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 September 30, 2000.
[ ] 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.)
8 West 38th St, 9th floor, New York, N.Y. 10018
-----------------------------------------------
(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 the quarter ended September 30, 2000 and, as of the latest practicable
date, November 15, 2000, is 6,396,507.
1
<PAGE>
TABLE OF CONTENTS
PART 1
ITEM 1. FINANCIAL STATEMENTS.............................................Pg. 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........Pg. 15
ITEM 3. EVENTS SUBSEQUENT TO THE SECOND QUARTER .........................Pg. 16
ITEM 4. RESULTS OF OPERATIONS ...........................................Pg. 16
ITEM 5. CAPITAL RESOURCES AND LIQUIDITY .................................Pg. 16
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................Pg. 16
SIGNATURES.......................................................Pg. 17
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,
1999. 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 31,2000. Accordingly, consolidated audited interim financial
statements, including a balance sheet for the Company as of the fiscal quarter
ended September 30, 2000, 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-13 and are incorporated herein by this reference.
3
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and December 31, 1999
4
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
September 30 December 31,
2000 1999
------------------ -----------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalent $ 506,503 $ 995,846
Accounts receivable (net) -- 1,868,994
Note receivable -- 66,728
Inventory -- 626,262
Other receivables -- 67,894
------------------ -----------------
Total Current Assets 506,503 3,625,724
------------------ -----------------
PROPERTY AND FIXED ASSETS
Buildings -- 3,339,090
Machinery and equipment 2,149 8,575,984
Land -- 277,817
Accumulated depreciation (609) (3,196,571)
------------------ -----------------
Total Fixed Assets 1,540 8,996,320
------------------ -----------------
OTHER ASSETS
Construction in progress -- 218,921
Deferred and prepaid expenses -- 2,746,958
------------------ -----------------
Total Other Assets -- 2,965,879
------------------ -----------------
TOTAL ASSETS $ 508,043 $ 15,587,923
================== =================
5
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
September 30, December 31,
2000 1999
------------------ -----------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 66,666 $ 1,308,760
Related party payable 4,077 127,001
Accrued expenses 419,043 1,177,287
Taxes payable -- 4,032,426
Payroll taxes payable 38,643 --
Customer prepayments -- 43,864
Notes payable -- 5,971,797
------------------ -----------------
Total Current Liabilities 528,429 12,661,135
------------------ -----------------
LONG-TERM LIABILITIES
Other liabilities -- 180,448
------------------ -----------------
Total Long-Term Liabilities -- 180,448
------------------ -----------------
Total Liabilities 528,429 12,841,583
------------------ -----------------
MINORITY INTEREST -- 1,638,740
------------------ -----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock; 100,000,000 shares
authorized of
$0.001 par value, 6,396,507 and
5,546,505 shares
issued and outstanding, respectively 7,197 5,547
Additional paid-in capital 1,520,421 872,070
Related party receivable -- (412,043)
Other comprehensive income -- 8,421
Retained earnings (deficit) (1,548,004) 633,605
------------------ -----------------
Total Stockholders' Equity
(Deficit) (20,386) 1,107,600
------------------ -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT) $ 508,043 $ 15,587,923
================== =================
6
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
From
Inception of
Development
Stage on
For the For the January 1,
Nine Months Ended Three Months Ended 2000 Through
September 30, September 30, September 30,
----------------------------------- ---------------------------------- ----------------
2000 1999 2000 1999 2000
----------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
NET SALES $ -- $ -- $ -- $ -- $ --
COST OF SALES -- -- -- -- --
----------------- ---------------- ---------------- ---------------- ----------------
GROSS MARGIN -- -- -- -- --
----------------- ---------------- ---------------- ---------------- ----------------
COSTS AND EXPENSES
Selling expenses -- -- -- -- --
General and administrative 417,621 -- 216,404 -- 417,621
----------------- ---------------- ---------------- ---------------- ----------------
Total Costs and Expenses 417,621 -- 216,404 -- 417,621
----------------- ---------------- ---------------- ---------------- ----------------
INCOME (LOSS) BEFORE
OTHER EXPENSE (417,621) -- (216,404) -- (417,621)
--------------- ---------------- -------------- --------------- ----------------
OTHER INCOME (EXPENSE)
Interest expense (31,200) -- -- -- (31,200)
Interest income -- 1,886 -- 1,126 -- 1,886
----------------- ---------------- ---------------- ---------------- ----------------
Total Other Income
(Expense) (29,314) -- 1,126 -- (29,314)
----------------- ---------------- ---------------- ---------------- ----------------
INCOME (LOSS) BEFORE TAX,
EXTRAORDINARY ITEM,
MINORITY INTEREST AND
DISCONTINUED
OPERATIONS (446,935) -- (215,278) -- (446,935)
INCOME TAX EXPENSE -- -- -- -- --
----------------- ---------------- ---------------- ---------------- ----------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (446,935) -- (215,278) -- (446,935)
GAIN FROM FORGIVENESS
OF DEBT 255,640 -- -- -- 255,640
----------------- ---------------- ---------------- ---------------- ----------------
INCOME (LOSS) BEFORE
MINORITY INTEREST AND
DISCONTINUED
OPERATIONS (191,295) -- (215,278) -- (191,295)
MINORITY INTEREST -- -- -- -- --
----------------- ---------------- ---------------- ---------------- ----------------
INCOME (LOSS) ON
DISCONTINUED OPERATIONS (1,990,314) (172,998) -- 232,824 (1,990,314)
----------------- ---------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) $ (2,181,609) $ (172,998) $ (215,278) $ 232,824 $ (2,181,609)
================= ================ ================ ================ ================
</TABLE>
7
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations (Continued)
(Unaudited)
<TABLE>
<CAPTION>
From
Inception of
Development
Stage on
For the For the January 1,
Nine Months Ended Three Months Ended 2000 Through
September 30, September 30, September 30,
----------------------------------- ---------------------------------- ----------------
2000 1999 2000 1999 2000
----------------- ---------------- ---------------- ---------------- ----------------
OTHER COMPREHENSIVE
INCOME
<S> <C> <C> <C> <C> <C>
Currency translation adjustment $ -- $ -- $ -- $ -- $ --
----------------- ---------------- ---------------- ---------------- ----------------
Total Other Comprehensive
Income -- -- -- -- --
----------------- ---------------- ---------------- ---------------- ----------------
NET COMPREHENSIVE INCOME
(LOSS) $ (2,181,609) $ 172,998 $ (215,278) $ 232,824 $ (2,181,609)
================= ================ ================ ================ ================
BASIC INCOME (LOSS) PER
SHARE $ (0.36) $ 0.04 $ (0.03) $ 0.04
================= ================ ================ ================
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 6,096,140 4,324,950 6,906,395 5,820,600
================= ================ ================ ================
</TABLE>
8
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Additional Stock Other Retained
Common Stock Paid-In Subscription Comprehensive Earnings
Shares Amount Capital Receivable Income (Deficit)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 5,257,764 $ 5,258 $ 329,649 $ (23,083) $ 7,692 $ 1,292,813
Common stock issued for
services at $1.99 per share 44,203 44 88,002 -- -- --
Common stock issued for
cash at $1.86 per share 234,500 235 436,729 -- -- --
Fractional shares issued 1,188 1 (1) -- - --
Receipt of stock subscription -- -- -- 23,083 -- --
Currency translation adjustment -- -- -- -- 729 - -
Common stock issued for
cancellation of debt at $2.00
per share 8,850 9 17,691 -- -- --
Net loss for the year ended
December 31, 1999 -- -- -- -- -- (659,208)
------------- ------------- ------------ ------------ ----------- ------------
Balance, December 31, 1999 5,546,505 5,547 872,070 -- 8,421 633,605
Common stock issued for cash
at $0.55 per share (unaudited) 850,000 850 449,151 -- -- --
Common stock issued for cash
at $0.25 per share (unaudited) 800,000 800 199,200 -- -- --
Change in currency translation
(unaudited) -- -- -- -- (8,421) --
Net loss for the nine months
ended September 30, 2000
(unaudited) -- -- -- -- -- (2,181,609)
------------- ------------- ------------ ------------ ----------- ------------
Balance, September 30, 2000
(unaudited) 7,196,505 $ 7,197 $ 1,520,421 $ -- $ -- $ (1,548,004)
============= ============= ============ ============ =========== ============
</TABLE>
9
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
For the For the January 1,
Nine Months Ended Three Months Ended 2000 Through
September 30, September 30, September 30,
----------------------------------- ---------------------------------- ----------------
2000 1999 2000 1999 2000
----------------- ---------------- ---------------- ---------------- ----------------
CASH FLOWS FROM OPERATING
ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net income (loss) $ (2,181,609) $ 172,998 $ (215,278) $ 232,824 $ (2,181,609)
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Depreciation and amortization 609 704,715 108 240,612 609
Common stock issued for services -- 9,071 -- -- --
Discontinued operations 1,990,314 -- -- -- 1,990,314
Gain on settlement of debt (255,640) -- -- -- (255,640)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable -- (381,970) -- 577,656 --
(Increase) decrease in note
receivable -- (901,618) -- (106,334) --
(Increase) decrease in other
receivables -- (51,836) -- 1,260,010 --
(Increase) decrease in inventory -- (329,840) -- (583,054) --
(Increase) in deferred and prepaid
assets -- 171,770 -- (208,535) --
(Increase) decrease in construction
in progress (143,183) (45,230) -- 242,927 (143,183)
Increase in accounts payable and
accrued expenses -- 418,234 -- (72,483) --
Increase (decrease) in customer
prepayments -- (239,491) -- -- --
Increase (decrease) in taxes payable -- l236,976 -- (321,825) --
Increase (decrease) in payroll
taxes payable 38,643 -- 38,643 -- 38,643
Increase (decrease) in accounts
payable - related parties -- (43,116) -- (43,116) --
Increase in minority interest -- 475,297 -- 250,864 --
----------------- ---------------- ---------------- ---------------- ----------------
Net Cash (Used) Provided by
Operating Activities (550,866) 195,960 (176,527) 1,469,546 (550,886)
----------------- ---------------- ---------------- ---------------- ----------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets -- (1,455,168) -- (1,173,304) --
----------------- ---------------- ---------------- ---------------- ----------------
Net Cash (Used) by Investing
Activities -- (1,455,168) -- (1,173,304) --
----------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
10
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
For the For the January 1,
Nine Months Ended Three Months Ended 2000 Through
September 30, September 30, September 30,
----------------------------------- ---------------------------------- ----------------
2000 1999 2000 1999 2000
----------------- ---------------- ---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Loss of cash from discontinued
<S> <C> <C> <C> <C> <C>
operations $ (424,757) $ -- $ -- $ -- $ (424,757)
Common stock issued for cash 650,000 460,000 200,000 40,000 650,000
Proceeds from notes payable -- 6,735,926 -- 2,099,536 --
Payments on notes payable (163,720) (5,522,992) -- (2,537,060) (163,720)
----------------- ---------------- ---------------- ---------------- ----------------
Net Cash Provided (Used) by
Financing Activities (61,523) 1,672,934 200,000 (397,524) (61,523)
----------------- ---------------- --------------- ---------------- ----------------
NET INCREASE (DECREASE) IN CASH (489,343) 413,726 23,473 (101,282) (489,343)
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 995,846 425,681 483,030 940,689 995,846
----------------- ---------------- ---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 506,503 $ 839,407 $ 506,503 $ 839,407 $ 506,503
================= ================ ================ ================ ================
SUPPLEMENTAL SCHEDULE OF
CASH FLOW ACTIVITY
Cash Paid For:
Interest $ -- $ 217,597 $ -- $ 80,835 $ --
Income taxes $ -- $ -- $ -- $ -- $ --
SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Contribution of capitol
by shareholder $ -- $ 3,733,517 $ -- $ -- $ --
</TABLE>
11
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
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 September 30, 2000 and for
all periods resented 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 periods ended September 30, 2000 and 1999 are not
necessarily indicative of the operating results for the full
years.
NOTE 2 - LOSS OF SUBSIDIARY
The loss in the first quarter of 2000 from discontinued operatons
results from a dispute with the Anhui Liu An Beer Company Ltd.
("sellers") who represent a minority interest in the entity that
operates the Company's brewery in the Peoples' Republic of China.
In December 1998, the Company acquired a 55% interest in a Chinese
brewery for which it issued 8% convertible debentures in the total
principal amount of $21 million. The debentures had a $5.00
conversion price. Pursuant to the terms of the debentures, the
Company had the right to require conversion of the debentures. The
Company required said conversion and issued 4.2 million shares of
its common stock, also in December 1998. The sellers, from whom
the Company purchased its interest in the brewery, hold a 45%
equity interest in the brewery and agreed to maintain
responsibility for the day-to-day operations of the brewery.
The Company's Chinese asset, which is the brewery, is subject to
liens which resulted in the borrowing of approximately $6 million,
and the brewery had tax liabilities to the People's Republic of
China in excess of $4 million.
In May 2000, the sellers claimed that the Company was in default
of its obligations to repurchase or cause to be repurchased from
the sellers, a significant majority of the shares of the common
stock issued upon conversion of the debentures or, to provide
additional capital. As a result of the alleged default, they
refused to provide the Company with any financial information
concerning the operations of the brewery and assumed control of
the brewery.
The Company believes that the claims made by the sellers are
without merit. However, as the assets of the brewery are in the
Peoples' Republic of China and the Company has no effective
control over the business or the financial concerns of the
brewery, the Company has fully reserved against all of its assets
allocated in China. All operations have been classified as
discontinued as they relate to activities prior to January 1,
2000.
It is possible that, in addition to taking control of the assets,
the sellers may commence an action against the Company alleging,
among other claims, breach of contract. Conversely, the Company is
exploring its options, including but not limited to, initiating
legal action of its own to recover what it believes to be a
wrongful conversion of its assets by the sellers.
12
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 2 - LOSS OF SUBSIDIARY (Continued)
Unless the Company is able to resolve this dispute and because it
does not presently have the financial ability to continue in
operation, it may be obligated to secure additional debt or equity
financing to enable it to continue as an on-going entity.
NOTE 3 - LITIGATION
Securities and Exchange Commission v. China Food & Beverage, James
C. Tilton, et al. - 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, knowingly 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 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 terminate the aforementioned
Consulting Agreement with Globus.
An offer was made by the Company and if accepted by the SEC, will
have the Company subject to a limited Consent Decree.
Oasis International Hotel & Casino, Inc. v. China Food and
Beverage Company - On June 14, 1999, suit was filed in the Supreme
Court of the State of New York, Case Number 114222/99. 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 Oasis International Hotel & Casino, Inc. ("Oasis")
and Oasis sued the Company on the same.
On January 10, 2000, Oasis received a check in the amount of
$50,000 from the Company. On April 24, 2000, the Supreme Court of
the State of New York in the above-referenced matter, entered an
order of Satisfaction of Judgment thereby effectively dismissing
the case against the Company.
13
<PAGE>
CHINA FOOD AND BEVERAGE COMPANY AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 4 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of
liabilities in the normal course of business. However, the Company
does not have significant cash or other material assets, nor does
it have an established source of revenues sufficient to cover its
operating costs and to allow it to continue as a going concern. It
is the intent of the Company to seek a merger with an existing,
operating company. Until that time, the stockholders have
committed to covering the operating costs of the Company.
14
<PAGE>
----------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
----------------------------------------------
The following discussion and analysis should be read in conjunction
with the Company financial statements and notes thereto included elsewhere in
this Form 10- QSB. Except for the historical information contained herein, the
discussion in this Form 10-QSB contains certain forward looking statements that
involve risks and uncertainties, such as statements of the Company plans,
objectives, expectations and intentions. The cautionary statements made in this
Form 10-QSB should be read as being applicable to all related forward statements
wherever they appear in this Form 10-QSB. The Company actual results could
differ materially from those discussed here.
Other than what has been disclosed herein and in the quarterly reports
from the quarters ended March 31, 2000 and June 30, 2000, the Company is not
aware of any immediate circumstances or trends which would have a negative
impact upon future sales or earnings. There have been no material fluctuations
in the standard seasonal variations of the Company business. The accompanying
financial statements include all adjustments, which in the opinion of management
are necessary in order to make the financial statements not misleading.
For the three month ended September 30, 2000, the Company sustained a
loss of $215,278 or $0.36 per share (basic and diluted). The loss in the third
quarter of 2000 can be contributed to the discontinued operations resulting from
a dispute with the Anhui Liu An Beer Company Ltd. ("sellers") who represent a
minority interest in the entity that operates the Company's brewery in the
Peoples' Republic of China. For the comparable period of 1999, the Company
sustained a net gain of $232.824 or $0.04 per share on revenue of $172,998. As a
result of the reserve the Company had a deficiency of stockholder's equity of
$20,368 at September 30, 2000.
The reserve in the third quarter of 2000 results from a dispute with
the Anhui Liu An Beer Company Ltd. ("sellers") who represent a minority interest
in the entity that operates the Company's brewery in the Peoples' Republic of
China. In December 1998, the Company acquired a 55% interest in a Chinese
brewery for which it issued 8% convertible debentures in the total principal
amount of $21 million. The debentures had a $5.00 conversion price. Pursuant to
the terms of the debentures, the Company had the right to require conversion of
the debentures. The Company required said conversion and issued 4.2 million
shares of its common stock, also in December 1998. The sellers, from whom the
Company purchased its interest in the brewery, hold a 45% equity interest in the
brewery and agreed to maintain responsibility for the day-to-day operations of
the brewery.
The Company's Chinese asset, which is the brewery, is subject to liens
which resulted in the borrowing of approximately $6 million, and the brewery had
tax liabilities to the Peoples' Republic of China in excess of $4 million.
In May 2000, the sellers claimed that the Company was in default of its
obligations to repurchase or cause to be repurchased from the sellers, a
significant majority of the shares of the common stock issued upon conversion of
the debentures or, to provide additional capital. As a result of the alleged
default, they refused to provide the Company with any financial information
concerning the operations of the brewery and assumed control of the brewery.
The Company believes that the claims made by the sellers are without
merit. However, as the assets of the brewery are in the Peoples' Republic of
China and the Company has no effective control over the business or the
financial concerns of the brewery, the Company has fully reserved against all of
its assets located in China.
15
<PAGE>
It is possible that, in addition to taking control of the assets, the
sellers may commence an action against the Company alleging, among other claims,
breach of contract. Conversely, the Company is exploring its options, including
but not limited to, initiating legal action of its own to recover what it
believes to be a wrongful conversion of its assets by the sellers.
Unless the Company is able to resolve this dispute and because it does
not presently have the financial ability to continue in operation, it may be
obligated to secure additional debt or equity financing to enable it to continue
as an on- going entity.
LITIGATION
Securities and Exchange Commission v. China Food & Beverage, James C.
Tilton, et al. - 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, knowingly 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.
An offer was made by the Company and if accepted by the SEC, will have
the Company subject to a limited Consent Decree. The Company is confident that
this matter will be resolved satisfactorily to all parties concerned, however,
as of the date of this filing, the matter is still pending.
----------------------------------------------
ITEM 3. EVENTS SUBSEQUENT TO THE FIRST QUARTER
----------------------------------------------
None.
-------------------------------
ITEM 4. RESULTS OF OPERATIONS
-------------------------------
As set forth in Item 2., "Management's Discussion and Analysis" above
herein, for the three month ended September 30, 2000, the Company sustained a
loss of $215, 278 or $0.36 per share (basic and diluted.) The loss in the third
quarter of 2000 can be contributed to the discontinued operations resulting from
a dispute with the Anhui Liu An Beer Company Ltd. ("Sellers") who represent a
minority interest in the entity that operates the Company's brewery in the
Peoples' Republic of China. For the comparable period of 1999, the Company
sustained a gain of $232.824, or $0.04 per share on revenue of $172,998. As a
result of the reserve the Company had a deficiency of stockholder's equity of
$20,386 at September 30, 2000.
The Company's Chinese asset, which was the brewery, is subject to liens
which resulted in the borrowing of approximately $6 million, and the brewery had
tax liabilities to the Peoples' Republic of China in excess of $4 million.
----------------------------------------
ITEM 5. CAPITAL RESOURCES AND LIQUIDITY
----------------------------------------
During the third quarter of 2000, the Company issued 800,000
unregistered shares for $200,000.
PART II
------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------
None.
16
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized this 20th day of November, 2000.
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, President, November 20, 2000
--------------- Treasurer and Director
James Tilton
/s/ Jane Zheng Secretary and Director November 20, 2000
--------------
Jane Zheng
Li, Lin Hu Director November 20, 2000
----------
Li, Lin Hu
17
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