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, 1998
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
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(Address of Principal Executive Offices)
(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:
Name of Each Stock Exchange
Title of Each Class on Which Registered
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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 x NO
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The aggregate market value of the voting stock held by non-affiliates
of the Registrant at December 31, 1998, was approximately $250,000.
The number of shares of Registrant's Common Stock outstanding on
December 31, 1998, was 5,250,086.
The Registrant's total revenues for the year ended December 31, 1998,
were $15,957,499.
Total of Sequentially Numbered Pages:
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Exhibit Index on Page:
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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................5
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..............................................10
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.....................11
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.................11
ITEM 10. EXECUTIVE COMPENSATION............................................12
ITEM 11. SECURITY OWNERSHIP OF BENEFICIAL OWNERS...........................13
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................13
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K..................................14
SIGNATURES...........................................................15
INDEX TO EXHIBITS....................................................16
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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.
(1) In return 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.
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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 entered into an agreement to acquire 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 was to
purchase ACDC from Dizon Investments Limited, an investment company organized
under the laws of the British Virgin Islands. The Agreement called for the
Company to acquire ACDC in exchange for issuing 6,667 restricted shares of
Common Stock to Dizon. On November 8, 1998, the Company and Dizon rescinded the
Agreement because verifiable financials were never delivered and the 6,667
shares, which were being held in escrow, were returned to the Company
The Company's development has remained focused in pursuit of acquiring
breweries in the People's Republic of China of which progress is set forth in
detail in Item 6 - "Management's Discussion and Analysis of Operations of
Financial Condition and Results of Operations."
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. The Company will continue to seek to acquire, 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.
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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.
Though three of seven board members of Anhui Haodun Brewery Co., Ltd.,
sit on the board of China Food and Beverage Development, the Company does not
intend to participate in the day to day management of any business which the
Company may acquire. 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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The Company presently owns a complex of approximately 14 buildings of
various dimensions and square footage, situated at: #28 Juichang Rd., Luan,
Anhui province, People's Republic of China .
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ITEM 3. LEGAL PROCEEDINGS
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On September 7, 1993, V.K. Holdings, Inc. ("VK"), sued the Company
(Case Number 93-05193-00-0-G), 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 were:
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. On April 9, 1998, Judge Max Bennett, of the
319th District Court, entered an Order dismissing the action against the Company
and all the Defendants for, "Want of Prosecution."
Canton Financial Services Corporation, Salt Lake City, Utah, filed suit
against the Company in the Third Judicial District Court, Salt Lake City, Utah,
in December of 1998, for the amount of $45,253.48 for non-payment of services.
The lawsuit settled for $40,500 and dismissed on March 1, 1999.
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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 1998 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 1997 and 1998. 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, 1998,
September 30, 1998 and December 31, 1998, are attributable to the 1-for- 100
reverse split effected by the Company on December 21, 1998.
QUARTER HIGH LOW
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Quarter Ending December 31, 1998 $5.00 $5.00
Quarter Ending September 30, 1998 $0.07 $0.07
Quarter Ended June 30, 1998 $0.56 $0.56
Quarter Ended March 31, 1998 $0.66 $0.65
Quarter Ended December 31, 1997 $2.12 $0.75
Quarter Ended 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
Shareholders
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There were approximately 1,548 record holders of Common Stock as of
December 31, 1998, holding a total of 5,250,086 outstanding shares of Common
Stock.
Reverse Split
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On December 21, 1998, the Company effected a 1-for-100 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.
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, April 14,
1998. Several significant events have occurred since that filing to date that
are set forth below, and may be considered material changes affecting the
Company's position.
On March 15, 1997, the Company signed an Agreement to acquire all
outstanding capital stock of a Bahamian corporation called American China
Development Corporation ("ACDC"). ACDC owned a 60% interest in a joint venture
in the People's Republic of China (the "PRC"). According to the Joint Venture
Agreement ("JVA"), ACDC would 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 was 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.
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 was to receive consulting services related to management, marketing
and corporate structure.
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.
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 7,677 pre-December 21, 1998 1 to 100
reverse split shares of Common Stock to an escrow agent to secure payment of
principal and interest due on the note. The 7,677 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. In anticipation of the
December 21, 1998, reverse split and the employee option program adopted on
January 8,1999, James Tilton, Jane Zheng relinquished their above-referenced
options on December 9, 1998.
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 had 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 was to pay to Tiancheng the sum of
$150,000 cash, and
500,000 pre-December 21, 1998 1 to 100 reverse split shares of restricted Common
Stock to be valued at no less than $5.00 from one year of the date of issuance.
It was agreed that should the stock's value be less than $5.00 one year from the
date of issuance, the Company would issue additional shares to Tiancheng to make
up the difference. Tiancheng also agreed to assist the Company in financing any
acquisitions that result from its efforts as set forth in the Agreement between
the parties. A translated Trust Agreement is listed herein as Exhibit E(1).
On December 31,1998, the Company entered into a modification Agreement
with Tiancheng (China) Co., Ltd. ("Tiancheng") pursuant to which paragraph 4 of
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the December 17, 1997 Agreement was amended so that Tiancheng's total
compensation shall consist of $150,000 and 500,000 shares of the Company's
common stock without valuations attached thereto: Item 13 (Exhibit E(2)).
On November 7, 1995, ADS Ltd.,an Isle of Man corporation, acquired 341,786
(pre-December 21, 1998 1 to 100 reverse split) 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.
On March 15, 1997, Dizon Investments Ltd., a British Virgin Islands
corporation ("Dizon"), and OMAP Holdings, Inc., China Foods and Beverage
Company's (the "Company") former corporate name, entered into an Agreement
whereby Dizon was to sell its interest, all the outstanding common stock, in
American China Development Corporation to OMAP pursuant to the terms and
conditions set forth in that Agreement which is attached hereto and incorporated
herein in Item 13, Exhibit A(1).
On November 6, 1998, Dizon and the Company, decided to enter into a
subsequent Agreement, which is attached hereto and incorporated herein in Item13
Exhibit A(2),which renders the aforementioned March 15, 1997 Agreement between
the parties, null and void, based upon, among other things, that Dizon never
provided the Company with necessary and requisite financial information
concerning American China Development Corporation.
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 February 13, 1998.
Closing of this transaction was pending upon the submission of verifiable
financials from Victoria.
On April 20,1998, the Company rescinded the aforementioned Agreement
because Victoria rescinded their 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 and Sellers decided
that the Agreement was no longer viable. On April 27,1998, the Company filed the
appropriate Form 8-K; Item 13 (Exhibits B(1) and B(2))
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, 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.
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
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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
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.
On December 30, 1998, the Company closed on the April 27, 1998, Agreement
with Calder Investments Limited and Li, Lin Hu by issuing its 5 year and one day
8% Debenture in the amount of $10,500,000 to each of Calder Investments Limited
and Li, Lin Hu. This issuance consummated the transactions described in the
Company 8-K dated May 6, 1998. On the same day, December 30, 1998, the Company
caused the conversion of the Debentures above described in the terms
incorporated therein by issuing to each of Li, Lin Hu and Calder Investments
Limited thereupon caused 1,050,000 of their shares to be issued to Anhui Lui An
Beer Company Ltd., to redeem their note to Anhui Lui An Beer Company Ltd. On
December 31, 1998, the Company issued a total of 4,200,000 shares of its common
stock to the following persons and entities in the following amounts pursuant to
Debentures which were converted on December 30, 1998; Calder Investments Limited
= 1,050,000 shares of common stock; Li, Lin Hu = 1,050,000 shares of common
stock Anhui Liu An Beer Company Ltd. = 2,100,000 shares of common stock. This
issuance caused the three individuals and entities above set forth to become the
control persons of the Registrant. (Exhibits D(1), D(2) and D(3).
Through a reverse merger recapitalization by which the Company acquired
100% of Victoria Beverage Company, Ltd., for 4,200,000 shares of the Company's
common stock, resulted in the Company owning 55% of Anhui Hao Dun Brewery Co.,
Ltd., situated in the People's Republic of China. As opposed to the year ending
1997, when the Company had no liquid assets, as a result of the aforementioned
acquisition, the Company's total assets year ending 1998 were valued at
$15,998,864 of which, as set forth on page F-4 of the Financials attached
hereto. Total "Current Assets" are $3,560,007. The "Fixed Assets" ($9,074,934)
include a complex of buildings and equipment for making beer. The "construction
in progress" as listed under "Other Assets" refers to a nitrogen separating
machine being developed in conjunction with the brewing processes. There is also
a "deposit" of $215,000 that is owed the company via a rescinded ITEX
transaction.
On December 10, 1998, the Company authorized a reverse split of its common
stock on the basis of 1 new share for every 100 shares owned by shareholders of
record. Fractional shares were rounded up to the next whole share. The effective
date of the reverse split was December 21, 1998. The total number of shares
issued and outstanding before the reverse was 7,364,349. The total number of
shares issued and outstanding after the reverse was approximately 73,644. The
Company filed the appropriate 8-K reflecting 1 to 100 reverse split on December
18, 1998.
Events That Took Place Subsequent to Fiscal Year Ending December 31, 1998
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The following material events took place after the December 31, 1998 year
end:
On January 6, 1999,* a majority of the shareholders of the Company voting
their shares in lieu of a formal shareholders meeting adopted the Company's 1999
Stock Option Plan reserving for issuance 1,000,000 shares of the Company's
common stock which plan is to be administered by the Company's Board of
Directors. At the same time, the shareholders voted in favor of James Tilton,
Jane Zheng, Kitty Chow, Stanley Merdinger and Li, Lin Hu to be directors of the
Company until the next shareholders meeting. (The shares have been issued by the
Company's auditors on December 31, 1998.)
The Company enacted the 1999 Stock Option Plan (the "Plan") on January 8,
1999, which is intended to provide incentives: (a) to the officers, directors,
counsels and other employees of China Food & Beverage Company, a Nevada
corporation (the "Company"), and any present or future subsidiaries of the
Company (individually a "Related Corporation" and collectively "Related
Corporations") by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder that qualify as "incentive stock
options" under Section 422A(b) of the Internal Revenue Code of 1986,as amended
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(the "Code") (individually an "ISO" and collectively "ISOs"); (b) to directors,
officers, employees and consultants of the Company and Related Corporations by
providing them with opportunities to purchase stock in the Company pursuant to
options granted hereunder that do not qualify as ISOs (individually a
"Non-Qualified Option"and collectively "Non-Qualified Options"); (c) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with awards of stock in the Company ("Awards");
and (d) to director, officers, employees and consultants of the Company and
Related Corporations by providing them with opportunities to make direct
purchases of stock in the Company ("Purchases"). Both ISOs and Non-Qualified
Options are referred to hereinafter individually as an "Option"and collectively
as "Options." Options, Awards and authorizations to make Purchases are referred
to hereinafter collectively as "Stock Rights". As used herein the terms "parent"
and "subsidiary" mean "parent corporation" and subsidiary corporation,
respectively, as those terms are defined in Section 425 of the Code. The
specifics of the Plan were filed on January 8, 1999 pursuant to a S-8
Registration and may be viewed in their entirety via the Edgar filing system.
Li, Lin Hu was appointed as a Director of the Company on January 6, 1999,
a former 50% owner of Victoria Beverage Company and currently a senior executive
with Tiancheng.
The fact that the Company conducts business and owns the majority of its
assets in the People's Republic of China could expose the Company to material
and possible economic risks. These risks may include, but are not limited to,
military repression, expropriation, changing fiscal regimes, fluctuations in
currency exchange rates, high rates of inflation, worker unrest, and the absence
of industrial and economic infrastructure. Operations may be affected by
government regulations with respect to productions restrictions, price controls,
export controls, embargoes, income and other taxes, environmental legislation,
labor, welfare benefit policies, land use, etc. The effect of these factors
cannot be accurately assessed or predicted.
* The S-8 filed on January 8, 1999,with the SEC via the Edgar filing
system inadvertently stated that the Company enacted the Employee Stock Option
plan was enacted on January 6, 1998. The correct date should be January 6, 1999.
Results of Operations
- ---------------------
As a result of the aforementioned acquisition of Victoria Beverage
Company, Ltd., and its subsidiary, Anhui Hao Dun Brewery Co., Ltd. ("Anhui"),
the Company's "Total Liabilities and Stockholder's Equity" for year ending 1998
was $15,998,864 of which, as set forth on Page F-5 of the attached Financials,
$1,570,730 represents the 45% minority stockholder interest in Anhui. The
"Consolidated Statement of Operations" set forth on Page F-6 of the attached
Financial Statements, the Net Sales increased in 1998 by 8.8% and, an increase
in the price of materials can be attributed to a 15% increase of the Cost of
Sales, consequently, the Gross Margin decreased 2%. It should be noted that
"Selling Expenses" in 1998 decreased dramatically (60%). This difference can be
attributed to the brewery having to expend less in advertising costs because it
obtained an official trade mark which resulted in valuable name recognition. In
year ending 1997, the brewery had comprehensive income of $815,450. As a result
of the acquisition in 1998, "Minority Interest" deduction of $343,494 in 1998,
resulted in a "Net Comprehensive Income" of 48% less than in 1997. The "income
per share" was down as well, from $0.19 to $0.09.
Capital Resources and Liquidity
- -------------------------------
During 1998, the Company issued 9,902 shares of Common Stock for cash
valued at $54.11 per share; 1,016,942 shares were issued for services rendered
valued at $0.46 per share; and, 241 shares valued at $62.24 per share were
issued for debt conversion. The increase of positive cash flow reflected on the
"Consolidated Statements of Cash Flow" Page F-8 of attached Financials, is a
result of money spent by the beverage company purchasing fixed assets.
- --------------------------------------------------------------------------------
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
See the audited financial statements attached hereto and numbered F-1
through F-15.
10
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
<PAGE>
C O N T E N T S
Independent Auditors' Report.............................................. F - 3
Consolidated Balance Sheet................................................ F - 4
Consolidated Statements of Operations..................................... F - 6
Consolidated Statements of Stockholders' Equity........................... F - 7
Consolidated Statements of Cash Flows..................................... F - 8
Notes to the Consolidated Financial Statements........................... F - 10
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
China Food and Beverage Company and Subsidiaries
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheet of China Food and
Beverage and Subsidiaries as of December 31, 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1998 and 1997. 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 and Subsidiaries as of December 31, 1998, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1998 and 1997, in conformity with generally accepted
accounting principles.
Jones, Jensen & Company
Salt Lake City, Utah
April 7, 1999
F-3
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS
------
December 31,
1998
-----------------
CURRENT ASSETS
Cash and cash equivalent $ 425,681
Accounts receivable (net) (Note 1) 1,552,549
Note receivable 102,680
Inventory (Note 5) 1,438,968
Other receivables 40,129
-----------------
Total Current Assets 3,560,007
-----------------
PROPERTY AND FIXED ASSETS (Note 4)
Buildings 3,339,090
Machinery and equipment 8,126,686
Land 277,817
Accumulated depreciation (2,390,842)
-----------------
Total Fixed Assets 9,352,751
-----------------
OTHER ASSETS
Construction in progress 227,810
Deferred and prepaid expenses (Note 6) 2,643,296
Deposit 215,000
-----------------
Total Other Assets 3,086,106
-----------------
TOTAL ASSETS $ 15,998,864
=================
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
December 31,
1998
------------
CURRENT LIABILITIES
Accounts payable $ 986,222
Related party payable 148,226
Accrued expenses 1,311,044
Taxes payable (Note 3) 5,291,836
Customer prepayments 425,152
Notes payable (Note 2) 4,490,098
------------
Total Current Liabilities 12,652,578
------------
LONG-TERM LIABILITIES
Other liabilities 163,227
------------
Total Long-Term Liabilities 163,227
------------
Total Liabilities 12,815,805
------------
MINORITY INTEREST 1,570,730
------------
STOCKHOLDERS' EQUITY
Common stock; 100,000,000 shares authorized of $0.001
par value, 5,257,764 shares issued and 5,250,086 outstanding 5,258
Additional paid-in capital 329,649
Stock subscription receivable (23,083)
Other comprehensive income 7,692
Retained earnings 1,292,813
------------
Total Stockholders' Equity 1,612,329
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,998,864
============
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended
December 31,
------------------------------
1998 1997
------------ ------------
NET SALES $ 15,957,499 $ 14,659,236
COST OF SALES 10,647,010 9,226,327
------------ ------------
GROSS MARGIN 5,310,489 5,432,909
------------ ------------
COSTS AND EXPENSES
Selling expenses 184,672 459,503
General and administrative 1,525,012 1,479,783
------------ ------------
Total Costs and Expenses 1,706,684 1,939,286
------------ ------------
INCOME BEFORE OTHER EXPENSE 3,603,805 3,493,623
------------ ------------
OTHER EXPENSE
Interest expense 664,259 696,630
------------ ------------
Total Other Expense 664,259 696,630
------------ ------------
INCOME BEFORE TAX 2,939,546 2,796,993
INCOME TAX EXPENSE (Note 3) 2,176,226 1,985,657
------------ ------------
INCOME BEFORE MINORITY INTEREST 763,320 811,336
MINORITY INTEREST (343,494) --
------------ ------------
NET INCOME 419,826 811,336
OTHER COMPREHENSIVE INCOME
Currency translation adjustment 3,578 4,114
------------ ------------
Total Other Comprehensive Income 3,578 4,114
------------ ------------
NET COMPREHENSIVE INCOME $ 423,404 $ 815,450
============ ============
BASIC INCOME PER SHARE $ 0.09 $ 0.19
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional Stock Other
------------ Paid-In Subscription Comprehensive Retained
Shares Amount Capital Receivable Income Earnings
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 4,200,000 $ 4,200 $1,300,497 $ -- $ -- $ 61,651
Currency translation
adjustment -- -- -- -- 4,114 --
Net income for the year ended
December 31, 1997 -- -- -- -- -- 811,336
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 4,200,000 4,200 1,300,497 -- 4,114 872,987
Common stock issued for
the acquisition of Victoria 37,346 37 (1,991,612) -- -- --
Common stock issued for
cash at $54.11 per share 9,902 10 535,875 -- -- --
Common stock issued for
debt conversion at $62.24
per share 241 -- 15,000 -- -- --
Common stock issued for
services rendered at $0.46
per share 1,016,942 1,017 469,883 (23,083) -- --
Cancellation of common
stock (6,667) (6) 6 -- -- --
Currency translation
adjustment -- -- -- -- 3,578 --
Net income for the year ended
December 31, 1998 -- -- -- -- -- 419,826
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 5,257,764 $ 5,258 $ 329,649 $ (23,083) $ 7,692 $1,292,813
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------
1998 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 419,826 $ 811,336
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 947,924 629,202
Bad debt expense -- 50,946
Common stock issued for services 447,817 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 997,610 (1,533,003)
(Increase) decrease in note receivable (66,446) (36,234)
(Increase) decrease in other receivables 656,229 (619,824)
(Increase) decrease in inventory (465,773) (75,273)
(Increase) in deferred and prepaid assets (1,989,846) (191,953)
(Increase) in deposits (215,000) --
Decrease in construction in progress -- 245,955
Increase in accounts payable and accrued expenses 870,796 935,832
Increase (decrease) in customer prepayments (89,166) 385,420
Increase in taxes payable 671,973 2,075,113
----------- -----------
Net Cash Provided by Operating Activities 2,185,944 2,677,517
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (1,268,585) (3,282,278)
----------- -----------
Net Cash (Used) by Investing activities (1,268,585) (3,282,278)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued for cash 535,885 --
Proceeds from notes payable 4,797,109 2,249,776
Payments on notes payable (6,067,780) (1,704,155)
----------- -----------
Net Cash Provided (Used) by Financing Activities (734,786) 545,621
----------- -----------
NET INCREASE (DECREASE) IN CASH 182,573 (59,140)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 243,108 302,248
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 425,681 $ 243,108
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
December 31,
------------------------
1998 1997
-------- --------
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITY
Cash Paid For:
Interest $664,259 $696,630
Income taxes $ -- $ --
SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Common stock issued for debt $ 15,000 $ --
The accompanying notes are an integral part of these consolidated
financial statements.
F-9
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Business Organization
China Food and Beverage Company (the Company) was incorporated on
November 6, 1987 under the laws of the State of Nevada. The
Company subsequently ceased its original business activity in 1997
and thereafter primarily investigated and sought new business
opportunities.
The Company has a 100% owned subsidiary, Victoria Beverage Company
Limited (Victoria), which has a 55% owned subsidiary (Anhui Hao
Dun Brewery Co. Ltd.) (Anhui) which was incorporated in the nation
of China in 1986, for the purpose of operating a beer brewery.
Victoria was incorporated in the Isle of Man of May 9, 1993 for
the purpose of acquiring foreign companies.
The Company acquired 100% of the shares of Victoria which owns 55%
of Anhui for 4,200,000 shares of the Company's common stock. The
acquisition was accounted for as a recapitalization of Victoria
because the shareholders of Victoria controlled the Company after
the acquisition. Therefore, Victoria is treated as the acquiring
entity. There was no adjustment to the carrying value of the
assets or liabilities of Victoria in the exchange. The Company is
the acquiring entity for legal purposes and Victoria is the
surviving entity for accounting purposes. On December 18, 1998,
the shareholders of the Company authorized a 1-for-100 reverse
stock split. All references to common stock have been
retroactively restated to reflect the reverse stock split.
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. Basic Income Per Share
The computations of basic income per share of common stock are
based on the weighted average number of shares outstanding.
e. Principles of Consolidation
The December 31, 1998, consolidated financial statements include
those of China Food and Beverage Company, Victoria Beverage
Company Limited and Anhui Hao Dun Brewery Co. Ltd. All significant
intercompany accounts and transactions have been eliminated.
F-10
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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.
g. Accounts Receivable
The Company's accounts receivable are shown net of an allowance
for bad debt of $107,150 at December 31, 1998 and 1997.
h. Advertising
The Company has capitalized the costs of acquiring the rights to
advertise on the streets of its home city, Luan, Peoples Republic
of China, for 20 years and is amortizing those costs over the life
of the agreement.
i. Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies
are translated into United States dollars at the period and
exchange rate. Non-monetary assets are translated at the
historical exchange rate and all income and expenses are
translated at the exchange rates prevailing during the period.
Foreign exchange currency translation adjustments are included in
the stockholders' equity section as other comprehensive income.
j. Fair Value of Financial Instruments
As at December 31, 1998, the fair value of cash, accounts
receivable and accounts and advances payable including amounts due
to and from related parties, approximate carrying values because
of the short-term maturity of these instruments.
k. Foreign Operations
The Company currently conducts activities in The Peoples Republic
of China (PRC). The Company may be materially adversely affected
by possible political or economic instability in PRC. The risks
include, but are not limited to, military repression,
expropriation, changing fiscal regimes, extreme fluctuations in
currency exchange rates, high rates of inflation and the absence
of industrial and economic infrastructure. Operations may be
affected in varying degrees by government regulations with respect
to production restrictions, price controls, export controls,
income and other taxes, expropriation of property, maintenance of
claims, environmental legislation, labor, welfare benefit
policies, land use, land claims of local residents, water use and
safety. The effect of these factors cannot be accurately
predicted.
F-11
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
l. Capital Assets and Amortization
Capital assets are recorded at cost and amortization is provided
over the estimated economic life on a straight-line basis at the
following rates:
Machinery 14 years
Buildings 25 years
m. Income Taxes
Income tax expense consist of Gross Revenue Tax (GRT) which is
calculated by multiplying 17% of sales minus the purchasing tax,
Consumption Tax (CT) which is calculated by multiplying $26.84 by
each ton of beer which is sold, and the City Construction Tax
(CCT) which is calculated by multiplying 7% of the total GRT and
CT.
n. Change in Accounting Principle
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains, and losses) in a full
set of general purpose financial statements. This statement
requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital
in the equity section of a statement of financial position. SFAS
No. 130 is effective for fiscal years beginning after December 15,
1997. The Company has retroactively applied the provisions of this
new standard by showing the other comprehensive income for all
years presented.
o. Revenue Recognition
The Company recognizes revenue at the time the product is
delivered to the customer and expenses are recognized as incurred.
F-12
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 2 - NOTES PAYABLE
<TABLE>
<CAPTION>
December 31,
1998
-----------
<S> <C>
The Company has taken out several loans from the Industrial &
Commercial Bank and the Agriculture Bank. These loans bear
interest at 12%, are due in 1999,
and are secured by the fixed assets of the Company $ 4,416,403
The Company has received advances from its employees of the
Company which are interest bearing at rates between 6% and 12%
per annum and due on demand. These funds are to be used for staff
welfare and other
employee expenses 73,695
-----------
Total Notes Payable 4,490,098
Less: Current Portion (4,490,098)
-----------
Long-Term Portion $ --
===========
NOTE 3 - TAXES PAYABLE
Taxes payable consisted of the following at December 31, 1997:
Gross revenue tax $ 488,428
Consumption tax 4,965,341
City construction tax (161,933)
-----------
Total $ 5,291,836
===========
</TABLE>
The Company had value added and income tax expense of $2,176,226
and $1,985,657 for the years ended December 31, 1998 and 1997.
These amounts are computed based on the income of the Company in
the Peoples Republic of China.
NOTE 4 - PROPERTY AND FIXED ASSETS
<TABLE>
<CAPTION>
1998
Accumulated Net Book
Cost Depreciation Value
------------------ ------------------- -----------------
<S> <C> <C> <C>
Machinery and equipment $ 8,126,686 $ 1,768,863 $ 6,357,823
Building 3,339,090 621,979 2,717,111
Land 277,817 -- 277,817
------------------ ------------------- -----------------
$ 11,743,593 $ 2,390,842 $ 9,352,751
================== =================== =================
</TABLE>
During the years ended December 31, 1998 and 1997, the Company
expensed $763,267 and $629,202 in depreciation.
F-13
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 5 - INVENTORY
Inventory
Inventories for the year ended December 31, 1998 consisted of the
following:
1998
-----------------
Finished goods $ 8,677
Work-in-process 943,028
Raw materials and supplies 487,263
-----------------
Total $ 1,438,968
=================
Inventories consist of bottled beer, beer in process and raw
materials and are stated at the lower of cost or market using the
average cost method.
NOTE 6 - DEFERRED AND PREPAID EXPENSES
Deferred and prepaid expenses consist of the following:
Prepaid advertising $ 142,782
Trademark 2,500,514
-----------------
$ 2,643,296
=================
The prepaid advertising is being amortized over a period of 20
years, the trademark is being amortized over a period of 15 years.
Amortization expense for the years ended December 31, 1998 and
1997 was $184,657 and $-0-, respectively.
NOTE 7 - CONCENTRATIONS OF RISK
a. Cash and Cash Equivalents
The Company had cash of $188,440 in banks located in The Peoples
Republic of China. These accounts are not insured by the Federal
Deposit Insurance Corporation. Additionally, the Company has
$237,241 of cash equivalents held with ITEX Corporation. This
balance is not insured by the Federal Deposit Insurance
Corporation.
b. Accounts Receivable
The Company provides for accounts receivable as part of
operations. Management does not believe that the Company is
subject to credit risks outside the normal course of business.
F-14
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 8 - CUSTOMERS AND EXPORT SALES
During 1998 and 1997, the Company operated one industry segment
which is the manufacturing and marketing of alcoholic products.
The Company's financial instruments subject to credit risk are
primarily trade accounts receivable from its customers.
For the Years Ended
December 31,
1998 1997
------------------- -----------------
Foreign sales $ 15,957,499 $ 14,659,236
=================== =================
NOTE 9 - YEAR 2000 ISSUE
The Company is conducting a comprehensive review of its computer
systems to identify the systems that could be affected by the Year
2000 Issue, and is developing an implementation plan to resolve
the issue.
The Issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems
that do not properly recognize such information could generate
erroneous data or cause a system to fail. The Company is heavily
dependent on computer processing in the conduct of its business
activities.
Estimated Cost of Remediation
-----------------------------
Because the Company has not completed its review of the computer
systems, management is unable to estimate the cost of making the
systems Year 2000 compliant.
F-15
<PAGE>
- --------------------------------------------------------------------------------
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
None.
- --------------------------------------------------------------------------------
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 37 President, Chief Executive Officer,
Treasurer, Director
Jane Zheng 36 Secretary, Director
Stanley Merdinger 56 Director
Kitty Chow 56 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.
11
<PAGE>
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, 1998, 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.
- --------------------------------------------------------------------------------
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 $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Awards Long Term Compensation
Name and Principal Position Year Salary($) Bonus($) Other Restricted Options/ LTI Other
Annual Stock SARs (#) Payout
Comp. Awards
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James Tilton, 1998 34,500+ -0- -0- -0- -0- -0- -0-
President and Chief 1997 68,500* -0- -0- -0- -0- -0- -0-
Executive Officer
</TABLE>
+ This dollar figure represents 500 shares of Common Stock that were
issued as compensation as the Company's director and officer for the fiscal year
1998, as follows: 500 shares valued at $69.00 per share issued on or about 2/11,
1998.
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.
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 February 11, 1998, the Company passed a resolution for the issuance of
500 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, 500 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
12
<PAGE>
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 February 23, 1998.
On July 6, 1998, the Company issued 500 shares of its Common Stock
pursuant to an Employee Stock Registration Plan, valued at $0.35 per share to
each of the following individuals: 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, 500 shares of its
Common Stock to James Tilton, as payment for services rendered on behalf of the
Company. The proposed maximum offering price of the Company's Common Stock
issued to each party in this paragraph was $0.35 per share for an aggregate
offering price of $17,500. 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 July 9, 1998. Subsequently the shares issued to James
Tilton, Jane Zheng and Stanley Merdinger were returned and canceled
- --------------------------------------------------------------------------------
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, 1998, 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 4,273,987
shares of Common Stock issued on December 31, 1998.
Changes in Control
- ------------------
On December 31, 1998, the Company issued a total of 4,200,000 shares of
its common stock to the following persons and entities in the following amounts
pursuant to Debentures which were converted on December 30, 1998;
Calder Investments Limited 1,050,000 shares of common stock
Li, Lin Hu 1,050,000 shares of common stock
Anhui Liu An Beer Company Ltd. 2,100,000 shares of common stock
This issuance caused the three individuals and entities above set forth
to become the control persons of the Registrant.
- --------------------------------------------------------------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
Li, Lin Hu, who has Master in Business Administration from China Economy and
Management College is a senior economist and was appointed as a director of the
Company on or about January 6, 1999. Li is also executive Vice- President of
Tiancheng Group, as referenced to throughout herein.
13
<PAGE>
- --------------------------------------------------------------------------------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) Index to Exhibits. Exhibits required to be attached by Item 601of
Regulation S-B are listed in the Index to Exhibits beginning on page _____
of this Form 10-KSB, which is incorporated herein by this reference.
(b) Reports on Form 8-K. The Company filed a Form 8-K on November 6, 1998
regarding the recission of its March 15, 1997Agreement with Dizon
Investments, Ltd, as referred to in Item 6 herein.. On December 18, 1998,
the Company filed a Form8-K regarding the Company's 1 to 100 reverse split
enacted December 8, 1998 and effective December 21, 1998.
14
<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 __TH day of April, 1999.
China Food and Beverage Company
-------------------------------
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 15, 1999
James Tilton Treasurer and Director
/s/ Jane Zheng
- ------------------------ Secretary and Director April 15, 1999
Jane Zheng
/s/ Stanley Merdinger
- ------------------------ Director April 15, 1999
Stanley Merdinger
/s/ Kitty Chow
- ------------------------ Director April 15, 1999
Kitty Chow
- ------------------------ Director April , 1999
Lin Hu Li
15
<PAGE>
<TABLE>
LIST OF EXHIBITS
----------------
<CAPTION>
Exhibit No. Exhibit Page #:
----------- ------- -------
<S> <C> <C>
A(1) Agreement between the Company and Dizon Investments Limited, dated March
15, 1997. 17
A(2) Recission Agreement between the Company and Dizon Investments, Ltd.,
dated November 6, 1998. 19
B Agreement between Anhui Liu An Beer Company Ltd. and Victoria Beverage
Company Limited dated April 22, 1998. 20
C Agreement between China Food & Beverage Company, Calder Investments
Limited and Li, Lin Hu dated April 27, 1998. 21
D(1) Addendum Agreement between Anhui Liu An Beer Company Ltd. and Victoria
Beverage Company Limited, AND, between China Food & Beverage Company,
Calder Investments Limited and Li, Lin Hu, dated April 27, 1998. 23
D(2) 10,500,000 Debenture from Company to Calder Investments, Ltd. 25
D(3) 10,500,000 Debenture from Company to Li, Lin Hu 26
E(1) Trust Agreement dated December 17, 1997 between China Food & Beverage
Company and Tiancheng (China) Co., Ltd. 27
E(2) Modification Agreement dated December 31, 1998 between China Food &
Beverage Company and Tiancheng (China) Co., Ltd. 29
</TABLE>
16
EXHIBIT A(1)
AGREEMENT
---------
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.
17
<PAGE>
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
18
EXHIBIT A(2)
AGREEMENT
---------
Agreement, made this 6th day of November, 1998 by and between China Food &
Beverage Company, (f/k/a Omap Holdings Incorporated) a Nevada corporation
(hereinafter "CHIF")and Dizon Investments Limited, a British Virgin Islands
corporation, (hereinafter "DIZON");
WHEREAS, CHIF and DIZON on March 15, 1997 entered into a certain agreement a
copy of which is annexed hereto as Exhibit A (the "Agreement");
WHEREAS, CHIF and DIZON wish to cancel and make null and void the Agreement and
place the parties status quo ante.
NOW, THEREFORE, in consideration of the premises and promises contained herein
the signatory parties agree hereto as follows:
1. The Agreement is by this document declared null and void and of no force and
effect.
2. By virtue of paragraph 1 above, DIZON shall forthwith return to CHIF
20,000,000 pre-reverse shares of CHIF restricted common stock issued to DIZON
per the Agreement.
3. By virtue of paragraph 1 above, DIZON shall forthwith return to CHIF all
incidents of ownership in American China Development Corporation common stock
and any licenses received pursuant to the Agreement.
4. All expenses of unwinding the Agreement pursuant to paragraph 1hereof shall
be borne by the respective parties.
5. This Agreement shall be construed under the laws of the State of New York.
6. 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
DIZON INVESTMENTS LIMITED
By:/s/ Joyce Fayle
--------------------------
Joyce Fayle, Director
19
EXHIBIT B
AGREEMENT
AGREEMENT made this 22nd day of April, 1998, by and between Anhui Liu
An Beer Company Ltd., a Peoples' Republic of China corporation (the "Seller")
and Victoria Beverage Company Limited, an Isle of Man corporation (the
"Purchaser");
WHEREAS, the Seller is the owner of a certain number of shares
representing the ownership of fifty-five percent (55%) of Anhui Haodun Brewery
Co., Ltd. (the "Brewery") (the "Brewery Stock"); and
WHEREAS, Seller wishes to sell the Brewery Stock to Purchaser;
NOW, THEREFORE, in consideration of the premises and promises contained
herein the signatory parties agree hereto as follows:
1. Seller herewith and hereby sells to Victoria the Brewery Stock and
Victoria herewith and hereby purchases the Brewery Stock from the Seller;
2. The purchase price for the Brewery Stock is and shall be
US$10,500,000 which sum shall be due and payable to the Seller within sixty (60)
days of the date of this Agreement and shall be payable, at the option of
Victoria in funds, securities or evidence of indebtedness.
3. The Seller represents and warrants that they are authorized to enter
into this agreement and that they are the owners of the Brewery Stock, the
transference of which pursuant to this Agreement is not violative of any law or
governmental edict.
4. Victoria represents and warrants that it is authorized to enter into
this Agreement.
5. Seller represents and warrants that the Brewery has total assets of
approximately US14,200,000 and total gross liabilities not exceeding
US$8,700,000 and the total net shareholders equity is approximately
US$5,500,000. The Seller further represents and warrants that the Brewery is, 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.
6. This Agreement shall be construed under the laws of the State of New
York.
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.
VICTORIA BEVERAGE COMPANY LIMITED ANHUI LIU AN BEER COMPANY LTD.
By: /s/ Si Yi Zhong
---------------------------------
Si Yi Zhong, President
20
EXHIBIT C
AGREEMENT
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's 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$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)
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.
21
<PAGE>
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 Hu
---------------------------------
LI, LIN HU 50%
CALDER INVESTMENTS LIMITED -- 50%
By: /s/ Joanna Redmayne
---------------------------------
Joanna Redmayne, Director
22
EXHIBIT D(1)
ADDENDUM
--------
Addendum made this 30th day of December,1998, regarding two certain
agreements, one of which was as of April 22, 1998, by and between Anhui Liu An
Beer Company Ltd., a Peoples' Republic of China corporation ("Anhui") and
Victoria Beverage Company Limited, an Isle of Man corporation ("Victoria") (the
"Brewery Purchase Contract") and one of which was as of April 27, 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's Republic of China ("Li Lin Hu") (the
"Victoria Stock Purchase Contract");
WHEREAS, Victoria purchased 55% of Anhui Haodun Brewery Co., Ltd. in the
Brewery Purchase Contract and pursuant to such purchase issued a promissory note
in the amount of $10,500,000 to Anhui; and
WHEREAS, China purchased from the owners of Victoria all of the issued and
outstanding stock of Victoria for a debenture in the face amount of $21,000,000
(the "Debenture"); and
WHEREAS, China intends to convert the Debenture into shares of China's
common stock as per paragraph 2 of the Victoria Stock Purchase Contract.; and
WHEREAS, China, Calder, Li Lin Hu and Anhui wish to memorialize their
understandings of the distribution of the stock issued by China on conversion to
Anhui in full settlement of the outstanding promissory note.
NOW, THEREFORE, in consideration of the premises and promises contained
herein the signatory parties agree hereto as follows:
1. Li Lin Hu and Calder herewith and hereby waive the requirements set
forth in paragraph 2 of the Victoria Stock Purchase Contract that the conversion
of the China Debenture may occur at China's option only if China's common stock
traded for 10 consecutive days at a high bid price of $5.00. Pursuant to this
waiver, Li Lin Hui and Calder agree that China may convert the Debenture if
China's common stock closed for one consecutive day at a high bid price of
$5.00.
2. China herewith and hereby converts the issued and outstanding Debenture
in face amount of $21,000,000 in favor of Li Lin Hui and Calder into 4,200,000
shares of common stock of which 2,100,000 are to be registered in the name of Li
Lin Hui and 2,100,000 are to be registered in the name of Calder.
3. Li Lin Hui, Anhui and Calder, specifically acknowledging the Brewery
Purchase Contract and, recognizing that Anhui is owed the sum of $10,500,000 by
promissory note and desiring to satisfy the terms of such promissory note, agree
that each of Li Lin Hui and Calder shall cause 1,050,000 shares of China common
stock owned by them to be transferred to Anhui so that Anhui will have received
2,100,000 shares of China common stock with a present value of $10,500,000 and
Anhui agrees to return to Victoria the original promissory note in its
possession and further agrees to waive all interest due and payable pursuant to
the promissory note having accepted 2,100,000 shares of China common stock in
full settlement of all obligations of compensation due to Anhui by the Brewery
Purchase Contract.
4. All representations preceding herewith shall survive the Closing.
5. This Agreement may be signed in one or more counterparts.
6. This Agreement shall be construed under the laws of the State of New
York.
23
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands and seal the first
day, month and year above written.
VICTORIA BEVERAGE COMPANY LIMITED
By: /s/ Nicole Hewson
---------------------------------
Nicole Hewson, Director
ANHUI LIU AN BEER COMPANY LTD.
By: /s/ Si Yi Zhong
---------------------------------
Si Yi Zhong, President
CHINA FOOD & BEVERAGE COMPANY
By: /s/ James Tilton
---------------------------------
James Tilton, President
/s/ Li, Lin Hu
---------------------------------
LI, LIN HU
CALDER INVESTMENTS LIMITED
By: /s/ Joanna Redmayne
---------------------------------
Joanna Redmayne, Director
24
EXHIBIT D(2)
$10,500,000
CHINA FOOD & BEVERAGE COMPANY
(5 Years plus one day 8.00% Debenture Note)
China Food & Beverage Company, a Nevada corporation (herein called the
"Corporation") for value received, hereby promises to pay to Calder Investments,
Ltd., or order the sum of $10,500,000 five years plus one day from the date
hereof, and to pay interest on such principal amount from time to time from the
date hereof at the rate of 8.00% per annum, payable annually, on the twelve
month anniversary hereof.
The Corporation reserves the right to pay all of any portion of the
principal amount of this debenture note upon any interest payment date without
penalty and interest shall cease on any principal amount so paid.
This debenture shall be convertible into shares of common stock of
China Food & Beverage Company at the options of China Food & Beverage Company,
only if the common stock has closed for ten consecutive business days at a high
bid price of $5.00 per share then all of part of the outstanding face amount of
this debenture may be converted into common stock of China Food & Beverage
Company at a conversion price of $5.00. By way of example, the conversion of
$1,000,000 face amount of this debenture divided by 5, the conversion price,
allows 200,000 shares to be issued.
In the event of default in the payment of the principal of, or interest
on, this debenture note then the entire unpaid principal amount of this
debenture note shall become immediately due and payable.
No recourse shall be had for payment of any part of the principal or
interest of this debenture note against any incorporator, or against any present
or future shareholder of the Corporation by virtue of any law, or by enforcement
of any assessment, or otherwise, or against any officer or director of the
Corporation by reason of any matter prior to the delivery of this debenture
note, or against any present or future officer or director of the Corporation,
all such liability being, by the acceptance hereof and as a part of the
consideration for the issue hereof, expressly released.
In witness whereof the Corporation has signed this note on December 30,
1998.
CHINA FOOD & BEVERAGE COMPANY
By: /s/ James Tilton
-----------------------------
James Tilton, President
25
EXHIBIT D(3)
$10,500,000
CHINA FOOD & BEVERAGE COMPANY
(5 Years plus one day 8.00% Debenture Note)
China Food & Beverage Company, a Nevada corporation (herein called the
"Corporation") for value received, hereby promises to pay to Li, Lin Hu, or
order the sum of $10,500,000 five years plus one day from the date hereof, and
to pay interest on such principal amount from time to time from the date hereof
at the rate of 8.00% per annum, payable annually, on the twelve month
anniversary hereof.
The Corporation reserves the right to pay all of any portion of the
principal amount of this debenture note upon any interest payment date without
penalty and interest shall cease on any principal amount so paid.
This debenture shall be convertible into shares of common stock of China
Food & Beverage Company at the options of China Food & Beverage Company, only if
the common stock has closed for ten consecutive business days at a high bid
price of $5.00 per share then all of part of the outstanding face amount of this
debenture may be converted into common stock of China Food & Beverage Company at
a conversion price of $5.00. By way of example, the conversion of $1,000,000
face amount of this debenture divided by 5, the conversion price, allows 200,000
shares to be issued.
In the event of default in the payment of the principal of, or interest
on, this debenture note then the entire unpaid principal amount of this
debenture note shall become immediately due and payable.
No recourse shall be had for payment of any part of the principal or
interest of this debenture note against any incorporator, or against any present
or future shareholder of the Corporation by virtue of any law, or by enforcement
of any assessment, or otherwise, or against any officer or director of the
Corporation by reason of any matter prior to the delivery of this debenture
note, or against any present or future officer or director of the Corporation,
all such liability being, by the acceptance hereof and as a part of the
consideration for the issue hereof, expressly released.
In witness whereof the Corporation has signed this note on December 30,
1998.
CHINA FOOD & BEVERAGE COMPANY
By: /s/ James Tilton
-----------------------------
James Tilton, President
26
EXHIBIT E(1)
TRUST AGREEMENT
China Food & Beverage Company, hereafter referred to as Party A, and
Tinacheng (China) Co., Ltd., hereafter referred to as Party B, as a result of
friendly discussions on the planned purchase of beer breweries and beverage
manufacturers on the Chinese mainland, have reached agreements as follows:
1. Party B accepted Party A's trust to provide services for
compensation to purchase beer breweries and beverage manufacturers on behalf on
Party A.
The scope of the trust is as follows;
(1) To search for those beer breweries and beverage manufacturers
who agree to raise capital by increase of shares and/or transfer of shares
(Hereafter referred to as "the above mentioned enterprises"). The shares so
acquired shall be more that 50% of its total shares. A written agreement along
with its current Balance Sheet and its background information shall be provided
to Party A. The number of "the above mentioned enterprises" ranges from 2 to 8,
which shall be finalized based on their sizes;
(2) To investigate the production and sales operations of " the
above mentioned enterprises" and prepare written reports to be submitted to
Party A for reviewing and screening purposes;
(3) The minimum criteria for assets profit ratio is 20%. Those
eligible enterprises finalized by Party A shall be reorganized to form a
foreign/domestic joint venture and foreign capital controlled structure. Party B
shall, based on this perspective, help to reorganize and spin-off their assets
structure;
(4) To obtain the qualified accounting firms in China to evaluate
the assets structure of the enterprises to reorganized of spin-off as mentioned
in the preceding paragraph and obtain permits, as required, from governmental
agencies;
(5) To assist "the above mentioned enterprises" to re-adjust their
accounting records and have them audited by the accountant in China and have the
audit report to be submitted to Party A;
(6) To negotiate with "the above mentioned enterprises" based on
Party A's capital raising requirements so as to execute the legal
foreign/domestic joint venture agreement or purchase agreement and required
relevant documents;
(7) To consistently assist to complete all the procedures in
connection with verifying the capital commitment and filing the relevant
applications so as to ensure the approval and issuance of all the required
business permits and licenses of the joint venture in question.
2. Party A agreed that the total capital invested by both parties
(including the assets of "the above mentioned enterprises") shall be 6 folds of
it's 1997 annual earnings. Party A's investment capital shall be calculated
proportionately based on its shares owned (above 50%). The balance, if any,
shall be the sole responsibility of Party B (that is to say that if there is any
shortage, is shall be made up by Party B, or, if there is any surplus, it shall
be kept by Party B).
3. Party A guarantees that when Party B has satisfactorily completed
all the jobs as listed up to article 7 paragraph 1 above, Party A shall, in
compliance with provisions as stipulated by "The Law Governing the
Foreign/Domestic Joint Venture Operations of the People's Republic of China",
remit at least US$2,000,000.00 to the Capital Investment of Account opened by
"the above mentioned enterprises" in a bank in China. The balance and procedures
shall be completed by Party B until the issuance of business permits. In case
that Party A fails to remit the foresaid US$1,000,000.00 and, as a result, the
business permit is jeopardized, Party A shall be responsible.
4. Party A agreed to pay Party B US$150,000.00 as partial payment for
Party B's services. Party A shall also pay 500,000 of its marketable shares as
additional compensation and commission payment. After completion of all the jobs
of this agreement, if the market price of its share is below US$5.00, Party A
shall pay Party B the difference, Party A also guarantees that the total value
of the 500,000 shares paid to Party B shall be no less that US$2,500,000.00.
27
<PAGE>
5. Party A's installment payment plan is as follows:
(1) During the execution period of article 1 of paragraph 1 as
mentioned above, to be more specifically, within two business days after Party B
provided the Balance Sheet, background information and written agreement to
increase or transfer shares with the prospect enterprises, Party A shall remit
US$20,000.00 to Party B's bank account.
(2) Within two business days after the execution of article 1
of paragraph 1 for the third enterprises of after Party B's written notice to
Party A of its start of the assets reorganization or spinning-off procedures for
the first enterprise, Party A shall remit US$30,000.00 to Party B's bank
account.
(3) Within two business days after the completion of article 1
of paragraph 1 or after written notice by Party B to Party A of the start of
adjustment of accounts and assets evaluation for the first enterprise, Party A
shall remit US$50,000.00 to Party B's bank account.
(4) Within two business days after written notice by Party B.
To Party A of the application for business permit and government approval or the
start of assets reorganization of spinning-off for the second enterprise, Party
A shall remit the remaining US$50,000.00 to Party B's bank account.
Party B's bank account is as the following:
TIANCHENG (CHINA) CORP., LTD.
Standard Chartered Bank 570-2-158595-1
Mongkok bank Centre Branch
630-636 Nahan road Mongkok
Kowloon Hongkong
(5) Upon the delivery by Party B to Party A of the business
permit for the first foreign/domestic joint venture enterprise, Party A shall at
the same time deliver it 50,000 marketable shares to Party B.
(6.) Party B agreed, as requested by Party A, to use the name
of Victoria Beverage Company Limited (VBCL) in the Chinese mainland to sign the
investment or share purchase agreements with the above mentioned enterprises and
the foreign/domestic joint venture agreements including their related documents.
And, in order to coordinate with the fund raising efforts on the part or Party
A, Party B agreed to separately sign agreement in the name of VBCL with Party A
in advance to transfer all the shares of the above mentioned enterprises.
7. This agreement shall be under the jurisdiction of the laws of the
People's Republic of China.
8. This agreement shall be executed on both English and Chinese
languages. In case of variations, Chinese copy shall prevail.
9. This agreement shall be made duplicate and become effective upon
execution by both parties.
PARTY A: CHINA FOOD AND BEVERAGE PARTY B: TIANCHENG (CHINA)
COMPANY CO., LTD.
REPRESENTATIVE /s/ James Tilton REPRESENTATIVE /s/ Wang Qingzhang
------------------------------- ---------------------------------
James Tilton Wang Qingzhang
28
EXHIBIT E(2)
MODIFICATION AGREEMENT
This Modification Agreement by and between China Food & Beverage
Company ("China") and Tiancheng (China) Co., Ltd. ("Tiancheng") made as of
December 31, 1998.
WHEREAS, China and Tiancheng entered into a certain Trust Agreement on
December 17, 1997; and
WHEREAS, Tiancheng and China wish to modify the terms thereof.
NOW, THEREFORE, in consideration of the premises and promises contained
herein the signatory parties agree hereto as follows:
1. Paragraph 4 of the Trust Agreement is modified to read as follows:
"Party A (China) has agreed to Party B (Tiancheng) the sum of
$150,000 as partial payment for Tiancheng's services as set forth in
the Trust Agreement. Of such $150,000, $92,000 has been paid as of
the date hereof and Tiancheng acknowledges receipt of such amount.
China shall also deliver to Tiancheng 500,000 shares of its common
stock which number of shares has been delivered to Tiancheng and
Tiancheng specifically acknowledges receipt thereof. Such 500,000
shares shall not be, when delivered, be free of restrictive legend
and Tiancheng waives its rights to have "marketable shares"
delivered to it. Additionally, Tiancheng waives its rights to have
such 500,000 shares have a value of not less than $2,500,000 and
accepts the shares previously delivered in the form as delivered
plus the $92,000 as full compensation from its services; provided,
however, that China still owes to Tiancheng the sum of $58,000 to
fulfill its obligations under the Trust Agreement."
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
TIANCHENG (CHINA) CO., LTD.
By: /s/ Wang Qingzhang
---------------------------------
Wang Qingzhang, President
29
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<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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