SCHEDULE 14C
(Rule 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
[X] Preliminary Information Statement [_] Confidential, For Use of the
Commission Only (as permitted
by Rule 14c-5(d)(2))
[_] Definitive Information Statement
HIBSHMAN OPTICAL CORPORATION
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14C-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[_] Fee paid previously with preliminary materials:
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[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount previously paid:
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4) Date Filed:
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PRELIMINARY COPY
HIBSHMAN OPTICAL CORPORATION
266 CEDAR STREET
CEDAR GROVE, NEW JERSEY 07009
INFORMATION STATEMENT
(DATED ____________, 2004)
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY. THE ACTIONS, DEFINED BELOW, HAVE ALREADY BEEN APPROVED BY WRITTEN
CONSENT OF MR. CARMINE CATIZONE, MR. PASQUALE CATIZONE, MS. BARBARA CATIZONE AND
MS. ROBYN CONFORTH WHO TOGETHER OWN A MAJORITY (APPROXIMATELY 79.3%) OF THE
COMPANY'S OUTSTANDING SHARES OF COMMON STOCK. A VOTE OF THE REMAINING
SHAREHOLDERS IS NOT NECESSARY.
GENERAL
This Information Statement is first being furnished on or about the
date first set forth above to holders (of record as of the close of business on
__________, 2004) of the common stock, $.001 par value per share ("Old Common
Stock"), of Hibshman Optical Corporation, a New Jersey corporation ("we" or the
"Company"), in connection with the following (collectively, the "Actions"):
1. Merging the Company into a new Delaware corporation ("Newco") which
we will form as our wholly-owned subsidiary. Immediately after such merger (the
"Merger"), Newco will survive and the Company will no longer exist, our
shareholders will no longer hold shares of the Company and our shareholders will
own shares of Newco common stock ("New Common Stock") in the same proportion in
which they held shares of the Old Common Stock. The Merger will have the
following effects: (a) we will become a Delaware corporation and will no longer
be a New Jersey corporation; (b) our name will be changed from Hibshman Optical
Corporation to the name of Newco, which will be DongXing Holding Corporation;
(c) for every ten shares of Old Common Stock, our shareholders will receive one
share of New Common Stock as though we had completed a one-for-ten reverse split
of our shares ;and (d) we will have, as provided in Newco's Certificate of
Incorporation, up to 1,000,000 shares of "blank check" preferred stock
authorized, which shares may be issued from time to time in one or more series
by the Board of Directors, with such powers, preferences and other rights as
determined from time to time by the Board of Directors,
2. Causing Newco, promptly after the Merger, to complete a share
exchange transaction (the "Share Exchange") with the shareholders of MuDanJiang
DongXing Group Co., Ltd. ("DongXing China"), a Peoples Republic of China (PRC)
limited liability company. The Share Exchange will involve Newco's acquiring all
of the outstanding shares of capital stock of DongXing China and, in return,
issuing to the shareholders of DongXing China (and to an advisor and a finder)
such number of shares of New Common Stock so that the shareholders of DongXing
China, together with such advisor and finder, will collectively become the
holders of 95% of the outstanding shares of New Common Stock. Immediately after
the Share Exchange, our current shareholders will collectively own 5% of the
outstanding shares of New Common Stock in the same proportion in which they held
shares of the Old Common Stock.
Our Board of Directors (the "Board") has approved, and Mr.
Carmine Catizone, Mr. Pasquale Catizone, Ms. Barbara Catizone and Ms. Robyn
Conforth, who together owned 8,000,000 shares (approximately 79.3%) of the
10,088,235 shares of Old Common Stock outstanding as of the date of this
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Information Statement, have consented in writing to, the Actions. Such approval
and consent are sufficient under Section 14A:5-6 of the New Jersey Business
Corporation Act and our By-Laws to approve the Actions. Accordingly, the Actions
will not be submitted to our other shareholders for a vote and this Information
Statement is being furnished to shareholders solely to provide them with certain
information concerning the Actions in accordance with the requirements of New
Jersey law and the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder, including particularly Regulation 14C.
The Actions described in item 1, above, will be effective on
the date that Certificates of Merger with respect to such Actions are filed with
the Secretaries of State of the States of Delaware and New Jersey. These filings
are expected to occur on or shortly after the 22nd day after the date of this
Information Statement. The Actions described in item 2, above, are expected to
be effective immediately after such filings are made or promptly thereafter.
The offices of the Company are located at 266 Cedar Street,
Cedar Grove, New Jersey 07009, and the Company's telephone number is (973)
239-2952. The principal offices of DongXing China are located at 140 Chang An
Street, MuDanJiang City, China 157000 and its telephone number is 011 86 453 692
7473.
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SUMMARY OF TRANSACTIONS
We are a "shell company" with no operations and with only
nominal assets consisting only of cash and cash equivalents. (Henceforth, "we"
will refer to the Company or its successors unless otherwise indicated.) The
Merger and the Share Exchange, which are described in more detail under "Merger
And Share Exchange" below, have the following terms:
- We will acquire 100% ownership of DongXing China, a privately-held
PRC company with operations in the PRC.
- Our Old Common Stock will be replaced with New Common Stock and
additional shares of New Common Stock will be issued.
- Our shareholders will collectively end up holding approximately 5%
ownership of our outstanding shares.
- A finder will end up with approximately 5% ownership of our
outstanding shares.
- The shareholders of DongXing China and its advisor will collectively
end up holding approximately 90% of our outstanding shares and will
therefore become our controlling shareholders.
- We will become a Delaware corporation and no longer be a New Jersey
corporation.
- Our name will be changed to DongXing Holding Corporation.
- Our outstanding shares will be reverse split one-for-ten.
- The total number of shares of common stock which we are authorized
to issue will be 50,000,000.
- We will also be authorized to issue up to 1,000,000 shares of "blank
check" preferred stock, which shares may be issued from time to time
in one or more series by the Board, with such powers, preferences
and other rights as determined from time to time by the Board.
- We will have a total of approximately 20,176,470 shares of common
stock outstanding and those who were our shareholders before the
transactions will collectively hold approximately 1,008,824 of those
shares.
- Our only business will be the business of DongXing China.
- Our financial statements will be the financial statements of
DongXing China.
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- The shareholders of DongXing China will select our new management,
new Board of Directors and new auditors.
MERGER AND SHARE EXCHANGE
The Merger and the Share Exchange are parts of the same
transaction. We will be completing the Merger as a condition to completing the
Share Exchange. The Merger will allow us to complete the Share Exchange as a
Delaware corporation and with a name designated by DongXing China, and will
provide us with a sufficient number of authorized shares of common stock for us
to complete the Share Exchange.
Newco will be a Delaware corporation with 50,000,000
authorized shares of common stock, 1,000,000 authorized shares of "blank check"
preferred stock ("Preferred Stock") and no other authorized capital stock.
Attached hereto as Attachment A is the form of Certificate of Incorporation of
Newco which will be filed with the Secretary of State of the State of Delaware
to form Newco. The terms of our merger into Newco (which are set forth in the
Agreement and Plan of Merger, the form of which is attached hereto as Attachment
B, to be entered into by Newco and the Company) will provide that Newco will be
the surviving corporation and that all of the outstanding shares of our Old
Common Stock will be exchanged for shares of New Common Stock at a ratio of ten
shares of Old Common Stock for one share of New Common Stock. This is
effectively a one-for-ten reverse split of the Old Common Stock in which the
10,088,235 total shares of Old Common Stock outstanding as of the date of this
Information Statement will be exchanged for approximately 1,008,824 shares of
New Common Stock. Under our current New Jersey certificate of incorporation
(which authorizes 100,000,000 shares of common stock), given our 10,088,235
shares of Old Common Stock outstanding, we do not have a sufficient number of
authorized shares of Old Common Stock available to be able to complete the Share
Exchange. The "reverse split", together with the authorization of 50,000,000
shares of New Common Stock, results in our having a sufficient number of
authorized shares available to complete the Share Exchange. In addition, since
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Newco will be the surviving entity in the Merger, we will have changed our name
to the name of Newco as a result of the Merger.
Immediately after the Merger, or as soon as practicable after
the Merger, we will complete the Share Exchange. The Share Exchange will result
in our acquiring all of the outstanding shares of capital stock (or 51,000,000
shares) of DongXing China from its approximately 45 shareholders. As part of the
Share Exchange, we will be issuing to DongXing China's shareholders and to an
advisor to DongXing China an aggregate of approximately 18,158,823 shares of New
Common Stock. Of such 18,158,823 shares, DongXing China's shareholders will
receive, pro rata to their DongXing China share ownership, an aggregate of
approximately 15,435,000 shares (or 76.5%) and Global Access Ventures, LLC, an
advisor to DongXing China, will receive approximately 2,723,823 shares (or
13.5%). As part of the Share Exchange, we will also issue approximately
1,008,235 shares of New Common Stock to Forty Four Wall Street Advisors, LLC, a
finder who introduced us to DongXing China. Of the approximately 20,176,470
shares of New Common Stock to be outstanding immediately after the Share
Exchange is completed, our current shareholders will together hold approximately
5% (or approximately 1,008,824 shares), Forty Four Wall Street Advisors, LLC
will hold approximately 5% (or approximately 1,008,824 shares), Global Access
Ventures, LLC (an advisor to DongXing China) will hold approximately 13.5% (or
approximately 2,723,823 shares) and the current shareholders of DongXing China
will together hold approximately 76.5% (or approximately 15,435,000 shares). Mr.
He Maoxing, as the largest shareholder of DongXing China with approximately
47.57% of its outstanding shares, will receive approximately 7,342,429 shares of
New Common Stock (representing approximately 36.4% of the shares of New Common
Stock to be outstanding) and will become our largest shareholder. Except as
described in this paragraph, no other single shareholder will become a holder of
5% of more of the outstanding shares of New Common Stock following the Share
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Exchange. In connection with the Share Exchange, we may issue up to an aggregate
of an additional 64,000 shares of New Common Stock to Mr. Pasquale Catizone and
his brother Carmine Catizone to satisfy our debts to him of up to $64,000. If we
issue such shares, such issuance will have the effect of diluting the percentage
share ownership of all of our shareholders described in this paragraph.
"REVERSE SPLIT"
We believe that the "reverse split" is necessary because,
without it, we will have over 200 million shares issued and outstanding after
giving effect to the Merger and the Share Exchange and would have to authorize
hundreds of millions of shares of common stock in our certificate of
incorporation. Having fewer shares outstanding and authorized will help us to
reduce franchise tax obligations. We also believe that having the smaller number
of shares outstanding will help us to develop a trading market for our shares
and to list our shares on Nasdaq or a national stock exchange given their
requirements for a minimum per share trading price.
NO FRACTIONAL SHARES
We will not be issuing fractional shares when the Old Common
Stock is "reverse split" into, and exchanged for, shares of New Common Stock.
Any holder of a number of shares of Old Common Stock not evenly divisible by 10
will receive a full share of New Common Stock in lieu of a fractional share. In
other words, the number of shares of New Common Stock to be issued to our
shareholders will be rounded up to the nearest whole number. Given that the
value of any fractional share will likely be small, we believe that this method
is preferable to paying cash in lieu of issuing fractional shares. Also, paying
cash in lieu of fractional shares would have the effect of cashing out and
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eliminating any holder of fewer than ten shares of Old Common Stock. Because we
will not be paying cash for fractional shares, our "reverse split" will not have
the effect of reducing the number of our shareholders.
PREFERRED STOCK
Newco's Certificate of Incorporation gives the Board the
authority to issue up to 1,000,000 shares of Preferred Stock. The effect of such
authorization of the Preferred Stock is summarized below and the full text of
Newco's Certificate of Incorporation is set forth as Attachment A to this
Information Statement.
Preferred Stock may be issuable from time to time, in one or
more series and in any manner permitted by law, as determined from time to time
by the Board. The Preferred Stock may have such voting powers, full or limited,
or no voting powers, and such designations, preferences and relative,
participating, optional, or other special rights and qualifications, limitations
or restrictions, as the Board determines.
Shares of the Preferred Stock could be issued that would have
rights with respect to voting, dividends and liquidation that would be adverse
to those of the New Common Stock. The Board could approve the issuance of
Preferred Stock to discourage attempts by others to obtain control of Newco by
merger, tender offer, proxy contest or otherwise by making such attempts more
costly to achieve.
We believe that it is desirable to have a sufficient number of
shares of Preferred Stock available, as the occasion may arise, for possible
financings and acquisition transactions and other proper corporate purposes.
Having a sufficient number of shares of Preferred Stock available for issuance
in the future would give us greater flexibility by allowing shares of Preferred
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Stock to be issued without incurring the delay and expense of a special
stockholders' meeting. We are not conducting any negotiations and have no
present plans, agreements, or understandings, written or oral, regarding
acquisitions involving the issuance of Preferred Stock.
The shares of Preferred Stock generally would be available for
issuance without any requirement for further stockholder approval, unless
stockholder action is required by applicable law, our governing documents or by
the rules of the National Association of Securities Dealers, Inc. or any stock
trading medium on which our securities may then be quoted.
Although the Board will authorize the issuance of shares of
Preferred Stock only when it considers doing so to be in the best interests of
stockholders, the issuance of shares of Preferred Stock may, among other things,
have a dilutive effect on the earnings and equity per share of New Common Stock
and on the voting rights of holders of shares of New Common Stock. The
authorization of Preferred Stock also could be viewed as having anti-takeover
effects. Although we have no current plans to do so, shares of Preferred Stock
could be issued in various transactions that would make a change in control of
the Company more difficult or dilute the stock ownership of a person seeking to
obtain control. We are not aware of any effort to accumulate shares of New
Common Stock or obtain control of the Company by a tender offer, proxy contest,
or otherwise, and the Company has no present intention to use the shares of
authorized Preferred Stock for anti-takeover purposes
INFORMATION ABOUT US
Information about us is set forth in the Annual Report on Form
10-KSB of Hibshman Optical Corporation for the year ended December 31, 2003, a
copy of which is attached hereto as Attachment C. A copy of that annual report
was filed with the Securities and Exchange Commission and is incorporated herein
by reference.
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DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 100,000,000 shares of
Old Common Stock, par value $.001 per share, of which 10,088,235 shares are
issued and outstanding before the Merger and Share Exchange. After the Merger
and Share Exchange, we will have authorized capital stock consisting of (a)
50,000,000 shares of New Common Stock, par value $.001 per share, of which
approximately 20,176,470 shares will be issued and outstanding, and (b)
1,000,000 shares of Preferred Stock, par value $.001 per share, of which no
shares will be issued or outstanding. With the exception of a convertible
promissory note in the amount of $64,000, which the holders have agreed may be
satisfied by the issuance of up to 64,000 shares of New Common Stock, we do not
have outstanding any options, warrants or other securities convertible into
shares of our capital stock and will not have any such convertible securities
outstanding upon completion of the Merger and the Share Exchange.
With respect to both the Old Common Stock and the New Common
Stock: Holders of shares are entitled to one vote for each share on all matters
to be voted on by the stockholders. Holders of shares do not have cumulative
voting rights. Holders of shares are entitled to share ratably in dividends, if
any, as may be declared from time to time by the Board of Directors in its
discretion from funds legally available therefore. In the event of our
liquidation, dissolution or winding up, the holders of shares are entitled to
share pro rata all assets remaining after payment in full of all liabilities.
All of the outstanding shares are, and the shares to be issued in connection
with the Merger and the Share Exchange will be, when issued and delivered, fully
paid and non-assessable. Holders of shares have no preemptive rights to purchase
shares of our capital stock. There are no conversion or redemption rights or
sinking fund provisions with respect to our shares.
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DISSENTERS' RIGHTS
Our shareholders have a right to dissent as to the Merger and
Share Exchange and have the right to be paid the fair value of their shares.
However, given that we have only nominal assets and over 10 million shares
outstanding, our belief is that the fair value of each share is de minimis. If
you would, nevertheless, like to dissent, you must provide a written notice of
such dissent to us, at our New Jersey address, within twenty (20) days after the
mailing of this Information Statement. Along with such written notice of
dissent, you may include a written demand for the payment of the fair value of
your shares. Within twenty (20) days after you make such a demand for payment,
you must deliver to us the certificate or certificates representing the shares
with respect to which you are dissenting or other evidence of ownership so that
we may make notation thereon that such demand has been made. Please refer to the
New Jersey Business Corporation Act, Section 14A:11-7 and -8 for procedures to
be followed in the event the Company and the dissenting shareholder cannot agree
on the fair value of the dissenting shares.
INFORMATION ABOUT DONGXING CHINA
SUMMARY OF BUSINESS
DongXing China was organized as a Peoples Republic of China
(PRC) limited liability company on December 8, 1997 under the name, MuDanJiang
DongXing Power Transmission Equipment Co. Ltd. and changed its name to its
current name (MuDanJiang DongXing Group Co., Ltd.) in July 2002. DongXing China
engages in the real estate development and retail businesses.
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In November 2000, DongXing China established a subsidiary,
DongXing Business Development Co., Ltd. ("DongXing Business Development").
DongXing China owns all of the outstanding capital of DongXing Business
Development. DongXing Business Development operates two retail centers, selling
consumer goods, each of which is housed in a building. One of the retail centers
is located in MuDanjiang City, the second in Ningan City.
The assets and operations of DongXing China and DongXing
Business Development are located primarily in and around MuDanJiang City, in the
Heilongjiang Province, which is the northern-most and eastern-most province in
the PRC. MuDanJiang is located southeast of, and less than 200 miles from,
Harbin (or Haerbin), one of the PRC's largest cities. MuDanJiang encompasses six
cities (Hailin, Ningan, Linkou, Dongxing, Muling and Suifenhe) with a population
of over 2,600,000 and is a regional transportation center.
Real Estate Development.
DongXing China has developed and manages several commercial
and residential real estate projects throughout the Province of Heilongjiang.
Generally, DongXing China maintains responsibility to maintain and repair the
real estate projects after development and sale of the project has been
completed. Residential projects include the North Mountain Villas District, the
Baoye Residence District and the DongXing Residence District. Commercial
projects include the DongXing Hotel, a European-style hotel with over 300 rooms,
several restaurants, conference facilities and an amusement center that houses a
bowling alley. DongXing China recently sold the DongXing Hotel for approximately
RMB (Renminbi) 94,000,000 (approximately $11,500,000) after the party that had
originally contracted to finance construction of and purchase the Hotel was
unable to purchase the hotel. DongXing China obtains financing for each
development and normally will pay off the financing with the proceeds of the
sale of the development.
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The DongXing Residential District is a residential project
completed in 1999. The Baoye Residential District, which consisted of two
commercial buildings as well as residential apartments, was substantially
completed in 2002. The first phase of the North Mountain Villas District, which
excluding the Hotel, consists of residential units, was completed in 2003,
although sales of these units are continuing in 2004.
DongXing China has two real estate projects in the planning
stage. One such project, the Jing Yi Yuan Project, is the second phase of the
North Mountain Villas District and is expected to consist of 150 villas and 80
two residence town houses. The second development project is the Bo Hai Kingdon
Project, which includes the rehabilitation of a palace and the construction of a
"Folk Custom Village" of the Tang Dynasty as a recreation and vacation site.
Financing for these new projects have not yet been secured, and there can be no
assurance that required financing will be accomplished.
Retail Business
DongXing China operates the DongXing Plaza and the DongXing
Shopping Center, both of which are modern retail centers. Both of these retail
centers are the first of their kind in the cities in which they are located.
DonXing China expects to open a retail center in Lanlin City in December, 2004,
and a second in Jixi City in January, 2005.
DongXing China does not hold any material patents, trademarks
or copyrights.
At December 31, 2003, the Company had approximately 96
full-time employees in its real estate business and 416 full-time employees in
its retail business.
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REGULATORY APPROVALS REQUIRED
There are no federal or state regulatory requirements that we
must comply with or approvals that we must obtain in connection with the Merger
and the Share Exchange. However, we believe that DongXing China will have to
obtain various approvals from authorities in the PRC primarily because the Share
Exchange will result in a US (Delaware) corporation becoming the 100% owner of a
PRC company. Among the PRC authorities that may have to approve the Share
Exchange are the State Administration of Foreign Exchange (SAFE), the Ministry
of Commerce (MOC) and the State Administration of Industry and Commerce (SAIC).
SELECTED CONSOLIDATED FINANCIAL DATA OF DONGXING CHINA
The following table sets forth selected consolidated financial
data for DongXing China for the periods and the dates indicated. The statement
of operations data for the years ended December 31, 2003, 2002 and 2001 and the
balance sheet data as of December 31, 2003 and December 31, 2002 set forth below
have been derived from the financial statements of DongXing China which have
been audited by Bernstein Pinchuk, independent certified public accountants.
DongXing China has represented to us and represents to the Securities and
Exchange Commission that selected financial data for the 1999 and 2000 fiscal
years cannot be provided without unreasonable effort and expense. The selected
financial data should be read in conjunction with, and are qualified in their
entirety by, the Consolidated Financial Statements of DongXing China and related
Notes and other financial information included elsewhere herein.
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CONSOLIDATED STATEMENT OF OPERATIONS DATA
FOR THE YEARS ENDED DECEMBER 31:
(IN THOUSANDS)
2003 2002 2001
---- ---- ----
Real estate revenues $6,435 $1,655 $3,163
Retail revenues 9,643 11,042 9,032
Total revenues 16,078 12,697 12,195
Gross profits 2,810 2,739 3,306
Income from operations 135 992 1,104
CONSOLIDATED BALANCE SHEET DATA
AT DECEMBER 31:
(IN THOUSANDS)
Total real estate assets $18,652 $18,965 $14,867
Total retail assets 7,993 8,391 8,762
Total assets 26,645 27,356 23,629
Members' Equity 1,189 1,028 123
Long-term obligations 4,908 4,584 532
Total Shareholders' equity $2,979 $2,818 $601
EXCHANGE CONTROLS AND EXCHANGE RATES:
The existing foreign exchange regulations have significantly
reduced government foreign exchange controls for transactions under the current
account, including trade and service related foreign exchange transactions and
payment of dividends. DongXing China may undertake current account foreign
exchange transactions without prior approval from the State Administration of
Foreign Exchange by producing commercial documents evidencing such transactions,
provided that they are processed through Chinese banks licensed to engage in
foreign exchange transactions. The PRC government has stated publicly that it
intends to make the Renminbi freely convertible in the future. However, we
cannot predict whether the PRC government will continue its existing foreign
exchange policy and when the PRC government will allow free conversion of
Renminbi to foreign currency.
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Foreign exchange transactions under the capital account,
including principal payments in respect of foreign currency-denominated
obligations, continue to be subject to significant foreign exchange controls and
require the approval of the State Administration of Foreign Exchange. These
limitations could affect our ability to obtain foreign exchange through debt or
equity financing, or to obtain foreign exchange for capital expenditures.
Further, limitations on conversion of currency could affect our ability to pay
dividends, although we have no present plans to pay dividends, and could also
affect our ability to pay our expenses incurred outside of the PRC.
Since 1994, the conversion of Renminbi into Hong Kong and
United States dollars has been based on rates set by the People's Bank of China,
which are set daily based on the previous day's PRC interbank foreign exchange
market rate and current exchange rates on the world financial markets. Although
the Renminbi to US dollar exchange rate has been relatively stable since 1994,
we cannot predict nor give any assurance of its future stability. Fluctuations
in exchange rates may adversely affect the value, translated or converted into
US dollars, of DongXing China's net assets, earnings and any declared dividends.
We cannot give any assurance that any future movements in the exchange rate of
the Renminbi against the US dollar and other foreign currencies will not
adversely affect DongXing China's results of operations and financial condition.
As of June 18, 2004, the exchange rate between the US Dollar
and the PRC currency was $1.00 to 8.2766 RMB (Renminbi).
The following tables set forth the noon buying rates in New
York for cable transfers payable in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") for
the periods indicated.
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The exchange rates per US$1.00 as of the last day of the five
most recent fiscal years are set forth below:
2003: 8.2767 RMB
2002: 8.2800 RMB
2001: 8.2766 RMB
2000: 8.2774 RMB
1999: 8.2795 RMB
The average exchange rates per US$1.00, and the high exchange
rate, during the five most recent fiscal years are set forth below:
2003: Average: 8.2770 RMB; High: 8.2775
2002: Average: 8.2772 RMB; High: 8.2780
2001: Average: 8.2770 RMB; High: 8.2786
2000: Average: 8.2784 RMB; High: 8.2799
1999: Average: 8.2785 RMB; High: 8.2800
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Reference is made to the Notes to Consolidated Financial
Statements, below, which should be read in conjunction with this Management's
Discussion section. As used in this section, "we" refers to DongXing China. The
numbers and percentages contained in this Item 2 are approximate.
Our primary sources of funding have been capital contributions
by shareholders, cash provided by operating activities, short-term borrowings
and long-term borrowings. Our primary uses of funds have been for working
capital, capital expenditures and repayment of short and long-term borrowings.
As of December 31, 2003, our total assets were $26,644,923 and
total liabilities were $23,665,947 and shareholders' equity was $2,978,975.
Total assets decreased by $710,682 from December 31, 2002 to December 31, 2003.
This decrease, net of an increase in receivables, resulted mostly from sales of
residential units to our customers in the ordinary course of business in 2003,
most of which units were under construction in 2002. The Company's liabilities
with respect to customer deposits were reduced accordingly. The proceeds of the
sale of residential units were used in part to reduce our debt. Current assets
at December 31, 2003 were $15,134,858, representing a decrease of $487,881 from
December 31, 2002. Our net receivables relating to our real estate business
increased from December 31, 2002 to December 31, 2003 by $2,184,601. Of this
increase, $254,603 related to advances made to certain of our shareholders,
employees or members of their families or entities affiliated with them, and
$1,929,998 related to advances to unrelated third parties. Of these advances, we
have taken an allowance for bad debts in the amount of $249,272.
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Total liabilities decreased by $872,085 from December 31, 2002
to December 31, 2003. Current liabilities at December 31, 2003 was $20,482,600,
representing a decrease of $1,355,570 from December 31, 2002. This decrease, net
of increases in short-term advances, accounts payable and accrued expenses, and
taxes payable, resulted mostly from the reduction of customer deposits due to
sales of residential units to customers in the ordinary course of business on
completion of such units.
Non-current liabilities were $3,381,460 at December 31, 2003,
representing an increase of $681,598. This increase relates mostly to additional
loans made to us by certain of our shareholders, our employees and unrelated
individuals. Our net cash used in operating activities in 2003 was $748,104,
which figure was substantially affected by $4,786,000 in reduced customer
deposits resulting from the credit of such deposits on delivery of residential
units to customers and an increase in receivables of $2,145,000 . These large
adjustments were offset in large part by an increase in accounts payable and
accrued expenses of $2,154,000 and a net reduction in our investment in
inventories and construction in progress of $2,752,000.
Cash and cash equivalents in 2003 increased by $105,740. Our
net cash used in investment activities was $754,410 consisting of acquisition of
property and equipment of $675,558 and by landlease payments of $77,852. Net
cash from financing activities in 2003 was $1,608,254, consisting of borrowings
under credit lines in the amount of $881,840, proceeds of mortgage loans in the
amount of $261,655, and proceeds received from employee loans of $464,759.
Our capital expenditures in 2003 were $782,960, consisting of
expenditures relating to office equipment, land acquisition costs and the costs
of purchasing a vehicle and furniture and fixtures. Our Capital Expenditure Plan
for 2004 consists of costs related to opening two new retail centers, expected
19
to open late in 2004 and January 2005, respectively, estimated to be $50,000. In
addition, we will need additional financing to open new retail centers in the
future and to initiate new real estate projects, which financing may be supplied
by banks, or capital contributions from investors; however there can be no
assurance we will be able to secure the financing needed.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003 AND 2002
Revenues: Our total revenues for the year ended December 31,
2003 were $16,078,109, as compared to $12,696,700 for the year ended December
31, 2002. Revenues relating to our real estate business increased by 289% from
$1,655,093 to $6,434,679 from the 2002 fiscal year to the 2003 fiscal year
primarily due to the completion and sale to our customers of the North Mountain
Villas District in 2003. Revenues relating to our retail business decreased
12.7% from $11,041,607 to $9,643,430 from the 2002 fiscal year to the 2003
fiscal year due to increased competition resulting from two similar stores which
have opened in the same geographic area in 2003. While we opened a second retail
center in December, 2003, the effect of increased competition, and the fact that
the store was late in the year negated the revenue increase we might have
otherwise realized.
The Company plans to open two new retail centers and also
establish a new marketing strategy during 2004, which should result in improved
retail sales. Construction revenue will continue to depend on our ability to
initiate and finance new projects each year, of which there can be no assurance.
Gross Profit. Gross profit for the year ended December 31,
2003 was $2,809,707 (17.5% of revenue), as compared to gross profit for the year
ended December 31, 2002 of $2,739,465 (21.6% of revenue). Gross profit
20
attributable to the real estate business for the year ended December 31, 2003,
was $1,572,780 (24.4% of real estate revenue), as compared to $1,053,900 (63.7%
of real estate revenue) for the year ended December 31, 2002.
The reduction in the Gross Profit as a percentage of real
estate revenue in 2003 was affected by the high rates of interest we incurred
with respect to loans made by certain of our shareholders in 2002, the proceeds
of which we used to finance construction of a real estate project we refer to as
the Baoye Residential District. Our profit margin was also affected by discounts
of the sale price of residential units to certain of our shareholders and
employees. We engaged in this project because we anticipated a large profit
margin with respect to the project and alternative financing was not available
within the time frame required at interest rates acceptable to us. Our gross
profit with respect to our real estate business was also affected by increased
competition in the real estate industry in the geographic region in which we
operate, which caused us to increase salaries to retain skilled employees.
Gross profit attributable to the retail business for the year
ended December 31, 2003 was $1,236,927 (12.8% of retail revenue), as compared to
$1,685,565 (15.3% of retail revenue) for the year ended December 31. 2002. This
reduction of gross profit resulted from increased competition resulting from two
similar retail centers that opened in the same geographic region as our first
retail center.
Our gross profit in the future will be affected by several
factors, including increasing our revenue based on our new marketing strategy
with respect to both our retail and construction operations, cost control
measures which we anticipate effecting, and our ability to identify and initiate
new real estate projects with good profit margins in the future and expanding
our business to new geographic markets. Also, our real estate activity from year
21
to year has been, and will continue to be, significantly affected by the timing
of the initiation and completion of new projects, since sales decrease after
inventory of unsold units from completed projects are substantially sold out and
sales tend to increase as sales efforts key up on the completion of new
projects.
CONTROL COST.
Total Operating Expenses. For the year ended December 31,
2003, operating expenses were $2,674,819 (16.6% of revenue), compared to
expenses for 2002 of $1,747,868 (13.7 % of revenue). The increase in our
operating expenses, both in real terms and as a percentage of revenue, resulted
from increased expenses directly related to the overall revenue increases that
we have experienced in 2003 as compared to 2002. Certain aspects of our retail
business also changed which resulted in increased operating expenses in the
retail business. We also experienced an increase in salary levels to maintain
qualified employees in the real estate business, due to increased competition.
Our expenses related to the testing of completed real estate projects also
increased due to compliance with governmental regulations.
Selling Expenses. Selling expenses increased 44.8% from
$675,962 (5.3% of revenue) for the year ended December 31, 2002 to $978,498
(6.0% of revenue) for the year ended December 31, 2003. These increased selling
expenses were incurred both with respect to the construction and retail
business. Specific augmented cost categories were salaries (in real estate only)
and advertising budgets for both our real estate and retail businesses.
General and Administration Expenses. General and
administration expenses increased 66.1%, or $396,603, to $996,979 (6.2% of
revenue), from $600,376 (4.7% of revenue) from the period ending December 31,
2002, to the period ending December 31, 2003. The increase in general and
administrative expenses resulted in part from the Company's establishing a web
page, the redesign of a new management manual and consulting and other expenses
related to the acquisition of DongXing China by the Company.
22
Depreciation and Amortization Expenses. Depreciation and
amortization expenses increased to $450,070 in 2003 from $401,658 in 2002. This
increase is a result of our purchase of additional property and equipment.
Bad Debt Expenses. Bad debt expenses increased from $69,873 in
the year ended December 31, 2002 to $249,272 in the year ended December 31,
2003. This increase resulted from the aging of certain of our receivables and
our evaluation of the collectability of certain of the aged receivables.
Interest Expense (net). Interest expense (net of interest
income) amounted to $263,512 for the year ended December 31, 2003, compared to
$292,900 for 2002. The reduced interest expense resulted from the capitalization
of interest accrued on loans attributable to construction in progress during
2003, which was higher than that capitalized in 2002.
Other Income (net). Other income (net of other expenses) was
$400,414 for the year ended December 31, 2003, compared to $158,995 for the year
ended December 31, 2002. This increase resulted from the rent we received by
leasing the second floor of the premises housing our retail center in MuDanjiang
City in 2003.
Provision for Income Tax Expense/Credit. We recorded a current
income tax expense of $253,874 for the year ended December 31, 2003 compared to
a current income tax expense of $296,075 for the year ended December 31, 2002.
We recorded a deferred income tax credit of $143,486 for the year ended December
31, 2003, compared to a deferred income tax expense of $11,548 for the year
ended December 31, 2002.
23
Net Income. For the year ended December 31, 2003, net income
was $161,403 (1.0% of revenue), compared to net income of $550,068 (4.3% of
revenue) for the year ended December 31, 2002. This reduction resulted mostly
from the increase in operating expenses incurred by the Company in 2003 as
compared to 2002.
YEARS ENDED DECEMBER 31, 2002 AND 2001.
Revenues: Our total revenues for the year ended December 31,
2002 were $12,696,700, as compared to $12,194,662 for the year ended December
31, 2001. Revenues relating to our real estate business decreased by 47.7% from
$3,162,847 to $1,655,093 from the 2001 fiscal year to the 2002 fiscal year and
revenues relating to our retail business increased 22.3% from $9,031,815 to
$11,041,607 from the 2001 fiscal year to the 2002 fiscal year. The increases in
total revenue in the retail business resulted from increased sales from our
retail center in MuDagiang City in its second year of operation. and the
decrease in the real estate revenues resulted from the Company having completed
a significant project in the 2001 calendar year.
Gross Profit. Gross profit for the year ended December 31,
2002, was $2,739,465 (21.6% of revenue), as compared to gross profit for the
year ended December 31, 2001, of $3,306,304 (27.1% of revenue). Gross profit
attributable to the real estate business for the year ended December 31, 2002,
was $1,053,900 (63.7% of real estate revenue), as compared to $2,014,990 (63.7%
of real estate revenue) for the year ended December 31, 2001. Our gross profit
in 2002 was affected by a general decrease in real estate sales in 2002 and the
gross profit in 2001 was affected by significant sales in that year due to the
key up of marketing with respect to real estate projects recently completed at
that time.
24
Gross profit attributable to the retail business for the year
ended DEcember 31, 2002, was $1,685,565 (15.3% of retail revenue), as compared
to $1,291,314 (14.3% of retail revenue) for the year ended December 31, 2001.
The increase in gross profit resulted from a substantial increase in revenue
realized from this business segment as our retail center in Mu Danjiang City
gained market acceptance.
Total Operating Expenses. For the year ended December 31,
2002, operating expenses were $1,747,868 (13.8% of revenue), compared to
expenses for 2001 of $2,202,000 (18.1 % of revenue). This resulted from reduced
levels of real estate sales in 2002, certain efficiencies we initiated in that
year and the decrease in the percentage of revenue attributable to operating
expenses resulted, in part, from increased revenues.
Selling Expenses. Selling expenses decreased 31.7% from
$990,284 (8.1% of revenue) for the year ended December 31, 2001 to $675,962
(5.3% of revenue) for the year ended December 31, 2002. This decrease resulted
primarily from reduced level of sales in our real estate business in 2002 as
compared to 2001, and certain increased efficiencies in our retail business in
2002, which we were able to effect by reducing marketing costs since we had
little competition in retail in 2002 and by reducing other expenses based on our
experience with respect to our initial retail center which had been in operation
for one year.
General and Administration Expenses. General and
administration expenses decreased 12.4%, or $84,962, to $600,376 (4.7% of
revenue), from $685,338 (5.6% of revenue) from the period ending December 31,
2001, to the period ending December 31, 2002. The decrease was attributable to
reduced marketing costs in both the real estate and retail businesses, a
reduction in management staff in the retail business, and the reduction in
certain follow up costs related to the sale of products. This reduction also was
affected by the decreased level of real estate activities.
25
Depreciation and Amortization Expenses. Depreciation and
amortization expenses decreased to $401,658 in 2002 from $413,584 in 2001. This
reduction was caused by fully depreciated property and equipment in 2002 offset
in part by additional capital expenditures incurred by us in 2002.
Bad Debt Expenses. Bad debt expenses decreased from $112,794
in the year ended December 31, 2001, to $69,873 in the year ended December 31,
2002. The change in these expenses resulted from an analysis of our receivables
and our evaluation of their collectability.
Interest Expense (net). Interest expense (net of interest
income) amounted to $292,900 for the year ended December 31, 2002, compared to
$199,617 for 2001. This increase in our interest expense was caused by the
increase in our borrowings in 2002 as compared to 2001.
Other Income (net). Other income (net of other expenses) was
$158,995 for the year ended December 31, 2002, compared to $61,265 for the year
ended December 31, 2001. This increase is a result of certain contributions and
incentives which we received from suppliers whose products we sold in our retail
business.
Provision for Income Tax Expense/Credit. We recorded a current
income tax expense of $296,075 for the year ended December 31, 2002, compared to
a current income tax expense of $381,794 for the year ended December 31, 2001.
We recorded a deferred income tax expense of $11,548 for the year ended December
31, 2002, compared to a deferred income tax credit of $95,746 for the year ended
December 31, 2001.
26
Net Income. For the year ended December 31, 2002, net income
was $550,068 (4.3% of revenue), compared to net income of $679,903 (5.6% of
revenue) for the year ended December 31, 2001. This reduction in net income
relates primarily to the decreases level of our real estate business in 2002 as
compared to 2001.
IMPACT OF INFLATION
For three latest fiscal years, inflation has not had a
material effect on our results of operations.
OFF-BALANCE SHEET ARRANGEMENTS
Not Applicable.
CONTRACTUAL OBLIGATIONS
Our contractual obligations as of December 31, 2003, are set forth below.
- --------------------------------------------------------------------------------------------------------------------------
Payment Due by Period
- --------------------------------------------------------------------------------------------------------------------------
Contractual Obligations
Less than More than 5
Total 1 year 1-3 years 3-5 years years
----- ----------- --------- --------- -----
Long Term Debt Obligations $1,011,600 $58,400 $126,400 $141,400 $685,400
Capital Lease Obligations -- -- -- -- --
Operating Lease Obligations -- -- -- -- --
Purchase Obligations $1,526,999 $1,526,999 -- -- --
Other Long Term Liabilities Reflected
on the Registrant's Balance Sheet under
GAAP -- -- -- -- --
Total $2,538,599 $1,585,399 $126,400 $141,400 $685,400
27
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not hold instruments that are sensitive to changes in interest rates,
foreign currency exchange rates or commodity prices. Therefore, we believe that
we are not materially exposed to market risks resulting from fluctuations from
such rates or prices.
MANAGEMENT OF DONGXING CHINA
The directors and officers of DongXing China are as follows:
NAME AGE POSITIONS AND OFFICES
- ---- --- ---------------------
Mr. He Maoxing 48 Chairman of the Board of Directors, General Manager
Mr. Zhao Baojiang 47 Director, Deputy General Manager
Mr. He Maokun 48 Director, Deputy General Manager
Ms. Wang Bing 50 Director, Chief Financial Officer
Ms. Li Ying 36 Secretary to the Board of Directors
Mr. Chen Yang 33 Director, Chief Officer of General Manager's Office
Mr. He Maoxing and Mr. He Maokun are brothers.
SHAREHOLDERS OF DONGXING CHINA
Listed below are persons who hold 5% or more of the outstanding capital stock of
DongXing China and officers and directors of DongXing China who hold any shares
of DongXing China.
The percentage next to each such person's name indicates the percentage of
DongXing China's outstanding shares held by such person, the share number next
to each such person's name indicates the approximate number of shares of New
Common Stock to be issued to such person in connection with the Share Exchange
and the percentage in parenthesis next to each such share number indicates the
approximate percentage which each such share number would constitute out of the
total number of shares of New Common Stock expected to be outstanding upon
completion of the Share Exchange.
28
He Maoxing: 47.57% of DongXing, 7,342,429 shares of New Common Stock (36.4%)
Zhao Baojiang: 4.39% of DongXing, 678,386 shares of New Common Stock (3.7%)
He Maokun: 4.39% of DongXing, 678,386 shares of New Common Stock (3.7%)
Wang Bin: 4.39% of DongXing, 678,386 shares of New Common Stock (3.7%)
Chen Yang: 2.19% of DongXing, 338,420 shares of New Common Stock (1.7%)
FINANCIAL STATEMENTS OF DONGXING CHINA
The Consolidated Financial Statements of DongXing China, including the
Report of Independent Auditor, is attached to this Information Statement as
Attachment D and is a part of this Information Statement.
INCORPORATION BY REFERENCE
A copy of the Annual Report on Form 10-KSB of Hibshman Optical
Corporation for the year ended December 31, 2003, previously filed with the
Securities and Exchange Commission, including the financial statements and
related notes thereto and the report of independent auditor, is attached to this
Information Statement as Attachment C. Such Annual Report is incorporated herein
by reference. The Consolidated Financial Statements of DongXing China, including
the Report of Independent Auditor, is attached to this Information Statement as
Attachment D and is incorporated herein by reference.
By order of the board of directors,
Carmine Catizone
[ ], 2004 Secretary
29
ATTACHMENT A
FORM OF
CERTIFICATE OF INCORPORATION OF
DONGXING HOLDING CORPORATION
CERTIFICATE OF INCORPORATION
OF
DONGXING HOLDING CORPORATION
The undersigned, for the purposes of forming a corporation under the
laws of the State of Delaware, does make, file and record this Certificate, and
does certify that:
FIRST: The name of this corporation is DongXing Holding Corporation.
SECOND: Its Registered Office in the State of Delaware is to be located
at 615 South Dupont Highway, Dover, 19901, County of Kent. The Registered Agent
in charge thereof is National Corporate Research, Ltd.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is Fifty-One Million (51,000,000)
which are divided into One Million (1,000,000) shares of Preferred Stock, par
value $.001 per share, and Fifty Million (50,000,000) shares of Common Stock,
par value $.001 per share.
The shares of Preferred Stock may be issued from time to time in one or
more series, in any manner permitted by law, as determined from time to time by
the Board of Directors, and stated in the resolution or resolutions providing
for the issuance of such shares adopted by the Board of Directors pursuant to
authority hereby vested in it. Without limiting the generality of the foregoing,
shares in such series shall have such voting powers, full or limited, or no
voting powers, and shall have such designations, preferences, and relative,
participating, optional, or other special rights, and qualifications,
limitations, or restrictions thereof, permitted by law, as shall be stated in
the resolution or resolutions providing for the issuance of such shares adopted
by the Board of Directors pursuant to authority hereby vested in it. The number
of shares of any such series so set forth in such resolution or resolutions may
be increased (but not above the total number of authorized shares of Preferred
Stock) or decreased (but not below the number of shares thereof then
30
outstanding) by further resolution or resolutions adopted by the Board of
Directors pursuant to authority hereby vested in it.
FIFTH: The name and mailing address of the incorporator are as follows:
NAME MAILING ADDRESS
---- ---------------
Joseph L. Cannella Fischbein o Badillo o Wagner o Harding
909 Third Avenue
New York, NY 10022
SIXTH: The personal liability of all of the directors of the
corporation is hereby eliminated to the fullest extent allowed as provided by
the Delaware General Corporation Law, as the same may be supplemented and
amended.
SEVENTH: The corporation shall, to the fullest extent legally
permissible under the provisions of the Delaware General Corporation Law, as the
same may be amended and supplemented, indemnify and hold harmless any and all
persons whom it shall have power to indemnify under said provisions from and
against any and all liabilities (including expenses) imposed upon or reasonably
incurred by him in connection with any action, suit or other proceeding in which
he may be involved or with which he may be threatened, or other matters referred
to in or covered by said provisions both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director or officer of the
corporation. Such indemnification provided shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any Bylaw,
Agreement or Resolution adopted by the shareholders entitled to vote thereon
after notice.
EIGHTH: The Board of Directors of the corporation is expressly
authorized to make, alter or repeal the By-laws of the corporation
Dated on this ___ day of ______, 2004.
--------------------
Incorporator
31
ATTACHMENT B
FORM OF
AGREEMENT AND PLAN OF MERGER
BETWEEN DONGXING HOLDING CORPORATION AND
HIBSHMAN OPTICAL CORPORATION
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated this _____ day of _________, 2004
(the "Agreement"), pursuant to Sections 251(f) and 252 of the General
Corporation Law of the State of Delaware and Section 14A-10 of the New Jersey
Business Corporation Act, between DONGXING HOLDING CORPORATION, a Delaware
corporation (the "DongXing"), and HIBSHMAN OPTICAL CORPORATION, a New Jersey
corporation (the "Hibshman").
WITNESSETH THAT:
WHEREAS, Hibshman caused DongXing to be formed in the State of Delaware
in order that Hibshman, through merger into DongXing, could change Hibshman's
domicile to Delaware and effect a reverse split of its outstanding shares of
common stock, among other reasons; and
WHEREAS, DongXing has not issued any shares of its capital stock and
has no shareholders and its Sole Director desires that Hibshman be merged into
DongXing; and
WHEREAS, DongXing and Hibshman, the constituent parties to this
Agreement, desire to merge into a single corporation.
NOW, THEREFORE, DongXing and Hibshman, in consideration of the premises
and the mutual covenants, agreements and provision contained herein, do hereby
prescribe the terms and condition of said merger and plan of carrying the same
into effect, as follows:
FIRST: Hibshman is hereby merged into DongXing, with DongXing being the
surviving entity (the "Surviving Corporation").
SECOND: There are no shares of stock of DongXing heretofore issued and
outstanding and DongXing does not have any shareholders prior to this merger.
There are 10,088,235 shares of Common Stock of Hibshman, and no other shares of
capital stock of Hibshman, currently outstanding. Each outstanding share of
capital stock of each constituent corporation is entitled to one vote. Upon
filing of a Certificate of Merger with respect to the merger with the Secretary
of State of Delaware and the Secretary of State of New Jersey, (i) each ten (10)
outstanding shares of Common Stock of Hibshman, $.001 par value per share, shall
automatically be converted into one (1) share of Common Stock, $.001 par value
per share, of DongXing and (ii) after such coversion, if any shareholder of
32
Hibshman holds a number of shares of Hibshman Common Stock not evenly divisible
by ten (10), such remaining shares held by each holder will automatically be
converted into one (1) full share of DongXing Common Stock rather than into a
fractional share of DongXing Common Stock.
THIRD: The terms and conditions of the merger are as follows:
a) The Certificate of Incorporation of DongXing, as it exists
immediately prior to this merger, shall be the Certificate of Incorporation of
the Surviving Corporation;
b) The By-Laws of DongXing as they exist on the effective date of this
merger shall be and remain the By-Laws of the Surviving Corporation, until the
same shall be altered, amended or repealed as therein provided;
c) The directors and officers of DongXing shall continue in office as
the directors and officers of the Surviving Corporation, until the next annual
meeting of stockholders and/or until their successors shall have been elected
and qualified;
d) This merger shall become effective upon filing of the Certificates
of Merger, in the forms of Exhibit A and Exhibit B hereto, respectively, with
the Secretary of State of Delaware and the Secretary of State of New Jersey,
respectively; and
e) Upon the effectiveness of the merger as provided herein, all of the
property, rights, privileges, franchises, patents, trademarks, licenses,
registrations and other assets of every kind and description of Hibshman shall
be transferred to, vested in, and devolve upon the Surviving Corporation.
IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the approval and
authority duly given by resolutions adopted by the Sole Director of DongXing
(pursuant to Section 251(f) of the Delaware General Corporation Law) and the
Board of Directors and the Shareholers of Hibshman, have caused this Agreement
and Plan of Merger to be executed by the [president] of DongXing and the
[president] of Hibshman, as the respective act, deed and agreement of each of
the parties to this Agreement, on the date first set forth above.
DONGXING HOLDING CORPORATION HIBSHMAN OPTICAL CORPORATION
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
33
ATTACHMENT C
HIBSHMAN OPTICAL CORPORATION
ANNUAL REPORT ON FORM 10-KSB
For the year ended December 31, 2003
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 2003
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _______ to ______
COMMISSION FILE NUMBER 0-20297
HIBSHMAN OPTICAL CORP.
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEW JERSEY 88-0284402
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
266 CEDAR STREET, CEDAR GROVE, NEW JERSEY 07009
-----------------------------------------------
(Address of Principal executive offices)
(973) 857-2414
------------------------------------------------
(Issuer's telephone number, including area code)
---------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer 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 CORPORATE ISSUERS
$0
---------------------------------------------------
(Issuer's revenues for its most recent fiscal year)
$ 0 (as of March 18, 2004)
---------------------------------------------------
(Aggregate market value of the voting stock held by
non-affiliates of the Issuer)
10,088,235 (as of March 18, 2004)
---------------------------------------------------
(Number of shares outstanding of each of the Issuer's
classes of common stock)
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
INTO PART I
Quarterly Report of the Company on Form 10-QSB for
the quarters ended March 31, 2003, June 30, 2003 and September 30, 2003
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
Hibshman Optical Corp. (hereinafter referred to as the "Company") was formed in
1991 under the name PRS Sub I, Inc. as a subsidiary of People Ridesharing
Systems, Inc., ("PRS") a public corporation which filed for the protection of
the Bankruptcy Court in 1989, to assist with the reorganization of PRS either
through the operation of a related business or through a merger or combination
with an operating company. During the bankruptcy proceeding a reorganization
plan was developed which was considered by the Court and creditors committee
which provided that PRS will issue 15% of the total shares of common stock of
each subsidiary to the creditors and shareholders who, as a class would receive
a total of 10% and 5% of those shares respectively. Pursuant to that plan the
Court entered an order in May of 1996 authorizing said issuances based upon the
authority of an exemption from registration provided in Section 3 (a) (10) of
the Securities Act of 1933, as amended. As a result, approximately 1,000,000
shares were authorized to be issued to the creditor class and approximately
500,000 shares were authorized to be issued to the stockholders of PRS as a
class. 8,500,000 shares were acquired directly from the Bankruptcy Court by a
nonaffiliated third party approved in the bankruptcy proceeding in May of 1996.
PRS was discharged from bankruptcy after its Chapter XI proceeding was converted
to a Chapter 7 proceeding.
In March 1992, the Board of Directors authorized the name change from PRS Sub I,
Inc. to Service Lube Inc. The Company entered into a transaction with an
operating company in March of 1992 and in April 1992 the Board of Directors of
the Company authorized the name change from Service Lube, Inc. to Fianza
Commercial Corp. On April 23, 1992 the Board of Directors and shareholders
authorized the name change from Fianza Commerical Corp. to Hibshman Optical
Corporation. Due to a change in the policy of that operating company's
management team, the transaction between the Company and the operating company
was rescinded and the stock ownership of Hibshman Optical Corp. was transferred
to John B.M. Frohling, Esq., in exchange for monies owed to Mr. Frohling on
account for legal services rendered to the Company. This returned the Company to
its status as a public company with no assets and no liabilities, Mr. Frohling
having canceled any obligations owed to him by the Company and its former
principal stockholders.
On May 5, 1996, Mr. Frohling sold his interest in the Company to the "Catizone
Group." The Catizone Group currently seeks to merge with a going concern,
preferably with assets and a financial history, such that same will facilitate
the merged entity to trading status.
2
EXISTING AND PROPOSED BUSINESSES
Our purpose is to seek, investigate and, if warranted, affiliate with a business
entity presented to it by persons or firms who or which desire to seek the
perceived advantages of a corporation which has a class of securities registered
under the Exchange Act. We will not restrict our search to any specific
business, industry, or geographical location and we may participate in a
business venture of virtually any kind or nature. This discussion of the
proposed business is not meant to be restrictive of our broad discretion to
search for and enter into potential business opportunities. We anticipate that
we will be able to participate in only one potential business venture in the
near future because the Company has nominal assets and limited financial
resources. See "FINANCIAL STATEMENTS." This lack of diversification should be
considered a substantial risk to our shareholders because it will not permit us
to offset potential losses from one venture against gains from another.
We intend to seek a business opportunity with an entity which has recently
commenced operations, or which wishes to utilize the public marketplace in order
to raise additional capital to expand into new products or markets, to develop a
new product or service, or for other corporate purposes. We may acquire assets
and establish wholly-owned subsidiaries in various businesses or acquire
existing businesses as subsidiaries.
We anticipate that the selection of a business opportunity in which to
participate will be complex and attendant with risk. We believe (but have not
conducted any research to confirm) that there are business entities seeking the
perceived benefits of a publicly registered corporation. Such perceived benefits
may include facilitating or improving the terms on which additional equity
financing may be sought, providing liquidity for incentive stock options or
similar benefits to key employees, increasing the opportunity to use securities
for acquisitions, providing liquidity for shareholders and other factors.
Business opportunities may be available in many different industries and at
various stages of development, all of which will make the task of comparative
investigation and analysis of such business opportunities difficult and complex.
We have, and will continue to have, very limited to no capital with which to
provide the owners of business opportunities with any cash or other assets.
However, we believe we will be able to offer owners of acquisition candidates
the opportunity to acquire a controlling ownership interest in a publicly
registered company without incurring the cost and time required to conduct an
initial public offering. We have not conducted market research and are not aware
of statistical data to support the perceived benefits of a merger or acquisition
transaction for the owners of a business opportunity.
The analysis of new business opportunities will be undertaken by, or under the
supervision of the Officers of the Company, who are not professional business
analysts. In analyzing prospective business opportunities, we will consider such
matters as the available technical, financial and managerial resources; working
capital and other financial requirements; history of operations, if any;
prospects for the future; nature of present and expected competition; the
quality and experience of management services which may be available and the
depth of that management; the potential for further research, development or
exploration; specific risk factors not now foreseeable but which then may be
3
anticipated to impact the proposed activities of the Company; the potential for
growth or expansion; the potential for profit; the perceived public recognition
or acceptance of products, services, or trades; name identification; and other
relevant factors. To the extent possible, management intends to utilize written
reports and personal investigation to evaluate the above factors. The Exchange
Act requires that any merger or acquisition candidate comply with certain
reporting requirements, which include providing audited financial statements to
be included in the reporting filings made under the Exchange Act.
We will not restrict our search to any specific kind of firms, but may acquire
an interest in a venture which is in its preliminary or development stage, which
is already in operation, or any stage of its business life. It is impossible to
predict at this time the status of any business in which the Company may become
engaged, in that such business may need to seek additional capital, may desire
to have its shares publicly traded; or may seek other perceived advantages which
we may offer.
Management of the Company, which may not have experience in matters relating to
the business of a targeted potential merger company, will rely upon its own
efforts in accomplishing the business purposes of the Company. Outside
consultants or advisors may be utilized by the Company to assist in the search
for qualified target companies. If we retain such an outside consultant or
advisor, any cash fee earned by such person is likely to be assumed by the
target company, as we have limited cash assets with which to pay such
obligation.
If we were to utilize the services of a consultant in the selection of a target
company, such consultant will likely be used to supplement the business
experience of management, including perhaps accountants, technical experts,
appraisers, attorneys or others. Our considerations in selecting such a
consultant may be based on the nature of the target company's business, the form
and amount of compensation required by the consultant, the depth of such
consultant's experience and past success. If a consultant were retained, we
would expect that any such consultant would provide us with a selection of
target companies, would provide due diligence assistance for study of the target
company, would assist in negotiating the terms of a business combination, and
would serve to facilitate the negotiation process. More than one consultant
could be used in locating a target company.
We have no agreements or understandings currently with any consultant to provide
services.
ACQUISITION OF OPPORTUNITIES
In implementing a structure for a particular business acquisition, we may become
a party to a merger, consolidation, reorganization, joint venture, or licensing
agreement with another corporation or entity. We may also acquire stock or
assets of an existing business. Upon the consummation of such a transaction, it
is probable that the present management and shareholders of the Company will no
longer be in control of the Company. In addition, it is likely that the
Company's officers and directors will, as part of the terms of the acquisition
transaction, resign and be replaced by one or more new officers and directors.
4
It is anticipated that any securities issued in any such future reorganization
would be issued in reliance upon exemption from registration under applicable
federal and state securities laws. In some circumstances, however, as a
negotiated element of its transaction, we may agree to register all or a part of
such securities immediately after the transaction is consummated or at specified
times thereafter. If such registration occurs, of which there can be no
assurance, it will be undertaken by the surviving entity after the Company has
entered into an agreement for a business combination or has consummated a
business combination and we are no longer considered a blank check company.
Until such time as this occurs, it is our intention not attempt to register any
additional securities. The issuance of substantial additional securities and
their potential sale into any trading market which may develop in our securities
may have a depressive effect on the market value of our existing publicly traded
securities in the future if such a market develops, of which there is no
assurance.
While the actual terms of a transaction to which we may be a party cannot be
predicted, it may be expected that the parties to the business transaction will
find it desirable to avoid the creation of a taxable event and thereby plan to
structure the acquisition in a "tax-free" reorganization under Sections 351 or
368 of the Internal Revenue Code of 1986, as amended (the "Code").
With respect to any merger or acquisition negotiations with a target company, we
expect to focus on the percentage of the Company which the target company's
shareholders would acquire in exchange for their holdings in the target company.
Depending upon, among other things, the target company's assets and liabilities,
our shareholders will in all likelihood hold a substantially lesser percentage
ownership interest in the Company following any merger or acquisition. Thus, the
percentage of ownership may be subject to significant reduction in the event we
acquire a target company with substantial assets. Any merger or acquisition
effected by us can be expected to have a significant dilutive effect on the
percentage of shares held by our shareholders at such time.
We will participate in a business opportunity only after the negotiation and
execution of appropriate agreements. Although the terms of such agreements
cannot be predicted, generally such agreements require certain representations
and warranties of the parties thereto, specify certain events of default, detail
the terms of closing and the conditions which must be satisfied by the parties
prior to and after such closing, outline the manner of bearing costs, including
costs associated with our attorneys and accountants, and include miscellaneous
other terms.
We will not acquire or merge with any entity, which cannot provide audited
financial statements at or within a reasonable period of time after closing of
the proposed transaction. We shall be subject to all of the reporting
requirements included in the Exchange Act. Included in these requirements our
duty to file audited financial statements as part of a Form 8-K to be filed with
the Securities and Exchange Commission upon consummation of a merger or
acquisition, as well as our audited financial statements included in our annual
report on Form 10-K (or 10-KSB, as applicable). If such audited financial
statements are not available at closing, or within time parameters necessary to
insure our compliance with the requirements of the Exchange Act, or if the
audited financial statements provided do not conform to the representations made
by the target company, the closing documents may provide that the proposed
transaction will be voidable at the our discretion.
5
In the event that we need any additional funds for operating capital or for
costs in connection with searching for or completing an acquisition or merger,
we anticipate that we will seek to issue additional shares of our common stock.
There is no fixed minimum or maximum amount that we will raise in connection
with such an issuance. We do not intend to borrow any funds to make any payments
to our promoters, management or their affiliates or associates.
COMPETITION
We will remain an insignificant participant among the firms which engage in the
acquisition of business opportunities. There are many established venture
capital and financial concerns which have significantly greater financial and
personnel resources and technical expertise than us. In view of our extremely
limited financial resources and limited management availability, we will
continue to be at a significant competitive disadvantage compared to its
competitors.
EMPLOYEES
We have no employees at this time.
ITEM 2. DESCRIPTION OF PROPERTY
We own no properties and at this time have no agreements to acquire any
properties. We currently use the home of Mr. Pasquale Catizone at no cost to the
Company, an arrangement which we expect will continue until we complete an
acquisition or merger.
ITEM 3. LEGAL PROCEEDINGS
We are unaware of any other pending or threatened legal proceedings to which we
are a party or of which any of our assets is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 31, 2003 no matters
were submitted to a vote of the shareholders of the Company.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At this time there is no active market for our common stock. We intend to trade
our common stock in the future, on a limited basis in the over-the-counter
market and to cause its stock to be quoted on the OTC Electronic Bulletin Board
maintained by the National Association of Securities Dealers, Inc. (the "OTC
Bulletin Board").
6
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes
the definition of a "penny stock," for purposes relevant to the Company, as any
equity security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require: (i)
that a broker or dealer approve a person's account for transactions in penny
stocks and (ii) the broker or dealer receive from the investor a written
agreement to the transaction, setting forth the identity and quantity of the
penny stock to be purchased. In order to approve a person's account for
transactions in penny stocks, the broker or dealer must (i) obtain financial
information and investment experience and objectives of the person; and (ii)
make a reasonable determination that the transactions in penny stocks are
suitable for that person and that person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks. The broker or dealer must also deliver, prior to any transaction
in a penny stock, a disclosure schedule prepared by the Commission relating to
the penny stock market, which, in highlight form, (i) sets forth the basis on
which the broker or dealer made the suitability determination and (ii) that the
broker or dealer received a signed, written agreement from the investor prior to
the transaction. Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading, and about
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
In order to qualify for listing on the Nasdaq SmallCap Market, a company must
have at least (i) net tangible assets of $5,000,000 or market capitalization of
$50,000,000 or net income for two of the last three years of $750,000; (ii)
public float of 1,000,000 shares with a market value of $5,000,000; (iii) a bid
price of $4.00; (iv) three market makers; (v) 300 shareholders and (vi) an
operating history of one year or, if less than one year, $50,000,000 in market
capitalization. For continued listing on the Nasdaq SmallCap Market, a company
must have at least (i) net tangible assets of $2,500,000 or market
capitalization of $35,000,000 or net income for two of the last three years of
$500,000; (ii) a public float of 500,000 shares with a market value of
$1,000,000; (iii) a bid price of $1.00; (iv) two market makers; and (v) 300
shareholders.
If after a merger or acquisition, we do not meet the qualifications for listing
on the Nasdaq SmallCap Market, our securities may be traded in the
over-the-counter ("OTC") market on the OTC Bulletin Board ("OTCBB"). The OTCBB
differs from the NASDAQ SmalCap Market in that it is a quotation medium for
subscribing members, not an issuer listing service. The OTCBB provides an
electronic quotation medium. If we are unable initially to satisfy the
requirements for quotation on the Nasdaq SmallCap Market or become unable to
satisfy the requirements for continued quotation thereon, and trading, if any,
is conducted in the OTCBB, a shareholder may find it more difficult to dispose
of or to obtain accurate quotations as to the market value of our securities.
7
SHAREHOLDERS
As of December 31, 2003, the number of holders of record of our common stock,
$.001 par value, was approximately 673.
DIVIDENDS
We have paid no cash dividends and have no present plan to pay cash dividends,
intending instead to reinvest our earnings, if any. Payment of future cash
dividends will be determined from time to time by our Board of Directors, based
upon our future earnings (if any), financial condition, capital requirements and
other factors. We are not presently subject to any contractual or similar
restriction on our present or future ability to pay such dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following "Management's Discussion and Analysis of Financial Condition and
Results of Operations", as well as disclosures included elsewhere in this Form
10-KSB, are based upon our audited financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingencies. On an on-going
basis, we evaluate the estimates used, including those related to impairments of
tangible and intangible assets, income taxes, accruals, and contingencies. We
base our estimates on historical experience, current conditions and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources as well as identifying and assessing our accounting treatment with
respect to commitments and contingencies. Actual results may differ from these
estimates under different assumptions or conditions.
LIQUIDITY AND CAPITAL RESOURCES
The Company has maintained a consistent level of liquidity due to the fact that
no significant operating expenses have been incurred and the loans advanced by
the principal stockholders remain with the Company.
8
RESULTS OF OPERATIONS
The activities of the Company since its formation in 1991 have been limited and
have been financed by sources other than from its operations. See "Financial
Statements". We may raise funds during the next twelve months in the event we
identify a target company with which we will engage in a business combination.
See "DESCRIPTION OF BUSINESS- The Company"
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company, required to be included in this Report
pursuant to Item 310(a) of Regulation S-B, are set forth below.
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There was no resignation or dismissal of the Company's principal independent
auditors during the two most recent fiscal years and the interim period
subsequent thereto.
ITEM 8A. CONTROLS AND PROCEDURES
As of December 31, 2003, an evaluation was carried out under the supervision and
with the participation of the Company's management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934). Based on their
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures are, to the best
of their knowledge, effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and forms.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following sets forth, as of December 31, 2003, the names and ages of all
directors, executive officers, and other significant employees of the Company;
and all positions and offices in the Company held by each, and the terms of said
offices. Each director will hold office until the next annual meeting of
shareholders and until his or her successor has been elected and qualified:
9
DATE
OFFICES APPOINTED
NAME AGE HELD DIRECTOR
- --------------------- ----- --------- ----------
Pasquale Catizone 63 President May 1996
Director
Carmine Catizone 58 Secretary, Treasurer May 1996
Director
There are no agreements or understandings for an officer or director to resign
at the request of another person and the above-named officers and directors are
not acting on behalf of nor will act at the direction of any other person.
Due to its small size, the Board of Directors has no separate committees, per
se, however the two directors oversee the Company's financial reporting process
and in so doing act as an Audit Committee. Although neither member of the Audit
Committee is a financial expert as that term is defined in Regulation S-B Item
401(e) promulgated under the Securities Act of 1933 and the Securities Exchange
Act of 1934, Management believes, due to the lack of operations of the Company,
that they are capable to review the internal financial information, determine
the adequacy of internal controls, oversee quarterly and yearly reporting, and
set forth policies, procedures relating to business integrity, ethics and
conflicts of interests. In fulfilling their responsibilities, Messrs. Carmine
and Pasquale Catizone have reviewed the audited financial statements included in
this Report and have discussed same with the independent auditors who are
responsible for expressing an opinion on the conformity of those financial
statements with accounting principles generally accepted in the United States of
America, their judgments as to the quality, not just the acceptability, of the
Company's accounting principles and such other matters as are required to be
discussed with the Committee by SAS 61 (codification on Statements on Auditing
Standards, AU 380).
FAMILY RELATIONSHIPS
Mr. Carmine Catizone is the brother of Mr. Pasquale Catizone.
BUSINESS EXPERIENCE
The following summarizes the occupation and business experience during the past
five years for each director, executive officer and significant employee of the
Company. A significant employee is a person who is not an executive officer of
the Company but who is expected to make a significant contribution to the
business of the Company.
PASQUALE CATIZONE. Mr. Catizone has been president and a director of the Company
since 1996. Mr. Catizone has been self-employed as a financial consultant for
the last ten years. He served as president and a director of First Equity of New
Jersey, Inc., from its organization in May 1983 until September 1992. Mr.
Catizone was also the president and a director of Phonics Corporation from
September 1985 until May 1994 and president and director of Baynon International
Corporation since May 1998.
10
CARMINE CATIZONE. Mr. Catizone has been secretary and director of the Company
since 1996. From June 1988 to July 1994, Mr. Catizone was the president and
director of J&E Beauty Supply, Inc., a retail and wholesale beauty supply
distributor. Mr. Catizone formerly served as president and a director of C&C
Investments, a blank check company (now known as T.O.P.S. Medical Corp.) from
July 1977 until December 1984 and secretary and director of Baynon International
Corporation since May 1998.
CONFLICTS OF INTEREST
Although there are no plans to do so at this time, our officers and directors
may in the future organize other companies of a similar nature and with a
similar purpose as the Company. Consequently, there are potential inherent
conflicts of interest in acting as an officer and director of the Company.
Insofar as the officers and directors are engaged in other business activities,
management anticipates that it will devote only a minor amount of time to the
Company's affairs. We do not have a right of first refusal pertaining to
opportunities that come to management's attention insofar as such opportunities
may relate to our proposed business operations.
A conflict may arise in the event that another blank check company with which
management becomes affiliated is formed and actively seeks a target company. It
is anticipated that target companies will be located for the Company and other
blank check companies in chronological order of the date of formation of such
blank check companies. However, any blank check companies that may be formed may
differ from us in certain respects such as place of incorporation, number of
shares and shareholders, working capital, types of authorized securities, or
other items. It may be that a target company may be more suitable for or may
prefer a certain blank check company formed after the Company. In such case, a
business combination might be negotiated on behalf of the more suitable or
preferred blank check company regardless of date of formation. Mr. Pasquale
Catizone will be responsible for seeking, evaluating, negotiating and
consummating a business combination with a target company, which may result in
terms providing benefits to any officer or director.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
None of our securities have been registered pursuant to Section 12 of the
Exchange Act of 1934, as amended (the "Exchange Act"). Therefore, Section 16(a)
of the Exchange Act is not applicable.
ITEM 10. EXECUTIVE COMPENSATION
CURRENT REMUNERATION
Our current officers and directors do not receive any compensation for their
services rendered to the Company, have not received such compensation in the
past, and are not accruing any compensation pursuant to any agreement.
The officers and directors of the Company will not receive any finder's fee,
either directly or indirectly, as a result of their efforts to implement our
business plan outlined herein. However, our officers and directors anticipate
receiving benefits as beneficial shareholders of the Company. See "ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNWERS AND MANAGEMENT."
11
No retirement, pension, profit sharing, stock option or insurance programs or
other similar programs have been adopted for the benefit of our employees.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 31, 2003, with respect
to the persons known to be the beneficial owners of more than 5% of our common
stock, $.001 par value, and Officers and Directors of the Company as that term
is defined in Item 402(a)(2) of Regulation S-B. We do not have any shares of any
other class authorized, issued or outstanding.
PRINCIPAL SHAREHOLDERS TABLE
NAME AND AMOUNT AND
TITLE ADDRESS OF NATURE OF
OF BENEFICIAL BENEFICIAL PERCENT
CLASS OWNER OWNERSHIP OF CLASS(1)
- -------------------------------------------------------------------------------
Common Pasquale Catizone 2,000,000 19.8%
286 Cedar Street
Cedar Grove, NJ 07009
Common Barbara Catizone 1,000,000 9.9%
266 Cedar Street
Cedar Grove, NJ 07009
Common Robyn Conforth 1,000,000 9.9%
266 Cedar Street
Cedar Grove, NJ 07009
Common Carmine Catizone 4,000,000 39.7%
10 1/2 Walker Avenue
Morristown, NJ 07960
----------- -------
Total: 8,000,000 79.30%
Notes:
(1) The percentages listed in the table is calculated on the basis of
10,088,235 shares of the common stock, $.001 par value, of the Company
outstanding as at December 31, 2003.
12
CHANGES IN CONTROL
We are not aware of any arrangements, which may at a subsequent date, result in
a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no transactions during the last two completed fiscal years, the
current fiscal year or any presently proposed transactions, to which the Company
was or is to be a party, in which the amount involved in such transaction (or
series of transactions) was $60,000 or more and which any of the following
persons had or is to have a direct or indirect material interest: (i) any
director or executive officer of the Company; (ii) any person who owns or has
the right to acquire 5% or more of the issued and outstanding common stock of
the Company; and (iii) any member of the immediate family of any such persons.
The Company does not have any requirement respecting the necessity for
independent directors to approve transactions with related parties.
ITEM 13. EXHIBITS
FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The financial statements filed as a part of this report are as follows:
Balance Sheet - December 31, 2003 and 2002
Statements of Operations for the years ended
December 31, 2003 and 2002
Statements of Stockholders' Equity (Deficit) for the
Years ended December 31, 2003 and 2002
Statements of Cash Flows for the years
ended December 31, 2003 and 2002
FINANCIAL STATEMENT SCHEDULES
Financial statements schedules have been omitted for the reason that they are
not required or are not applicable, or the required information is shown in the
financial statements or notes thereto.
EXHIBITS
The exhibits filed as a part of this Report or incorporated herein by reference
are as follows:
13
Incorporated by Reference:
Exhibit # Description
- --------- -----------
(3(i)) Articles of Incorporation (filed as an Exhibit to the Company's
Form 10-SB on September 8, 2000)
(3(ii)) By-laws (filed as an Exhibit to the Company's Form 10-SB on
September 8, 2000)
(4.1) Bankruptcy Court Order dated May 1, 1996 authorizing the sale of
the Debtor's assets to a third party on condition that shares of
common stock be issued to creditors and shareholders of Debtor
pursuant to the provisions of Section 3(a)(10) of the Securities
Act of 1933, as amended (filed as an exhibit to the Company's Form
10-KSB on April 4, 2002).
(4.2) Bankruptcy Court Order dated March 9, 1998 further authorizing the
issuance of shares of common stock to creditors and shareholders
of Debtor pursuant to the provisions of Section 3(a)(10) of the
Securities Act of 1933, as amended (filed as an exhibit to the
Company's Form 10-KSB on April 4, 2002).
Filed Herewith:
Exhibit # Description
- --------- -----------
31.1 Section 302 CEO Certification
31.2 Section 302 CFO Certification
32.1 Section 906 CEO Certification
32.2 Section 906 CFO Certification
REPORTS ON 8-K
The Company did not file any current reports on Form 8-K during the last quarter
of the period covered by this Report.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
The aggregate fees billed for fiscal years 2003 and 2002 were $6,335 and $4,920,
respectively, for professional services rendered by Samuel Klein and Company,
the principal accountant for the audit of the Company's annual financial
statements and review of financial statements included in our Form 10-QSB or
services normally provided by the accountant in connection with statutory and
regulatory filings or engagements for those fiscal years.
AUDIT RELATED FEES
No fees were billed in each of the last two fiscal years for any other work
relating to our audit.
TAX FEES
The aggregate fees billed for fiscal years 2003 and 2002 were $1,425 and $600,
respectively, for professional services rendered by Samuel Klein and Company,
14
the principal accountant for tax compliance, tax advice, and tax planning, for
services relating to the preparation of the Company's federal and state income
tax returns.
ALL OTHER FEES
In the past two fiscal years, no other fees were billed for products or services
provided by our principal accountant.
Our Audit Committee approved the engagement of our principal accountant prior to
their rendering any and all audit or non-audit services.
15
SIGNATURES
In accordance with Section 15(d) of the Exchange Act of 1934, the Company has
caused this Report to be signed on its behalf by the undersigned thereunto duly
authorized.
HIBSHMAN OPTICAL CORP.
By: /s/ Pasquale Catizone
--------------------------------------
Pasquale Catizone, President, Director Date March 22, 2004
In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Company in the capacities and on the dates
indicated.
SIGNATURES TITLE DATE
PRINCIPAL EXECUTIVE OFFICER:
/s/ Pasquale Catizone
- --------------------------------
Pasquale Catizone President March 22, 2004
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Carmine Catizone
- --------------------------------
Carmine Catizone Secretary, Treasurer March 22, 2004
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS
No annual report or proxy materials have been sent to security-holders
during the fiscal year ended December 31, 2003 or the subsequent interim period.
As at the date hereof, the Company plans to furnish proxy materials relating to
its annual meeting, which is presently intended to be held during the current
fiscal year. All such materials will be furnished to the Commission at the same
time as they are sent to securities holders.
16
HIBSHMAN OPTICAL CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
17
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Hibshman Optical Corporation
We have audited the accompanying balance sheets of Hibshman Optical Corporation
(formerly Fianza Commercial Corp.) as of December 31, 2003 and 2002, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hibshman Optical Corporation as
of December 31, 2003 and 2002, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
SAMUEL KLEIN AND COMPANY
Newark, New Jersey
March 5, 2004
18
HIBSHMAN OPTICAL CORPORATION
BALANCE SHEETS
December 31,
ASSETS 2003 2002
- ------ -------- --------
Current Assets:
Cash and cash equivalents $ 24,076 $ 46,274
Due from related party 3,868 --
-------- --------
Total Current Assets 27,944 46,274
-------- --------
Total Assets $ 27,944 $ 46,274
======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
- -----------------------------
Current Liabilities:
Convertible notes payable - current $ 62,000 $ --
Accrued interest payable 10,246 5,286
Accounts payable 11,426 14,160
-------- --------
Total Current Liabilities 83,672 19,446
Convertible notes payable - long term -- 62,000
-------- --------
Total Liabilities 83,672 81,446
-------- --------
Stockholders' Equity (Deficit):
Common stock, $.001 par value, 100,000,000
shares authorized, 10,088,235 shares issued
and outstanding at December 31, 2003
and 2002 10,088 10,088
Additional paid-in capital 19,912 19,912
Retained earnings (deficit) (85,728) (65,172)
-------- --------
Total Stockholders' Equity (Deficit) (55,728) (35,172)
-------- --------
Total Liabilities and Stockholders' Equity (Deficit) $ 27,944 $ 46,274
======== ========
- --------------------
The accompanying notes are an integral part of these financial statements.
19
HIBSHMAN OPTICAL CORPORATION
STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
2003 2002
------------ ------------
Revenues $ -- $ --
Cost of Revenues -- --
------------ ------------
Gross Profit -- --
------------ ------------
Other Costs:
General and administrative expenses 16,223 10,447
------------ ------------
Total Other Costs 16,223 10,447
Other Income and Expense:
Interest income (expense) net (4,333) (2,994)
------------ ------------
Net Loss before Income Taxes (20,556) (13,441)
Income Taxes -- --
------------ ------------
Net Loss $ (20,556) $ (13,441)
============ ============
Earnings (Loss) Per Share:
Basic and diluted loss per common share $ (0.00) $ (0.00)
============ ============
Basic and diluted weighted average common
shares outstanding 10,088,235 10,088,235
============ ============
- --------------------
The accompanying notes are an integral part of these financial statements.
20
HIBSHMAN OPTICAL CORPORATION
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Common Stock
$.001 Par Value
---------------------------
Common Additional Retained Total
Number Stock Paid-In Earnings Stockholders'
of Shares Amount Capital (Deficit) Equity (Deficit)
------------ ------------ ------------ ------------ ------------
Balances, January 1, 2002 10,088,235 $ 10,088 $ 19,912 $ (51,731) $ (21,731)
Net Loss for the Year Ended
December 31, 2002 -- -- -- (13,441) (13,441)
------------ ------------ ------------ ------------ ------------
Balances, December 31, 2002 10,088,235 10,088 19,912 (65,172) (35,172)
Net Loss for the Year Ended
December 31, 2003 -- -- -- (20,556) (20,556)
------------ ------------ ------------ ------------ ------------
Balances December 31, 2003 10,088,235 $ 10,088 $ 19,912 $ (85,728) $ (55,728)
============ ============ ============ ============ ============
- --------------------
The accompanying notes are an integral part of these financial statements.
21
HIBSHMAN OPTICAL CORPORATION
STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
2003 2002
---------- ----------
Cash Flows from Operating Activities:
Net loss $ (20,556) $ (13,441)
Adjustments to reconcile net loss to net cash
used in operating activities:
Interest expense 4,960 4,960
Change in liabilities
Increase (decrease) in accounts payable and accrued expenses (2,734) 4,669
---------- ----------
Net cash used in operating activities (18,330) (3,812)
---------- ----------
Cash Flows from Investing Activities: -- --
---------- ----------
Cash Flows from Financing Activities:
Increase in amount due from related party (3,868) --
---------- ----------
Net cash used in financing activities (3,868) --
---------- ----------
Net Decrease in Cash and Cash Equivalents (22,198) (3,812)
Cash and Cash Equivalents, beginning of year 46,274 50,086
---------- ----------
Cash and Cash Equivalents, end of year $ 24,076 $ 46,274
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ -- $ --
========== ==========
Taxes $ -- $ --
========== ==========
Supplemental Disclosure of Non-Cash Financing
Activity:
Conversion of accrued interest payable to
convertible notes payable $ -- $ 12,000
========== ==========
- --------------------
The accompanying notes are an integral part of these financial statements.
22
HIBSHMAN OPTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
- -----------
Hibshman Optical Corporation (formerly known as Fianza Commercial Corp. and
hereinafter referred to as the "Company") was formed in 1991 as a subsidiary of
People Ridesharing Systems, Inc. ("PRS") a company that filed for reorganization
under Chapter 11 of the Bankruptcy Act. As a result of an arrangement with the
Bankruptcy Court and PRS, ownership in the Company was provided to the creditors
and stockholders of PRS who received ten percent and five percent, respectively,
of the outstanding stock of the Company upon the sale of the Company and in
contemplation of a merger. In addition, the Company sold eighty-five percent of
the Company's stock to nonaffiliated parties.
The Company will attempt to identify and negotiate with a business target for
the merger of that entity with and into the Company. In certain instances, a
target company may wish to become a subsidiary of the Company or may wish to
contribute assets to the Company rather than merge. No assurances can be given
that the Company will be successful in identifying or negotiating with any
target company. The Company provides a means for a foreign or domestic private
company to become a reporting (public) company whose securities would be
qualified for trading in the United States secondary market.
Cash and Cash Equivalents
- -------------------------
For financial statement purposes, short-term investments with a maturity of
ninety days or less and highly liquid investments are considered cash
equivalents.
Use of Management's Estimates
- -----------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Income Taxes
- ------------
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). SFAS 109 requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized.
23
HIBSHMAN OPTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
(Continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings (Loss) Per Share
- -------------------------
The Company computes earnings or loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other agreements to issue common stock were exercised or converted
into common stock. Diluted earnings per share is computed based upon the
weighted average number of common shares and dilutive common equivalent shares
outstanding, which include convertible debentures, stock options and warrants.
Impairment of Long-Lived Assets
- -------------------------------
The Company has adopted Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144).
SFAS 144 supersedes SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." SFAS 144 requires that if
events or changes in circumstances indicate that the cost of long-lived assets
or asset groups may be impaired, an evaluation of recoverability would be
performed by comparing the estimated future undiscounted cash flows associated
with the asset to the asset's carrying value to determine if a write-down to
market value would be required. Long-lived assets or asset groups that meet the
criteria in SFAS 144 as being held for disposal by sale are reflected at the
lower of their carrying amount or fair market value, less costs to sell.
Comprehensive Income
- --------------------
The Company reports components of comprehensive income under the requirements of
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130). This statement establishes rules for the reporting of
comprehensive income and its components which require that certain items such as
foreign currency translation adjustments, unrealized gains and losses on certain
investments in debt and equity securities, minimum pension liability adjustments
and unearned compensation expense related to stock issuances to employees be
presented as separate components of stockholders' equity.
Exit or Disposal Activities
- ---------------------------
On January 1, 2003 the Company adopted Statement of Financial Accounting
Standards No.146, "Accounting for Costs Associated with Exit of Disposal
Activities" (SFAS 146). SFAS 146 addresses financial and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force Issue No. 94-3. SFAS 146 is effective for exit or disposal activities
initiated after December 31, 2002. The adoption of SFAS 146 had no impact on the
Company's financial position or results of operations for the periods presented
in these financial statements.
Reclassifications
- -----------------
Certain reclassifications have been made to the prior period balances to conform
to the current period's presentation.
24
HIBSHMAN OPTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
(Continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
- --------------------------------
In December, 2003 the Financial Accounting Standards Board (FASB) issued a
revised Interpretation No. 46, "Consolidation of Variable Interest Entities-an
Interpretation of ARB No. 51" which provides guidance on the identification of
and reporting for variable interest entities, including the criteria for
consideration in determining whether a variable interest entity should be
consolidated. Interpretation No. 46, as revised, is effective for the Company
beginning January 1, 2004. The Company does not expect the adoption of this
interpretation to have a significant impact on its future financial position or
results of operations.
In May, 2003 the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity" (SFAS 150).
This statement establishes standards for how an issuer classifies and measures
financial instruments with characteristics of both liabilities and equity. SFAS
150 requires that instruments that are redeemable upon liquidation or
termination of an issuing subsidiary that has a limited life are considered to
be mandatorily redeemable shares in the financial statements of the parent.
Accordingly, those non-controlling interests are required to be classified as
liabilities and recorded at settlement value by this standard. This statement
was effective beginning July 1, 2003 and had no impact on the Company's
financial position or results of operations for the year ended December 31, 2003
nor is it expected to have an impact in the future.
In December, 2003, the FASB revised SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" (SFAS 132). This statement revised
employers' disclosures about pension plans and other postretirement benefit
plans. It requires additional disclosures to those in the original SFAS 132
about the plan assets, benefit obligations, cash flows and net periodic benefit
cost of defined benefit pension plans and other defined postretirement plans.
This statement is effective for fiscal years ending after December 15, 2003 and
quarters beginning after that date. The Company adopted this statement in 2003
and it had no impact on its financial position or results of operations for that
year, nor is it expected to have an impact in the future.
2. DUE FROM RELATED PARTY
This amount is comprised of non-interest bearing advances due on demand that
were made to the President of the Company in December 2003. The amount was
completely repaid in January 2004.
3. CONVERTIBLE NOTES PAYABLE
On December 7, 1998, the Company received $50,000 and issued two $25,000, 8%
convertible notes payable each to Pasquale and Carmine Catizone, current
officers, directors and principal stockholders of the Company. Pasquale and
Carmine Catizone are brothers. The notes were due on December 7, 2001, and were
convertible in whole or in part at any time prior to maturity and upon 30 days
written notice from the holders into common stock of the Company at a conversion
price of $.0025 per share. These notes were extended on that date for three
years until December 7, 2004, at the same rate of interest, conversion price and
terms, and the accrued interest payable of $12,000 at that date was added to the
principal increasing the balance of the convertible notes payable to $62,000.
25
HIBSHMAN OPTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
(Continued)
4. COMMON STOCK
The authorized capital stock of the Company consists of 100,000,000 shares of
Common Stock, par value $.001 per share, of which 10,088,235 shares are issued
and outstanding at December 31, 2003 and 2002.
Holders of shares of common stock are entitled to one vote for each share on all
matters to be voted on by the stockholders. Holders of common stock do not have
cumulative voting rights. Holders of common stock are entitled to share ratably
in dividends, if any, as may be declared from time to time by the Board of
Directors in its discretion from funds legally available therefore. In the event
of a liquidation, dissolution or winding up of the Company, the holders of
common stock are entitled to share pro rata in all assets remaining after
payment in full of all liabilities. All of the outstanding shares of common
stock are fully paid and nonassessable. Holders of common stock have no
preemptive rights to purchase the Company's common stock. There are no
conversion or redemption rights or sinking fund provisions with respect to the
common stock.
In March of 1992 the Company issued 1,588,235 shares of its common stock to the
former stockholders and creditors of PRS and issued 8,500,000 shares to
unaffiliated parties for $30,000 pursuant to the PRS Plan of Reorganization
described in Note 1.
Pursuant to a certain Securities Purchase Agreement dated as of May 5, 1996, Mr.
Pasquale Catizone and related individuals (the "Catizone Group") purchased from
the former president and director of the Company an aggregate of 8,500,000
shares of Common Stock. Simultaneous with the closing of the Securities Purchase
Agreement, the then officers and directors of the Company tendered resignations
from their respective positions, at which time Pasquale Catizone became
president and director and Carmine Catizone became secretary, treasurer and
director of the Company.
26
Exhibit 31.1
SECTION 302 CEO CERTIFICATION
I, Pasquale Catizone, President, certify that:
1. I have reviewed this Annual Report on Form 10-KSB of Hibshman Optical Corp;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
report (the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report financial
data; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting; and
6. The registrant's other certifying officers and I have indicated in this
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 22, 2004 /s/ PASQUALE CATIZONE
-----------------------------------------
Pasquale Catizone
President
27
Exhibit 31.2
SECTION 302 CFO CERTIFICATION
I, Carmine Catizone, Treasurer, certify that:
1. I have reviewed this Annual Report on Form 10-KSB of Hibshman Optical Corp;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
report (the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report financial
data; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting; and
6. The registrant's other certifying officers and I have indicated in this
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 22, 2004 /s/ CARMINE CATIZONE
-----------------------------------------
Carmine Catizone
Treasurer
28
Exhibit 32.1
SECTION 906 CEO CERTIFICATION
In connection with the filing of this Annual Report of Hibshman Optical Corp.
(the "Company") on Form 10-KSB for the period ended December 31, 2003 with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Pasquale Catizone, President and Chief Executive Officer, certify, pursuant to
18 U.S.C. as. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ PASQUALE CATIZONE
-----------------------------------------
Name: Pasquale Catizone
Title: President and Chief Executive
Officer
Date: March 22, 2004
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by it and furnished to the
Securities and Exchange Commission or its staff upon request.
29
Exhibit 32.2
SECTION 906 CFO CERTIFICATION
In connection with the filing of this Annual Report of Hibshman Optical Corp.
(the "Company") on Form 10-KSB for the period ended December 31, 2003 with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Carmine
Catizone, Treasurer and Chief Financial Officer, certify, pursuant to 18 U.S.C.
as. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ CARMINE CATIZONE
-----------------------------------------
Name: Carmine Catizone
Title: Treasurer and Chief Financial
Officer
Date: March 22, 2004
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by it and furnished to the
Securities and Exchange Commission or its staff upon request.
30
ATTACHMENT D
MUDANJIANG DONGXING GROUP CO., LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO,
INCLUDING REPORT OF INDEPENDENT AUDITOR
As of December 31, 2003 and December 31, 2002 and
For the years ended December 31, 2003, 2002 and 2001
MUDANJIANG DONGXING GROUP CO., LTD.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 2003
MUDANJIANG DONGXING GROUP CO., LTD
AND SUBSIDIARY
Report of Independent Auditor 1
Consolidated Balance Sheets as of December 31, 2003
and 2002 2-3
Consolidated Statements of Operations for the years
ended December 31, 2003, 2002 and 2001 4
Consolidated Statements of Members' Equity [Deficit]
for the years ended December 31, 2003, 2002 and 2001 5
Consolidated Statements of Cash Flows for the years
ended December 31, 2003, 2002 and 2001 6
Notes to the Consolidated Financial Statements 7 to 21
REPORT OF INDEPENDENT AUDITOR
To the Members of
MuDanJiang Dongxing Group Co., Ltd.
We have audited the accompanying consolidated balance sheets of MuDanJiang,
Dongxing Group Co., Ltd. and Subsidiary as of December 31, 2003 and 2002 and the
related consolidated statements of operations, members' equity [deficit], and
cash flows for each of the three years ending December 31, 2003. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MuDanJiang, Dongxing
Group Co., Ltd and Subsidiary, as of December 31, 2003 and 2002 and the results
of its operations and their cash flows for each of the three years ending
December 31, 2003 in conformity with accounting principles generally accepted in
the United States of America.
/s/ Bernstein & Pinchuk LLP
New York, New York
July 1, 2004
1
MUDANJIANG, DONGXING GROUP CO., LTD AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
2003 2002
----------- -----------
ASSETS
REAL ESTATE
Cash $ 43,669 $ 31,393
Inventory 5,781,456 25,002
Construction in progress -
Residential -- 8,941,602
Commercial 4,986,288 4,323,829
Total construction in progress 4,986,288 13,265,431
Other receivables, net 3,337,960 1,186,831
Due from affiliated Company 86,610 150,357
Due from related parties 210,136 112,917
Property and equipment 455,362 16,163
Land lease 3,586,301 3,584,580
Other 164,397 592,227
----------- -----------
Total Real Estate 18,652,179 18,964,900
----------- -----------
RETAIL
Cash 195,261 101,796
Inventory 253,035 482,224
Other receivables,net 211,893 218,468
Due from related parties 28,550 48,320
Property and equipment 7,028,242 7,240,954
Land lease 156,613 157,969
Other 119,150 140,975
----------- -----------
Total Retail 7,992,743 8,390,706
----------- -----------
TOTAL ASSETS $26,644,923 $27,355,605
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
2
MUDANJIANG, DONGXING GROUP CO., LTD AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - CONTINUED
DECEMBER 31,
2003 2002
------------ ------------
LIABILITIES AND MEMBERS' EQUITY
REAL ESTATE
Short-term advances $ 3,720,640 $ 3,080,400
Mortgage loans 1,011,562 749,907
Other loans payable 1,971,510 1,290,269
Accounts payable and accrued expenses 7,283,398 5,644,651
Land lease obligation 1,394,795 1,752,276
Customer deposits -- 4,601,499
Due to related parties 226,060 300,092
Tax payable 1,360,644 776,827
Other liabilities 122,116 207,072
------------ ------------
Total Real Estate 17,090,724 18,402,993
RETAIL
Short term advance 2,718,000 2,476,400
Other loans payble 198,112 414,594
Accounts payable and accrued expenses 2,119,936 1,604,878
Land lease obligation 132,204 132,204
Customer deposits 623,977 808,933
Due to related parties 32,616 --
Tax payable 414,529 454,399
Other liabilities 335,849 243,631
------------ ------------
Total Retail 6,575,223 6,135,039
COMMITMENTS AND CONTINGENT LIABILITIES
MEMBERS' EQUITY
Members' contributions 2,339,268 2,339,268
Members' subscriptions (549,640) (549,640)
Retained earnings 1,189,348 1,027,945
------------ ------------
Total members' equity 2,978,975 2,817,573
------------ ------------
Total liabilities and members' equity $ 26,644,923 $ 27,355,605
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
MUDANJIANG, DONGXING GROUP CO., LTD AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31,
2003 2002 2001
------------ ------------ ------------
Revenues
Real Estate $ 6,434,679 $ 1,655,093 $ 3,162,847
Retail 9,643,430 11,041,607 9,031,815
------------ ------------ ------------
Total Revenues 16,078,109 12,696,700 12,194,662
Cost of Sales
Real Estate 4,861,899 601,193 1,147,857
Retail 8,406,503 9,356,042 7,740,501
------------ ------------ ------------
Total Cost of Sales 13,268,402 9,957,235 8,888,358
------------ ------------ ------------
Gross Profit 2,809,707 2,739,465 3,306,304
------------ ------------ ------------
Operating Expenses
Selling 978,498 675,962 990,284
General and administration 996,979 600,376 685,338
Depreciation and amortization 450,070 401,658 413,584
Bad debt expenses 249,272 69,873 112,794
------------ ------------ ------------
Total Operating Expenses 2,674,819 1,747,868 2,202,000
------------ ------------ ------------
Income from Operations 134,888 991,597 1,104,304
------------ ------------ ------------
Other Income [Expenses]
Interest expense (263,512) (292,900) (199,617)
Other income-net 400,414 158,995 61,265
------------ ------------ ------------
136,902 (133,905) (138,352)
------------ ------------ ------------
Income Before Provision for Income Taxes 271,790 857,692 965,952
------------ ------------ ------------
Provision for Income Taxes
Current 253,874 296,075 381,794
Deferred (143,486) 11,548 (95,746)
------------ ------------ ------------
110,388 307,624 286,048
------------ ------------ ------------
Net Income(Loss) $ 161,403 $ 550,068 $ 679,903
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
4
MUDANJIANG, DONGXING GROUP CO., LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
January 1, 2001 - Balance $ (79,414)
Net Income - 2001 679,903
-----------
Members' Equity at December 31, 2001 $ 600,489
Contributions 1,667,015
Net Income - 2002 550,068
-----------
Members' Equity at December 31, 2002 $ 2,817,572
Contributions --
Net Income - 2003 161,403
-----------
Members' Equity at December 31, 2003 $ 2,978,975
===========
The accompanying notes are an integral part of these
consolidated financial statements.
5
MUDANJIANG, DONGXING GROUP CO., LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
2003 2002 2001
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 161,402 $ 550,068 $ 679,903
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 450,070 401,658 413,584
Amortization of land lease 77,487 55,681 40,106
(Increase) decrease in assets:
Inventory (5,527,265) 678,440 (798,161)
Construction in progress 8,279,143 (2,296,389) (8,079,805)
Other receivable (2,144,555) (175,893) 1,844,651
Due from affiliated company (13,703) (84,329) (227,112)
Other 449,655 (616,400) (95,746)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 2,153,804 (1,924,526) 8,272,133
Customer deposits (4,786,455) 578,953 3,713,543
Due to related parties (41,416) 207,032 65,738
Land lease obligation (357,481) -- --
Tax payable 543,948 480,677 765,687
Other 7,262 158,057 287,595
----------- ----------- -----------
Net Cash Provided/(Used) in Operating Activities (748,104) (1,986,970) 6,882,117
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (676,558) (141,112) (7,455,115)
Investment in land lease (77,852) (1,869,054) --
----------- ----------- -----------
Net Cash Used in Investing Activities (754,410) (2,010,166) (7,455,115)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under credit lines - net 881,840 1,135,520 229,520
Proceeds from mortgage loans 261,655 265,195 (53,597)
Proceeds received from employee loans 464,759 560,208 487,307
Capital contributions from members -- 1,667,016 --
----------- ----------- -----------
Net Cash Provided by Financing Activities 1,608,254 3,627,939 663,230
----------- ----------- -----------
Net increase (decrease) in Cash 105,740 (369,196) 90,232
Cash - beginning of year 133,190 502,386 412,154
----------- ----------- -----------
Cash - end of year $ 238,930 $ 133,190 $ 502,386
=========== =========== ===========
SUPPLEMENTAL CASH DISCLOSURES Cash paid for:
Interest $ 467,481 $ 349,388 $ 282,126
=========== =========== ===========
Income taxes $ 91,374 $ 38,981 $ --
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
6
MUDANJIANG DONGXING GROUP CO., LTD.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
MuDanJiang DongXing Group Co., Ltd. ["DongXing Group"] is located in
Mudanjiang, China.
Dongxing Group was organized as a limited liability company on February 19,
1998 in China as Mudanjiang Power Transmission Equipment Co. and changed to
its current name in July 2002. Dongxing Group is principally involved and
focused on the real estate development of residential and commercial
buildings in the Mudanjiang area. On November 10, 2000, Dongxing Group
established a wholly owned subsidiary, Dongxing Business Development Co.,
Ltd., Mudanjiang ["Dongxing Business Development"] and, together with
Dongxing Group, ["Company"], operates a superstore in MuDanJiang selling
consumer goods.
In January 2003, the Company opened a new supermarket in Ningan, which is
in close proximity to Mudanjiang. The new supermarket is operated by
DongXing Business Development Co., Ltd., Mudanjiang.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of DongXing
Group and DongXing Business Development. All significant inter-company
balances and transactions have been eliminated in consolidation.
b. USE OF ESTIMATES
In preparing financial statements in conformity with accounting
principles generally accepted in the United States of America,
management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reported periods.
Significant estimates include allowance for receivables and
construction in progress. Actual results could differ from those
estimates.
c. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less at the time of purchase to be cash
equivalents. As of December 31, 2003 and 2002 the Company did not have
any cash equivalents.
7
MUDANJIANG DONGXING GROUP CO., LTD.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
d. INVENTORY
Inventory for the superstore is stated at the lower of cost or market.
Substantially all inventory costs are determined using the first-in,
first-out [FIFO] method. Certain inventory goods purchased are subject
to spoilage within a short period of time while in possession of the
Company. Inventory costs do not exceed net realizable value.
For inventory of units in communities under development, a loss is
recorded when events and circumstances indicate impairment and the
undiscounted future cash flows generated are less than the related
carrying amounts. The impairment loss is based on expected revenue,
cost to complete including interest, and selling costs. Inventories
and long-lived assets held for sale are recorded at the lower of cost
or fair value less selling costs. Fair value is defined in the
Statement of Financial Accounting Standards (SFAS) No. 144 "Accounting
for the Impairment of or Disposal of Long-Lived Assets" as the amount
at which an asset could be bought or sold in a current transaction
between willing parties, that is, other than in a forced or
liquidation sale. SFAS No.144 provides accounting guidance for
financial accounting and reporting for impairment or disposal of
long-lived assets. Construction costs are accumulated during the
period of construction and charged to cost of sales under specific
identification methods. Land, land development, and common facility
costs are allocated based on buildable acres to product types within
each community, then amortized equally based upon the number of homes
to be constructed in the community.
e. SHIPPING AND HANDLING COSTS
The Company includes shipping and handling costs as part of cost of
sales.
f. PROPERTY AND EQUIPMENT, NET
Property and equipment is stated at cost. Depreciation and
amortization is provided principally by use of the straight-line
method over the useful lives of the related assets. Expenditures for
maintenance and repairs, which do not improve or extend the expected
useful life of the assets, are expensed to operations while major
repairs are capitalized.
8
MUDANJIANG DONGXING GROUP CO., LTD.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
g. INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, "Accounting
for Income Taxes". Under SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Under SFAS No. 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date.
h. REVENUE AND COST RECOGNITION
Revenues earned from the Company's superstore are generally recognized
when merchandise is sold to the customer. The Company has a limited
return period policy. Historically, inventory returns are not
significant.
Revenues earned from the Company's real estate sales are generally
recorded when each unit is closed, title is conveyed to the buyer,
cash settlement has been received, and the Company has no continuing
involvement in the unit.
The Company capitalizes all contract costs under its commercial real
estate projects. Costs include all direct material and labor costs and
those indirect costs related to contract performance. General and
administrative costs are charged to operations as incurred. Provisions
for estimated losses are made in the period in which such losses are
determined [Note 5].
i. PREOPENING EXPENSES
Preopening expenses consist principally of direct incremental
personnel costs and advertising and marketing expenses. These costs
are expensed in the reporting period incurred.
j. CAPITALIZED INTEREST COSTS
Interest costs related to properties under development are capitalized
during the real estate development period and are expensed along with
the associated cost of sales as the related inventories are sold.
9
MUDANJIANG DONGXING GROUP CO., LTD.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
k. IMPAIRMENT
In accordance with SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets" the Company evaluates its long-lived
assets to determine whether later events and circumstances warrant
revised estimates of useful lives or a reduction in carrying value due
to impairment. If indicators of impairment exist and if the value of
the assets is impaired, an impairment loss would be recognized.
l. FOREIGN CURRENCY TRANSLATION
The Company's functional currency is the Chinese Yuan [RMB] and its
reporting currency is the US dollar. The Company's balance sheet
accounts are translated into US dollars at the year-end exchange rates
and all revenue and expenses are translated into U.S. dollars at the
average exchange rates prevailing during the periods in which these
items arise. Translation gains and losses are deferred and accumulated
as a component of other comprehensive income in members' equity.
Transaction gains and losses that arise from exchange rate
fluctuations from transactions denominated in a currency other than
the functional currency are included in the statement of operations as
incurred. The translation gains and losses were immaterial for the
three years ended December 31, 2003, 2002 and 2001.
The Chinese government imposes significant exchange restrictions on
fund transfers out of China that are not related to business
operations. These restrictions have not had a material impact on the
Company because it has not engaged in any significant transactions
that are subject to the restrictions.
m. ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income represents the change in equity
of the Company during the periods presented from foreign currency
translation adjustments. These transactions are deemed immaterial for
the periods presented.
10
MUDANJIANG DONGXING GROUP CO., LTD.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
n. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Values of Financial
Instruments", requires disclosing fair value to the extent practicable
for financial instruments, which are recognized or unrecognized in the
balance sheet. The fair value of the financial instruments disclosed
herein is not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider the tax
consequences of realization or settlement.
For certain financial instruments, including cash, other receivables,
accounts payable and accrued expenses and short term debt, it was
assumed that the carrying amounts approximate fair value because of
the near term maturities of such obligations. The fair value of debt
was determined based on current rates at which the Company could
borrow funds with similar remaining maturities, which amount
approximates its carrying value.
o. ADVERTISING COSTS
Advertising costs are charged to operations when incurred. Advertising
costs for each of the years ended December 31, 2003, 2002 and 2001 are
immaterial to the financial statements.
p. RECEIVABLES AND BAD DEBTS
The Company recognizes an allowance for doubtful accounts to ensure
receivables are not overstated due to problems with collectibility.
Bad debt reserves are maintained for all customers based on a variety
of factors, including the length of time the receivables are past due,
significant one-time events and historical experience. An additional
reserve for individual accounts is recorded when the Company becomes
aware of a customer's inability to meet its financial obligation, such
as in the case of bankruptcy filings or deterioration in the
customer's operating results or financial position. If circumstances
related to customers change, estimates of the recoverability of
receivables would be further adjusted. As of December 31, 2003 and
2002, the allowance of doubtful accounts was approximately $432,000
and $182,700 respectively. The Company's receivables overdue for more
than 90 days were approximately $1.9 million and $1.2 million for 2003
and 2002 respectively. Substantially all of the receivables were other
than trade and none were used as collateral for loans.
11
MUDANJIANG DONGXING GROUP CO., LTD.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. INVENTORY, NET
Inventory is comprised of the following:
DECEMBER 31,
-----------------------
2003 2002
---------- ----------
Unsold residential units $5,781,456 $ 25,002
Finished goods 253,035 482,224
---------- ----------
Total inventory $6,034,491 $ 507,226
========== ==========
4. PROPERTY AND EQUIPMENT, NET
Property and equipment is comprised of the following:
DECEMBER 31,
-----------------------
2003 2002
---------- ----------
Leasehold and building improvements $7,421,412 $7,062,402
Machinery and equipment 846,320 724,424
Vehicles 348,160 214,526
Office equipment and other 186,663 96,096
---------- ----------
Total at cost 8,802,555 8,097,448
Accumulated depreciation and amortization 1,318,951 840,332
---------- ----------
$7,483,604 $7,257,116
========== ==========
Depreciation and amortization expense for each of the years ended December
31, 2003, 2002 and 2001, was approximately $450,100, $401,700 and $413,600,
respectively. The Company's fixed assets are primarily concentrated in the
retail segment.
5. CONSTRUCTION IN PROGRESS
The Company capitalizes its costs incurred for various real estate
developments in which it is involved.
DECEMBER 31,
------------------------
2003 2002
---------- -----------
Residential property $ 0 $ 8,941,602
Commercial building 4,986,288 4,323,829
---------- -----------
Total construction in progress $4,986,288 $13,265,431
========== ===========
12
MUDANJIANG DONGXING GROUP CO., LTD.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
5. CONSTRUCTION IN PROGRESS-CONTINUED
In the year 1999 the Company entered into a real estate contract to build a
twenty-eight floor commercial building.
The agreement stipulated the selling price of approximately $12 million was
based upon cost plus a 16% profit margin. The Company received an advance
of approximately $2 million from the buyer to begin the construction. The
advance did not carry any stated interest rate and has been included in
construction in progress. The cost of the commercial building included
approximately $2.4 million of removal charges to be paid to Daily News, who
is the potential buyer of the commercial building. The Company set up a
payable account for it also.
In 2003, the Company entered into an agreement with Daily News to sell the
commercial building for approximately $11 million. After offsetting the
removal charges and the advance from Daily News of approximately $ 2.4
million and $2 million, respectively, the Company had approximately $6.6
million in account receivables at December 31, 2003. Subsequently, in March
2004, the Company entered into another contract with Daily News to buy back
the commercial building at approximately $11 million. Therefore the
contract signed in 2003 is considered invalid and the sale and receivable
has not been recorded in 2003.
See subsequent event footnote 17.
6. INVESTMENT IN LAND LEASE
As of December 31, 2003 the Company has three parcels of land being leased
from the Chinese government. The term of each lease is fifty years. The
consideration under the agreements amounted to approximately $3.9 million.
Approximately $1.4 million of this cost has not been paid and is included
in obligation under land lease. The Company classifies the leases as
operating and therefore amortizes the cost using the straight-line method
over the life of the leases. Rent expense is approximately $77,500, $55,700
and $40,100, for the years ended December 31, 2003, 2002 and 2001,
respectively.
7. CUSTOMER DEPOSITS
At December 31, 2003, and 2002 the Company had outstanding liabilities for
customer deposits amounting to approximately $0.6 million and $5.4 million
respectively. These deposits are primarily for the purchase of residential
real estate units for the years ended December 31, 2002. In 2003, the
customer deposits are related to gift certificates sold by the superstore.
13
MUDANJIANG DONGXING GROUP CO., LTD.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8. INCOME TAXES
The deferred tax asset as of December 31, 2003 and 2002 is $248,800 and
$105,300, respectively, and is included in other assets. The asset is
principally resulting from the allowance for bad debts, employee benefit
expenses and organization costs. There is no valuation allowance as the
asset is expected to be realized fully in the future.
A reconciliation between taxes computed at the statutory rate of 33% and
the Company's effective tax rate follows:
DECEMBER 31,
---------------------------------
2003 2002 2001
--------- --------- ---------
Income tax at statutory rate $ 89,691 $ 283,038 $ 318,764
Effect of permanent differences 20,697 24,586 (32,716)
Effect of net operating loss carry forward 0 0 0
--------- --------- ---------
Income tax at effective rate $ 110,388 $ 307,624 $ 286,048
--------- --------- ---------
9. CONCENTRATIONS AND CREDIT RISK
The Company operates principally in Mudanjiang, China and grants credit to
its customers in this geographic region.
The Company routinely performs certain credit evaluations procedures and
does not require collateral for assets subject to credit risk. The Company
assesses the financial strength of its customers, and, based upon factors
surrounding the credit risk of its customers, establishes an allowance for
uncollectible accounts. As a consequence, the Company believes that its
credit risk exposure beyond such allowance is limited. The table below
summarizes the activity in this allowance account.
Charged
As at Balance- Charged to to Other Balance-
December 31, Beginning Expense Accts. Deductions Ending
------------ --------- --------- ---------- ---------- ---------
2003 $ 182,668 $ 249,272 $ -- $ -- $ 431,940
2002 $ 112,794 $ 69,874 $ -- $ -- $ 182,668
2001 $ 0 $ 112,794 $ -- $ -- $ 112,794
For years ended December 31, 2003, 2002 and 2001 the Company has a credit
risk exposure of uninsured cash in banks of approximately $137,300, $74,000
and $366,900 respectively. The Company does not require collateral or other
securities to support financial instruments that are subject to credit
risk.
14
MUDANJIANG DONGXING GROUP CO., LTD.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. CONCENTRATIONS AND CREDIT RISK -CONTINUED
The Company has approximately $37,100, 28,600 and 97,300 restricted cash
for the years ended December 31, 2003, 2002 and 2001.
The Company had no significant concentrations in sales and receivables as
of and for the years ended December 31, 2003, 2002 and 2001, respectively.
As of December 31, 2003 and 2002, three debtors accounted for approximately
48% and 42% of receivables. As of December 31, 2001, two debtors accounted
for approximately 43% of receivables.
As of December 31, 2003, 2002 and 2001 one contractor accounted for
approximately 31% of accounts payable.
The Company's principal business activities are located in China. Although
China is considered economically stable, it is always possible that
unanticipated events in foreign countries could disrupt the Company's
operations.
10. OTHER LOANS PAYABLE
The Company has other loans payable and accrued interest of approximately
$2.2 million and $1.7 million at December 31, 2003 and 2002 respectively.
Unrelated individual, members and employees advanced personal funds to the
Company to finance company operations are included. These advances are
represented by minutes and verbal agreements with the Company. The terms of
the advances do not provide for any minimum debt payments and the advances
accrue interest from a range of 0% to 30% per annum. Interest expense
incurred for these advances is approximately $276,000, $123,400 and
$46,100, for each of the three years ended December 31, 2003, 2002, and
2001, respectively.
11. DEBT
a. Short-term borrowings - The Company has nine individual short-term
loans payable from three different financial institutions totaling
approximately $6.4 million and $5.6 million at December 31, 2003, and
2002, respectively. The loans are at fixed interest rates that range
from approximately 6% to 8% per annum. The maturity dates of these
loans range between three months to a year from the date of the loan.
Historically, the Company renegotiates renewals of these loans with
the financial institutions at the time of maturity.
15
11. DEBT-CONTINUED
The short-term borrowings are collateralized by properties owned by
the Company, which are the basement, 1st, 2nd and 3rd floor of the
superstore building. Interest expense incurred for these short-term
borrowings was approximately $521,100, $ 372,100and $271,500 for each
of the three years ended December 31, 2003, 2002 and 2001,
respectively.
Included in short-term advances is an advance from an unrelated party
for approximately $422,800. This advance accrues interest at
approximately 43% per annum.
b. Mortgage Loans - Certain Company employees and members of the Company
have obtained long-term financing from various financial institutions
on behalf of the Company to fund operations of the Company. Total
mortgage loans approximated $1,011,600 and $750,000 at December 31,
2003 and 2002, respectively. The Company has pursued this avenue of
borrowing to obtain more favorable interest rates, which range from
approximately 5% to 7% per annum. Interest expense for the years ended
December 31, 2003, 2002 and 2001; on these borrowings are
approximately $70,200, $18,700 and $12,700. These loans are secured by
certain residential real estate projects the Company is developing.
The Company has verbally assumed the responsibility of the loans and
is presenting the liability as if the Company obtained the financing
directly. These loans mature from 2011 to 2023.
The approximate minimum payments required by these mortgage loans are as
follows:
YEAR AMOUNT
---- ----------
2004 $ 58,400
2005 61,500
2006 64,900
2007 68,600
2008 72,800
2009 and thereafter 685,400
----------
Total $1,011,600
==========
16
MUDANJIANG DONGXING GROUP CO., LTD.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
11. DEBT-CONTINUED
c. Capitalized Interest - Interest costs incurred, expensed and
capitalized were:
DECEMBER 31,
-----------------------
2003 2002
---------- ----------
Interest capitalized at beginning of
year $ 465,165 $ 242,967
Total interest incurred 865,791 521,865
Less interest charged to expense 263,512 292,900
Less capitalized interest included
in assets sold 400,182 6,767
---------- ----------
Interest capitalized at end of year $ 667,262 $ 465,165
========== ==========
12. RETIREMENT BENEFITS
The Company is required by statutory Chinese employment laws to fund
certain government sponsored retirement plans. The expense incurred by the
Company for each of the three years ended December 31, 2003, 2002 and 2001
is $21,300, $53,700 and $68,000, respectively.
13. LITIGATION
In the normal course of its operations, the Company has been or, from time
to time, may be named in legal actions seeking monetary damages. While the
outcome of these matters cannot be estimated with certainty, management
does not expect that they will have a material effect on the Company's
business or financial condition or results of operations.
14. RELATED PARTY TRANSACTIONS
As of December 31, 2003 and 2002, the Company has advances payable to and
advances receivable from members. Due from related parties was
approximately $325,300and $311,600 as of December 31, 2003 and 2002,
respectively. Advances payable to related parties was approximately
$258,700 and $300,100 as of December 31, 2003 and 2002, respectively. In
addition approximately $86,600 at December 31, 2003 and $150,400 at
December 31, 2002 was owed to the Company by a company owned by a member
with the largest ownership interest in the Company. These balances have no
stated terms for repayment and are not interest bearing.
17
MUDANJIANG DONGXING GROUP CO., LTD.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
15. COMMITMENTS
In January 2003, the Company opened a new superstore in China. The Company
entered into a long-term lease agreement. The terms of the agreement are as
follows:
o The term of the lease runs from January 15, 2003 thru December 31,
2007.
o The security deposit is approximately $6,000.
o The minimum rental payments are as follows:
YEAR ENDING DECEMBER 31,
2004 68,800
2005 68,600
2006 68,600
2007 68,600
----------
Total $ 274,600
==========
16. SEGMENT INFORMATION
The Company operates in two segments: (1) the development of commercial and
residential real estate and (2) the retail operations of its superstore.
The following is a summary of information by these business segments as of
December 31, 2003, 2002 and 2001 and for each of the years ended December
31, 2003, 2002 and 2001, respectively.
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
2003 2002 2001
------------ ------------ ------------
Net Sales:
Real estate revenues $ 6,434,679 $ 1,655,093 $ 3,162,847
Retail revenues 9,643,430 11,041,607 9,031,815
------------ ------------ ------------
Total revenues $ 16,078,109 $ 12,696,700 $ 12,194,662
------------ ------------ ------------
Operating income:
Real estate development 578,191 695,913 1,487,037
Retail superstore (443,303) 295,684 (382,733)
------------ ------------ ------------
Total operating income 134,888 991,597 1,104,304
------------ ------------ ------------
Depreciation and amortization
Real estate developments $ 26,234 $ 1,901 $ 596
Retail superstore 423,835 399,757 412,988
------------ ------------ ------------
Total depreciation and $ 450,069 $ 401,658 $ 413,584
amortization ------------ ------------ ------------
18
MUDANJIANG DONGXING GROUP CO., LTD.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
16. SEGMENT INFORMATION - CONTINUED
Interest expense
Real estate developments $ 8 $ 108,894 $ 61,853
Retail superstore 263,504 184,006 137,763
------------ ------------ ------------
Total interest expense $ 263,512 $ 292,900 $ 199,616
------------ ------------ ------------
Identifiable assets:
Real estate development 18,652,179 $ 18,964,900 $ 14,914,981
Retail superstore 7,992,744 8,390,705 8,762,423
------------ ------------ ------------
Total assets as reported in the $ 26,644,923 $ 27,355,605 $ 23,677,404
accompanying balance sheets ============ ============ ============
The Company had no sales outside of Mudanjiang, China. General corporate assets
consist primarily of cash and advances. Sales are attributed to each segmented
industry.
17. NEW ACCOUNTING PRONOUNCEMENTS
o On April 30, 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". Statement 145 rescinds Statement 4, which
required all gains and losses from extinguishment of debt to be
aggregated and, if material, classified as an extraordinary item, net
of related income tax effect. As a result, the criteria in Accounting
Principles Board Opinion No. 30 will now be used to classify those
gains and losses. Statement 64 amended Statement 4, and is no longer
necessary because Statement 4 has been rescinded. Statement 145 amends
Statement 13 to require that certain lease modifications that have
economic effects similar to sale-leaseback transactions is accounted
for in the same manner as sale-leaseback transactions. This amendment
is consistent with the FASB's goal of requiring similar accounting
treatment for transactions that have similar economic effects. This
Statement also makes technical corrections to existing pronouncements.
While those corrections are not substantive in nature, in some
instances they may change accounting practice.
o In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which addresses the
recognition, measurement, and reporting of costs associated with exit
or disposal activities, and supercedes Emerging Issues Task Force
Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits
19
MUDANJIANG DONGXING GROUP CO., LTD.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
17. NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED
and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)" ("EITF 94-3"). The provisions of SFAS No. 146 are
effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. The Company
expects to adopt SFAS No. 146, effective January 1, 2003.
o In October 2002, the FASB issued SFAS No. 147, "Acquisitions of
Certain Financial Institutions". SFAS No. 147 provides guidance on the
accounting for the acquisition of a financial institution. SFAS No.
147 applies to all financial institution acquisitions except those
between two or more mutual enterprises.
o In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure". SFAS No. 148
amends SFAS No. 123, "Accounting for Stock-Based Compensation" to
provide alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method
used on reported results. SFAS No. 148 is effective for fiscal periods
beginning after December 15, 2002.
o In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities", which clarifies
financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003.
The Company expects that the adoption of the new Statements will not have a
significant impact on its financial statements.
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MUDANJIANG DONGXING GROUP CO., LTD.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
18. SUBSEQUENT EVENTS
SHARE EXCHANGE
The Company entered an agreement and plan of share exchange ("the
agreement") effective as of the 1st day of July, 2004 with Hibshman Optical
Corporation, a New Jersey corporation ("Hibshman"). Hibshman desires to
acquire all of the outstanding shares of the Company solely in exchange for
common stock of Hibshman, or its successor corporation, making the Company
a wholly-owned subsidiary of Hibshman.
Hibshman, or its successor corporation, Shares will be delivered to the
Company Stockholders in exchange for Dongxing Shares on the basis of
0.302647 Hibshman Shares for each one (1) Dongxing Share on the Closing
Date.
SALE OF BUILDING
The Company signed a contract to sell the commercial building (see footnote
5) on May 16, 2004 at a price of approximately $11,355,200. No proceeds
have been received by the company as of July 1, 2004 but are expected to be
received during 2004.
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