UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 1999.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) for the transition period from
to
----------- -----------
Commission file number: 0-11734
--------
CHINA FOOD AND BEVERAGE COMPANY
----------------------------------------------
(Name of Small Business Issuer in Its Charter)
Nevada 87-0548148
------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
82-66 Austin Street, Kew Gardens, New York 11415
----------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 398-7833
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
------ ------
The number of shares outstanding of Registrant's common stock ($0.001 par value)
as of June 30, 1999 was 5,471,967.
Total of Sequentially Numbered Pages: 20
-----
Exhibit Index on Page: 8
-----
1
<PAGE>
TABLE OF CONTENTS
PART 1
Page
ITEM 1. FINANCIAL STATEMENTS..............................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.........3
ITEM 3. EVENTS SUBSEQUENT TO THE SECOND QUARTER ..........................5
ITEM 4. RESULTS OF OPERATIONS ............................................5
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................6
SIGNATURES........................................................7
INDEX TO EXHIBITS.................................................8
2
<PAGE>
PART I
- ----------------------------------
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------------
Unless otherwise indicated, the term "Company" refers to China Food and
Beverage Company and its subsidiaries and predecessors. The accompanying
consolidated unaudited condensed financial statements have been prepared by
management in accordance with the instructions in Form 10-QSB and, therefore, so
not include all information and footnotes required by generally accepted
accounting principals and should, therefore, be read in conjunction with
Company's Annual Report to Shareholders on Form 10-KSB for the fiscal year ended
December 31, 1998. These statements do include all the normal recurring
adjustments which the Company believes is necessary and affords a fair
presentation. The interim results are not necessarily indicative of the results
for the full year ending December 31,1999. Accordingly, consolidated audited
interim financial statements, including a balance sheet for the Company as of
the fiscal quarter ended June 30,1999, and, statements of operations and
statements of cash flows for the interim period up to the date of such balance
sheet and the comparable period of the preceding fiscal year are attached hereto
as Pages F-1 through F-7 and are incorporated herein by this reference.
- --------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
- --------------------------------------------------------------------
Though this information is set forth in the Company's 10K-SB, year
ending December 31, 1998, and in the Company's 10Q-SB for the first quarter
ending March 31, 1999, the significance of these transactions regarding the
Company's acquisitions of a majority interest bears repeating in this filing: On
April 27, 1998, the Company and Calder Investments, Ltd. and Li, Lin Hu, as
"Sellers,"and Company as "Purchaser," entered into an agreement whereby the
Company would purchase 100% of the stock of Victoria Beverage Company, Ltd.
("Victoria"). At the time of the transaction, Victoria was the owner of 55% of
Anhui Hao Dun Brewery Company, Ltd. ("Hao Dun"). The transaction resulted in 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%) interest of Anhui Hao. Consequently, 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, 1,050,000 shares of Company's
common stock. In addition, on December 30, 1998, the Company caused to be issued
2,100,000 shares of its common stock to Anhui Lui An Beer Company, Ltd., the
former owners of Hao Dun. This issuance was to pay off the $10,500,00 debt owed
by Victoria to Anhui Liu An Beer Company, Ltd as a result of Victoria's purchase
which occurred prior to the Company's acquisition of Victoria. This issuance
caused the three individuals and entities above set forth to become the control
persons and largest shareholders of the Registrant. It should be noted that
these three individuals and entities as Company's largest shareholders may be
capable of influencing the Company's future business policies.
3
<PAGE>
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. As opposed to the second quarter ending 1998, when the Company had no
liquid assets, as a result of the aforementioned acquisition, the Company's
total assets ending June 30, 1999 were valued at $19,053,025 of which, as set
forth on page F-2 of the Financials, attached hereto. Total "Current Assets" are
$6,888,557. The "Fixed Assets" ($8,892,693) 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. The Company employs 531 employees at its brewery at
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.
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 production restrictions,
price controls, export controls, embargoes, income and other taxes,
environmental legislation, labor, welfare benefit policies, land use rights,
etc. The effect of these factors cannot be accurately assessed or predicted.
On April 8, 1999, the Board of Directors of the Company, subject to
approval by shareholders, created the 1999 B Stock Option Plan (the "Plan"). The
administrators of the Plan granted options to purchase 300,000 and 350,000 and
350,000 of shares of common stock to Herbert M. Jacobi, James Tilton and Jane
Zheng, respectively. The options are exercisable at $3.00 per share.
After shareholder approval, if ever, of the 1999 B Stock Option Plan,
the Company intends to file a registration statement covering the shares
underlying the options granted.
As evidenced by the attached financial data, the Company has continued
to experience steady growth during the second quarter ending June 30, 1999.
Year 2000 Compliance
The Year 2000 problem is a result of computer programs being written
using two digits to define the applicable year. If not corrected, any programs
or equipment that have time sensitive components could fail or create erroneous
results. The Company has completed a review of its existing systems and has
upgraded approximately 25% of its existing system with hardware and software
that purports to be Year 2000 compliant.
The majority of the Company's other software and hardware is not
believed to be Year 2000 compliant. However, the Company has already ordered the
necessary software and hardware to fully upgrade its computer systems to be Year
2000 compliant. The Company is expected to be fully compliant by September 30,
1999. The cost associated with completion of updating the Company's computer
systems is not expected to have a material impact on the financial condition of
the Company. Nonetheless, there can be no assurance that this will be the case.
The Company currently has limited information concerning the Year 2000
compliance status of its clients and associates. However, even if the Company's
4
<PAGE>
clients are not Year 2000 compliant the Company does not anticipate that such
noncompliance will have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows.
Forward Looking Statements
The forward looking statements contained in this Form 10-QSB are
subject to various risks, uncertainties and other factors that could cause
actual results to differ materially from the results anticipated in such forward
looking statements.
- -------------------------------------------------
ITEM 3. EVENTS SUBSEQUENT TO THE SECOND QUARTER
- -------------------------------------------------
On July 14, 1999, the Securities and Exchange Commission ("SEC") in the
United States District Court, Southern District of Florida, Civil Action No.
99-1968-CIV-GOLD, filed a Complaint for Injunctive and Other Equitable Relief,
as well as a Temporary Restraining Order against, et al, the Company and James
C. Tilton ("Tilton") individually who is the Company's chief executive officer.
On April 15, 1999, the Company entered into a Consulting Agreement with The
Globus Group, Inc. ("Globus"), a Nevada corporation, whereby Globus was to act
as a "...marketing consultant/promoter..." of the Company. The complaint alleges
that the Company, knowing ly or unknowingly disseminated material to the public
based on Globus' false representations to the Company. The complaint further
alleges that when informed that Globus was engaging in this and other improper
activities that might result in creating false impressions with the public,
Tilton did not take appropriate corrective action quickly enough.
As soon as the Company became aware of the SEC's complaint, the Company
took immediate steps to investigate the allegations against Globus. After
numerous attempts to contact Globus, without success, the Company's Officers and
Board of Directors felt it was in the Company's best interest to formally
terminated the aforementioned Consulting Agreement with Globus.
- -------------------------------
ITEM 4. RESULTS OF OPERATIONS
- -------------------------------
The Company's "Total Liabilities and Stockholder's Equity" for quarter
ending June 30,1999 was, $19,053,025. The "Consolidated Statement of
Operations"set forth on Page__ of the attached Financial Statements, indicates
that the Net Sales increased in the three month period from the end of the first
quarter, March 31, 1999, to the second quarter ending June 30,1999 by
$2,137,621. The Gross Margin increased the second quarter a significant
$499,407. On the "Consolidated Statement of Stockholders Equity" page of the
attached Financials under the "Additional Paid-In Capital" column, indicates
that the Contribution of capital by shareholders for the second quarter ending
June 30, 1999 was $4,492,023. This figure still reflects the debt that was
transferred by brewery's joint venture to the brewery's former parent company
and now, 45% owner of Anhui. As a result, the "Interest Expense,"as noted on the
"Consolidated Statement of Operations" was $80,835 less than at the end of the
second quarter of 1998.
- ----------------------------------------
ITEM 5. CAPITAL RESOURCES AND LIQUIDITY
- ----------------------------------------
During the second quarter ending June 30, 1999, the Company issued
214,203 unregistered shares for $428,857.
Related Party Transactions
5
<PAGE>
Prior to the merger between Victoria Beverage Company Ltd.,
("Victoria") and the Company, International Beverage Development Corporation, a
Delaware corporation ("IBDC"), in August 1996, issued to Victoria Beverage
Company Ltd. ("Victoria"), a Promissory Note in the amount of $3,000,000. On May
25, 1999, said Note was exchanged, and thereafter cancelled, in return for
12,000,000 common shares of Gourmet's Choice Coffee Co., Inc. ("Gourmet").
(Exhibit10.1)
In May 1996, prior to its merger with the Company in December 1998,
said event being addressed in detail in the Company's 1998 10-KSB, Victoria
issued a Promissory Note in favor of Southeast Asia Industries Development Ltd.,
a Bahamian corporation ("SAID"), in the amount of $2,000,000. On May 25, 1999,
said Note was exchanged, and thereafter cancelled, in return for 6,000,000
common shares of Gourmet.
(Exhibit 10.2)
IBDC is a privately held Delaware corporation whose president and sole
shareholder is James A. Tilton;
SAID is a privately held Bahamian corporation which no affiliation with
IBDC, Victoria, James A. Tilton or, the Company;
Since December 1998, Victoria has been a wholly-owned subsidiary of the
Companys';
Gourmet is a Nevada corporation that presently trades on the
Over The Counter Bulletin Board("GMCH"), of which James A. Tilton is an
officer, director and majority shareholder.
Due to the related party transactions involved, the Company's auditors
have determined that the aforementioned transaction regarding 6,000,000 shares
of Gourmet's common stock owned by Victoria should have a zero dollar value
which represents the predecessor's costs.
PART II
- --------------------------
ITEM 6. LEGAL PROCEEDINGS
- --------------------------
During the second quarter of 1999, the following material developments
occurred regarding the Company's legal proceedings:
Oasis International Hotel & Casino, Inc. v. China Food and Beverage
Company - Suit was filed in the Supreme Court of the State of New York, Case
Number 114222/99 on June 14, 1999. In April 1996, the Company received a cash
advance in the amount of $160,000 from Pienne Chow ("Chow"). On or about October
8, 1997, the Company executed a Promissory Note in favor of Chow for the
aforementioned $160,000 together with interest. On or about December 3, 1998,
Chow assigned her right, title and interest in said Note to and Oasis and Oasis
sued the Company on the same. The Company hopes to negotiate a settlement with
Oasis in the near future.
Securities and Exchange Commission v. China Food & Beverage, James C.
Tilton, et al. - Suit for Injunctive and Other Equitable Relief as well as a
Temporary Restraining Order, was filed in United States District Court for the
District of Southern Florida, Civil Action No. 99-1968-CIV-GOLD. The context of
this action has been addressed above herein in Item 3., "Events Subsequent to
the Second Quarter."
6
<PAGE>
- ------------------------------------------
ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits required to be attached by Item 601 of Regulation S-B are
listed in the Index to Exhibits on page 8 of this Form 10-QSB, and are
incorporated herein by this reference.
(b) Reports on Form 8-K. No reports were filed on Form 8-K during the quarter.
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 16 day of August,1999.
CHINA FOOD AND BEVERAGE
/s/ James Tilton
---------------------------
James Tilton, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/James Tilton Chief Executive Officer, August 16, 1999
- --------------- President, Treasurer and Director
James Tilton
/s/Stanley Merdinger Director August 16, 1999
- ----------------
Stanley Merdinger
Director August __, 1999
- -----------------
Kitty Chow
7
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Jane Zheng Secretary and Director August 16, 1999
- -----------------
Jane Zheng
Director August __, 1999
- ------------------
Li, Lin Hu
EXHIBIT NUMBER DESCRIPTION
10.1 Joint Exchange Agreement between
International Beverage Development
Corporation and Victoria Beverage
Company, Ltd., exchanging, and thereby
cancelling, a Promissory Note in favor
Victoria in the amount of $3,000,000
in exchange for 12,000,000 shares of
common stock in Gourmet's Choice
Coffee Co., Inc., a publically traded
company on the OTCBB.
10.2 Joint Exchange Agreement between
Southeast Asia Industries, Ltd. and
Victoria Beverage Company, Ltd.,
exchanging, and thereby cancelling, a
Promissory Note in favor Southeast
Asia Industries, Ltd., in the amount
of $2,000,000 in exchange for
6,000,000 shares of common stock in
Gourmet's Choice Coffee Co., Inc., a
publically traded company on the
OTCBB.
8
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and December 31, 1998
F-1
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
------
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalent $ 940,689 $ 425,681
Accounts receivable (net) 2,512,175 1,552,549
Note receivable - related parties 897,964 102,680
Inventory 1,185,754 1,438,968
Other receivables 1,351,975 40,129
------------ ------------
Total Current Assets 6,888,557 3,560,007
------------ ------------
PROPERTY AND FIXED ASSETS
Buildings 3,339,090 3,339,090
Machinery and equipment 8,130,731 8,126,686
Land 277,817 277,817
Accumulated depreciation (2,854,945) (2,390,842)
------------ ------------
Total Fixed Assets 8,892,693 9,352,751
------------ ------------
OTHER ASSETS
Construction in progress 515,967 227,810
Deferred and prepaid expenses 2,540,808 2,643,296
Deposit 215,000 215,000
------------ ------------
Total Other Assets 3,271,775 3,086,106
------------ ------------
TOTAL ASSETS $ 19,053,025 $ 15,998,864
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
<TABLE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,400,459 $ 986,222
Related party payable 105,110 148,226
Accrued expenses 1,370,826 1,311,044
Taxes payable 3,136,335 5,291,836
Customer prepayments 185,661 425,152
Notes payable 5,106,935 4,490,098
------------ ------------
Total Current Liabilities 11,305,326 12,652,578
------------ ------------
LONG-TERM LIABILITIES
Other liabilities 199,958 163,227
------------ ------------
Total Long-Term Liabilities 199,958 163,227
------------ ------------
Total Liabilities 11,505,284 12,815,805
------------ ------------
MINORITY INTEREST 1,795,161 1,570,730
------------ ------------
STOCKHOLDERS' EQUITY
Common stock; 100,000,000 shares authorized of
$0.001 par value, 5,471,967 and 5,257,764 shares
issued and 5,464,289 and 5,250,086 shares
outstanding, respectively 5,472 5,258
Additional paid-in capital 4,492,023 329,649
Stock subscription receivable -- (23,083)
Other comprehensive income 22,098 7,692
Retained earnings 1,232,987 1,292,813
------------ ------------
Total Stockholders' Equity 5,752,580 1,612,329
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,053,025 $ 15,998,864
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
<TABLE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
For the For the
Six Months Ended Three Months Ended
June 30, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 5,653,389 $ 7,822,545 $ 3,895,505 $ 6,481,565
COST OF SALES 3,240,837 5,666,127 2,442,038 4,776,607
----------- ----------- ----------- -----------
GROSS MARGIN 2,412,552 2,156,418 1,453,467 1,704,958
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Selling expenses 138,999 143,261 83,656 83,975
General and administrative 777,700 448,085 209,942 215,853
----------- ----------- ----------- -----------
Total Costs and Expenses 916,699 591,346 293,598 299,828
----------- ----------- ----------- -----------
INCOME BEFORE OTHER EXPENSE 1,495,853 1,565,072 1,159,869 1,405,130
----------- ----------- ----------- -----------
OTHER EXPENSE
Interest expense 136,762 340,549 80,835 219,695
----------- ----------- ----------- -----------
Total Other Expense 136,762 340,549 80,835 219,695
----------- ----------- ----------- -----------
INCOME BEFORE TAX 1,359,091 1,224,523 1,079,034 1,185,435
INCOME TAX EXPENSE 1,194,486 1,261,909 841,757 1,010,121
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY
INTEREST 164,605 (37,386) 237,277 175,314
MINORITY INTEREST (224,431) -- (182,555) --
----------- ----------- ----------- -----------
NET INCOME (LOSS) (59,826) (37,386) 54,722 175,314
OTHER COMPREHENSIVE INCOME
Currency translation adjustment 14,406 1,543 50 256
----------- ----------- ----------- -----------
Total Other Comprehensive
Income (Loss) 14,406 1,543 50 256
----------- ----------- ----------- -----------
NET COMPREHENSIVE INCOME (LOSS) $ (45,420) $ (35,843) $ 54,772 $ 175,570
=========== =========== =========== ===========
BASIC INCOME LOSS PER SHARE $ (0.01) $ (0.00) $ 0.01 $ 0.05
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
<TABLE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<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, 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
Common stock issued for
services at $2.16 per share
(unaudited) 4,203 4 9,067 -- -- --
Common stock issued for
cash at $2.00 per share
(unaudited) 210,000 210 419,790 -- -- --
Contribution of capital by
shareholder (unaudited) -- -- 3,733,517 -- -- --
Receipt of stock subscription
(unaudited) -- -- -- 23,083 -- --
Currency translation
adjustment (unaudited) -- -- -- -- 14,406 --
Net loss for the six months
ended June 30, 1999
(unaudited) -- -- -- -- -- (59,826)
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1999
(unaudited) $ 5,471,967 $ 5,472 $ 4,492,023 $ -- $ 22,098 $ 1,232,987
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
<TABLE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
For the For the
Six Months Ended Three Months Ended
June 30, June 30,
--------------------------------------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income (loss) $ (59,826) $ (37,386) $ 54,722 $ 175,314
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 464,103 455,504 220,405 228,904
Common stock issued for services 9,071 -- 3,071 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (959,626) 1,255,354 (322,837) 491,709
(Increase) decrease in note receivable (795,284) (685,849) (410,788) (507,788)
(Increase) decrease in other receivables (1,311,846) (65,357) (923,224) (346,744)
(Increase) decrease in inventory 253,214 85,775 671,913 534,915
(Increase) decrease in deferred and
prepaid assets 380,305 956,705 306,712 956,798
(Increase) decrease in construction in progress (288,157) 80,820 (260,966) (77,387)
Increase (decrease) in accounts payable and
accrued expenses 490,717 (506,875) 276,082 643,136
Increase (decrease) in customer prepayments (239,491) -- -- 397,791
Increase in taxes payable 558,801 499,014 558,801 375,660
Increase in minority interest 224,433 -- 182,555 --
----------- ----------- ----------- -----------
Net Cash Provided (used) by
Operating Activities (1,273,586) 2,037,705 356,446 2,872,308
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (281,864) (1,056,004) (277,817) (926,722)
----------- ----------- ----------- -----------
Net Cash (Used) by Investing activities (281,864) (1,056,004) (277,817) (926,722)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued for cash 420,000 -- 170,000 --
Proceeds from notes payable 4,636,390 2,585,687 2,479,933 900,257
Payments on notes payable (2,985,932) (3,527,415) (2,613,655) (2,900,140)
----------- ----------- ----------- -----------
Net Cash Provided (Used) by
Financing Activities 2,070,458 (941,728) 36,278 (1,999,883)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 515,008 39,973 114,907 (54,297)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 425,681 243,108 825,782 337,378
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 940,689 $ 283,081 $ 940,689 $ 283,081
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
<TABLE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<CAPTION>
For the For the
Six Months Ended Three Months Ended
June 30, June 30,
-------------------------------------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
SUPPLEMENTAL SCHEDULE OF
CASH FLOW ACTIVITY
Cash Paid For:
<S> <C> <C> <C> <C>
Interest $ 136,762 $ 340,549 $ 80,835 $ 169,820
Income taxes $ -- $ -- $ -- $ --
SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Contribution of capital by shareholder $3,733,517 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Note to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared
by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, results of operations and
cash flows at June 30, 1999 and 1998 and for all periods presented have
been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is
suggested that these condensed consolidated financial statements be
read in conjunction with the financial statements and notes thereto
included in the Company's December 31, 1998 audited consolidated
financial statements. The results of operations for the periods ended
June 30, 1999 and 1998 are not necessarily indicative of the operating
results for the full years.
F-8
Exchange Agreement
This Exchange Agreement is entered into this 25th day, of May 1999, between
International Beverage Development Corporation, a Delaware corporation,
hereinafter "IBDC"; and Victoria Beverage Company Limited, of the Isle of Man,
hereinafter "Victoria". Victoria is the holder of a Bearer Promissory Note, in
the amount of $3,000,000 and desires to exchange such Note to IBDC for
12,000,000 common shares of Gourmet's Choice Coffee Co., Inc. from IBDC (the
"Gourmet's Shares");
NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:
Agreement
1. Victoria hereby assigns and conveys to IBDC that the Bearer Promissory
Note in the amount of $3,000,000 due to Bearer from IBDC. IBDC hereby
acknowledges receipt of such Bearer Note.
2. IBDC hereby agrees to assign within thirty days, to Victoria, two
stock certificates, each in the amount of 6,000,000 shares. Such
shares shall be restricted shares as defined under the rules and
regulations of the Securities Exchange Commission of the United
States, and such shares shall be subject to a holding period under
Rule 144 of the Securities Exchange Commission for such restricted
shares. Such shares shall have an appropriate legend stamped on each
share certificate.
3. All representations and warranties shall survive the closing.
4. This Agreement will be binding on the parties hereto, their heirs,
executors, successors, and assigns.
5. Each party hereto agrees to execute all other documents, cancellation
of notes, and recordings as shall be necessary to carry out the intent
of this Exchange Agreement.
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.
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands and seal the first
day, month and year above written.
Victoria Beverage Company Limited International Beverage Development
Corporation
By: /s/Nicole Hewson By: /s /James A. Tilton
------------------------------- ----------------------------
Joint Exchange Agreement
This Joint Exchange Agreement is entered into this 25th day, of May 1999,
between Southeast Asia Industries Limited, a Bahamian Corporation, 29 Retirement
Road, Nassau Bahamas; and Victoria Beverage Company Limited, of the Isle of Man,
hereafter "Victoria"; and Calder Investments Limited, of Tortola, B.V.I.,
hereafter"Calder"; Southeast Asia Industries, Ltd., the holder of two Bearer
Promissory Notes, each in the amount of $2,000,000, desires to exchange each of
such Notes to Calder and Victoria respectively, for 6,000,000 common shares of
Gourmet Choice Coffee Company from Victoria, and an equal amount from Calder.
NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:
Agreement
1. Southeast Asia Industries Limited, hereby assigns and conveys to
Victoria that certain Bearer Promissory Note in the amount of
$2,000,000 due to Bearer from Victoria Beverage Company of the Isle of
Man. Victoria hereby acknowledges receipt of such Bearer Note.
2. Southeast Asia Industries Limited, hereby assigns and conveys to
Calder that certain Bearer Promissory Note in the amount of $2,000,000
due to Bearer from Calder Investments Limited, of Tortola B.V.I.
Calder hereby acknowledges receipt of such Bearer Note.
3. Victoria hereby agrees to assign, within thirty days, two Gourmet
Choice Coffee stock certificates, one in the amount of 1,450,000
shares, and the second in the amount of 4,550,000 shares. Such shares
shall be restricted shares as defined under the rules and regulations
of the Securities Exchange Commission of the United States, and such
shares shall be subject to a holding period under Rule 144 of the
Securities Exchange Commission for such restricted shares. Such shares
shall have an appropriate legend stamped on each shares. Southeast
Asia Industries, Ltd. agrees that such shares will not be distributed
except to its owners pursuant to a liquidation agreement, which
restricts the right to resell, which owners are all founders and
insiders, constituting less than fifteen shareholders in all.
4. Calder hereby agrees to assign, within thirty days, to Southeast Asia
Industries, Ltd. one stock certificate, in the amount of 6,000,000
shares. Such shares shall be restricted shares as defined under the
rules and regulations of the Securities Exchange Commission of the
United States, and such shares shall be subject to a holding period
under Rule 144 of the Securities Exchange Commission for such
restricted shares. Such shares shall have an appropriate legend
stamped on each shares. Southeast Asia Industries, Ltd. agrees that
such shares will not be distributed except to its owners pursuant to a
liquidation agreement, which restricts the right to resell, which
owners are all founders and insiders, constituting less than fifteen
shareholders in all.
<PAGE>
5. This Agreement is entered into and closed in Nassau, Bahamas, and
shall be interpreted pursuant to the laws of the Bahamas.
6. This Agreement will be binding on the parties hereto, their heirs,
executors, successors, and assigns.
7. Each party hereto agrees to execute all other documents, cancellation
of notes, and recordings as shall be necessary to carry out the intent
of this Joint Agreement.
In witness whereof, the undersigned complete this Joint Exchange of the
above negotiable instruments, the day and year first above written.
Southeast Asia Industries Limited Calder Investments Limited
By: /s/ Gerald L. Jensen By: /s/ Joanna Redmayne
- --------------------------------- ---------------------------
Victoria Beverage Company Limited
By: /s/ Nicole Hewson
- ---------------------------------
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