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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-K
(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, 2001
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 000-24767
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BRIDGE TECHNOLOGY, INC.
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(Name of small business issuer as specified in its Charter)
NEVADA 59-3065437
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(State or other Jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
12601 Monarch Street, Garden Grove, CALIFORNIA 92841
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(Address of principal executive offices) (Zip code)
Issuer's telephone number: (714) 891-6508
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Issuer's facsimile number: (714) 890-8590
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Securities registered under Section 12(b) of the Exchange Act: None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock
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(Title of Class)
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 registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
State issuer's revenues for its most recent fiscal year. $141,907,379
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State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which
the common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act.) December 31, 2001 $14,400,000
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(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common Stock, $0.01 Par Value - 10,863,186 shares as of December 31, 2001
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DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Form 10-SB and subsequent amendments 1 and 2 which
were initially filed in August 1998 with the Securities and Exchange
Commission in connection with the Registrant's Registration Statement
is incorporated by reference into Part I, II and III of this report as
well as certain exhibits filed with the Registrant's Registration Statement.
In addition Form 10KSB for the years ended 12/31/98, filed 3/31/99 and
12/31/99, filed 3/31/00 with the Securities and Exchange Commission is also
incorporated by reference into Part I, II and III of this report as well
as certain exhibits filed with the Form 10KSB.
TABLE OF CONTENTS
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PART I
Item 1. Business.
Item 2. Property.
Item 3. Legal Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
Item 6. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
Item 7. Financial Statements and Supplementary Data.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
PART III
Item 9. Directors and Executive officers of the Registrant.
Item 10. Executive Compensation.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
Item 12. Certain Relationships and Related Transactions.
Item 13. Exhibits and Reports on Form 8-K.
SIGNATURES
ITEM 1. DESCRIPTION OF BUSINESS.
The Bridge Technology vision is to develop state-of-the-art power electronics
components and to develop a strong channel distribution system in Asia and the
United States. Company uses these components to design leading edge
subsystems and products for information technology, medical, gaming and
communications industries. To capitalize on the potential of these designs
the Company develops, purchases, assembles, integrates, manufactures, tests,
packages, markets and sells a broad family of products. Company established
operating divisions and subsidiaries under several separate business names,
each focused on specific products and sales channels.
Bridge uses in-house development, joint venture, licensing and acquisition of
leading edge technologies and companies to deploy them in new products for OEM
customers. The Company is creating innovative products demanded by computer
and communications equipment Original Equipment Manufacturers (OEMs), value-
added resellers and system integrator, and ultimately by the end users. The
Company sells these products directly to OEMs and systems integrators, and
through selected distributors and manufacturer's representatives. We
currently employ 356 full time employees, including senior management and
manufacturing personnel and 25 administrative personnel.
Currently the Company has five wholly owned active subsidiaries: PTI
Enclosures, Inc. (USA), Bridge R&D, Inc. (USA), Autec Power Systems, Inc.
(USA),Classic Trading Inc. and Bridge Technology Ningbo, China. In addition
the Company owns a 90% interest in CMS Technology LTD (Hong Kong). Also, the
Company owns the following inactive subsidiaries: Newcorp Technology, Inc.
(USA), Astro Bridge Net, Dyna Five International and Pacific Bridge Net.
The Company has two primary groups:
I) POWER ELECTRONICS GROUP: AUTEC (USA), PTI, (USA)
II) CHANNEL DISTRIBUTION GROUP (under Bridge R&D): DataStor, Classic
Trading Inc.
Our Company is essentially vertically integrated and horizontally operational.
I. POWER ELECTRONICS GROUP:
Autec Power Systems Inc.
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Through an exchange of shares of common stock effective December 1, 1999, the
Company acquired 100% of the equity interest in Autec Power Systems Inc.
("Autec"). The exchange was on the basis of one share of the Company's
common stock for two shares of Autec common stock outstanding.
Autec designs, develops, engineers and produces high quality power supplies
for a diversified list of clientele. Autec also sells a family of proprietary
automobile power adapters and selected clear plastic consumer electronics
products to its customer. Mr. Winston Gu, Chairman and principal shareholder
of Bridge Technology Inc. serves as the Company's Chairman and a member of the
Executive Steering Committee.
The Company opened its new 110,000 square feet, Ningbo, China manufacturing
operation in July 2001 and commenced hiring and training of manufacturing
personnel. Current capacity is 600,000 power supplies per month per single
shift with these shifts envisioned in coming years. At present the factory in
Ningbo, China is underutilized with two of six assembly lines in operation.
Until at full capacity with our products the Company expects to seek contract
manufacturing services.
EEMB USA
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To reduce expenses the Company integrated the EEMB operation into Autec
operations. EEMB China, a People's Republic of China corporation, (EEMB) is a
major manufacturer of standard size batteries, high energy battery cells, and
special battery packs utilizing most popular battery cell chemistries. The
USA battery division objective is to procure, market and sell a family of
batteries, principally to U.S. based OEM customers. However, there can be no
assurance that EEMB USA will be successful in such efforts. This group also
sells a family of proprietary automobile power adapters and selected clear
plastic consumer electronics products to its customers.
PTI Enclosures, Inc. (PTI)
--------------------------
PTI Enclosures, Inc. (PTI) is focused on designing, developing,
manufacturing, testing and selling custom-designed enclosures, power supplies
and complete subsystems for computer peripherals, telecommunications
equipment, medical equipment, gaming equipment and other electronics devices.
Customers include major computer and computer peripheral manufacturers,
telecommunications manufacturers, government entities, manufacturers of gaming
devices and medical instrumentation manufacturers who use PTI's capabilities
to produce OEM products manufactured to their exact specifications. All OEM
based and custom designed products provide high quality at competitive prices.
PTI also sells products to sub-system integrators who add the peripherals and
software to PTI's enclosures and then sell these complete products to the end
users. The enclosures PTI provides encompass hard drive enclosures, tape
enclosures, CD tower enclosures, RAID disk array enclosures, various server
enclosures and other enclosures. PTI also aupplies enclosures and power
supplies for several special-purpose systems.
Newcorp Technology Ltd. (Japan)
-------------------------------
The Company's reduced its interest in Newcorp Technology, Ltd. Japan as of
December 31, 2001, selling 85% to Mr. Hideki Watanabe, the President of
Newcorp Technology Ltd. Japan and a Director of Bridge Technology Inc.
II. CHANNEL DISTRIBUTION GROUP:
Bridge R&D, Inc.
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Bridge division that was reselling ADTX products was sold to ADTX Japan in
early 2001. Currently Bridge R&D has two operating units: DataStor Division
and Classic Trading Inc.
DataStor
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DataStor is a division of Bridge R&D, Inc. It identifies,designs, procures,
lightly manufactures, assembles, tests and distributes metal and plastic
enclosures, brackets and enhancement kits for a variety of computer platforms.
Certain products are produced under specific contracts with several
manufacturers. DataStor also sells external peripheral kits consisting of
enclosures and power supplies, mounting brackets for various peripherals in PC
systms. DataStor supplies various mass storage enabling products, including
enclosures for 1 to 7 drives, drive mounting brackets, and fixed and removable
mounting bracket kits.
DataStor's customers include INGRAM Micro, NECX and other distributors who
further sell to the second tier distributors and systems integrators. Other
customers are master resellers who sell to second and third-tier OEMs, Value
Added Resellers (VARs) and system integrators. DataStor is dedicated to
maintaining its market position as anindustry leader in making cutting edge
technology available to customers. DataStor is constantly researching market
demand and developing new product lines and solutions.
Classic Trading, Inc.
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The primary mission of Classic Trading is to select, evaluate and procure new
value added products. This subsidiary plans to introduce several new products
in 2002. Classic Trading plans to develop, license or acquire products that
it is able to sell through its existing sales organization. Since the Company
executed non-disclosure agreements with major high technology companies, the
Company is not permitted to disclose the nature of these new technologies and
products for potential licensing until respective license agreements are in
fact signed. However, there can be no assurance that the company will
complete any additional licensing agreements or technology acquisitions.
Competition
- -----------
Manufacturing and distribution of power supplies, computer peripherals,
computer enhancement, communications and other commercial electronics products
is fiercely competitive. The Company competes with numerous other companies,
including several major manufacturers and distributors. Certain competitors
have greater financial and other resources than the Company. Consequently,
such entities may begin to develop, manufacture, market and distribute systems
that are substantially similar or superior to our Company's products. There
is no assurance that the Company will be able to continue to develop and sell
products that afford it significant competitive advantage in the market.
Importance of New Product Development to Growth
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The Company's ability to develop and successfully introduce new products
will continue to be a significant factor to its growth and remaining
competitive. Development of new product lines is costly and risk intensive.
New product development often requires long term forecasting of market trends,
the development and implementation of new designs, compliance with extensive
governmental regulatory requirements and substantial capital commitments.
There are a number of manufacturing and design risks inherent in engineering
high cost custom built prototypes upon which development and contracting
decisions are often made, into commercial products that are able to be
manufactured in large quantities at acceptable cost. Also, the computer
peripheral industry is characterized by rapid technological change.
As technological changes occur in the marketplace, the Company may have
to modify its products in order to keep pace with these changes and
developments.
The introduction of products embodying new technologies, or the emergence
of new industry standards, may cause the existing products, or even the
products under development, to become obsolete or unmarketable within a rapid
time frame. Any failure by the Company to anticipate or respond in a cost-
effective and timely manner, to government requirements, market trends, and
customer requirements, or any significant delays in product development or
introduction, could have a material adverse effect on the Company's business,
results of operations, and financial condition.
Expansion through Internal Growth, Acquisitions and Joint Ventures
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The Company focuses its resources on growing its business by selling existing
products to new customers, by providing additional new products to current
customers, and by targeting new market niches for products that the Company
can produce or procure within its core capabilities.
From inception of new management in 1997, the Company has experienced rapid
growth in revenues and earnings and geographic scope of operations. Any
future growth may place a significant strain on management and on the
Company's financial resources and information processing systems. In
conjunction with the Autec acquisition, Mr. Winston Gu has joined the
executive staff as Chairman of the Company, and Mr. James Djen assumed the
role of CEO. To be successful the Company has to find and attract additional
seasoned talent in this highly competitive area. The failure to recruit
additional staff and key personnel, to have sufficient financial resources to
respond effectively to difficulties encountered pursuing expansion could have
a material adverse effect on the Company's business, operating results and
financial condition.
The Company intends to expand its product lines in the domestic and
international markets, in part, primarily by internal growth and secondarily
through acquisitions. The Company's ability to expand successfully through
strategic acquisitions will depend upon the availability of suitable
acquisition candidates at the valuation acceptable to the Company and the
availability of financing on terms acceptable to the Company. There can be no
assurance that the Company will be successful in completing acquisitions.
Such expansions involve numerous risks, including possible adverse short-term
effects on the Company's operating results or the market price of the common
stock. These acquisitions and joint ventures will be subject to approval or
ratification by the Company's stockholders. The Company uses outside
appraisers for all significant acquisition. It is expected that the Directors
will require its Officers to obtain valuation opinions or contact letters on
all future acquisitions.
In addition, the Company competes for acquisition opportunities with companies
which have significantly greater financial and management resources than those
of the Company. There can be no assurance that suitable acquisition
opportunities will be identified and that any such transactions can be
consummated, or that, if acquired, such new businesses can be integrated
successfully and profitably into the Company's historic rate of growth will
continue and that the Company will continue to successfully expand, or that
growth or expansion will result in profitability.
CAUTIONARY STATEMENTS AND RISH FACTORS
Limited Operating History; History of Losses and Accumulated Deficits
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While the Company has been in existence since 1969, its operations between
1975 and 1997 were limited to the exploration of acquisition opportunities.
Bridge Technology Inc. and its subsidiaries have only been in operation since
June 1, 1997. At December 31, 2001, the Company's accumulated deficit was
$2,429,824. The ability of the Company to obtain and sustain profitability
will depend, in part, upon the successful marketing of existing products and
the successful and timely introduction of new products. There can be no
assurance that the Company will be able to generate and sustain net sales or
profitability in the future.
Need for Additional Financing
- -----------------------------
The Company anticipates that additional capital will be required during the
next twelve months by two of its subsidiaries. Autec Power Systems Inc. has
been incurring loss in its manufacturing operations since June 2001 which
have primarily been financed by credit from a related party supplier, Wantec
Systems, which is controlled by the Winston Gu's family. Financing has not
been available from Bridge Technology Inc. current operations. Accordingly,
our Directors have voted to spin off as dividend to our existing shareholders
of all the shares held by Bridge Technology Inc. in order to facilitate
outside financing. In addition the new factory in Ningbo, China will be made
available for manufacturing Autec power supplies. Factory ownership is
expected to remain with Bridge Technology Inc. A registration statement will
be filed with the Securities and Exchange Commission in connection with the
Autec spin off or any other Bridge Technology Inc. spin off. The Company is
also planning continual growth for its CMS Technology Ltd Hong Kong subsidiary
both in China and other Asian countries like India, the Philippines Islands
and the United States. The company is in discussion with several investment
group considering expansion financing with no agreements consummated to date.
The Company has a $4,000,000 line of credit for the U.S. market with General
Bank. This loan agreement expired on June 30, 2001 with negotiations in
progress to extend to June 30, 2002. The Company also has a credit facility
directly with IBM for our operations in China. The facility varies during the
year and is not available for our U.S. operations. The Company believes that
financing may be more readily available directly with its subsidiaries either
under the Bridge Technology Inc. corporate structure or as separate trading
entities. The Company will discuss all financing possibilities available at
its upcoming Shareholders meeting in early May 2002. No assurance can be
given at this time that additional financing will be available and if
available that the terms will be favorable to the Company or its shareholders.
Although our Company management is optimistic, all of us realize that if
adequate funds are not available to the Company, then the Company may be
required to curtail its growth and even its operations.
Dependence on Key Personnel
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The Company's future performance will depend on certain key management
personnel. The following Officers are members of the Company's Executive
Steering Committee:
Winston Gu, Chairman of the Board of Bridge Technology, Inc.
James Djen, CEO of Bridge Technology, Inc.
John T. Gauthier, CFO of Bridge Technology, Inc.
John Harwer, President of Bridge Technology, Inc.
In addition, the Company's success will dependent upon its ability to recruit
and retain additional qualified personnel. Any failure by the Company to
retain and attract key personnel could have a material adverse effect on the
Company's business, operating results, and financial condition.
Limited Proprietary Protection
- ------------------------------
The Company's success and ability to compete may depend in part upon its
proprietary technology. The Company's proprietary products are not all
protected by any patents. Therefore, to date the Company has relied primarily
on trademark, trade secrets and Copyright laws to protect its technology.
Also, the Company has implemented a policy that most senior and technical
employees and third-party developers sign non-disclosure agreements. However,
there can be no assurance that such precautions will provide meaningful
protection from competition or that competitors will not be able to develop
similar or superior technology independently.
Ultimately, the Company may be unable, for financial or other reasons, to
enforce its rights under the intellectual property laws. In addition, the
laws of certain countries in which the Company's products are or may be
distributed may not protect the Company's products and intellectual property
rights to the same extent as the laws of the United States.
The Company believes that its products do no infringe upon any valid existing
proprietary rights of third parties. In 2001 the Company was sued by a
competitor and it won its counter-claim against a competitor of proprietary
automobile phone charger products. Although the Company has received no
communication from third parties alleging the infringement of proprietary
rights of such parties since this lawsuit, there can be no assurance that
third party will not assert infringement claims in the future. Any such third
party claims, whether or not meritorious, could result in costly litigation or
require the Company to enter into royalty or licensing agreements. There can
be no assurance that the Company would prevail in any such litigation or that
any such licenses would be available on acceptable terms, if at all. If the
Company were found to have infringed upon the proprietary rights of third
parties, it could be required to pay damages, cease sales of the infringing
products and redesign or discontinue such products, any of which alternatives,
individually or collectively could have a material adverse effect on the
Company's business, operating results and financial condition.
Speculative Nature of Company's Proposed Plan of Operation
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The success of the Company's proposed plan of operation will depend to a great
extent on it management, present and future, operating within the confines of
limited financial resources. Current working capital is expected to be
sufficient to sustain the Company's growth in the year 2002. However, without
outside financing the Company may have to revise its growth plans and lower
its estimates. There is no assurance that outside financing will be available
to the Company, and if such financing were available that the terms of such
proposed financing would be acceptable to the Company.
Lack of Market Research or Marketing Organization
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The Company has determined on its own that a market demand exists for our
Company's contemplated business. In the power electronics field the Company
has been utilizing two recent research reports; one by CIBC Oppenheimer World
Markets, New York, New York and the second by Stevens Inc., Little Rock, AK.
The Company does not have a separate marketing organization. Each business
unit has its own marketing staff. Present management will market the
Company's products and services on a division basis as they are developed.
Lack of Diversification
- -----------------------
The Company's proposed growth plans are limited and directly related to
financing. The Company's inability to diversify its activities into a number
of areas may subject the Company to economic fluctuations within a particular
specific field, and therefore increase the risks associated with the Company's
operations.
Regulation
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The Company is subject to regulation under the Securities Exchange Act of 1934
Management believes that our Company is not be subject to regulation under the
Investment Company Act of 1940, as we are not engaged in the business of
investing or trading in securities. In the event the Company engages in
business combinations which result in our Company holding passive investment
interests in a number of entities, the Company could be subject to regulation
under the Investment Company Act of 1940. In such event, the Company would be
required to register as an investment company and could be expected to incur
significant registration and compliance costs. The Company has obtained no
formal determination from the Securities and Exchange Commission as to the
status of the Company under the Investment Company Act of 1940 and,
consequently, any violation of such Act would subject the Company to material
adverse consequences.
Product Liability
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The Company's power electronics division Autec experienced a product liability
claim which was settled. The sale and support of products by the Company may
entail the risk of such claims, and there can be no assurance that the Company
will not be subject to such claims in the future. A successful product
liability claim or claim arising as a result of use of the Company's products
brought against the Company, or negative publicity attendant to any such
claim, could have a material adverse effect upon the Company's business,
operating results and financial condition. The Company does not maintain
product liability insurance.
Limitation of Liability and Indemnification
- -------------------------------------------
The Company's Amended and Restated Certificate of Incorporation limits, to
the maximum extent permitted by the Nevada General Corporation Law ("Nevada
Law"), the personal liability of directors for monetary damages for breach of
their fiduciary duties as a director, and provides that the Company shall
indemnify its officers and directors and may indemnify its employees and
other agents to the fullest extent permitted by law.
The Company has purchased director's and officer's liability insurance which
expires in June 2002. There is no assurance that the policy can or will be
renewed. Nevada Law provides that a corporation may indemnify a director,
officer, employee or agent made, or threatened to be, a party to an action by
reason of the fact that he was a director, officer, employee or agent of the
corporation or, was serving at the request of the corporation, against
expenses actually and reasonably incurred in connection with such action if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the corporation, and, with respect of any
criminal action or proceeding, if he had no reasonable cause to believe his
conduct was unlawful.
Nevada Law does not permit a corporation to eliminate a director's duty of
care, and the provisions of the Company's Amended and Restated Certificate
of Incorporation have no effect on the availability of equitable remedies,
such as injunction or rescission, for a director's breach of the duty of
care. INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING
THE COMPANY PURSUANT TO THE FOREGOING PROVISION, OR OTHERWISE, THE COMPANY
HAS BEEN INFORMED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE
COMMISSION SUCH INDEMNIFICATION IS AGAINST THE PUBLIC POLICY AS EXPRESSED IN
THE ACT AND IS THEREFORE UNENFORCEABLE.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's corporate offices, and the offices of PTI Enclosures, Bridge
R&D, DataStor Division and Classic Trading Inc. are located in sublet
facilities at 12601 Monarch Street, Garden Grove, CA 92841. This facility has
approximately 50,000 square feet and it houses corporate offices,
manufacturing and warehouse operations. The lease is for 5 years at an
average annual rent of $150,156 per year.
The Company's subsidiary Autec leases a 30,000 square feet facility in Simi
Valley, California. The lease is for 8 years at an average annual rent
$198,000 per year.
The Company's Bridge Technology Ningbo leases 110,000 square feet facility.
The lease is for 5 years at $144,000 per year.
The Company has not filed any patent applications. The Company's policy is
that when the need arises it will file patent applications on a worldwide
basis to protect technology, inventions and improvements that are considered
important to the development of its business. The Company will, as a matter
of policy, seek patent protection in each of the three major geographic
markets: United States, Europe and the Pacific Rim. The Company also relies
on trade secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position.
Manufacturing
- -------------
The Company received and maintains the ISO 9002 certification to qualify as
an approved vendor for major computer and computer peripheral manufacturers.
The Company also uses off-shore vendors to procure certain sub-assemblies,
from which the Company then assembles the final products. Before shipment the
products are inspected and tested to maintain the high quality and low return
levels demanded by the Company's customers.
ITEM 3. LEGAL PROCEEDINGS.
In February 2001, the Company confirmed, through a news release, that it
unilaterally severed the relationship with Worldwide Wireless Networks, Inc.
(WWN). During the second quarter of 2001, the Company entered into a verbal
settlement with WWN to cancel all agreements, including the exchange of shares
of common stock, between the two companies. In May 2001, this settlement
agreement was reduced to writing by Worldwide Wireless Networks, Inc. and
signed by our Company's President, John Harwer. As of June 30, 2001,
Worldwide Wireless Networks, Inc. has not signed, nor complied with the
settlement agreement.
During 2001, a complaint was filed against the Company for fees alleged to be
due on an acquisition which was not consummated. The complaint seeks for
damage of approximately $2 million where as the Company believes that the
complaint is without merit and will be resolved in favor of the Company. The
Company tendered this case to its insurance carrier for settlement and did
not accrue any liabilities for this matter.
During 2001, a complaint was filed against the Company for an alleged transfer
of assets, technology, trade secrets, confidential information, business
opportunities from Allied Web, a corporation owned by the Company's President,
which filed for liquidation under federal bankruptcy laws on April 6, 2000.
The Company purchased from Allied Web certain assets including used computers,
inventories, and used furniture and fixtures for approximately $191,640 based
on the book value of these assets acquired from Allied Web in June 1997.
Other than this transaction, the Company did not have any transaction with
Allied Web afterwards. The Company considers that this action has no merit
and will vigorously defend itself. At December 31, 2001, management of the
Company was unable to assess the possibility of incurring future liability and
estimate the reasonable amount of contingent liability. Therefore, the
Company did not record any accrued liability for this matter.
During 2001, a complaint was filed against the Company for fees allegedly
owned by the Company. The Company intends to vigorously defend this claim
because the amount was deemed excessive comparing to the quality of services
rendered. The estimated liability including interest, costs and statutory
attorney's fees was approximately $100,000. The Company has recorded
liabilities for this amount in accordance with Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies" (SFAB No. 5").
A former shareholder of Autec Power Systems has filed in 2001 a complaint
against the controlling shareholder of Autec, Mr. Winston Gu and Bridge
Technology, Inc. alleging that he/they did not receive sufficient exchange
of shares in this acquisition by Bridge Technology, Inc. While an attempt to
settle this complaint have been made, the parties have not reached a
settlement. The Company believes that the complaint is without merit as to
Bridge Technology, Inc. and will be resolved between the parties. At December
31, 2001, management of the Company was unable to asses the possibility of
incurring future liability and estimate the reasonable amount of contingent
liability. Therefore, the Company did not record any accrued liability for
this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In November 1999 the shareholder voted to increase the authorized shares of
the Company from 10,000 to 100,000 shares. There were no matters submitted to
a vote of shareholders in the calendar year 2001.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the NASDAQ Small Cap Market System
under the symbol BRDG. The following table sets forth the range of high and
low closing prices in the NASDAQ Small Cap Market System for the Common Stock
for the periods indicated, as reported by the National Quotation Bureau
Incorporated. Prices represent actual reported sale prices.
Fiscal Years Ended December 31,
Price
High Low
2001
First Quarter ................... $ 3.38 $ 1.94
Second Quarter .................. $ 2.20 $ 1.50
Third Quarter ................... $ 2.20 $ 1.15
Fourth Quarter .................. $ 1.72 $ 0.92
2000
First Quarter ................... $14.625 $9.75
Second Quarter .................. $ 9.25 $4.875
Third Quarter ................... $ 8.88 $5.50
Fourth Quarter .................. $ 7.50 $1.53125
Our Company had approximately 2,800 shareholders of record on March 31, 2002.
Dividend Policy and Restrictions on Dividend Payments
- -----------------------------------------------------
The Company intends to continue its policy of retaining all earnings for
reinvestment in the business operations of the Company. However, the Board
has authorized a stock dividend of the shares of two subsidiaries subject to
legal approval, tax review, consent of General Bank and the Shareholders.
This action will be presented to the Shareholders at the annual meeting in
early May 2002.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION AND
FINANCIAL CONDITION.
Overview
- --------
The Company designs, manufactures and sells state of the art power electronics
components and computer peripheral components and enclosures. In addition the
Company has established a strong channel distribution system in China
presently dedicated to IBM products. The Company expects to expand this
distribution system throughout Asia and the Philippines Islands and the United
States.
Critical Accounting Policies
- ----------------------------
Our consolidated financial statements have prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to use estimations and
assumptions and make judgements that affect the reported amounts of assets,
liabilities, revenues and expenses. We based our estimations on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the result of which form the basis for making
judgements about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions and conditions. Our critical accounting
policies are as follows:
Rebates and Credits Receivable
CMS Technology Co. Ltd. ("CMS"), one of our subsidiaries, is an authorized
distributor of IBM products in the territory including China, Vietnam,
Philippines and Hong Kong. As a common practice in the computer parts
distribution business, IBM periodically updates its price list for all its
products and provides certain incentive programs to attract its authorized
distributors to sell more of its products. As a result of changes in price
list (usually decreases in prices), CMS is entitled to receive certain rebates
and credits for the inventory held and sold by the Company within the
specified period of time as defined by IBM through submitting the necessary
applications forms. In general, once applications were approved by IBM these
rebates and credits approved by IBM will be deducted from CMS's accounts
payable to IBM and decrease the cost of goods sold correspondingly. However,
at the end of reporting period, CMS has to estimate the relevant rebates and
credit receivable based on the quantity of inventory in hands and anticipated
approval for rebates and credits receivable from IBM, therefore, the actual
results could differ from our estimated amount.
Impairment of Long-Lived Assets
In assessing the recoverability of long-lived assets, including goodwill and
other intangibles, we must make assumptions regarding estimated future cash
flows and other factors to determine the fair value of the respective assets.
If these estimates or their related assumptions change in the future, we may
be required to record impairment charges for these assets not previously
recorded.
Accounting for Income Taxes
Significant management judgement is required in determining our provision for
income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded. As of December 31, 2001, we have recorded a full
valuation allowance of approximately $1.4 million against our deferred tax
assets balance in the U.S. due to uncertainties related to our deferred tax
assets as a result of our history of losses in the U.S. The valuation is
based on our estimates of taxable income in the U.S. operation and the period
over which our deferred tax assets will be recoverable. In the event that
actual results differ from these estimates or we adjust these estimates in the
future periods, we may need to change the valuation allowance, which could
impact our financial position and results of operations.
Results of Continuing Operations
- --------------------------------
The following tables set forth, for the periods indicated, the percentage
which certain items in the consolidated statements of income bear to revenues
from continuing operations, and the percentage change from period to period
of these items:
Years Ended December 31,
----------------------------------------------
2001 2000 1999
-------------- -------------- --------------
(dollars in thousands)
Revenues................ $ 141,907 $ 120,919 $ 34,272
Cost of sales ......... 134,513 108,834 27,962
-------------- -------------- --------------
Gross Profit............ 7,394 12,085 6,310
Percentage ............ 5.2% 10% 18%
Operating expenses...... 9,709 9,766 5,355
-------------- -------------- --------------
Operating income (loss). $ (2,315) $ 2,319 $ 955
============== ============== ==============
Net income (loss) from
continuing operations. $ (2,315) $ 1,099 $ 660
============== ============== ==============
Percentage of Revenues
Years Ended December 31,
----------------------------------------------
2001 2000 1999
-------------- -------------- --------------
Revenues ................... 100.0 % 100.0 % 100.0 %
Gross profit................ 5.2 10.0 18.4
Operating income ........... (1.7) 1.9 2.8
Interest, net............... 0.5 0.3 0.2
Income tax expense ......... 0.2 0.5 1.1
Net income (loss)........... (1.9) 0.9 1.9
Percentage Increase (Decrease)
Years Ended December 31,
---------------------------------
2000-2001 2000-1999
------------- -------------
Revenues ........................ 17.4 % 252.8 %
Gross profit..................... (38.8) 91.5
Operating income ................ (201.0) 142.6
Interest, net.................... 84.0 668.6
Income tax expense .............. (55.0) 73.8
Net income ...................... (348.8) 66.4
Safe Harbor Statement
- ---------------------
Statements which are not historical facts, including statements about our
Company's confidence and strategies and its expectations about new and
existing products, technologies and opportunities, market and industry
segment growth, demand and acceptance of new and existing products are
forward looking statements that involve risks and uncertainties. These
include, but are not limited to, product demand and market acceptance risks,
the impact of competitive products and pricing, the results of financing
efforts, the loss of any significant customers of any business, the effect of
our Company's accounting policies, the effects of economic conditions and
trade, legal, social, and economic risks, such as import, licensing, and,
trade restrictions; the results of our Company's business plan and the impact
on our Company of its relationship with its lenders.
Results of Operations for Years ended December 31, 2000 and 2001
- ----------------------------------------------------------------
Net Sales increased 17.4% from $120.9 million in 2000 to $141.9 million in
2001. Products and services mix in 2001 has not changed substantially in
comparison to those in the prior year.
Gross Profit decreased 38.8% from $12.1 million in 2000 to $7.4 million in
2001 principally as a result of Autec sales volume decline. Facing the
competitive environment and declining prices, gross profit as a percentage of
net sales decrease from 10% in 2000 to 5.2% in 2001. The gross margin in CMS
was relative low comparing to the gross margins in other subsidiaries.
Research and development expenses increased by approximately 71.9% from
$689,000 in 2000 compared to $1,184,687 in 2001. The increase was attributed
to on-going product development and enhancement of existing technologies.
Selling and administrative expenses decreased approximately 6.1% from $9.1
million in 2000 to $8.5 million in 2001. The decrease in selling, general and
administrative expenses was attributed mainly to the reduction of business
activities in the United States.
Net income decreased approximately 348.8% from $1.1 million in 2000 to a loss
of $2.7 million in 2001. The decrease in net income was attributed to the
severe decline in revenues and net income of Autec in 2001
Results of Operations for Years ended December 31, 1999 and 2000
- ----------------------------------------------------------------
Net Sales increased 253% from $34.3 million in 1999 to $120.0 million in 2000.
Products and services mix in 2000 has changed substantially in comparison to
those in the prior year, due mainly to the revenue of approximately $70
million generated by CMS, which is an authorized IBM products distributor in
Asia.
Gross Profit increased 92 % from $6.3 million in 1999 to $12.1 million in 2000
principally as a result of augmented sales volume. Facing the competitive
environment and declining prices, gross profit as a percentage of net sales
decrease from 14.6% in 1999 to 10% in 2000. The gross margin in CMS was
relative low comparing to the gross margins in other subsidiaries.
Research and development expenses increased by approximately 103% from
$339,000 in 1999 compared to $689,000 in 2000. The increase margin was
attributed to on-going product development and enhancement of existing
technologies.
Selling and administrative expenses increased approximately 81% from $5.1
million in 1999 to $9.1 million in 2000. The increase in selling, general and
administrative expenses was attributed mainly to the expansion of business
activities in Asia and the United States.
Net income increased approximately 66% from $661,000 in 1999 to $1.1 million
in 2000. The increase in net income was attributed to the net income
generated by Autec and CMS in 2000.
Liquidity and Capital Resources
- -------------------------------
Since current management acquired control of our Company in early 1997, our
Company has financed its operations with internal generated cash and with the
private placement of its securities and with subordinated loans from
principals of the Company.
Comparison between 2000 and 2001
- --------------------------------
The Company's capital requirements have been, and will continue to be,
significant. At December 31, 2001, the company had a working capital surplus
of $3,509,012 and cash and cash equivalents of $2,413,295 compared to a
working capital surplus of $6,932,287 and cash and cash equivalents of
$4,870,836 at December 31, 2000. Since inception, our Company has satisfied
its working capital requirements through revenues generated from operations,
the issuance of equity securities, loans from banking institutions and
subordinated loans for principals of the Company.
Net cash used in operating activities in the twelve months ended December
31, 2001 was approximately $4.3 million, as compared to net cash provided of
approximately $4.5 million in the twelve months ended December 31, 2000.
Net cash used in investing activities in the twelve months ended December 31,
2001 was approximately $1.558 million as compared to $4.978 million in the
twelve months ended December 31, 2000.
Net cash provided by financing activities in the twelve months ended December
31,2001 was approximately $3.356 million as compared to $11.409 million
provided by financing activities in the twelve months ended December 31, 2000.
We believe that our Company can accommodate the funds needed from the growth
of business with internally generated cash flow and increased credit
facilities from banking institutions, in addition to a private placement of
equity subject to improved market conditions. However, the Company may seek
financing directly for separate subsidiary entities.
Payments Due in Periods
Less than 1-3 4-5 After 5
Contractual Total 1 year Years Years Year
Obligations ___________________________________________________________
Note payable to IBM 5,000,000 5,000,000 - - -
Note payable to General Bank 4,000,000 4,000,000
Shareholder loans 2,130,000 2,130,000 - - -
Related party loans 989,979 75,118 165,042 186,957 562,862
Long-term bank loans 375,201 46,901 99,613 107,894 120,793
Operating lease 8,346,681 660,332 1,367,320 1,270,378 5,048,651
____________________________________________________________
Total contractual cash 20,841,861 11,912,351 1,631,975 1,565,229 5,732,306
Obligations ____________________________________________________________
Comparison between 1999 and 2000
- --------------------------------
The Company's capital requirements have been, and will continue to be,
significant. At December 31, 2000, the company had a working capital surplus
of $6,932,287 and cash and cash equivalents of $4,870,836 compared to a
working capital surplus of $5,353,306 and cash and cash equivalents of
$2,900,029 at December 31, 1999. Since inception, our Company has satisfied
its working capital requirements through revenues generated from operations,
the issuance of equity securities, loans from banking institutions and
principals of the Company.
Net cash used in operating activities in the twelve months ended December
31, 2000 was approximately $4.5 million, as compared to net cash provided of
$681,000 in the twelve months ended December 31, 1999. The difference was
mainly due to the cash decrease in accounts receivable and inventory and cash
increase in accounts payable.
Net cash used in investing activities in the twelve months ended December
31, 2000 was approximately $5.0 million, as compared to $662,000 in twelve
months ended December 31, 1999. The main reason for the increase in cash
used in investing activities was the net cash of $5.3 million used for
acquiring 60% equity interest in CMS.
Net cash provided by financing activities in the twelve months ended
December 31, 2000 was approximately $11.4 million as compared to $791,000
provided by financing activities in the twelve months ended December 31, 1999.
The main factor for the increase in cash provided by financing activities was
the net increase of $5.8 million from lines of credit obtained in the United
States and in Hong Kong and the cash of $4.2 million injected as capital by
the ex-shareholders in CMS before the acquisition took place.
We believe that our Company can accommodate the fund needs from the growth of
business with internally generated cash flow and increased credit facilities
from one or more banking institutions. However, there can be no assurances
that an additional credit will be obtained. The absence of an increased
credit line in sure to stymie our Company's growth plans.
Effects of Fluctuation in Foreign Exchange Rates
- ------------------------------------------------
The Company continues to buy products and services from foreign suppliers.
The Company contracts for such products and services in U.S. dollars, thus
eliminating the possible effect of currency fluctuations. However, there
is continuous risk in market demand fluctuations with CMS Technology's
operations in China. To date the risk has been minimal.
Fluctuation in Quarterly Results
- --------------------------------
Quarterly results may be adversely affected in the future by a variety of
factors, including the possible costs of obtaining capital, as well as the
initial costs associated with the release of new products and promotions
taking place within the quarter. The Company plans to continue to fund
research and development and its expanded patent work with cash generated from
internal operations. To the extent that such expenses precede, or are not
subsequently followed by, increased revenues, the Company's business,
operating results and financial condition will be adversely affected.
New Accounting Standards Not Yet Adopted
- ----------------------------------------
In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, "Business Combinations" ("SFAS No. 141"), and No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142")
SFAS No. 141 requires the use of the purchase method of accounting and profits
the use of the pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001. SFAS No. 141 also requires that
the Company recognize acquired intangible assets apart from goodwill if the
acquired intangible assets meet certain criteria. SFAS No. 141 applies to all
business combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon
adoption of SFAS No. 142, companies to reclassify the carrying amounts of
intangible assets and goodwill based on the criteria in SFAS No. 141. The
Company does not expect that the adoption of SFAS No. 141 will have a material
impact on its consolidated financial statements.
SFAS No. 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS No. 142 requires that the Company identify reporting units
for the purpose of assessing potential future impairments of goodwill,
reassess the useful lives of other existing recognized intangible assets,
and cease amortization of intangible assets with an indefinite useful life.
An intangible asset with an indefinite useful life should be tested for
impairment in accordance with the guidance in SFAS No. 142. SFAS No. 142 is
required to be applied in fiscal years beginning after December 15, 2002 to
all goodwill and other intangible assets recognized at that date, regardless
of when those assets were initially recognized. SFAS No. 142 requires
companies to reassess the useful of other intangible assets within the first
interim quarter after adoption of SFAS No. 142. The Company does not expect
that the adoption of SFAS No. 142 will have a material effect on the
consolidated financial statements.
In June 2001, Financial Accounting Standard Board issued Statement of
Financial Accounting Standards, No. 143, "Accounting for Asset Retirement
Obligations," ("SFAS No. 143"). FAS No. 143 is effective for fiscal years
beginning after June 15, 2002. SFAS No. 143 requires that any legal
obligation related to the retirement of long-lived assets be quantified and
recorded as a liability with the associated asset retirement cost capitalized
on the balance sheet in the period it is incurred when a reasonable estimate
of the fair value of the liability can be made.
In August 2001, Financial Accounting Standard Board issued Statement of
Financial Accounting Standards, No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," ("SFAS No. 144"). SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001. SFAS No. 144 provides a
single, comprehensive accounting model for impairment and disposal of long-
lived assets and discontinued operations.
The Company expects that SFAS No. 143 and SFAS No. 144 will be adopted on
their effective dates and that the adoption will not result in any material
effects on its financial statements.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
- -----------------------------------------------------------
Bridge Technology, Inc. develops products in the United States and Japan and
sells primarily in North America, Asia and Europe. As a result, financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in foreign markets. Since our
Company's products are generally initially priced in U.S. Dollars and
translated to local currency amounts, a strengthening of the dollar could make
our Company's products less competitive in foreign markets.
SELECTED FINANCIAL DATA
- -----------------------
The historical operating results data, per share data and balance sheet data
set forth below are derived from the historical financial statements of our
Company, which have been restated to reflect the Autec Power
Systems, Inc., and PTI Enclosures, Inc. acquisitions and the related
accounting treatment (See note 1 of notes to consolidated financial
statements). The balance sheet data includes the accounts of PTI Enclosures,
Inc. as of December 31, 2000, and 2001; Autec Power Systems, Inc. as of
December 31, 2000 and 2001; and CMS Technology Limited, Hong Kong as of
December 31, 2000 and 2001. Operating results and per share data for the
years ended December 31, 1999, 2000, and 2001 include the results for PTI
Enclosures, Inc. and Autec Power Systems, Inc., and December 31, 2000 and 2001
includes the operating results of CMS Technology Limited, Hong Kong.
Selected Financial Data
(Figures in thousands, except per share amounts)
Years Ended December 31,
----------------------------------------------
2001 2000 1999
-------------- -------------- --------------
Revenues:
Manufacturing ............ $ 37,983 $ 28,137 $ 22,188
Channel Distribution ..... 103,924 92,782 12,084
-------------- -------------- --------------
141,907 120,919 34,272
-------------- -------------- --------------
Cost of Sales:
Manufacturing ............ 34,803 20,441 17,957
Channel Distribution ..... 99,710 88,393 10,005
-------------- -------------- --------------
134,513 108,834 27,962
-------------- -------------- --------------
Gross profit ............... 7,395 12,085 6,310
Selling, general and
administrative costs ..... 8,525 9,077 5,016
R & D expense .............. 1,185 689 339
-------------- -------------- --------------
Operating income (loss) (2,315) 2,319 956
Interest income, net ....... (720) (391) 69
Minority interest in earning (154) (233) 11
-------------- -------------- --------------
Income before income taxes . (2,289) 1,731 1,024
Income tax expense ......... 292 632 363
-------------- -------------- --------------
Net income (loss) from
Continuing operations..... (2,581) 1,099 660
-------------- -------------- --------------
Preferred stock dividend ... 0 - -
Net Income (Loss)....... $ (2,735) 1,099 660
============== ============== ==============
Earnings per share:
Basic .................... $ (0.25) $ 0.10 $ 0.07
============== ============== ==============
Diluted .................. $ (0.25) $ 0.10 $ 0.06
============== ============== ==============
Basic weighted average
Number of common shares
outstanding .. 10,863,186 11,254,022 10,581,406
============== ============== ==============
Dividends declared per share None None None
Selected Financial Data
(in thousands)
December 31,
----------------------------------------------
2001 2000 2001
-------------- -------------- --------------
Working capital ............ $ 3,509 $ 6,932 $ 5,353
Total assets ............... 40,621 44,722 13,283
Borrowings under bank line
of credit................. 9,000 6,000 98
Long-term debt, including
current maturities.... 328 777 878
Stockholder's equity........ 7,285 9,497 5,766
ITEM 7. FINANCIAL STATEMENTS.
Bridge Technology, Inc. and Subsidiaries
_______________________
Consolidated Financial Statements
For the Years Ended December 31, 1999, 2000 and 2001
_______________________
Bridge Technology, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Independent Auditors' Report F-2
Consolidated Financial Statements
Balance Sheets F-3
Statements of Operations and Comprehensive Income (Loss) F-4
Statements of Shareholders' Equity F-5
Statements of Cash Flows F-6
Summary of Accounting Policies F-9
Notes to Financial Statements F-15
Schedule II F-30
Independent Auditors' Report
The Shareholders of
Bridge Technology, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Bridge
Technology, Inc. (a Nevada corporation) and subsidiaries as of December 31,
2000 and 20010, and the related consolidated statements of operations and
comprehensive income (loss), shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 2001. We have also
audited the schedules listed in the accompanying index. These consolidated
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedules 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 consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statements. 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 Bridge
Technology, Inc. and subsidiaries as of December 31, 2000 and 2001 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.
Also, in our opinion, the schedules present fairly, in all material respects,
the information set forth therein.
Los Angeles, California
March 22, 2002
F-2
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------
2000 2001
------------ ------------
Assets (Note 4)
Current assets:
Cash $ 4,870,836 $ 2,413,295
Accounts receivable less allowance for
doubtful accounts of $465,656 and
$308,106 (Note 11) 17,666,626 11,035,057
Advances to employees 42,898 6,065
Other receivables 1,057,217 61,669
Inventory (Note 1) 16,991,615 21,692,543
Due from related party (Note 8) 21,932 362,143
Other current assets 219,192 125,127
------------ ------------
Total current assets 40,870,316 35,695,899
Property and equipment, net (Note 2) 716,384 2,681,018
Goodwill, net of amortization of $598,210
and $1,242,917 (Note 6) 2,586,324 1,949,417
Purchased intangibles (Note 9) 190,000 -
Deferred income tax (Note 3) 63,201 -
Investments 229,862 198,717
Other assets 66,834 96,213
------------ ------------
Total assets $ 44,722,921 $ 40,621,264
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Bank overdraft $ - $ 36,152
Notes payable (Note 4) 6,000,000 9,000,000
Current portion of long term debt (Note 5) 155,980 46,901
Accounts payable, net of accrued rebates
and credits of $0 and $860,580 23,180,434 17,696,216
Accrued taxes payable 537,401 6,400
Deferred income tax (Note 3) 26,425 4,097
Accrued liabilities 1,148,870 2,277,142
Shareholder loan, including interest (Note 8) 2,888,919 2,130,000
Due to related party (Note 8) - 989,979
----------- -------------
Total current liabilities 33,938,029 32,186,887
Long term debt, less current portion (Note 5) 621,023 328,300
------------ -------------
Total liabilities 34,559,052 32,515,187
------------ -------------
Minority interest 667,224 821,264
Commitments and Contingencies (Note 7)
Shareholders' equity (Notes 9 and 10):
Common stock; par value $0.01 per share,
authorized 100,000,000 shares, 10,863,186
shares and 10,798,186 shares outstanding at
December 31, 2000 and 2001 108,632 108,632
Additional paid-in capital 9,308,139 9,581,489
Related party receivable (Note 8) (225,000) -
Treasury stock, 1,000 shares and (2,000) (2,000)
66,000 shares at cost (Note 8)
Retained earnings (accumulated deficit) 354,745 (2,380,289)
Accumulated other comprehensive loss (47,871) (23,019)
------------ ------------
Total shareholders' equity 9,496,645 7,284,813
------------ ------------
Total liabilities and shareholders' equity $ 44,722,921 $ 40,621,264
============ ============
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
Year ended December 31,
-------------------------------------------
1999 2000 2001
------------ ------------ -------------
Net sales (Note 11) $ 34,272,187 $120,918,774 $ 141,907,379
Cost of sales 27,961,504 108,833,687 134,512,806
------------ ------------ -------------
Gross profit 6,310,683 12,085,087 7,394,573
Research and development 339,380 689,056 1,184,687
expenses
Selling, general and
administrative expenses 5,015,522 9,077,087 8,525,135
------------ ------------ -------------
Income (loss) from operations 955,781 2,318,944 (2,315,249)
Other income (expense):
Interest, net 68,724 (390,757) (719,756)
Other (11,949) 35,958 319,360
Gain on sale of investments (Note 8) - - 879,035
Write-off of impaired
impaired intangibles (Note 9) - - (190,000)
Write-ff of investment in a related
party (Note 8) - - (262,550)
----------- ------------ --------------
Income (loss) before income taxes 1,012,556 1,964,145 (2,289,160)
Income taxes (Note 3) 363,283 631,557 291,848
------------ ------------ -------------
Net income (loss) 649,273 1,332,588 (2,581,008)
Minority interest in net loss
(income) of subsidiaries 11,448 (233,428) (154,026)
----------- ------------ -------------
Net income (loss) applicable
to common shares $ 660,721 $ 1,099,160 $ (2,735,034)
============ ============ =============
Basic weighted average number
of common stock outstanding 9,800,665 10,703,929 10,863,186
============ ============ =============
Basic income (loss) per share $ 0.07 $ 0.10 $ (0.25)
============ ============ =============
Diluted weighted average number
of common stock outstanding 10,581,406 11,254,022 10,863,186
============ ============ =============
Diluted income (loss) per share $ 0.06 $ 0.10 $ (0.25)
============ ============ =============
Comprehensive loss and its
components consist of the
following:
Net income (loss) $ 660,721 $ 1,099,160 $ 2,735,034)
Foreign currency translation
adjustments (26,197) (16,338) 24,852
------------ ------------- -------------
Comprehensive income (loss) $ 634,524) $ 1,115,498 $ 2,710,182)
============ ============= ============
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(SEE NOTES 9 AND 10)
STOCK ACCUMULATED
COMMON STOCK ADDITIONAL SUBSCRIPTION OTHER
------------------ PAID-IN ACCUMULATED SHARE TEASURY COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE STOCK LOSS TOTAL
--------- --------- ----------- ---------- ----------- ----------- -------------- ------------
BALANCE, January 1, 8,897,186 $ 88,972 $ 5,110,968 $(1,405,136) $ 25,000 $ - $ (38,012) $ 3,781,792
1999
Stock issued for
stock subscribed
in prior year 50,000 500 24,500 - (25,000) - - -
Forgiveness of loan
payable to share-
holder in PTI - - 100,000 - - - - 100,000
Warrants exercised 75,000 750 74,250 - - - - 75,000
Stock repurchase
Autec - - - - - (2,000) - (2,000)
Issurance of common
stock 600,000 6,000 444,000 - - - - 450,000
Issurance of common
stock 700,000 7,000 693,000 - - - - 700,000
Issurance of common
stock 120,000 1,200 238,800 - - - - 240,000
Non-employee
compensation due
warrants issued - - 34,500 - - - - 34,500
Warrants issued for
public relation-
ship service - - 1,834 - - - - 1,834
Notes receivable
from shareholder - - - - (250,000) - - (250,000)
Net Income - - - 660,721 - - - 660,721
Translation adjustment - - - - - - (26,197) (26,197)
-------- --------- ----------- ----------- ---------- ---------- ------------- --------------
Balance, December 31,
1999 10,442,186 104,422 6,721,852 (744,415) (250,000) (2,000) (64,209) 5,765,650
Warrants issued
for public relation-
ship service - - 3,666 - - - - 3,666
Warrants exercised 10,000 100 34,900 - - - - 35,000
Warrants exercised 1,000 10 1,740 - - - - 1,750
Issurance of common
stock 40,000 400 189,600 - - - - 190,000
Issurance of common
stock (Note 6) 360,000 3,600 2,336,400 - - - - 2,340,000
Warrants exercised 10,000 100 17,400 - - - - 17,500
Non-employee compen-
sation due to
warrants issued - - 2,581 - - - - 2,581
Repayments of share-
holder notes
receivable - - - - 25,000 - - 25,000
Net income - - - 1,099,160 - - - 1,099,160
Translation adjustment - - - - - - 16,338 16,338
-------- --------- ----------- ----------- ---------- ---------- ------------- --------------
Balance, December 31,
2000 10,863,186 108,632 9,308,139 354,745 (225,000) (2,000) (47,871) 9,496,645
Disposal of invest-
ment in Newcorp
Japan (Note 8) - - 273,350 - - - - 273,350
Write off of
receivable - - - - 225,000 - - 225,000
Net loss - - - (2,735,034) - - - (2,735,034)
Translation adjustment - - - - - - 24,852 24,852
-------- --------- ----------- ----------- ---------- ---------- ------------- --------------
Balance, December 31,
2001 10,863,186 $ 108,632 $ 9,581,489 $(2,380,289) $ - $ (2,000) $ (23,019) $ 7,284,813
======== ========= =========== =========== ========== ========== ============= ==============
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years ended December 31,
-----------------------------------
1999 2000 2001
----------- ----------- -----------
Cash flows from operating activities
Net (loss) income $ 660,721 $1,099,160 $(2,735,034)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 162,825 857,904 800,161
Provision for doubtful accounts 6,413 382,693 106,584
Provision for slow moving inventory (40,764) 451,403 180,270
(Gain)/loss on disposal of fixed
assets - (1,016) -
Loss on write-off of related party loan
Receivable - - 262,550
Write-off of intangible - 50,000 190,000
Stock issued in exchange for services 36,334 6,247 -
Gain on sale of investment - - (879,035)
Deferred taxes - (69,026) 40,713
Minority interest 38,522 233,428 154,026
Changes in operating assets and
liabilities, net of business
acquired
Trade receivables 91,794 (7,961,928) 6,524,985
Inventory (179,371) (3,311,272) (4,881,198)
Other receivables 25,940 (952,672) 957,998
Advances to employees 26,300 (41,698) 36,833
Prepaid and other assets 156,982 (108,908) 94,065
Other assets 171,709 (922) (29,379)
Accounts payable (129,265) 4,668,423 (5,484,218)
Accrued liabilities (571,434) (98,573) 934,191
Income taxes payable 229,859 229,597 (530,841)
Interest payable - 88,919 (23,290)
----------- ---------- ----------
Net cash provided by (used in) operating
activities 686,565 (4,478,241) (4,280,619)
----------- ---------- ----------
Cash flows from investing activities
Proceeds from sale of investment - - 910,180
Purchase of property, plant and equipment (421,866) (135,620) (2,127,888)
Purchased Intangibles (200,000) - -
Proceeds from disposal of fixed assets - 34,891 -
Due from related party (5,304) 6,175 (340,211)
Investment in affiliate (39,998) (39,866) -
Acquisition of CMS, net of cash acquired - (5,293,164) -
Repayment from (advance to) shareholder - 449,872 -
---------- ---------- ----------
Net cash used in investing activities (661,864) (4,983,887) (1,557.919)
---------- ---------- ----------
F-6
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years ended December 31,
-----------------------------------
1999 2000 2001
---------- ----------- ------------
Cash flows from financing activities
Bank overdraft - - 36,152
Proceeds from loans payable 102,768 130,680 -
Repayments on loans payable (474,664) (81,320) -
Proceeds from issuance of common stock 1,390,000 - -
Proceeds from related party loan (Note 8) - - 1,000,000
Repayment on related party payable (Note 8) - - (10,021)
Proceeds from line of credit - 5,761,322 3,000,000
Proceeds from shareholder loans (Note 8) - 16,691,766 30,000
Repayments on shareholder loans (Note 8) - (15,489,413) (700,000)
Related party receivable (Note 8) (250,000) 25,000 -
Proceeds from exercise of warrants - 54,250 -
Stock subscription collected 25,000 75,000 -
Stock subscription collected in CMS - 4,241,645 -
Stock repurchase (2,000) - -
---------- ---------- -----------
Net cash provided by financing activities 791,104 11,408,930 3,356,131
---------- ---------- -----------
Effect of exchange rate changes on cash (26,199) 17,830 24,866
---------- ---------- -----------
Net increase (decrease)
in cash and cash equivalents 784,302 1,970,807 (2,457,541)
Cash and cash equivalents, beginning of
year 2,115,727 2,900,029 4,870,836
---------- ---------- ----------
Cash and cash equivalents, end of year $2,900,029 $4,870,836 $2,413,295
========== ========== ==========
Cash paid during the year for:
Interest $ 44,216 $ 393,303 $ 841,863
Income taxes 51,376 401,960 822,849
---------- ---------- -----------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-7
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Supplemental disclosure of non-cash activities:
- -----------------------------------------------
PTI issued 11,856 shares of common stock in December 1998 in exchange for
consulting services provided by one of the Company's minority shareholders at
$0.50 per share.
PTI issued 50,000 shares of common stock in December 1998 in exchange for
100% of the outstanding shares of Classic Trading, Inc. at $0.50 per share.
In 1998 PTI sold 50,000 shares of common stock at $0.50 per share and recorded
a stock subscription receivable of $25,000.
During the year ended December 31, 1998, Autec sold certain fixed assets
with a cost of $34,500 and accumulated depreciation of $20,700 to a vendor in
exchange for a credit of $27,815. Autec recognized a gain of $14,015 for this
transaction.
In December 1998, the Company issued 1,926,696 shares of common stock in
exchange for 100% of the outstanding shares of PTI Enclosures, Inc. See
Basis of presentation for details.
In 1999, the Company cancelled a note of $100,000 payable to a shareholder in
accordance with the terms contained in the promissory note. The term states
that if the Company became a public reporting company before December 1, 2000,
the shareholder would forgive this note of $100,000 payable to him.
Accordingly, the Company recognized the forgiveness of note of $100,000
payable to the shareholder as a part of additional paid in capital.
In October 1999, the Company granted 310,000 stock warrants to key employees,
officers and directors. Accordingly, a non-employee director compensation
cost of $34,500 was recognized and included in general and administrative
expenses for 1999.
In May 2000, the Company acquired five patents, including design and tooling
from an unrelated entry for $190,000, in exchange for 40,000 shares of common
stock at market price of $4.75 per share.
In May 2000, the Company exercised an option to acquire the remaining 30%
interest in CMS Technology Limited (CMS) in exchange for 360,000 shares of the
Company's common stock at a market price of $6.50 per share.
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-8
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
Bridge Technology, Inc. (the Company) was incorporated under the laws of the
State of Nevada on April 15, 1969. Starting from April 1997, the Company
registered to do business in the State of California and is primarily engaged
in development and distribution of various hardware, software, and peripheral
products used in computer systems and sales to value added resellers and system
integrators.
As of December 31, 2001, the Company has the following subsidiaries:
Ownership
---------
Bridge R&D, Inc. 100% Established on June 1, 1997
Newcorp Technology Limited (in Japan) 100% Merged on November 1, 1997
PTI Enclosures, Inc. 100% Merged on December 14, 1998
Newcorp Technologies, Inc. (USA) 100% Established on March 23, 1999
Pacific Bridge Net, Inc. 80% Established on August 16, 1999
Autec Power System, Inc. 100% Merged on December 1, 1999
CMS Technology Ltd. 90% Acquired on January 3, 2000 (60%)
Acquired on May 15, 2000 (30%)
On August 16, 1999, the Company formed a subsidiary, Pacific Bridge Net
("PBN") incorporated in the State of Nevada with a strategic alliance
partner, Worldwide Wireless Networks, Inc. ("WWWN"). The initial capital of
$250,000 was contributed 80% by the Company and 20% by WWWN. PBN acquired
know how and technology from WWWN for $50,000, including specifications to
design, patent, manufacture, and sell for certain wireless infrastructure
equipment. During the last quarter of 2000, WWWN was unable to deliver the
technology and in February 2001, the strategic relationship with WWWN was
terminated by a mutual agreement.
During 2000, the Company acquired 90% equity interest in CMS Technology Limited
(CMS), a company incorporated under the laws of the Hong Kong Special
Administrative Region, through two transactions which were accounted for under
the purchase method of accounting. (Note 6)
On May 28, 2001, the Company established a wholly owned subsidiary, Bridge
Technology Ningbo Co. Ltd. ("Ningbo"), in the City of Ningbo, Zhejiang
Province of China. Ningbo facility is used to conduct assembly work for power
supplies which will be sold to customers in the U.S. and other countries in
Asia. As of December 31, 2001, the Company invested approximately $2.18
million in Ningbo.
Basis of Accounting
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America which
include the accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements are presented in U.S. dollars.
Revenue Recognition
The Company recognizes revenue when the risk of loss for the product sold
passes to the customer and any right of return can be quantified, which is
generally when goods are shipped.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
Accounts Receivable and Concentration of Credit Risk
During the normal course of business, the Company extends unsecured credit to
its customers who are located in various geographical areas. Typically credit
terms require payment made within 30 days of the sale. The Company regularly
evaluates and monitors the creditworthiness of each customer on a case by case
basis. The Company provides an allowance for doubtful accounts based on its
continuing evaluation of its customers' credit risk. The Company does not
require collateral from its customers. The Company maintains its cash accounts
at credit worthy financial institutions.
Inventories
Inventories consist principally of microcomputer component parts and are stated
at the lower of cost (first-in, first-out) or market.
Foreign Currency Translation and Transactions
The financial position and results of operations of the Company's foreign
subsidiaries are determined using local currency as the functional currency.
Assets and liabilities of the subsidiaries are translated at the prevailing
exchange rate in effect at each year end. Contributed capital accounts are
translated using the historical rate of exchange when capital is injected.
Income statement accounts are translated at the average rate of exchange during
the year. Translation adjustments arising from the use of different exchange
rates from period to period are included in the cumulative translation
adjustment account in shareholders' equity. Gains and losses resulting from
foreign currency transactions are included in operations.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed primarily utilizing the straight-line method over the
estimated useful lives of the assets as follows:
Estimated Useful
Life (in Years)
-----------------
Computer equipment 4-5
Furniture, fixtures and equipment 4-7
Vehicles 5-6
Leasehold improvements 4-20
Maintenance, repairs and minor renewals are charged directly to expense as
incurred. Additions and betterments to property and equipment are capitalized.
When assets are disposed of, the related cost and accumulated depreciation
thereon are removed from the accounts and any resulting gain or loss is
included in statement of operations.
Accounting for the Impairment of Long-lived Assets and for the Long-lived
Assets to be Disposed Of
Statement of the Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for the Long-Lived Assets to be Disposed
Of" (SFAS No. 121) establishes guidelines regarding when impairment losses on
long-lived assets, which include plant and equipment, and certain identifiable
intangible assets, should be recognized and how impairment losses should be
measured. The Company reviews such assets for possible impairment whenever
circumstances indicate that the carrying amount may not be recoverable. To
the extent the carrying value of the asset exceeds its fair value, which is
determined using discounted cash flows, a write down to fair value is made.
Investments
The Company has made investments in other entities (which are privately hold
companies) in various industries for which its investment represents less than
20% of the voting stock of the investee and for which the Company does not
otherwise exert significant influence. The Company accounts for these
investments under the cost method and periodically reviews its investments to
determine that the cost does not exceed the fair value of the investment.
Research and Development Expense
Research and development expenses are expensed when incurred. The Company
incurred research and development expense of $339,380, $689,056 and $1,184,687
in 1999, 2000 and 2001.
Fair Value of Financial Instruments
The carrying amount of cash, trade accounts receivable, notes receivable,
trade accounts payable and accrued liabilities are reasonable estimates of
their fair value because of the short maturity of these items. The carrying
amounts of the Company's lines of credit and notes payable approximate fair
value because the interest rates on these instruments are subject to change
with market interest rate.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Among the more significant estimates
included in these financial statements are the estimated accounts receivable
allowance for doubtful accounts, reserve for obsolete inventory, and the
deferred income tax asset allowance. Actual results could differ from those
estimates.
Income Taxes
The Company accounts for income taxes using the liability method, which
requires an entity to recognize deferred tax liabilities and assets. Deferred
income taxes are recognized based on the differences between the tax bases of
assets and liabilities and their reported amounts in the financial statements
which will result in taxable or deductible amounts in future years. Further,
the effects of enacted tax laws or rate changes are included as part of
deferred tax expenses or benefits in the period that covers the enactment
date. A valuation allowance is recognized if it is more likely than not that
some portion, or all of, a deferred tax asset will not be realized.
Earnings (Loss) Per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS No. 128). The statement replaces the calculation
of primary and fully diluted earnings (loss) per share with basic and diluted
earnings (loss) per share. Basic earnings (loss) per share includes no
dilution and is computed by dividing income (loss) available to common
shareholders by the weighted average number of shares outstanding during the
period. Diluted earnings (loss) per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to fully
diluted earnings (loss) per share.
For the year ended December 31, 2001, potential dilutive securities
representing 1,729,000 outstanding warrants and options are not included since
their effect would be anti-dilutive.
Stock-based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS No. 123), establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which a
company acquires goods or services from employees and non-employees in
exchange for equity instruments. SFAS No. 123 also gives the option, for
employees only, to account for stock-based compensation, utilizing the
intrinsic method, in accordance with Accounting Principles Board Opinion No.
25 (APB No. 25), "Accounting for Stock issued to Employees". The Company has
chosen to account for stock-based compensation for employees utilizing the
intrinsic value method prescribed in APB No. 25 and not the fair value method
established by SFAS No. 123.
As required by SFAS No. 123, the Company has disclosed in Note 10 the pro
forma effect of stock-based employee compensation at the grant date based on
the fair value method. The fair value of the stock-based award is determined
using a pricing model at grant date or other measurement date.
Comprehensive Income (Loss)
The Company adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income," (SFAS No. 130) issued by the FASB is
effective for financial statements with fiscal years beginning after December
15, 1997. SFAS No. 130 establishes standards for reporting and presentation
of comprehensive income (loss) and its components in a full set of general-
purpose financial statements. The Company has chosen to report comprehensive
income (loss) in the statements of operations. Comprehensive income (loss) is
comprised of net income and all changes to shareholders' equity except those
due to investments by owners and distributions to owners.
FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
Statement of Financial Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133") requires companies to
recognize all derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are
met, a derivative may be specifically designated as a hedge, the objective of
which is to match the timing of gain or loss recognition on the hedging
derivative with the recognition of (i) the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change.
Historically, the Company has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, the adoption of
the new standard on January 1, 2001 did not have a material affect on the
financial statements.
New Accounting Standards Not Adopted Yet
In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, "Business Combinations" ("SFAS No. 141"), and No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142").
SFAS No. 141 requires the use of the purchase method of accounting and
prohibits the use of the pooling-of-interests method of accounting for
business combinations initiated after June 30, 2001. SFAS No. 141 also
requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS No.
141 applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS No. 142, companies to reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS No.
141. The Company does not expect that the adoption of SFAS No. 141 will have
a material impact on its consolidated financial statements.
SFAS No. 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS No. 142 requires that the Company identify reporting units for
the purposes of assessing potential future impairments of goodwill, reassess
the useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An
intangible asset with an indefinite useful life should be tested for
impairment in accordance with the guidance in SFAS No. 142. SFAS No. 142 is
required to be applied in fiscal years beginning after December 15, 2001 to
all goodwill and other intangible assets recognized at that date, regardless
of when those assets were initially recognized. SFAS No. 142 requires
companies to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS No. 142. The Company does not
expect that the adoption of SFAS No. 142 will have a material effect on the
consolidated financial statements.
In June 2001, Financial Accounting Standard Board issued Statement of
Financial Accounting Standards, No. 143, "Accounting for Asset Retirement
Obligations," ("SFAS No. 143"). FAS No. 143 is effective for fiscal years
beginning after June 15, 2002. SFAS No. 143 requires that any legal
obligation related to the retirement of long-lived assets be quantified and
recorded as a liability with the associated asset retirement cost capitalized
on the balance sheet in the period it is incurred when a reasonable estimate
of the fair value of the liability can be made.
In August 2001, Financial Accounting Standard Board issued Statement of
Financial Accounting Standards, No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," ("SFAS No. 144"). SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001. SFAS No. 144 provides a
single, comprehensive accounting model for impairment and disposal of long-lived
assets and discontinued operations.
The Company expects that SFAS No. 143 and SFAS No. 144 will be adopted on
their effective dates and that the adoption will not result in any material
effects on its financial statements.
Reclassifications
Certain reclassifications have been made to the prior year consolidated
financial statements to conform with the 2001 presentation.
Note 1. Inventory
Inventory consists of:
December 31,
----------------------------
2000 2001
------------ -------------
Service parts $ 1,505,715 $ 1,633,919
Work in progress 558,406 329,730
Finish goods 15,546,998 20,528,669
Allowance for slow moving items (619,504) (799,774)
------------- -------------
$ 16,991,615 $ 21,692,543
============= =============
Note 2. Property, Plant and Equipment
Property, plant and equipment consists of:
December 31,
-------------------------------
2000 2001
-------------- --------------
Furniture, fixtures and equipment $ 730,967 $ 3,076,718
Vehicles 100,748 35,053
Computer equipment 179,961 18,421
Leasehold improvements 567,700 569,421
-------------- --------------
1,579,376 3,862,612
Accumulated depreciation and amortization (862,992) (1,181,594)
-------------- --------------
Property, plant and equipment, net $ 716,384 $ 2,681,018
============== ==============
Note 3. Income Taxes
The income tax provision is as follows:
Years ended December 31,
------------------------------------------------
1999 2000 2001
------------- -------------- -------------
Current
Domestic
Federal $ 362,671 $ 294,677 $ -
State - 103,889 6,400
Foreign
Japan 612 592 443
Hong Kong - 308,974 307,298
------------ ------------ -----------
Total current 363,283 708,132 314,141
------------ ------------ -----------
Deferred
Domestic
Federal - - -
State - - -
Foreign
Japan - - -
Hong Kong - (76,575) (22,293)
------------ ------------ -----------
Total deferred - (76,575) (22,293)
------------ ------------ -----------
Total $ 363,283 $ 631,557 $ 291,848
============ ============ ===========
F-15
Note 3. Income Taxes (Continued)
The difference between the effective income tax rate and the expected
federal statutory rate is as follows:
Years ended December 31,
--------------------------
1999 2000 2001
------ ------ ------
Federal statutory rate 34.0% 34.0% (34.0)%
State taxes, net of federal benefit 6.0 6.0 (6.0)
Subsidiary income not offset by NOL - -
Changes in valuation allowance (2.2) (5.2) 49.1
Impact from permanent differences (2.0) 15.0 11.3
Foreign subsidiaries rate reduction - (16.2) (6.3)
Other - 2.9 (1.3)
------ ------ ------
Effective income tax rate 36.0 % 36.5 % 12.8%
====== ====== ======
Net deferred tax assets consist of the following:
December 31,
----------------------
2000 2001
---------- ----------
Domestic (U.S.)
Accrued bonus $ 14,000 $ -
Audit service accrual 14,000 -
State taxes 37,421 2,176
Accumulated depreciation 65,175 91,843
Provision for bad debts 122,663 131,993
Accrued vacation 49,091 58,121
Inventory provision 23,020 40,933
Uniform capitalization - section 263A - 71,360
Net operating loss carryforward 5,539 1,058,496
Valuation allowance (33,909) (1,454,922)
--------- ---------
Net deferred tax assets - -
Foreign (Japan)
Deferred tax assets:
Net operating loss carryforward 157,191 -
Valuation allowance (93,990) -
--------- ---------
63,201 -
Foreign (Hong Kong)
Accrued rebates (137,693) -
Provision for bad debts 24,964 -
Reserve for obsolete inventory 89,913 -
Depreciation and amortization (3,609) (4,097)
--------- ---------
(26,425) (4,097)
--------- ---------
Net deferred tax assets $ 36,776 $ (4,097)
========= =========
F-16
Note 3. Income Taxes (Continued)
A valuation allowance has been provided at December 31, 2000 and 2001 for that
portion of the net deferred tax asset which management cannot determine, with
reasonable certainty, that the benefit will be realized.
Note 4. Notes Payable
Note Payable to A Bank in the U.S.
In 2000, the Company obtained a revolving line of credit, as amended, from a
commercial bank with an aggregate amount of principal not to exceed
$4,000,000. Advances bear interest at the bank's index rate, as defined in
the credit agreement. Repayment is in the form of a promissory note, which
stipulates that all outstanding interest and principal are payable on or
before June 30, 2001. The revolving line of credit is subject to certain
restrictive covenants and is collateralized by substantially all of the
Company's assets located in the U.S. As of December 31, 2001, the Company was
not in compliance with the current ratio covenant, for which a waiver has not
been obtained. At December 31, 2000 and 2001, the outstanding note payable
was $4 million with interest at rate of 9.5% and 5.25%, respectively. The
Company was in default per the terms of loan agreement and is negotiating with
the bank to obtain an extension and new borrowing terms in 2002. There is no
assurance that a new loan agreement will be worked out.
Note Payable to IBM
In 2000, CMS, a subsidiary of the Company located in Hong Kong, obtained a
revolving loan facility from its main vendor, IBM, for the purpose of financing
its purchases of goods from IBM. The facility was available to the Company for
one year through September 26, 2001. The facility loan was secured by ways of
first fixed charge against all the Company's receivable and credit balances
placed with financial institutions together with first floating charge against
certain assets, undertakings and rights as prescribed under the debenture
agreement.
In 2001, the revolving loan facility from IBM was extended and will expire on
October 31, 2002. The Company has provided a corporate guarantee as an
additional facility condition under a supplementary agreement signed on January
16, 2002. The facility can be further extended subject to mutual agreement.
Applicable interest rate per annum was determined to be 2% over the prime
lending rate in respect of US dollar loans from time to time quoted by the Hong
Kong and Shanghai Banking Corporation in Hong Kong but no less than 9%.
As of December 31, 2000 and 2001, the note payable balance was $2 million and
$5 million, respectively, bearing interest at a rate of 9.5% and 11.5% per
annum, respectively.
Note 5. Long Term Debt
December 31,
---------------------------
2000 2001
------------ ------------
Note payable with a foreign (Japan) bank, $ 132,815 $ -
monthly payment of $1,625 including
interest of 2.075%, due November 2003.
Guaranteed by government Guarantee Association
Note payable with a foreign (Japan) bank, 220,990 -
monthly payment of $6,824 including
interest of 2.375%, due May 2004.
Guaranteed by government Guarantee Association
Loan payable for the purchase of a vehicle, 2,921 -
monthly payment of $501 including
interest at 10.25%, collateralized by
the related asset, due June 18, 2001
Note payable to the Small Business 254,801 229,125
Administration, collateralized by
substantially all of the assets of Autec
and personally guaranteed by four of the
Company's shareholders, payable in monthly
installments of $2,950, which includes
interest at 4% per annum
Note payable to a U.S. Bank, collateralized 165,476 146,076
by substantially all of the assets of Autec
and personally guaranteed by four of the
Company's shareholders, payable in monthly
installments of $2,138, which includes
interest at 4% per annum
----------- ------------
777,003 375,201
Current portion (155,980) (46,901)
----------- ------------
$ 621,023 $ 328,300
=========== ============
The aggregate maturities of notes and loans payable are as follows:
Year ending December 31, Amount
------------------------- -------------
2002 $ 46,901
2003 48,812
2004 50,801
2005 52,870
2006 55,024
Thereafter 120,793
-------------
$ 375,201
=============
The note payable by Autec to the Small Business Administration and a U.S. bank
includes various covenants. As of December 31, 2001 Autec was in compliance
with the loan covenants.
Note 6. Acquisition of CMS
In December 1999, the Company entered into an acquisition agreement with CMS
Technology Limited (CMS), a related party company incorporated under the laws
of Hong Kong Special Administrative Region, to acquire 60% equity interest for
cash of $6 million based on a valuation report which was performed by a third
party appraisal firm. Funding of acquisition has been obtained from the
following sources: $2.9 million borrowed from shareholders, and $1.55 million
from the Company's line of credit. The remaining $1.55 million was financed
from the Company's working capital.
Note 6. Acquisition of CMS (Continued)
The acquisition was effective January 3, 2000. The acquisition transaction
was accounted for under the purchase method. The estimated fair value of 60%
of the net assets in CMS, amounted to $3,331,416. Consequently, the Company
recognized goodwill of $2,668,584, which represented the excess of the value
of the cash expended over the equity acquired and will be amortized over a
five year period.
At the same time, a director and shareholder of the Company acquired 10% of
equity interest in CMS. In accordance with the acquisition agreement, the
Company has an option to acquire the remaining 30% of equity interest in CMS
in exchange for 360,000 shares of the Company's common stock.
In May 2000, the Company exercised the option to acquire the remaining 30%
interest in CMS. The acquisition was effective May 15, 2000. The estimated
fair value of 30% interest of CMS amounted to $1,824,050. Consequently the
Company recognized additional goodwill of $515,950, which represented the
excess of the value of the Company's stock issued over the equity acquired and
will be amortized over a five-year period.
The following unaudited pro forma information is intended to present the
results of the CMS acquisition transaction assuming that it occurred on January
1, 1999. The pro forma amounts do not purport to be indicative of the results
that would have been obtained had the acquisition occurred then or of the
results which may occur in the future.
CMS Bridge Pro Forma
December 31, December 31, December 31,
1999 1999 1999
------------ ------------ ------------
Revenue $ 51,534,484 $ 34,272,188 $ 85,806,672
============ ============ ============
Net income $ 571,200 $ 660,721 1,231,921
============ ============
Adjustment:
Amortization of goodwill 636,907
-----------
Pro forma net income $ 595,014
===========
Basic income per share 0.06
===========
Diluted income per share 0.05
===========
Note 7. Commitments and Contingencies
The Company has committed to the Chinese government to contribute total
registered capital of $10 million to the Ningbo facility within a three-year
time period from May 2001 through May 2004.
In February 2001, the Company issued a press release to unilaterally sever
relationship with Worldwide Wireless Networks, Inc. (WWN). Afterwards the
Company entered into a verbal settlement with WWN to cancel all agreements,
including the exchange of shares of common stock between the companies. This
settlement agreement was reduced to writing by WWN and signed by the Company's
President. WWN has not signed and has not complied with the settlement
agreement up to the reporting date.
The Company is a party to legal actions that have arisen in the normal course
of business. The following is a listing of matters that are required to be
disclosed under generally accepted accounting principles.
Note 7. Commitments and Contingencies (Continued)
During 2001, a complaint was filed against the Company for fees allegedly owed
by the Company. The Company intends to vigorously defend this claim because
the amount was deemed excessive comparing to the quality of services rendered.
The estimated liability including interest, costs and statutory attorney's
fees was approximately $100,000. The Company has recorded liabilities for
this amount in accordance with Statement of Financial Accounting Standards No.
5, "Accounting for Contingencies" ("SFAS No. 5").
During 2001, a complaint was filed against Autec Power System, Inc. ("Autec")
for fees allegedly owed by Autec. The matter has been submitted to binding
arbitration scheduled for hearing in April 2002. The estimated liability was
approximately $136,000 to resolve this matter. Autec recorded liabilities for
this amount in accordance with SFAS No. 5.
During 2001, a complaint was filed against the Company for fees alleged to be
due on an acquisition which was not consummated. The complaint seeks for
damage of approximately $2 million where as the Company believes that the
complaint is without merit and will be resolved in favor of the Company. The
Company tendered this case to its insurance carrier for settlement and did not
accrue any liabilities for this matter.
During 2001, a complaint was filed against the Company for an alleged transfer
of assets, technology, trade secrets, confidential information, business
opportunities from Allied Web, a corporation owned by the Company's President,
which filed for liquidation under federal bankruptcy laws on April 6, 2000.
The Company purchased from Allied Web certain assets including used computers,
inventories, and used furniture and fixtures for approximately $191,640 based
on the book value of these assets acquired from Allied Web in June 1997.
Other than this transaction, the Company did not have any transaction with
Allied Web afterwards. The Company considers that this action has no merit
and will vigorously defend itself. At December 31, 2001, management of the
Company was unable to assess the possibility of incurring future liability and
estimate the reasonable amount of contingent liability. Therefore, the
Company did not record any accrued liability for this matter.
A former shareholder of Autec Power Systems has filed in 2001 a complaint
against the controlling shareholder of Autec, Mr. Winston Gu and Bridge
Technology, Inc. alleging that he/they did not receive sufficient exchange of
shares in this acquisition by Bridge Technology, Inc. While an attempt to
settle this complaint have been made, the parties have not reached a
settlement. The Company believes that the complaint is without merit as to
Bridge Technology, Inc. and will be resolved between the parties. At December
31, 2001, management of the Company was unable to assess the possibility of
incurring future liability and estimate the reasonable amount of contingent
liability. Therefore, the Company did not record any accrued liability for this
matter.
Operating Lease Commitments
The Company signed an operating lease for a building from an entity owned by
certain shareholders. The lease term is 20 years and expires in December 2017.
The Company entered into a sublease agreement with another related party, for a
portion of the building for a monthly payment of $1,380, through October 2003.
Autec leases facilities under an operating lease from a company owned by a
major stockholder. The lease calls for monthly lease payments of $16,500,
subject to cost of living adjustment, through 2007. Autec entered into a
sublease agreement with an entity owned by certain shareholders, for a portion
of the facility for a monthly payment of $4,125. The term of the sublease was
for 10 years.
Bridge Technology Ningbo Co., Ltd. ("Ningbo") leases a manufacturing facility
in the City of Ningbo, Zhejiang Province of China. This lease requires a
monthly payment of $12,513 through December 2005.
Note 7. Commitments and Contingencies (Continued)
The following table represents the consolidated rental commitments at December
31, 2001.
Year ending December 31, Amount
-------------------------- -------------
2002 $ 509,754
2003 523,771
2004 542,393
2005 555,248
2006 570,826
Thereafter 5,048,651
-------------
$ 8,346,681
=============
Total rental expense for the year ended December 31, 1999, 2000 and 2001, was
$392,334, $595,934 and $556,756, respectively.
Note 8. Related Party Transactions
On December 31, 2001, the Company reached an agreement with a member of board
of directors of the Company. In accordance with the agreement, the Company
agreed to sell 85% of its equity interest in Newcorp Technology Co. Ltd.
("Newcorp") (which was a wholly owned subsidiary of the Company before
December 31, 2001.) in exchange for 65,000 shares of the Company's common stock
held by the director. Because there was a negative equity of approximately
$273,350 in Newcorp, the Company accounted for this transaction by recognizing
273,350 in additional paid-in capital and placing no value on the 65,000 shares
of treasury stock. After this transaction, the Company owns a 15% equity
interest in Newcorp valued at zero cost. The consolidated balance sheet does
not reflect any assets and liabilities of Newcorp and the consolidated
statement of operations contains the results of operations in Newcorp through
December 31, 2001, the date of disposal.
At December 31, 2001, the Company wrote off a shareholder loan receivable of
$225,000 and related interest receivable of approximately $37,550 because this
shareholder's business suffered consecutive losses in 2000 and 2001 and
management assessed that the receivable was fully impaired.
As a result of selling 150 shares of common stock of ADTX, a Japan-based
company, held as an investment, the Company recorded an investment gain of
approximately $879,000, net of cost of $31,145 and selling expense of $2,382.
Of the total proceeds of approximately $910,000, $300,000 was lent to Newcorp.
At December 31, 2001, there is a total related party receivable from Newcorp of
$500,000 which does not bear interest and related party payable of $160,000 to
Newcorp which did not bear interest.
During 2001, the Company borrowed $1,000,000 from an entity owned by an officer
and shareholder at a variable interest rate (5.0% at December 31, 2001) and
maturing in September 2011. During 2001, the Company repaid $10,021 of
principal and $9,185 of interest on this loan. As of December 31, 2001,
principal of $989,979 and accrued interest of $0 were outstanding. Future
commitments for principal payments are as follows: $75,118 in 2002, $79,950 in
2003, $85,092 in 2004, $90,566 in 2005, $96,391 in 2006, and $562,862
thereafter.
Note 8. Related Party Transactions (Continued)
Autec purchases product from an entity owned by the family of the Company's
chairman. As of December 31, 2000 and 2001, respectively, the Company had $0
and $788,398 of accounts payable to this vendor. During 1999, 2000 and 2001,
respectively, the Company purchased approximately $2,043,000, $257,000 and
$1,560,000 from this vendor.
In the ordinary course of business, Newcorp Japan engaged in transactions with
Digital Stream Corporation ("DSC"). Newcorp Japan has an officer who is also
a director and major shareholder in DSC. DSC leases office space to Newcorp
Japan.
Transactions with DSC were as follows:
Year Ended December 31,
-------------------------------------
1999 2000 2001
----------- ---------- ----------
Purchases $ 52,851 $ - $ -
Rent 11,749 11,132 -
----------- ----------- ----------
During the years ended December 31, 1999, 2000 and 2001, Autec was reimbursed
for certain operating and overhead expenses attributable to an entity, owned
by one of the Company's major shareholders. The amount of $28,107, $21,932
and $22,143 represented the unreimbursed expense due from the related party as
of December 31, 1999, 2000 and 2001, respectively.
In January 1999, the Company purchased a motor vehicle from a director of the
Company for $37,000. In 2000, the motor vehicle was sold back to the original
owner at its net book value, $22,817.
During 2000, the Company sold a different motor vehicle to an entity owned by
a director of the Company for $8,700, the net book value of the motor vehicle.
The related party entity was also paid $37,000 in consulting fees.
During 2000, the Company paid $18,900 in consulting fees to an entity owned by
the CFO of the Company.
During 2000, $2.9 million was loaned to the Company, at an interest rate of
9.5%, due on demand from shareholders and entities owned by shareholders and
officers, for the purchase of CMS. During 2001, an additional $30,000 was
loaned to the Company by a shareholder at an interest rate of 9.5%, due on
demand. Principal of $100,000 and $700,000 and interest of $152,859 and
$322,066 were paid during 2000 and 2001, respectively. At December 31, 2000
and 2001, respectively, there was an accrued interest payable of $88,919 and
$0 and a total interest expense of $241,778 and $233,148.
Note 9. Shareholders' Equity
1999
During March 1999, the Company sold 600,000 shares of common stock at $0.75
per share and received proceeds of $450,000.
During June and July 1999, the Company sold 700,000 shares of common stock at
$1.00 per share and received proceeds of $700,000.
During July and August 1999, the Company sold 120,000 shares of common stock
at $2.00 per share and received proceeds of $240,000.
In October 1999, the Company granted 310,000 stock warrants to key employees,
officers and directors. Accordingly, a non-employee director compensation
cost of $34,500 was recognized and included in general and administrative
expense for 1999.
In October 1999, the Company issued 50,000 warrants to a public relations firm
in exchange for public relations services starting from November 1, 1999 to
April 30, 2000. Accordingly, an expense of $1,834 on a pro rata basis was
recognized and included as a general and administrative expense. The
remaining $3,666 was recognized in 2000.
During later 1999, the Company issued 75,000 shares of its common stock as a
result of warrants exercised with an exercise price at $1.00 per share. The
proceeds of $75,000 were received subsequent to December 31, 1999.
In December, 1999, the Company committed to issue 2,764,250 shares of common
stock in exchange for 100% equity interest in Autec Power Systems Inc. The
transaction was accounted for as a pooling of interest, therefore, the
financial statements have been retroactively restated to include all
activities of Autec Power Systems, Inc. for all periods presented.
On March 14, 1999, per one employee-shareholder's request, Autec repurchased
2,000 shares of common stock at $1.00 per share from this individual.
Accordingly the actual shares issued by the Company were 2,763,250 as Autec
reserved the rights to issue 2,000 shares of treasury stock in exchange for
1,000 shares of common stock in the Company.
The results of the operations of the Companies before the acquisition took
place were as follows:
Net
Income
Revenue (Loss)
------------ ------------
Bridge Technology, Inc.
December 31, 1998 $ 20,737,017 $ (381,585)
January 1 to November 30, 1999 23,016,451 (103,089)
============ ============
Autec Power System, Inc. (Stand Alone)
December 31, 1998 10,014,963 73,689
January 1 to November 30, 1999 8,538,951 771,382
============ ============
Note 9. Shareholders' Equity (Continued)
2000
During 2000, employees of the Company exercised warrants to acquire 21,000
shares of the Company's common stock. Proceeds received from the exercise
totaled $54,250.
In May 2000, the Company acquired five patents, including design and tooling
from an unrelated entity for $190,000, in exchange for 40,000 shares of common
stock at market price of $4.75 per share.
2001
On December 31, 2001, the Company sold 85% of its equity interest in Newcorp
Technology Co. Ltd. in exchange for 65,000 shares of the Company's common
stock, which is accounted for as treasury stock at December 31, 2001.
Note 10. Stock Options and Warrants
The company granted warrants to its officers, key employees, advisory board
members, and outside consultants in order to provide certain incentive for
their services.
Each warrant entitles the holder to purchase one share of the Company's common
stock at the exercise price specified by the warrant and each warrant is only
valid within the effective period. Shares acquired through exercising a
warrant will be restricted and will not be registered for trading purposes
unless the Company, at its sole discretion, files a registration statement and
includes these designated shares.
Warrants activities in the Company for 1999, 2000 and 2001 were summarized as
follows:
Weighted
Average
Exercise Vesting Expiration
Shares Price Period Date
---------- -------- ------- ----------
Outstanding at January 1, 1998 180,000 2.46 None 01/15/03
Warrants carried over from PTI 105,000 3.50 None 01/30/04
Warrants granted 360,000 1.75 None 01/30/04
---------- -------- ------- ----------
Outstanding at December 31, 1998 645,000 2.23
Warrants granted 310,000 5.00 None 01/15/05
Warrants granted to consultant 50,000 5.00 None 10/11/01
Warrants exercised (75,000) (1.00)
---------- --------- ------- ---------
Outstanding at December 31, 1999 930,000 3.40
Wattants granted 600,000 1.87 None 12/21/02
Warrants granted to Advisory Board 30,000 3.00 None 12/21/02
Warrants granted to consultant 125,000 3.00 None 02/09/04
Warrants granted to consultant 15,000 3.00 None 12/21/02
Warrants granted to consultant 10,000 4.50 None 12/21/02
Warrants granted to consultant 25,000 5.00 None 12/21/02
Warrants exercised (21,000) (2.58)
--------- --------- -------- --------
Outstanding at December 31, 2000 1,714,000 2.78
========= =========
Note 10. Stock Options and Warrants (Continued)
On November 29, 1999, the Board of Directors of the Company approved a proposal
made by management in October 1999 to grant 360,000 warrants to officer,
directors, and a public relationship firm for their performance and
contribution to the Company in 1999.
On December 21, 2000, the Board of Directors of the Company approved a
proposal made by management to grant 500,000 warrants to the Company's
officers and key employees and 100,000 warrants to outside directors, with an
exercise price of $1.875 per share and vesting immediately, for their
performance and contribution to the Company in 2000.
On December 21, 2000, the Board of Directors of the Company also granted
30,000 warrants, with an exercise price of $3.00 per share and vesting
immediately, to the Advisory Board members.
On the same day, the Board of Directors of the Company also granted 175,000
warrants, with an exercise price ranging from $3.00 to $5.00 per share and
vesting immediately, to outside consultants in exchange for their services to
be provided.
In April 2001, the Company granted 15,000 warrants to an advisory board member
with an exercise price of $3.00 and vesting immediately.
The Company follows APB No. 25 and related interpretations to account for
stock options granted to employees. During 1999, 2000 and 2001, the Company
did not recognize any compensation costs for options granted to employees as
the exercise price equaled the fair value of the Company's common stock on the
date of grant.
The Company adopted SFAS No.123 to account for stock warrants granted to non-
employees using the Black Scholes option pricing model to determine the fair
value of the warrants granted. The Company recognized $36,334, $6,247 and $0
stock compensation expense for the warrants granted to non-employees in 1999,
2000 and 2001, respectively.
The assumptions used in the Black Scholes option pricing model in 1998, 1999
and 2000 were as follows:
December 31,
-----------------------------------------
1999 2000 2001
------------ -------------- -----------
Discount rate - bond yield rate 5.86% - 6.03% 6.18% - 6.34% 4.14%
Volatility 25.0% - 47.0% 14.5% 14.2%
Expected life 2 - 5 years 2 -3 years 2 years
Expected dividend yield - - -
------------- -------------- -----------
In 1999 using the Black Scholes option pricing model, the Company determined
that the fair value of warrants with different exercise prices ranged from
$0.11 to $0.46 per share. The fair value of the total warrants granted was
$148,100.
In 2000 using the Black-Scholes option pricing model, the Company determined
that the fair value of warrants with different exercise prices granted ranged
from $0.01 to $0.37 per share. The fair value of the total warrants granted
was $225,381.
In 2001 using the Black-Scholes option pricing model, the Company determined
that warrants granted had no fair value.
Note 10. Stock Options and Warrants (Continued)
Had the Company determined compensation cost based on the fair value at the
grant date for its warrants under SFAS No. 123, the Company's net loss would
have been increased to the pro forma amount indicated below:
Year ending December 31,
------------------------------------
1999 2000 2001
--------- --------- ---------
Net income (loss)
As reported $ 660,721 $1,099,160 $(2,735,034)
Pro forma $ 552,621 $ 876,360 $(2,735,034)
Basic earnings (loss) per share
As reported $ 0.07 $ 0.10 $ (0.25)
Pro forma $ 0.06 $ 0.08 $ (0.25)
Diluted earnings (loss) per share
As reported $ 0.06 $ 0.10 $ -
Pro forma $ 0.05 $ 0.08 $ -
The following table summarizes information about Warrants outstanding
as of December 31, 2001:
Warrants Outstanding and Exercisable
--------------------------------------
Weighted
Average Weighted
Remaining Average
Exercise Number Contractual Exercise
Price Outstanding Life Price
- ---------------------- ------------------------
$ 1.75 349,000 3.08 years $ 1.75
$ 1.87 600,000 2.00 years $ 1.87
$ 2.00 105,000 0.96 years $ 2.00
$ 3.00 125,000 2.00 years $ 3.00
$ 3.00 60,000 1.17 years $ 3.00
$ 3.50 95,000 2.08 years $ 3.50
$ 4.50 10,000 1.00 years $ 4.50
$ 5.00 385,000 2.28 years $ 5.00
--------- ------
1,729,000 $ 2.78
========= ======
F-26
Note 11. Concentration of Customer and Suppliers
The Company derived a significant portion of its revenue from sales to
certain customers. Sales as a percentage of total sales were as follows:
Years Ended December 31,
----------------------------------
1999 2000 2001
------ ------ ------
Customer A 12 % 6 % 2 %
Customer B 24 3 4
Customer C 11 - 3
Customer D 9 10 1
Customer E - 11 24
---------------------------------------------------------
56 % 30 % 14 %
=========================================================
Three customers accounted for approximately 30% of consolidated accounts
receivable at December 31, 2000, including one customer who accounted
for approximately 19% of consolidated accounts receivable. Four customers
accounted for 73% of consolidated accounts receivable at December 31, 1999.
Four vendors accounted for approximately 36% of consolidated total
purchases during the year ended December 31, 2000, including two vendors
accounted for approximately 10% and 12% of consolidated purchases. Three
vendors accounted for 42% of consolidated total purchases during the year
ended December 31, 1999. Three vendors accounted for 29% of consolidated
total purchases during the year ended December 31, 1998.
One vendor accounted for 21% of consolidated accounts payable at December
31, 2000. Two vendors accounted for 66% of consolidated accounts payable
at December 31, 1999.
Note 12. Profit Sharing Plan
Autec has a 401(k) profit sharing plan covering substantially all Autec
employees, subject to certain participation and vesting requirements. The
plan provides that Autec will partially match employee contributions up to
specified percentages. The amount charged to selling general and
administrative expense for the 401(k) profit sharing plan amounted to $5,455,
$18,388 and $10,617 in 1998, 1999 and 2000, respectively.
F-27
Note 13. Segment Information
Industry segments:
1999 Manufacturing Distribution R&D Total
- ---- ------------- ------------ ---------- -------------
Assets 9,097,868 3,927,065 258,623 13,283,556
Revenue 19,227,878 15,044,309 - 34,272,187
Operating income before
income taxes and minority
interest 1,593,660 (581,104) - 1,012,556
Depreciation and
amortization expense 90,131 72,694 - 162,825
------------- ------------ ---------- -------------
2000 Manufacturing Distribution R&D Total
- ---- ------------- ------------ ---------- -------------
Assets 15,318,477 29,383,241 21,203 44,722,921
Revenue 28,137,002 92,781,772 - 120,918,774
Operating income before
income taxes and minority
interest 1,638,846 495,973 (170,674) 1,964,145
Depreciation and1
amortization expense 138,812 706,921 12,171 857,904
------------- ------------ ---------- -------------
2001 Manufacturing Distribution R&D Total
- ---- ------------- ------------ ---------- -------------
Assets 6,731,198 33,884,953 15,113 40,631,264
Revenue 16,119,826 125,787,553 - 141,907,379
Operating income before
income taxes and minority
interest (2,161,178) (160,611) (68) 2,321,857
Depreciation and1
amortization expense 115,557 47,697 - 163,254
------------- ------------ ---------- -------------
Note 13. Segment Information (Continued)
Geographic segments:
1999 United States Asia Other Total
- ----
Long lived assets $ 1,094,722 $ 83,817 $ - $ 1,178,539
Revenue 31,643,293 2,227,051 401,843 34,272,187
2000
- ----
Long lived assets 3,715,708 136,897 - 3,852,605
Revenue 47,899,565 72,709,064 310,145 120,918,774
2001
- ----
Long lived assets 553,639 2,127,380 - 1,681,019
Revenue 35,659,449 106,247,930 - 141,907,379
F-28
Note 14.
On March 18, 2002, the Board of Directors of the Company held a meeting and
voted to spin Autec off as a dividends to the existing Shareholders of the
Company subject to whether or not it will be taxable transaction and
approval by Shareholders during upcoming Shareholders meeting.
F-29
Schedule II - Valuation and qualifying accounts
for the years ended December 31, 1998, 1999 and 2000
Amount
Beginning Charged Ending
Description Balance to Expense Deductions Balance
--------- ---------- ---------- ---------
Allowance for doubtful accounts
Fiscal 1999 $ 106,498 $ 6,413 $ - $ 112,911
Fiscal 2000 $ 112,911 $ 382,693 $ 29,948 $ 465,656
Fiscal 2001 $ 465,656 $ 106,584 $264,134 $ 308,106
Reserve for inventory obsolescence
Fiscal 1999 $ 208,865 $ - $ 40,764 $ 168,101
Fiscal 2000 $ 168,101 $ 451,403 $ - $ 619,504
Fiscal 2001 $ 619,504 $ 180,270 $ - $ 799,774
F-30
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.
Executive officers of the Registrant are as follows:
Year First
Name Age Position Became Officer
- ----------------------------------------------------------------------------
Winston Gu 50 Chairman & Chief Execurive Officer (1) 1999
John Harwer 55 President 1997
James Djen 48 Managing Director 1997
John T. Gauthier 74 Chief Financial Officer 1997
Mr. Gu has served as Chief Executive Officer from December 1999 to January
2001.
He also serves as a Director since 1997 and Chairman since December 1999.
John Harwer was appointed President in 1997. He also serves as a member of
the Board of Directors.
James Djen was appointed President in January 1999 and Managing Director in
January 2000 and as Chief Executive Officer in January 2001. He also serves
as a member of the Board of Directors.
John T. Gauthier was appointed Chief Financial Officer/Sec/Treas. since 1997.
He also serves a member of the Board of Directors.
Conflicts of Interest
- ---------------------
Certain members of our Company's management are associated with other firms
involved in a range of business activities. Consequently, there are
potential inherent conflicts of interest in their acting as Officers and
Directors of our Company. Insofar as these officers and directors are
engaged in other business activities, management anticipates they will devote
less than full time to our Company's affairs. The officers and directors of
our Company are now and may in the future become shareholders, Officers
or Directors of other companies that may be formed for the purpose of
engaging in business activities similar to those conducted by our Company.
Accordingly, additional direct conflicts of interest may arise in the future
with respect to such individuals acting on behalf of our Company or other
entities. Moreover, additional conflicts of interest may arise with respect
to opportunities which come to the attention of such individuals in the
performance of their duties or otherwise. Our Company does currently have
a right of first refusal pertaining to opportunities that come to
management's attention insofar as such opportunities may relate to our
Company's proposed business operations.
The Officers and Directors are, so long as they are Officers or Directors
of our Company, subject to the restriction that all opportunities
contemplated by our Company's plan of operation which come to their
attention, either in the performance of their duties or in any other manner,
will be considered opportunities of, and be made available to our Company and
the companies that they are affiliated with on an equal basis. A breach of
this requirement will be a breach of the fiduciary duties of the Officer or
Director. If our Company or the companies in which the Officers and Directors
are affiliated with both desire to take advantage of an opportunity, then
said Officers and Directors would abstain from negotiating and voting upon the
opportunity. However, all directors may still individually take advantage of
opportunities if our Company should decline to do so. Except as set forth
above, our Company has not adopted any other conflict of interest policy with
respect to such transactions. Although our Company will be subject to
regulation under the Securities Act of 1934 and the Securities Exchange Act of
1934, management believes our Company will not be subject to regulation under
the Investment Company Act of 1940 insofar as our Company will not be engaged
in the business of investing or trading in securities in the event our Company
engages in business combinations which result in our Company holding passive
investment interests in a number of entities, our Company could be subject to
regulation under the Investment Company Act of 1940. In such event, our
Company would be required to register as an investment company and could be
expected to incur significant registration and compliance costs. Our Company
has obtained no formal determination from the Securities and Exchange
Commission as to the status of our Company under the Investment Company Act of
1940 and, consequently, any violation of such Act would subject our Company to
material adverse consequences. Our Company's Board of Directors unanimously
approved a resolution stating that it is our Company's desire to be exempt
from the Investment Company Act of 1940 via Regulation 3a-2 thereto.
ITEM 10. EXECUTIVE COMPENSATION.
The following table shows all cash compensation for services rendered
during the last five fiscal years ended December 31, 2001 paid by our
Company to each of our Company's executive officers whose cash compensation
exceeded $100,000.
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------------- ----------------- ---------------------
Secu-
rities
Other Restr- Under-
Annual icted lying
Name and Compen- Stock Options/ LTIP All Other
Principal Salary Bonus sation Award(s) SAR's Payouts Compensation
Position Year ($) ($) ($) ($) ($) ($) Warrants
- ----------------------------------------------------------------------------------
Winston Gu 2001 120,000
CEO 2000 120,000 50,000 @ $1.875
1999 75,000 200,000 25,000 @ $5.00
1998 60,000 200,000
J. Djen 2001 120,000
Managing 2000 120,000 50,000 @ $1.875
Director 1999 120,000 0 0 0 0 0 25,000 @ $5.00
1998 159,900 0 0 0 0 0 45,000 @ $3.50
1997 82,000 0 0 0 0 0 45,000 @ $2.00
J. Harwer 2001 120,000
President 2000 120,000 50,000 @ $1.875
1999 120,000 0 0 0 0 0 25,000 @ $5.00
1998 158,333 0 0 0 0 0 100,000 @ $1.75
1997 98,333 0 0 0 0 0 0
R. Fox 2001 120,000
General 2000 120,000 15,000 @ $1.875
Manager 1999 125,000 0 0 0 0 0 15,000 @ $5.00
PTI 1998 123,637 0 0 0 0 0 30,000 @ $3.50
Enclosures1997 73,839 0 0 0 0 0 30,000 @ $2.00
John T. 2001 120,000
Gauthier 2000 120,000 50,000 @ $1.875
Chief 1999 60,000 25,000 @ $5.00
Financial 1998 36,000
Officer
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The table below lists the beneficial ownership of our Company's voting
securities by each person known by our Company to be the beneficial owner
of more than 5% of such securities, as well as the securities of our Company
beneficially owned by all directors and officers of our Company. Unless
otherwise indicated, the shareholders listed possess sole voting and
investment power with respect to the shares shown.
Name and Address
of Title of Preferred Common Class
Beneficial Owner Shares Shares % Ownership
- --------------------------------------------------------------------------
Winston Gu (3) 2,773,334 25.5 Common
12601 Monarch Street
Garden Grove, CA 92841
James Djen (1) 565,000 5.2 Common
12601 Monarch Street
Garden Grove, CA 92841
John T. Gauthier (1) 299,206 2.8 Common
12601 Monarch Street
Garden Grove, CA 92841
John J. Harwer 0 0 Common
and Oliva Harwer Trust (1)
12601 Monarch Street
Garden Grove, CA 92841
Hideki Watanabe (1) 300,000 2.8 Common
4-14-2 Nagatsuda, Midori-Ku
Yokohama-Shi, Kanagawa-Ken, Japan
Cayman Computer 373,206 3.4 Common
Alliance Corporation
12601 Monarch Street
Garden Grove CA 92841
COMMON
All Officers & Directors (2) 5,288,334 48.7 Common
(1) Officer and/or Director of our Company.
(2) Officers and Directors as a Group. The balance of our Company's
outstanding Common Shares is held by approximately 2800 persons.
(3) Include shares owned by wife Jeannie Gu.
Warrants activities in the Company for 1998, 1999 and 2000 were summarized
as follows:
Weighted
Average
Exercise Vesting Expiration
Shares Price Period Date
---------- -------- ------- ----------
Outstanding at January 1, 1998 180,000 2.460 None 01/15/03
Warrants carried over from PTI 105,000 3.500 None 01/30/04
Warrants granted 360,000 1.750 None 01/30/04
---------- -------- ------- ----------
Outstanding at December 31, 1998 645,000 2.230
Warrants granted 310,000 5.000 None 01/15/03
Warrants granted to consultant 50,000 5.000 None 10/11/01
Warrants exercised (75,000) (1.000)
---------- --------- ------- ---------
Outstanding at December 31, 1999 930,000 3.400
Wattants granted 600,000 1.875 None 12/21/02
Warrants granted to Advisory Board 30,000 3.000 None 12/21/02
Warrants granted to consultant 125,000 3.000 None 02/07/04
Warrants granted to consultant 15,000 3.000 None 12/21/02
Warrants granted to consultant 10,000 4.500 None 12/21/02
Warrants granted to consultant 25,000 5.000 None 12/21/02
Warrants exercised (21,000) (2.580)
--------- --------- -------- --------
Outstanding at December 31, 2000 1,714,000 2.780
========= =========
The following table summarizes information about Warrants outstanding as of
December 31, 1999:
Warrants Outstanding Warrants Exercisable
---------------------------------- ----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
-------------------------------------------------------------------------
$ 1.75 360,000 4.04 years $ 1.75 360,000 $ 1.75
$ 3.50 210,000 3.04 years $ 3.50 210,000 $ 3.50
$ 5.00 360,000 4.37 years $ 5.00 360,000 $ 5.00
--------- ---------
930,000 930,000
========= =========
The following table summarizes information about Warrants outstanding
as of December 31, 2000:
Warrants Outstanding Warrants Exercisable
-------------------------------------- -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
- -----------------------------------------------------------------------------
$ 1.750 349,000 3.08 years $ 1.750 349,000 $ 1.750
$ 1.875 600,000 2.00 years $ 1.875 600,000 $ 1.875
$ 2.000 105,000 1.96 years $ 2.000 105,000 $ 2.000
$ 3.000 125,000 3.00 years $ 3.000 125,000 $ 3.000
$ 3.000 45,000 2.00 years $ 3.000 45,000 $ 3.000
$ 3.500 95,000 3.08 years $ 3.500 95,000 $ 3.500
$ 4.500 10,000 2.00 years $ 4.500 10,000 $ 4.500
$ 5.000 385,000 3.28 years $ 5.000 385,000 $ 5.000
--------- ---------
1,714,000 1,714,000
========= =========
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There have been no related party transactions, or any other transactions or
relationships required to be disclosed pursuant to Item 404 of Regulation
except as disclosed in the Notes to the financial statements.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) INDEX TO EXHIBITS
Exhibit
Number Description
- ---------- ----------------------------------------------------------------
EX-3 (i) ARTICLES OF INCORPORATION
EX-3.A (i) Newcorp Technology, Inc. (Nevada), Incorporated March 15,
1999 (incorporated by reference to Bridge Technology, Inc.
Form 10KSB filed March 31, 1999)
EX-3.B (i) Bridge Technology, Inc. as amended April 21, 1997
(incorporated by reference to Bridge Technology, Inc.
Form 10-SB, Amendment #2, Exhibit 3(i) filed December 23,
1998 with the Commission)
Bridge R & D, Inc. Incorporated June 25, 1997 (incorporated
by reference to Bridge Technology, Inc. Form 10-SB,
Amendment #2, Exhibit 3(i) filed December 23, 1998 with
the Commission)
EX-3.C (i) Pacific Bridge Net incorporated June 9, 1999
EX-3 (ii) BY-LAWS
of Bridge Technology, Inc., as dated August 1, 1997,
(incorporated herein by reference to Bridge Technology, Inc.
Form 10-SB, Amendment #2, Exhibit 3(ii) filed December 23, 1998
with the Commission)
EX-4 DETERMINATION OF SHAREHOLDER PREFERENCES (incorporated herein
by reference to Bridge Technology, Inc. Form 10-SB, Amendment
#2, Exhibit 4 filed December 23, 1998 with the Commission)
EX-10 MATERIAL CONTRACTS
EX-10.A Classic Trading, Inc. Agreement (incorporated by reference
to Bridge Technology, Inc. Form 10KSB filed March 31, 1999)
EX-10.B Allied Web, Inc. Purchase of Assets Agreement,(incorporated
herein by reference to Bridge Technology, Inc. Form 10-SB,
Amendment #2, Exhibit 10(A) filed December 23, 1998 with
the Commission)
EX-10.C John Harwer Employment Agreement, dated June 1, 1997,
(incorporated herein by reference to Bridge Technology, Inc.
Form 10-SB, Amendment #2, Exhibit 10(B) filed December 23,
1998 with the Commission)
EX-10.D EEMB, Co. Ltd. China Agreement, dated November 11, 1997,
(incorporated herein by reference to Bridge Technology, Inc.
Form 10-SB, Amendment #2, Exhibit 10(C) filed December 23,
1998 with the Commission)
EX-10.E Newcorp Technology, Ltd. (Japan) Stock Exchange Agreement,
as entered into November 11, 1997, (incorporated herein by
reference to Bridge Technology, Inc. Form 10-SB, Amendment
#2, Exhibit 10(D) filed December 23, 1998, with the
Commission)
EX-10.F Autec Power Systems, Inc. Acquisition Agreement, dated
December 8, 1999
EX-10.G CMS Technology Limited (HK) Acquisition Agreement as amended
March 15, 2000
EX-21 SUBSIDIARIES OF THE REGISTRANT
A. PTI Enclosures, Inc. (California) - July 1993
B. Newcorp Technology, Inc. (Japan)
C. Bridge R & D, Inc. (California)
D. Pacific Bridge Net
E. Autec Power Systems, Inc.
F. CMS Technology Ltd. (Hong Kong)
EX-99 ADDITIONAL CONTRACTS
EX-99.A Assignment of Trademarks (incorporated by reference to
Bridge Technology, Inc. Form 10KSB filed March 31, 1999)
EX-99.B Property Lease (incorporated by reference to Bridge
Technology, Inc. Form 10KSB filed March 31, 1999)
EX-99.C Incentive Stock Option Plan (incorporated herein by
reference to Bridge Technology, Inc. Form 10-SB, Amendment
#2 filed December 23, 1998, with the Commission)
EX-99.D Distribution Product Rights Development Agreement dated
July 1, 1999
EX-99.E Five recently acquired patents. Submitted by hard copy only.
EX-99.F CMS Technology Ltd. (Hong Kong) Financial Statements
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunder duly authorized.
Registrant: BRIDGE TECHNOLOGY, INC.
-----------------------
By: James Djen
----------------------
James Djen, CEO
Date: March 31, 2002
----------------------
By: John T. Gauthier
----------------------
John T. Gauthier, CFO
Date: March 31, 2002
----------------------
Pursuant to the requirements of the Exchange Act, the report has been
signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: Winston Gu
----------------------
Winston Gu, Chairman
Date: March 31, 2002
----------------------
By: John T. Gauthier
----------------------
John T. Gauthier, CFO
Date: March 31, 2002
----------------------
By: John Harwer
----------------------
John Harwer, President
Date: March 31, 2002
----------------------
By: James Djen
----------------------
James Djen, CEO
Date: March 31, 2002
----------------------