UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
Commission file number: 0-11734
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CHINA FOOD AND BEVERAGE COMPANY
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(Exact Name of Registrant as Specified in its Charter)
NEVADA 87-0548148
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(State of Incorporation) (I.R.S. Employer Identification No.)
82-66 Austin Street Kew Gardens, New York 11415
(Address of Principal Executive Offices)
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(212) 398-7833
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(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Title of Each Class Name of Each Stock Exchange
------------------- on Which Registered
Common Stock, Par Value $0.001 Per Share ---------------------------
None
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
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 Exchange 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 NO X
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The aggregate market value of the voting stock held by non-affiliates
of the Registrant at December 31, 1997, was approximately $1,879,643.20.
The number of shares of Registrant's Common Stock outstanding on
December 31, 1997, was 2,931,546.
The Registrant's total revenues for the year ended December 31, 1997,
were $0.
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TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS ........................................... 3
ITEM 2. DESCRIPTION OF PROPERTY ........................................... 5
ITEM 3. LEGAL PROCEEDINGS ................................................. 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............... 6
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ........... 6
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS .............................................. 7
ITEM 7. FINANCIAL STATEMENTS ............................................... 12
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ...................... 12
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT .................. 13
ITEM 10. EXECUTIVE COMPENSATION ............................................. 14
ITEM 11. SECURITY OWNERSHIP OF BENEFICIAL OWNERS ............................ 15
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..................... 16
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K ................................... 17
SIGNATURES ......................................................... 18
INDEX TO EXHIBITS .................................................. 19
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS
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Business Development
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China Food & Beverage Company, a Nevada corporation (the "Company" or,
"Corporation"), has executive offices at: 82-66 Austin Street, Kew Gardens, New
York 11415. The Company was incorporated in Nevada on November 6, 1981 under the
name Logos Scientific Inc. Until 1991, the Company sold and distributed medical
diagnostic equipment through its Volu-Sol division. The Company sold that
division in December 1991. On May 5, 1992, the Company changed its name to Logos
International, Inc.
During 1992 and 1993, the Company's operations involved the acquisition
of small companies with diverse operations. The Company acquired several
subsidiaries including: an automotive body and paint shop, an automobile towing
operation, an art and frame gallery, an office staffing company, and a printing
and publishing concern. The Company primarily acquired small, distressed
companies located in the State of Utah. The Company's intention was to
restructure the operations of these subsidiaries to increase their cash flow and
revenues. Due primarily to undercapitalization, the Company's attempts to
reverse the fortunes of its subsidiaries failed. Throughout 1993 and 1994, the
Company liquidated or otherwise transferred all of its subsidiary corporations
and other assets in an attempt to settle actual and potential liabilities. By
the end of 1994, the Company had disposed of nearly all of its assets. For more
information on these events, see the Company's Form 10-KSB for fiscal year ended
December 31, 1994.
On October 23, 1995, the Company acquired all outstanding shares of
OMAP International Incorporated, a closely-held Nevada corporation ("OII"). As
consideration for the acquisition of OII, the Company issued 433,805 restricted
shares of the Company's common stock to the shareholders of OII.1 OII owned the
right to acquire patents related to a collating device which sorts and assembles
flat sheets of paper. OII also owned all outstanding capital stock of OMAP SA, a
Belgian research and development company which filed for bankruptcy protection
shortly after the Company's acquisition of OII. The Company changed its name to
OMAP Holdings Incorporated to reflect its ownership of OII and moved its
principal offices to Kew Gardens, New York. The three individuals who
collectively owned, directly or indirectly, 100% of OII's outstanding common
stock prior to October 23, 1995 were Aster De Schrijver, James Tilton and Jane
Zheng. Pursuant to the acquisition of OII, the Company underwent a change of
control and these three individuals obtained a majority interest in the Company.
De Schrijver, Tilton and Zheng were also appointed as the Company's directors
and/or officers.
On December 15, 1995, the Company acquired technology and proprietary
information necessary to manufacture and develop collators including drawings,
production know-how, and trade names and information related to distributors.
This information and technology were known as the "Barenthin Technology." In
exchange for the Barenthin Technology, the Company issued 11,112 restricted
shares of Common Stock.
On December 15, 1995, the Company also acquired beneficial ownership of
100% of the outstanding shares of Establissements R. Kohl, a French corporation
("Kohl"). Kohl manufactured lighting equipment and heating devices.2 In return
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1 As used throughout this Form 10-KSB, the term "Common Stock" shall
refer to the Company's common stock, par value $0.001. All references to numbers
of shares in this document have been adjusted to account for the 30-for-1
reverse stock split which the Company effected on April 10, 1997.
2 Under French corporate law, a corporation such as Kohl must maintain
at least seven shareholders. Accordingly, six individuals, including two of the
Company's directors, were each issued one share of Kohl's stock. The Company
acquired the remaining 4,356 shares of Kohl (99.86%). Each other owner of Kohl
executed the equivalent of a written proxy, giving the Company (China Food and
Beverage Company) the power to vote on behalf of the record shareholders.
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for Kohl's shares, the Company issued a total of 19,048 shares of restricted
Common Stock to the former owners of Kohl. The Company also paid $1,000,000 in
bank drafts and made a $200,000 loan to Kohl. Kohl owned and operated an
approximately 100,000 square foot manufacturing plant in Calais, France and the
machinery and equipment housed in the plant.
The Company made these three acquisitions in 1995 pursuant to a single
business plan. The Company planned to develop the patents owned by OII and the
Barenthin technology to manufacture paper collators in the manufacturing plant
operated by Kohl. Kohl was to manufacture and distribute three different models
of collators varying as to quality and price, each of which would implement the
patents which were obtained through the Company's acquisition of OII. Kohl was
also to continue manufacturing heating equipment and lighting fixtures. Finally,
Kohl was to produce a line of portable food vending machines, including a
vending machine that cooks and dispenses french fries for which Kohl owned
patents.
During the 1996 fiscal year, Kohl continued to produce and sell heating
and lighting equipment as it had done prior to its acquisition by the Company.
Kohl also produced prototypes for its paper collators and patented french fry
machine. However, Kohl could not obtain the investment capital necessary to
produce and distribute either the collators or the vending machines according to
Kohl's business plan. Kohl's revenues were also insufficient to finance the
production and distribution of these products. Accordingly, neither the
collators nor the vending machines were ever sold by Kohl. The inability to
obtain investment capital, paired with capital expenditures Kohl had made in
connection with the development of collators and vending machine prototypes,
created a working capital deficiency which impaired Kohl's ongoing operations.
Kohl became delinquent with several of its trade creditors and in November 1996,
Kohl applied for protection under the bankruptcy laws of France. On April 28,
1997, the French Tribunal administering the bankruptcy of Kohl sold all of
Kohl's assets except the french fry vending machines and inventory and spare
parts related thereto, vendor patents and the Company's license. The Company may
appeal this sale and is currently investigating its rights under applicable law.
For more information on Kohl, see "Item 6 - Management's Discussion and Analysis
of Financial Condition and Results of Operations."
After the bankruptcy proceedings of Kohl, the Company discontinued its
involvement in the manufacture of collators, heaters, lighting equipment and
other products designed, manufactured and/or produced by Kohl. The Company was
left with few assets, most of which were related to the manufacture of
collators.
On March 15, 1997, the Company acquired all of the capital stock of
American China Development Corporation, a Bahamian corporation ("ACDC"). ACDC
owns a 60% interest in a joint venture in the People's Republic of China ("PRC")
which operates a beer brewery in the city of Qidong in the Jiangsu province of
the PRC. The joint venture's brewery, known as the Nantong Aitesi Beer Company,
Ltd., produces and distributes beer in the city of Qidong and to surrounding
areas within a 50 mile radius. The Company purchased ACDC from Dizon Investments
Limited, an investment company organized under the laws of the British Virgin
Islands. The Company acquired ACDC in exchange for issuing 666,667 restricted
shares of Common Stock to Dizon. This transaction made Dizon the beneficial
owner of approximately 18.5% of the Company's Common Stock. For more information
on this transaction, see "Item 6 - Management's Discussion and Anaylsis of
Operations of Financial Condition and Results of Operations."
To reflect its acquisition of ACDC and its control of the joint venture
interest owned by ACDC, the Company changed its name to China Food and Beverage
Company on March 31, 1997.
Business of Issuer
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Since the disposition of Kohl, the Company's business has focused on
seeking to invest in business opportunities primarily related to the food and
beverage industry. As stated above, the Company has acquired a subsidiary which
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owns a 60% interest in a joint venture to operate a brewery in the PRC. The
Company will seek to acquire additional, similar businesses both in China and
other countries. To a lesser extent, the Company will also seek to invest in
domestic food and beverage concerns and in entities with operations outside of
the food and beverage industry.
The Company intends to locate its target investment opportunities
through contacts which management has in the food and beverage industry. The
Company has no full or part time employees, aside from its officers and
directors. If the Company requires additional personnel to carry out its
business objectives, it will retain outside consultants. In the past, the
Company has been successful in retaining consultants through the issuance of its
Common Stock and the Company intends to continue this practice in an attempt to
avoid expending valuable cash flows.
Since the Company does not have significant liquid assets, the Company
intends to acquire business opportunities through the issuance of its equity
securities. This will likely result in future dilution of the ownership interest
enjoyed by the Company's current shareholders. The Company has had some past
experience in acquiring subsidiaries in this manner. However, the Company can
provide no assurance that it will be able to continue such acquisitions in the
future. It is also likely that any future acquisitions by the Company will
require the Company to make capital contributions to the acquired businesses.
The Company does not intend to participate in the day to day management
of the joint venture operating the Chinese brewery, nor does the Company intend
to take an active management role in any subsequent businesses which the Company
may acquire in the future. The Company's objective is to find business entities
which the Company feels are greatly undervalued, acquire such entities through
the issuance of Common Stock, make required investments in such entities, and
receive a return on its investment in the form of dividends or appreciation in
the value of the subsidiary.
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ITEM 2. DESCRIPTION OF PROPERTY
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Prior to November 1996, the Company's subsidiary Kohl owned a
manufacturing plant located in Calais, France. In November 1996, the plant
became part of Kohl's bankruptcy estate and was ultimately sold in Kohl's April
28, 1997, bankruptcy sale. The Company does not currently own any real property.
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ITEM 3. LEGAL PROCEEDINGS
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V.K. Holdings, Inc. ("VK") sued the Company (Case Number
93-05193-00-0-G) on September 7, 1993 in the 319TH Judicial District Court of
Nueces County, Corpus Christi, Texas. VK alleged fraud, violation of securities
laws, and other related causes of action. Also named as defendants in the suit
are Chad Burnett, Richard Surber and Kenneth R. O'Neal in their capacities as
officers and directors of the Company in November 1992, the time when the
alleged fraudulent acts took place. The matter has been settled to the
satisfaction of all parties concerned and as of the date of this submission, are
waiting for the Court to sign an Order dismissing the suit.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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During the fourth quarter of the 1997 fiscal year, there were no
matters submitted to a vote of the Company's shareholders.
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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Market Information
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The following table sets forth the prices of the Common Stock on the
OTC Bulletin Board for each quarter during fiscal years 1996 and 1997. These
over-the-counter market quotations are based on inter-dealer bid prices, without
markup, markdown, or commission, and may not necessarily represent actual
transactions. The increases reflected in the quarters ended June 30, 1997,
September 30, 1997 and December 31, 1997, are attributable to the 30-for-1
reverse split effected by the Company on April 10, 1997.
QUARTER HIGH LOW
Quarter Ending December 31, 1997 $ 0.75 $ 2.12
Quarter Ending September 30, 1997 $ 0.56 $ 0.31
Quarter Ended June 30, 1997 $ 0.63 $ 0.02
Quarter Ended March 31, 1997 $ 0.08 $ 0.03
Quarter Ended December 31, 1996 $ 0.50 $ 0.01
Quarter Ended September 30, 1996 $ 0.75 $ 0.19
Quarter Ended June 30, 1996 $ 3.37 $ 0.50
Quarter Ended March 31, 1996 $ 5.00 $ 2.50
Shareholders
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There were approximately 1,485 record holders of Common Stock as of
December 31, 1997, holding a total of 2,931,546 outstanding shares of Common
Stock.
Reverse Split
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On April 10, 1997, the Company effected a 30-for-1 reverse split of its
Common Stock. The reverse split affected only the issued and outstanding Common
Stock and did not affect the number of shares of Common Stock authorized for
issuance by the Company. All fractional shares resulting from the reverse split
were rounded up to the nearest whole share.
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Dividends
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The Company has never declared a cash dividend on its Common Stock and
does not anticipate doing so in the near future. The future payment of
dividends, if any, on the Common Stock is within the discretion of the board of
directors and will depend on the Company's earnings, capital requirements,
financial condition, and other relevant factors.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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The Company's analysis of its financial condition and results of its
operations was addressed in the Company's 10-KSB, filed , on or about, October
23, 1997. Though several significant events have occurred during that 6 week
period, from October 23, 1997 through December 31, 1997, as are set forth below,
there were no material changes that would alter the Company's position.
Prior to the last quarter of 1991, the Company's primary business was the
sale and distribution of medical and laboratory diagnostic equipment. In
December 1991, the Company sold off its medical supplies division and underwent
a change of control. Under the direction of new management, the Company's
objective was directed toward acquiring operating subsidiaries in an effort to
generate revenues and maintain the Company as a viable concern. The Company's
focus was to acquire financially distressed companies and restructure them in an
attempt to make their business profitable. The Company also vigorously searched
for undervalued assets to acquire and later liquidate at a profit. The Company's
efforts to reverse the fortunes of its acquired subsidiaries were largely
unsuccessful due to undercapitalization and the subsidiaries' failure to
generate positive cash flow. Between December 1993 and September 1994, the
Company liquidated all of its subsidiaries in an attempt to settle actual and
potential liabilities. Between October 1994 and October 1995, the Company had no
significant assets.
On October 23, 1995, the Company acquired all outstanding shares of OMAP
International Incorporated, a closely held corporation whose primary asset was
the right to acquire patents related to the production of paper collators
("OII"). The Company acquired OII by issuing a controlling interest of the
Company's Common Stock to the theretofore owners of OII. The group who obtained
a controlling interest in the Company pursuant to this transaction consisted of
James Tilton, Aster De Schrijver and Jane Zheng. As part of the change of
control, these individuals were appointed as officers and directors of the
Company.
Under new management, the Company attempted to primarily focus its
operations on the production of paper collators. On December 15, 1995, the
Company acquired technology and proprietary information related to the
manufacture of collators and related paper processing devices. The Company
acquired this technology and information, collectively called the "Barenthin
Technology," by issuing shares of its Common Stock. This Barenthin Technology
included access to 15 distributors who had marketed similar collators throughout
Europe. On December 15, 1995, the Company also acquired a 99.86% interest in
Establissements R. Kohl, a French company that manufactured heating equipment,
lighting fixtures and vending machines ("Kohl"). Kohl employed approximately 32
employees. Kohl's primary assets were a manufacturing plant located in Calais,
France, manufacturing equipment used to produce Kohl's products and goodwill
associated with Kohl's manufacturing business. Kohl was acquired through the
Company's issuance of Common Stock and the payment of $1,000,000 to the former
owners of Kohl. Kohl also made a $200,000 loan to Kohl which was used to settle
notes which Kohl executed in favor of the former owners. For more information on
these transactions, see "Item 1- Description of Business."
The former owners of Kohl, Maurice Van Gysel and Jacky Caille, remained
with Kohl as directors and co-general managers. Under the Company's ownership,
Kohl continued to manufacture the heating equipment and lighting fixtures which
it had produced prior to Kohl's acquisition by the Company. Kohl maintained its
prior contracts for the distribution of heating equipment and lighting fixtures.
The sale of heating and lighting equipment constituted nearly all of the
revenues generated by Kohl during 1996.
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During the end of 1995 and throughout 1996, the Company also produced
prototypes for several different models of its paper collators. These collators
were based on the patents owned by OII and the Barenthin Technology. The
collator prototypes were produced in Kohl's manufacturing plant and were to be
sold to distributors the Company learned of through its acquisition of the
Barenthin Technology. Kohl also produced a prototype for a french fry cooker and
dispenser. This vending machine was based upon patents which were owned by Kohl
at the time that Kohl was acquired by the Company.
At the time that the Company acquired Kohl, Kohl had a shortage of working
capital and required an immediate capital infusion. Kohl was delinquent in
paying some of its trade creditors and needed additional capital to perfect the
design and begin the manufacture of its collators and vending machines. The
Company was unable to obtain the capital necessary to assist Kohl in sustaining
its operations. Accordingly, Kohl was unable to ever commence the distribution
of its collators or vending machines and did not realize any revenue from the
production of these products. Since the Company had planned its future
operations around the production and sale of these new products by Kohl, the
inability to distribute collators and vending machines significantly impacted
the operations of the Company.
On April 1, 1996, Jacky Caille and Maurice Van Gysel resigned as directors
of Kohl. These resignations were the result of a dispute between Caille, Van
Gysel and the Company concerning the consideration the former were to receive
for their sale of Kohl to the Company. Caille and Van Gysel also expressed
general dissatisfaction with management decisions of Kohl. On May 7, 1996,
Kohl's board of directors terminated Caille and Van Gysel from their respective
positions as general managers. Caille and Van Gysel were replaced by Georges
d'Humieres.
In November 1996, Kohl petitioned for bankruptcy protection under the laws
of France. This decision resulted from Kohl's shortage of working capital and
from pressure imposed by trade creditors. On April 28, 1997, the French Tribunal
administering the bankruptcy of Kohl sold nearly all of Kohl's assets, including
Kohl's manufacturing plant, at a hearing at the Commercial Court. The only
assets which were not sold at that proceeding were the french fry vending
machine prototypes, inventory and spare parts related thereto and vendor
patents.
As a result of the bankruptcy sale, the Company's only assets were the
unsold assets of Kohl and patents related to the manufacture of collators which
were owned by OII. Because the Company discontinued the manufacture of collators
and vending machines, the Company amortized 100% of the net book value of the
patents on its financial statements for the fiscal year ended December 31, 1996.
On June 30, 1997, the Company's right to the patents lapsed after the Company
had discontinued the payments necessary to maintain ownership of the patent
rights. The Company also realized a loss from discontinued operations amounting
to the full value of the Company's investment in Kohl. For more information of
this matter, see the subsection "Results of Operations" below.
On March 15, 1997, and while the bankruptcy sale of Kohl was pending, the
Company acquired all outstanding capital stock of a Bahamian corporation called
American China Development Corporation ("ACDC"). ACDC owns a 60% interest in a
joint venture in the People's Republic of China (the "PRC"). According to the
joint venture agreement, ACDC will obtain a 60% equity interest in a limited
liability company within the Chinese territory to be operated in accordance with
the Laws of the PRC on Joint Ventures Using Chinese and Foreign Investment. The
purpose of the joint venture is to operate an existing beer brewery in the
Jiangsu province of the PRC known as the Nantong Aitesi Beer Company. This
brewery has been in existence since the 1950's and has been State owned since
that time. The brewery currently distributes beer locally to the City of Quidong
and surrounding areas within a 50 mile radius.
The objectives of the joint venture are to improve the quality of the
brewery's products, improve the capacity of the brewery and increase the market
share of the brewery's products. In order to accomplish these objectives, the
joint venture requires a substantial capital contribution from ACDC, the foreign
party to the joint venture. Under the joint venture agreement, ACDC is required
to contribute $2 million in cash and equipment to the joint venture within six
months after the joint venture has been approved by the Chinese government
authorities.
The Company acquired ACDC and the joint venture interest owned by ACDC
because the Company seeks to capitalize on the enormous Chinese consumer market.
The Chinese beer market is dominated by small, local breweries which distribute
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locally in their province or region. The Company believes that if substantial
capital contributions are made to improve the quality of the beer produced by
the Quidong brewery and the efficiency of the production process, the brewery
can increase its market share and revenues and thereby increase the value of
ACDC's investment in the joint venture. This belief is based upon an internal
business plan produced by the Chinese partner in the joint venture.
However, ACDC's investment in the joint venture is also subject to several
risks and uncertainties. The most prominent risk involves the capital
contributions required to be made by ACDC. The joint venture agreement requires
ACDC to invest $2 million in United States currency within six months after the
joint venture is approved. If ACDC is delinquent in making any capital
contributions required under the joint venture agreement, it is subject to a 10%
annual interest charge and further subject to a 0.5% penalty on all amounts in
default. ACDC also risks losing its business license (which would effectively
terminate its ability to carry out the purposes of the joint venture) if it
fails to make its required capital contributions. Accordingly, the success of
ACDC is substantially dependent on its ability to raise the capital necessary to
meet its commitments under the joint venture. ACDC does not have substantial
assets aside from the joint venture interest and will therefore be dependent
upon the Company in making its required capital contributions. Given the
Company's limited cash flow and history of operating losses, there is a
substantial risk that ACDC will not be able to make the scheduled capital
contributions. The Company intends to raise capital primarily through private
offerings of its Common Stock or, through debt financing, and the Company can
provide no assurances that it will be able to generate sufficient capital in
this manner. If ACDC and/or the Company are unable to raise this capital, the
Company's investment in ACDC will not succeed.
During the second quarter of 1997, the Company obtained a commitment from
an unaffiliated entity to provide the Company with debt capital in the amount of
$2 million. The loan agreement required the Company to pay a $300,000 loan
processing fee. On July 7, 1997, and in order to pay the processing fee
necessary to secure the debt financing, the Company entered an agreement to
obtain a $300,000 letter of credit from a company known as Epimed, Inc. The
Company issued 1,500,000 shares (or approximately 41.7% of the total shares
issued and outstanding) to Epimed to secure the Company's repayment of proceeds
borrowed from the letter of credit. On July 11, 1997, the Company became aware
that Epimed had failed, without cause, to deliver the letter of credit as
required. The Company placed a stop transfer order on the shares of Common Stock
issued to secure the letter of credit, and is in the process of obtaining a
court order to cancel those shares. However, the 1.5 million shares have not
been treated as outstanding for purposes of disclosure on this Form 10-KSB. The
Company has been unable to otherwise obtain the required loan processing fee and
therefore has been unable to secure the $2 million in debt financing.
There are additional risks and uncertainties involved with ACDC's
investment in the Chinese joint venture. A substantial portion of the business
plan prepared by the Chinese partner in the joint venture is premised upon
projections about how the Chinese consumer market in general, and the beer
market in particular, will develop in the future. Many of these projections are
based on developments in Hong Kong, Japan and other markets. There is a risk
that these projections will prove to be inaccurate, that the market for beer in
the PRC will not expand and that the revenues to be produced by the Qidong
Brewery could fall substantially short of projections made in the business plan.
Another risk posed by the investment in the joint venture involves currency
exchange rates which may nullify any dividends, profit sharing or other income
that ACDC realizes through its investment in the joint venture. Finally, the
joint venture is subject to political risks caused by political uncertainty in
the PRC and relative infancy of Western investment in formerly State-owned
Chinese companies.
On April 10 1997, the Company's board of directors authorized the Company
to effect a 1-for-30 reverse split of its issued and outstanding Common Stock.
The reverse split did not affect the authorized shares of Common Stock. All
fractional shares of Common Stock were rounded up to the nearest whole share.
The Company effected the reverse split because it believed that the number of
issued and outstanding shares of Common Stock was disproportionately large
compared to the Company's revenue, net income and net worth.
On September 2, 1997, the Company granted options to purchase Common Stock
to two of its officers and directors. The Company granted an option to purchase
1 million shares of Common Stock to James Tilton, the Company's president, chief
executive officer, treasurer and director. The Company granted an additional
option to purchase 1 million shares of Common Stock to Jane Zheng, the Company's
secretary and director. The exercise price for each option was set at $0.31, the
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bid price of the Common Stock on the date the options were granted. The options
were granted to compensate Mr. Tilton and Ms. Zheng as a bonus and for the
services they perform as the Company's only employees.
On September 25, 1997, the Company executed a Consulting Agreement with a
company known as The Hayden Group, Inc. Pursuant to the Consulting Agreement,
the Company will receive consulting services related to management, marketing
and corporate structure. The consultant was also retained to help the company
more effectively disseminate corporate information to the public. As
consideration for the services to be performed, the Company granted to the
consultant options to purchase 600,000 shares of Common Stock. The exercise
prices for the options are as follows: (i) 150,000 shares exercisable at $0.15
per share; (ii) 150,000 shares exercisable at $0.30 per share; (iii) 150,000
shares exercisable at $0.50 per share; and (iv) 150,000 shares exercisable at
$0.90 per share. All options are exercisable for a period of three years.
On October 7, 1997, the Company executed a $160,000 promissory note to
settle any and all potential claims against the Company stemming from an April
1996 offshore offering of the Company's Common Stock which had since been
rescinded. The promissory note bears interest a rate of 19.5% and matures
October 19, 1998. The Company issued 767,742 shares of Common Stock to an escrow
agent to secure payment of principal and interest due on the note. The 767,742
shares are listed as issued but not outstanding. In the event the Company
defaults on the note payable, the shares of stock will be used to pay the note.
At December 31, 1997, the accrued interest was $53,000. The Company canceled the
3,500,000 pre-split or the 116,667 post-spilt shares which were issued in 1996.
On or about November 3, 1997, the Company passed a resolution for the
issuance of 35,000 shares of its Common Stock to each of the following entities:
Stanley Merdinger, to remain a director of the Corporation and as compensation
for past services rendered as an acting director; Kitty Chow, to remain a
director of the Corporation and as compensation for past services rendered as an
acting director of the Corporation; Ms. Deanne Ofsink, an attorney who rendered
legal services to the Corporation; to Jane Zheng, as an inducement to remain as
an officer and director of the Corporation and as compensation for past services
rendered as an acting director and officer in the Corporation; and, 35, 000
shares to James Tilton, as an inducement to remain as an officer and director of
the Company and as compensation for past services rendered as an acting director
and officer of the Corporation. The proposed maximum offering price of the
Company's Common Stock issued to each party in this paragraph was $0.05 per
share for an aggregate offering price of $19,500. Each individual's stock
issuance was issued pursuant to a Form S-8 registration and was accompanied by a
Letter of Consent and an Opinion Letter prepared by Herbert M. Jacobi, Esq.,
counsel for the Company, regarding the legality of the securities being
registered under the Form S-8 registration and, Consent of Jones, Jensen and
Co., independent public accountants for the Registrant. The formal filing of the
applicable S-8 registration forms was on or about November 4, 1997.
On or about December 17, 1997, the Company entered into an Agreement with
Tiancheng Co., Ltd., a subsidiary of China International Trust and Investment
Corporation ("CITIC")to locate and assist the Company in acquisition of no less
than 2, and up to as many as 8, additional breweries and beverage companies in
the Peoples Republic of China. CITIC owns numerous companies throughout the
world. It has representative offices in Tokyo, New York, and Frankfurt, Germany,
as well as in China proper. CITIC presently has assets of approximately $31.3
billion and shareholder's equity of approximately $20 billion, and earned
approximately $247 million in the year 1995. CITIC has investments in several
Asian satellite projects, including AsiaSat II, Cathay Pacific Airways, Dragon
Air and CITIC Industrial Bank, China's sixth largest bank. In return for
Tiancheng assisting the Company in locating and acquiring brewery and/or
beverage sites in China, as well as, performing any and due diligence that may
be required or requested with regard to these acquisitions, the Company shall
pay to Tiancheng the sum of $150,000 cash, and 500,000 shares of restricted
Common Stock to be valued at no less than $5.00 from one year of the date of
issuance. Should the stock's value be less than $5.00 one year from the date of
issuance, the Company shall issue additional shares to Tiancheng to make up the
difference. Tiancheng has also agreed to assist the Company in financing any
acquisitions that result from its efforts as set forth in the Agreement between
the parties.
10
<PAGE>
Events Subsequent to the Fiscal Year
- ------------------------------------
On November 7, 1995, ADS Ltd., an Isle of Man corporation, acquired
341,786 shares of the Company's unregistered Common Stock. Because of the
bankruptcy of OMAP SA, which is referred to herein supra, of which principals of
ADS were also principals in OMAP SA, the Company placed a stop-transfer on ADS's
341,786 shares. Based upon the advice of Company's counsel, that the Company's
legal standing was somewhat tenuous, the stop-transfer on the 341,786 ADS shares
was removed on March 12, 1998.
After entering into a Letter of Intent on December 19, 1997, the Company
and Victoria Beverage Company Limited ("Victoria"), an Isle of Man corporation,
entered into a formal Agreement on January 30, 1998, pursuant to which the
Company acquired 100% of Victoria Beverage Company Limited ("Victoria").
Victoria owns a 60% interest in the Sui Ning Beer Factory located in Szechuan
Province, Peoples Republic of China. The purchase price was a $15,000,000
debenture issued in favor of the shareholders of Victoria, payable interest only
at 6.25% per annum, semi-annually commencing 18 months from the date of the
Agreement; and the principal is payable 5 years from such date. The debenture is
convertible 18 months from the date of the Agreement at $5.00 per share of the
Company's Common Stock. If the debenture is converted into the Company's Common
Stock, Victoria's former shareholders would become the Company's largest
shareholders and may be capable of influencing the future business policy. The
Company filed a Form 8-K with respect to this transaction on or about February
13, 1998. Closing of this transaction is pending upon the submission of
verifiable financials from Victoria.
On or about February 11, 1998, the Company passed a resolution for the
issuance of 50,000 shares of its Common Stock to each of the following entities:
Stanley Merdinger, who presently is a director of the Corporation, as
compensation for services rendered on behalf of the Corporation; Kitty Chow, who
presently is a director of the Corporation, for services rendered on behalf of
the Corporation; Ms. Deanne Ofsink, an attorney who rendered legal services to
the Corporation; Jane Zheng, as an inducement to remain as an officer and
director of the Corporation; and, 50,000 shares of its Common Stock to James
Tilton, as an inducement to remain as an officer and director of the Company.
The proposed maximum offering price of the Company's Common Stock issued to each
party in this paragraph was $0.69 per share for an aggregate offering price of
$34,500. Each individual's stock issuance was issued pursuant to a Form S-8
registration and was accompanied by a Letter of Consent and an Opinion Letter
prepared by Herbert M. Jacobi, Esq., counsel for the Company, regarding the
legality of the securities being registered under the Form S-8 registration and,
Consent of Jones, Jensen and Co., independent public accountants for the
Registrant. The formal filing of the applicable S-8 registration forms was on or
about February 23, 1998.
On March 5, 1998, the Company terminated its September 25, 1997,
Consulting Agreement with The Hayden Group, Inc., referenced to herein above in
the preceding Section. The Hayden Group failed to carry out its obligations as
set forth in the Agreement. Accordingly, the Company's management felt that the
unilateral termination was warranted based on The Hayden Group's
non-performance.
Results of Operations
- ---------------------
As a result of the investment of American China Development Corporation in
March 1997,the Company incurred a loss of investment value of $1,600,000.
Coupled with general costs of doing business, the Company incurred a net loss in
1997 of $2,345,177. The Company's recent foray into the acquisition of beer and
beverage companies in the People's republic of China, did not result in any
revenues for the fiscal year 1997.
Due to the fact that Kohl applied for and received bankruptcy protection
in November 1996, the financial statements for Kohl have not been included in
the Company's audited financial statements for the year ended December 31, 1996.
The Company did not include Kohl in its audited financial statements for the
year ended December 31, 1995, because of the minimal level of operations
performed by Kohl between December 15, 1995 (the date Kohl was acquired by the
Company) and December 31, 1995. Accordingly, the Company recorded no operating
revenues for either 1996 or 1995. Since the Company did not record any operating
revenues for either 1996 or 1995, no costs of sales were incurred for either
year.
11
<PAGE>
The Company had a loss from discontinued operations in the amount of
$6,851,350 and $652,508 for 1996 and 1995, respectively. The loss for 1996
resulted from the Company's decision to write off all of its investments in Kohl
and related goodwill. The Company also wrote off patents on paper collators due
to its inability to sell the patents. The writeoff resulted in $2,170,833 in
amortization expenses, which was recorded to loss from discontinued operations.
The loss for 1995 was retroactively restated to loss from discontinued
operations to reflect the Company's decision to write off investments in Kohl
and the paper collator business.
Capital Resources and Liquidity
- -------------------------------
During 1997, the Company issued 869,677 shares of its Common Stock to
compensate its employees, directors and consultants. The Company issued the
Common Stock to these individuals in lieu of cash salaries because the Company
lacked the cash flow necessary to otherwise compensate them. In addition, the
Company issued 628,958 shares of Common Stock for cash at approximately $0.24 in
the fiscal year 1997.
The Company has also been dependent on offering shares of Common Stock in
order to raise capital. At the end of 1995, the Company had net working capital
of $149,668. On December 31, 1996, the Company's working capital deficiency was
$207,951. The increase in deficiency is primarily attributable to the Company's
outstanding 1996 payroll taxes.
- --------------------------------------------------------------------------------
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
See the audited financial statements attached hereto and numbered F-1
through F-14.
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY
(Formerly OMAP Holdings Incorporated and Subsidiaries)
A Development Stage Company
Consolidated Financial Statements
December 31, 1997
<PAGE>
C O N T E N T S
Independent Auditors' Report.............................................. F - 3
Consolidated Balance Sheet ............................................... F - 4
Consolidated Statements of Operations .................................... F - 5
Consolidated Statements of Stockholders' Equity (Deficit) ................ F - 6
Consolidated Statements of Cash Flows..................................... F - 7
Notes to the Consolidated Financial Statements............................ F - 9
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
China Food and Beverage Company
(Formerly OMAP Holdings Incorporated and Subsidiaries)
A Development Stage Company
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheet of China Food and
Beverage Company and (formerly OMAP Holdings Incorporated and Subsidiaries)(a
development stage company) as of December 31, 1997 and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended December 31, 1997 and 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of China
Food and Beverage Company (formerly OMAP Holdings Incorporated and
Subsidiaries)(a development stage company) as of December 31, 1997, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1997 and 1996, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has incurred significant losses
which have resulted in an accumulated deficit, raising substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Jones, Jensen & Company
April 7, 1998
<PAGE>
<TABLE>
CHINA FOOD AND BEVERAGE COMPANY
(Formerly OMAP Holdings Incorporated and Subsidiaries)
A Development Stage Company
Consolidated Balance Sheet
ASSETS
<CAPTION>
December 31,
1997
------------------
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 947
------------------
Total Current Assets 947
------------------
TOTAL ASSETS $ 947
==================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 77,682
Accounts payable - related party (Note 9) 47,382
Payroll taxes payable 158,364
Note payable (Note 7) 160,000
Accrued interest (Note 7) 53,000
------------------
Total Current Liabilities 496,428
------------------
TOTAL LIABILITIES 496,428
------------------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 100,000,000 shares authorized
of $0.001 par value, 3,699,288 shares issued and
2,931,546 outstanding 2,930
Additional paid-in capital 15,997,741
Accumulated deficit (16,496,152)
------------------
Total Stockholders' Equity (Deficit) (495,481)
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 947
==================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
F-4
<PAGE>
<TABLE>
CHINA FOOD AND BEVERAGE COMPANY
(Formerly OMAP Holdings Incorporated and Subsidiaries)
A Development Stage Company
Consolidated Statement of Operations
<CAPTION>
From the
Beginning of
Development
Stage on
For the Years Ended January 1,
December 31, 1997 Through
---------------------------------------- December 31,
1997 1996 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
NET SALES $ - $ - $ -
COST OF SALES - - -
------------------ ------------------ ------------------
GROSS MARGIN - - -
COSTS AND EXPENSES
Salaries and wages 130,700 - 130,700
General and administrative 558,515 - 558,515
------------------ ------------------ ------------------
LOSS FROM CONTINUING OPERATIONS 689,215 - 689,215
Other (expense)
Interest expense (55,962) - (55,962)
------------------ ------------------ ------------------
Total Other (Expense) (55,962) - (55,962)
------------------ ------------------ ------------------
NET LOSS FROM CONTINUING OPERATIONS
BEFORE LOSS ON INVESTMENT AND LOSS
FROM DISCONTINUED OPERATIONS (745,177) - (745,177)
LOSS ON INVESTMENT (1,600,000) - (1,600,000)
LOSS FROM DISCONTINUED OPERATIONS - (6,851,350) -
------------------ ------------------ ------------------
NET (LOSS) $ (2,345,177) $ (6,851,350) $ (2,345,177)
================== ================== ==================
NET (LOSS) PER SHARE $ (1.17) $ (7.22)
================== ==================
WEIGHTED AVERAGE NUMBER OF SHARES 2,001,948 948,745
================== ==================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
F-5
<PAGE>
<TABLE>
CHINA FOOD AND BEVERAGE COMPANY
(Formerly OMAP Holdings Incorporated and Subsidiaries)
A Development Stage Company
Consolidated Statements of Stockholders' Equity (Deficit)
December 31, 1997 and 1996
<CAPTION>
Common Stock Additional Currency
------------------------ Paid-in Translation Accumulated
Shares Amount Capital Adjustment Deficit
------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 599,398 $ 599 $ 12,586,990 $ 17,108 $ (7,299,625)
Common Stock issued for services
valued at approximately $1.23 per
share 514,834 515 634,920 - -
Common Stock issued for cash
valued at approximately $3.91
per share 183,919 184 719,816 - -
Issuance of fractional shares 41 - - - -
Currency translation adjustment - - - (17,108) -
Net loss for the year ended
December 31, 1996 - - - - (6,851,350)
------------- ----------- ------------- ----------- -------------
Balance, December 31, 1996 1,298,192 1,298 13,941,726 - (14,150,975)
Common Stock issued for services
valued at approximately $0.85 per
share 869,667 870 735,030 - -
Common Stock issued for cash at
approximately $0.24 per share 628,958 629 153,268 - -
Common Stock issued for the
acquisition of subsidiary 666,667 667 1,599,333 - -
Cancellation of Common Stock
issued for services (416,669) (417) (271,733) - -
Cancellation of Common Stock
issued for cash (Note 7) (116,667) (117) (159,883) - -
Fractional shares issued 1,398 - - - -
Net loss for the year ended
December 31, 1997 - - - - (2,345,177)
------------- ----------- ------------- ----------- -------------
Balance, December 31, 1997 2,931,546 $ 2,930 $ 15,997,741 $ - $ (16,496,152)
============= =========== ============= =========== =============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
F-6
<PAGE>
<TABLE>
CHINA FOOD AND BEVERAGE COMPANY
(Formerly OMAP Holdings Incorporated and Subsidiaries)
A Development Stage Company
Consolidated Statements of Cash Flows
<CAPTION>
From the
Beginning of
Development
Stage on
January 1,
For the Years Ended 1997 Through
December 31, December 31,
1997 1996 1997
------------------ ------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net (Loss) $ (2,345,177) $ (6,851,350) $ (2,345,177)
Adjustments to Reconcile Net (Loss) to
Net Cash Used by Operating Activities:
Amortization expense - 2,170,833 -
Loss of investment value 1,600,000 10,000 1,600,000
Loss on disposition of subsidiary - 3,200,000 -
Common stock issued for services -
net of cancellations 463,750 635,435 463,750
Forgiveness of debt - (26,861)
Changes in Assets and Liabilities:
(Increase) decrease in accounts receivable 431,951 (426,702) 431,951
Increase (decrease) in accounts payable
and accrued expenses 29,456 (44,515) 29,456
Increase (decrease) in accounts payable -
related parties (333,077) - (333,077)
------------------ ------------------ ------------------
Net Cash (Used) by Operating Activities (153,097) (1,333,160) (153,097)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments - (10,000) -
------------------ ------------------ ------------------
Net Cash (Used) in Investing Activities $ - $ (10,000) $ -
------------------ ------------------ ------------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
F-7
<PAGE>
<TABLE>
CHINA FOOD AND BEVERAGE COMPANY
(Formerly OMAP Holdings Incorporated and Subsidiaries)
A Development Stage Company
Consolidated Statement of Cash Flows (Continued)
<CAPTION>
From the
Beginning of
Development
Stage on
January 1,
For the Years Ended 1997 Through
December 31, December 31,
1997 1996 1997
------------------ ------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Common stock issued for cash $ 153,898 $ 720,000 $ 153,898
------------------ ------------------ ------------------
Net Cash Provided by Financing Activities 153,898 720,000 153,898
------------------ ------------------ ------------------
NET INCREASE (DECREASE) IN CASH 801 (623,160) 801
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 146 623,306 146
------------------ ------------------ ------------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 947 $ 146 $ 947
================== ================== ==================
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES
CASH PAID FOR:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for acquisition
of subsidiary $ 1,600,000 $ - $ 1,600,000
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
F-8
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY
(Formerly OMAP Holdings Incorporated and Subsidiaries)
A Development Stage Company
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The consolidated financial statements include those of China Food
and Beverage Company (formerly OMAP Holdings Incorporated) and
its wholly-owned subsidiaries OMAP International, Inc. (OII),
OMAP S.A. (OSA) and American China Development Corporation
(ACDC). Collectively, they are referred to herein as "the
Company". At January 1, 1997, the Company became a development
stage Company.
OMAP Holdings Incorporated was incorporated under the laws of the
State of Nevada on November 6, 1981 under the name of Logos
Scientific, Inc. to sell and distribute medical diagnostic
instruments and related supplies. Such operations of the Company
commenced in 1982 and continued through December, 1991 at which
time the operations were sold. On June 4, 1992, the Company
changed its name to Logos International, Inc. During 1992 and
1993, new operations including those relating to art, printing,
automotive, computers and consulting were carried on through
subsidiaries. During 1993 all active operations were terminated.
By the end of 1994 all of those subsidiaries were disposed of.
The Company changed its name to OMAP Holdings Incorporated on
October 23, 1995. During 1995, the Company acquired OII, OSA and
Kohl. The Company was engaged (through its subsidiaries) in
investment activities relating to the acquisition and production
of technology and the development of paper collators and other
related industrial items.
On November 7, 1995, the Company purchased OII by issuing
13,014,144 shares of Common Stock in exchange for 100% of the
issued and outstanding stock of OII. Prior to the acquisition,
OSA was a wholly-owned subsidiary of OII. The purchase of OII
resulted in the creation of goodwill of $80,540 in 1995 which has
been written off to loss from discontinued operations in 1996.
OMAP International, Inc. (OII) was incorporated under the laws of
the State of Nevada on August 30, 1995 for the purpose of
acquiring existing technology and patents relating to the
development of paper collators.
OMAP S.A. (OSA) was incorporated on November 23, 1993 under the
laws of Belgium for the purpose of developing technology relating
to the construction of paper collators. OSA had substantially
ceased operations at the time of its acquisition by OII.
American China Development Corporation (ACDC) was incorporated on
April 22, 1995 in Nassau, Bahamas for the purpose of financing
and investing in beer distribution centers in China, specifically
a brewing facility in Quidong, China.
F-9
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY
(Formerly OMAP Holdings Incorporated and Subsidiaries)
A Development Stage Company
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
a. Organization (continued)
On December 15, 1995, the Company purchased Establissements R.
Kohl (Kohl) for $3,000,000. This $3,000,000 was paid by issuing
571,429 restricted shares of the Company's Common Stock which was
valued at $3.50 per share at the time of issuance and by paying
$1,000,000 in cash. In November, 1996, the French Administrator
of Kohl applied for and received bankruptcy protection from the
French Government. Kohl was subsequently purchased by another
French company in 1997. The investment in Kohl has been written
off to loss from discontinued operations. Kohl is no longer a
subsidiary as of November 1996.
b. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year
end.
c. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments
with maturities of three months or less at the time of
acquisition.
d. Net (Loss) Per Share
The computations of net (loss) per share of Common Stock are
based on the weighted average number of shares outstanding.
e. Principles of Consolidation
The December 31, 1997 consolidated financial statements include
those of China Food and Beverage Company (Formerly OMAP Holdings
Incorporated) and its wholly-owned subsidiaries, OMAP
International, Inc., OMAP S.A. and American China Development
Corporation. All significant intercompany accounts and
transactions have been eliminated.
f. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the 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. Actual results could differ from those estimates.
F-10
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY
(Formerly OMAP Holdings Incorporated and Subsidiaries)
A Development Stage Company
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 2 - PATENTS AND RELATED TECHNOLOGY
Patents and related technology at December 31, 1997 consisted of
the following:
Patents and related technology $ 2,200,000
Less accumulated amortization (2,200,000)
-------------
Patents and related technology - net $ -
=============
The patents and related technology have been fully amortized.
Amortization expense for the year ended December 31, 1997 was
$-0- and $2,170,833, respectively, and is included in loss from
discontinued operations.
NOTE 3 - GOING CONCERN
The Company's consolidated financial statements are prepared
using generally accepted accounting principles applicable to a
going concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The
Company has historically incurred significant losses, which have
resulted in an accumulated deficit of $16,496,152 at December 31,
1997, which raises substantial doubt about the Company's ability
to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts
or the amount and classification of liabilities that might result
from the outcome of this uncertainty. It is the intent of
management to create additional selling avenues through food and
beverage operations in China and to rely upon additional equity
financing if required to sustain operations.
NOTE 4 - INCOME TAXES
The Company accounts for income taxes under Statement of
Financial Accounting Standards No.109, "Accounting for Income
Taxes" (FAS 109), which requires use of the asset and liability
method for calculating deferred income taxes.
For federal income tax purposes, the Company has net operating
loss carryforwards of approximately $13,148,000. The net
operating loss carryforwards will expire between the years 2007
and 2012. Use of these loss carryforwards may be limited due to
changes in ownership and changes in the type of business
operations.
Due to a history of losses, the Company's deferred tax asset for
the benefit of the loss carryovers has been reserved 100%, thus
resulting in a net deferred tax asset of zero at December 31,
1997.
F-11
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY
(Formerly OMAP Holdings Incorporated and Subsidiaries)
A Development Stage Company
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company may be liable for certain payroll and other taxes
relating to the disposition of its subsidiaries. The estimated
amount could be as much as $114,000 if the Company is forced to
pay the obligations of the subsidiaries which were disposed of in
1994.
In 1995, the Company acquired OMAP S.A. which the Company
believes had substantially ceased operations at the time of
acquisition. In February 1996, OMAP S.A. filed for bankruptcy.
Management believes that there are no claims from creditors which
are pending or threatened against OMAP S.A.; however, no
assurance can be made until the local Belgium authorities release
the Company from all claims.
The Joint Venture Agreement between ACDC and its Chinese partner
requires the Company to invest $2,000,000 in the beer brewery in
China. During the second quarter of 1997, the Company executed a
loan agreement with an unaffiliated third party to provide the
Company with a $2,000,000 loan. On July 7, 1997, the Company
issued 1,500,000 shares of its common stock to Epimed Inc. in
order to obtain a $300,000 letter of credit to pay for the loan
processing fee. The shares served as collateral on the letter of
credit. On July 11, 1997, the Company became aware that Epimed
failed to deliver the letter of credit as promised and placed a
stop transfer order on the 1,500,000 shares issued. The Company
is in the process of obtaining a court order to cancel the stock
certificate. The Company believes that it will be able to cancel
the stock certificate and, therefore, did not record the issuance
of 1,500,000 shares. Consequently, the shares have been
subtracted from the total number of shares outstanding as
recorded by the transfer agent.
The Company has signed a marketing agreement with Fifth Avenue
Communications which calls for the issuance of $5,000 of
restricted common stock monthly as well as covering all of pocket
expenses.
The Company has signed an agreement with Tiancheng Co. Ltd.
(Tiancheng), wherein Tiancheng will find between 2 and 8
additional beer breweries and beverage companies for the Company
to acquire. Upon meeting certain criteria, Tiancheng will be paid
$150,000 and 500,000 shares of common stock. The trading value of
the stock must stay over $5.00 or the Company must issue
additional shares to make up the difference.
NOTE 6 - INVESTMENT
On March 14, 1997, the Company issued 20,000,000 shares of its
common stock, $0.001 par value, to Dizon Investments Limited for
100% of the issued and outstanding shares of American China
Development Corporation, a Bahamian corporation. The 20,000,000
shares of common stock are not registered. American China
Development Corporation is the owner of 60% of a certain joint
venture in the Peoples Republic of China, more specifically, a
Brewery located in Qidong city, Jiangsu province, known as
Nantong Aitesi Beer Company Ltd. James Tilton, President of the
Company, was an officer and director of American China
Development Corporation until December 1995. The Company has not
provided the financing which is a part of the acquisition.
Accordingly, the value of the investment has been reduced to
zero.
F-12
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY
(Formerly OMAP Holdings Incorporated and Subsidiaries)
A Development Stage Company
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 7 - NOTE PAYABLE
In 1996, the Company received $160,000 of cash for the sale of
regulation S stock. However, the Company would not remove the
restrictive legend on the stock. The investors and the Company
settled this dispute by having the Company execute a note payable
for $160,000 with interest accruing at 19.50% from April 16,
1996. The note is due October 18, 1998. Additionally, the Company
issued 767,742 shares of common stock as collateral for the note.
The 767,742 shares of common stock are listed as issued but not
outstanding. In the event that the Company defaults on the note
payable, the shares of stock will be used to pay the note. At
December 31, 1997, the accrued interest was $52,000. The Company
canceled the 3,500,000 pre-split, 116,667 post-split shares which
were issued in 1996.
NOTE 8 - REVERSE STOCK SPLIT
On April 15, 1997, the Company effected a reverse stock split of
1-for-30 shares. All references to common stock have been
retroactively restated to reflect he reverse stock split.
NOTE 9 - RELATED PARTY TRANSACTIONS
A shareholder has provided accounting and consulting services for
the Company. The amount due to this shareholder at December 31,
1997 was $47,382.
NOTE 10 - OPTION AGREEMENTS
On September 2, 1997, the Company granted options to purchase
common stock to two of its officers and directors. The Company
granted an option to purchase 1 million shares of common stock to
James Tilton, the Company's president, chief executive officer,
treasurer and director. The Company granted an additional option
to purchase 1,000,000 shares of common stock to Jane Zheng, the
Company's secretary and director. The exercise price for each
option was set at $0.31, the bid price of the common stock on the
date the options were granted. The options were granted to
compensate Mr. Tilton and Ms. Zheng as a bonus and for the
services they perform as the Company's only employees.
On September 25, 1997, the Company executed a Consulting
Agreement with a company known as The Hayden Group, Inc. Pursuant
to the Consulting Agreement, the Company will receive consulting
services related to management, marketing and corporate
structure. The consultant was also retained to help the Company
more effectively disseminate corporate information to the public.
As consideration for the services to be performed, the Company
granted to the consultant options to purchase 600,000 shares of
common stock. The exercise prices for the options are as follows:
(i) 150,000 shares exercisable at $0.15 per share; (ii) 150,000
shares exercisable at $0.30 per share; (iii) 150,000 shares
exercisable at $0.50 per share; and (iv) 150,000 shares
exercisable at $0.90 per share. All options are exercisable for a
period of three years. The consulting agreement was canceled in
1998.
F-13
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY
(Formerly OMAP Holdings Incorporated and Subsidiaries)
A Development Stage Company
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 11 - SUBSEQUENT EVENTS
After entering into a Letter of Intent on December 19, 1997, the
Company and Victoria Beverage Company Limited ("Victoria"), an
Isle of Man corporation, entered into a formal Agreement on
January 30, 1998, pursuant to which the Company acquired 100% of
Victoria Beverage Company Limited ("Victoria"). Victoria owns a
60% interest in the Sui Ning Beer Factory located in Szechuan
Province, Peoples Republic of China. The purchase price was a
$15,000,000 debenture issued in favor of the shareholders of
Victoria, payable interest only at 6.25% per annum semi-annually
commencing 18 months from the date of the Agreement; and the
principal is payable 5 years of such date. The debenture is
convertible 18 months from the date of the Agreement at $5.00 per
share of the Company's common stock. If the debenture is
converted into the Company's common stock, Victoria's former
shareholders would become the Company's largest shareholders and
may be capable of influencing the future business policy. The
Company filed a Form 8-K with respect to this transaction on or
about February 13, 1998. Closing of this transaction is pending
upon the submission of verifiable financials from Victoria.
F-14
<PAGE>
- --------------------------------------------------------------------------------
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
On December 30, 1995, the Company received a notice of resignation from
its independent auditor Smith & Company. The Company filed a Form 8-K on January
5, 1996 to disclose this occurrence. There were no disagreements between the
Company and its auditor regarding accounting principles, financial statement
disclosure, or auditing scope either before or at the time of resignation. Smith
& Company resigned because, as a small accounting firm, it would have difficulty
auditing the Company's newly acquired foreign operations.
Smith & Company's report on the financial statements for 1994 contained
neither an adverse opinion nor a disclaimer of opinion. The reports were also
unmodified as to uncertainty, audit scope, and accounting principles. However,
the financial statements included in the Company's annual report on Form 10-K
for the year ended December 31, 1994 included a single sentence expressing Smith
& Company's doubt as the Company's ability to continue as a going concern. This
doubt was based on the Company's losses from operations and its need for working
capital.
On May 17, 1996, the Company retained Jones, Jensen & Company to audit the
Company's financial statements for the fiscal years ended December 31, 1995,
December 31, 1996 and December 31, 1997. There were no consultations between the
Company and the new auditor concerning the application of accounting principles,
disagreements with the former auditor, or any of the other items specified in
Item 304(a)(2) of Regulation S-B under the Securities Exchange Act of 1934.
12
<PAGE>
PART III
- --------------------------------------------------------------------------------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
- --------------------------------------------------------------------------------
Name Age Position(s) and Office(s)
---- --- -------------------------
James Tilton 36 President, Chief Executive Officer,
Treasurer, Director
Jane Zheng 35 Secretary, Director
Stanley Merdinger 55 Director
Kitty Chow 55 Director
James Tilton was appointed the Company's president, chief executive
officer, treasurer and one of its directors on October 23, 1995. Mr. Tilton has
extensive business and marketing experience in the Far East and has worked with
his wife, Jane Zheng, in partnership with the Metallic Building Company ("MBC"),
a subsidiary of NCI Building Systems, to market its pre-engineered building
materials in the People's Republic of China ("PRC") since 1992. For the last
five years and again with Jane Zheng, he has assisted Star Brite, a division of
Oceans Bio-Tech, in establishing a sales distribution system in PRC for its
chemical products. Mr. Tilton is also a director of Tianrong Building Material
Holdings, Ltd., a Utah corporation.
Jane Zheng was appointed as secretary and a director of the Company on
October 23, 1995. Ms. Zheng has extensive business and marketing experience in
the Far East and has worked with her husband, James Tilton, in partnership with
the Metallic Building Company ("MBC"), a subsidiary of NCI Building Systems, to
market its pre-engineered building materials in the PRC since 1992. For the last
five years and again with James Tilton, Ms. Zheng has assisted Star Brite, a
division of Oceans Bio-Tech, in establishing a sales distribution system in
China for its chemical products. She received her engineering degree from
Shanghai University, in Shanghai, China. Ms. Zheng also has an MBA degree in
Finance from Adelphi University, New York, and serves as a director of Tianrong
Building Material Holdings, Ltd., a Utah corporation.
Stanley Merdinger was appointed as a director of the Company in January
1997. Over the past five years, Mr. Merdinger has been extensively involved in
international finance and consulting.
Kitty Chow was appointed as a director of the Company in September 1997.
From 1989 through 1990, Ms. Chow was the vice president of First Westminister
Mortgage Bank. From 1991 through 1997, Ms. Chow was the vice president at
American Chinese Broadcast Corp., T&L Advantage Corp., and Provident Consulting
Corp., was president of Yen Ting Consulting Corp., and was a director of both
U.S.A. University Council and ACC Jin Tai Industrial Group.
Compliance With Section 16(a) of the Exchange Act
- -------------------------------------------------
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company,
the Company is not aware of any person who, at any time during the fiscal year
ended December 31, 1997, was a director, officer, or beneficial owner of more
than ten percent of the Common Stock of the Company, and who failed to file on a
timely basis reports required by Section 16(a) of the Securities Exchange Act of
1934 during such fiscal year.
13
<PAGE>
- --------------------------------------------------------------------------------
ITEM 10. EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
The following table summarizes certain information concerning executive
compensation paid to or accrued by the Company's chief executive officer during
the Company's last three fiscal years. During this time no executive officer,
excluding James Tilton, the current chief executive officer, earned or received
annual compensation exceeding $100,000.
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation Awards Long Term Compensation
-------------------------- ----------------------
<CAPTION>
Name and Principal Position Year Salary($) Bonus($) Other Restricted Options/ LTIP Other
Annual Stock SARs (#) Payout
Comp. Awards
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James Tilton, 1997 68,500+ -0- -0- -0- -0- -0- -0-
President and Chief 1996 31,200* -0- -0- 101,580** -0- -0- -0-
Executive Officer
</TABLE>
+ This dollar figure represents 48,000 shares of Common Stock that were
issued as compensation as the Company's director and officer for the fiscal year
1997, as follows: 13,000 shares valued at $1.50 per share issued on or about
January 29, 1997, and, 35,000 shares issued on or about November 3, 1997 valued
at $49,000.
* This dollar figure represents 8,000 shares of Common Stock that were
issued to Mr. Tilton on November 16, 1996 as compensation for Mr. Tilton's
services as the Company's director the 1996 fiscal year. Each of these shares
was valued at $3.90, representing the average of the closing bid and asked
prices for the Common Stock on the day the corporation approved this issuance.
The shares were registered pursuant to a Form S-8 Registration Statement filed
by the Company on November 18, 1996.
** This dollar figure represents 200,000 shares of Common Stock that were
issued to Mr. Tilton on December 9, 1996. These shares were issued to Mr. Tilton
as compensation for his services as president and chief executive officer and
were issued in lieu of the $60,000 cash salary to which Mr. Tilton was entitled
under his Employment Agreement with the Company (see below). The shares were
restricted pursuant to Rule 144 promulgated under the Securities Act of 1933.
The Company has compensated its directors by issuing them shares of Common
Stock registered pursuant to a Form S-8 registration statement. The number of
shares issued to directors as compensation for services is based on the time and
effort expended by the directors during the year, as determined from time to
time by the Company's board of directors, and is not evidenced by any written
compensation plan. For 1996, the Company issued 8,000 shares of Common Stock to
James Tilton and an additional 13,000 shares to Jane Zheng. Based on the average
bid and ask prices on the days when these shares were issued, the Company valued
the issued shares at $31,200 and $19,500, respectively.
The Company has an Employment Agreement, effective October 23, 1995, with
James Tilton, its president and chief executive officer. Pursuant to the
Agreement, Mr. Tilton received an initial salary of $60,000, subject to periodic
review and adjustment by the board of directors. The Company also pays the
health insurance premiums of Mr. Tilton and his dependents. The Agreement was
initially for a term of one year, but has been renewed for an additional year.
On December 9, 1997, the Company issued Mr. Tilton 200,000 shares of Common
Stock (see the table directly above) in lieu of his cash salary.
14
<PAGE>
- --------------------------------------------------------------------------------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners
- -----------------------------------------------
The following table sets forth certain information concerning the stock
ownership as of December 31, 1997, with respect to: (i) each person who is known
to the Company to beneficially own more than 5% of the Company's Common Stock;
(ii) all directors; and (iii) directors and executive officers as a group (the
notes below are necessary for a complete understanding of the figures). The
Company calculated the owners of 5% of the Common Stock using the 3,699,288
shares of Common Stock issued on December 31, 1997.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage of
Title of Class of Beneficial Owner Beneficial Ownership Class
-------------- ------------------- -------------------- -----
<S> <C> <C> <C>
Common Stock Par Value $0.001 ADS Group, Ltd. 341,786 9.%
18 ST. Georges Street
Douglas, Isle of Man IM11PC
Common Stock Par Value $0.001 Jane Zheng, Director 204,322+ 5.5%
82-66 Austin Street
Kew Gardens, NY 11415
Common Stock Par Value $0.001 James Tilton, Director 221,033* 6.%
82-66 Austin Street
Kew Gardens, NY 11415
Common Stock Par Value $0.001 Epimed, Inc. 1,500,000** 40.5%
Common Stock Par Value $0.001 Dizon Investments Ltd. 666,667 18.%
Common Stock Par value $0.001 Pienne Chow 767,742 21%
#70 Fickus Gardens
Fotau 5, WT Hong Kong
</TABLE>
+The number provided in the table includes 18,404 shares registered in the name
of ZJ, Incorporated, a Delaware corporation of which Ms. Zheng is the sole
officer, director and shareholder.
*The number provided in the table includes 21,033 shares registered in the name
of ATJ, Incorporated, a Delaware corporation of which Mr. Tilton is the sole
officer, director and shareholder.
**These shares were issued by the Company as security for a $300,000 letter of
credit which Epimed, Inc. was contractually obligated to deliver to the Company.
Epimed breached its commitment to deliver the letter of credit. The Company has
placed a stop transfer order on the 1.5 million shares and is in the process of
obtaining a court order to cancel the shares. For purposes of this Form 10-KSB,
however, the 1.5 million shares are treated as issued and outstanding. For more
information on this transaction, see "Item 6 - Management's Discussion and
Analysis of Financial Condition and Results of Operations."
- --------------------------------------
On September 2, 1997, the Company granted options to purchase Common
Stock to two of its officers and directors. The Company granted an option to
purchase 1 million shares of Common Stock to James Tilton, the Company's
president, chief executive officer, treasurer and director. The Company granted
an additional option to purchase 1 million shares of Common Stock to Jane Zheng,
the Company's secretary and director. The exercise price for each option was set
at $0.31, the bid price of the Common Stock on the date the options were
granted. The options were granted to compensate Mr. Tilton and Ms. Zheng as a
bonus and for the services they perform as the Company's only employees.
Changes in Control
- ------------------
The Company knows of no immediate arrangements or understandings which may
result in a future change in control of the Company. However, as set forth in
the Section titled "Events Subsequent to the Fiscal Year," pursuant to the terms
15
<PAGE>
and conditions of the aforementioned Agreement between the Company and Victoria
Beverage Company Ltd. ("Victoria"), should the debenture be exercised by
Victoria, it may result in the shareholders of Victoria obtaining a majority
interest in the Company and therefore, be able to influence the policy decision
making of the Company.
- --------------------------------------------------------------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
On December 20, 1995, the Company entered into separate Stock Exchange
Agreements with BRIA Communications Corporation, Tianrong Building Material
Holdings, Inc. ("TBMH") and Eurotronics Holdings, Inc. Pursuant to these
Agreements, the Company acquired a quantity of common stock in each company
equivalent to $300,000 divided by the average bid and asked prices for the stock
of each company on the date of issuance. In return, the Company issued each
public entity a quantity of Common Stock equivalent to $300,000 divided by the
average bid and asked prices for the Common Stock on the date of issuance. James
Tilton, Aster De Schrijver, and Jane Zheng were the Company's officers and
directors when these transactions occurred. At the same time, Tilton, De
Schrijver, and Zheng also served as officers and directors of BRIA, TBMH, and
Eurotronics. Accordingly, these Stock Exchange Agreements may not have been
negotiated at arm's length.
In its financial statements for the fiscal year ended December 31, 1995,
the Company booked the value of the BRIA common stock at $114,814, the value of
the TBMH common stock at $100,000, and the value of the Eurotronics common stock
at $101,886. The adjustment to the value of these investment securities accounts
for the fact that all shares acquired by the Company through the three Stock
Exchange Agreements were restricted pursuant to Rule 144 under the Securities
Act of 1933.
Subsequent to the Stock Exchange Agreements, the Company acquired
additional shares of common stock in BRIA and Eurotronics through cash
transactions. On December 31, 1995, the Company acquired 290,323 shares of
BRIA's common stock in exchange for $90,000, or $0.31 per share. On the same
day, the Company acquired 111,111 shares of Eurotronic's common stock in
exchange for $20,000, or $0.18 per share. The shares acquired through these cash
transactions were also restricted pursuant to Rule 144.
- --------------------------------------------------------------------------------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) Index to Exhibits. Exhibits required to be attached by Item 601 of
Regulation S-B are listed in the Index to Exhibits beginning on page 19 of
this Form 10-KSB, which is incorporated herein by this reference.
(b) Reports on Form 8-K. The Company did not make any filings on Form 8-K
during the fourth quarter of the fiscal year ending December 31, 1997. On
May 23, 1997 and subsequent to fiscal year ended December 31, 1996, the
Company filed a Form 8-K disclosing the bankruptcy sale of its former
subsidiary, Establissements R. Kohl, and the sale of 100,000 shares of
Common Stock pursuant to Regulation S.
16
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 13TH day of April, 1998.
China Food and Beverage Company
/s/ James Tilton
-----------------------
James Tilton, President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/James Tilton President, Chief Executive Officer, April 13, 1998
----------------------- Treasurer and Director
James Tilton
Secretary and Director April __, 1998
-----------------------
Jane Zheng
/s/Stanley Merdinger Director April 13, 1998
-----------------------
Stanley Merdinger
/s/Kitty Chow Director April 13, 1998
-----------------------
Kitty Chow
17
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit No. Exhibit Page #:
----------- ------- -------
A(1) Agreement between the Company and Dizon Investments Limited, dated
March 15, 1997.
B(1) Consulting Agreement between the Company and The Hayden Group, dated
September 25, 1997.
C(1) Joint Venture Contract of American China Development Corporation, dated
November 11, 1997.
18
<PAGE>
EXHIBIT A(1)
AGREEMENT made this 15th day of March 1997 by and between DIZON
INVESTMENTS LIMITED, a British Virgin Islands Corporation ("Dizon") and OMAP
HOLDINGS INCORPORATED, a Delaware corporation.
WHEREAS, Dizon owns all of the issued and outstanding common stock of
American China Development Corporation (the "ACDC Stock"); and
WHEREAS, Dizon wishes to sell the ACDC stock to OMAP on the terms and
conditions set forth herein below; and
WHEREAS, OMAP wishes to purchase the ACDC Stock from Dizon on the terms
and conditions set forth herein below;
NOW, THEREFORE, in consideration of the premises and promises contained
herein the signatory parties agree hereto as follows:
1. Dizon represents and warrants that it is the owner of all of the
outstanding stock of any kind issued by American China Development
Corporation ("American China");
2. Dizon represents and warrants that it is aware of no claim of any
type or kind made as of the date hereof or reasonably to be made
hereinafter by any person or entity against American China or against
Dizon's ownership of the ACDC Stock.
3. Dizon has all the rights, corporate and otherwise, to enter into this
Agreement pursuant to which the ACDC Stock is sold to OMAP.
4. Dizon agrees to sell all of its interest in the ACDC Stock to OMAP.
Dizon agrees that in addition to this Agreement, it will execute all
such documents as may be necessary to transfer ownership of the ACDC
Stock to OMAP.
5. OMAP agrees to pay Dizon as the full and total purchase price for the
ACDC Stock and Dizon agrees to accept from OMAP as full payment for
the ACDC Stock 20,000,000 shares of the common stock of OMAP (the
"OMAP Shares"). It is agreed, understood and accepted by Dizon and
OMAP that the OMAP Shares when issued to Dizon will (a) not have been
registered with the Securities and Exchange Commission; and (b) bear
a restrictive legend in form and substance advising that the OMAP
Shares cannot be sold or otherwise hypothecated without either a
registration statement then being in effect or an opinion letter of
counsel that such registration need not be had.
6. All representations and warranties set forth in this Agreement shall
surmise the closing of the transaction contemplated hereby.
7. This Agreement may be signed in one or more counterparts.
8. This Agreement may be signed in one or more counterparts.
IN WITNESS WHEREOF, the parties have set their hands and seal the first
day, month and year above written.
DIZON INVESTMENTS LIMITED OMAP HOLDINGS INCORPORATED
By:/s/ Joyce Fayle By: /s/ James Tilton
19
<PAGE>
EXHIBIT B(1)
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is made and entered into this 25th day
of September, 1997, by and between The Hayden Group Inc., of 12 N.E. 5th Ave.
Delray Beach, Florida 33483, hereinafter referred to as "the Consultant" and
China Food and Beverage Company, 8 West 38th Street, 9th Floor, New York, NY
10018, hereafter referred to as the "Company"
WHEREAS, the Consultant is desirous of being engaged by the Company, and the
Company has agreed to engage the Consultant upon certain terms and conditions
contained in this Agreement, one of which is the execution of the Agreement by
both parties;
WHEREAS, the Consultant, by virtue of the Consultant's relationship with the
Company has become familiar with the Company's business pursuant to the
Non-Circumvention and Non Disclosure Agreement, executed on September 25th,
1997, which document is part of this Agreement and is included as Attachment I;
WHEREAS, the Company requires financial public relations services and desires to
employ Consultant to provide such services as an independent consultant.
9. ENGAGEMENT. The Company hereby engages the Consultant to provide public
relations assistance to the Company and the Consultant hereby accepts such
engagement, upon the terms and conditions hereinafter set forth.
10. TERM. The term of this Agreement shall begin upon execution and continue
for a period of one year. The Agreement shall be extended automatically
upon the mutual consent of the parties. Non-renewal will require written
notice sixty (60) days prior to the anniversary date of the Agreement or
upon the anniversary date of any renewals. Changes in terms and conditions
(if any) shall be submitted in writing at least thirty (30) days prior to
any renewal. Mutual agreement must be reached in writing before any such
changes will be binding upon the parties.
11. COMPENSATION. The Company shall compensate the Consultant according to the
following:
a) The Company hereby grants to Consultant option (the "Options") to
purchase a total of Six Hundred Thousand (600,000) fully paid and
nonassessable shares of its common stock (the "Option Shares") at
the following rate. One Hundred and Fifty Thousand shares (150,000)
at Fifteen cents per share ($.15) for a period of Three (3) years
from option registration. One Hundred and Fifty Thousand shares
(150,000) at Thirty Cents per share ($.30) for a period of Three (3)
Years from option registration One Hundred and Fifty Thousand shares
(150,000) at Fifty Cents per share ($.50) for a period of Three (3)
Years from option registration. One Hundred and Fifty Thousand
shares (150,000) at Ninety Cents per share ($.90) for a period of
Three (3) Years from option registration. The Option grant provides
that if, prior to the Expiration Time, the number of outstanding
shares of the Company's Common Stock are increased or decreased
through a stock split, stock dividend, stock consolidation, or
otherwise, without consideration to the Company, an appropriate and
proportionate adjustment must be made in the number and kind of
shares as to which the Option Shares may be exercised. By way of
example, if the Company should make a two-for-one stock split of its
outstanding shares of common stock, the number Shares for which the
Consultants options may be exercised would thereupon increase from
100,000 to 200,000 shares, with a corresponding change in the
exercise price applicable to the Consultant's Options, and
b) The Company agrees that it will, at its own cost and expense, file
to register the Consultant's common stock, warrants, or options
within 30 days from the signing of the Consulting Agreement. If the
Company for any reason defaults in this responsibility, the
Consultant shall have the right to hire its own legal counsel to
complete the appropriate filings. Fees and expenses will be borne by
the Company.
12. SERVICES OF THE CONSULTANT. The Consultant shall provide consulting
services in any or all of the following areas:
20
<PAGE>
a) Technical and analytical consulting concerning management,
marketing, corporate organization and structure and expansion of
services.
b) Acting as a liaison between the Company and broker-dealers to
establish broker-dealer awareness
c) Acting as liaison with respect to existing and potential market
makers
d) Preparation and fax distribution of Company profile to
broker-dealers
e) Introduction to Internet stock investment groups
13. LIMITATIONS ON SERVICES. The parties recognize that certain
responsibilities and obligations are imposed by federal and states
securities laws and by the applicable rules and regulations of stock
exchanges, the National Association of Securities Dealers, inc. in-house
"due diligence" or "compliance" departments of brokerage houses, etc.
Accordingly, Consultant agrees.
a) Consultant shall not release any financial or other information or
data about the Company without the advance written consent and
approval of the Company
b) Consultant shall not conduct any meeting with financial analysts
without informing the Company in advance of the proposed meeting and
the format or agenda of such meeting and the Company may elect to
have a representative of the Company attend such meetings.
c) Consultant shall not release any information or data about the
Company to any selected or limited person(s), entity, or group if
Consultant is aware that such information or data has not been
generally released or promulgated.
d) Consultant acknowledges that non-public information plans of
operations and potential acquisitions or mergers prior to public
announcement are confidential and proprietary to the Company.
Consultant covenants and agrees that it will not disclose any
confidential information to any person, firm or entity without the
express advance written consent of Company, and that any
unauthorized disclosure or use of confidential information by
consultant constitutes misappropriation of trade secrets and
confidential information. Consultant further agrees that proprietary
rights to the confidential information shall be retained by Company
and that Consultant shall claim no right of ownership therein. The
terms and conditions of the Non-Circumvention and Non-Disclosure
/Agreement (if any) are applicable and remain in effect for the
entire term of said Agreement.
14. ACTIONS OF COMPANY. The Company accepts responsibility for the following
activities:
a) Company shall supply Consultant on a regular and timely basis all
approved data and information about the Company, its management, its
products, and its operations, and Company shall be responsible for
advising Consultant of any facts which would affect the accuracy of
any prior data and information previously supplied to Consultant so
that Consultant may take corrective action.
b) Company shall promptly supply Consultant with full and compete
copies of all and any filings 30 days prior to registration. Such
filings would include but not be limited to, Regulation S, SB-2, S-8
and Preferred Stock with all federal and state agencies; full and
complete copies of all shareholder reports and communications,
whether or not prepared with Consultant's assistance; with all data
and information supplied to any analyst, broker-dealer, market
maker, other member of the financial community, and with all
products/services brochures, sales materials, etc.
c) Company shall promptly notify Consultant of the filing of any
registration statement 5 days prior to the sale of securities and of
any other event which triggers any restrictions on publicity.
d) Company shall contemporaneously notify Consultant if any information
or data being supplied to Consultant has not been generally released
or promulgated.
15. REPRESENTATION AND INDEMNIFICATION.
a) The Company shall be deemed to make a continuing representation of
the accuracy of and any and all material facts, material information,
and data which it supplies to Consultant, and the Company
acknowledges its awareness that Consultant will rely on such
continuing representation in disseminating such information and
otherwise performing its public relations functions.
b) Consultant in the absence of notice in writing from the Company will
rely on continuing accuracy of material, information, and data
supplied by the Company.
21
<PAGE>
8. TIME AND EFFORT. The Consultant shall devote time and effort in performing
services hereunder as is reasonably required and at reasonable times.
9 TERMINATION. This Agreement may not be terminated by either party prior to
the expiration of the term except as follows:
a) upon the bankruptcy of either party
b) upon either party having applied or applying for a receiver appointed
for all or a substantial part of such party's assets or business;
c) upon a material breach by either party; d) upon the assignment of
this agreement by either party.
10. SELECTION OF ENTITIES. The Consultant in its sole and absolute discretion
shall hire, retain or employ such individuals, corporations, partnerships
or other entities to perform services as Consultant deems necessary.
Consultant shall hold Company harmless and indemnify Company from any and
all claims relating to said parties.
11. COSTS AND EXPENSES. All costs and expenses that the Consultant shall incur
as a result of the aforementioned services on behalf of the Company shall
be the sole responsibility of the Consultant unless otherwise provided
herein.
Expenses to be reimbursed by the Company to the Consultant include those
costs and expenses included in the Lead Generation Program, which will be
submitted to, approved, and paid in advance by the Company prior to
expenses being incurred. Attachment II is an overview of the components of
a Lead Generation Program. A Lead Generation Program specific to the needs
of the Company will be developed and submitted upon execution of this
Agreement.
12. RELATIONSHIP OF THE PARTIES. The Consultant shall not by reason of this
agreement or the performance of duties hereunder unless otherwise agreed
between the parties, be or be deemed to be, an employee, agent, partner,
co-venturer, or controlling person of the Company. The Consultant shall
have no power to enter into any agreement on behalf of or otherwise bind
the Company. The Consultant shall not have or be deemed to have, any
fiduciary obligation or duties to the Company and is not an agent to the
Company except as set forth herein. Neither party to this agreement is
intended to have any interest in the business or property of the other.
Consultant shall be deemed to be an Independent Contractor.
13. ASSIGNABILITY. This contract is not assignable by the Consultant but shall
be assignable by the Company in connection with the sale, transfer of
other disposition of its business, to any of the Company's affiliates
controlled by or under common control with the Company.
14. HOLD HARMLESS. In the event that any of the signatories become involved in
any action, proceeding or investigation in connection with the matters
referred to in this agreement, each of the undersigned signatories will
indemnify, defend, save and hold harmless the other undersigned
signatories and their affiliated partners, officers, employees, agents,
control persons and associates against any and all losses, claims damages
or liabilities, to the full extent lawful, including reasonable attorney
fees of counsel chosen by the undersigned signatories and the cost of any
investigation and preparation incurred in connection therewith such
losses, claims, etc., hereafter referred to as "damages", provided
however, each of the undersigned signatories, its agents, or severally,
their other associates shall not be entitled to indemnification by the
other undersigned signatories thereunder with respect to any damages
arising out of, or based upon, the gross negligence of any of the
undersigned signatories as determined by a court of competent
jurisdiction.
15. SEVERABILITY. If any part of this agreement is adjudged invalid, illegal,
or unenforceable, the remaining parts shall be enforceable.
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16. PARAGRAPH HEADINGS. The headings of the paragraphs contained in this
agreement are for convenience only.
17. LAW. Any dispute between the consultant and the Company involving the
interpretation of application of any provision of this contract shall be
governed by the laws of the State of Florida. Venue will be in Palm Beach
County, Florida.
18. ATTORNEY'S FEES, COSTS. Should any litigation, including breach,
enforcement, or interpretation, arise of this contract, the prevailing
party in such litigation shall be entitled to recover reasonable
attorney's fees, costs and expenses.
19. OTHER AGREEMENTS. The parties represent that no other agreement, oral or
written, exists between them. This Agreement sets forth the entire
Agreement between the parties hereto and cannot be modified or
supplemented orally. The Non-Circumvention and Non-Disclosure Agreement is
included As Attachment I of this Agreement.
20. NOTICES. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by certified mail, return
receipt requests, to the President of each entity at the entity's
principal office.
21. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall
constitute but one Agreement. Any counterpart must contain an original
signature of each signatory to be considered an original Agreement.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
executed this agreement this 25th day of September.
CHINA FOOD AND BEVERAGE, COMPANY
/s/James Tilton
- ----------------------------------
By: James Tilton, President
THE HAYDEN GROUP, INC.
/s/ Robert Gartzman /s/Peter J. Fantegrossi
- ---------------------------------- -----------------------------------
By: Robert Gartzman, Principal By: Peter J. Fantegrossi, Principal
23
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EXHIBIT C(1)
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JOINT VENTURE CONTRACT
NOVEMBER 11TH, 1996
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24
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TABLE OF CONTENTS
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CHAPTER 1 GENERAL PROVISION
CHAPTER 2 PARTIES TO THE JOINT VENTURE
CHAPTER 3 ESTABLISHMENT OF THE JOINT VENTURE
CHAPTER 4 PURPOSES, SCOPE AND SCALE OF PRODUCTION AND BUSINESS
CHAPTER 5 TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL
CHAPTER 6 RESPONSIBILITIES OF THE PARTIES
CHAPTER 7 SALES OF PRODUCTS
CHAPTER 8 BOARD OF DIRECTORS
CHAPTER 9 BUSINESS MANAGEMENT ORGANIZATION
CHAPTER 10 PURCHASE OF EQUIPMENT, RAW MATERIALS, LAND LEASING
CHAPTER 11 LABOR MANAGEMENT
CHAPTER 12 TAXES, FINANCE AND AUDIT
CHAPTER 13 FOREIGN EXCHANGE CONTROL
CHAPTER 14 DURATION OF THE JOINT VENTURE
CHAPTER 15 DISPOSAL OF ASSETS UPON EXPIRATION OF THE DURATION
CHAPTER 16 INSURANCE
CHAPTER 17 AMENDMENT, ALTERATION AND TERMINATION OF THE CONTRACT
CHAPTER 18 LIABILITIES FOR BREACH OF THE CONTRACT
CHAPTER 19 FORCE MAJEURE
CHAPTER 20 APPLICABLE LAW
CHAPTER 21 DISPUTE RESOLUTION
CHAPTER 22 LANGUAGE
CHAPTER 23 EFFECTIVENESS OF CONTRACT AND MISCELLANEOUS
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CHAPTER 1: GENERAL PROVISIONS
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ART. 1.1 In accordance with the "Law of the P.R. China on Joint Venture Using
Chinese and Foreign Investment" and other relevant published laws and
regulations of China, the following Parties
Party A: Chinese Party:
Party B: Foreign Party:
have agreed to invest in the Joint Venture Enterprise:
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CHAPTER 2: PARTIES TO THE JOINT VENTURE
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ART. 2.1 Parties to the Joint Venture under this contract are as follows:
Party A: Chinese Party:
legal representative:
nationality:
title:
Party B: Foreign Party:
legal representative:
nationality:
title:
Parties A and B may as the contract requires be herein after referred
to individually as a "Party" and collectively as the "Parties."
Each of the Parties hereby presents and warrants to the other Party
that it has full legal authority and the power to enter into this
contract and perform its obligations hereunder and that its
representation named above is duly authorized to sign this contract
and other relevant documents on behalf of such Party.
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CHAPTER 3: ESTABLISHMENT OF THE JOINT VENTURE
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ART. 3.1 In accordance "Law of the P.R. China on Joint Venture Using Chinese
and Foreign Investment" and other relevant published laws and
regulations, the Parties agree to establish a Joint Venture Limited
Liability Company (hereinafter referred to as "Joint Venture") within
the Chinese territory.
ART. 3.2 The name of the Joint Venture in English shall be:
The legal address of the Joint Venture shall be in:
If needed, through the discussion and the decision of the Board of
Directors, the Joint Venture will establish offices in other places
of China, Hong Kong or other countries and regions.
ART. 3.3 All activities of the Joint Venture in China shall be governed by the
laws, decrees and relevant rules and regulations of the People's
Republic of China.
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ART. 3.4 The form of organization of the Joint Venture shall be a limited
liability company. The liability of each Party is limited to making
contribution to the registered capital in accordance with CHAPTER 5
of this contract, including each Party's stake in all other capital
increases decided in compliance with the Chinese regulations, and no
Party shall have any liability of any sort for the debts and
obligations of the Joint Venture. The profits of the Joint Venture
shall be shared by the Parties in proportion to their respective
subscribed contributions to the registered capital of the Joint
Venture. During the first three (3) years of the Joint Venture the
profits shall be shared 33.3% by Party A and 67.7% by Party B. The
liability of each Party to the Joint Venture is limited up to the
Parties respective contribution of the registered capital of the
Joint Venture.
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CHAPTER 4: PURPOSES, SCOPE AND SCALE OF PRODUCTION AND BUSINESS
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ART. 4.1 The purposes of the Joint Venture shall be, in conformity with
the wish of strengthening economic cooperation and technical
exchanges, to improve the product quality and the production
capacity, develop new products and gain competitive position in both
the domestic and international markets in quality, variety and price
by adopting advanced technology in the production of beer, and
scientific management methods, so as to constantly raise economic
results and ensure satisfactory economic benefits for each Party.
ART. 4.2 The scope of production and business of the Joint Venture shall
be to produce and sell beer in glass bottles and in cans. The
products made by the Joint Venture shall be sold on the domestic
market. The Joint Venture will, on a best efforts basis, investigate
the possibilities of selling some of the production on the export
market.
ART. 4.3 The production scale of the Joint Venture shall be as follows:
- Rehabilitation of the existing brewery which has a current
production capacity of 14,000 metric tons a year.
- Improvement of the beer currently produced.
- Production increase from 14,0000 tons to 30,000 tons a year.
The future expansion shall be decided in future board of directors
and will depend upon the evolution of the national beverages market.
The board of directors of the Joint Venture shall have complete
autonomy in formulating and executing the Joint Venture's investment
and marketing policies in order to achieve these goals, and may
expand or reduce the Joint Venture's scale of production in
accordance with its business situation and market demands.
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CHAPTER 5: TOTAL INVESTMENT AND REGISTERED CAPITAL
- --------------------------------------------------------------------------------
ART. 5.1 The total amount of the investment and the registered capital of the
Joint Venture is three million three hundred thousand U.S. DOLLARS
($3,300,000 US DOLLARS). Party A shall contribute one million three
hundred thousand US DOLLARS ($1,300,000 U.S. DOLLARS) and hold 40%
shares. Party B shall contribute two million U.S. DOLLARS ($2,000,000
US DOLLARS) and hold 60% shares. Without the written consent of the
other Party, no Party shall pledge the interest of the other Party.
Without the permission of the one Party, any Party cannot be required
to guarantee the loans of the Joint Venture or to implement other
responsibilities.
ART. 5.2 Contribution to the registered capital:
Party A: by existing fixed assets, including a beer brewery as
described in annex 1 for a total value of one million three hundred
thousand US DOLLARS ($1,300,000 US DOLLARS) with is 40% of the
registered capital. Party B: by cash seven hundred thousand US
DOLLARS ($700,000 US DOLLARS), machines and technical equipment for a
value of one million two hundred and fifty thousand US DOLLARS
($1,250,000 US DOLLARS) which is 60% of the registered capital.
27
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ART. 5.3 Party A shall pay its equity contribution in kind to the Joint
Venture by transferring its ownership and using rights described in
annex 1 from the "Qidong Brewery" to the Joint Venture for a total
value of one million three hundred thousand US DOLLARS ($1,3000,000
US DOLLARS). Such payment in kind to occur after the issuance of the
Business License.
ART. 5.4 Party B shall be under no obligation to subscribe to the registered
capital unless and until the conditions as described hereafter have
been fully fulfilled: in each case in form and substance satisfactory
to the Party B after having received all the necessary approvals from
the relevant Chinese authorities:
a. Establishment of the Joint Venture Company.
b. This contract and its annex have been approved by the relevant
Chinese Authorities.
c. Issuance of the Business Licence to the relevant Chinese
Authorities, duly certified as a true copy by an authorized
officer of Party A.
d. Transfer of ownership and using rights of the "Qidong Brewery"
in favor of the newly formed Joint Venture Company ... as
stated in ART. 5.2.
e. After receipt of the Business Licence as referred in ART.
5.4(c), receipt by the Parties of a copy of the approval of
the State Administration of Exchange Control authorizing the
Joint Venture to have access to the SWAP CENTERS, and granting
the Joint Venture, during the Joint Venture, the right to
convert Renmimbi (RMB) into US DOLLARS at a foreign exchange
bank authorized by the P.R. China government, sufficient to
pay all amounts in foreign currency due by the Joint Venture,
such as raw materials, dividends, debt service installments,
salaries of expatriate staff, fees, transfer of technology. If
any of the above mentioned conditions is not fulfilled within
three months after the Business License issuance date, and the
Parties do not agree in writing to waive such conditions
precedent or to extend the time for their fulfillment, either
Party shall have the right to terminate this contract, in
which case neither Party shall have the right whatsoever to
require the other Party to make any contribution to the
registered capital or to claim any damages from the other
Party.
ART. 5.5 The payment to be made by Party B regarding its contribution to the
registered capital of the Joint Venture Company will be made as
follows:
a. 75% of its capital contribution within three (3) months of the
fulfillment of all the conditions as stipulated in ART. 5.4 above.
b. 25% shall be effected in accordance with requirements of the Joint
Venture capital expenditures, to occur not later than six (6) months
after the payment as mentioned in ART. 5.5(a).
ART. 5.6 After the registered capital is paid up by the Parties, an accounting
firm registered in China appointed by the Parties shall verify that
contributions of this contract have been made in accordance with the
terms and conditions of this Contract and issue a verification
report, based on which the Joint Venture shall issue an investment
certificate to each Party. This report will be signed by both the
President and the Vice President of the Joint Venture.
ART. 5.7 Should a Party intend to assign all or part of its interest in the
Joint Venture to a third Party, written consent must be obtained from
the other Party and an affirmative decision by the Board of Directors
and approval from the appropriate examination and approval authority
shall be required. The registration procedures for the changes shall
be dealt with. In this procedure, the Parties will have a preemption
right. The Parties however will have the right to transfer the
ownership of their shares to any subsidiary or holding company in
which they have the majority of the shares.
28
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CHAPTER 6: RESPONSIBILITIES OF THE PARTIES
- --------------------------------------------------------------------------------
ART. 6.1 Responsibilities of the Chinese Party:
a. In charge of applying for and obtaining the approval, registration
and Business License and dealing with other formalities with relevant
Chinese Governmental Departments for the establishment and operation
of the Joint Venture and for obtaining the best advantages granted to
sino-foreign joint ventures.
b. Making capital contributions at the specified time in accordance
with ART. 5.2 and ART. 5.3 hereof.
c. At the request of the Joint Venture Company, assisting to purchase
equipment, materials, office facility, transportation facility and
communication facility.
d. At the request of the Joint Venture Company, assisting to purchase
equipment, materials, office facility, transportation facility and
communication facility.
e. Assisting foreign staff in applying for entry visas, work permits,
and processing their travel documents.
f. Assisting to recruit for the Joint Venture the local staff in all
level of management and workers.
g. Assisting the Joint Venture Company in obtaining a loan from a
local bank for the working capital.
h. Assisting the Joint Venture in selling and distributing the
products in the local market. Assisting the joint venture in
purchasing the necessary quantities of raw materials annually, at
prices not higher than other factories in the region.
i. Dealing with affairs under this contract and other affairs
entrusted by the Joint Venture Company.
j. Party A guarantees that it will not enter into competition with
the Joint Venture Company.
ART. 6.2 Responsibilities of the Foreign Party.
a. Making capital contributions in accordance with ART. 5.2, ART. 5.4
and ART. 5.5.
b. Assisting the Joint Venture in purchasing equipment, raw materials
and other items outside China.
c. Making its best effort in assisting the Joint Venture in exporting
its products and assisting the Joint Venture with information about
the international market for similar and related products.
d. Providing the Joint Venture with foreign experienced management
personnel, including the General Manager, the production manager and
the financial manager and participating in the production and
business activities of the Joint Venture Company.
e. Causing the Joint Venture to obtain equipment and detailed
engineering design of the Joint Venture factory within the scope of
total investment and registered capital set forth in CHAPTER 5
hereof.
f. Assisting the Joint Venture in purchasing equipment, raw
materials, articles for office use, means of transportation, all o
the best terms and prices attainable.
g. Assisting the Joint Venture in recruiting the local and foreign
staff in all levels of the management and workers.
h. Handling other matters entrusted by the Joint Venture Company.
i. Transfer of technology and know how: as the know how has not been
valued as fixed assets, a Technical Assistance Contract will be
concluded upon the signing of the Technical Assistance Contract the
Foreign Party will be responsible for the training of the personnel
working in the Joint Venture Company.
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CHAPTER 7: SALES OF PRODUCTS
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ART. 7.1 The products of the Joint Venture shall be sold on the Chinese
markets and the best efforts will be made in order to sell part of
the production on the overseas markets.
ART. 7.2 The products of the Joint Venture shall be sold throughout the
People's Republic of China without geographic restriction and may be
sold by the Joint Venture directly or by appropriate distributors.
The sales methods and prices shall be determined by the General
Manager's decision following recommendation of the board of directors
with respect to domestic market conditions, competitiveness of the
prodecuts and the economic situation of the Joint Venture. The Joint
29
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Venture shall be free to determine and raise the selling prices of,
and sell at its own discretion, in accordance with the preceding
provisions.
ART. 7.3 The sales of its products, both on Chinese and on overseas markets,
shall be managed by the Joint Venture. The Joint Venture Company,
with the assistance of the Foreign Party, will endeavor to seek
export markets for the Joint Venture products.
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CHAPTER 8: BOARD OF DIRECTORS
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ART. 8.1 The board of directors shall be established within one month after
the date of issuance of the Business License.
ART. 8.2 The board of directors shall consist of five (5) directors of which
two (2) shall be appointed by Party A and three (3) shall be
appointed by the foreign partner. The chairman of the board shall be
appointed by Party A and the vice chairman by Party B. The term of
the directors is four (4) years. This term of office may be renewed
upon reappointment by the appointing party.
ART. 8.3 The highest authority of the Joint Venture shall be its board of
directors. It shall decide all major issues concerning the Joint
Venture. In handling all important matters, the board of directors
shall reach its decision through consultation among the participants
in the principle of equity and mutual benefit. All issues of the
Joint Venture shall be discussed and approved by two thirds of the
members of the board of directors.
The following major issues will require the unanimous approval of all
the members of the board:
a. Amendment of the articles of association of the joint venture.
b. Termination and dissolution of the Joint Venture.
c. An increase of the registered capital of the Joint Venture and a
transfer of the ownership.
d. Merger of the Joint Venture with another economic organization.
ART. 8.4 The chairman of the board is the legal representative of the joint
venture. Should the chairman be unable to exercise his
responsibilities, he should authorize the vice chairman of the board
of directors to represent the Joint Venture.
ART. 8.5 The board of directors shall convene at least on meeting every year.
The meeting shall be called and presided over by the chairman of the
board. The general manager and the deputy general manager could
attend the meeting. The board meeting can be held at a site as agreed
upon by the Parties to the Joint Venture. The Chairman may convene an
interim meeting based on proposal made by more than one third of the
directors. The minutes of all meetings will be kept on file. The
directors will have the right to be represented by a designated
representative.
ART. 8.6 A decision signed by all the members of the board of directors has
the same validity as a decision taken during an official board
meeting.
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CHAPTER 9: BUSINESS MANAGEMENT ORGANIZATION
- --------------------------------------------------------------------------------
ART. 9.1 The Joint Venture shall establish a management office which shall be
responsible for its daily management. The management office shall
have a general manager and a deputy general manager. The general
manager shall be recommended by the Foreign Party; the deputy general
manager shall be recommended by the Chinese Party. The term of office
shall be three (3) years.
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ART. 9.2 The responsibilities of the general manager shall be to carry out the
decisions of the board, and to organize and direct the daily
management of the Joint Venture in accordance with the provisions of
this contract and the articles of association. The deputy general
manager shall assist the general manager in such duties.
The department managers shall be responsible for the work in the
respective departments of production, technology, business operation,
finance and administration, handle the matters handed over by the
general manager and the deputy manager and shall be accountable to
them.
The general manager shall be present for approval by the board of
directors organizational structure of the Joint Venture and budget
for the coming year, including proposed appointments of department
managers as well as their remuneration.
ART. 9.3 The general manager and deputy general manager shall not serve as
employees of other entities, and shall not serve or act on behalf of
other economic entities in competition with the Joint Venture except
that either of them may be an officer, director or employee of their
respective Party. The board of directors shall have the power to
dismiss the general manager and the deputy general manager in the
event of graft or serious dereliction of duty.
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CHAPTER 10: PURCHASE OF EQUIPMENT, RAW MATERIALS, LAND LEASING
- --------------------------------------------------------------------------------
ART. 10.1 The Joint Venture will purchase required equipment transportation
facilities, fuels and articles for office use in China and abroad,
but shall give first priority to purchase in China when conditions
(quality, price, time of deliver, compatibility and so forth) are the
same.
ART. 10.2 The Joint Venture will purchase abroad equipment which has been
approved by all Parties. The equipment should be in line with 1990's
technology and the price should be lower than or same as the one of
similar equipment.
ART. 10.3 The Joint Venture will sign after three (3) years a Land Lease
Agreement with Party A which is annexed to this contract as Annex 2.
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CHAPTER 11: LABOR MANAGEMENT
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ART. 11.1 Policies relating to matters as the total number of workers,
recruitment, dismissal, wages, welfare, benefits, labor insurance,
bonuses and labor discipline shall be determined by the general
manager in accordance with Labor Law of the P.R. China, the "People's
Republic of China Administration on Labor Management of Foreign
Investment Enterprises Provisions" and other promulgated relevant
P.R. China laws and regulations, the policies stipulated by the board
of directors, and the actual financial conditions of the Joint
Venture.
ART. 11.2 The Joint Venture shall have the right to recruit and hire employees
directly from any available sources in the P.R. China. In all cases,
the Joint Venture shall employ only those employees who are
sufficiently qualified for employment, as determined through tests
and/or examinations.
ART. 11.3 The Joint Venture, acting through the general manager, will sign
individual labor contracts with each of its employees. Each labor
contract shall include type of work, technical ability and wages of
such employee, according to the framework duly approved by the board
of directors, and shall be filed for reference at the local labor
management department.
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ART. 11.4 The employees of the Joint Venture shall have the right to establish
a labor union in accordance with relevant P.R. China laws and
regulations. The labor union shall have the right to represent the
interest of employees in signing labor agreement and in supervising
the execution of labor contracts. It shall have the right to protect
the legal rights and material benefits of the employees, and shall
assist in the mediation of labor disputes when requested by the
relevant employee or the Joint Venture.
ART. 11.5 The labor contracts of all staff and workers likely to receive
confidential information and/or particular training from the Joint
Venture or from Party B shall include, in addition to confidentiality
undertakings, non-competition clauses pursuant to which they shall
not be entitled to work for an enterprise or organization in the same
field for a period of two (2) years after leaving the Joint Venture.
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CHAPTER 12: TAXES, FINANCE, AUDIT AND PROFIT DISTRIBUTION
- --------------------------------------------------------------------------------
ART. 12.1 The Joint Venture shall pay various taxes in accordance with relevant
Chinese laws and regulations.
ART. 12.2 Staff members and workers of the Joint Venture shall be responsible
for paying their own individual income tax or personal income
adjustment tax in accordance with relevant Chinese laws and
regulations. After paying their taxes, the ex patriate members of the
Joint Venture can remit their money abroad.
ART. 12.3 In accordance with the "Laws of the People's Republic of China on the
Joint Ventures using Chines and Foreign Investment," allocations for
a reserve fund, an enterprise expansion fund and a bonuses and
welfare fund for the staff and workers shall be decided by the board
of directors each year according to the actual business situation and
profitability of the Joint Venture of the after tax profit (the total
of these 3 funds will not exceed 8% of the total profit). The Joint
Venture will benefit of all the best fiscal privileges available in
Jiangsu Province and namely the statute of an advanced technology
enterprise.
ART. 12.4 Finance and accounting of the Joint Venture shall be handled in
accordance with the "Regulations of the People's Republic of China on
the Financial Administration for Foreign Investment Enterprises" and
the "Accounting System for the Foreign Investment Enterprises." The
fiscal year of the Joint Venture shall be from January 1 to December
31 of each year. All vouchers, receipts, statistical statements,
reports and account books shall be written in Chinese, provided that
any such documents upon request of Party B shall be translated into
English. Monthly, quarterly and annual financial reports shall be
prepared in Chinese and English and submitted to the board of
directors.
ART. 12.5 The Joint Venture shall engage an accountant registered in China
agreed upon by both Parties to conduct its annual financial audit and
examination and to provide a report for submission to the board of
directors and the general manager, in the event that Party B
considers it necessary, a foreign auditor may be engaged to conduct a
separate annual financial audit.
ART. 12.6 All disbursements shall be signed by the general manager or his
authorized personnel.
ART. 12.7 Within the first three (3) months of each fiscal year, the general
manager shall organize the preparation of a balance sheet and a
profit and loss statement in respect of the preceding year as well as
a proposal regarding the allocation and distribution of profits, and
submit them to the board of directors for approval after being
examined and signed by the auditor. Dividends to be paid to Foreign
Party shall be transferred in foreign currencies.
ART. 12.8 Upon the decision of the board of directors, the Joint Venture will
distribute dividends to the shareholders proportionately to their
shareholding. During the first three (3) years of the Joint Venture,
the profits will be shares 67.7% by Party B and 33.3% by Party A.
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CHAPTER 13: FOREIGN EXCHANGE CONTROL
- --------------------------------------------------------------------------------
ART. 13.1 All foreign exchange matters of the Joint Venture shall be handled in
accordance with the provision of the "Provisional Regulations of the
People's Republic of China on Foreign Exchange Conto" and other
relevant regulations. The Joint Venture shall remit the profit due to
the Foreign Party to bank accounts designated by the Foreign Party
respectively in accordance with the "Regulations of the People's
Republic of China on the Foreign Exchange Control."
ART. 13.2 The Joint Venture is entitled to open foreign exchange deposit
accounts and Renminbi deposit accounts with the Bank of China or
other designated banks. All foreign exchange receipts of the Joint
Venture (including capital contributions made by Party B, loans from
foreign banks, export revenues, and so forth) shall be deposited in
the Joint Venture's foreign exchange deposit account. All normal
foreign exchange disbursements, as listed here below but not limited
to, by order of priority:
- principal and interest repayments for foreign bank loans.
- import of raw materials.
- salaries of foreign staff, overseas traveling expenses.
- technical assistance contract.
- transportation expenses.
- dividends to the Foreign Party.
ART. 13.3 Based on its business needs, the Joint Venture may borrow foreign
exchange funds from banks abroad or in Hong Kong, provided that the
Joint Venture shall file such matters with the local Administration
of Foreign Exchange Control for the record within fifteen (15) days
of borrowing as required by law.
ART. 13.4 Renminbi shall generally be used in the settlement of accounts for
transactions between the Joint Venture and the Chinese entities,
enterprises or individuals unless otherwise approved by the local
Administration of Foreign Exchange Control or where relevant
government regulations permit the Joint Venture to use foreign
exchange in the settlement of accounts.
ART. 13.5 The Joint Venture will be entitled to utilize all legal means in
order to obtain the foreign currencies needed such as swap centers or
all other legal exchange structure.
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CHAPTER 14: DURATION OF THE JOINT VENTURE
- --------------------------------------------------------------------------------
ART. 14.1 The duration of the Joint Venture shall be 50 years. The date of
establishment of the Joint Venture shall be the date of issuance of
the business license. The duration can be prolonged if one Party
suggests it before six months of the expiring date and if it is
approved by the board of directors.
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CHAPTER 15: DISPOSAL OF ASSETS UPON LIQUIDATION OF THE JOINT VENTURE
- --------------------------------------------------------------------------------
ART. 15.1 Upon termination of the Joint Ventures, liquidation shall be carried
out according to relevant laws and regulations. The liquidated assets
shall be distributed in proportion to the capital contribution made
by Party A and the Foreign Party.
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CHAPTER 16: INSURANCE
- --------------------------------------------------------------------------------
ART. 16.1 The Joint Venture shall maintain appropriate insurance policies with
an insurance company in P.R. China. The types, value and duration of
insurance shall be decided by the board of directors in accordance
33
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with the standards of the insurance company in P.R. China. The Joint
Venture should maintain the insurance for all staff and workers in
the local labor management department.
- --------------------------------------------------------------------------------
CHAPTER 17. AMENDMENT, ALTERATION AND TERMINATION OF CONTRACT
- --------------------------------------------------------------------------------
ART. 17.1 Any amendment to this contract or its appendices shall come into
force only by written agreement signed by Party A and the Foreign
Party and approved by the original examination and approval
authority.
ART. 17.2 Should it become impossible to fulfill this contract as a result of
force majeure, or should it become not possible to continue the
operations of the Joint Venture as a result of heavy losses sustained
by the Joint Venture in successive years, the Joint Venture and this
contract may be terminated prior to the date of expiration if
unanimously decided by the board of directors and approved by the
original examination and approval authority. The registration of the
Joint Venture must then be canceled at the original registration
office. The Joint Venture may be terminated prior to its expiration
date in the event that both Parties agree that termination of the
Joint Venture is the mutual and the best interest of the Parties.
ART. 17.3 If due to any one Party being unable to fulfill the obligations of
this contract and the articles of association, and if for that reason
the Joint Venture Company cannot continue its normal business or
cannot reach its target mentioned in the contract, then the contract
would be deemed to have been stopped by the Party who made the
violation. The other Party has the right to claim damage and to apply
for the termination of the contract. If the other Party agrees to
continue the business, the Party who made the violation should
compensate the economic damage. The other Party would have in that
case a buying option for the shares owned by the defaulting Party.
ART. 17.4 In the event that the Joint Venture intends to merge with or acquire
another production enterprise or economic organization in the future,
approval by all the Parties shall be required.
- --------------------------------------------------------------------------------
CHAPTER 18: LIABILITIES FOR BREACH OF CONTRACT
- --------------------------------------------------------------------------------
ART. 18.1 Should any of the Parties fail to pay on schedule its capital
contributions subscribed as herefore, it shall, from the first month
of delay, pay monthly interest to the Joint Venture Company at the
rate of 10% per annum and a 0.5% penalty to the other Party,
calculated on the default amount. If more than three months the Party
still fails to pay its capital contributions, the other Party has the
right to claim according to the ART 17.3.
ART. 18.2 Should it become impossible to fulfill all or part of this contract
and its annexes due to the fault of either Party, the Party at fault
shall bear the responsibilities for such breach of contract. Should
both Parties be at fault, each Party shall bear its responsibilities
according to the actual situation.
- --------------------------------------------------------------------------------
CHAPTER 19: FORCE MAJEURE
- --------------------------------------------------------------------------------
ART. 19.1 Should the performance of this contract be directly affected or
should it become impossible to perform this contract in accordance
with the prescribed terms as a result of a force majeure event such
as earthquake, typhoon, flood, fire, war, civil disorder,
unforeseeable events where the occurrences and consequences are
unpreventable and unavoidable without limitation, the Party affected
by such event shall notify the other Party by telegram or facsimile
without any delay and, within fifteen (15) days thereafter, provide
the detailed information on such event and a valid certification
document giving reasons for such Party's inability to perform all or
part of this contract or its delay of the performance.
34
<PAGE>
ART. 19.2 If possible, the said document shall be issued by a notary public
office at the location where the force majeure event occurs. The
Parties shall decide through consultations whether to terminate this
contract or to waive part of the obligations to be performed under
this contract or to delay the performance of this contract according
to the effects of the force majeure event on the performance of this
contract.
- --------------------------------------------------------------------------------
CHAPTER 20: APPLICABLE LAW
- --------------------------------------------------------------------------------
ART. 20.1 The execution, validity, interpretation and performance of this
contract and dispute resolution under this contract shall be governed
and protected by the laws of the P.R. China.
- --------------------------------------------------------------------------------
CHAPTER 21: DISPUTE RESOLUTION
- --------------------------------------------------------------------------------
ART. 21.1 Any disputes arising from the execution of or in connection with this
contract shall first be settled through friendly consultations
between the Parties. In the event that no settlement can be reached
through consultations, the disputes shall be first submitted to the
China International Economic and Trade Arbitration Commission for
conciliation. If no settlement can be reached within six months after
the beginning of this procedure, the claim will be submitted and
definitely settled through the rules and the procedure of the
International Chamber of Commerce (Paris). The arbitration will be
held in Paris, France and the English language will be used. The
arbitration fee shall be borne by the losing Party.
ART. 21.2 When the dispute, controversy or claim arising out of or in
connection with this contract are being resolved either through
friendly consultation or through arbitration, the Parties should take
the interest of the whole into account and shall not hinder or affect
the performance of the provisions other than in dispute, so as to
guarantee the smooth operation of the Joint Venture to the extent
possible.
- --------------------------------------------------------------------------------
CHAPTER 22. LANGUAGE
- --------------------------------------------------------------------------------
ART. 22.1 The contract is written in Chinese and English versions, both
languages are equally authentic.
- --------------------------------------------------------------------------------
CHAPTER 23: EFFECTIVENESS OF CONTRACT AND MISCELLANEOUS
- --------------------------------------------------------------------------------
ART. 23.1 The following annexes formulated in accordance with the principles of
this contract shall be integral part of this contract:
Annex 1: existing fixed assets
Annex 2: rent agreement
Annex 3: performance guarantee
In the event of any discrepancy between this contract and the annexes
hereto, the provisions of this contract shall prevail.
ART. 23.2 This contract and its annexes shall become effective upon approval by
the original examination and approval authority. The same applies in
event of amendment.
ART. 23.3 This contract together with its annexes constitute the entire
agreement of the Parties with respect of the subject matters hereof
and shall supersede all prior agreements between the Parties with
respect to the matters hereof.
35
<PAGE>
ART. 23.4 The Parties shall take all such efforts to carry out the purposes of
this contract and its annexes. Neither Party shall take any action
that might have an adverse competitive effect of adverse consequence
on the operation of the Joint Venture.
ART. 23.5 Any waiver by either Party at any time of a breach of any term or
provision of this contract shall not be construed as a waiver b such
a Party of any subsequent breach, its rights to such term or
provision, or any of its other rights hereunder.
ART. 23.6 If any one or more of the provisions contained in this contract or
the annexes hereto shall be invalid, illegal or unenforceable in any
respect under any applicable law, the validity legality and
enforceability of the remaining provision contained herein or therein
shall not in any way be affected or impaired.
ART. 23.7 Unless otherwise specifically provided, notices or other
communications to either Party required or permitted hereunder shall
be: (a) personally delivered; (b) transmitted by postage prepaid
registered airmail or by international courier; or (c) transmitted by
telex or facsimile with answerback or followed by registered airmail
or air courier. The addresses of the Parties listed in this contract
shall be their respective mailing addresses and their respective
facsimile numbers.
ART. 23.8 In witness whereof the Parties have signed this contract on November
11, 1996 in Qidong by their duly authorized representatives in four
originals, each Party receiving one original in each version, Chinese
and English.
The Chinese Party The Foreign Party
- ------------------------------ ----------------------------------
/s/ /s/
36
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