease,
compared to $1,616,039 for the same period of 2001. The reason for this
decrease is due mainly to the decrease in sales of Autec for the quarter
ended June 30, 2002. Gross profit as a percentage of net sales declined
from 4.7% for the three months ended June 30, 2001 to 4.5% for the three
months ended June 30, 2002. The decrease is principally due to the lower
margin generated through the sales of Autec. Autec's product mix has
changed to lower profit products.
Asia gross profit as a percentage of sales for the three months ended
June 30, 2002 was 3.1% compared to 4.7% for the three months ended June
30, 2001 primarily due to an increase in Return Merchandise Authorization
at CMS Technology Limited.
United States gross profit as a percentage of sales for the three months
ended June 30, 2002 was 4.6% compared to 8.9% for the three months ended
June 30, 2001. The decrease is primarily attributable to decreased gross
margins at Autec.
Gross profits for the Company's distribution businesses as a percentage of
sales for the three months ended June 30, 2002 was 9.3% compared to 8.8%
for the three months ended March 31, 2001.
13
Gross profits for the Company's manufacturing businesses as a percentage of
sales for the three months ended June 30, 2002 was 36% compared to 58.8%
for the three months ended June 30, 2001. The decrease is primarily
attributable to decreased gross margins at Autec.
Research and development expenses decreased by $259,294 to $189,592 in the
three months ended June 30, 2002, compared to $448,886 for the three months
ended June 30, 2001. This represents approximately a 57.8% decrease as a
percentage of revenue. Research and development expenses decreased from
..013% in the three months ended June 30, 2001 to .007% in the same period
in 2002.
Selling, general and administrative expenses decreased by $291,795 to
$1,870,743 in the three months ended June 30, 2002 compared to $2,162,538
for the three months ended June 30, 2001. As a percentage of revenue,
these expenses increased from 6.3% in the three months ended June 30, 2001
to 7.0% in the three months ended June 30, 2002. The increase is due to
the decrease in revenues for the quarter ended June 30, 2002.
Losses from operations decreased from a loss of $995,385 for the three
months ended June 30, 2001 to loss of $873,611 in the three months ended
June 30, 2002. The decrease primarily reflects the cost savings efforts
instituted in 2002. Loss from operations as a percentage of revenue
increased from 2.9% for the three months ended June 30, 2001 to a loss
from operations as a percentage of revenue to 3.3% for the three
months ended June 30, 2002.
Net interest expense increased by $51,213 from $217,495 for the three
months ended June 30, 2001 to net interest expense of $268,708 for the
three months ended June 30, 2002. The increase is mainly the result of
increased borrowings from shareholders during the three months ended
June 30, 2002.
Other income increased by $230,965 from $37,362 for the three months
ended June 30, 2001 to $268,327 for the three months ended June 30, 2002.
The main source for this increase is the gain on the disposal of an
investment of $215,556 in the three months ended June 30, 2002.
Net loss decreased by $335,792 from net loss of $1,233,343 for the
three months ended June 30, 2001 to net loss of $897,551 for the three
months ended June 30, 2002. These results reflect a loss of $0.11 per
share for the three months ended June 30, 2001 to a loss of $0.08 per
share for the three months ended June 30, 2002.
14
Results of Operations for the Six Months Ended June 30, 2002 as Compared to
the Six Months Ended June 30, 2001
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Net sales of $53,884,094 for the six months ended June 30, 2002 decreased
by $8,522,297, representing approximately a 14% decrease, over net sales
of $62,406,391 for the same period of 2001. The decrease was due
primarily to the decrease of approximately $5.6 million in U.S. operations
and approximately $2.8 million in Asia operations.
Asia revenue for the six months ended June 30, 2002 were $41,841,743
compared to $44,651,153 for the six months ended June 30, 2001, a decrease
of $2,809,410 or 6.3%. Decreases relate primarily to decreased sales
volume at CMS Technology Limited.
United States revenues for the six months ended June30, 2002 were
$12,042,621 compared to $17,755,238 for the six months ended June 30,
2001, a decrease of $5,712,617 or 32.2%. Decreases relate primarily to
decreased sales at Autec.
Revenues for the Company's distribution businesses were $49,758,106 for
the six months ended June 30, 2002 compared to $52,895,945 for the six
months ended June 30, 2001, a decrease of $3,137,839 or 5.9%. Decreases
relate primarily to decreased sales volume at CMS Technolgoy Limited
and excluding the sales of former subsidiary Newcorp Technology (Japan).
Revenue for the Company's manufacturing businesses were $4,125,988 for
the six months ended June 30, 2002 compare to $9,484,506 for the six
months ended June 30, 2001, a decrease of $5,358,518 or 56.5%. The
decrease relates primarily to decreased sales at Autec.
Gross profit for the six months ended June 30, 2002 was $2,788,260
decreasing by $1,525,749 and representing approximately a 35% decrease,
compared to $4,314,009 for the same period of 2001. The reason for this
decrease is due mainly to the decrease in sales of Autec for the six
months ended June 30, 2002. Gross profit as a percentage of net sales
declined from 6.9% for the six months ended June 30, 2001 to 5.1% for the
six months ended June 30, 2002. The decrease is principally due to the
lower margin generated through the sales of Autec. Autec's product mix
has changed to lower profit products.
Asia gross profit as a percentage of sales for the six months ended
June 30, 2002 was 3.4% compared to 4.7% for the six months ended
June 30, 2001 primarily due to an increase in Return Merchandise
Authorization at CMS Technology Limited.
United States gross profit as a percentage of sales for the six months
ended June 30, 2002 was 11.4% compared to 12.4% for the six months ended
June 30, 2001. The decrease is primarily attributable to decreased gross
margins at Autec.
Gross profits for the Company's distribution businesses as a percentage
of sales for the six months ended June 30, 2002 was 10.2% compared to
12.3% for the six months ended June 30, 2001.
15
Gross profits for the Company's manufacturing businesses as a percentage
of sales for the six months ended June 30, 2002 was 45.4% compared to
67.6% for the six months ended June 30, 2001. The decrease is primarily
attributable to decreased gross margins at Autec.
Research and development expenses decreased by $267,171 to $387,850 in the
six months ended June 30, 2002, compared to $655,021 for the six months
ended June 30, 2001. This represents approximately a 40.1% decrease.
Selling, general and administrative expenses decreased by $638,702
to $3,581,482 in the six months ended June 30, 2002 compared to $4,220,184
for the six months ended June 30, 2001. As a percentage of revenue, these
expenses decreased 6.8% in the six months ended June 30, 2002. The
decline is due to the cost saving effort implemented by management for the
six months ended June 30, 2002. Cost saving efforts included significant
layoffs at Autec as well as cutbacks in operating expenses such as
travel expense and purchases of supplies.
Losses from operations increased from $561,196 for the six months ended
June 30, 2001 to $1,181,072 in the six months ended June 30, 2002. The
increase primarily reflects the decline in profitability at Autec. Losses
from operations as a percentage of revenue increased from 0.9% for the six
months ended June 30, 2001 to a loss from operations as a percentage of
revenue to 2.2% for the six months ended June 30, 2002.
Net interest expense increased by $96,974 from $364,933 for the six months
ended June 30, 2001 to net interest expense of $461,907 for the six months
ended June 30, 2002. The increase is mainly the result of inceased
borrowings from shareholders during the six months ended June 30, 2002.
Other income increased by $538,052 from $106,210 for the six months ended
June 30, 2001 to $644,262 for the six months ended June 30, 2002. The
main source for this increase is the gain on the disposal of an investment
of $536,427 in the six months ended June 30, 2002.
Net loss increased by $62,040 from net loss of $1,066,887 for the six
months ended June 30, 2001 to net loss of $1,128,897 for the six months
ended June 30, 2002. These results reflect a loss of $0.10 per share
for the six months ended June 30, 2001 to a loss of $0.10 per share for the
six months ended June 30, 2002.
16
Liquidity and Capital Resources
- -------------------------------
The Company's capital requirements have been and will continue to be
significant and its cash and cash equivalents have been sufficient.
At June 30, 2002, the Company had working capital approximately $3.7
million and cash of $1.9 million compared to a working capital of
approximately $4.6 million and cash of $2.4 million at
December 31, 2001.
Net cash used in operating activities for the six months ended June
30, 2002 was $3,834,802 as compared to $5,384,970 used in operating
activities for the six months ended June 30, 2001. The difference
is mainly due to decrease in inventory, trade receivables and
accounts payable.
Net cash provided in investing activities for the six months ended
June 30, 2002 was $549,692 mainly from the proceeds from sale of
investment, as compared to $1,659,359 net cash used in investing
actiivities for the six months ended June 30, 2001 for the
investment in China.
Net cash provided by financing activities for the six months ended
June 30, 2002 was $2,765,395 as compared to $3,434,721 in the six
months ended June 30, 2001. The significant changes are attributable
to proceeds from line of credit and shareholder loans.
Management believes that the Company does have the economic where-
withal to maintain its operations for the foreseeable future. In
July, 2002 the Company entered into a loan modification and extension
agreement with a commercial bank for its outstanding balance of $4 million
at December 31, 2001, which was reduced by $100,000 payment made in 2002.
Pursuant to the terms of the new agreement, monthly interest only payments
are to be made through maturity, $50,000 is due by September 15, 2002 and
no less than $1,000,000 is due on November 30, 2002. The Company owns 90%
of all issued and outstanding shares in CMS and pledged 65% of all issued
and outstanding shares in CMS against this outstanding balance and the
maturity date of the note has been extended until November 30, 2002.
However, if the Company makes all of the foregoing payments on a timely
basis and has not otherwise defaulted on the loan, the maturity date for
the remaining unpaid principal balance will be extended until June 30, 2003.
In addition, management is negotiating with the Company's major shareholders
to convert a portion of the Company's indebtedness to them into equity in
order to improve the Company's working capital position. Operationally,
management's plans include continuing actions to cut or curb non-essential
expenses and focusing on improving the sales of Autec. No asurance can be
given that the Company will be successful in extending or modifying its
line of credit beyond June 30, 2003 or that the Company will be able to
return to profitable operations. Looking for alternatives, the Company
is currently seeking a global financing agreement with a major
international bank to replace existing credit lines in U.S. and
Hong Kong. No assurance can be given that the alternative funding
source will be available.
Effects of Inflation
- --------------------
The Company believes that inflation has not had a material effect on its
net sales and results of operations.
17
Effects of Fluctuation in Foreign Exchange Rates
- ------------------------------------------------
The Company continues to buy products and services from foreign suppliers.
The Company contracts for such products and services denominated by U.S.
dollars, thus eliminating the possible effect of currency fluctuations.
Newly Issued Accounting Standards
- ---------------------------------
In June 2001, Financial Accounting Standard Board issued Statement of
Financial Accounting Standards, No. 143, "Accounting for Asset
Retirement Obligations," ("SFAS No. 143"). FAS No. 143 is effective
for fiscal years beginning after June 15, 2002. SFAS No. 143 requires
that any legal obligation related to the retirement of long-lived assets
be quantified and recorded as a liability with the associated asset
retirement cost capitalized on the balance sheet in the period it is
incurred when a reasonable estimate of the fair value of the liability
can be made. Management of the Company expects that the adoption of SFAS
No. 143 will be adopted on their effective dates and that the adoption will
not result in any material effects on its financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". This statement eliminates the current requirement that gains
and losses on debt extinguishment must be classified as extraordinary items
in the income statement. Instead, such gains and losses will be classified
as extraordinary items only if they are deemed to be unusual and infrequent,
in accordance with the current GAAP criteria for extraordinary classification.
In addition, SFAS 145 eliminates an inconsistency in lease accounting by
requiring that modifications of capital leases that result in reclassification
as operating leases be accounted for consistent with sale-leaseback accounting
rules. The statement also contains other nonsubstantive corrections to
authoritative accounting literature. The changes related to debt
extinguishment will be effective for fiscal years beginning after May 15,
2002, and the changes related to lease accounting will be effective for
transactions occurring after May 15, 2002. Adoption of this standard will
not have any immediate effect on the Company's consolidated financial
statements. The Company will apply this guidance prospectively.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses accounting
for restructuring and similar costs. SFAS No. 146 supersedes
previous accounting guidance, principally Emerging Issues Task Force
(EITF) Issue No. 94-3. SFAS No. 146 requires that the liability for costs
associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF No. 94-3, a liability for an exit cost
was recognized at the date of a companys commitment to an exit plan.
SFAS No. 146 also establishes that the liability should initially be
measured and recorded at fair value. Accordingly, SFAS No. 146 may
affect the timing of recognizing future restructuring costs as well
as the amount recognized. The provisions of SFAS 146 are to be applied
prospectively to exit or disposal activities initiated after
December 31, 2002. Management believes that the adoption of this
standard will not have any immediate effect on the Company's consolidated
financial statements.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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Bridge Technology, Inc. develops products in the United States and Japan and
sells primarily in North America, Asia and Europe. As a result, financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in foreign markets. Since our
Company's products are generally initially priced in U.S. Dollars and
translated to local currency amounts, a strengthening of the dollar could make
our Company's products less competitive in foreign markets.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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On November 14, 2001, a complaint was filed by Oppenheimer Wolff &
Donnelly LLP in the Orange County Superior Court, Santa Ana, California
against the Company for fees allegedly owed by the Company. The Company
intends to vigorously defend this claim because the amount invoiced was
deemed excessive comparing to the quality of services rendered. The
estimated liability including interest, costs and statutory attorney's
fees was approximately $100,000. At December 31, 2001 the Company
has recorded liabilites for this amount. In July 2002, a non-binding
arbitration was initiated and the Company is waiting for the final
decision from the arbitrators.
On April 16, 2002, a complaint was filed by Danton Mak Esq. in the
Superior Court of Los Angeles against Autec Power Systems, Inc. for
fees allegedly owed by Autec. The matter was submitted to binding
arbitration schedule for hearing in April 2002. An estimated liability
of $136,000 has been recorded at December 31, 2001. In July 2002 this
matter has been settled for $110,000 by stipulation of four equal
payments of $27,500 due on June 1, July 1, August 1 and September 1, 2002.
On April 24, 2002 a complaint was filed against the Company in the Orange
County Superior Court, Santa Ana, California by Mason Tarkeshian for fees
alleged to be due on an acquisition which was not consummated. The
complaint sought for damage of approximately $2 million where as the Company
believes that the complaint was without merit and would be resolved in favor
of the Company. The Company tendered this case to the insurance carrier for
settlement and had not accrued any liabilities for this matter as of
December 31, 2001. In 2002, this complaint was settled by the Company's
insurance carrier and the Company. The Company's portion of contribution to
the settlement was to issue a warrant to purchase 25,000 shares of common
stock of Bridge at $0.55 per share. The Company issued that warrant in July
2002 and is awaiting the receipt of a specific and general release.
On October 1, 2001, a complaint was filed by a Trustee in U.S. Bankruptcy
Court against the Company for an alleged transfer of assets, technology,
trade secrets, confidential information, business opportunities from Allied
Web, a corporation owned by the Company's former president, which filed for
liquidation under federal bankruptcy laws on April 6, 2000. At December 31,
2001, management of the Company was unable to assess the possibility of
incurring future liability and estimate the reasonable amount of contingent
liability. Therefore, the Company did not record any accrued liability for
this matter. In July 2002, this case was settled by the Company's insurance
carrier and the Company in principal and the drafted settlement agreement
was sent to plaintiff's attorney for approval. Accordingly, the Company
accrued a contingent liability of approximately $265,000 as of June 30,
2002. The Company is waiting for the finalized document to be signed soon.
On December 12, 2001, a former shareholder of Autec Power Systems has filed
a complaint in Ventura County Superior Court against the controlling
shareholder of Autec, Mr. Winston Gu and Bridge Technology, Inc.
alleging that the complainant did not receive sufficient exchange of
shares in this acquisition by Bridge Technology, Inc. The Company
believes that the complaint is without merit and will defend it
vigorously. At December 31, 2001, management of the Company was
unable to assess the possibility of incurring future liability and
estimate the reasonable amount of contingent liability. Therefore,
the Company did not record any accrued liability for this matter at
December 31, 2001. In 2002, this complaint was dismissed by the Court
and the plaintiff is trying to re-file this case. As of August 12, 2002,
the Company is unable to predict any consequence about this matter.
19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- --------------------------------------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
There are no defaults upon senior securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
There are no matters submitted to a vote of security holders.
ITEM 5. OTHER INFORMATION
- --------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
There are no exhibits and reports on Form 8-K.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Bridge Technology, Inc.
------------------------------
(Registrant)
Date: August 14, 2002 Winston Gu
----------------- -------------------------------
Winston Gu, CEO
Date: August 14, 2002 James Djen
----------------- -------------------------------
James Djen, President, CEO
Date: August 14, 2002 John T. Gauthier
----------------- -------------------------------
John T. Gauthier, CFO
20