SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission file number 1-12293
BROADENGATE SYSTEMS, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 87-0394313
-------------------------------- -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3/F, Block 2, Cyber City, South Hi-tech Industrial Park,
Shenzhen, Guangdong Province
--------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
011-86-755-2671-6656
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(Issuer's Telephone Number, including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 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 [_]
As of September 18, 2002, 14,393,000 shares of our common stock, $.001 par
value were outstanding. As of such date, the aggregate market value of the
common stock held by non-affiliates, based on the closing bid price on the NASD
Bulletin Board, was approximately $2,158,950.
INDEX
BROADENGATE SYSTEMS INC. AND SUBSIDIARIES
Page No.
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited)
Condensed consolidated balance sheets -
June 30,2002 and December 31,2001 3
Condensed consolidated statements of operations -
Three months ended June 30,2001 and 2002 4
Condensed consolidated statements of operations -
Six months ended June 30,2001 and 2002 5
Condensed consolidated statements of cash flows -
Six months ended June 30,2001 and 2002 6
Notes to condensed consolidated financial statements-
June 30,2002 7
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K
Signatures
12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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2
BROADENGATE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
(Unaudited)
2001 2002 2002
Rmb Rmb US$
-------- --------- ---------
ASSETS
CURRENT ASSETS
Cash 7,995,053 540,660 $ 65,140
Accounts receivable 3,192,662 2,112,108 254,471
Deposits and other 555,987 341,011 41,086
Advances to employees 389,008 337,257 40,633
Costs & estimated earnings in excess
Of billings on uncompleted contracts - 1,417,641 170,800
---------- ----------- -----------
TOTAL CURRENT ASSETS 12,132,710 4,748,677 572,130
---------- ----------- -----------
NONCURRENT ASSETS
Long-term investment 2,800,000 2,800,000 337,349
Fixed assets 2,432,328 2,166,435 261,016
Advances to employees 326,000 356,185 42,914
Intangibles 1,508,106 1,237,998 149,156
----------- ----------- -----------
TOTAL NONCURRENT ASSETS 7,066,434 6,560,618 790,435
----------- ----------- -----------
TOTAL ASSETS 19,199,144 11,282,295 $1,362,565
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings-bank 24,000,000 17,800,000 $ 2,144,578
Accounts payable - 24,706 2,977
Accrued expenses
Salaries, wages and other compensation 337,048 1,170,993 141,083
Employee fringe benefits 1,539,271 1,672,371 201,490
Taxes 17,458 184,295 22,204
Other 1,183,523 1,723,025 207,594
Customer deposits 15,000 117,328 14,136
Due to directors 4,163,531 4,223,140 508,812
Due to related parties 390,919 531,201 64,000
Due to employees - 184,038 22,173
Billings in excess of costs & estimated
earnings on uncompleted contracts - 514,753 62,108
------------ ----------- -----------
TOTAL CURRENT LIABILITIES 31,646,750 28,145,850 3,391,065
------------ ----------- -----------
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock,par value US$0.001;issued
and outstanding-14,393,000 shares as
of December 31,2001 and March 31,2002 119,462 119,462 14,393
Additional paid-in capital 57,969,605 57,969,605 6,984,290
Subscription receivable (767,411) - -
Reserve funds 347,148 347,148 41,825
Accumulated deficit (70,116,410) (75,272,770) (9,069,008)
----------- ----------- -----------
TOTAL SHAREHOLDERS' DEFICIT (12,447,606) (16,836,555) (2,028,500)
----------- ----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 19,199,144 11,282,295 $ 1,362,565
=========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
3
BROADENGATE SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 AND 2002
(Unaudited)
2001 2002 2002
------------ ------------ -----------
Rmb Rmb US$
REVENUE 3,227,547 3,886,295 $ 468,228
COST OF SALES (2,547,265) (3,242,195) (390,626)
------------ ------------ -----------
GROSS PROFIT 680,282 644,100 77,602
SELLING AND ADMINISTRATIVE
EXPENSES (1,580,778) (4,396,439) (529,691)
------------ ------------ -----------
LOSS FROM OPERATIONS (900,496) (3,752,339) (452,089)
------------ ------------ -----------
OTHER INCOME(EXPENSE)
INTEREST EXPENSE (263,656) (288,494) (34,758)
OTHER INCOME,NET 948,993 19,330 2,329
------------ ------------ -----------
TOTAL OTHER INCOME(EXPENSE), NET 685,337 (269,164) (32,429)
------------ ------------ -----------
LOSS BEFORE TAXES (215,159) (4,021,503) (484,518)
INCOME TAXES 12,979 - -
------------- ------------ -----------
LOSS BEFORE
MINORITY INTEREST (202,180) (4,021,503) (484,518)
MINORITY INTEREST IN LOSS 133,616 - -
------------- ------------ -----------
NET LOSS (68,564) (4,021,503) $ (484,518)
============= ============ ===========
LOSS PER SHARE (0.01) (0.28) $ (0.03)
============= ============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
12,920,000 14,393,000 14,393,000
============= ============ ===========
The accompanying notes are an integral part of the
consolidated financial statements.
4
BROADENGATE SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001 AND 2002
(Unaudited)
2001 2002 2002
---------- --------- ----------
Rmb Rmb US$
REVENUE 5,345,473 6,170,417 $ 743,424
COST OF SALES (3,991,250) (4,932,002) (594,217)
------------ ------------ -----------
GROSS PROFIT 1,354,223 1,238,415 149,207
SELLING AND ADMINISTRATIVE
EXPENSES (4,399,060) (6,371,002) (767,591)
------------ ------------ -----------
LOSS FROM OPERATIONS (3,044,837) (5,132,587) (618,384)
------------ ------------ -----------
OTHER INCOME(EXPENSE)
INTEREST EXPENSE (520,520) (547,916) (66,014)
DIVIDEND INCOME - 493,753 59,488
OTHER INCOME,NET 1,110,528 30,390 3,662
------------ ------------ ------------
TOTAL OTHER INCOME(EXPENSE), NET 590,008 (23,773) (2,864)
------------ ------------ ------------
LOSS BEFORE TAXES (2,454,829) (5,156,360) (621,248)
INCOME TAXES - - -
------------ ------------ ------------
LOSS BEFORE
MINORITY INTEREST (2,454,829) (5,156,360) (621,248)
MINORITY INTEREST IN LOSS 45,719 - -
------------ ------------ ------------
NET LOSS (2,500,548) (5,156,360) $ (621,248)
============ ============ ============
LOSS PER SHARE (0.19) (0.36) $ (0.04)
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
12,920,000 14,393,000 14,393,000
============ ============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
5
BROADENGATE SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 AND 2002
(Unaudited)
2001 2002 2002
Rmb Rmb US$
----------- ----------- -----------
Cash Flows from Operating Activities
Net loss (2,500,548) 5,156,360 $ (621,248)
----------- ----------- -----------
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 307,715 464,143 55,921
Amortization of product development costs 253,189 - -
Amortization of Intangible assets - 270,108 32,543
Provision for losses on receivables
- Customers - 2,371,600 285,735
Minority interest 45,719 - -
(Increase) decrease in
Accounts receivable (3,927,862) (1,479,446) (178,247)
Deposits and other (630,423) 44,976 5,419
Costs and estimated earnings in
excess of billings on uncompleted
contracts 67,853 (1,417,641) (170,800)
Others 265,068 - -
Increase (decrease) in
Accounts payable and accrued expenses 2,035,718 1,698,090 204,589
Customer deposits (6,000) 102,328 12,329
Billings in excess of costs and estimated
earnings on uncompleted contracts 492,025 514,753 62,018
----------- ----------- -----------
Total Adjustments (1,096,998) 2,568,911 309,507
----------- ----------- -----------
Net Cash Used in Operating Activities (3,597,546) (2,587,449) (311,741)
----------- ----------- -----------
Cash Flows from Investing Activities
Capital expenditures (7,800) (28,250) (3,404)
Capitalized expenditures for
product development costs 436,649 - -
Advances to related parties (32,454) - -
Advance to employees (276,838) 21,566 2,599
----------- ----------- -----------
Net Cash Used in Investing Activities 753,741 (6,684) (805)
----------- ----------- -----------
Cash Flows from Financing Activities
Net repayments to bank - (6,200,000) (746,988)
Net borrowings from related parties 281,155 140,282 16,901
Net borrowings from director 1,021,250 248,009 29,881
Net borrowings from employees - 184,038 22,173
Proceeds from subscription receivable - 767,411 92,459
----------- ----------- -----------
Net Cash Provided by (Used in)
financing Activities 1,302,405 (4,860,260) (585,574)
----------- ----------- -----------
Net Decrease in Cash (3,048,882) (7,454,393) (898,120)
Cash, Beginning of Period 3,221,718 7,995,053 963,260
----------- ----------- -----------
Cash, End of Period 172,836 540,660 $ 65,140
=========== =========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
6
BROADENGATE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The Company believes that the interim financial statements contain all
adjustments necessary for a fair presentation of the results for such interim
periods. All of these adjustments are normal recurring adjustments. The results
of operations for interim periods do not necessarily predict the operating
results for the full year. The consolidated balance sheet as of December 31,2001
has been derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles as permitted by
interim reporting requirements. The information included in this report should
be read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations, the audited financial statements and
related notes included in the Company's 2001 Form 10-KSB.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB for the
year ended December 31,2001.
NOTE 2 - ACQUISITIONS
On March 31, 2000, Natural Way Technologies, Inc. (Natural Way) entered into an
Exchange agreement (the Exchange) with World Concept Development Limited
(World), an independent third party. In accordance with the Exchange, Natural
Way acquired 100% of the issued and outstanding shares of World in exchange for
9,300,000 post reverse split shares of Natural Way. Prior to closing, Natural
Way effected a one for five reverse stock split and changed the name of the
Company to ESOFTBANK.COM, INC.
The Exchange has been accounted for using the purchase method of accounting as a
reverse acquisition, whereby the company issuing its shares to effect the
business combination is determined to be the acquirer in the business
combination. This occurs when the shareholders of the issuer have less than a
majority of voting control of the combined entity. The company whose
shareholders retain the majority voting interest in the combined entity is
presumed the acquirer. In the current Exchange, the existing shareholders of
Natural Way will retain a 27% voting interest in the combined entity on
completion of the Exchange. Accordingly, World is deemed to be the acquirer and
the assets of Natural Way were required to be fair valued at acquisition. As
Natural Way had no assets, as of the date of the Exchange, no fair value
adjustment was required. The historical financial information prior to the
Exchange are those of World.
World, a development stage enterprise, was incorporated on October 27, 1999, in
the British Virgin Islands. World incorporated its wholly owned subsidiary
ESOFTBANK Networks (Shenzhen) Co. Ltd. (Shenzhen) on December 30, 1999, in the
Peoples' Republic of China (PRC). World and Shenzhen were incorporated to effect
a merger, exchange of capital stock, asset acquisition or other business
combination with a domestic or foreign, private or publicly held business.
On February 21, 2000, World via Shenzhen, acquired 9.52% of the outstanding
capital of SiTech, a company related through common ownership and management
from Dr. Hongbing Lan, a director and stockholder of both World and SiTech for
approximately $62,650. On the same date, Shenzhen acquired an additional 42.86%
of SiTech from SiTech Hainan Holding Co., Ltd. (Holdings), a company related
through common ownership and management, for approximately $280,000. Since both
entities involved in the acquisition were under common control, the transaction
was accounted for at historical cost in a manner similar to that in
pooling-of-interests accounting. The cash consideration paid in these
transactions was classified as a deemed dividend in the amount of Rmb 2,840,000.
The consolidated financial statements include the results of operations for
World and its subsidiaries from their inception.
7
On February 21, 2000, Shenzhen also acquired 80% of the newly issued and
outstanding stock of Beijing, a PRC company, from Holdings for an initial
capital investment of approximately $116,000. The remaining 20% of Beijing is
owned by Mr. Lan Hong Yu, the brother of Dr. Hongbing Lan.
During August of 2000, Shenzhen acquired a 2.67% interest for Rmb 2,800,000 in
Xiangyou, a newly formed entity, whose primary stockholder and initiator is the
Hunan Post Office (governmental agency). The new entity's development projects
are to include: a postage computing system, telecommunication technology
development, a postage machinery manufacturing line and other various technology
related systems. The acquisition will be accounted for at the lower of cost or
net realizable value.
On October 14, 2001, Shenzhen acquired 70% of the outstanding capital of Dalian,
an unrelated PRC company, in exchange for 307,000 shares of the Company valued
at $.55 per share or approximately $168,675. Dalian is a software company in
Northeastern China focusing on project management software and system
integration. This acquisition was accounted for as a purchase in accordance with
the SFAS No. 141, "Business Combinations."
NOTE 3 - SHORT-TERM BORROWINGS-BANK
On May 29, 2000 the Company entered into a one-year credit facility with
Shenzhen Commercial Bank for RMB 16 million at 5.3125%. The credit facility is
secured by shares in the Company owned by Dr. Lan, director and shareholder of
the Company.
On Aug. 25, 2001, the one-year credit facility was extended to Aug. 25, 2002 at
5.3125%.
On May 13, 2002, the Company entered into another six-month credit facility with
the same bank mentioned above for RMB 1.6 million at 5.544%. The credit facility
is secured by Dr. Lan individually.
NOTE 4 - FOREIGN CURRENCY CONVERSION
The Company's financial information is presented in U.S. dollars. Reminbi, the
functional currency of the Company, has been converted into U.S. dollars at the
exchange rate of 8.3 to 1.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
BroadenGate Systems, Inc. is a software outsourcing service provider operating
in the People's Republic of China. The Company develops comprehensive
outsourcing solutions for systems development and implementation projects and
provides consulting services in the telecom, network security, e-Business, ERP,
CRM EGIS sectors.
We believe that we are well positioned for growth in the developing information
technology ("IT") industry in the PRC and internationally. With the PRC joining
the WTO and the Beijing's 2008 Olympics, the IT outsourcing demand should
increase during the next several years.
Since its inception in 1996, the company has grown with the Chinese domestic IT
industry. BroadenGate is now leveraging its domestic expertise to enter the
global outsourcing market, and to co-op with leading multinational software
vendors in the Chinese market, such as Oracle and IBM. Building on the synergy
between the Chinese and global markets, BroadenGate hopes to continue to
increase its market share at home and win higher-margined contracts abroad.
Recent Developments
The Company continues to increase its business base by forming partnerships with
some of the leading telecom companies in the PRC, including Huawei Technology,
which is among the largest manufacturers of telecommunications equipment in
Asia. Our revenues are based on the following three project management centers
(PMC).
8
1. Telecommunication & Internet Center: We have over 180 engineers currently
working in this PMC, and have outstanding contracts for over 30 million RMB in
2002 with Huawei and potential contracts with AsiaInfo, which is among the
largest telecom services and systems integration venders in China . We have
reached an agreement of cooperation with the China Policy Security Bureau to use
our solutions in Internet access, network management and security, which should
produce significant marketing potential in China. 2. A Development &
International Center: We have successfully finished a COBOL software development
contract in Dalian with SCM a subsidiary of Mitsubishi Corporation. We are now
negotiating with NEC China and Simens China for more contracts from Japan. 3.
Project Management Software & System Integration Center: Our project management
products, OnTeam and TZ-Project, have competitive advantages in many fields in
China, such as civil engineering and software industry.
Besides outsourcing services, we also develop software with ownership of
intellectual rights, such as BroadenGate Network Auditing System. We anticipate
that it will increase our revenues and lower our operating risk.
We will focus on the Chinese and Japanese markets this year, mainly in the
telecom industry. However, if the Company is to be a dominant player in the
industry, it is critical to establish a physical presence in the US.
RESULTS OF OPERATIONS
Three months ended June 30,2002 compared to three months ended June 30,2001
Revenues. Revenues increased by $79,367 or 20 % to $468,228 for the three months
ended June 30, 2002 from $388,861 for the same periods ended June 30, 2001. This
increase in revenues resulted from additional software outsourcing. Our service
market was also expanded during the second quarter.
Cost of Sales. Cost of sales increased by $83,727 or 27% to $390, 626 for the
three months ended June 30, 2002 from $306,899 for the period ended June 30,
2001. Cost of sales as a percent of revenues was 83% for the three months ended
June 30, 2002 compared to 79% for the period ended June 30, 2001. This increase
in cost of sales resulted from increased revenues and a change in the mix of
products sold. The increase in cost of sales as a percentage of revenue is
attributable to an increased percentage of sales from human resource outsourcing
which has a lower profit margin than software development.
Selling and Administrative Expenses. Selling and administrative expenses("SGA")
increased by $339,236 or 178% to $529,691 for the three months ended June 30,
2002 from $190,455 for the period ended June 30, 2001. This increase in selling
and administrative expenses was principally attributable to increased marketing
and training expenses for our additional staff Additionally, a receivable of
$285,735 was written off in the second quarter of 2002, as management considered
it non-recoverable.
Other income, Net. Other income(expenses),net consists of interest income and
expense, bank charges, recovery of prior expenses, foreign exchange gains or
losses, other miscellaneous income, and investment income. Other expenses, net
totaled $32,429 for the three months ended June 30, 2002, compared to other
income, net of $82,570 for the period ended June 30, 2001. This decrease in
other income, net resulted principally from increased bank interest and a lack
of other income. Total investment income was zero for the second quarter in both
2002 and 2001. Bank interest increased by $2,992 to $34,758 for the three months
ended June 30, 2002 from $31,766 for the period ended June 30, 2001, because of
a new credit facility obtained on May 13,2002.
Income Taxes. There was no income tax expense for the three months ended June
30, 2002. These were refundable taxes of $1,564 for the period ended June 30,
2001.
Minority Interest. The minority interest represents the 20% interest in
eSoftBank (Beijing) Software Systems Co. Ltd., the 47.6% of SiTech Hainan Ltd.
and the 30% of Tongzhou (Dalian) Computer Co., Ltd., not owned by the Company.
As a result of the foregoing, the net loss increased by $476,257 to $484,518 for
the three months ended June 30,2002 from $8,261 for the period ended June
30,2001. However, management believes that future trends will be better. Facing
a large potential marketplace, we expect that our operations as a software
outsourcing services provider and subcontracting platform will result in smaller
losses and, ultimately, profitability. Notwithstanding our expectations, there
is no assurance that we will ever become profitable.
9
Six months ended June 30,2002 compared to six months ended June 30,2001
Revenues. Revenues increased by $99,391 or 15 % to $743,424 for the six months
ended June 30, 2002 from $644,033 for the period ended June 30, 2001. This
increase in revenues resulted from additional software outsourcing.
Cost of Sales. Cost of sales increased by $113,343 or 24% to $594,217 for the
six months ended June 30, 2002 from $480,874 for the period ended June 30, 2001.
Cost of sales as a percent of revenues was 80% for the six months ended June 30,
2002 compared to 75% for the same periods ended June 30, 2001. This increase in
cost of sales resulted from increased revenues and a change in the mix of
products sold. The increase in cost of sales as a percentage of revenue is
attributable to an increased percentage of sales from human resource outsourcing
which has a lower profit margin than software development.
Selling and Administrative Expenses. Selling and administrative expenses("SGA")
increased by $237,584 or 45% to $767,591 for the six months ended June 30, 2002
from $530,007 for the period ended June 30, 2001. This increase in selling and
administrative expenses was principally attributable to increased marketing and
training expenses. Additionally, a receivable of $285,735 was written off in the
second quarter of 2002, as management considered it was non-recoverable.
Other income, Net. Other income(expenses),net consists of interest income and
expense, bank charges, recovery of prior expenses, foreign exchange gains or
losses, other miscellaneous income, and investment income. Other expenses, net
totaled $2,864 for the six months ended June 30, 2002, compared to other income,
net of $71,085 for the period ended June 30, 2001. This decrease in other
income, net resulted principally from increased bank interest and a lack of
other income. Total investment income was $59,488 for 2002, compared to zero for
the corresponding period of 2001. The increase resulted from no cash dividend
being distributed by Xiangyou and because bank interest increased by $3,301 to
$66,014 for the six months ended June 30, 2002 from $62,713 for the period ended
June 30, 2001, because of a new credit facility obtained on May 13,2002.
Income Taxes. No income tax was provided for the six months ended June 30, both
2002 and 2001 because of an operating loss in the both periods.
Minority Interest. Minority interest represents the 20% interest in eSoftBank
(Beijing) Software Systems Co. Ltd., the 47.6% of SiTech Hainan Ltd. and the 30%
of Tongzhou (Dalian) Computer Co., Ltd., not owned by the Company.
As a result of the foregoing, our net loss increased by $319,977 or 106% to
$621,248 for the six months ended June 30,2002 from $301,271 for the period
ended June 30,2001. However, management believes that future trends will be
better. Facing a large potential marketplace, we expect that our operations as a
software outsourcing services provider and subcontracting platform will result
in smaller losses and, ultimately, profitability. Notwithstanding our
expectations, there is no assurance that we will ever become profitable.
10
Liquidity and Capital Resources
As of June 30, 2002, we had cash of $65,140 and negative working capital of
$2,818,935, compared with cash of $20,824 and negative working capital of
$2,216,826 as of June 30, 2001.Our working capital has deteriorated principally
as a result of our net operating loss.
Net cash used in operating activities totaled $311,741 for the six months ended
June 30, 2002, compared with cash used in operations of $433,439 for the period
ended June 30, 2001. The change in cash flows from operating activities resulted
from an increased net operating loss and net changes in the current accounts
which was partially offset by increased depreciation and amortization and the
non-cash charge of the receivables write-off.
Net cash used in investing activities totaled $805 for the six months ended June
30, 2002, compared with cash used in investing activities of $90,812 for the
same periods ended June 30, 2001. This change resulted from the absense of
capital expenditures for product development costs and no other fixed assets.
Net cash used in financing activities totaled $585,574 for the six months ended
June 30, 2002, compared with cash provided by financing activities of $156,916
for the period ended June 30, 2001. The net change is attributable to a
repayment of bank indebtedness.
We have no plans for any major capital expenditures.
Based on the current level of cash, the deficit in working capital and current
level of expenditures in our business, it will be necessary to seek additional
sources of funding over the next twelve months. In addition to negotiating with
our banks for more project finance to fund operations for the current year,
management is accelerating its efforts to recover outstanding receivables.
However, without outside financing or the sale of stock the Company has
insufficient resources to continue its business operation for the next twelve
months. No assurance can be given that the Company will be able to obtain any
financing or sell any of its shares.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities and Use of Proceeds.
None
Items 3 - 5. We have nothing to report under these items.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
99.1 Certificate of Chief Executive Officer and Chief Financial Officer
(b) Reports on Form 8-K - None.
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11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Broadengate Systems, Inc.
By: /s/ Dr. Hongbing Lan
-------------------------
Dr. Hongbing Lan
Chief Executive Officer
By: /s/ Hongyu Lan
-------------------------
Lan Hongyu
Principal Accounting Officer
Dated: September 18, 2002
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Name Title Date
------ -------- --------
/s/ Hongbing Lan Chairman, Chief Executive Officer September 18, 2002
----------------
Dr. Hongbing Lan
/s/ Xinmin Gao Director September 18, 2002
--------------
Mr. Xinmin Gao
/s/ Fa Ding Liu Director September 18, 2002
---------------
Mr. Fa Ding Liu
12