UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1998
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required) for the transition period from
____________________ to _____________________
Commission file number: 0-11734
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CHINA FOOD AND BEVERAGE COMPANY
-------------------------------
(Name of Small Business Issuer in Its Charter)
Nevada 87-0548148
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
82-66 Austin Street, Kew Gardens, New York 11415
---------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 398-7833
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of Registrant's common stock ($0.001 par value)
as of March 31, 1998 was 5,662,339.
Total of Sequentially Numbered Pages: 11
----
Exhibit Index on Page: 11
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<PAGE>
TABLE OF CONTENTS
PART 1
ITEM 1. FINANCIAL STATEMENTS..................................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.............3
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................6
SIGNATURES............................................................7
INDEX TO EXHIBITS.....................................................8
2
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PART I
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ITEM 1. FINANCIAL STATEMENTS
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Unless otherwise indicated, the term "Company" refers to China Food and
Beverage Company and its subsidiaries and predecessors. The accompanying
consolidated unaudited condensed financial statements have been prepared by
management in accordance with the instructions in Form 10-QSB and, therefore, so
not include all information and footnotes required by generally accepted
accounting principals and should, therefore, be read in conjunction with
Company's Annual Report to Shareholders on Form 10-KSB for the fiscal year ended
December 31, 1997. These statements do include all the normal recurring
adjustments which the Company believes is necessary and affords a fair
presentation. The interim results are not necessarily indicative of the results
for the full year ending December 31, 1998. Accordingly, consolidated audited
interim financial statements, including a balance sheet for the Company as of
the fiscal quarter ended March 31, 1998, and, statements of operations and
statements of cash flows for the interim period up to the date of such balance
sheet and the comparable period of the preceding fiscal year are attached hereto
as Pages F-4 through F-13 and are incorporated herein by this reference.
- --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
- --------------------------------------------------------------------------------
From October 1995 to November 1996, the Company's business primarily
involved the production of paper collators, vending machines and heating and
lighting equipment through the Company's former subsidiary, Establissements R.
Kohl ("Kohl"). Kohl was a French corporation whose principal asset was a 100,000
square foot manufacturing plant located in Calais, France. The Company acquired
Kohl in December 1995. Prior to its acquisition by the Company, Kohl
manufactured lighting fixtures and heating equipment, both of which were sold
through existing distribution contracts. Prior to its acquisition of Kohl, the
Company had acquired patents related to the production of collators and
technology and proprietary information related to the manufacture of paper
processing devices. From October 1995 to November 1996, Kohl was the Company's
only income producing asset.
The Company planned to develop the acquired patents and 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 previously
obtained by the Company. Kohl was also to continue manufacturing heating
equipment and lighting fixtures. Finally, Kohl was to produce a line of patented
portable food vending machines.
During the end of 1995 and throughout 1996, Kohl continued to produce
and distribute lighting and heating equipment, as it had done prior to its
acquisition by the Company. Kohl also produced prototypes for several different
models of its paper collators and a prototype for one of its patented vending
machines.
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.
After it acquired Kohl, the Company attempted to raise debt or equity financing
to invest into Kohl, but 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. Without additional capital, Kohl
could not offset the research and development costs associated with these
products and could not continue to meet its short term obligations.
After becoming delinquent with several trade creditors, Kohl petitioned
for bankruptcy protection under the laws of France in November 1996. This
decision resulted from Kohl's shortage of working capital and from pressure
3
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imposed by Kohl's 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 vending machine prototypes,
inventory and spare parts related thereto and vendor patents.
Aside from the few assets surviving Kohl's bankruptcy sale, the
Company's only significant remaining assets were patents related to the
manufacture of collators which were owned by a separate subsidiary of the
Company. After the sale of Kohl, the Company discontinued the manufacture of
collators and ceased making payments necessary to maintain ownership of the
patent rights. Accordingly, on June 19, 1997, the Company received notice that
its rights to these patents had lapsed.
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") from a Company known as
Dizon Investments Limited. The Company acquired ACDC in exchange for the
Company's issuance of 666,667 shares of its common stock to Dizon. 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 have the right to 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. 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.
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
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 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, as well as its
experience with Kohl, 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.
There are additional risks and uncertainties involved with ACDC's
4
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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 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 all issued and outstanding shares
of 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.
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 Company intended to invest this debt capital into
ACDC. 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 to be provided by a company known as Epimed, Inc. The Company issued
1,500,000 shares (or approximately 41.7% of the total shares currently issued
and outstanding) to Epimed to secure the Company's repayment of amounts borrowed
against 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 been treated as
outstanding for purposes of disclosure on this Form 10-QSB. 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. The Company is currently
seeking alternative means of financing the capital contributions required by the
Chinese joint venture, but can provide no assurances that such financing will be
available.
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.
The Company entered into an Agreement with Fifth Avenue Communications
("FAC"), to provide financial public relations on behalf of the Company on
September 17, 1997. In accordance with the terms and conditions of that
Agreement, as payment for services rendered, the Company issued to FAC 16,129
shares of stock on October 31, 1997, 3,472 shares of stock on November 30, 1997,
4,464 shares of stock on December 31, 1997, 6,666 shares of stock on January 31,
1998, 10,000 shares on February 28, 1998, and, 10,000 shares on March 31, 1998.
All shares issued to FAC were issued as restricted stock pursuant to Rule 144.
On September 25, 1997, the Company executed a Consulting Agreement with
a company known as The Hayden Group, Inc. ("Hayden"). 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.
5
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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.
On November 7, 1995, ADS Group, 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 in the 1996 10K- SB, 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, the stop-transfer on the 341,786 ADS shares was removed on March 12,
1998.
On January 30, 1998, the Company, as the "Buyer", and Calder
Investments Limited ("Calder"), a British Virgin Islands corporation, and Li Lin
Hu ("Mr. Li"), an individual citizen of the People's Republic of China, (Calder
and Mr. Li collectively to be known as the "Sellers"), who, between them, own
100% of the stock in the Victoria Beverage Company, Ltd. ("Victoria"), an Isle
of Man Corporation, entered into a formal agreement pursuant to which the
Company would purchase from the Sellers 100% of the stock of Victoria, Exhibit
B(1). The Sellers represented that 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; with the principal 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. Hayden 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 upon Hayden's non-performance.
Events Subsequent to the First Quarter
- --------------------------------------
On April 3, 1998, for consulting services rendered on behalf of the
Company, the Company issued 20,000 shares of the Company's restricted stock
pursuant to Rule 144 to each of the following: Hu Chia-Hiun and, Jason Cheng
Huiang Chen.
As set forth in the preceding Section and submitted herein as Exhibit
B(1), the Company, as Buyers, and Calder Investments, Ltd. and Li Lin Hu, as
Sellers, entered into an agreement on January 30, 1998, whereby the Company
would purchase 100% of the stock in the Victoria Beverage Company, Ltd. On April
20, 1998, the Company rescinded this agreement because Victoria rescinded their
6
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agreement with the Sui Ning Beer Factory ("Sui Ning"), because Victoria was
unable to obtain certified financial information from Sui Ning. Since the
Company's agreement with the Sellers was predicated upon Victoria's majority
ownership in Sui Ning, the Company decided that the agreement was no longer
viable, and the Sellers agreed. On April 27, 1998, the Company filed the
appropriate Form 8-K.
Though the Company and the Sellers rescinded their January 30, 1998
agreement to purchase Victoria, based upon the fact that Victoria had recently
acquired a majority interest in the Anhui Haodun Brewery, Ltd. ("Anhui"), a
brewery located in the People's Republic of China, the Sellers and the Company
entered into an agreement on April 27, 1998, (Exhibit B(2)), pursuant to which
the Company would purchase from the Sellers, 100% of Victoria's stock in Anhui
in return for a debenture in the face amount of US$21,000,000, which shall be
for a term of five (5) years bearing an interest rate of eight percent (8%) per
annum. At the Company's option, the debenture may be converted into shares of
the Company's common stock at a conversion price of five dollars ($5.00) per
share. The Sellers were able to provide the Company with appropriate
documentation and accounting verifying that Victoria owned a fifty-five percent
(55%) ownership of Anhui. 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 Company's future business
policies. The Company filed a Form 8-K with respect to this transaction on May
6, 1998.
Results of Operations
- ---------------------
There were no gross revenues for the three month period ending March
31, 1998. During the same period in 1997, the Company had no gross revenues, as
well. Costs of revenues was $0 for the three month period ending March 31, 1998,
and was $0 for the three month period ending March 31, 1997, as well.
Selling, general, and administrative expenses were $172,197for the
first quarter of 1998, of which the Company incurred $15,947 in accounting and
consulting expenses. Interest expenses amounted to $7,800. Net loss was $179,997
during the first three months of 1998, compared to $437,912 for the same period
in 1997. The net loss per share was $0.11 for the three month period ending
March 31, 1998, compared to a net loss per share of $0.30 for the same period in
1997.
Capital Resources and Liquidity
- -------------------------------
During the first quarter of 1998, the Company issued 250,000 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 26,666 shares of Common Stock during the first
quarter of 1998, to consultants for services rendered on behalf of the Company.
- --------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(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
11of this Form 10-QSB. The Index to Exhibits is incorporated herein by
this reference.
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(b) Reports on Form 8-K. The Company did not file any Form 8-K reports
during the quarter ending March 31, 1998.
On April 27, 1998, the Company filed a Form 8-K, incorporated herein by
this reference, with respect to the Company's decision to rescind its
January 30, 1998 Agreement with Calder Investments, Ltd. and Li Lin Hu,
concerning the Company's acquisition of Victoria Beverage Company, Ltd.
On May 6, 1998, the Company filed a Form 8-K, incorporated herein by
this reference, with respect to an Agreement entered into on April 27,
1998, between the Company, as, "Buyer", Calder Investments, Ltd. and Li
Lin Hu, collectively known as, "Sellers", for the purchase of 100%
stock ownership of Victoria Beverage Company, Ltd.
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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 12TH day of May 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 Chief Executive Officer, President, May 12, 1998
- --------------------
James Tilton Treasurer and Director
/s/Stanley Merdinger Director May 12, 1998
- --------------------
Stanley Merdinger
/s/ Kitty Chow Director May 12, 1998
- --------------------
Kitty Chow
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INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
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10.1 An Agreement entered into on January 30,
1998,between the Company, as, "Buyer" and,
Calder Investments, Ltd. ("Calder"), and Li
Lin Hu ("LI"), collectively known as,
"Sellers." Company was to purchase 100%
stock ownership from Sellers in Victoria
Beverage Company, Ltd. ("Victoria"), which
purportedly owned a majority percentage in a
brewery situated in the People's Republic of
China ("PRC").
- --------------------------------------------------------------------------------
10.2 An Agreement entered into on April 27, 1998,
between the Company ("Buyer"), and Calder
and Li ("Sellers"), whereby the Company
would acquire a 100% stock ownership from
Sellers in Victoria Beverage Company, Ltd.,
which recently acquired a majority interest
in a different brewery in the PRC.
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CHINA FOOD AND BEVERAGE COMPANY
A Development Stage Company
Consolidated Balance Sheets
ASSETS
------
March 31, December 31,
1998 1997
(Unaudited)
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ -- $ 947
----------- -----------
Total Current Assets -- 947
----------- -----------
TOTAL ASSETS $ -- $ 947
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 92,682 $ 77,682
Accounts payable - related party (Note 9) 47,382 47,382
Payroll taxes payable 158,364 158,364
Note payable (Note 7) 160,000 160,000
Accrued interest (Note 7) 60,800 53,000
----------- -----------
Total Current Liabilities 519,228 496,428
----------- -----------
TOTAL LIABILITIES 519,228 496,428
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 100,000,000 shares authorized
of $0.001 par value, 3,949,288 and 3,699,288
shares issued and 3,181,546 and 2,931,546
outstanding, respectively 3,180 2,930
Additional paid-in capital 16,153,741 15,997,741
Accumulated deficit (16,676,149) (16,496,152)
----------- -----------
Total Stockholders' Equity (Deficit) (519,228) (495,481)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ -- $ 947
=========== ===========
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY
A Development Stage Company
Consolidated Statements of Operations
(Unaudited)
From the
Beginning of
Development
Stage on
January 1,
For the Three Months Ended 1997 Through
March 31, March 31,
1998 1997 1998
----------- ----------- -----------
NET SALES $ -- $ -- $ --
COST OF SALES -- -- --
----------- ----------- -----------
GROSS MARGIN -- -- --
COSTS AND EXPENSES
Salaries and wages 156,250 -- 286,950
General and administrative 15,947 -- 574,462
----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS 172,197 -- 861,412
Other (expense)
Interest expense (7,800) -- (63,762)
----------- ----------- -----------
Total Other (Expense) (7,800) -- (62,762)
----------- ----------- -----------
NET LOSS FROM CONTINUING OPERATIONS
BEFORE LOSS ON INVESTMENT AND LOSS
FROM DISCONTINUED OPERATIONS (179,997) 437,912 (925,174)
LOSS ON INVESTMENT -- -- (1,600,000)
LOSS FROM DISCONTINUED OPERATIONS -- (437,912) --
----------- ----------- -----------
NET (LOSS) $ (179,997) $ (437,912) $(2,525,174)
=========== =========== ===========
NET (LOSS) PER SHARE $ (0.11) $ (0.30)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES 1,590,773 1,475,414
=========== ===========
<PAGE>
<TABLE>
CHINA FOOD AND BEVERAGE COMPANY
A Development Stage Company
Consolidated Statements of Stockholders' Equity (Deficit)
March 31, 1998, December 31, 1997 and 1996
(Unaudited)
<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)
Common stock issued for services
valued at $0.625 per share (unaudited) 250,000 250 156,000 -- --
Net loss for the three months ended
March 31, 1998 (unaudited) -- -- -- -- (179,997)
----------- ------------ ------------ ------------ ------------
Balance, March 31, 1998 3,181,546 $ 3,180 $ 16,153,741 $ -- $(16,676,149)
=========== ============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
CHINA FOOD AND BEVERAGE COMPANY
A Development Stage Company
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
From the
Beginning of
Development
Stage on
January 1,
For the Three Months Ended 1997 Through
March 31, March 31,
1998 1997 1998
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net (Loss) $ (179,997) $ (437,912) $(2,525,174)
Adjustments to Reconcile Net (Loss) to
Net Cash Used by Operating Activities:
Loss of investment value -- -- 1,600,000
Common stock issued for services -
net of cancellations 156,250 387,500 620,000
Bad debt expense -- 17,462 --
Changes in Assets and Liabilities:
(Increase) decrease in accounts receivable -- 409,240 431,951
Increase (decrease) in accounts payable
and accrued expenses 22,800 -- 51,455
Increase (decrease) in accounts payable -
related parties -- (376,363) (333,077)
----------- ----------- -----------
Net Cash (Used) by Operating Activities) (947) (73) (154,845)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments -- -- --
----------- ----------- -----------
Net Cash (Used) in Investing Activities $ -- $ -- $ --
----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
CHINA FOOD AND BEVERAGE COMPANY
A Development Stage Company
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<CAPTION>
From the
Beginning of
Development
Stage on
January 1,
For the Three Months Ended 1997 Through
March 31, March 31,
1998 1997 1998
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Common stock issued for cash $ -- $ -- $ 153,898
----------- ----------- -----------
Net Cash Provided by Financing Activities -- -- 153,898
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (947) (73) (947)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 947 146 947
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ -- $ 73 $ --
----------- ----------- -----------
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
</TABLE>
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY
A Development Stage Company
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
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. All of those subsidiaries were disposed of
by the end of 1994. 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.
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY
A Development Stage Company
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
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.
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY
A Development Stage Company
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
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
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 $16,676,149 at March 31, 1998, 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 and March 31,
1998.
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY
A Development Stage Company
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
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.
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY
A Development Stage Company
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
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 March 31, 1998 and December 31, 1997, the accrued
interest was $60,800 and $52,000, respectively. 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.
AGREEMENT made this 27th day of April, 1998, by and between CHINA FOOD &
BEVERAGE COMPANY, a Nevada corporation ("China"), CALDER INVESTMENTS LIMITED, a
British Virgin Islands corporation ("Calder") and LI LIN HU, an individual
citizen of the People' Republic of or China ("Mr. LI") (collectively the
"Sellers");
WHEREAS, the Sellers are the owners of a certain number of shares of stock
representing the ownership of one hundred percent (100%) in the percentages set
forth beside those names below of Victoria Beverage Company Limited, an Isle of
Man Corporation (the "Victoria Stock"); and
WHEREAS, the Sellers wish to sell to China and China wishes to purchase
from Sellers' the Victoria Stock 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. The Sellers hereby and herewith sell to China the Victoria Stock and
China herewith and hereby purchase the Victoria Stock from the Sellers.
2. The purchase price for the Victoria Stock is and shall be a debenture
issued by China in face amount of US' $21,000,000 which debenture shall be for a
term of five years bearing interest at eight percent (8%) per annum payable on
the yearly anniversary of the issuance by China of the debenture (the
"Debenture"). The Debenture may be converted at any time during its term, at the
option of China only, into shares of common stock of China at a conversion price
of five dollars ($5.00) per share. China may cause such conversion at any time
during the term that the shares of stock of China trade at the close of ten (10)
<PAGE>
consecutive business days at a high bid price of $5.00 per share. China agrees
to register all shares so converted pursuant to appropriate registration
statement as soon as practicable after such conversion.
3. The Sellers Represent and warrant that Victoria is the owner of fifty
five percent (55% ) of Anhui Haodun Brewery CO., Ltd. ( "the "Brewery" ). The
Sellers further represent and warrant that the Brewery has total assets of
approximately US$14,200,000 and total gross liabilities not exceeding
US$8,700,000 and the total net shareholders equity is approximately US$5,500,000
and that the Brewery has, in the last twelve (12) months passed, had total gross
revenues of approximately US$15,500,000 and its net profit therefrom was
approximately US$1,750,000.
4. The Sellers represent and warrant that they are authorized to enter into
this Agreement and that they are the owners of the Victoria Stock, the
transference of which pursuant to this Agreement is not violative of any law or
governmental edict.
5. China represents and warrants that it has full power to enter into this
Agreement.
6. All representations preceding herewith shall survive the Closing.
7. 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.
CHINA FOOD & BEVERAGE COMPANY
By: /s/James Tilton
---------------------------
James Tilton, President
2
<PAGE>
/s/LI LIN HU
------------------------------
LI, LIN HU 50%
CALDER INVESTMENTS LIMITED - 5O%
By:/s/Joanna Redmayne
---------------------------
Joanna Redmayne, Director
3
AGREEMENT made this 3Oth day Of January, 1998, by and between CHINA FOOD &
BEVERAGE COMPANY, a Nevada Corporation ("China"), CALDER INVESTMENTS LIMITED, a
British Virgin Islands corporation ("Calder") and LI, LIN HU, an individual
citizen of the People' Republic of China ("Mr. Li".) (Collectively the
"Sellers");
WHEREAS, the Sellers are the owners of a certain number of shares of stock
representing the ownership of one hundred percent (100%) in the percentages set
forth beside those names below of Victoria Beverage Company Limited, an Isle of
Man corporation (the "Victoria Stock'); and
WHEREAS, the Sellers wish to sell to China and China wishes to purchase
from Sellers' the Victoria Stock 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. The Sellers hereby and herewith sell to China the Victoria Stock and
China herewith and hereby purchases the Victoria Stock from the Sellers.
2. The purchase price for the Victoria Stock is and shall be a debenture
issued by China in face amount of US$15,OOO,OOO which debenture shall be for a
term of five years bearing interest at six and one quarter percent (6.25%) per
annum payable semi-annually commencing 18 months from the date of this agreement
and the principal payable 5 years from such date of the Issuance by China of the
debenture (the "Debenture"). The Debenture may be converted eighteen (18) months
from the date of this agreement at $5.00 per share of the Companies common
stock. China agrees to register all shares so converted pursuant to appropriate
registration statement as soon as practicable after such conversion.
<PAGE>
3. The Sellers represent and warrant that Victoria is the owner of sixty
percent (60%) of Sui Ning Beer Factory ("the "Brewery"). The Sellers further
represent and warrant that the Brewery has total assets of approximately
US$25,000,000 and total gross liabilities not exceeding US$15,000,000 and the
total net shareholders equity is approximately US$10,000,000 and that the
Brewery has, in the last twelve (12) months passed, hat total gross revenues of
approximately US$12,000,000 and its net profit therefrom was Approximately
US$2,500,000.
4. The Sellers represent and warrant that they are authorized to enter into
this Agreement and that they are the owners of the Victoria Stock, the
transference of which pursuant to this Agreement is not violative of any law or
governmental edict.
5. China represents and warrants that it has full power to enter into this
Agreement.
6. All representations preceding herewith shall survive the Closing.
7. 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.
CHINA FOOD & BEVERAGE COMPANY
By:/s/James Tilton
--------------------------
James Tilton , President
/s/Li Lin Hun
-----------------------------
LI, LIN HU 50%
2
<PAGE>
CALDER INVESTMENTS LIMITED -- 50%
By /s/Joanna Redmayne
--------------------------
Joanna Redmayne, Director
3
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
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<CURRENT-LIABILITIES> 519228
<BONDS> 0
3180
0
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<TOTAL-COSTS> 172197
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</TABLE>
