SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 1, 2002
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Score One, Inc.
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(Exact name of Registrant as Specified in its Charter Post-merger)
Nevada 0-26717 88-0409164
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation pre-merger) File Number) Identification No. pre-merger)
G/F., 21A Boundary Street, Shamshuipo, Kowloon, HONG KONG
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(New Address)
Registrant's telephone number, including area code 011-852-2406-8978
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Item 1. Changes in Control of the Registrant.
Pursuant to the Exchange Agreement more particularly described in Item 2 below,
on November 1, 2002 Score One Inc. issued to Wing-Kei Li and Shuk-Wah Kwok
51,300 shares and 5,700 shares, respectively, of Series B Non-Voting Convertible
Preferred Stock of Score One (the "Series B Shares"), which Series B Shares are
convertible into shares of Score One's Common Stock at any time after the six
month anniversary of the Closing Date (as hereinafter defined) at an initial
conversion rate of 1,000 shares of Common Stock for each share of Series B Stock
and have the other rights, powers and privileges as are set forth in the
Certificate of Designation for the Series B Shares attached as Exhibit 10.2
hereto (the "Certificate of Designation"). Although no change of control of
Score One has currently occurred, on April 1, 2003, the Series B Shares can be
converted into 57,000,000 shares of Score One's Common Stock, which shares would
represent 92.70% of the 61,485,564 shares of Score One's outstanding Common
Stock assuming the conversion of all of the Series B Shares. Accordingly, Mr. Li
individually and Mr. Li and Ms. Kwok collectively would control more than 50% of
the issued and outstanding Common Stock of Score One.
Item 2. Acquisition or Disposition of Assets.
Acquisition of Good Step Limited
On November 1, 2002, Score One Inc. acquired all of the issued and outstanding
stock of Good Step Limited, a British Virgin Islands company ("Good Step")
pursuant to an Exchange Agreement (the "Exchange Agreement") dated as of
November 1, 2002 by and among Good Step, Wing-Kei Li and Shuk-Wah Kwok (the
"Good Step Shareholders"), Score One, and I.World Limited ("I.World"). Pursuant
to the Exchange Agreement, Good Step became a wholly-owned subsidiary of Score
One, and in exchange for the Good Step shares, Score One (i) issued to the Good
Step Shareholders an aggregate of 57,000 Series B Shares and (ii) agreed to pay
$7,900,000 in cash (the "Cash Consideration") on the six month anniversary of
the Closing Date. A copy of the Exchange Agreement is attached as Exhibit 10.1
hereto.
The purchase price of $25,000,000 in aggregate was based up a historical
price/earnings ratio of approximately 10.97 times as per audited net income of
Good Step of $2,278,787 for the year ended September 30, 2002. Prior to the
consummation of the Exchange Agreement, there was no existing relationship by or
among the Good Step Shareholders, Score One or any affiliate, director or
officer of Score One or any associates of any of the foregoing except that Ms.
Kwok is currently an executive director of Fu Cheong International Holdings
Limited which is an indirect 58% subsidiary of Score One.
Background of Good Step Limited
Good Step is principally engaged in the provision of silk-screen printing
manufacturing services for textile and clothing materials for high-end kids'
garment, tote bags, furniture and curtains. All of Good Step's customers are
based in Hong Kong with production facilities located in Guangdong Province of
Mainland China. For the year ended September 30, 2002, sales
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generated from provision of silk-screen printing manufacturing services amounted
to approximately US$10,983,000.
Good Step's management believes that Good Step has a competitive advantage in
its ability to provide customers with quality products delivered quickly and on
time. Typical delivery time is four days after order confirmation. In addition,
customers are integral to the design process, making designs more relevant to
the needs of the marketplace. Good Step works closely with client companies
taking the ultimate product design from a conceptual model to delivery.
Good Step has secured a long-term production arrangement with a Hong Kong based
company with its production facilities located in Sam Shui, Guangdong Province,
China (the "Sam Shui Factory"). This subcontractor has a 20,000 square foot
facility that currently employs over 300 workers to work exclusively on behalf
of Good Step. The Sam Shui Factory adopts a stringent set of quality control
standards based on the ISO 9001 rules although it has not yet been ISO9001
certified.
Good Step currently has over 20 major customers which are not affiliated with
any directors, officer or shareholder of Good Step, with 2 major customers
accounting for approximately 40% of its annual turnover.
Good Step currently has 1 single major supplier for its purchases of pigments in
order to enjoy bulk purchases discounts. Nevertheless, management does not
believe that Good Step would have any difficulties in finding an alternative
source of pigment supply and Good Step has never experienced any difficulties in
procuring direct raw materials.
The Directors believe that the principal strengths of Good Step are:
- Good Step's product research and development capabilities, which enable it
to produce a wide variety of product samples for different textile and
clothing materials for different consumer products such as kids' garments,
tote bags, furniture and curtains so as to cater to different customer
preferences and demands as well as promptly respond to market changes and
customers' needs;
- Good Step's expertise in operation management and cost control, both of
which contribute to satisfactory profit margins;
- Good Step's well-established business relationships with its customers;
- Good Step's strong cash flow position which enables Good Step to receive
greater bulk purchase discounts from suppliers offering no or short credit
terms;
- Good Step's emphasis on stringent quality control; and
- the extensive experience of Good Step's management team in the silk-screen
printing manufacturing business and their in-depth knowledge of the product
research and development matters.
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Good Step was incorporated in the British Virgin Islands with limited liability
on January 17, 2001. Good Step has established its head office and principal
place of business at G/F., 21A Boundary Street, Shamshuipo, Kowloon, Hong Kong.
Item 5. Other Events.
In connection with the exchange and change in control, Wing Man Ho,
Hong Liang Qian and Mr. Lai Kin Hung, resigned as directors of Score One and
Shuk Wah Kwok and Hong Zhong Hu were appointed to fill the vacancies created by
the resignations. The following sets forth the age and a brief description of
the business experience of each Ms. Kwok and Mr. Hu during the past five years
and an indication of directorships held by each director in other companies
subject to the reporting requirements under the Federal securities laws.
Ms. Shuk Wah Kwok, age 30, has since March 6, 2002 served as an
executive director of Fu Cheong International Holdings Limited, a main board
listed company in Hong Kong which is a subsidiary of Score One. Ms. Kwok gained
her corporate finance, accounting and company secretarial experience in various
public accounting firms. Prior to joining Fu Cheong, she was a director and
shareholder of a company engaged in the provision of company secretarial and
accountancy services to various medium sized enterprises over the past 5 years.
She has held various senior positions in the company secretary and corporate
compliance area since 1996. She has over 10 years of experience in company
secretarial and accounting areas. She was also a director of Score One from July
1, 2001 until May 30, 2002.
Mr. Hong Zhong Hu, age 29, has since January 1997, been financial
consultant of Well Step Capital Limited, a financial consulting firm in Hong
Kong. where he was responsible for accounting technical service of IPO for
foreign companies in China. Under his supervision, a number of companies
successfully listed on Hong Kong Stock Exchange Main Board. Prior to this, Mr.
Hu was employed as an associate auditor for ERNST & YOUNG, Certified Public
Accountants, in Shen Zhen, China. Mr Hu received a Bachelor degree in Finance &
Economics from ShanXi University in 1996, He had attended in an advanced studies
of International Finance in Fu Dan University and is a qualified accountant in
China.
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Item 7. Financial Statements, Pro Form Financial Information and Exhibits.
(a) Financial Statements of Business Acquired
The audited financial statements of Good Step for the years ended
September 30, 2001 and 2002 are filed herewith.
(b) Exhibits
Exhibit No. Description
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10.1 Exchange Agreement
10.2 Certificate of Designation of the Series B Convertible
Preferred Stock
Item 8. Changes in Fiscal Year.
On October 31, 2002, at a special meeting of the Board of Directors of
Score One, the Board unanimously determined to change the Company's fiscal year
end from December 31 to September 30. The change was made as a result of the
acquisition of Good Step, the fiscal year end of which is September 30, 2002.
The Company intends to file a report covering the transition period
from January 1, 2002 to September 30, 2002 in connection with the filing of its
Annual Report on Form 10-K for its fiscal year ended September 30, 2002.
[ Signature page follows ]
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GOOD STEP LIMITED
Index to Financial Statements
Pages
Report of Independent Auditors F-1
Balance Sheets F-2
Statements of Operations F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to financial statements F-6-9
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
GOOD STEP LIMITED
(Incorporated in British Virgin Islands with limited liability)
We have audited the accompanying balance sheets of Good Step Limited as of
September 30, 2001 and September 30, 2002, and the related statements of
operations, stockholders' equity and cash flows for the period from inception to
September 30, 2001 and the twelve months ended September 30, 2002. These
financial statements are the responsibility of the Company's managements. Our
responsibility is to express and opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Good Step Limited as of
September 30, 2001 and September 30, 2002 and the results of its operations and
cash flows for the period from inception to September 30, 2001 and the twelve
months ended September 30, 2002, in conformity with generally accepted
accounting principles in the United States of America.
Weifang Certified Public Auditors, Weifang, China
October 18, 2002
F-1
GOOD STEP LIMITED
BALANCE SHEETS
(Expressed in US Dollars)
September 30, September 30,
Notes 2002 2001
ASSETS
Current assets
Cash and cash equivalents $ 152,043 $ 23,384
Accounts receivable 3 1,164,102 993,697
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Total current assets 1,316,145 1,017,081
Plant and equipment, net 4 30,550 39,950
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Total assets $1,346,695 $1,057,031
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 850,308 $ 839,431
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Total liabilities 850,308 839,431
Stockholders' equity
Ordinary shares, par value $1 per share;
50,000 shares authorized; 1,000 shares
issued and outstanding 1,000 1,000
Retained earnings 495,387 216,600
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Total stockholders' equity 496,387 217,600
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Total liabilities and stockholders' equity $1,346,695 $1,057,031
========== ==========
See accompanying summary of accounting principles and notes to financial
statements.
F-2
GOOD STEP LIMITED
STATEMENTS OF OPERATIONS
(Expressed in US Dollars)
Twelve From
months ended inception to
September 30, September 30,
Notes 2002 2001
Net Sales 2 $10,982,592 $ 8,139,178
Cost of sales (8,703,482) (6,522,367)
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Gross Profit 2,279,110 1,616,811
Selling expenses (71) (32)
General and administrative expenses (251) (178)
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Operating income 2,278,788 1,616,601
Financial expenses (1) (1)
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Income before income taxes 2,278,787 1,616,600
Provision for income taxes 5 -- --
----------- -----------
Net income $ 2,278,787 $ 1,616,600
----------- -----------
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See accompanying summary of accounting policies and notes
to financial statements.
F-3
GOOD STEP LIMITED
STATEMENTS OF STOCKHOLDERS' EQUITY
(Expressed in US Dollars)
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Common Stock
------------------ Total
Number of Retained Stockholders'
Shares Amount Earnings Equity
--------- ------ ----------- -------------
Balance, January 17, 2001 1,000 $1,000 $ -- $ 1,000
Net income -- -- 1,616,600 1,616,600
Dividends declared -- -- (1,400,000) (1,400,000)
----- ------ ----------- -----------
Balance, September 30, 2001 1,000 1,000 216,600 217,600
Net income -- -- 2,278,787 2,278,784
Dividends declared -- -- (2,000,000) (2,000,000)
----- ------ ----------- -----------
Balance, September 30, 2002 1,000 $1,000 $ 495,387 $ 496,387
----- ------ ----------- -----------
----- ------ ----------- -----------
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See accompanying summary of accounting policies and notes to financial
statements.
F-4
GOOD STEP LIMITED
STATEMENTS OF CASH FLOWS
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
(Expressed in US Dollars)
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Twelve From
months ended inception to
September 30, September 30,
2002 2001
Cash flows from operating activities
Net income 2,778,787 1,616,600
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation of plant and equipment 9,400 7,050
Changes in:
Accounts receivable (170,405) (993,697)
Accounts payable and accrued liabilities 10,877 839,431
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Net cash provided by operating activities 2,128,659 1,469,384
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Cash flows from return on investments and servicing of finance
Dividend paid (2,000,000) (1,400,000)
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Cash flows used in investing activities
Acquisition of plant and equipment - (47,000)
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Cash flows from financing activities
Issuance of common stock - 1,000
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Net increase in cash and cash equivalents 128,659 23,384
Cash and cash equivalents at beginning of period 23,384 -
---------- ----------
Cash and cash equivalents at end of period 152,043 23,384
========== ==========
Supplemental disclosure of cash flow information
Interest paid during the period 1 1
========== ==========
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See accompanying summary of accounting policies and notes to financial
statements.
F-5
GOOD STEP LIMITED
NOTES TO FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Good Step Limited was incorporated in the British Virgin Islands on January 17,
2001 ("the Company"). The principal activity of the Company is provision of
silk-screen printing manufacturing services.
NOTE 2 - SUMMARY OF IMPORTANT ACCOUNTING POLICIES
Basis of accounting
The financial statements are prepared in accordance with generally accepted
accounting principles in the United States of America.
Foreign currency translation and transactions
The functional currency of the Company and its subsidiaries in the Hong Kong
Dollar ("HK$") and the financial records are maintained and the financial
statements prepared in HK$. Foreign currency transactions during the period are
translated into HK$ to the exchange rates ruling at the transaction dates.
Assets and liabilities denominated in foreign currencies at the balance sheet
date are translated into HK$ at year end exchange rates. When assets,
liabilities and equity denominated in HK$ are translated into United States
Dollars ("US$"), translation adjustments are included as a component of
stockholder's equity.
For the purpose of preparing these financial statements, the financial
statements in HK$ have been translated into United States Dollars at US$1.00 =
HK$7.8.
Revenue recognition
Revenue is recognized upon the provision of silk-screen printing manufacturing
services.
Cash and cash equivalents
Cash and cash equivalents include all highly liquid investments with an original
maturity of three months or less.
F-6
GOOD STEP LIMITED
NOTES TO FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 2 - SUMMARY OF IMPORTANT ACCOUNTING POLICIES (CONT'D)
Accounts receivable and concentration of credit risk
During the normal course of business, the Company extends unsecured credit to
its customers. The collectibility of debts owed by its customers depends
substantially on the financial condition and cash flow position of its
customers. The Company reviews regularly the credit status of each customer on a
case by case basis and the provision of doubtful accounts is recorded based on
the management's assessment of the credit status of its customers.
Plant, equipment and depreciation
Plant and equipment are stated at cost. Depreciation is computed using the
straight-line method to allocate the cost of depreciable assets over the
estimated useful lives of the assets at the rates of 20% per annum.
Maintenance, repairs and minor renewals are charged directly to the statement of
operations as incurred. Additions and betterments to plant 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 the statement of operations.
Long-lived assets
The Company periodically reviews its long-lived assets for impairment based upon
the estimated undiscounted future cash flows expected to result from the use of
the assets and their eventual disposition. When events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable, the asset is written down to its net realizable value.
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
expense or benefits in the year that covers the enactment in the near future
date. A valuation allowance will be provided when there is an uncertainty that a
deferred tax benefit will be realized.
F-7
GOOD STEP LIMITED
NOTES TO FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 2 - SUMMARY OF IMPORTANT ACCOUNTING POLICIES (CONT'D)
Fair values of financial instruments
The carrying amounts of certain financial instruments, including cash, accounts
receivable and accounts payable approximate their fair values as of September
30, 2002 because of the relatively short-term maturity of these instruments.
Use of estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect 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 the financial statements are the allowance for
doubtful accounts, provision for inventory obsolescence and slow moving items,
and deferred income tax liability. Actual results could differ from those
estimates.
NOTE 3 - ACCOUNTS RECEIVABLE
September 30, September 30,
2002 2001
Accounts receivable $1,164,102 $993,697
Less: Allowance for doubtful accounts - -
---------- --------
$1,164,102 $993,697
========== ========
NOTE 4 - PLANT AND EQUIPMENT, NET
September 30, September 30,
2002 2001
Furniture, fixtures and equipments $47,000 $47,000
Less: Accumulated depreciation 16,450 7,050
-------- -------
$30,550 $39,950
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F-8
GOOD STEP LIMITED
NOTES TO FINANCIAL STATEMENTS
(Expressed in US Dollars)
NOTE 5 - INCOME TAXES
Under the Hong Kong Inland Revenue Ordinance, Hong Kong profits tax will only be
charged on corporate profits arising from or derived in Hong Kong. As the
Company provides its silk-screen printing manufacturing services in Mainland
China, its profit is considered to be offshore in nature and not taxable under
Hong Kong profits tax. Under the existing tax laws and regulations of Mainland
China, the mode of operations of the Company is also not subject to China's
income taxes.
Deferred income tax is not provided as the Company does not have any material
tax exposure due to timing differences.
NOTE 6 - ECONOMIC DEPENDENCE
The Company's manufacturing operations are supported by a single wholly foreign
owned subsidiary established in China with no written long-term processing
agreement entered between the Company and that subcontractor. Under the existing
business arrangement, that subcontractor provides the factory premises,
utilities, the workers and supplementary materials at a fee. There is no
assurance that the subcontractor's premises and workforce are sufficient to
handle an increase in production orders should the Company's business expand or
that the Company can locate another third party subcontractor who can handle the
Company's production on as favorable terms as those existing with that
subcontractor.
F-9
Signature
Pursuant to 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 hereunto duly authorized.
SCORE ONE, INC.
Date: November 15, 2002 By: /s/ Shuk-Wah Kwok
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STATEMENT OF DIFFERENCES
The section symbol shall be expressed as....................................'SS'