U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended September 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the transition period from _______ to _______
COMMISSION FILE NUMBER 000-29865
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CATHAYONE, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 13-4140336
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(State or other jurisdiction of (IRS Employer identification
incorporation or organization) No.)
c/o MRB Investor Relations - 400 Madison Avenue, 16th Floor - New York, NY 10017
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(Address of principal executive offices)
(212) 230-1727
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section13
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 whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by the court. Yes [ ] No [X]
Number of shares of common stock outstanding as of
February 5, 2002: 29,689,158
CATHAYONE, INC. AND SUBSIDIARIES
(A Debtor in Possession)
PART I - FINANCIAL INFORMATION (Post Re-Capitalization - See Notes)
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PAGE NO.
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Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2001(unaudited) 3
Consolidated Statements of Operations for the
Three and nine months ended September 30, 2001 and 2000 4
Consolidated Statements of Cash Flows for the
nine months ended September 30, 2001 and 2000 5-6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis
9-12
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings (including Chapter 11 bankruptcy filing
information) 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
ITEM 1. FINANCIAL STATEMENTS
CATHAYONE, INC. & SUBSIDIARIES
(A DEBTOR IN POSSESSION)
CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 2001 (UNAUDITED) AND DECEMBER 31, 2000
ASSETS
-----------------------------------------------------------------
(Unaudited)
CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . Sept. 30, 2001 Dec. 31, 2000
-----------------------------------------------------------------
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . $ 8 $ 37,187
Loan Receivable, net. . . . . . . . . . . . . . . . . . . . . . -0- -0-
Prepaid Expenses. . . . . . . . . . . . . . . . . . . . . . . . -0- 500
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . . 8 37,687
FIXED ASSETS
-----------------------------------------------------------------
Furniture and Office Equipment. . . . . . . . . . . . . . . . . -0- 5,946
Accumulated Depreciation. . . . . . . . . . . . . . . . . . . . -0- (850)
Net Fixed Assets . . . . . . . . . . . . . . . . . . . . . . -0- 5,096
---------------- ---------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . $ 8 $ 42,783
============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-----------------------------------------------------------------
CURRENT LIABILITIES
-----------------------------------------------------------------
Accounts Payable and Accrued Expenses . . . . . . . . . . . . . 1,167,017 1,044,701
Due to Related Parties. . . . . . . . . . . . . . . . . . . . . 859,877 776,177
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . 2,026,894 1,820,878
COMMITMENTS AND CONTINGENCIES - NOTE 4
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STOCKHOLDERS' DEFICIT
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Common Stock ($.001 par value, 100,000,000 shares authorized:
29,689,158 and 29,489,158 issued and outstanding at
September 30, 2001 and December 31, 2000, respectively). . . . 29,689 29,489
Preferred Stock ($.001 par value, 5,000,000 shares authorized:
none issued and outstanding) . . . . . . . . . . . . . . . . . -0- -0-
Additional Paid-in-Capital. . . . . . . . . . . . . . . . . . . 3,129,149 2,667,349
Deficit Accumulated During Development Stage. . . . . . . . . . (5,185,724) (4,474,933)
TOTAL STOCKHOLDERS' DEFICIT . . . . . . . . . . . . . . . . . (2,026,886) (1,778,095)
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT . . . . . . . . . $ 8 $ 42,783
=============== ===============
CATHAYONE, INC. & SUBSIDIARIES
(A DEBTOR IN POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000*
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
2001 2000 2001 2000*
OPERATING EXPENSES:
-----------------------------
General and administrative. $ 42,646 $ 572,743 $ 248,687 $ 670,872
TOTAL EXPENSES. . . . . . 42,646 572,743 248,687 670,872
OPERATING LOSS. . . . . . (42,646) (572,743) (248,687) (670,872)
OTHER EXPENSE:
-----------------------------
Interest Expense - Note 3 . -0- -0- (462,104) -0-
TOTAL OTHER EXPENSE . . . -0- -0- (462,104) -0-
LOSS BEFORE TAXES . . . . (42,646) (572,743) (710,791) (670,872)
INCOME TAX (PROVISION)
BENEFIT . . . . . . . . . -0- -0- -0- -0-
NET LOSS. . . . . . . . . $ (42,646) $ (572,743) $ (710,791) $ (670,872)
============================= ======================= =========== ============
Net Loss Per Common Share
Basic & Fully Diluted . . . $ ** $ (0.02) $ (0.02) $ (0.05)
============================= ======================= =========== ============
Weighted Average Common
Shares Outstanding. . . . . 29,689,158 29,258,319 29,666,936 16,819,189
============================= ======================= =========== ============
* Date of reorganization was
March 1, 2000
** Less than $.01
CATHAYONE, INC. & SUBSIDIARIES
(A DEBTOR IN POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000*
Sept. 30, 2001 Sept. 30, 2000*
CASH FLOWS FROM OPERATING ACTIVITIES:
-------------------------------------------------------------------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (710,791) $ (670,872)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and writedown. . . . . . . . . . . . . . . . . . . 5,096 -0-
Common stock issued in connection with legal services - Note 3. 462,000 -0-
Common stock issued in reorganization . . . . . . . . . . . . . -0- 24,658
Write-down of note receivable and prepaid asset . . . . . . . . 8,000 2,672
Increase in operating assets:
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . -0- (2,000)
Increase in operating liabilities:
Amounts due related party for services rendered . . . . . . . 83,700 -0-
Accounts payable and accrued expenses . . . . . . . . . . . . 122,316 1,106,814
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . (29,679) 461,272
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CASH FLOWS FROM INVESTING ACTIVITIES
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Expenditures for furniture and equipment. . . . . . . . . . . . . -0- (18,131)
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . -0- (63,770)
Investment in foreign operations. . . . . . . . . . . . . . . . . -0- (375,259)
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . -0- (457,160)
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Issuance of note receivable . . . . . . . . . . . . . . . . . . . (7,500) -0-
Common stock issuances. . . . . . . . . . . . . . . . . . . . . . -0- 1,300
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . (7,500) 1,300
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NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . (37,179) 5,412
CASH AND CASH EQUIVALENTS:
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Beginning of period . . . . . . . . . . . . . . . . . . . . . 37,187 -0-
End of period . . . . . . . . . . . . . . . . . . . . . . . . $ 8 $ 5,412
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* Date of reorganization was March 1, 2000
CATHAYONE, INC. & SUBSIDIARIES
(A DEBTOR IN POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000*
Sept. 30, 2001 Sept. 30, 2000*
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
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Cash paid for interest . . . . . . . . . . . . . $ 104 $ -0-
=============== ================
NON-CASH FINANCING ACTIVITIES:
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Common stock issued in connection with
legal services - Note 3. . . . . . . . . . . . . $ 462,000 $ -0-
=============== ================
Common stock issued relating to reverse merger . $ -0- $ 24,658
=============== ================
Common stock issued for acquisition of
CMD Capital Limited. . . . . . . . . . . . . . . $ -0- $ 2,800
=============== ================
Common stock issued for equity investments
in foreign operations. . . . . . . . . . . . . . $ -0- $ 2,000,000
=============== ================
CATHAYONE, INC. & SUBSIDIARIES
(A Debtor in Possession)
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
September 30, 2001
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments consisting only of normal recurring accruals
considered necessary to present fairly the Company's financial position at
September 30, 2001, the results of operations for the three and nine month
periods ended September 30, 2001 and 2000, and cash flows for the nine months
ended September 30, 2001 and 2000. The results for the period ended September
30, 2001, are not necessarily indicative of the results to be expected for the
entire fiscal year ending December 31, 2001.
NOTE 2 - EARNINGS (LOSS) PER SHARE
The following represents the calculation of earnings per share:
For the three months ended For the nine months ended
September 30, September 30,
BASIC & DILUTED* 2001 2000 2001 2000
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Net loss $ (42,646) $ (572,743) $(710,791) $ (670,872)
Less- preferred stock dividends
-- -- -- --
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Net loss $ (42,646) $ (572,743) $(710,791) $ (670,872)
Weighted average number
of common shares 29,689,158 29,258,319 29,666,936 16,819,189
-------------------------------------------------------------------------------
Basic & diluted earnings per share
$ ** $ (.02) $ (.02) $ (.05)
===============================================================================
*There were no common stock equivalents for either period presented.
** Less than $.01
NOTE 3 - OTHER EXPENSE
During the nine months ended September 30, 2001, the Company issued 200,000
shares of its common stock in connection with legal services rendered on behalf
of the Company. The Company is disputing a significant portion of the
approximately $593,000 in accumulated invoices claimed by the law firm. The
Company has accrued these invoices in its financial statements pending a
settlement with the law firm. The shares were issued pursuant to an agreement
whereby the law firm will provide the Company until April 30, 2001 to pay the
outstanding invoices. The Company is currently in default of this agreement. The
value of the shares was determined using the fair market on the date of
issuance, or $2.31 per share, yielding an aggregate market value of $462,000.
NOTE 4 - BANKRUPTCY FILING
On June 15, 2001, the registrant filed a voluntarily Chapter 11 petition in the
United States Bankruptcy Court for the Southern District of New York, Case No.
01-41726(cb). The registrant is continuing as a debtor in possession with its
prior management, as noted in Item 2, pursuant to Section 1107 of Title 11 of
the United States Code. The Company intends to file a plan of reorganization as
provided by Chapter 11 of the United States Bankruptcy Code as soon as
practicable.
A meeting of creditors pursuant to section 341 of the United States Bankruptcy
Code was held in August 2001.
The Company intends to proceed as expeditiously as possible to resolve
outstanding liabilities. The Company presently is in negotiation with
prospective merger partners in order to inject new capital into the Company, and
therefore maximize value for its constituents.
NOTE 5 - DUE TO RELATED PARTIES
The total amount presented as due to related parties at September 30, 2001 is
primarily the net outstanding balances of advances and cash payments from
CathayOnline, Inc. and its subsidiaries, a beneficial shareholder of the Company
which also has a director in common. The amount is comprised of $475,070 in cash
advances and another $347,307 due for services rendered as described below.
The balances are unsecured and carry an interest rate of 8%; however, all
interest through September 30, 2000 has been waived by CathayOnline, Inc.
Certain accounting, administrative support, and Internet development services
are provided by CathayOnline, Inc. and subsidiaries. Charges for these services
are based on estimates of payroll and benefits of involved staff and other
department costs that were approximately $347,307 for the period from March 1,
2000 (date of reorganization) through September 30, 2001 and are included under
'Due to Related Parties' in the accompanying consolidated balance sheet.
The remaining balance of $37,500 is payable to members of the Company's
management for third quarter 2001 administrative services rendered during the
Chapter 11 reorganization case at a rate of $12,500 per month.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
--------
With the exception of historical facts stated herein, the matters discussed in
this report are "forward looking" statements that involve risks and
uncertainties that could cause actual results to differ materially from
projected results. Such "forward looking" statements include, but are not
necessarily limited to, statements regarding anticipated levels of future
revenues and earnings from operations of the Company. Readers of this report are
cautioned not to put undue reliance on "forward looking" statements that are, by
their nature, uncertain as reliable indicators of future performance. The
Company disclaims any intent or obligation to publicly update these "forward
looking" statements, whether as a result of new information, future events, or
otherwise.
DESCRIPTION OF BUSINESS
Business Development History
----------------------------
CathayOne, Inc. (the "Company") is a publicly traded Delaware corporation that
was originally incorporated in the State of Utah on August 6, 1984, under the
name North American Clothing Company, Inc.
As of June 30, 2000, a majority of the shareholders of the Company authorized a
change in the Company's state of incorporation from Utah to Delaware, and the
merger of the Company into its wholly owned subsidiary, Cathay Bancorp Inc.,
CathayOne Inc. being the surviving company. The re-domiciling of the Company to
the State of Delaware and the concurrent change of the Company's name to
CathayOne Inc. occurred on August 9, 2000.
The Company has vacated its former executive offices and is receiving
correspondence at : c/o MRB Investor Relations, Attn: Charles A. Nelson - 400
Madison Avenue, 16th Floor - New York, NY 10017
Business of the Issuer.
----------------------
- Overview of Operations as Debtor in Possession
The Company's stated business purpose was to manage, take a majority position
in, and/or make strategic investments in, technological and service companies in
the entertainment, Internet and e-commerce industries. While located in the
United States, the Company sought to position itself to take advantage of the
appetite for foreign content entertainment, the fast-growing broadband
multimedia information dissemination opportunities and the Internet content
services market in China. The Company does not anticipate that these business
purposes will continue to be pursued. Please see comments below under
"Subsequent Events". The Company is currently seeking merger prospects and other
strategic relationships that will attempt to add value to the existing
shareholders. There can be no assurance that the Company will be successful in
achieving this goal. In addition, there can be no assurance that the current
shareholders of the Company will see their value per share increase if such
reorganization occurs.
- Subsequent Events
Since filing its bankruptcy petition, the Company has been attempting to locate
a funding source, investor or operating company so that it could emerge from its
bankruptcy as a publicly-traded corporate shell or as a publicly-traded
operating entity. In December of 2001, management began negotiating the terms
of a business combination with the principal officer of a private company in the
transportation business ("Tranco").
On January 28, 2002, the Debtor and Tranco entered into a non-binding letter of
intent relating to the reverse merger of a subsidiary of the Debtor (that will
be formed as a merger vehicle) with and into Tranco, with Tranco remaining as
the surviving company. The Company intends to file a Plan of Reorganization in
February 2002.
- Employees
The two remaining officers continue to manage the Company as a
debtor-in-possession. This arrangement will continue into the foreseeable future
pursuant to their Chapter 11 plan of reorganization.
Market for the Company's Common Stock
-------------------------------------
The Company's common stock had been de-listed from the Over-the-Counter Bulletin
Board (OTCBB) during the fourth quarter of 2001 and does not currently have an
active trading market. The Company will attempt to locate a market maker that
may have an interest in making a market in the Company's common stock. However,
there can be no assurance that a market for the common stock will be established
or maintained.
RESULTS OF OPERATIONS
---------------------
The following are the results of operation as of and for the three and nine
months ended September 30, 2001 and 2000. As indicated in the accompanying
financial statements, the Company did not have any material operations for the
three months ended March 31, 2000.
Net Income
The Company had a net loss of $42,646 for the three months ended September 30,
2001 versus a net loss of $572,743 for the same period in 2000. The net loss for
the third quarter of the year was primarily attributable to administrative and
court costs for its bankruptcy proceedings and the write-off of fixed assets no
longer held by the Company. There were no other material operations within the
Company during the third quarter.
Sales
The Company did not have any revenues during the periods presented.
Expenses
Total expenses were $42,646 for the three months ended September 30, 2001 versus
$572,743 during the same period in 2000. Total expenses for the nine month
period ended September 30, 2001 were $710,791 versus $670,872 during the same
period in 2000. Expenses for both periods were primarily incurred due to the
Company's development activities in Greater China.
Total expenses for the nine months ended September 30, 2001 included $462,000 in
connection with the payable due the Company's legal counsel. The payment was
made with 200,000 shares of the Company's common stock valued at $2.31 per
share, the fair market value at the time of issuance. Expenses also included
$120,000 in accruals for consultants and officers pursuant to their respective
employment agreements. Rent expense was $16,200.
Liquidity and Capital Resources
On September 30, 2001, the Company had cash of $8 and a working capital deficit
of $2,026,886. The working capital deficit represents primarily obligations from
operations and amounts due related parties for advances and services.
Net cash used in operating activities was $29,679 for the nine months ended
September 30, 2001 versus net cash provided by operating activities of $461,272
during the same period in 2000. The difference in cash used was primarily
attributable to an increase in accounts payable of $1,106,814 during 2000 and
$462,000 in common stock issuances for services during 2001.
Net cash used in investing activities for 2000 included expenditures for office
furniture and equipment, intangible assets and the Company's investment in
foreign operations, which were $18,131, $63,770 and $375,259. The Company did
not have any cash flows form investing activities during 2001.
Cash used in financing activities totaled $7,500 for the nine months ended
September 30, 2001 as a result of the incurrence of a loan receivable in the
amount of $7,500 to an unrelated party. The Company now believes collection of
this is unlikely and, accordingly, has reserved this amount to bad debt. The
Company will need to reorganize itself as part of its Chapter 11 case in order
to continue operating. The Company does not currently have enough liquid assets
to remain in operations. In addition, the Company's auditors expressed doubt as
to the Company's ability to continue as a going concern absent Chapter 11
reorganization. Failure to raise additional capital during the next twelve
months will have a material adverse effect on the Company.
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
On June 15, 2001, The registrant filed a voluntarily Chapter 11 petition in the
United States Bankruptcy Court for the Southern District of New York, Case No.
01-41726(cb). The registrant is continuing as a debtor in possession with its
prior management, except as noted in Item 6, pursuant to Section 1107 of Title
11 of the United States Code. The Company intends to file a plan of
reorganization as provided by Chapter 11 of the United States Bankruptcy Code in
February 2002 as soon as practicable.
A meeting of creditors pursuant to section 341 of the United States Bankruptcy
Code was held in August 2001.
The Company intends to proceed as expeditiously as possible to resolve
outstanding liabilities. The Company presently is in negotiation with
prospective merger partners in order to inject new capital into the Company, and
therefore maximize value for its constituents.
Capital Lake S.A. v. CathayOne, Inc., Case No. 01-CV-1266 (SAS) filed in the
----------------------------------------
United States District Court for the Southern District of New York. The case
---
involves a claim to entitlement to a $300,000 finder's fee/brokerage commission.
--
The Company denies liability and is defending the action. The case is in its
early stages. No discovery has occurred. The Company is unable to express an
opinion on the outcome at this time, although the Company does feel it has a
meritorious defense to the claim.
As a result of the bankruptcy filing, this case has been stayed.
The Company is aware of a claim being asserted by its former legal counsel for
fees in the approximate amount of $593,000, which is contested by the Company.
The Company is attempting to settle this claim. Collection efforts on this claim
has also been stayed.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Since filing its bankruptcy petition, the Company has been attempting to locate
a funding source, investor or operating company so that it could emerge from its
bankruptcy as a publicly-traded corporate shell or as a publicly-traded
operating entity. In December of 2001, management began negotiating the terms
of a business combination with the principal officer of a private company in the
transportation business ("Tranco").
On January 28, 2002, the Debtor and Tranco entered into a non-binding letter of
intent relating to the reverse merger of a subsidiary of the Debtor (that will
be formed as a merger vehicle) with and into Tranco, with Tranco remaining as
the surviving company. The Company intends to file a Plan of Reorganization in
February 2002.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
-----------
None.
b) Reports on Form 8-K
----------------------
1. A Form 8-K was filed on June 20, 2001 announcing the bankruptcy
proceeding filed under Chapter 11 of the United Stated Bankruptcy Code and the
resignation of a director of the Company.
SIGNATURES
----------
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
/s/ Peter Lau, Chief Executive Officer
--------------------------------------
Date: February 5, 2001 Peter Lau, Chief Executive Officer
/s/ David Cooperberg, President
-------------------------------
David Cooperberg, President
/s/ Charles A. Nelson, Director
-------------------------------
Charles A. Nelson, Director