UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDED QUARTERLY OR TRANSITIONAL REPORT
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File Number 0-20549
CHINA PREMIUM FOOD CORPORATION
(Exact name of registrant as specified in its amended charter)
Delaware 62-1681831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11300 US Highway 1, North Palm Beach, Florida 33408 USA
(Address of principal executive offices)
(561) 625-1411
Registrant's telephone number
---------------------------------------------------------------------------
(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 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[ ]
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date is as follows:
Date Class Shares Outstanding
---- ----- ------------------
08/10/00 Common Stock 12,915,242
This quarterly report is amended to correct the overstatement of cash and
deemed dividends and the understatement of investment loss, as stated in the
original quarterly report for the period ended June 30, 2000.
<PAGE>
CHINA PREMIUM FOOD CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial statements F-1
Condensed balance sheets as of
June 30, 2000 (unaudited) and December 31, 1999 F-1
Condensed statements of operations
(unaudited) for the period ended
June 30, 2000 and 1999 F-3
Condensed statements of cash flows
(unaudited) for the period ended
June 30, 2000 and 1999 F-4
Notes to condensed financial statements (unaudited) F-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 2. Changes In Securities and Use of Proceeds 15
Item 6. Exhibits and reports on Form 8-K 17
SIGNATURES 17
EXHIBITS 18
<PAGE> -ii-
CHINA PREMIUM FOOD CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ --------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 16,854 $ 791,600
Notes receivable - 255,618
Prepaid expenses and other current assets 18,196 82,292
--------------------------
Total current assets 35,050 1,129,510
--------------------------
Property, plant and equipment, net 131,264 126,793
Investment in and advance to Meilijian 1,246,422 1,126,494
Advance to Shanghai subsidiary - 279,727
Goodwill 229,148 197,174
Licensing rights 214,286 221,429
Deposit 10,000 10,000
--------------------------
Total assets $1,866,170 $3,091,127
==========================
<PAGE> F-1
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of note payable $ 277,741 $ 158,621
Account payable and accrued liabilities 250,833 110,891
--------------------------
Total current liabilities 528,574 269,512
Dividend payable 370,039 162,124
Note payable, less current portion 127,500 191,250
--------------------------
Total liabilities 1,026,113 622,886
Shareholders' Equity
Series A convertible preferred stock;
par value $0.001 per share, 500,000 shares
authorized, 500,000 and 0 shares issued
and outstanding, respectively 500 -
Series B convertible, 9% cumulative,
redeemable preferred stock; stated
value $1.00 per share, 1,260,000 shares
authorized, 1,260,000 and 242,559 shares
issued and outstanding, respectively 1,260,000 242,559
Series C convertible, 8% cumulative,
redeemable preferred stock, stated
value $3.00 per share , 47,723 and
0 shares issued and outstanding,
respectively 44,713 -
Series D convertible, 6% cumulative,
redeemable preferred stock, stated value
$10.00 per share, 80,250 and 109,000
shares issued and outstanding, respectively 762,500 1,048,158
Series F convertible, 6% cumulative and
redeemable preferred stock, stated value
$10.00 per share, 0 and 150,000 shares
issued and outstanding at December 31,
1999 and June 30, 2000, respectively - 1,393,653
Series G convertible, 7% cumulative and
redeemable preferred stock, stated value
$10.00 per share, 0 and 75,000 shares
issued and outstanding at December 31,
1999 and June 30, 2000, respectively - 662,453
Common stock; at par value $0.001 per
share, 20,000,000 shares authorized,
10,278,129 and 12,915,242 shares issued
and outstanding, respectively 10,278 12,915
Additional paid-in capital 11,256,952 14,450,876
Accumulated deficit (12,360,537) (15,208,123)
Accumulated other comprehensive loss
- translation adjustment (134,349) (134,250)
--------------------------
Total shareholders' equity 840,057 2,468,241
--------------------------
Total liabilities and shareholders' equity $1,866,170 $3,091,127
==========================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> F-2
CHINA PREMIUM FOOD CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 2000 1999 2000
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ - $ - $ - $ -
Cost of goods sold - - - -
-----------------------------------------------------------
Gross margin (loss) - - - -
Selling expense - 90,000 - 90,000
General and administrative expense 670,387 811,509 1,183,039 1,496,692
-----------------------------------------------------------
Loss from operations (670,387) (901,509) (1,183,039) (1,586,692)
Other expense:
Interest expense, net (1,409) (1,438) (5,224) (6,347)
Loss on investment in GFP (204,100) - (607,604) -
Loss on investment in Meilijian (36,637) (72,497) (78,235) (119,829)
Other, net - - - -
-----------------------------------------------------------
Loss before income taxes (912,533) (975,444) (1,874,102) (1,712,868)
Income tax provision - - - -
-----------------------------------------------------------
Net loss (912,533) (975,444) (1,874,102) (1,712,868)
Dividends accrued for Series B preferred stock (28,350) (5,458) (56,700) (33,808)
Dividends accrued for Series C preferred stock (3,559) - (9,003) (883)
Dividends accrued for Series D preferred stock (652,453) (191,574) (654,504) (532,105)
Dividends accrued for Series F preferred stock - (421,755) - (421,755)
Dividends accrued for Series G preferred stock - (146,167) - (146,167)
-----------------------------------------------------------
Net loss applicable to common shareholders $(1,596,895) $(1,740,398) $(2,594,309) $(2,847,586)
===========================================================
Weighted average number of common shares
outstanding 8,408,301 11,531,337 8,206,039 11,019,257
===========================================================
Basic and diluted loss per share $ (0.19) $ (0.15) $ (0.32) $ (0.26)
===========================================================
Comprehensive loss and its components
consist of the following:
Net loss $(1,596,895) $(1,740,398) $(2,594,309) $(2,847,586)
Foreign currency translation adjustment (4,268) 753 (5,635) 99
-----------------------------------------------------------
Comprehensive loss $(1,601,163) $(1,739,645) $(2,599,944) $(2,847,487)
===========================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> F-3
CHINA PREMIUM FOOD CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1999 2000
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,874,102) $(1,712,868)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 86,260 90,139
Issuance of stock in exchange for services 8,000 112,486
Compensation cost for stock option issue 48,563 -
Issuance of Common Stock for penalty expenses - 37,500
Investment loss - Meilijian 78,235 119,928
Investment loss - GFP 607,604 -
Increase (decrease) from changes in:
Note receivable - (255,618)
Other assets (5,000) -
Prepaid expenses (54,233) (64,096)
Accrued liabilities 67,830 (45,455)
-----------------------------
Net cash used in operating activities (1,036,843) (1,717,984)
-----------------------------
Cash flows from investing activities
Purchase of equipment and machinery (32,558) (10,837)
Advance to Shanghai - (279,728)
Advance to GFP (585,037) -
Advance to Meilijian (8,330) -
Purchase of licensing rights from WB - (50,000)
-----------------------------
Net cash used in investing activities (625,925) (340,565)
-----------------------------
Cash flows from financing activities
Proceeds from stock subscription 235,000 -
Proceeds from issuance of Preferred Series D 762,500 490,000
Proceeds from issuance of Preferred Series E - -
Proceeds from issuance of Preferred Series F - 1,480,000
Proceeds from issuance of Preferred Series G - 675,000
Proceeds from issuance of common stock 472,199 244,303
Proceeds from CS warrants exercised 83,334 -
Borrowing from Note Payable 63,750
Repayment of Note Payable (70,722) (119,120)
-----------------------------
Net cash provided by financing activities 1,482,311 2,833,933
-----------------------------
Effect of exchange rate changes on cash - (638)
-----------------------------
<PAGE> F-4
Net increase (decrease) in cash and cash
equivalents (180,457) 774,746
Cash and cash equivalents, beginning of period 305,233 16,854
-----------------------------
Cash and cash equivalents, end of period $ 124,776 $ 791,600
=============================
Cash paid during the period:
Interest $ - $ -
Income taxes - -
=============================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> F-5
CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Organization and Business
China Premium Food Corporation (the Company) was incorporated under the laws
of the State of Delaware on April 26, 1996.
The Company and its subsidiaries, Hangzhou Meilijian (Meilijian), China
Premium Food (Shanghai) Ltd.,. Co. and Bravo! Foods, Inc. are engaged in the
co-production, marketing and distribution of branded dairy and snack food
products in the People's Republic of China and the United States.
The Company owns equity interests in two joint ventures in China, 70% in
Green Food Peregrine Children's Food Co. Ltd. (GFP) and 52% in Hangzhou
Meilijian Dairy Products, Co. Ltd. (Meilijian). On January 3, 2000, the
Company commenced procedures to terminate GFP in accordance with the GFP
Joint Venture contract and Articles of Association. Accordingly, the
Company wrote off its investment in and advance to GFP as of December 31,
1999.
In December 1999, the Company obtained Chinese government approval for the
registration of China Premium Food (Shanghai) as a wholly owned subsidiary
in the Wai Gao Qiao "free trade zone" in Shanghai, China. This subsidiary
was formed to import, export and distribute food products and market and
distribute branded dairy products and snack foods on a wholesale level in
China. In December 1999, the Company formed Bravo! Foods in Delaware as a
wholly owned subsidiary to market and distribute branded dairy products in
the United States. Both of these subsidiaries market and distribute branded
milk products through supply contracts or production agreements with
regional dairy processors.
The Company's financial statements for the quarter ended June 30, 1999 have
been restated based on equity method. Prior financial statements were
prepared on a consolidation basis whereby the Company consolidated GFP and
Meilijian. Subsequent to issuing the 1998 financial statements, the Company
adopted SFAS 94 and EITF No. 96-16 and changed the consolidation approach to
equity method to present its investment in GFP and Meilijian. The
restatement did not have an impact on the previously reported net loss for
the quarter ended June 30, 1999.
Note 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. The financial statements are presented in
U.S. dollars. Accordingly, the accompanying financial statements do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for fair presentation have been included. Operating
results for the three-month period and six-month period ended June 30, 2000
are not necessarily indicative of the results that may be expected for the
year ending December 31. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report for the year ended December 31, 1999.
<PAGE> F-6
Note 2 - Transactions in Shareholders' Equity
On April 6, 2000, the Company issued 6,374 share of its common stock at
$0.9413 per share to compensate the consulting service of $6000 provided by
the Omega Company pursuant to the terms of a written consulting agreement.
The principal of the Omega Company is Mr. Arthur Blanding, who has been a
member of the Company's Board of Directors since November of 1999. These
shares were issued pursuant to an exemption from registration provided by
Section 4(2) of 1933 Act.
On April 6, 2000, the Company issued 150,000 of its Series F Convertible
Preferred Stock and warrants for 4,600,000 shares of its common stock to
three sophisticated and accredited investors and one finder. In addition,
the Company agreed to issue 75,000 shares of common stock upon the exercise
of the warrants by the respective holders. The Series F Convertible
Preferred Stock and the warrants were priced at $10.00 per unit and resulted
in proceeds of $1,480,000, net of $20,000 of legal and issuance expenses.
The Series F Convertible Preferred Stock has a stated value of $10.00 per
share and a conversion feature equal to $0.50 per share. Pursuant to the
subscription agreement, the holders of Series F Preferred Stock are subject
to a maximum conversion feature that prohibits the holders from converting
their preferred stock into more than 9.99% of outstanding common shares on
the conversion date based upon the formula specified in the subscription
agreement, Article 9.3. Warrants for 3,000,000 shares of common stock were
issued to the investors with an exercise price of $1.00 per share and an
expiration date of April 5, 2003. Warrants for 1,600,000 shares of common
stock were issued to a finder with an exercise price of $0.84 per share and
have an expiration date of April 5, 2003. The Series F Convertible
Preferred Stock, the warrants and the common stock underlying the Preferred
and the warrants have been and will be issued pursuant to an exemption to
registration provided by Regulation D, Rule 506 and Section 4(2) of the 1933
Act. The proceeds of this offering are for working capital. In accordance
with the Provisions of EITF 98-5, "Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Commission
Ratios", the issuance of these units resulted in the Company being required
to record deemed dividends of $400,505 for the quarter ended June 30, 2000.
On April 25, 2000, the Company issued 66,785 shares of its common stock to
Utah Resources, Inc. pursuant to the conversion of the Company's remaining
Series C Convertible Preferred Stock issued to Utah Resources in December of
1998. The Series C Convertible Preferred Stock and the common stock
underlying the preferred stock were issued to Utah Resources pursuant to an
exemption to registration provided by Regulation D, Rule 504 and Section
4(2) of the 1933 Act. Utah Resources, Inc. is an accredited and
sophisticated investor.
On May 11, 2000, the Company issued 10,260 share of its common stock at
$0.7797 per share to compensate the consulting service of $8,000 provided by
the Omega Company pursuant to the terms of a written consulting agreement.
The principal of the Omega Company is Mr. Arthur Blanding, who has been a
member of the Company's Board of Directors since November of 1999. These
shares were issued pursuant to and exemption to registration provided by
Section 4(2) of 1933 Act.
On May 18, 2000, the Company issued 184,638 shares of its common stock to
two holders of Series D Convertible Preferred Stock pursuant to the
conversion of 10,000 shares of the preferred. The Series D Convertible
Preferred and the common stock underlying the preferred were issued to these
sophisticated and accredited investors pursuant to an exemption from
registration provided by Regulation D, Rule 506 and Section 4(2) of the 1933
Act.
<PAGE> F-7
Note 2 - Transactions in Shareholders' Equity (Continued)
On April 7, 2000, the Company closed a Rule 506, Regulation D exempt
offering for 150,000 shares of Series F Convertible Preferred Stock, having
a per share Stated Value of $10.00, and Warrants which entitle the holders
of the Series F Preferred to purchase an aggregate of 3,000,000 shares of
common stock. This offering resulted in net proceeds of $1,480,000,
net of $20,000 of legal and i ssuance expenses. Each Preferred share
is convertible to the common stock of the Company at a conversion price of
$0.50 per common share, based upon the Stated Value divided by conversion
price times the number of shares to be converted. The Series F Preferred
have no voting rights or redemption features and no dividends rights beyond
those attributable to the Company's common stock. The Warrants for 3,000,000
shares of common stock have an exercise price of $1.00 per share and are
exercisable immediately for a period of three years. The Company can call
50% of Warrants if its common stock trades at 200% of the closing price of
$0.75 per share on April 7, 2000 for 10 consecutive trading days and 100% of
the Warrants if its common stock trades at 300% of the closing price of $0.75
per share on April 7, 2000 for 10 consecutive trading days. In addition, the
Company issued a Warrant to a consultant in connection with this transaction,
which entitles the holder to purchase an aggregate of 1,600,000 shares of
common stock at an exercise price of $0.84 per share. The Warrant is
exercisable immediately for a period of three years and has the same "call"
provisions as the investor Warrants described above. This entire transaction
provides for total potential proceeds of $5,844,000, based upon the issuance
of a maximum of 7,600,000 shares of common stock underlying the Series F
Preferred and the Warrants, at an average price per share of $0.77. The
proceeds of this offering are for working capital. In accordance with the
Provisions of EITF 98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Commission Ratios",
the issuance of these units resulted in the Company being required to record
deemed dividends of $421,755 for the quarter ended June 30, 2000.
On May 23, 2000, the Company issued 1,017,441 shares of its common stock to
one holder, pursuant to the conversion of 500,000 shares of Series A
Convertible Preferred Stock and 1,017,441 shares of Series B Convertible
Preferred Stock. The Series A and Series B Convertible Preferred Stock
converted was issued by the Company in early 1997 to one of the original
"founders" of the Company pursuant to an exemption to registration provided
by Section 4(2) of the Act. The conversion of the Series A Convertible
Preferred Stock represents all of the Series A Convertible Preferred Stock
issued by the Company. Upon the conversion taken place, the relevant
accrued dividends of $275,562 were reversed to additional paid in capital
accordingly. Similarly the accrued dividends of $16,875 and $4,837 related
to Preferred Stock Series C and E were reversed to additional paid in
capital.
On June 8, 2000, the Company issued 219,566 shares of its common stock to
two holders of Series D Convertible Preferred Stock pursuant to the
conversion of 11,250 shares of the preferred. The Series D Convertible
Preferred and the common stock underlying the preferred were issued to these
sophisticated and accredited investors pursuant to an exemption from
registration provided by Regulation D, Rule 506 and Section 4(2) of the 1933
Act.
On June 19, 2000, the Company issued 75,000 shares of its Series G
Convertible Preferred Stock and warrants for 344,330 shares at $0.9625 per
share to three investors and two finders. The recipients of the preferred
stock and the warrants are all sophisticated and accredited investors. The
Series G convertible Preferred Stock, the warrants and the common stock
underlying both the preferred and the warrants were issued pursuant to an
exemption to registration provided by Regulation D, Rule 506 and Section
4(2) of the 1933 Act. The Series G Convertible Preferred Stock and the
warrants were priced at $10.00 per unit and resulted in proceeds of $675,000
in cash, net of $60,000 in finder's fees and $15,000 of legal and issuance
expenses. The Series G Convertible Preferred Stock has a stated value of
$10.00 per share and a conversion feature equal to the lesser of $0.85 per
share or 80% of the average of the three lowest closing bid prices of the 22
days immediately preceding the conversion of the preferred. The shares of
Series G Preferred Stock and dividends not previously converted into shares
of Common Stock shall be converted into shares of Common Stock without
further action of the Holder on the date that is two years from the date of
issuance thereof ("Mandatory Conversion Date"), at the Conversion Price and
on the conversion terms specified in subscription agreement, Article 5. The
warrants for 334,330 shares of common stock have an exercise price of
$0.9625 per share and an expiration date of June 18, 2003. The proceeds of
this offering are for working capital. In accordance with the Provisions of
EITF 98-5, "Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Commission Ratios", the issuance of
these units resulted in the Company being required to record deemed
dividends of $146,167 for the quarter ended June 30, 2000.
<PAGE> F-8
On June 29, 2000, the Company received $169,302.50 in cash for issuing
225,735 shares of its common stock on July 14, 2000 to former holders
of the Company's Series E Convertible Preferred Stock. This common stock
was issued pursuant to the exercise of certain participation rights in favor
of such holders at a price determined by the market value of such common
stock on the day of exercise. The Common Stock was issued by the Company
pursuant to an exemption to registration provided for the original
Convertible Preferred transaction, and all shares underlying that
transaction, pursuant to Regulation D, Rule 506 and Section 4(2) of the 1933
Act. This stock was issued to fourteen accredited and sophisticated
investors, who were provided with updated financial and corporate
information through the Company's public filings.
Note 3 - Subsequent Events
In December 1999, the Shanghai government approved the registration of China
Peregrine Food (Shanghai) Ltd., Co. (now known as China Premium Food
(Shanghai) Ltd., Co.) a wholly owned subsidiary of the Company in the Wai
Gao Qiao "free trade zone" in Shanghai, China. This import-export company
was formed to import, export and distribute food products on a wholesale
level in China. In July of 2000, the Company capitalized this subsidiary in
the amount of approximately US$ 300,000. In addition, the Company has agreed
to contribute an additional amount of US $2,000,000 over a five-year period,
commencing July 1, 2000. The Company will provide this additional capital
in tranches as collateral for loans in RMB by a Chinese bank to our
subsidiary. As the RMB loans are paid by the Company's subsidiary, the
collateral in US dollars will be released to the Company. By this method of
financing, the Company and its subsidiary will avoid the impact of
regulations governing the conversion of Chinese currency into US dollars
applicable in China. A foreign exchange bank has agreed to act as the
"facility" for these loan transactions. The Company's subsidiary will be
able to borrow up to 90% of the US dollar collateral at an exchange rate at
one point below the national rate.
<PAGE> F-9
MANAGEMENT DISCUSSION AND ANALYSIS ON FINANCIAL CONDITION
AND OPERATION RESULTS
Period from January 1, 2000 to June 30, 2000
Prior to the year ending December 31, 1999, the Company reported its
financial affairs and those of its Chinese subsidiaries on a consolidated
basis. This June 30, 2000 financial statement is stated on the equity basis
in order to conform to Statement of Financial Accounting Standards (SFAS)
No. 94 and Emerging Issues Task Force (EITF) No. 96-16. In addition, the
Company has restated its prior year financial statements as presented in its
10-KSB filing for the year ending December 31, 1999, as well as presented
its 10Q filing for the quarter ended March 31, 2000, on the equity method
basis.
RESULTS OF OPERATIONS
As of June 30, 2000, the Company had an accumulated deficit of $15,208,123.
As of June 30, 2000, the Company had cash on hand of $791,600 and reported
total shareholders' equity of $2,468,241.
For this same period of time, the Company did not have revenue but had sales
expenses of $90,000. General and administrative expenses for this period
were $1,496,692. The continued increase in these expenses from prior
periods is a result of intensified activities in establishing a refocused
business base in China. After interest expenses of $6,347 and the loss on
the Company's investment in its Hangzhou Meilijian subsidiary of $119,829
the Company had a net loss of $1,712,868.
Six Month Period Ended June 30, 2000 Compared to Six Month Period Ended
June 30, 1999
------------------------------------------------------------------------
The Company's net loss decreased approximately 9.5% to $1,712,868 in 2000
from $1,874,102 in 1999. The Company reported a loss per share of $0.32 in
1999 and $0.26 in 2000. The decrease in the loss per share was due to:
* the write off of the Company's investment in Green Food Peregrine as
of December 31, 1999 - the investment loss was $607,604 for the six
months ended June 30, 1999
* increase in number of shares of common stock outstanding as of June
30, 2000.
Accrued and paid dividends increased approximately 57% to $1,134,718 in 2000
from $720,207 in 1999. This increase was the result of deemed dividends
associated with the conversion features of two additional classes of
convertible preferred stock issued in the quarter ended June 30, 2000. The
Company realized net proceeds of $2,155,000 from the sale of these two
series of convertible preferred stock.
As of June 30, 2000 there were 12,915,242 shares of common stock outstanding
compared with 10,278,129 shares of common stock outstanding as of June 30,
1999. Due to the timing of issuance of new shares, however, the weighted
average number of shares of common stock outstanding in 2000 was 11,019,257.
The loss per share in 2000 decreased by approximately 23% compared with
1999.
<PAGE> 10
General and administrative expenses increased by approximately 26% to
$1,496,692 in 2000 from $1,183,039 in 1999. This increase reflects the
costs associated with the establishment and funding of the day to day
operations of new businesses in China including an import/export company in
Shanghai's Free Trade Zone
* the development of software and graphic design associated with a
business to business e-commerce food distribution portal
* the development of logistics capabilities for the launch of Looney
Tunes(TM) branded milk products and snack crackers in Shanghai and
surrounding areas
In addition, general and administrative expenses increased as a result of
legal and accounting expenses associated with the restatement of the
Company's financial statements on the equity basis, fund raising exercises
activities, and the preparation and filing of SEC reporting documents by the
Company.
Three Months Ended June 30, 2000 Compared to Three Months Ended
June 30, 1999
----------------------------------------------------------------
The Company's net loss increased approximately 7% to $975,444 in 2000 from
$912,533 in 1999. The Company reported a loss per share of $0.19 in 1999
and $0.15 in 2000. The decrease in the loss per share was due to:
* the write off of the Company's investment in Green Food Peregrine as
of December 31, 1999 - the investment loss was $204,100 for the six
months ended June 30, 1999
* increase in number of shares of common stock outstanding as of June
30, 2000.
Accrued and paid dividends increased approximately 12% to $764,954 in 2000
from $684,362 in 1999. This increase was the result of deemed dividends
associated with the conversion features of two additional classes of
convertible preferred stock issued in the quarter ended June 30, 2000. The
Company realized net proceeds of $2,155,000 from the sale of these two
series of convertible preferred stock.
General and administrative expenses increased by approximately 21% to
$811,509 in 2000 from $670,387 in 1999. This increase reflects the costs
associated with the establishment and funding of the day to day operations
of new businesses in China including:
* an import/export company in Shanghai's Free Trade Zone
* the development of software and graphic design associated with a
business to business e-commerce food distribution portal
* the development of logistics capabilities for the launch of Looney
Tunes(TM) branded milk products and snack crackers in Shanghai and
surrounding areas
In addition, general and administrative expenses increased as a result of
legal and accounting expenses associated with the restatement of the
Company's financial statements on the equity basis, fund raising exercises
activities, and the preparation and filing of SEC reporting documents by the
Company.
<PAGE> 11
Losses on investment in the Company's Hangzhou Meilijian subsidiary
increased approximately 97% to $72,497 in 2000 from $36,637 in 1999. The
increase reflected the result of high level of selling and general and
administrative expenses associated with the continuing attempts to penetrate
the Shanghai market and the introduction of new products in Hangzhou and
Shanghai.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company reported that net cash used in operating
activities was $1,036,843, net cash used in investing activities was $625,925,
and net cash provided by financial activities was $1,482,311.
As of June 30, 2000, net cash used in operating activities was $1,717,984,
net cash used in investing activities was $340,565, and net cash provided by
financing activities was $2,833,933.
Net cash used in operating activities increased approximately 66% to
$1,717,984 from $1,036,843 of net cash used by operating activities in 1999.
The increase in negative cash flow in operating activities reflects the
increased costs experienced during this period associated with the
establishment and funding of the day to day operations of new businesses in
China and supporting the U.S. operations of the Company.
Net cash used in investing activities decreased approximately 51% to
$304,565 in 2000 from $625,925 in 1999. The decrease mainly was due to the
elimination of advances made to GFP, net of advances to China Premium Food
Corporation (Shanghai) Co., Inc., the Company's wholly owned import/export
Chinese company and to Warner Bros. to purchase Looney Tunes(tm) licensing
rights.
Net cash provided by financing activities increased 91% to $2,833,933 in
2000 from $1,482,311 in 1999. The increased necessity for fund raising
activities resulted from the establishment and funding of the day to day
operations of new businesses in China and the United States, and supporting
the U.S. management operations of the Company.
During the first and second quarters of 2000, ending June 30, 2000, the
Company continued to shift its business focus and strategy from the
production of milk products to position itself as a Company involved in the
marketing and distribution of a broad range of food products in China and
the United States, including premium branded items. In China, these efforts
are through China Premium Food (Shanghai) Co., Inc., the Company's wholly
owned import/export/distribution subsidiary. China Premium (Shanghai) will
import and distribute Looney Tunes(tm) snack crackers and distribute Looney
Tunes(tm) milk products in the greater Shanghai area. In the United States,
Bravo! Food, Inc., a subsidiary, will promote and market Looney Tunes(tm)
milk products.
In February of 2000, the Company announced an agreement in principle to
acquire the majority equity interest in and control of the operations of
Mandarin Fine Foods Company of Beijing and Shanghai. Mandarin is the
dominant distributor of premium food products to four and five star hotels
throughout China. Mandarin's customers include most of the finest hotels in
China and many top restaurants in Beijing and Shanghai, the two largest and
most advanced cities in China. The bulk of Mandarin's $8 million dollar
sales volume is derived from eight product categories, most of which are
imported from outside China. Mandarin is the largest importer of prime,
aged, U.S. beef to China and represents approximately 60% of all premium
U.S. beef exported to China. Additional products include dairy and cheese,
Italian food dry goods, caviar, smoked salmon, oysters, various other meat
products and seafood,
<PAGE> 12
and several pastry and dessert foods. Currently, Mandarin processes its
caviar in China, utilizing local Sturgeon, and produces its own "fresh"
pasta in China. On May 11, 2000, the Company executed a definitive
agreement for the acquisition of Mandarin.
During the course of the due diligence for the Mandarin transaction, we
became aware that our acquisition of Mandarin would significantly limit the
scope of its business license under PRC regulations concerning Foreign
Investment Enterprises. We also became aware, however, of an agricultural
development program funded by the national government in the Western China
Shaanxi Province, known as the Yangling Model District for Agricultural
High-tech and New-tech Industry. Through this program, the government of
Shaanxi Province is authorized to issue business licenses which are much
broader in scope than normal to new companies in the Yangling Model
District, including foreign investment joint ventures.
Owing to the greatly enhanced scope of the business license offered in the
Yangling District, we agreed with Mr. Li Zhi Yun, the sole owner of Mandarin
Fine Foods, to forego the purchase of Mandarin Fine Foods in favor of
establishing a new joint venture company in Yangling. We agreed that the
parties to this joint venture would be China Premium Food Corporation, as
the foreign party, and Yangling Kechuang Agricultural Techniques Development
Co., a new Chinese company established by Mr. Li in the Yangling District,
as the Chinese party. The new joint venture will be named "Yangling
Mandarin Premium Food Company, Ltd.". The stated purpose of Yangling
Mandarin will be to establish an enterprise in Yangling Model District for
Agricultural High-tech and New-tech Industry, to produce and distribute food
and beverages, to develop domestic markets for such products, to set up a
domestic production base to strengthen its position in the distribution
market. As part of this transaction, Mr. Li has agreed to liquidate
Mandarin Fine Foods.
Going forward, the Company's primary requirements for cash consist of:
* the capital contribution required for the Yangling Mandarin new joint
venture
* expenses related to the development of the distribution business
infrastructure for Yangling Mandarin
* expenses related to the development of the e- commerce business
infrastructure for Yangling Mandarin
* additional working capital for the day to day operation of China
Premium (Shanghai)
* product development, marketing and advertising for the marketing and
sales of our Looney Tunes(tm) milk products in China
* expenses related to the development of the distribution infrastructure
for China Premium (Shanghai) for Looney Tunes(tm) flavored milks and
snack crackers
* payments of guaranteed royalty payments to Warner Bros. under existing
licensing agreements
* additional working capital for our day to day operation of the
Company's U.S. subsidiary Bravo! Foods, Inc.
<PAGE> 13
We estimate that approximately US $2,000,000 will be needed to fund these
activities through the end of 2000. We anticipate the sale of additional
equity under commitments built into the Series D and Series G Convertible
Preferred transactions. In addition, we have commenced discussions with
representatives of the Series D, F and G investors concerning the
establishment of an equity line of credit with a present bank investor for
future funding.
In addition to these anticipated expenses, the Company currently has monthly
working capital needs of $140,000. This represents a significant reduction
resulting from the commencement of joint venture termination procedures and
the elimination of the funding of Green Food Peregrine. The Company
anticipates contributions to overhead to begin by the end of the third
quarter of this year due to product launches involving the Looney Tunes(tm)
brand in China.
On April 7, 2000, the Company received gross proceeds approximating
$1,500,000 to fund its working capital and investment capital needs through
the issuance of its Series F Convertible Preferred Stock. These funds
represent the first of a series of investments that are planned and
structured in the form of 3,000,000 stock warrants and 1,600,000 stock
warrants at $1.00 and $0.84 exercise prices, respectively. These warrants
are callable when our shares trade at $1.60 and $2.40, respectively,
resulting in the additional investment of $4,344,000 at an average exercise
price of $.94.
In addition, on June 19, 2000, the Company received gross proceeds of
$750,000 to fund its working capital and investment capital needs, through
the issuance of its Series G Convertible Preferred Stock. The Series G
subscription agreement provides for the mandatory investment of an
additional $750,000 upon the effectiveness of an amended SB-2 registration
statement filed with the SEC covering this preferred and the underlying
common stock.
DEBT STRUCTURE
During the process of acquiring from American Flavor China, Inc. the 52% of
equity interest in and to Hangzhou Meilijian, the Company issued a
promissory note to assume the American Flavor's debt owed to a supplier.
The face value of that note was $282,637.53 at interest rate of 10.5% per
annum without any collateral attached. The note has a monthly installment
payment of $7,250 with 23 payments and a balloon payment of $159,862.38 when
the note will be due on July 15, 2000. The minimum cash payments are
$87,000 in 1999 and approximately $203,362 in 2000. The note has a late
charge of 3% of overdue principal and interest installment if the note
holder does not receive the payment within 15 days of due dates. This note
currently is being renegotiated to extend the time for payment.
EFFECTS OF INFLATION
The Company believes that inflation has not had material effect on its net
sales and results of operations.
EFFECT OF FLUCTUATION IN FOREIGN EXCHANGE RATES
The Company's operating subsidiaries, Green Food Premium and Hangzhou
Meilijian, are located in China. They buy and sell products in China using
Chinese Renminbi as functional currency. Based on Chinese government
regulation, all foreign currencies under the category of current account are
allowed to freely exchange with hard currencies. During the past two years
of operation, there were no significant changes in exchange rates. However,
there is no assurance that there will be no significant change in exchange
rates in the near future.
<PAGE> 14
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On April 6, 2000, the Company issued 6,374 shares of its common stock
to The Omega Company, pursuant to a written consulting contract. The
principal of The Omega Company is Mr. Arthur Blanding, who has been a member
of the Company's Board of Directors since November of 1999. These shares
were issued pursuant to an exemption to registration provided by Section
4(2) of the 1933 Act. No cash was received by the Company for these shares.
On April 6, 2000, the Company issued 150,000 of its Series F
Convertible Preferred Stock and warrants for 4,600,000 shares of its common
stock to three sophisticated and accredited investors and one finder. In
addition, the Company agreed to issue 75,000 shares of common stock upon the
exercise of the warrants by the respective holders. The Series F
Convertible Preferred Stock and the warrants were priced at $10.00 per unit
and resulted in proceeds of $1,480,000, net of $20,000 of legal and issuance
expenses. The Series F Convertible Preferred Stock has a stated value of
$10.00 per share and a conversion feature equal to $0.50 per share.
Warrants for 3,000,000 shares of common stock were issued to the investors
with an exercise price of $1.00 per share and an expiration date of April 5,
2003. Warrants for 1,600,000 shares of common stock were issued to a finder
with an exercise price of $0.84 per share and have an expiration date of
April 5, 2000. The Series F Convertible Preferred Stock, the warrants and
the common stock underlying the Preferred and the warrants have been and
will be issued pursuant to an exemption to registration provided by
Regulation D, Rule 506 and Section 4(2) of the 1933 Act. The proceeds of
this offering are for working capital.
On April 25, 2000, the Company issued 66,785 shares of its common
stock to Utah Resources, Inc. pursuant to the conversion of the Company's
remaining Series C Convertible Preferred Stock issued to Utah Resources in
December of 1998. The Series C Convertible Preferred Stock and the common
stock underling the preferred were issued to Utah Resources pursuant to an
exemption to registration provided by Regulation D, Rule 504 and Section
4(2) of the 1933 Act.. Utah Resources, Inc. is an accredited and
sophisticated investor. No cash was received by the Company for these
shares.
On May 11, 2000, the Company issued 10,260 shares of its common stock
to The Omega Company pursuant to the terms of a written consulting contract.
No cash was received by the Company for these shares.
On May 22, 2000, the Company issued 184,638 shares of its common stock
to two holders of Series D Convertible Preferred Stock pursuant to the
conversion of 10,000 shares of the preferred. The Series D Convertible
Preferred and the common stock underlying the preferred were issued to these
sophisticated and accredited investors pursuant to an exemption from
registration provided by Regulation D, Rule 506 and Section 4(2) of the 1933
Act. No cash was received by the Company for these shares.
On May 23, 2000, the Company issued 1,517,441 shares of its common
stock to one holder, pursuant to the conversion of 500,000 shares of Series
A Convertible Preferred Stock and 1,017,441 shares of Series B Convertible
Preferred Stock. The Series A and Series B Convertible Preferred Stock
converted was issued by the Company in early 1997 to one of the original
"founders" of the Company pursuant to an exemption to registration provided
by Section 4(2) of the Act. The conversion of the
<PAGE> 15
Series A Convertible Preferred Stock represents all of the Series A
Convertible Preferred Stock issued by the Company. No cash was received by
the Company for these shares.
On May 25, 2000, the Company issued 131,314 shares of its common stock
to two non-employees pursuant to written agreements with the Company, dated
February 7, 2000. The issuance of the stock was in exchange for a graphic
design and legal services provided by these two professionals to the
Company. Shares issued under these agreements are valued at $0.75 per
share, which was the market value of the Company's common stock on the date
of the execution of the agreements. These shares were issued pursuant to a
1933 Act Form S-8 registration statement. No cash was received by the
Company for these shares.
On June 8, 2000, the Company issued 219,566 shares of its common stock
to two holders of Series D Convertible Preferred Stock pursuant to the
conversion of 10,000 shares of the preferred. The Series D Convertible
Preferred and the common stock underlying the preferred were issued to these
sophisticated and accredited investors pursuant to an exemption from
registration provided by Regulation D, Rule 506 and Section 4(2) of the 1933
Act. No cash was received by the Company for these shares.
On June 19, 2000, the Company issued 75,000 shares of it's Series G
Convertible Preferred Stock and warrants for 344,330 shares at $0.9625 per
share to three investors and two finders. The recipients of the preferred
stock and the warrants are all sophisticated and accredited investors. The
Series G convertible Preferred Stock, the warrants and the common stock
underlying both the preferred and the warrants were issued pursuant to an
exemption to registration provided by Regulation D, Rule 506 and Section
4(2) of the 1933 Act. The Series G Convertible Preferred Stock and the
warrants were priced at $10.00 per unit and resulted in proceeds of $675,000
in cash, net of $60,000 in finder's fees and $15,000 of legal and issuance
expenses. The Series G Convertible Preferred Stock has a stated value of
$10.00 per share and a conversion feature equal to the lesser of $0.85 per
share or 80% of the average of the three lowest closing bid prices of the 22
days immediately preceding the conversion of the preferred. The warrants
for 334,330 shares of common stock have an exercise price of $0.9625 per
share and an expiration date of June 18, 2003. The proceeds of this offering
are for working capital.
On June 29, 2000, the Company received proceeds of $169,302.50 in cash
for the issuance of 225,735 shares of its common stock on July 14, 2000 to
former holders of the Company's Series E Convertible Preferred Stock. This
common stock was issued pursuant to the exercise of certain participation
rights in favor of such holders at a price determined by the market value of
such common stock on the day of exercise. The Common Stock was issued by the
Company pursuant to an exemption to registration provided for the original
Convertible Preferred transaction, and all shares underlying that
transaction, pursuant to Regulation D, Rule 506 and Section 4(2) of the 1933
Act. This stock was issued to fourteen accredited and sophisticated
investors, who were provided with updated financial and corporate information
through the Company's public filings.
Subsequent Events
In December 1999, the Shanghai government approved the registration of
a new wholly owned subsidiary in the Wai Gao Qiao "free trade zone" in
Shanghai, China. This import-export company was formed to import, export
and distribute food products on a wholesale level in China. In July of 2000,
the Company capitalized this subsidiary in the amount of approximately US$
300,000. In addition, the
<PAGE> 16
Company has agreed to contribute an additional amount of US $2,000,000 over
a five year period, commencing July 1, 2000. The Company will provide this
additional capital in tranches as collateral for loans in RMB by a Chinese
bank to our subsidiary. As the RMB loans are paid by the Company's
subsidiary, the collateral in US dollars will be released to the Company. By
this method of financing, the Company and its subsidiary will avoid the
impact of regulations governing the conversion of Chinese currency into US
dollars applicable in China. A foreign exchange bank has agreed to act as
the "facility" for these loan transactions. The Company's subsidiary will
be able to borrow up to 90% of the US dollar collateral at an exchange rate
at one percent below the national rate.
Exhibits and Reports on Form 8-K
(a) Exhibits - Required by Item 601 of Regulation S-B.
(4) Certificate of Designation Series G Convertible Preferred
Stock*
(27) Financial data schedule
*Previously filed
(b) Reports on Form 8-K
none
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
registrant caused this amended report to be signed on its behalf of the
undersigned, duly authorized.
CHINA PREMIUM FOOD CORPORATION
(Registrant)
Date: November 20, 2000 /s/Roy G. Warren
-----------------------------------
Roy G. Warren, President
<PAGE> 17
