<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
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 0-26886
CHINA BIOMEDICAL GROUP, INC.
(Exact name of Registrant as specified in its charter)
STATE OF UTAH 13-3758042
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
C/O THE LAW OFFICE OF STEVEN A. SANDERS, P.C.
50 BROAD STREET, SUITE 437
NEW YORK, NEW YORK 10004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 681-8400
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 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
The number of shares outstanding of the Registrant's Common Stock, par value
$.0001 per share, at March 31, 1996, was 1,112,069 shares.
1
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PART I
ITEM 1. FINANCIAL STATEMENTS
Attached.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY AND SOURCES OF CAPITAL
As of March 31, 1996, the Registrant had net current assets of $89,243 as
compared to $70,558 as of December 31, 1995. The Registrant had total assets of
$9,653,132 as of March 31, 1996.
RESULTS OF OPERATIONS
Revenues for the three month period ended March 31, 1996 were $68,638 as
compared to $131,896 for the three month period ended December 31, 1995.
Management believes that the decline in sales was due to a non-recurring
contract in the forth quarter of 1995.
The Registrant, through its wholly-owned subsidiary, CB Marketing & Investment
Ltd. ("CBMI"), owns the joint venture right to market the Gynefix IUD as well as
to manufacture and market pharmaceutical products in the People's Republic of
China ("PRC").
The Registrant has been unable to raise the necessary capital to fund its
capital commitment under the joint venture and licensing agreements and does not
believe it will be able to do so in the immediate future.
As a result, the Company has entered into a contract to sell its wholly owned
operating subsidiary CBMI to its former owners on the basis of one share of CBMI
for one share of China Biomedical Group, Inc. ("CBMG"). The contract further
provides that a minimum of ninety (90%) percent of the eligible shareholders of
CBMI must agree to exchange their shares before any shares can be exchanged. The
contract (Exhibit 28) is expressly incorporated by reference in this section;
the foregoing discussion is only a summary and the entire contract must be
consulted for its definitive provisions.
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If this contract is not consummated, CBMG will be forced to discontinue its
operations, lose its investment in the joint ventures and be liable to the joint
venture partners in the approximate sum of $4,000,000.
PART II
ITEM 1. LEGAL PROCEEDINGS.
Neither the Registrant nor its subsidiaries were subject to any legal
proceedings during the reporting period.
ITEM 2. CHANGE IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 22, 1996, the Registrant held a Special Meeting of
Stockholders to approve the divestiture of its interest in CBMI. A total of
738,859 shares were voted in favor of the divestiture.
No shares were voted against and 373,210 abstained.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS.
20. Contract for the divestiture of CBMI
(B) REPORTS ON FORM 8-K.
None filed this quarter.
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SIGNATURES
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 thereto duly authorized.
Dated this 15th day of May, 1996.
CHINA BIOMEDICAL GROUP, INC.
(the "Registrant")
BY: /S/ RICHARD POULDEN
Chairman of the Board,
President and CFO
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AGREEMENT this 22nd day of April, 1996 by and between China Biomedical Group,
Inc., a corporation, organized under the laws of the State of Utah, having its
principal offices at 250 Park Avenue, New York, New York 10117, and CB Marketing
and Investment Ltd., a corporation organized under the laws of the United
Kingdom having its registered office at, Beaufort House, 15 St Botolph Street,
London EC 3A 7NJ.
1. The Offer. China Biomedical, Group, Inc., ("the Company") offers to
exchange up to 2,066,712 ordinary shares of CB Marketing and Investment, Ltd. to
those shareholders ("the Eligible Shareholders") of the Company who previously
owned the said shares in CB Marketing and Investment, Ltd. ("CBMI"), in exchange
for the 540,000 common shares no par value of the Company more fully described
in Schedule I to the contract. A minimum of 90% of the Eligible Shareholders of
the Company must tender their common stock before any shares will be exchanged.
This offer is valid for a period of thirty days from the date of this agreement,
which period may be extended for another thirty days in the sole discretion of
the Company's Board of Directors.
2. Eligible Shareholders. Eligible shareholders who wish to tender their
Company stock should send their certificates, signed, signature guaranteed and
in readily transferable form to the Escrow Agent, The Law Office of Steven A.
Sanders, P.C., 50 Broad Street, Suite 437, New York, New York, 10004.
Shareholder's who hold their stock in book entry form should instruct their
broker or custodian to deliver their stock via DTC, US Clearing Corp, D.T.C. #
158 f or further credit to the account of Steven A. Sanders, P.C. as Escrow
Agent for China Biomedical Group, Inc., Account # 284-2033-16. Those persons
tendering their stock via DTC must send a duplicate copy of their delivery
instructions to the Law office of Steven A. Sanders, P.C. facsimile number (212)
344-3035, attention: Lewis M. Klee, Esq.
(a) If the shares tendered are accepted by the Company, the Company
agrees to forgive an inter company loan in the amount of $1,024,000 and
assign a $46,380.90 loan identified more specifically in the audited 1995
year end financial statements of CBMI appended hereto as Appendix A. The
Company further agrees to assume debts payable to JMI Advisory Services Ltd,
Occam Investments and the Chairman of the Company, Richard O'Dell Poulden
for expenses incurred for the Company but invoiced to CBMI in the amount of
UK Pounds Sterling 212,283.96 ($318,000). CBMI is responsible for all other
debts owed by CBMI and its subsidiaries, branches and associates as more
particularly shown in the financial statements of CBMI and its subsidiaries,
branches and associates.
<PAGE>
3. Indemnification.
(a) CBMI, Michael James and Hou Xihao and the directors of CBMI, their
successors or assignees agree to indemnify and hold harmless the Company and
its directors from and against any liability, damage cost or expense
including reasonable attorneys fees incurred or asserted against the Company
arising from any breach or alleged breach by CBMI of their obligations or
any claims asserted to have accrued during the period the Company owned
CBMI. This paragraph shall survive the closing date indefinitely.
(b) The Company hereby agrees to indemnify and hold harmless CBMI and
its directors from and against any liability, damage cost or expense
including reasonable attorneys fees incurred or asserted against CBMI
arising from any breach or alleged breach by the Company of its obligations
or any claims asserted to have accrued during the period the Company owned
CBMI. This paragraph shall survive the closing date indefinitely.
4. Representations, Warranties and Agreements. The Company represents and
warrants to, and agrees with, the Tenderers that as of the date hereof and as of
the Closing Date (as hereinafter defined):
(a) The consolidated financial statements of the Company and its
consolidated subsidiaries included in the financial statements (the most
recent of which are for the twelve month period ended December 31, 1995)
provided to the Tenderers present fairly the financial position and results
of operations of the company and its consolidated subsidiaries on a
consolidated basis at the respective dates or for the respective periods to
which they apply; such financial statements have been prepared in conformity
with accounting principles generally accepted in the United Kingdom and the
United States applied on a consistent basis throughout the respective
periods involved.
(b) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign now pending or to the
knowledge of the Company, threatened, against or affecting the Company, or
any of its properties, which might result in any material adverse change in
the condition (financial or otherwise) or in the earnings, business affairs
or business prospects of the Company considered as one enterprise, or which
might materially and adversely affect the properties or assets thereof.
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(c) The Company is not in violation of its By-laws or Certification of
Incorporation or other constituent documents or in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other
material instrument or agreement to which it is a party or by which it or
its property may be bound; and neither the execution nor the delivery by the
Company, or the performance by the Company of its obligations under, this
Agreement will conflict with or result in the breach or violation of any of
the terms or provisions of, or constitute a default or result in the
creation or imposition of any lien or charge on any assets or properties of
the Company under, any material indenture, mortgage, deed of trust or other
material agreement or instrument to which the Company is a party or by which
it is bound or any statute or the By-laws or Certificate of Incorporation or
other constituent documents of, or any decree, judgment, order, rule or
regulation of any court or governmental agency or body having jurisdiction
over the Company or its properties.
(d) There are no restrictions on the transfer of the CBMI Shares to the
Tenderer and when issued each Tenderer is entitled to have the Shares
registered in its name.
(e) Upon consummation of the transaction contemplated hereby, the
Tenderers will own the CBMI Shares free and clear of all liens, claims
charges and other encumbrances and the delivery of the CBMI Shares to the
Tenderers pursuant to this Agreement will transfer legal and valid title
thereto, free and clear of all liens, claims, charges and other
encumbrances.
(f) This Agreement has been duly authorized, and, when executed and
delivered by the parties thereto, will constitute a valid and legally
binding obligation of the Company and CBMI, enforceable against both in
accordance with its terms subject, as to enforcement, to bankruptcy,
insolvency, fraudulent transfer, reorganization and similar laws of general
applicability relating to or affecting creditors' rights generally and to
general equitable principles (regardless of whether such enforcement is
considered in the proceeding in equity or at law).
(g) No consent, approval, authorization or order of, or filing with, any
court or governmental agency or body is required for the performance by
either Company of its obligations under this Agreement or otherwise in
connection with the issuance of the CBMI Shares.
(h) None of the Company's filings with the Securities and Exchange
Commission since January 1, 1995 contain any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to
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<PAGE>
make the statement therein in light of the circumstances under which they
were made, not misleading.
(i) The Company has since January 1, 1995 timely filed all required
forms, reports and exhibits thereto with the U.S. Securities and Exchange
Commission.
5. Purchase and Delivery of the Shares. On the basis of the representations
and warranties herein contained, but subject to the conditions hereinafter
stated, the Company and CBMI hereby agrees to deliver to the Tenderers and each
Tenderer agrees to Exchange with the Company the number of shares of Company
shares set forth opposite the name of such Tenderer on Schedule I hereto. The
Company shall deliver the shares in the name of the Tenderer. The
representations, warranties, covenants and agreements of each Tenderer contained
herein or in any documents delivered pursuant hereto are made severally and not
jointly. No Tenderer shall be liable for the breach of any representation,
warranty, covenant or agreement, of another Tenderer.
6. Restrictions on Transfer; Warranties of Purchasers.
(a) Each Purchaser acknowledges that the CBMI Shares will not be
registered under the Securities Act and that the Ordinary Shares obtained by
such Tenderer are being sold pursuant to the exemption from the registration
requirements of the Securities Act of 1933 provided by Section 4(2) thereof.
Each Tenderer represents, warrants and agrees that it has not offered and
will not offer or sell the Common shares purchased from the Company
hereunder, by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities
Act) or in any manner involving a public offering within the meaning of
Section 4(2) of the Securities Act.
(b) Each Purchaser represents and warrants that it is either a qualified
Institutional Buyer or an institutional Accredited Investor. Each Purchaser
confirms that it is not acquiring the Notes with a view to any distribution
thereof in a transaction that would violate the Securities Act or the
securities laws of any State of the united States or any other applicable
jurisdiction.
7. Representations to Survive Delivery. The respective representations,
warranties of the Company officers and or the Purchasers set forth in or made
pursuant to this Agreement or any other agreement entered into in connection
herewith will remain in full force and effect, regardless of any investigation,
or statement as to the results thereof, made by or on behalf of the Purchasers
or the Company or any of their officers, directors or controlling persons and
will survive for a period of three years after the Closing Date.
8. Consent to use Name. The Company irrevocably consents and assigns to CBMI
the right to use the name "China Biomedical Group", in all jurisdictions outside
the United States
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<PAGE>
provided that CBMI does not use the identical name as the Company, "China
Biomedical Group Inc" and does not use any name which could be confused with
that of the Company, in the United States.
9. Waiver of Interests. CBMG expressly warrants and covenants that upon
closing of this transaction it irrevocably waives all interests in the assets of
the Company and further waives all claims to ownership of any shares to the
Company's common stock, except as set forth in this agreement. This paragraph
shall survive the closing indefinitely.
10. Notices. All communications hereunder will be in writing, and, if sent
to a Purchaser, will be delivered to such Purchaser at the address set forth in
Schedule 1 hereto, and if sent to the Company, will be delivered to c/o
President, China Biomedical Group, Inc., 250 Park Avenue, New York, New York
10117, with a copy to Law Offices of Steven A. Sanders, P.C., 50 Broad Street,
New York, New York 10004, telefax number (212) 344-3035, Attention: Lewis M.
Klee, Esq. Notice shall be effective upon delivery.
11. Agreement to Suit. The parties expressly agree that any suit proceeding
or other action arising out of, or relating to this agreement shall be brought
in a court of competent jurisdiction sitting in the County of New York, State of
New York. All parties irrevocably waive any objections to personal jurisdiction,
venue and forum non-convenienes.
12. Successors and Assigns. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors and assigns
and the officers and directors and each person who controls the parties hereto
within the meaning of the Securities Act, and no other person will have any
right or obligation hereunder. Nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any other person, firm or corporation
any legal or equitable right, remedy or claim under or in respect of this
Agreement or any provisions herein contained.
13. Counterparts; Governing Law. This Agreement may be executed in
counterparts all of which, taken together, shall constitute a single agreement
between the parties to such counterparts. This Agreement and the Note shall be
governed by, and construed in accordance with, the laws of the state of New York
without giving effect to conflict of laws principles.
14. Termination. The obligations of any Purchaser under this Agreement may
be terminated for any reason at any time prior to the delivery and payment of
the Securities on the Closing Date upon written notice of such termination to
the Company, if prior to such time (I) there shall have occurred either of (A)
the closing of the NASDAQ, or (B) a general suspension or material limitation of
trading on either such Exchange or the general establishment of minimum prices
by either such Exchange or by the Commission or (C) the declaration of a bank
moratorium by authorities of the United States or State of New York, or (D) the
declaration by the United States of national emergency or war or (ii) there
shall have been any development involving a prospective change (whether
financial or otherwise) in or affecting the financial
<PAGE>
position, shareholders' equity or results of operation of the Company,
which such Purchaser in its reasonable judgment considers material and
adverse and which are not disclosed in the package of materials provided
by the Company to the Purchaser. In the event of any such termination,
the Company shall have no liability to the terminating Purchaser.
15. Amendments; Waivers. This Agreement may not be amended, modified
or supplemented and no waivers of or consent to departures from the provisions
hereof may be given unless consented to in writing by the Company and the
Purchasers.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us two counterparts hereof, and upon
acceptance hereof by you it will become a binding agreement between the
Company and the Purchasers in accordance with its terms.
China Biomedical Group, Inc.
By: /s/ Richard Poulden
CB Marketing and Investment, Ltd.
By: /s/ Michael James
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SCHEDULE I
<TABLE>
<CAPTION>
CB Marketing & China Biomedical
CBMG Shareholders Address Investments Ltd. Group, Inc.
<S> <C> <C> <C>
Michael Howard James Deacons Field, 5 High Elms 360,000 94,062
Harpenden, Herts AL5 2JU
Chris Coke Field House, Vicarage Lane 100,000 26,128
Capel Dorking, Surrey, RH5 5LN
Hou Zihaao 463/465 Poly Plaza, 100,000 26,128
14, Dongzhimen District,
Beijing, 100027, PRC
Standard Bank Nominee One Waverley Place, St. Helier, 795,500 207,852
(Jersey) Ltd. Jersey JE4 8XR, UK 100,000 26,128
100,000 26,128
Pink Quill Finance Ltd One Waverly Place, St. Helier, 440,000 114,965
Jersey JE4 8XR, UK
Christine Louise Kennedy 5646 Covey Place, North Vancouver 20,000 5,226
British Columbia, Canada Y7R 4WI
Edward Harford The Old Rectory, Easton Grey 8,250 2,156
Malmesbury, Wiltshire SN16 OPE, UK
Jeremy Bellinger Stewardson 5 Smith Terrace, London SW3, UK 4,500 1,176
Hampton Hall Properties Ltd. PO Box N1612, Nassau 38,462 10,049
2,066,712 540,000
</TABLE>
<PAGE>
CHINA BIOMEDICAL GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 28,667 $ 33,087
Accounts receivable 18,484 -
Other receivables 42,092 37,471
Total current assets 89,243 70,558
FIXED ASSETS, net of accumulated depreciation of $23,440
and $18,252, respectively 41,510 46,698
INTANGIBLE ASSETS, net of accumulated amortization of $315,309
and $256,763, respectively 9,522,379 9,757,012
$ 9,653,132 $ 9,874,268
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable $ 116,381 $ 116,381
Payroll and sales taxes payable 21,237 21,617
Accounts payable and accrued expenses 417,176 378,214
Other liabilities 883,506 742,880
Total current liabilities 1,438,300 1,259,092
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 50,000,000 shares
authorized 1,112,069 and 5,560,343 shares issued
and outstanding, respectively 1,112 5,560
Additional paid-in capital 13,292,503 13,288,055
Accumulated deficit (4,839,680) (4,594,390)
Accumulated foreign currency translation adjustment (239,103) (84,049)
Total stockholders' equity 8,214,832 8,615,176
$9,653,132 $ 9,874,268
</TABLE>
See notes to consolidated financial statements.
-1-
<PAGE>
CHINA BIOMEDICAL GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
<S> <C> <C>
NET SALES AND REVENUES $ 68,638 $ 131,896
COST OF SALES 63,237 --
Gross profit 5,401 131,896
RESEARCH AND DEVELOPMENT EXPENSES 28,521 --
SELLING, OPERATING AND ADMINISTRATIVE EXPENSES 222,170 728,221
Loss from operations (245,290) (596,325)
PROVISION FOR INCOME TAXES -- --
Net loss $ (245,290) $ (596,325)
Loss per share $ (0.22) $ (1.69)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 1,112,069 352,868
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
CHINA BIOMEDICAL GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (245,290) $ (595,325)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 63,734 49,591
Increase in accounts receivable (18,484) (7,904)
Increase in other receivables (4,621) (35,587)
Increase in inventories -- (14,109)
Increase in accounts payable 38,962 103,809
Increase (decrease) in payroll and sales taxes payable (380) 21,635
Decrease in bank overdraft -- (7,707)
Increase in other liabilities 140,626 365,485
Net cash used by operating activities (25,453) (121,112)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in fixed assets -- (42,692)
(Increase) decrease in intangible assets 176,087 (10,446,778)
Net cash provided (used) by investing activities 176,087 (10,489,470)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in common stock -- 947
Increase in additional paid-in capital -- 9,615,526
Increase in loans payable -- 724,589
Foreign currency translation adjustment (155,054) 286,863
Net cash provided (used) by financing activities (155,054) 10,627,925
NET INCREASE (DECREASE) IN CASH (4,420) 17,343
CASH, BEGINNING OF PERIOD 33,087 --
CASH, END OF PERIOD $ 28,667 $ 17,343
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
CHINA BIOMEDICAL GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of presentation
The accompanying unaudited 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 balance sheet at December
31, 1995 has been derived from the audited financial statements at that
date. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31,
1996 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
December 31, 1995.
(2) Reverse stock split
On January 27, 1996, the Company effected a 1 for 5 reverse stock split of
the issued and outstanding shares of common stock. The weighted average
number of common shares outstanding for the three months ended March 31,
1995 have been retroactively adjusted for this reverse stock split.
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 28,667
<SECURITIES> 0
<RECEIVABLES> 60,576
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 89,243
<PP&E> 64,350
<DEPRECIATION> (23,440)
<TOTAL-ASSETS> 9,653,132
<CURRENT-LIABILITIES> 1,438,300
<BONDS> 0
0
0
<COMMON> 1,112
<OTHER-SE> 8,213,720
<TOTAL-LIABILITY-AND-EQUITY> 1,653,132
<SALES> 68,638
<TOTAL-REVENUES> 68,638
<CGS> 63,237
<TOTAL-COSTS> 63,237
<OTHER-EXPENSES> 250,691
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (245,290)
<INCOME-TAX> 0
<INCOME-CONTINUING> (245,290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (245,290)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> 0
</TABLE>
