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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2))
[X] Definitive Information Statement
Bureau of Electronic Publishing
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g)
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
_______________________________________
2) Aggregate number of securities to which transaction applies:
_______________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
_______________________________________
4) Proposed maximum aggregate value of transaction:
_______________________________________
5) Total fee paid:
_______________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
__________
2) Form, Schedule or Registration Statement No.:
__________
3) Filing Party:
__________
4) Date Filed:
__________
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BUREAU OF ELECTRONIC PUBLISHING, INC.
Information Statement
This information statement is provided by the Board of Directors of
Bureau of Electronic Publishing, Inc., a Delaware corporation (the "Company"),
in connection with stockholder approval by written consent authorizing
amendments to the Company's Articles of Incorporation to effect:
1. an increase in the authorized number of shares of Common Stock, par
value $.001 per share, to 300,000,000, and an increase in the
authorized number of shares of Preferred Stock, par value $.001 per
share, to 3,000,000,
2. a change in the Company's name to Pacific Chemical, Inc., and
3. a reverse stock split of the Company's Common Stock in a ratio of
between four-to-one and ten-to-one, with the specific ratio to be
determined at the discretion of the Company's Board of Directors, the
Board of Directors having selected a ratio of six-to-one.
In addition, stockholders by written consent have ratified the
following action of the Board of Directors:
4. issuance of Series A and Series B Preferred Stock having voting
rights in excess of one vote per share.
All of the foregoing actions have been effected by written consents
(the "Consents") executed by the holders of an aggregate of 55.5% of the
Company's outstanding Common Stock. In accordance with the regulations of the
Securities and Exchange Commission (the "Commission"), the Consents will be
effective 20 days following the mailing of this information statement. It is
expected that the amendments to the Certificate of Incorporation will be filed
immediately thereafter.
In January 1997, the Company completed a transaction with Pacific
Chemical Group Limited ("PCG") whereby the former stockholders of PCG received
Series A Preferred Stock with voting rights constituting a majority of the
Company's total voting stock (Common Stock and Series A, B, and C Preferred
Stock). The holders of the Preferred Stock have abstained from voting on the
foregoing actions except as may be required by state corporate law to put into
effect the Consents of the Common Stockholders. The Board of Directors does not
intend to solicit any proxies or consents from any other stockholders in
connection with this action.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY
The Company's principal executive office address is 745 Alexander Road,
Princeton, New Jersey 085404. This Information Statement will be mailed to the
Company's stockholders on or about May 15, 1997.
INTRODUCTION
General
The Company was incorporated under the laws of the State of Delaware on
May 5, 1988. Until November 1996, the Company's principal business was creating,
publishing, and selling interactive multimedia software titles on CD-ROM. In
October 1996 the Company's Board of Directors determined that that business had
not provided adequate prospects for a reasonable return on the stockholders'
investments and therefore began to reduce the Company's workforce and to explore
alternate lines of business. On November 7, 1996, the Company entered into a
letter of intent to combine with PCG and on January 23, 1997 the Agreement and
Plan of Merger between the Company, the Company's British Virgin Islands ("BVI")
subsidiary, PCG, and Jinan Chemical Fibre Corporation ("JCF") (the "Agreement")
was simultaneously executed and closed. PCG
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was a privately-held BVI corporation. JCF is a Peoples Republic of China ("PRC")
corporation which operates a chemical fiber production complex in the city of
Jinan in northern China. JCF is owned by the local government of Jinan.
Merger with PCG
Pursuant to the Agreement, at the closing the Company's BVI subsidiary
merged into PCG in a merger carried out pursuant to the laws of the BVI (the
"Merger"). In connection with the Merger, the stockholders of PCG transferred
100% ownership of PCG to the Company and the stockholders of PCG received an
aggregate of 833,671.66 shares of Series A Preferred Stock of the Company. Each
share of Series A Preferred Stock is automatically convertible into 100 shares
of the Company's Common Stock when the number of authorized shares of the
Company's Common Stock is increased to 300,000,000, has 100 votes per share and
votes with the Common Stock as one class, and has a preference of $100 per share
in the event of liquidation. One of the stockholder actions described below is
the increase in authorized Common Stock which will cause the conversion of the
Series A Preferred Stock into Common Stock.
Prior to the Merger the Company had approximately 4,650,000 shares of
Common Stock outstanding. As a result of the Merger, PCG became a wholly-owned
subsidiary of the Company and the former stockholders of PCG acquired control of
a substantial majority of the voting stock of the Company. However, the holders
of the Preferred Stock have abstained from voting on the actions described in
this Information Statement except as may be required by state corporate law to
put into effect the actions of the Common Stockholders.
As of the closing, Mr. Jao Shun Pan was elected to the Board of
Directors of the Company. All other directors and officers of the Company
resigned. One of the previous directors, Mr. Bryan Finkel, was immediately
reelected to the Board. After the closing, Mr. Jin Shan was elected
Chairman-elect and President of the Company, Mr. Li De Yuan was elected Vice
Chairman-elect and Secretary, and Mr. Pan was elected Vice President, Chief
Financial Officer and Assistant Secretary. Each of Messrs. Jin, Li, and Pan
occupied equivalent positions in PCG and Messrs. Jin and Li are also executive
officers and directors of JCF. It is anticipated that Messrs. Jin and Li and two
other directors affiliated with JCF will be elected by the current Board of
Directors following the distribution of this Information Statement.
The Joint Venture
PCG owns 51% and JCF owns 49% of a joint venture, Jinan Dayang Chemical
Fibre Corporation (the "Joint Venture"), which operates JCF's former Plant No. 1
production facility for purified terephthalic acid ("PTA"). As a result of the
Merger, PCG has become a wholly-owned subsidiary of the Company and the Company
has acquired PCG's rights and obligations in the Joint Venture. The Joint
Venture has succeeded to the business of manufacturing and sale of PTA
originally conducted by JCF in the No. 1 Plant. The No. 1 Plant is principally
engaged in the manufacture of PTA for further processing by other production
units of JCF into polyester chip, film, staple and filament. The Joint Venture
was established on February 9, 1996 by PCG and JCF pursuant to a joint venture
agreement entered into pursuant to the PRC laws governing Sino-foreign joint
ventures (the "Joint Venture Agreement").
Pursuant to the Joint Venture Agreement, PCG is required to pay
US$14,995,000 in cash as its capital contribution for 51% of the equity
interests in the Joint Venture (the "Purchase Price"). To date, US$2,000,000 of
the Purchase Price has been paid. In the event that the full Purchase Price is
not paid within three years of the formation of the Joint Venture, for whatever
reason including the lack of ability to finance, the Company may forfeit its
claim on its equity interests in the Joint Venture. The Chinese Partner will own
49% of the equity interests in the Joint Venture and will contribute part of its
production facilities and other assets including certain plant and equipment of
the No. 1 Plant to the Joint Venture as its capital investment. In addition, JCF
has leased to the Joint Venture certain other production assets of No. 1 Plant.
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Other key provisions of the Joint Venture Agreement include: (i) the
joint venture period is fifty years from the formal incorporation date of the
Joint Venture on March 27, 1996; (ii) the profit and loss sharing ratio is the
same as the respective equity interests; (iii) the Board of Directors consists
of seven members --four designated by the Company and three designated by JCF
with major issues requiring approval of two-thirds of the directors; (iv) the
first 80,000 tons of PTA produced annually by the Joint Venture must first be
offered to JCF before sale to third parties; (v) JCF will provide certain
management and administrative services to the Joint Venture for a management
fee; and (vi) JCF will transfer to the Joint Venture the right to use
electricity and water and the use of certain fixed assets.
The No. 1 Plant was a key production facility of JCF prior to the Joint
Venture Agreement. Construction of the No. 1 Plant began in October 1988 and was
completed in July 1991. The No. 1 Plant currently has the capacity to produce
85,000 tons of purified terephthalic acid ("PTA") annually. The entire line of
PTA production equipment was imported from Japan and cost more than Rmb 300
million (US$36.1 million). When originally completed in 1991, the No. 1 Plant
had only a 66,000 tons per annum capacity, but has ramped up production to
current levels through engineered modifications.
No. 1 Plant's PTA production is used primarily in the further
processing by JCF's downstream operations in the production of polyester chips,
granules, staples and filaments sold to more than thirty customers in ten
provinces. A small portion of No. 1 Plant's production is sold to third parties.
Under the Joint Venture Agreement, the Joint Venture is obligated to sell the
large majority of its PTA production to JCF. The Joint Venture and JCF have not
yet set the basis for pricing of future sales of PTA by the Joint Venture to
JCF. The production exceeding the supply obligations to JCF may be sold to third
parties. Currently, the Joint Venture has no marketing, distribution or service
infrastructure to support significant sales to third parties. For additional
information, stockholders are referred to the Financial Statements of Plant No.
1, PCG, and the Joint Venture which are included in this Information Statement.
Increase in Authorized Common and Preferred Stock
The Board of Directors and the holders of a majority of the Company's
outstanding Common Stock have approved an amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares of the Company's
Common Stock to 300,000,000 shares, par value of $0.001 per share, and to
increase the number of authorized shares of the Company's Preferred Stock to
3,000,000 shares, par value of $0.001 per share (the "Stock Increase
Amendment").
At May 15, 1997, the authorized capital of the Company consisted of
12,000,000 shares of Common Stock, par value $0.001 per share and 2,000,000
shares of Preferred Stock, par value $0.001 per share. As of that date,
4,647,619 shares of Common Stock were outstanding and approximately 1,333,690
shares of Preferred Stock were outstanding, consisting of 833,671.66 shares of
Series A Convertible Preferred Stock ("Series A Preferred"), 18.25 shares of
Series B Convertible Preferred Stock ("Series B Preferred"), and 500,000 shares
of Series C Convertible Preferred Stock ("Series C Preferred"). The Company has
also agreed to issue shares of a Series D Convertible Preferred Stock ("Series D
Preferred") convertible into 500,000 shares of Common Stock although that series
of Preferred Stock has not yet been created. In addition, at that date, an
aggregate of 4,757,245 shares of Common Stock were reserved for issuance upon:
(i) exercise of options which may be granted under the Company's 1994 Stock
Option Plan (1,000,000 shares from which options to acquire 204,392 shares have
been granted), (ii) exercise of the Company's outstanding public warrants
(1,340,476 shares), (iii) exercise of Warrants granted to the underwriter in
connection with a public offering of the Company's securities (200,000 shares),
(iv) exercise of warrants which have been issued in connection with certain
private financings (1,958,487 shares), and (v) exercise of various other
outstanding warrants and options (258,282 shares). Therefore, before conversion
of any Preferred Stock the Company will have issued or reserved for issuance a
total of approximately 9,404,864 shares of the 12,000,000 shares of Common Stock
currently authorized for issuance. In addition, an aggregate of at least
86,192,166 shares of Common Stock
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will be issuable upon conversion of the Series A, B, C, and D Preferred.
However, the Convertible Preferred Stock will not be convertible until the Stock
Increase Amendment goes into effect.
After the Stock Increase Amendment is filed, the additional shares of
Common and Preferred Stock would be issuable at any time and from time to time,
by action of the Board of Directors without further authorization from the
Company's stockholders, except as otherwise required by applicable law or rules
and regulations to which the Company may be subject, to such persons and for
such consideration (but not less than the par value thereof) as the Board of
Directors determines.
After taking into account the currently issued and reserved shares of
Common Stock discussed above but without taking into account shares to be issued
on conversion of the Convertible Preferred Stock, the Company would have only
2,595,136 shares of Common Stock authorized which are not issued or reserved for
issuance. The Company's Board of Directors believes that the authorization of
the additional shares of Common and Preferred Stock are in the best interests of
the Company and its stockholders so that sufficient shares will be readily
available for use, if feasible, in acquisitions, in raising additional capital
and for grants as incentives to employees, officers, directors and consultants
of the Company.
In addition, the Stock Increase Amendment will cause the conversion of
the Series A Preferred. Although the conversion of the Series A Preferred will
result in a substantial dilution of the current outstanding Common Stock, the
Board of Directors believes that it is the best interests of the current holders
of Common Stock that they have the same class of stock as the new owners of a
majority of the equity stock of the Company. By having the former stockholders
of PCG who now own a majority of the Company's equity stock through the Series A
Preferred become holders of Common Stock, all actions taken by the former
stockholders of PCG to enhance the value of their equity interests will also
benefit the other holders of the Company's Common Stock.
From time to time the Company may consider acquisitions or other
transactions which may require the issuance of shares of Common Stock or
Preferred Stock. Other than the Convertible Preferred Stock, the Company
presently has no understandings or arrangements which would require the issuance
of any of the additional shares of Common or Preferred Stock which are proposed
to be authorized. Further, there are no definitive agreements at this time
respecting any merger or consolidation with or acquisition of another business,
or the sale or liquidation of the Company or its business. However, management
believes that the increase in the number of authorized shares of Common and
Preferred Stock is in the best interest of the Company and its stockholders
since additional shares of Common and Preferred Stock will provide the Company
with the flexibility of having a broader choice in the type and number of
equity securities available to it for the above and other corporate purposes.
Due to the Board of Directors' discretion in connection with the
issuance of additional shares of Common and Preferred Stock to be issued in a
private placement, it may, under certain circumstances, possess timing and other
advantages in responding to a tender offer or other attempt to gain control of
the Company, which may make such attempts more difficult and less attractive.
For example, issuance of additional shares would increase the number of shares
outstanding and could necessitate the acquisition of a greater number of shares
by a person making a tender offer and could make such acquisition more difficult
since the recipient of such additional shares may favor the incumbent
management. Moreover, these advantages give the Board of Directors the ability
to provide any such holders with a veto power over actions proposed to be taken
by the holders of the Company's Common Stock. This could have the effect of
insulating existing management from removal, even if it is in the best interest
of the common stockholders. Management of the Company is not aware of any
existing or threatened efforts to obtain control of the Company.
The foregoing is only a summary of the Stock Increase Amendment and is
not intended to be complete. Stockholders are urged to read carefully the
provisions of the Stock Increase Amendment, the complete text of which is
attached as Exhibit A to this Information Statement. The foregoing summary is
qualified in its entirety by reference to such complete text.
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Changing the Company's Name to Pacific Chemical, Inc.
The Board of Directors and the holders of a majority of the Company's
outstanding Common Stock have approved an amendment to the Certificate of
Incorporation which would change the name of the Company from Bureau of
Electronic Publishing, Inc. to Pacific Chemical, Inc. The Board believes that
this new name will more accurately reflect in its name the Company's new
business following the Merger. The Company currently plans to implement the
change of name when it would be most cost efficient with regard using current
supplies of packaging, stationery, etc. The Company anticipates that the cost of
publicizing the change of name will not be significant.
Reverse Stock Split
The Board of Directors and the holders of a majority of the Company's
outstanding Common Stock have approved an amendment to the Certificate of
Incorporation of the Company to effect a reverse stock split of the Company's
currently issued and outstanding Common Stock after the Stock Increase Amendment
has been put into effect (the "Reverse Split Amendment"). The Consents have
authorized the Board of Directors at its discretion to effect a reverse stock
split ratio of from four-to-one to ten-to-one. The Board of Directors has
determined to effect a reverse stock split of six-to-one. After the Stock
Increase Amendment goes into effect, the Company will be authorized to issue
300,000,000 shares of Common Stock, par value $.001 per share. The Reverse Split
Amendment will reduce the number of shares of Common Stock the Company is
authorized to issue by the proportion of the reverse stock split and
correspondingly reduce the Company's stated capital. The six-to-one reverse
stock split will reduce the Company's authorized number of shares of Common
Stock to 50,000,000 while maintaining the par value per share at $.001, which
will effectively reduce the Company's stated capital to one-sixth of the stated
capital following effectuation of the Stock Increase Amendment. As of the date
hereof, there are issued and outstanding 4,647,619 shares of Common Stock.
Following adoption of the Stock Increase Amendment, the Series A Preferred will
be automatically converted into 83,367,116 shares of Common Stock and there will
be a total of 88,014,735 shares of Common Stock outstanding assuming that there
are no other conversions of convertible securities. Adoption of the reverse
stock split will reduce the projected issued and outstanding shares of Common
Stock by the proportion of the reverse stock split. The six-to-one reverse stock
split will reduce the number of outstanding shares of Common Stock after the
conversion of the Series A Preferred from 88,014,735 shares to 14,669,122
shares. The 4,647,619 shares of Common Stock outstanding prior to the adoption
of the Stock Increase Amendment and the conversion of the Series A Preferred
would be reduced to approximately 774,600 shares. The proposed form of the
Certificate of Amendment respecting the Reverse Split Amendment to the
Certificate of Incorporation is attached hereto as Exhibit B.
The Consents authorized the Board of Directors to effect a reverse
stock split in a ratio of from four-to-one to ten-to-one. The primary factors
considered by the Board in selecting the reverse stock split ratio of six-to-one
were the requirements for maintaining the listing of the Company's securities on
the Nasdaq Small-Cap Market. The Nasdaq Stock Market, Inc. ("Nasdaq") has
informally notified the Company that it considers the Merger to constitute a
transaction which involves a change of control and change of business which
requires that the Company meet the requirements for initial inclusion on the
Nasdaq Small-Cap Market in order to maintain the listing of the Company's
securities. The Company believes that after giving effect to the Merger that it
meets all of the requirements for initial inclusion except the requirement of a
minimum bid price requirement of $3.00 per share, or $4.00 per share in the
event that proposed new Nasdaq listing requirements become effective. On May 13,
1997, the closing bid price for the Company's Common Stock was $1.03 per share.
Another requirement for initial inclusion that the Board took into account in
determining the reverse stock split ratio is that the Company must have
outstanding at least 100,000 publicly held shares with a market value of at
least $1,000,000. After giving effect to the Stock Increase Amendment and the
conversion of the Series A Preferred, the Company will have outstanding
approximately 19,900,000 shares of Common Stock held by non-affiliates (persons
other than officers, directors, and stockholders holding over 10% of the
Company's
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outstanding Common Stock). The Board believes that the six-to-one reverse stock
split ratio will result in a stock price in excess of the $3.00 or $4.00 per
share requirement while maintaining the amount of publicly held Common Stock
above the required levels of 100,000 shares with a market value of at least
$1,000,000. See "Reasons for the Reverse Stock Split."
No fractional shares will be issued. Any fractional interests resulting
from the reverse stock split will be rounded down to the next lower whole number
of shares. To the extent a stockholder holds a number of shares that would
result in a residual fractional interest, the Company will pay, as soon as is
practicable after the effective date of the Reverse Split Amendment, $1.03 for
each share of Common Stock outstanding prior to the reverse stock split that
comprises the fractional interest. Stockholders will not have the opportunity on
or after the effective date of the Reverse Split Amendment to round off their
shareholdings to avoid resulting fractional interest. The $1.03 price per share
figure for the Common Stock purchased pursuant to the retirement of resulting
interests is based on the closing bid price of the Common Stock as reported on
NASDAQ on May 8, 9, 12, and 13, 1997. The management of the Company believes
that the $1.03 price per share figure is fair to all of the stockholders whose
fractional interests are retired, the other stockholders of the Company and the
Company.
Except for the receipt of cash in lieu of fractional interest, the
proposed reverse stock split will not affect any stockholder's proportionate
equity interest in the Company. The number of issued shares after the reverse
stock split is approximate. Except for changes resulting from the reverse stock
split, the rights and privileges of holders of shares of Common Stock will
remain the same, both before and after the proposed reverse stock split.
The Consents authorizing the amendment and the filing of the
Certificate of Amendment will become effective 20 days after the date of mailing
of this Information Statement, on or about May 15, 1997. The proposed reverse
stock split will become effective on the effective date of that filing (the
"Effective Date"). Commencing on the Effective Date, each currently outstanding
certificate will be deemed for all corporate purposes to evidence ownership of
the reduced number of shares resulting from the reverse stock split. Currently
outstanding certificates do not have to be surrendered in exchange for new
certificates in connection with the reverse stock split. Rather, new stock
certificates reflecting the number of shares resulting from the reverse stock
split will be issued only as currently outstanding certificates are transferred.
However, the Company will provide stockholders with instructions as to how to
exchange their certificates and encourage them to do so. The Company will obtain
a new CUSIP number for its shares of Common Stock.
The Company has approximately 90 stockholders of record and believes
that the total number of beneficial holders of the Common Stock of the Company
to be approximately 1,400, based on information received from the transfer agent
and those brokerage firms who hold the Company's securities in custodial or
"street" name. After the reverse stock split the Company estimates that, based
on the aforementioned shareholdings, it will continue to have approximately the
same number of stockholders.
Reasons for the Reverse Stock Split
As noted above, the Company has been informally notified by Nasdaq that
Nasdaq considers the Merger to constitute a transaction which involves a change
of control and change of business which requires that the Company meet the
requirements for initial inclusion on the Nasdaq Small-Cap Market in order to
maintain the listing of the Company's securities. The Company believes that
after giving effect to the Merger that it meets all of the requirements for
initial inclusion except the requirement of a minimum bid price requirement of
$3.00 o $4.00 per share. It is expected that the proposed six-to-one reverse
stock split will enable the Company's Common Stock to meet this requirement.
The Board of Directors believes that it is very important that the
Company maintain the listing of its
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securities on the Nasdaq Small-Cap Market. Pursuant to Rule 15c2-6 (the "Rule")
adopted by the Securities and Exchange Commission under the Securities Exchange
Act of 1934, broker-dealers are required to implement certain supplemental sales
practice requirements when recommending and selling "designated securities" to
customers in transactions not exempt under the Rule. The Rule was directed at
the elimination of certain practices in connection with the sale of certain low
priced securities. The Rule exempts from its requirements the securities of
issuers listed on national securities exchanges and the Nasdaq trading systems.
Management of the Company believes that the market for the Company's Common
Stock will be improved by maintaining its listing on the Nasdaq Small-Cap
Market, thereby maintaining the exemption of its Common Stock from the impact of
the Rule.
The Board of Directors also believes that the current price level of
the Company's Common Stock has reduced the effective marketability of the shares
because of the reluctance of many leading brokerage firms to recommend low
priced stock to their clients. In addition, a variety of brokerage house
policies and practices tend to discourage individual brokers within those firms
from dealing in low priced stock. Some of those policies and practices pertain
to the payment of brokers commissions and to time consuming procedures that
function to make the handling of low priced stocks unattractive to brokers from
an economic standpoint.
The Company believes that the decrease in the number of shares of
Common Stock outstanding as a consequence of the proposed reverse stock split
should increase the per share price of the Common Stock, which may encourage
greater interest in the Common Stock and possibly promote greater liquidity for
the Company's stockholders. However, the increase in the per share price of the
Common Stock as a consequence of the proposed reverse stock split may be
proportionately less than the decrease in the number of shares outstanding. In
addition, any increased liquidity due to any increased per share price could be
partially or entirely off-set by the reduced number of shares outstanding after
the proposed reverse stock split. Nevertheless, the proposed reverse stock split
could result in a per share price that adequately compensates for the adverse
impact of the market factors noted above. There can, however, be no assurance
that the favorable effects described above will occur, or that any increase in
per share price of the Common Stock resulting from the proposed reverse stock
split will be maintained for any period of time. The management of the Company
does not currently intend to engage in any future transactions or business
combinations which would qualify the Company for deregistration of the Common
Stock from the reporting and other requirements of Federal securities laws.
Warrants and Options
The Company currently has outstanding 1,340,476 publicly held Warrants.
Each Warrant currently entitles the holder, for $6.18, to purchase one share of
Common Stock. The Warrants are subject to redemption at a price of $.05 per
Warrant provided the closing bid price of the Common Stock as reported by Nasdaq
exceeds $9.27 per share for 30 consecutive trading days ending on the fifth
trading day prior to the notice of redemption. As a result of the reverse stock
split the exercise price per share of the Warrants and the closing bid price
which the Common Stock must achieve before the Warrants become subject to
redemption will be increased in the ratio of the reverse stock split and the
number of shares issuable pursuant to each Warrant will be decreased in the same
proportion.
Therefore, following the six-to-one reverse stock split, each Warrant
would be exercisable to purchase one-sixth of a share of Common Stock. The
Company is not required to issue fractional shares upon exercise of the
Warrants. Therefore, to purchase one share of Common stock, a Warrantholder
would have to exercise six Warrants at an aggregate exercise price of $37.08 per
share. The closing bid price which the Common Stock must achieve before the
Warrants become subject to redemption would be increased to $55.62 per share.
The Company also has outstanding or is obligated to issue various other
warrants and options exercisable to acquire up to an aggregate of 2,621,161
shares of Common Stock and Convertible Preferred
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Stock convertible into at least 2,825,000 shares of Common Stock (not including
the Series A Preferred which will be automatically converted upon the filing of
the Stock Increase Amendment), at a variety of exercise prices. The amount of
stock issuable pursuant to these options, warrants and shares of Preferred Stock
will be reduced and the per share exercise prices will be increased by the
proportion of the reverse stock split. The six-to-one reverse stock split ratio
will reduce the amount of stock issuable pursuant to these options, warrants and
shares of Preferred Stock to one-sixth the previous amounts and the per share
exercise prices will be increased 600%.
Federal Income Tax Consequences
The following material is based on discussions with counsel. No opinion
of counsel has been obtained. Stockholders are advised to consult with their own
tax advisors for more detailed information relating to their individual tax
circumstances.
1. The proposed reverse stock split will be a reorganization described
in section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended (the
"Code").
2. The Company will recognize no gain or loss as a result of the
proposed reverse stock split.
3. Stockholders will recognize no gain or loss to the extent that
currently outstanding shares of Common Stock are exchanged for new shares of
Common Stock pursuant to the proposed reverse stock split if no fractional
shares are present. Stockholders who receive cash for fractional shares will be
treated as if they had received such fractional shares and then sold them to the
Company. Such stockholders will recognize gain or loss equal to the difference
between the amount of cash received and their basis in the stock exchanged.
Thus, if fractional shares are present as a result of the split, and the
stockholder realizes a gain on the exchange, the stockholder will recognize a
taxable gain equal to the lesser of the cash received or the gain realized. If
fractional shares are present and a loss is realized on the exchange, the loss
is not recognized, but rather the loss must be deferred until the stockholder
disposes of the new stock in a taxable transaction. The stockholder's basis in
the new stock is equal to the basis in the stock exchanged less any cash
received plus gain recognized, if any.
4. The basis of the new Common Stock received in exchange for Common
Stock pursuant to the proposed reverse stock split will be the same as the
stockholders' basis in the stock exchanged. Therefore, the new shares of Common
Stock in the hands of a stockholder will have an aggregate basis for computing
gain or loss equal to the aggregate basis of shares of Common Stock held by that
stockholder immediately prior to the proposed reverse stock split.
Ratification of Voting Rights of Series A and B Preferred
The holders of a majority of the Company's outstanding Common Stock
have also ratified the action of the Company's Board of Directors in issuing the
Series A Preferred and Series B Preferred. The Company's Certificate of
Incorporation authorizes the Board of Directors to issue series of Preferred
Stock with such voting rights as the Board deems appropriate. In authorizing the
Series A Preferred and Series B Preferred, the Board elected to include voting
rights based upon the number of shares of Common Stock into which those series
of Preferred Stock were convertible. Thus, since each share of Series A
Preferred is convertible into 100 shares of Common Stock, each share of Series A
Preferred have 100 votes in all matters as to which holders of the Company's
Common Stock are entitled to vote. Similarly, each share of Series B Preferred
is convertible into 100,000 shares of Common Stock and therefore is entitled to
100,000 votes per share. The Series A Preferred was issued to the former
stockholders of PCG in exchange for the Merger, and the Series B Preferred was
issued in connection with a private placement to raise funds to be used in
making a partial payment of the Purchase Price and in meeting expenses of the
Merger.
8
<PAGE>
The grant of extra voting rights was a temporary expedient designed to
facilitate the Merger and was not intended to create a permanent two-tier dual
voting stock scheme. Also, the extra voting rights of the Series A Preferred
will terminate when converted to Common Stock upon filing of the Stock Increase
Amendment. Nonetheless, the Consents have also ratified the authorization of
these extra votes per share in order to comply with Nasdaq's voting rights
policies which discourage super voting rights.
Interests in the Consents
The management and certain stockholders of the Company who were
formerly stockholders of PCG have a personal interest in the adoption of the
Stock Increase Amendment since it will enable the Company to issue additional
shares of Common Stock pursuant to the conversion of the Series A Preferred. See
"Merger with PCG." However, all stockholders who executed the Consents were
holders of Common Stock of the Company prior to the Merger and do not have any
current interest in the matters covered by the Consents except to the extent
that they believe that the approval of the matters included in the Consents will
benefit them as holders of the Company's Common Stock.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Pursuant to the rules applicable to this Information Statement, the
Company is annexing as Exhibits C and D to this Information Statement: its Form
10-KSB annual report for the year ended December 31, 1996 and Item 7(a) and (b)
from the Company's Current Report on Form 8-K dated February 7, 1997, as amended
on April 8, 1997, which contains financial statements and pro forma financial
information to account for Merger. The following documents, which have been
filed with the Commission by the Company are incorporated herein by reference
and made a part hereof:
(1) Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996;
(2) Financial Statements as of December 31, 1996 and 1995 of
Jinan Chemical Fibre Corporation - Plant One; Financial Statements as
of December 31, 1996 and 1995 of Pacific Chemical Group Limited;
Financial Statements as of December 31, 1996 of Jinan Da Yang Chemical
Fibre Company Limited; and Pro Forma Financial Information (unaudited)
of Bureau of Electronic Publishing, Inc. as of and for the year ended
December 31, 1996, all as included in Item 7 of the Company's Current
Report on Form 8-K dated February 7, 1997, for an event dated January
23, 1997, as amended on April 21, 1997.
The Commission file number for the Company's documents which are
incorporated by reference herein is 1-13890. All documents filed by the Company
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent
to the date of this Information Statement shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing thereof. Any
statement contained herein shall be deemed to be modified or superseded for all
purposes of this Information Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Information Statement.
Dated: Princeton, New Jersey
May 15, 1997
By Order of the Board of Directors
J. S. Pan, Assistant Secretary
9
<PAGE>
List of Exhibits
<TABLE>
<S> <C>
Exhibit A Stock Increase Amendment
Exhibit B Reverse Split Amendment (including change of corporate name)
Exhibit C Form 10-KSB for the fiscal year ended December 31, 1996
Exhibit D Financial Statements as of December 31, 1996 and 1995 of Jinan
Chemical Fibre Corporation - Plant One; Financial Statements as
of December 31, 1996 and 1995 of Pacific Chemical Group Limited;
Financial Statements as of December 31, 1996 of Jinan Da Yang
Chemical Fibre Company Limited; and Pro Forma Financial
Information (unaudited) of Bureau of Electronic Publishing, Inc. as
of and for the year ended December 31, 1996, all as included in
Item 7 of the Company's Current Report on Form 8-K dated
February 7, 1997, for an event dated January 23, 1997, as amended
on April 21, 1997.
</TABLE>
10
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BUREAU OF ELECTRONIC PUBLISHING\, INC.
Bureau of Electronic Publishing, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
FIRST: That pursuant to the recommendation of the Board of Directors of
Bureau of Electronic Publishing, Inc., the following resolution amending the
Certificate of Incorporation of said corporation, has been adopted by the vote
of stockholders of said corporation holding a majority of the outstanding stock
entitled to vote thereon. The resolution setting forth the amendment is as
follows:
RESOLVED, that paragraph FOURTH of the Certificate of
Incorporation shall be amended to read in its entirety as follows:
"The aggregate number of shares which the Corporation shall
have the authority to issue is 303,000,000, which are divided into
300,000,000 shares of Common Stock, par value $.001 per share, and
3,000,000 shares of Preferred Stock, par value $.001 per share."
SECOND: That these resolutions have been adopted by written consent of
stockholders holding a majority of the outstanding stock entitled to vote
thereon in accordance with Section 228 of the General Corporation Law of the
State of Delaware.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said Bureau of Electronic Publishing, Inc., has
caused this certificate to be signed by its Vice President this ___ day of
June, 1997.
Bureau of Electronic Publishing, Inc.
By: __________________________
J. S. Pan, Vice President
11
<PAGE>
EXHIBIT B
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BUREAU OF ELECTRONIC PUBLISHING, INC.
Bureau of Electronic Publishing, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
FIRST: That pursuant to the recommendation of the Board of Directors of
Bureau of Electronic Publishing, Inc., the following resolution amending the
Certificate of Incorporation of said corporation, has been adopted by the vote
of stockholders of said corporation holding a majority of the outstanding stock
entitled to vote thereon. The resolution setting forth the amendment is as
follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended to provide that the corporation's name be
changed to Pacific Chemical, Inc.; and
be it further
RESOLVED, that Paragraph FIRST of the Certificate of
Incorporation shall be amended to read in its entirety as follows:
"The name of the corporation shall be PACIFIC CHEMICAL, INC."
SECOND: That pursuant to the recommendation of the Board of Directors
of Bureau of Electronic Publishing, Inc., the following resolution amending the
Certificate of Incorporation of said corporation, has been adopted by the vote
of stockholders of said corporation holding a majority of the outstanding stock
entitled to vote thereon. The resolution setting forth the amendment is as
follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended to provide that the issued and unissued shares
of Common Stock of this corporation shall be combined on the basis of
one (1) share for each six (6) shares heretofore authorized so that
the 300,000,000 shares of Common Stock, $.001 par value, this
corporation is authorized to issue, shall be combined into 50,000,000
shares of capital stock, $.00017 par value; and
be it further
RESOLVED, that Paragraph FOURTH of the Certificate of
Incorporation shall be amended to read in its entirety as follows:
"The aggregate number of shares which the Corporation
shall have the authority to issue is 53,000,000, which are
divided into 50,000,000 shares of Common Stock, par value
$.001 per share, and 3,000,000 shares of Preferred Stock,
par value of $.001 per share."
It is further
12
<PAGE>
RESOLVED, that except as expressly amended, the Fourth Article
of the Certificate of Incorporation of this corporation shall hereby
remain in effect as heretofore set forth and shall be unchanged in any
respect by any provision hereof.
THIRD: That these resolutions have been adopted by written consent of
stockholders holding a majority of the outstanding stock entitled to vote
thereon in accordance with Section 228 of the General Corporation Law of the
State of Delaware.
FOURTH: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said Bureau of Electronic Publishing, Inc., has
caused this certificate to be signed by its Vice President, this ____ day of
June, 1997.
Bureau of Electronic Publishing, Inc.
By: __________________________
J. S. Pan, Vice President
13
<PAGE>
EXHIBIT C
14
<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 1 to
Form 10-KSB/A
ANNUAL REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number 1-13890
December 31, 1996
BUREAU OF ELECTRONIC PUBLISHING, INC.
----------------------------------------------
(Name of small business issuer in its charter)
Delaware 22-2894444
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
745 Alexander Road, Princeton, New Jersey 08540
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(609) 514-1600
------------------
(Issuer's telephone number,
including area code)
619 Alexander Road, Princeton, New Jersey 08540
------------------------------------------------------
(Former Name, Former Address and Former (Zip Code)
Fiscal Year, if changed since last report)
Securities registered under Section 12 (b) of the Exchange Act:
Title of each Class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, par value $.001 per share NASDAQ SmallCap & Boston Stock Exchange
- --------------------------------------- ---------------------------------------
Redeemable Common Stock NASDAQ SmallCap & Boston Stock Exchange
Purchase Warrants
- --------------------------------------- ---------------------------------------
Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, par value $.001 per share
---------------------------------------
(Title of Class)
Redeemable Common Stock Purchase Warrants
-----------------------------------------
(Title of Class)
<PAGE>
Check whether 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.
X
Yes ______ No _____
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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. [ ]
The issuer's revenues for the fiscal year ended December 31, 1996 were
$553,566.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the closing price of the stock on April 10, 1997, was
$4,211,900.
The number of shares of the issuer's Common Stock, par value $.001 per
share, outstanding as of April 1, 1997 was 4,647,619. The number of the issuer's
redeemable Common Stock Purchase Warrants outstanding as of April 1, 1997 was
1,340,476.
Transitional Small Business Disclosure Format (check one):
Yes _________ No X
______
Documents Incorporated By Reference. See Index to Exhibits.
____________________________________
<PAGE>
PART I
Item 1. Description of Business
General
The Company was incorporated under the laws of the State of Delaware on
May 5, 1988. Until November 1996, the Company's principal business was creating,
publishing, and selling interactive multimedia software titles on CD-ROM and for
use over the Internet. The Company offered approximately 20 multimedia titles
and had additional titles in the development or planning stages. The Company's
products were intended for use by adults and children in homes, businesses,
schools and libraries. The Company marketed its products through an internal
sales staff, mail order catalogs and independent distributors throughout the
United States, and through the Internet.
The Company had revenues of $3,146,876 in 1995. However, in the nine
months ended September 30, 1996, the Company had had revenues of only $454,439.
In October 1996 the Company's Board of Directors determined that that business
had not provided adequate prospects for a reasonable return on the stockholders'
investments and therefore began to reduce the Company's workforce and to explore
alternate lines of business. On November 7, 1996, the Company entered into a
letter of intent to combine with Pacific Chemical Group Limited ("PCG") and on
January 23, 1997 the Agreement and Plan of Merger between the Company, the
Company's British Virgin Islands ("BVI") subsidiary, PCG, and Jinan Chemical
Fibre Corporation ("JCF") (the "Agreement") was simultaneously executed and
closed. PCG was a privately-held BVI corporation. JCF is a Peoples Republic of
China ("PRC") corporation which operates a chemical fiber production complex in
the city of Jinan in northern China. JCF is owned by the local government of
Jinan.
Merger with PCG
Pursuant to the Agreement, at the closing the Company's BVI subsidiary
merged into PCG in a merger carried out pursuant to the laws of the BVI (the
"Merger"). In connection with the Merger, the stockholders of PCG transferred
100% ownership of PCG to the Company and the stockholders of PCG received an
aggregate of 833,671.66 shares of Series A Preferred Stock of the Company. Each
share of Series A Preferred Stock is automatically convertible into 100 shares
of the Company's Common Stock when the number of authorized shares of the
Company's Common Stock is increased to 300,000,000, has 100 votes per share and
votes with the Common Stock as one class, and has a preference of $100 per share
in the event of liquidation. It is anticipated that holders of a majority of the
Company's Common Stock will soon approve the increase in the number of
authorized shares of Common Stock by written consent. However, this action will
not be effective until 20 days after an Information Statement relating thereto
is distributed to all of the Company's stockholders. Prior to this transaction
the Company had approximately 4,650,000 shares of Common Stock outstanding. As a
result of the Merger, PCG became a wholly-owned subsidiary of the Company and
the former stockholders of PCG acquired control of a substantial majority of the
voting stock of the Company.
PCG's only asset is its 51% interest in a joint venture, Jinan Dayang
Chemical Fibre Corporation (the "Joint Venture"), which operates JCF's former
Plant No. 1 production facility for purified terephthalic acid ("PTA"). JCF owns
the other 49% equity interest in the Joint Venture. The No. 1 Plant is
principally engaged in the manufacture of PTA for further processing by other
production units of JCF into polyester chip, film, staple and filament. A small
portion of the PTA is produced for sale to third parties. The Joint Venture was
established on February 9, 1996 by PCG and JCF pursuant to a joint venture
agreement entered into pursuant to the PRC laws governing Sino-foreign joint
ventures (the "Joint Venture Agreement"). Pursuant to the Joint Venture
Agreement, the Company is required to pay US$14,995,000 in cash as its capital
contribution for 51% of the equity interests in the Joint Venture (the "Purchase
Price"). To date, the Company has paid $2,000,000 of the Purchase Price. In the
event that the remaining Purchase Price is not paid within three years of the
formation of the joint venture, for whatever reason including the lack of
ability to finance, the Company may forfeit its claim on its equity interests in
the Joint Venture. JCF has contributed part of its production facilities and
other assets including certain plant and equipment of the No. 1 Plant to the
Joint Venture as its capital investment. In addition, JCF has leased to the
Joint Venture certain other production assets of No. 1 Plant.
Due to the fact that the closing of the Merger did not occur until
January 23, 1997, after the end of the Company's 1996 fiscal year, this report
does not include financial information relating to the business of PCG or JCF.
For information relating to the Company's new business see the Company's current
report on Form 8-K as filed February 7, 1997 and as amended April 8, 1997.
Personnel
As of December 31, 1996, the Company had four full time employees
engaged in supporting the multimedia software business remaining at that time.
1
<PAGE>
Item 2. Description of Property
The Company currently leases a 5,000 square foot facility in Princeton,
New Jersey. The Company has a lease for the facility that requires the Company
to pay monthly rent of $3,125. The lease expires on March 31, 2001.
Item 3. Legal Proceedings.
NONE.
Item 4. Submission of Matters to a Vote of Security Holders.
None during the fourth quarter of the year ended December 31, 1996.
PART II
Item 5. Market For Common Equity and Related Stockholder Matters.
(a) Market Information. Since the consummation of the Company's initial
public offering on August 16,1995, the Company's Common Stock and Redeemable
Common Stock Purchase Warrants have been traded on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) SmallCap Market under the
symbols "BEPI" and "BEPIW" respectively, and on the Boston Stock Exchange under
the symbols "BUP" and "BUPW", respectively. Set forth below are the range of
reported high and low bid quotations for the Company's Common Stock and
Redeemable Common Stock Purchase Warrants for 1996 and the third and fourth
quarters of 1995 as reported by NASDAQ. All over-the counter market price
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
Price Per
Price Per Share Redeemable
of Common Common Stock
Stock Purchase Warrant
---------------- ----------------
High Low High Low
---- --- ---- ---
Year ended December 31, 1996
- ----------------------------
Fourth Quarter 2-1/8 13/32 3/8 3/32
Third Quarter 3-5/8 1-1/4 3/4 1/4
Second Quarter 7 1-5/8 2-1/8 1/2
First Quarter 7-1/2 6-3/8 2-1/8 1-5/8
Year ended December 31, 1995
- ----------------------------
Third Quarter 6-3/4 6-3/4 1-3/4 1-3/4
Fourth Quarter 7-3/8 6-3/4 1-7/8 1-3/4
2
<PAGE>
(b) Holders. As of April 10, 1997, the Company had approximately 90
registered holders of its Common Stock and approximately 15 registered holders
of its Redeemable Common Stock Purchase Warrants. Based on information received
from the Company's transfer agent and institutions holding the Company's
securities in customer accounts, the Company believes that there are
approximately 1,400 beneficial owners of its Common Stock.
(c) Dividends. The Company has not paid any dividends on its Common
Stock since its inception and has no intention to pay any dividends to its
shareholders in the foreseeable future. The Company currently intends to
reinvest earnings, if any, in the development and expansion of its business. The
declaration and payment of dividends in the future will be at the election of
the Board of Directors and will depend upon the Company's earnings, current and
anticipated capital requirements, results of operations, financial position of
the Company, plans for expansion, future prospects, general economic conditions,
and restrictions under then existing credit and other debt instruments and
arrangements, and other factors deemed pertinent by the Board.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction
with the Company's Financial Statements and Notes thereto included elsewhere in
the Form 10-KSB. The Financial Statements and Notes and discussion below relate
to the Company's business prior to the Merger. That business has been
substantially discontinued.
General
The Company was incorporated in May 1988 as a distributor of titles,
drives and accessories for the CD-ROM (Compact Disc-Read Only Memory) industry.
The Company's products were intended for use by adults and students in homes,
businesses, schools and libraries. The Company developed and published its
software on CD-ROMs for use on personal computers using Windows(TM), Macintosh
and MS-DOS based CD-ROM playback systems.
In August 1995, the Company completed an initial public offering of
1,000,000 shares of its Common Stock and 1,000,000 Redeemable Common Stock
Purchase Warrants at a price of $5.00 per share and $0.25 per warrant. In
October 1995, the underwriter exercised its over allotment option for an
additional 150,000 shares of the Company's Common Stock and 150,000 Redeemable
Common Stock Purchase Warrants (the "IPO"). Net proceeds to the Company after
underwriting commissions, related underwriting expenses, and additional expenses
incurred in connection with the offering were approximately $4,400,000.
Subsequent to December 31, 1996 the Company completed the Merger. For
accounting purposes, JCF and PCG are deemed to be the acquirers of the Company.
As a result of this transaction, control of the Company effectively passed to
the stockholders of PCG and the Company thereafter discontinued its operations
in the multimedia business.
Results of Operations.
Fiscal 1996 Compared with Fiscal 1995.
Net Sales. Net sales for the fiscal year ended December 31, 1996 were
$553,566 as compared to $3,146,876 for the fiscal year ended December 31, 1995
or a decrease of $2,593,310 or 82.4%. This decrease is primarily the result of
lower sales attributable to lack of new title releases, sluggishness in the
retail channel and the Company shutting down its operations in the multimedia
business.
Cost of Sales. Cost of sales for the fiscal year ended December 31,
1996 were $2,340,575 or 422.8% of
3
<PAGE>
net sales as compared to $1,329,676 or 42.3% of net sales during the same period
in 1995. The increase as a percentage of net sales is primarily due to higher
software amortization expenses related to the accelerated amortization of the
remaining unamortized balances of prepublication costs and higher inventory
reserves. As a result primarily of the increase in the amortization of
prepublication costs and higher inventory reserves, the Company's gross profits
as a percentage of net sales were lower in 1996 as compared to 1995. Gross
(losses) profits were (322.80%) of net sales, or ($1,787,009) for the fiscal
year ended December 31, 1996 as compared to gross profits of 57.7% of net sales
or $1,817,200 for the fiscal year ended December 31, 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, which include the loss on the disposition of property
and equipment of approximately $377,000, totaled $3,581,962 during the fiscal
year ended December 31, 1996 as compared to $2,782,801 in fiscal year 1995, or
an increase of $799,161 or 28.7%. As a percentage of sales, selling, general and
administrative expenses increased to 647.1% in the 1996 fiscal year, from 88.4%
in the previous year. This increase is due to several factors including,
primarily, loss on disposition of property and equipment, higher reserves for
doubtful accounts, costs associated with being a public company (e.g. legal
fees, insurance) and rent expense. Also, higher personnel costs due to staffing
increases and higher average salaries combined with severance costs due to
discontinuing operations in the multimedia business contributed to the increase
in selling, general and administrative expenses.
Operating loss. Operating loss for the fiscal year ended December 31,
1996 was $5,368,971 or 969.9% of net sales, as compared to $965,601 or 30.7% of
net sales during the fiscal year ended December 31, 1995.
Interest Income (Expense), net. Interest income (expense) for the
fiscal year ended December 31, 1996 was $52,218 or 9.4% of net sales. Interest
income was approximately $57,000 consisting primarily of interest earned on
temporary investments in U.S. treasury bills. Interest expense was approximately
$4,600 resulting primarily from interest charges on a debt obligation which was
fully repaid in 1996. Interest income (expense) for the same period in 1995 was
$1,127,382 or 35.8% of net sales. Interest income was approximately $45,000
consisting primarily of interest earned on temporary investments in U.S.
treasury bills. Interest expense was approximately $1,172,000 and due primarily
to the costs of the Company's $1,000,000 Senior Secured Promissory Notes which
were issued in November 1994 and April 1995 to four of the Company's
stockholders in connection with the Company's bridge financing ("Bridge
Financing"). In addition, the Company incurred costs associated with the
amortization of $937,500 of the value of 190,476 shares of common stock and
warrants to purchase 190,476 shares of common stock that were issued to the
investors in the Bridge Financing upon the consummation of the Company's IPO in
August 1995.
Other Income. Other income for the fiscal year ended December 31, 1996
was $13,879 or 2.5% of net sales consisting primarily of gains on sales of
investments in U.S. treasury bills prior to their maturity date. Other
income for the fiscal year ended December 31, 1995 was $0.
Loss before income taxes. The preceding factors combined to show an
increase in pre-tax loss of $3,233,891 for the fiscal year ended December 31,
1996 as compared to the fiscal year ended December 31, 1995. There was a pre-tax
loss of $5,326,874 or 962.3% of net sales in 1996 as compared to a pre-tax loss
of $2,092,983 or 66.5% of net sales in 1995.
Income Tax Benefit. Income tax (benefit) provision for the fiscal year
ended December 31, 1996 was $0. The Company's income tax benefit of $25,000 in
fiscal year ended December 31, 1995 is attributable to the fiscal 1995 net
operating loss carried back to fiscal year ended December 31, 1994.
4
<PAGE>
Liquidity and Capital Resources.
The Company had a working capital surplus of $495,435 at December 31,
1996 which represented a decrease of $2,180,749 from the working capital surplus
of $2,676,184 at December 31, 1995. The reduction in the working capital surplus
resulted primarily from the use of cash obtained from the Company's IPO
consummated in August 1995. The Company's cash position decreased to $727,931 at
December 31, 1996 from $2,252,590 at December 31, 1995.
The Company's operating activities used cash of $2,341,123 and $936,865
for the fiscal years ended December 31, 1996 and 1995, respectively. In fiscal
year 1996 the net loss of $5,326,874 was partially offset by the amortization
of prepublication costs, the loss on disposition of property and equipment and
the decrease in accounts receivable and inventories. In addition, cash was used
to finance a decrease in accounts payable and accrued expenses. In fiscal year
1995 the net loss of $2,067,983 was partly offset, primarily by the amortization
of costs associated with the Bridge Financing and the amortization of
pre-publication costs. In addition, cash was used to finance an increase in
inventories reflecting management's intention to avoid inventory stock-out
costs. Moreover, cash was used to finance a decrease in accounts payable and
accrued expenses.
The Company's investing activities used cash of $1,157,370 and
$1,126,446 for the fiscal years ended December 31, 1996 and 1995, respectively.
The principal use of this cash was the capitalization of the prepublication
costs involved in the development of new titles and the purchase of property and
equipment in connection with the Company's relocation to Princeton, New Jersey.
Also during 1995 the Company contributed $250,000 for the initial funding
requirements for its joint venture with the American Management Association.
The Company's financing activities provided cash of $1,973,834 and
$4,263,677 for the fiscal years ended December 31, 1996 and 1995, respectively.
For the fiscal year ended December 31, 1996 cash was provided primarily by the
issuance of common stock in connection with the financing with an investor
group. For the fiscal year 1995 cash was primarily provided by proceeds received
from the IPO.
The Company's operations are now based on the Joint Venture's Plant No.
1 in Jinan, People's Republic of China. The Company expects that anticipated
cash flow from operations, together with net proceeds remaining from the IPO,
will fund its cash requirements for at least the next twelve months. However,
there can be no assurance that a sufficient level of sales will be attained to
fund such operations, to provide for continuing working capital, or to pay for
any unanticipated costs that may be incurred by the Company in pursuing its
objectives. In addition, the Company will need to fund the remaining Purchase
Price by 1999. In the event that the net proceeds from the IPO, together with
cash flow from operations will not be sufficient to fund the Company's
anticipated cash requirements, the Company may seek to raise funds through bank
borrowings, issuance of debentures and public or private placements of its
securities. There can be no assurance that such borrowings or placements can be
completed on terms acceptable to the Company.
Item 7. Financial Statements.
The Company's Financial Statements commence at page F-1.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
NONE.
5
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act.
The executive officers and directors of the Company are as follows:
Name Age Title
- ---- --- -----
Jin, Shan 59 President
Wang, Yue De 59 Vice President
Li, De Yuan 57 Secretary
Fan, Jia Lin 54 Vice President
Jao Shun Pan 50 Chief Financial Officer and Director
Bryan Finkel 34 Director
Mr. Jin, Shan graduated from Beijing Petroleum College in 1962. He has
been a technician and instructor at Daquing Oil Company in China and was an
engineer and deputy chief of the Petrochemical Bureau of the City of Jinan,
Shangdong Province. He is currently president of Jinan Chemical Fibre
Corporation and chairman of the board and president of Qilu Chemical Fibre Group
Corporation.
Mr. Wang, Yue De graduated from Shangdong Chemical Engineering College
in 1962. He has been a technician, engineer, and deputy plant manager of Jinan
Chemical Fibre Factory. He is currently vice president of Jinan Chemical Fibre
Corporation and vice chairman and vice president of Qilu Chemical Fibre Group
Corporation.
Mr. Li, De Yuan graduated from Hefei Institute of Technology. He has
been a technician, engineer, and deputy plant manager with, and is currently
vice president of, Jinan Chemical Fibre Corporation. He is also vice chairman
of Qilu Chemical Fibre Group Corporation.
Ms. Fan, Jia Lin graduated from Shangdong Chemical Engineering College
in 1965. She has been a teacher at Shangdong Jinan Engineering School and a
technician, engineer, and deputy plant manager of Jinan Chemical Fibre Factory.
She is currently vice president of Jinan Chemical Fibre Corporation and vice
president of Qilu Chemical Fibre Group Corporation.
Mr. Jao Shun Pan graduated from Taipei Technical College in Taiwan and
is a Canadian citizen. He was formerly president of Mitchell International, Hwa
Li Real Estate Corporation, and Dongfang Real Estate Company. He is currently
President of Pacific Diversified Holdings Limited and is a consultant to Chinese
companies. He serves and has served in a number of executive- and director-level
capacities at other China-related companies.
Mr. Bryan Finkel holds a B.S. and M.S. in electrical engineering from
the Massachusetts Institute of Technology and an M.B.A. from Stanford. He is
President of Eastside Technology Management, which provides operational and
financial advisory services to information technology companies. From 1992 to
1995 he was with Broadview Associates, which provides consulting services
relating to mergers and acquisitions of technology companies.
6
<PAGE>
Item 10. Executive Compensation.
The following table sets forth the compensation paid by the Company to
the President and Chief Executive Officer of the Company during the last three
fiscal years. The President was the only officer who received in excess of
$100,000 in compensation in 1996.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
------------
Awards Payouts
--------- -------
Securities
Annual Compensation Underlying
----------------------- Options/ All Other
Name & Principal Position Year Salary Bonus SAR's (#) Compensation
- ------------------------- ---- ------ ----- ----------- ------------
Larry Shiller, President & 1996 $175,000 0 0 $21,544(2)
Chief Executive Officer
1995 $175,000 $ 2,500 270,000(1) $21,544(2)
1994 $139,774 $ 2,500 ___ ___
(1) Consisted of options to purchase up to 270,000 shares of Common
Stock exercisable at a weighted average exercise price of $8.00
per share with vesting based upon the Company's earnings per
share. These options were cancelled in January 1997 in connection
with the termination of Mr. Shiller's employment agreement.
(2) Reflects the premiums and related income taxes thereon paid by the
Company for Universal Life Insurance.
The following table sets forth certain information with respect to the
aggregated number and value of options exercisable and unexercisable by the
President and Chief Executive Officer as of December 31, 1996. There were no
additional options granted to the President and Chief Executive Officer during
1996.
AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUE
Value of
Number of Unexercised In-
Unexercised the-Money
Options/SAR's Options/SAR's
Shares 12/31/96 12/31/96
Acquired Value Exercisable/ Exercisable/
On Exercise Realized Unexercisable Unexercisable
Name (#) ($) (#) ($)
- ---- ------------ --------- -------------- ---------------
Larry Shiller 0 0 270,000(1) 0
(1) Consisted of options to purchase up to 270,000 shares of Common
Stock exercisable at a weighted
7
<PAGE>
average exercise price of $8.00 per share with vesting based upon
the Company's earnings per share. These options were cancelled in
January 1997 in connection with the termination of Mr. Shiller's
employment agreement.
EMPLOYMENT AGREEMENTS
The Company entered into a three-year employment agreement effective
May 31, 1995 with Larry Shiller. This employment agreement was terminated in
January 1997.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The Securities Exchange Act of 1934 requires that the Company's
executive officers and Directors, any persons owning more than 10% of a class of
the Company's stock to file certain reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Copies of
these reports must also be furnished to the Company.
Based solely on a review of copies of reports filed with the SEC and
representations of certain officers, Directors and shareholders owning more than
10% of the Company's Common Stock, the Company believes that during the fiscal
year ended December 31, 1996, Marcelle M. Soviero, a former officer of the
Company, filed one late Form 3 and one late Form 4 with regard to stock options,
and Elliot Eisenberg and Brent Subkowsky, both former officers of the Company,
and Richard Raysman, a former director of the Company, each filed one late Form
4 with regard to stock options.
8
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock by each person or group that
is known by the Company to be the beneficial owner of more than 5% of its
outstanding Common Stock, each Director of the Company and each person named in
the Summary Compensation Table, and all directors and executive officers of the
Company as a group as of April 10, 1997. Unless otherwise indicated, the Company
believes that the persons named in the table below, based on information
furnished by such owners, have sole voting and investment power with respect to
the Common Stock beneficially owned by them, subject to community property laws,
where applicable.
<TABLE>
<CAPTION>
Number of Shares of Number of Shares of
Name and Address of Common Stock Percent Ownership of Series A Preferred Stock
Beneficial Owner Beneficially Owned Common Stock Outstanding Beneficially Owned (1)
- ---------------- ------------------ ------------------------ -------------------------
<S> <C> <C> <C>
Jao Shun Pan (1) 0 0 18,937.34
805 Third Avenue
New York, NY
Bryan Finkel (2) 400,000 7.9% 0
152 West 57th Street
New York, NY
Jin, Shan (1) 0 0 624,932.00
2 Jinan Hua Xian Road
Jinan, People's Republic
of China
Larry Shiller (3) 537,434 11.6% 0
15 Normandy Court
Skillman, NJ
All executive officers 400,000 7.9% 643,869.34
and directors as a group
(1)(2)
</TABLE>
(1) Each share of Series A Preferred Stock is convertible into 100 shares
of Common Stock if and when the Company's Certificate of Incorporation
is amended to increase the authorized number of shares of Common
Stock to 300,000,000. See "Item 1 -- Business -- Merger with PCG."
(2) Issuable upon exercise of warrants.
(3) Mr. Shiller resigned as a director and officer of the Company in
January 1997.
Item 12. Certain Relationships and Related Transactions.
NONE
9
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) EXHIBIT INDEX
EXHIBIT NUMBER
- --------------
3.1 Certificate of Incorporation of the Company, as amended (1)(4)
3.2 By-laws of the Company (1)
4.1 Form of Representative's Warrant Agreement between the Company and Meyers
Pollock Robbins, Inc., with form of warrant attached (1)
4.2 Form of Warrant Agreement between the Company and Continental Stock
Transfer & Trust Company with form of warrant attached (1)
4.3 Warrants issued by the Company to Richard M.H. Thompson & Associates,
Inc. expiring November 23, 1999 and April 21, 2000 (1)
10.1 Distribution Agreement dated February 10, 1993 between the Company and
Softkat, a division of Baker & Taylor, Inc. (1)
10.2 Distribution Agreement dated January 15, 1992, as amended on February 10,
1993, between the Company and Merisel, Inc. (1)
10.3 CD-ROM Development Agreement dated June 21, 1994 between the Company and
Simon & Schuster, Inc. (1)
10.4 License Agreement dated September 21, 1992 between Bureau Development,
Inc. and Viking Penguin (1)
10.5 Software Development Agreement dated December 7, 1992 between Bureau
Development, Inc. and Prentice Hall General Reference, a Division of
Simon & Schuster, Inc. (1)
10.6 Amended and Restated Bureau of Electronic Publishing, Inc. 1994 Stock
Option Plan (1)
10.7 Assignment and Assumption Agreement dated September 30, 1994 between the
Company and Bureau Development, Inc. (1)
10.8 Agreement dated August 10, 1995 by and between Chelsea House Publishers
and the Company (2)
10.9 Agreement dated August 2, 1995 by and between American Management
Association and the Company (3)
10.10 Lease dated January 25, 1996 between the Company and Lester M. Entin
Associates (3)
10.11 Agreement and Plan of Merger dated January 23, 1997, by and among the
Company, BEPI Acquisition Corporation, Pacific Chemical Group Limited
("PCG"), and Jinan Chemical Fibre Corporation ("JCF") (4)
10.12 Joint Venture Agreement, dated as of February 9, 1996, by and among PCG
and JCF (4)
11 Calculation of Net Loss per Common Share
21 Subsidiaries of the Company
- -------------------------------------------
(1) Incorporated by reference to the Company's registration statement on
Form SB-2 (File #33-93474) filed on June 15, 1995.
(2) Incorporated by reference to the Company's Form 10-QSB for the period
ended June 30, 1995.
(3) Incorporated by reference to the Company's Form 10-KSB for the year ended
December 31, 1995.
(4) Incorporated by reference to the Company's Form 8-K filed February 7,
1997.
REPORTS ON FORM 8-K
A report on Form 8-K reporting the closing of the Merger was filed on
February 7, 1997. It contained Item 1 - Changes in Control of Registrant, Item 2
- - Acquisition or Disposition of Assets, Item 5 - Other Events (relating to the
issuance of Preferred Stock in a private placement), and Item 7(c) - Exhibits.
An amended report on Form 8-K/A was filed on April 8, 1997 containing Item 7(a)
and (b) - Financial Statements relating to the Merger.
10
<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.
BUREAU OF ELECTRONIC PUBLISHING, INC.
Date: April 18, 1997 By: /s/ J. S. Pan
-------------------------
J. S. Pan, Vice 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 and Title Date
------------------- ----
By: /s/ J. S. Pan April 18, 1997
----------------
Name: J. S. Pan
Title: Vice President and Chief Financial Officer
and a Director
By: /s/ Jin Shan April 18, 1997
------------------
Name: Jin Shan
Chief Executive Officer
By: /s/ Bryan Finkel April 18, 1997
-------------------
Name: Bryan Finkel
Director
11
<PAGE>
Index to Financial Statements Page #
- ----------------------------- ------
Report of Independent Public Accountants F-2
Balance Sheets as of December 31, 1996 and 1995 F-3
Statements of Operations for the Years Ended
December 31, 1996 and 1995 F-4
Statements of Changes in Shareholders' Equity for the
Years ended December 31, 1996 and 1995 F-5
Statements of Cash Flows for the Years ended
December 31, 1996 and 1995 F-6
Notes to Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders of
Bureau of Electronic Publishing, Inc.:
We have audited the accompanying balance sheets of the Bureau of Electronic
Publishing, Inc. (a Delaware corporation) as of December 31, 1996 and 1995, and
the related statements of operations, changes in shareholders' equity and cash
flows for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Bureau of Electronic
Publishing, Inc. as of December 31, 1996 and 1995, and the results of its
operations, and its cash flows for each of the two years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 27, 1997, except for Note (9)
as to which date is April 17, 1997
F-2
<PAGE>
BUREAU OF ELECTRONIC PUBLISHING, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
1996 1995
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 727,931 $2,252,590
Accounts receivable, net of allowance for
doubtful accounts of $0 and $480,000 in
1996 and 1995 (Note 2) 69,302 558,331
Inventories (Note 2) 34,051 367,194
Prepaid expenses and other current assets 2,169 105,207
---------- ----------
Total current assets 853,453 3,283,322
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $4,304 and $191,667 in 1996
and 1995 (Notes 2 and 3) 20,922 200,352
PREPUBLICATION COSTS, net of accumulated
amortization of $0 and $895,113 in 1996
and 1995 (Note 2) 0 917,111
INVESTMENT IN JOINT VENTURE (Note 2) 226,000 250,000
OTHER ASSETS 6,250 58,000
---------- ----------
Total assets $1,106,625 $4,708,785
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRRENT LIABILITIES:
Accounts payable $ 117,380 $ 469,640
Accrued expenses and other current
liabilities 240,638 137,498
---------- ----------
Total current liabilities 358,018 607,138
COMMITMENTS AND CONTINGENCIES (Note 5
SHAREHOLDERS' EQUITY (Notes 4, 5, 7, 8 and 9)
Preferred stock, par value $.001 per share -
2,000,000 shares authorized, no shares
outstanding 0 0
Common stock, par value $.001 per share -
12,000,000 shares authorized, 4,519,869
and 2,927,298 shares issued and outstanding
in 1996 and 1995 4,520 2,927
Common stock purchase warrants, 1,340,476
warrants issued and outstanding 335,119 335,119
Additional paid-in capital 8,102,809 6,130,568
Accumulated deficit (7,693,841) (2,366,967)
---------- ----------
Total shareholders' equity 748,607 4,101,647
---------- ----------
Total liabilities and shareholders'
equity $1,106,625 $4,708,785
========== ==========
The accompanying notes to financial statements are an
integral part of these balance sheets
F-3
<PAGE>
BUREAU OF ELECTRONIC PUBLISHING, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
---- ----
NET SALES (Notes 2 and 5) $ 553,566 $ 3,146,876
COST OF SALES (Note 2) 2,340,575 1,329,676
----------- -----------
Gross (loss) profit (1,787,009) 1,817,200
SELLING, GENERAL and
ADMINISTRATIVE EXPENSES
(Note 5) 3,581,962 2,782,801
----------- -----------
Loss from operations (5,368,971) (965,601)
EQUITY in LOSS of INVESTMENT in
in JOINT VENTURE (Note 2) (24,000) 0
INTEREST INCOME (EXPENSE), net (Note 4) 52,218 (1,127,382)
OTHER INCOME 13,879 0
----------- -----------
Loss before income taxes (5,326,874) (2,092,983)
BENEFIT FOR INCOME
TAXES (Note 6) 0 25,000
----------- -----------
Net Loss ($5,326,874) ($2,067,983)
=========== ===========
NET LOSS PER COMMON
SHARE OUTSTANDING (Note 2) ($1.41) ($1.12)
====== ======
COMMON SHARES OUTSTANDING
(Note 2) 3,774,305 1,849,075
========= =========
The accompanying notes to financial statements are an
integral part of these statements.
F-4
<PAGE>
BUREAU OF ELECTRONIC PUBLISHING, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Issued and Issued and
Outstanding Outstanding Additional
Common Common Paid-in Accumulated
Shares Amount Warrants Amount Capital (Deficit) Total
----------- ------ ----------- ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1994 1,581,756 $1,582 0 $ 0 $ 733,118 ($266,247) $ 468,453
Amortization of financing
costs (Note 4) 0 0 0 0 937,500 0 937,500
Issuance of common stock 5,066 5 0 0 28,215 0 28,220
Initial public offering
(Note 1) 1,150,000 1,150 1,150,000 287,500 4,398,998 0 4,687,648
Issuance of common stock
to bridge noteholders
(Note 4) 190,476 190 0 0 0 0 190
Issuance of common stock
purchase warrants to
bridge noteholders (Note 4) 0 0 190,476 47,619 0 0 47,619
Reclassification of
accumulated earnings 0 0 0 0 32,737 (32,737) 0
Net loss for the year ended
December 31, 1995 0 0 0 0 0 (2,067,983) (2,067,983)
--------- ------ --------- -------- ---------- ---------- ---------
BALANCE - December 31, 1995 2,927,298 2,927 1,340,476 335,119 6,130,568 (2,366,967) 4,101,647
Issuance of common stock 42,850 43 0 0 138,791 0 138,834
5% stock dividend 81,721 82 0 0 (82) 0 0
Issuance of common stock 1,468,000 1,468 0 0 1,833,532 0 1,835,000
Net loss for the year ended
December 31, 1996 0 0 0 0 0 (5,326,874) (5,326,874)
- - - - - ----------- ----------
Balance - December 31, 1996 4,519,869 $ 4,520 1,340,476 $ 335,119 $ 8,102,809 ($7,693,841) $ 748,607
========= ========= ========= ========== =========== =========== ==========
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
F-5
<PAGE>
BUREAU OF ELECTRONIC PUBLISHING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($5,326,874) ($2,067,983)
----------- -----------
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation of property and equipment 127,164 57,866
Loss on disposition of property and equipment 377,448 0
Amortization of prepublication costs 1,749,299 540,820
Amortization of financing costs 0 937,500
Provision for doubtful accounts 91,580 105,000
Equity in loss of investment in joint venture 24,000 0
Changes in operating assets and liabilities-
Decrease in accounts receivable 397,449 32,653
Decrease (increase) in inventories 333,143 (247,064)
Decrease (increase) in prepaid expenses and
other current assets 83,038 (66,566)
Decrease in other assets 51,750 66,462
Decrease in accounts payable,
accrued expenses, and other current
liabilities (249,120) (295,553)
--------- ---------
Total adjustments 2,985,751 1,131,118
--------- ---------
Net cash used in operating activities (2,341,123) (936,865)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 37,524 0
Purchase of property and equipment (362,706) (141,469)
Increase in prepublication costs (832,188) (734,977)
Investment in joint venture 0 (250,000)
- ---------
Net cash used in investing activities (1,157,370) (1,126,446)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bridge loan 0 500,000
Repayment of bridge loan 0 (1,000,000)
Proceeds from issuance of common stock, net 1,973,834 4,428,558
Proceeds from issuance of common stock
purchase warrants, net 0 335,119
----------- ----------
Net cash provided by financing
activities 1,973,834 4,263,677
----------- ----------
Net (decrease) increase in cash and
cash equivalents (1,524,659) 2,200,366
CASH and CASH EQUIVALENTS,
beginning of year 2,252,590 52,224
---------- ----------
CASH and CASH EQUIVALENTS, end of year $ 727,931 $2,252,590
========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the year for interest $4,510 $57,980
Cash paid during the year for taxes 0 0
= =
The accompanying notes to financial statements
are an integral part of these statements.
F-6
<PAGE>
BUREAU OF ELECTRONIC PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS:
Bureau of Electronic Publishing, Inc. (the "Company") was incorporated on
May 5, 1988 to engage in the business of creating, publishing and selling
interactive multimedia software titles on CD-ROM. Since the Company's
inception and through the date of the merger described below, it had
devoted substantial efforts to developing markets and distribution
channels for these products. The Company's strategy was to internally
develop high quality informational and educational interactive multimedia
software based on licenses of existing print and other media properties
primarily in fields that will achieve sustained consumer appeal and brand
name recognition. The Company's products were intended for use by adults
and students in homes, businesses, school and libraries. The Company
developed and published its software on CD-ROMs for use on personal
computers using Windows(TM), Macintosh and MS-DOS based CD-ROM playback
systems.
On August 11, 1995, the Company completed an initial public offering (the
"IPO") of 1,000,000 shares of its common stock and 1,000,000 redeemable
common stock purchase warrants, at a price of $5.00 per share and $0.25
per warrant. On October 2, 1995, the underwriter exercised its over
allotment option for an additional 150,000 shares of the Company's common
stock and 150,000 redeemable common stock purchase warrants. Net proceeds
after underwriting commissions, related underwriting expenses, and
additional expenses incurred in connection with the IPO amounted to
approximately $4,400,000.
Subsequent to December 31, 1996 the Company completed a reverse
acquisition with Jinan Chemical Fibre Organization ("JFO") and Pacific
Chemical Group Limited ("PCG"), (see Note 9). For accounting purposes, JFO
and PCG are deemed to be the acquirers of the Company. As a result of this
transaction, control of the Company effectively passed to the stockholders
of PCG and the Company thereafter discontinued its operations in the
multimedia business.
(2) SIGNIFICANT ACCOUNTING POLICIES:
Accounting 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.
The Company provides an allowance for doubtful accounts, which is based
upon a specific review of certain outstanding receivables as well as
historical collection information. In determining the amount of the
allowance, management is required to make certain assumptions regarding
the timing and amount of collection. Actual results could differ from
those estimates and assumptions.
Cash And Cash Equivalents-
The Company considers cash on hand, cash on deposit with banks and
temporary investments having a maturity of three months or less to be cash
equivalents.
Inventories-
Inventories, principally finished goods available for distribution, are
stated at the lower of cost or market. Cost is determined on the first-in,
first-out method. It is the Company's policy to review the composition of
its inventory on an ongoing basis and reserve or dispose of obsolete,
slow-moving or nonsaleable inventory.
F-7
<PAGE>
Property And Equipment-
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is calculated on the straight-line method over the estimated
useful lives of the assets, which ranges from four to seven years.
Prepublication Costs-
Prepublication costs, including editing and design of new CD-ROM titles,
had been capitalized and amortized as a component of cost of sales.
Amortization expense is computed on a product-by-product basis using the
greater of (a) the ratio that current period gross revenue bears to the
total of current and anticipated future gross revenues or (b)
straight-line over the estimated economic life of the product (not
exceeding three years). Amortization commenced in the period in which the
products became available for general release. Prepublication costs
include salaries and other direct production costs incurred once
technological feasibility is established and licensing rights, if any, are
obtained for the titles. Research and development costs incurred prior to
this point are expensed as incurred. Such costs were not significant for
the periods presented.
The Company evaluates the carrying value of prepublication costs for each
title on an ongoing basis in relation to anticipated future sales and,
where appropriate, provides additional write downs of unamortized balances
or accelerates the amortization rate so that the individual unamortized
title costs do not exceed their net realizable value. During 1995,
accelerated amortization of prepublication costs were approximately
$121,000. As a result of the reverse merger described in Note 9, during
1996, the Company wrote off the remaining balance of its prepublication
costs. This resulted in amortization of approximately $1,749,000 for the
year ended December 31, 1996.
Investment in Joint Venture-
During August 1995, the Company and the American Management Association
("AMA") formed a joint venture to develop and publish AMA materials on
CD-ROM and the Internet. The new company, Amacom New Media, Inc., combines
resources of these two publishers and is 50% owned by each party. During
December 1995, the Company contributed $250,000 to the joint venture to
provide initial funding requirements.
The Company accounts for its investment in the joint venture under the
equity method of accounting. Accordingly, the Company reports its share in
earnings and losses of Amacom New Media, Inc. under the equity method of
accounting. The Company's share of the loss of the joint venture for the
year ended December 31, 1996 amounted to approximately $24,000. For the
year ended December 31, 1995, the Company's share of the loss of the joint
venture was $0 since the joint venture had not commenced operations or
expended funds.
Revenue Recognition-
Sales revenue has been recognized when products are shipped to customers,
since there are no remaining significant service or support obligations or
warranties associated with the product sale and collectibility of the sale
is probable. Technical support provided to consumers who purchase the
Company's products generally occurs at or shortly after the time of sale.
Such costs are not significant in relation to the product sale and are
expensed as incurred. The effect of this treatment for technical support
costs is not material to the results of operations for all periods
presented. The Company provides a reserve for possible returns from
customers, vendor price protection and discount allowances based upon
historical experience as well as current and anticipated trends. These
reserves are included in the allowance for doubtful accounts.
Guaranty and Warranty Policies-
The Company maintains a 30-day money back guaranty and a one-year
defective product warranty for products that are sold by the Company to
ultimate retail consumers. Product guaranty and warranty expense is not
significant in relation to the product sale and is expensed when incurred.
The effect of this accounting treatment is not material to the results of
operations for any period presented.
F-8
<PAGE>
Advertising and Catalog Costs-
Advertising and catalog costs associated with distribution of the
Company's products are expensed as incurred.
Income Taxes-
Through September 13, 1994, the Company elected to be taxed as an S
Corporation under the applicable sections of the Internal Revenue Code of
1986 (the "Code"). Under these sections of the Code, the net income (loss)
of the Company was taxed (passed through) to the shareholders for Federal
income tax purposes. Effective September 13, 1994 the Company's S
Corporation election was voluntarily revoked, subjecting the Company to
corporate income taxes subsequent to that date.
The Company uses the liability method of computing deferred income taxes.
Deferred taxes are recognized for tax consequences of "temporary
differences" by applying enacted statutory tax rates, applicable to future
years, to differences between the financial reporting and the tax basis of
existing assets and liabilities.
Net Loss Per Common Share-
Net loss per common share has been computed by dividing net loss by the
weighted number of common shares outstanding after giving retroactive
effect to the 5% stock dividend declared in April 1996. As required by the
Securities and Exchange Commission rules, all warrants, options and shares
issued within one year of the public offering at less than the public
offering price are assumed to be outstanding for each year presented for
purposes of the per share calculation. All other warrants and options have
not been considered in the computation of net loss per common share as
they would be anti-dilutive.
In March 1997, the Financial Accounting Standards Board issued FASB
Statement No. 128, "Earnings Per Share." The new standard, which is
effective in 1997, prescribes new methods for reporting earnings per
share. If the Company had applied the new standard in 1996, reported
results would not have been affected.
Reclassifications-
Certain reclassifications have been made to prior years financial
statements for them to conform to the current year presentation.
(3) PROPERTY AND EQUIPMENT:
Property and equipment consists of the following as of December 31, 1996
and 1995:
1996 1995
------- --------
Computer equipment and software $16,646 $309,632
Office equipment and furniture 8,580 72,401
Leasehold improvements 0 10,346
------- --------
25,226 392,019
Less-Accumulated depreciation and amortization (4,304) (191,667)
------- --------
$20,922 $200,352
======= ========
As a result of the reverse merger described in Note 9, during 1996 the
Company disposed of substantially all of its property and equipment. The
company sold property and equipment with a net book value of approximately
$463,000 for approximately $86,000, which resulted in a loss on
disposition of approximately $377,000. In connection with the disposition
of property and equipment, the Company transferred equipment to vendors
and employees in settlement of various obligations and received
approximately $37,500 in cash.
F-9
<PAGE>
(4) BRIDGE FINANCING:
On November 23, 1994, the Company borrowed $500,000 from several investors
(the "Noteholders") through the issuance of Senior Secured Promissory
Notes (the "Notes"). The Notes stipulated that the Noteholders were
obligated to lend the Company an additional $250,000 if certain financial
results were achieved and had the option of loaning the Company up to a
total of $1 million. During April 1995, these same investors lent an
additional $500,000 to the Company. Interest was payable quarterly
commencing March 31, 1995 at a rate of 10%. Principal was payable in
twelve equal monthly installments commencing on January 1, 1996. The Notes
were senior to all other debt and the Noteholders had a first lien on the
Company's accounts receivable in the event of default. The Notes also
entitled the Noteholders to certain common stock rights in addition to the
principal and interest payments, as described in the following paragraph.
Upon the IPO the Noteholders, in addition to having the principal of and
all accrued interest on their notes repaid from the proceeds of the IPO,
exercised their right to receive shares of the Company's common stock and
redeemable common stock purchase warrants (the "Bridge Warrants") in an
amount determined by dividing the principal amount of the Notes by the IPO
price.
In August, 1995 the Company prepaid these Notes with the proceeds from the
IPO in accordance with the note terms. Accordingly, the Company expensed
the value of the common stock and redeemable common stock purchase
warrants issuable upon the IPO as a financing expense from the date of the
Notes through the IPO closing date of August 16, 1995. In addition to cash
interest paid on these notes, interest expense for the year ended December
31, 1995 includes amortization of $937,500 of such financing costs related
to the Notes.
(5) COMMITMENTS AND CONTINGENCIES:
Office Space-
During December 1995, the Company exercised its option to cancel its
primary office space lease due to expire in 1998. Rent expense under this
lease totaled approximately $61,000 for the year ended December 31, 1995.
During December 1995 and January 1996, the Company entered into
noncancellable operating leases for office and warehouse space. As a
result of the reverse merger described in Note 9, during 1996 the Company
negotiated a settlement with the lessor whereby the Company terminated its
lease obligation for its office space, effective January of 1997. As
consideration for the lease cancellation, the Company has agreed to pay
the lessor $38,000 in cash and to issue 73,000 shares of its Common Stock.
In addition, the Company incurred a brokerage commission in this
transaction for which the broker received equipment with a net book value
of approximately $106,000 and on the effective date the broker will
receive an additional 48,000 shares of the Company's Common Stock. As of
December 31, 1996 the Company had accrued the $38,000 payable to the
lessor. Rent expense for the year ended December 31, 1996 totaled
approximately $159,000 of which $114,000 relates to the office lease
described above. As a result of the Merger described in Note 9, the
Company intends to negotiate a settlement with the remaining lessors and
terminate the remaining lease obligations.
F-10
<PAGE>
Future minimum lease payments under noncancellable operating leases are
as follows:
1997 $48,000
1998 47,000
1999 44,000
2000 39,000
2001 10,000
Thereafter -0
--------
$188,000
========
Significant Distributor-
For the year ended December 31, 1996 no one distributor accounted
for a significant percentage of net sales. For the year ended
December 31, 1995 one distributor accounted for 27% of net sales.
Other-
The Company had entered into a three year employment agreement with a base
term that expires on May 31, 1998, with its President and Chief Executive
Officer which provided for a base salary of $175,000 and certain other
benefits as well as the award of stock options at a price per share equal
to 80% of the average price of the Company's common stock at the time of
the award. The Company was recognizing compensation expense based on the
20% market price discount over the related vesting period as set forth in
the underlying employment agreement.
In connection with the Merger described in Note 9, all employees of the
Company resigned and the President and Chief Executive Officer's
employment agreement was terminated. The accompanying financial statements
reflect approximately $72,000 of severance payments that are owed to those
officers and employees.
(6) INCOME TAXES PAYABLE:
The benefit for income taxes for the year ended December 31, 1996 and
1995, consists of the following:
December 31, December 31,
1996 1995
---- ----
Federal-
Current $0 ($25,000)
Deferred 0 0
State 0 0
== =========
$0 ($25,000)
== =========
The Federal tax benefit reflects the application of statutory income tax
rates to income applicable to the period subsequent to September 13, 1994
(see Note 2). Although the Company has a cumulative net operating loss of
approximately $7,300,000 for the year ended December 31, 1996, as shown
below a valuation allowance for the associated tax benefits has been
recorded as the Company believes that the realization criteria has not
been met.
F-11
<PAGE>
Deferred income taxes consists of the following as of
December 31, 1996 and 1995-
Deferred Tax Asset
(Liability)
------------------
1996 1995
---- ----
Net operating loss carryforwards $2,482,000 $646,000
Allowance for doubtful accounts 0 163,200
----------- ---------
Net deferred taxes 2,482,000 809,200
Less-Valuation allowance (2,482,000) (809,200)
----------- ---------
Net $ 0 $ 0
=========== =========
The Company will adjust the valuation allowance against the net deferred
assets in the period in which management determines that realization of
the asset is more likely than not.
(7) STOCK OPTION PLAN:
The Company adopted a stock option plan (the Plan) on September 9, 1994,
for its Board of Directors, officers, employees and certain outside
consultants. The aggregate number of shares of common stock which may be
issued upon the exercise of options granted under the Plan cannot exceed
204,392. Under the terms of the Plan, the exercise price of each option
granted cannot be less than the fair market value of the Company's common
stock on the date the option is granted. Unless otherwise provided,
options granted become exercisable, on a cumulative basis, with respect to
20% of the aggregate number of shares covered on the first anniversary
date of the grant and an additional 20% covered on each of the next four
succeeding anniversaries of the grant. No options may have a term that
exceeds a period of 10 years from the date of its grant.
At December 31, 1996, options for 147,411 shares were outstanding at
exercise prices of $2.38 to $7.38 per share, of which 49,019 options were
exercisable. During 1996, 67,606 options were granted and 26,624 options
were canceled. At the time the options were granted the option price
approximated the fair market value of the Company's common stock.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), was issued . SFAS
123 establishes permissable methods for valuing compensation attributable
to stock options and is effective for the year ended December 31, 1996. As
permitted by SFAS 123, the Company continued to follow the previous method
of valuing compensation attributable to stock options prescribed by
Accounting Principles Board opinion No. 25. The proforma disclosures
required by SFAS No. 123 did not have a material affect on the Company's
reported results of operations.
(8) SHAREHOLDERS' EQUITY:
In addition to the IPO described in Note 1, the following is a description
of other significant transactions affecting shareholders' equity:
Pursuant to an agreement dated September 9, 1994, 113,337 warrants were
granted to a consultant of the Company at an exercise price of $3.24 per
share, which was based upon the price of the stock sold to a group of
unaffiliated investors. As of December 31, 1996, 42,850 of these warrants
had been exercised. Of the warrants remaining outstanding 50,487 expire in
1999 and 20,000 expire in the year 2000.
F-12
<PAGE>
In addition, warrants to purchase 20,000 shares of common stock have been
granted in connection with the bridge financing (described in Note 4). The
exercise price to purchase common stock under these warrants is equal to
the IPO price or $5.00 per share. 10,000 of these warrants which expire in
November 1999 and 10,000 of which expire in April 2000, have not been
exercised.
On April 4, 1996, the Board of Directors of the Company declared a 5%
stock dividend for all holders of record as of April 30, 1996 of the
Company's common stock. The stock dividend was paid by the Company on May
24, 1996. The two largest shareholders of the Company, who were also
directors at the time, as joint tenants, elected not to receive such stock
dividend.
On April 4, 1996, the Company also announced that it had extended the
expiration date of, and reduced the exercise price of, its Warrants that
were issued as part of the Company's initial public offering which was
consummated in August 1995. Each Warrant previously expired on August 10,
1998 and entitled the holder to purchase one share of the Company's common
stock at a price of $7.50 per share. For holders of Warrants of record as
of April 15, 1996, each Warrant will now expire on August 19, 1999 and
will entitle the holder to purchase one share of the Company's common
stock at a price of $6.50 per share. All other terms and provisions of the
Warrants remained unchanged.
On July 31, 1996, the Company completed a financing in the amount of
$1,835,000 with an investor group for the sale of 36.7 units consisting of
its common stock and common stock purchase warrants. Each unit was priced
at $50,000 and consisted of 40,000 shares of common stock and warrants to
purchase 40,000 shares of common stock at an exercise price of $2.00 per
share upon the terms and conditions more fully set forth in such warrants.
(9) REVERSE MERGER:
On January 23, 1997, the Company executed and closed transactions pursuant
to an Agreement and Plan of Merger between the Company, BEPI Acquisition
Corporation ("Subsidiary"), Pacific Chemical Group Limited ("PCG"), and
Jinan Chemical Fibre Corporation ("JCF") (the "Agreement"). Subsidiary was
a British Virgin Islands ("BVI") corporation which was wholly owned by the
Company. PCG was a privately held British Virgin Island corporation. JCF
is a Peoples Republic of China ("PRC") corporation which operates a
chemical fibre production complex in the city of Jinan in northern China.
JCF is owned by the local government of Jinan. PCG owns 51% and JCF owns
49% of a joint venture, Jinan Dayang Chemical Fibre Corporation (the
"Joint Venture"), which operates JCF's former Plant No. 1 production
facility for purified terephthalic acid ("PTA").
At the closing, Subsidiary merged into PCG in a merger carried out
pursuant to the laws of BVI (the "Merger"). In connection with the Merger,
the stockholders of PCG transferred 100% ownership of PCG to the Company
and the stockholders of PCG received an aggregate of 833,672 shares of
Series A Preferred Stock of the Company. Each share of Series A Preferred
Stock is automatically convertible into 100 shares of the Company's Common
Stock when the number of authorized shares of the Company's Common Stock
is increased to 300,000,000, has 100 votes per share and votes with the
Common Stock as one class, and has a preference of $100 per share in the
event of liquidation. The Company intends to seek stockholder approval for
the increase in authorized Common Stock in the near future. Prior to this
transaction the Company had approximately 4,650,000 shares of Common Stock
outstanding. As a result of the Merger, PCG became a wholly owned
subsidiary of the Company and the stockholders of PCG acquired control of
a substantial majority of the voting stock of the Company.
F-13
<PAGE>
On January 23, 1997, all other directors and officers of the Company
resigned. As a result of the Merger, control of the Company has
effectively passed to the stockholders of PCG. The only stockholder
holding more than 5% of the total voting stock (Common Stock and Series A,
B, and C Preferred Stock) of the Company is the Company's new
Chairman-elect, who holds approximately 69.8% of the total voting stock
of the Company. Together the former stockholders of PCG, including the
Chairman, hold an aggregate of approximately 93.1% of the Company's total
voting stock.
The Joint Venture has succeeded to the business of manufacturing and sale
of PTA originally conducted by Plant No. 1. Plant No. 1 is principally
engaged in the manufacture of PTA for further processing by other
production units of JCF into polyester chip, film, staple and filament. A
small portion of PTA is produced for sale to third parties. Pursuant to
the Joint Venture Agreement, the Company is required to pay $14,955,000 in
cash as its capital contribution for 51% of the equity interests in the
Joint Venture. In the event that the capital contribution is not paid
within three years of the formation of the joint venture, for whatever
reason including the lack of ability to finance, the Company may forfeit
its claim on its equity interests in the Joint Venture. JCF owns 49% of
the equity interests in the Joint Venture and has contributed part of its
production facilities and other assets including certain plant and
equipment of the No. 1 Plant to the Joint Venture as its capital
contribution. In addition, JCF has leased to the Joint Venture certain
other production assets of No. 1 Plant.
The following summarized financial information relates to the Joint
Venture's operations as of and for the year ended December 31, 1996:
Sales $____0_____
Gross (Loss) (58,451,000)
Net (Loss) (60,636,000)
Current Assets 7,567,000
Current Liabilities 7,579,000
Total Assets 55,137,000
Net Equity $ 47,558,000
In connection with the Merger, the Company is carrying out a private
placement to obtain funds to be used in the operations of the Joint
Venture, to defray costs of the Merger and to partially meet its
obligations to make capital contributions to the Joint Venture. To date,
the Company has issued 18.5 shares of Series B Preferred Stock and 500,000
shares of Series C Preferred Stock. Each share of Series B Preferred Stock
is automatically convertible into 100,000 shares of the Company's Common
Stock one year after issuance. The Series B Preferred Stock is also
convertible at a price per share which is equal to the lesser of (i) $1.00
or (ii) 75% of the average of the closing bid price of one share of Common
Stock during the last five trading days immediately prior to the date of
such conversion. Conversions are also subject to an increase in the number
of authorized shares of Common Stock to 300,000,000. Each share of Series
B Preferred Stock also has a preference of $100,000 per share in the event
of liquidation. Each share of Series C Preferred Stock is convertible into
two shares of the Company's Common Stock at $.50 per share when the number
of authorized shares of the Company's Common Stock is increased to
300,000,000, has one vote per share and votes with the Common Stock as one
class, and has a preference of $1.00 per share in the event of
liquidation. To date, the Company has received total proceeds of
$2,050,000 from the private placement.
F-14
<PAGE>
EXHIBIT D
<PAGE>
JINAN CHEMICAL FIBRE CORPORATION - PLANT ONE
============================================
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 and 1995
TOGETHER WITH AUDITORS' REPORT
F-1
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN & CO]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: Jinan Chemical Fibre Corporation
We have audited the accompanying statements of net assets of Jinan Chemical
Fibre Corporation - Plant One ("Plant One") as of December 31, 1996 and 1995,
and the related statements of expenditures and cash flows for the years then
ended, expressed in Chinese Renminbi. These financial statements are the
responsibility of the management of Plant One. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Plant One as of December 31,
1996 and 1995, and the results of its operations and cash flows for the years
then ended in conformity with generally accepted accounting principles in the
United States of America.
Hong Kong,
April 1, 1997.
F-2
<PAGE>
JINAN CHEMICAL FIBRE CORPORATION - PLANT ONE
STATEMENTS OF EXPENDITURES
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(Amounts in thousands)
1995 1996 1996
---- ---- ----
Rmb Rmb US$
Cost of goods transferred to other
production units of Jinan Chemical
Fibre Corporation and to third
parties 583,095 484,880 58,451
General and administrative expenses 17,790 16,472 1,986
------- ------- ------
Total costs and expenses 600,885 501,352 60,437
======= ======= ======
The accompanying notes are an integral part of these financial statements.
Translation of amounts from Renminbi (Rmb) into United States dollars (US$) for
the convenience of the reader has been made at the rate of US$1.00=Rmb8.2955
announced by the Bank of China on March 17, 1997. No representation is made
that the Renminbi amounts could have been, or could be, converted into United
States dollars at that rate on March 17, 1997 or at any other certain rate.
F-3
<PAGE>
JINAN CHEMICAL FIBRE CORPORATION - PLANT ONE
STATEMENTS OF NET ASSETS
AS OF DECEMBER 31, 1996 and 1995
(Amounts in thousands)
1995 1996 1996
---- ---- ----
Rmb Rmb US$
ASSETS
Current assets:
Accounts receivable 2,208 173 21
Inventories and spare parts, net 102,573 45,755 5,516
Prepayments and other current assets 12,489 16,666 2,009
------- ------- ------
Total current assets 117,270 62,594 7,546
Fixed assets, net 386,416 278,363 33,556
------- ------- ------
Total assets 503,686 340,957 41,102
------- ------- ------
LIABILITIES
Current liabilities:
Accounts payable 41,663 60,310 7,270
Accrued expenses and other liabilities 643 1,553 187
------- ------- ------
Total current liabilities 42,306 61,863 7,457
------- ------- ------
Net assets 461,380 279,094 33,645
======= ======= ======
The accompanying notes are an integral part of these financial statements.
Translation of amounts from Renminbi (Rmb) into United States dollars (US$) for
the convenience of the reader has been made at the rate of US$1.00=Rmb8.2955
announced by the Bank of China on March 17, 1997. No representation is made
that the Renminbi amounts could have been, or could be, converted into United
States dollars at that rate on March 17, 1997 or at any other certain rate.
F-4
<PAGE>
JINAN CHEMICAL FIBRE CORPORATION - PLANT ONE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 and 1995
(Amounts in thousands)
1995 1996 1996
---- ---- ----
Rmb Rmb US$
Cash flows from operating activities:
Total costs and expenses (600,885) (501,352) (60,437)
Adjustments to reconcile total costs and
expenses to net cash used in operating
activities:
Depreciation of property, plant and equipment 33,365 31,946 3,851
(Increase) decrease in assets:
Accounts receivable (2,208) 2,035 245
Inventories and spare parts (15,346) 56,818 6,849
Prepayments and other current assets 7,138 (4,177) (504)
Increase (decrease) in liabilities:
Accounts payable 38,583 18,647 2,248
Accrued expenses and other liabilities (86) 910 109
-------- -------- -------
Net cash used in operating activities (539,439) (395,173) (47,639)
-------- -------- -------
Cash flows from financing activities:
Net cash transferred from Jinan Chemical Fibre
Corporation - head office 539,439 395,173 47,639
-------- ------- -------
Net cash provided by financing activities 539,439 395,173 47,639
-------- ------- -------
Net changes in cash and cash equivalents - - -
-------- ------- -------
Cash and cash equivalents, beginning of year - - -
-------- ------- -------
Cash and cash equivalents, end of year - - -
======== ======= =======
The accompanying notes are an integral part of these financial statements.
Translation of amounts from Renminbi (Rmb) into United States dollars (US$) for
the convenience of the reader has been made at the rate of US$1.00=Rmb8.2955
announced by the Bank of China on March 17, 1997. No representation is made
that the Renminbi amounts could have been, or could be, converted into United
States dollars at that rate on March 17, 1997 or at any other certain rate.
F-5
<PAGE>
JINAN CHEMICAL FIBRE CORPORATION - PLANT ONE
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Jinan Chemical Fibre Corporation ("JCFC") was incorporated in the People's
Republic of China (the "PRC") in 1990 as a stated-owned enterprise. JCFC is
principally engaged in the manufacturing of chemical fibre. Plant One is one of
the production units of JCFC and is principally engaged in the manufacturing of
Purified Terephthalic Acid ("PTA") for further processing by other production
units of JCFC. A small portion of PTA produced is sold to third parties.
Based on a joint venture agreement dated February 9, 1996 between JCFC and
Pacific Chemical Group Limited ("Pacific Chemical"), a company incorporated in
the British Virgin Islands, a Sino-foreign equity joint venture enterprise,
Jinan Da Yang Chemical Fibre Company Limited (the "Joint Venture"), was
established. Pursuant to the aforesaid agreement, Pacific Chemical will pay
US$14,995,000 in cash as its capital contribution for 51% of the equity interest
in the Joint Venture. JCFC will own 49% of the equity interest in the Joint
Venture and will contribute to the Joint Venture part of its production
facilities and other assets including certain machinery and equipment of Plant
One, valued at US$ 14,425,000, based on PRC regulations as its capital
investment. JCFC has also agreed to lease to the Joint Venture certain
production equipment, land and buildings of Plant One with an estimated
valuation of approximately Rmb 259 million for an annual payment of Rmb
35,083,000 for a period of three years. The rental charges will be adjusted and
mutually agreed by JCFC and Pacific Chemical after the initial three years'
rental period. The Joint Venture will also succeed to the business of
manufacturing and sale of PTA currently conducted by Plant One.
The Joint Venture was formally incorporated on March 27, 1996. As of December
31, 1996, JCFC had already contributed machinery and equipment valued at
US$14,425,000 to the Joint Venture. However, the injection of cash by Pacific
Chemical and the transfer of operations from Plant One to the Joint Venture had
not been completed.
Other key provisions of the joint venture agreement and related supplemental
agreements between JCFC and Pacific Chemical included the following:
o the joint venture period is 50 years commencing from the formation of the
Joint Venture on March 27, 1996;
o the profit and loss sharing ratio is the same as the percentage of equity
interests held by the respective investors;
o the Board of Directors consists of 7 members; 3 designated by JCFC and 4
designated by Pacific Chemical;
F-6
<PAGE>
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Cont'd)
o the production of the Joint Venture will first serve the demand of JCFC's
annual production requirements;
o the Joint Venture will guarantee approximately 70,000 tons of PTA per annum
to supply to JCFC at sales prices set by the PRC Price Bureau;
o JCFC will continue to provide management and administrative services to the
Joint Venture for a management fee; and
o JCFC will transfer to the Joint Venture the right to use electricity and
water, and the Joint Venture will pay JCFC a one-off license and know-how fee
for the use of certain fixed assets of Plant One. The total cost to the
Joint Venture will be approximately Rmb 62.6 million; and
o JCFC will purchase certain raw materials for the Joint Venture. Such raw
materials will be sold to the Joint Venture based on the prevailing market
prices of such raw materials at the date of utilization for production by the
Joint Venture.
Plant One conducts its operations in the PRC and accordingly is subject to
special considerations and significant risks not typically associated with
investments in equity securities of United States and Western European
companies. These include risks associated with, among others, political,
economic and legal environments and foreign currency exchange. These risks are
described further in the following paragraphs:
a. Political Environment
Plant One's results may be adversely affected by changes in the political
and social conditions in the PRC and by, among other things, changes in
governmental policies with respect to laws and regulations, inflationary
measures, currency conversion and remittance abroad, and rates and methods
of taxation. While the PRC government is expected to continue its economic
reform policies, many of the reforms are new or experimental and may be
refined or changed. It is also possible that a change in the PRC leadership
could lead to changes in economic policy.
b. Economic Environment
The economy of the PRC differs significantly from the United States economy
in many respects, including its structure, levels of development and capital
reinvestment, growth rate, government involvement, resource allocation,
self- sufficiency, rate of inflation and balance of payments position. The
adoption of economic reform policies since 1978 has resulted in a gradual
reduction in the role of state economic plans in the allocation of
resources, pricing and management of such assets, an increased emphasis on
the utilization of market forces, and rapid growth in the PRC economy.
However, such growth has been uneven among various regions of the country
and among various sectors of the economy.
F-7
<PAGE>
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Cont'd)
b. Economic Environment (Cont'd)
In recent years, the PRC economy has experienced periods of rapid economic
expansion and high rates of inflation, which have led to the adoption by the
central government from time to time of various corrective measures designed
to regulate growth and contain inflation. High inflation may cause the
government to take other actions which could inhibit economic activity in
the PRC and may thereby delay planned expansion. Such actions could
adversely affect Plant One's results of operations and expansion plans.
c. Legal Environment
The PRC's legal system is based on written statutes under which prior court
decisions may be cited as authority but do not have binding precedential
effect. The PRC's legal system is relatively new, and the government is
still in the process of developing a comprehensive system of laws, a process
that has been ongoing since 1979. Considerable progress has been made in
the promulgation of laws and regulations dealing with economic matters such
as corporate organization and governance, foreign investment, commerce,
taxation and trade. Such legislation has significantly enhanced the
protection afforded to foreign investors. However, experience with respect
to the implementation, interpretation and enforcement of such laws is
limited.
d. Foreign Currency Exchange
The Joint Venture expects that substantially all of its revenue will be
denominated in Renminbi. A portion of the future profits of the Joint
Venture, if any, will need to be converted to other currencies to meet its
foreign currency obligations such as payment of dividends declared. Both
the conversion of Renminbi into foreign currencies and the remittance of
foreign currencies abroad require PRC government approvals.
No assurance can be given that the Joint Venture will be able to convert
sufficient amounts of foreign currencies in the PRC foreign exchange market
in the future for payment of dividends.
2. BASIS OF PRESENTATION
Being one of the several production units of JCFC, Plant One did not maintain
separate accounting records in the past. The account balances of Plant One were
commingled with the accounts of other production units of JCFC. The statements
of expenditures and the statements of net assets of Plant One were prepared by
management by identifying those expenditures, and those assets and liabilities
directly related and/or attributable to Plant One.
For the years ended December 31, 1996 and 1995, majority of Plant One's products
was transferred to other production units of JCFC for further manufacturing and
processing.
F-8
<PAGE>
2. BASIS OF PRESENTATION (Cont'd)
Pursuant to the joint venture agreement between JCFC and Pacific Chemical (see
Note 1), the Joint Venture will supply PTA to JCFC at sales prices set by the
PRC Price Bureau. The ranges of sales prices of PTA according to notices/
correspondence from the State/Jinan City Price Bureau for the years ended
December 31, 1996 and 1995 as set by the PRC Price Bureau are summarized as
follows:
1995 1996 1996
---- ---- ----
Rmb Rmb US$
(Unaudited) (Unaudited) (Unaudited)
Price of PTA (per ton) 6,838 - 11,197 5,085 - 11,197 680-721
The historical average market prices published in certain PRC industry journals
are summarized as follows:
1995 1996 1996
---- ---- ----
Rmb Rmb US$
(Unaudited) (Unaudited) (Unaudited)
Market price of PTA (per ton) 12,227 7,668 924
If the sales prices set by the PRC Price Bureau had been adopted by Plant One
for its transfer of PTA to JCFC, the total sales revenue, net of value-added tax
("VAT"), and income (loss) before income taxes of Plant One would have been as
follows:
1995 1996 1996
---- ---- ----
Rmb'000 Rmb'000 US$'000
(Unaudited) (Unaudited) (Unaudited)
Revenue* 750,797 603,806 72,787
Total costs and expenses (600,885) (501,352) (60,437)
-------- -------- -------
Income before income taxes* 149,912 102,454 12,350
======== ======== =======
* There was a range of sales prices quoted by Jinan City Price Bureau during
the year ended December 31, 1996. The sales prices used for computation of
revenue and income before income taxes above are determined by the
management of JCFC by reference to the range of sales prices set by the
Price Bureau. The management of JCFC believed that the sales prices adopted
are reasonable.
If the historical market prices had been adopted by Plant One for its transfer
of PTA to JCFC, the total sales revenue, net of VAT, and income (loss) before
income taxes of Plant One would have been as follows:
1995 1996 1996
---- ---- ----
Rmb'000 Rmb'000 US$'000
(Unaudited) (Unaudited) (Unaudited)
Revenue 947,821 498,037 60,037
Total costs and expenses (600,885) (501,352) (60,437)
-------- -------- -------
Income (loss) before income taxes 346,936 (3,315) (400)
======== ======== =======
F-9
<PAGE>
2. BASIS OF PRESENTATION (Cont'd)
The sales revenue computed above based on the prices set by the PRC Price Bureau
and the historical market prices are both for reference purposes only and are
not actual transaction prices. No representation is made that Plant One's
products could have been, or could be sold to JCFC or third party customers at
these prices or at any other prices.
JCFC has four different major production units and, accordingly, 25% of the
total general and administrative expenses of JCFC were allocated to Plant One
and recorded in the accompanying financial statements.
The accompanying financial statements were prepared in accordance with generally
accepted accounting principles in the United States of America ("US GAAP").
This basis of accounting differs from that used in the statutory accounts of
JCFC, which were prepared in accordance with the accounting principles and other
relevant financial regulations applicable to state-owned enterprises as
established by the Ministry of Finance of the PRC.
Major adjustments made to conform to US GAAP included the following:
o Restatement of fixed assets purchased in foreign currencies using the market
exchange rates for translation;
o Adjustment for depreciation of fixed assets to reflect the useful economic
lives of fixed assets.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Taxation
(i) Income taxes
Pursuant to the relevant income tax laws applicable to state-owned
enterprises in the PRC, JCFC is subject to PRC income taxes at the
applicable tax rate (currently 33%) on the taxable income as reported
in its statutory accounts.
As one of the production units of JCFC, the majority of the Plant One's
products are transferred to other production units for further
processing. Since Plant One itself does not maintain a separate set of
accounting records, all of its income tax liabilities, if any, are
borne by JCFC. Accordingly, no income taxes have been provided in
Plant One's financial statements.
F-10
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
a. Taxation (Cont'd)
(ii) Valued-added Tax
Plant One's sales are subject to VAT which is the principal indirect
tax on the sales of tangible goods and the provision of certain
specified services. The general VAT rate applicable to Plant One's
products is 17%.
b. Inventories
Inventories are stated at the lower of cost, on a first-in first-out basis,
or net realizable value. Costs of work-in-progress and finished goods
include direct materials, direct labor and an attributable portion of
production overheads. Net realizable value is calculated based on estimated
normal selling price less all further costs of production and the related
costs of marketing, selling and distribution. Provision is made for
obsolete, slow moving or defective items, where appropriate.
c. Fixed Assets and Depreciation
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation of property, plant and equipment is computed
using the straight-line method over the assets' estimated useful lives,
after taking into account the estimated residual value of 5% of the costs of
the fixed assets. The estimated useful lives are as follows:
Buildings 25 years
Machinery and equipment 14 years
d. Foreign Currency Translation
Renminbi is not freely convertible into foreign currencies. All foreign
exchange transactions involving Renminbi must take place either through the
Bank of China or other institutions authorized to buy and sell foreign
currencies, or at a Foreign Exchange Adjustment Center.
Foreign currency transactions are translated into Renminbi at the exchange
rates at the dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies are translated into Renminbi using the
exchange rates prevailing at the balance sheet dates. The resulting
exchange differences are recorded in the statements of expenditures.
F-11
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
e. Use of Estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from
those estimates.
4. INVENTORIES AND SPARE PARTS
Inventories and spare parts comprised:
1995 1996 1996
---- ---- ----
Rmb'000 Rmb'000 US$'000
Raw materials 87,268 34,839 4,200
Finished goods 2,796 12,279 1,480
Spare parts 19,244 - -
Less: Net realizable value and
obsolescence provision (6,735) (1,363) (164)
------- ------ -----
Inventories and spare parts, net 102,573 45,755 5,516
======= ====== =====
5. Fixed Assets
Property, plant and equipment comprised:
1995 1996 1996
---- ---- ----
Rmb'000 Rmb'000 US$'000
Buildings 109,550 109,550 13,206
Machinery and equipment 427,010 310,115 37,384
-------- -------- -------
536,560 419,665 50,590
Less: Accumulated depreciation (150,144) (141,302) (17,034)
-------- -------- -------
Net book value 386,416 278,363 33,556
======== ======== =======
F-12
<PAGE>
The Joint Venture will be granted the right to use the parcel of land and
buildings presently occupied by Plant One for an annual rental of Rmb506,000 and
Rmb2,345,000 respectively. The rental period is not specified in the agreement.
6. MOVEMENTS IN NET ASSETS
Movements in net assets were as follows:
1995 1996 1996
---- ---- ----
Rmb'000 Rmb'000 US$'000
Beginning balance 522,826 461,380 55,618
Total costs and expenses for the year (600,885) (501,352) (60,437)
Net book value of fixed assets
transferred to the Joint Venture - (76,107) (9,175)
Net cash transferred from JCFC 539,439 395,173 47,639
-------- -------- -------
Ending balance 461,380 279,094 33,645
======== ======== =======
7. RETIREMENT PLAN
As stipulated by the regulations of the PRC government, JCFC has established a
defined contribution retirement plan for all of its staff. Under this plan, all
staff are entitled to a fixed life-long pension equal to their basic salaries at
their retirement dates. JCFC is required to make specific contributions to the
state-sponsored retirement plan at a rate of 25% of the basic salaries of the
staff. It has no future obligations for the pension payment or any other
post-retirement benefits beyond the annual contributions made. The PRC
government is responsible for the entire pension liabilities to these retired
employees. During the years ended December 31, 1996 and 1995, Plant One made
pension contributions of Rmb1,548,292 and Rmb1,681,368 respectively.
F-13
<PAGE>
PACIFIC CHEMICAL GROUP LIMITED
==============================
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND 1996
TOGETHER WITH AUDITORS' REPORT
F-14
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN & CO]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: Pacific Chemical Group Limited
We have audited the accompanying balance sheets of Pacific Chemical Group
Limited (a company incorporated in the British Virgin Islands) as of December
31, 1995 and 1996, and the related statements of expenditures, cash flows and
changes in shareholder's equity for the period from November 28, 1995 (date of
incorporation) to December 31, 1995 and for the year ended December 31, 1996,
expressed in United States dollars. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pacific Chemical Group Limited
as of December 31, 1995 and 1996, and the results of its operations and cash
flows for the period from November 28, 1995 (date of incorporation) to December
31, 1995 and for the year ended December 31, 1996 in conformity with generally
accepted accounting principles in the United States of America.
Hong Kong,
April 1, 1997.
F-15
<PAGE>
PACIFIC CHEMICAL GROUP LIMITED
STATEMENTS OF EXPENDITURES
FOR THE PERIOD FROM NOVEMBER 28, 1995 (DATE OF INCORPORATION)
TO DECEMBER 31, 1995 AND FOR THE YEAR ENDED DECEMBER 31, 1996
(Expressed in United States dollars)
1995 1996
---- ----
General and administrative expenses $(2,158) $(121,852)
Provision for income tax - -
------- ---------
Net loss for the period/year $(2,158) $(121,852)
======= =========
F-16
<PAGE>
PACIFIC CHEMICAL GROUP LIMITED
BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1996
(Expressed in United States dollars)
1995 1996
---- ----
ASSET
Cash on hand $12,842 $ 20,888
======= ========
LIABILITIES
Accrued liabilities $ - $121,852
------- --------
SHAREHOLDERS' EQUITY
Share capital 2 8,048
Share premium 14,998 14,998
Accumulated deficit (2,158) (124,010)
------- --------
Shareholders' equity 12,842 (100,964)
------- --------
Total liabilities and shareholders' equity $12,842 $ 20,888
======= ========
F-17
<PAGE>
PACIFIC CHEMICAL GROUP LIMITED
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM NOVEMBER 28, 1995 (DATE OF INCORPORATION)
TO DECEMBER 31, 1995 AND FOR THE YEAR ENDED DECEMBER 31, 1996
(Expressed in United States dollars)
1995 1996
---- ----
Cash flows from operating activities:
Net loss $(2,158) $(121,852)
Increase in accrued liabilities - 121,852
------- ---------
Net cash used in operating activities (2,158) -
Cash flows from financing activity:
Proceeds from issue of shares 15,000 8,046
------- ---------
Increase in cash and cash equivalents 12,842 8,046
Cash and cash equivalents, beginning of
period/year - 12,842
------- ---------
Cash and cash equivalents, end of period/year $12,842 $ 20,888
======= =========
F-18
<PAGE>
PACIFIC CHEMICAL GROUP LIMITED
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE PERIOD FROM NOVEMBER 28, 1995 (DATE OF INCORPORATION)
TO DECEMBER 31, 1995 AND FOR THE YEAR ENDED DECEMBER 31, 1996
(Expressed in United States dollars)
Share Share Accumulated
capital premium deficit Total
------- ------- ----------- -----
Contribution from a
shareholder $ 2 $14,998 $ - $ 15,000
Net loss - - (2,158) (2,158)
------ ------- --------- ---------
Balance as of December 31, 1995 2 14,998 (2,158) 12,842
Contribution from shareholders 8,046 - - 8,046
Net loss - - (121,852) (121,852)
------ ------- --------- ---------
Balance as of December 31, 1996 $8,048 $14,998 $(124,010) $(100,964)
====== ======= ========= =========
F-19
<PAGE>
PACIFIC CHEMICAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Amounts expressed in United States dollars)
1. ORGANIZATION AND OPERATIONS
The Company was incorporated in the British Virgin Islands on November 28, 1995.
Based on a joint venture agreement dated February 9, 1996 between Jinan Chemical
Fibre Corporation ("JCFC"), a company incorporated in the People's Republic of
China (the "PRC"), and the Company, a Sino-foreign equity joint venture
enterprise, Jinan Da Yang Chemical Fibre Company Limited (the "Joint Venture"),
was established. Pursuant to the aforesaid agreement, the Company will pay
$14,995,000 in cash as its capital contribution for 51% of the equity interest
in the Joint Venture. JCFC will own 49% of the equity interest in the Joint
Venture and will contribute to the Joint Venture part of its production
facilities and other assets including certain machinery and equipment, valued at
$14,425,000, based on PRC regulations as its capital investment. The Joint
Venture will also succeed to the business of manufacturing and sale of Purified
Terephthalic Acid currently conducted by a plant of JCFC.
The Joint Venture was formally incorporated on March 27, 1996. As of December
31, 1996, JCFC had already contributed machinery and equipment valued at
$14,425,000 to the Joint Venture. However, the injection of cash by the Company
and the transfer of operations from JCFC to the Joint Venture had not been
completed.
2. BASIS OF PRESENTATION
The accompanying financial statements were prepared in accordance with generally
accepted accounting principles in the United States of America.
F-20
<PAGE>
3. SHARE CAPITAL
Share capital comprised:
1995 1996
---- ----
Authorized
50,000 ordinary shares of $1 each $50,000 $50,000
======= =======
Issued and fully paid
2 ordinary shares of $1 each $ 2 $ 8,048
======= =======
During 1995, 2 ordinary shares of $1 each were issued at $7,500 each resulting
in a share premium of $14,998. During 1996, 8,046 additional ordinary shares of
$1 each were issued at par.
4. SUBSEQUENT EVENT
Subsequent to year end, the Company entered into a merger agreement with Bureau
of Electronic Publishing, Inc. ("BEPI"), a company incorporated in the United
States, JCFC and BEPI Acquisition Corporation ("BEPI Acquisition"), a company
incorporated in the British Virgin Islands and a wholly owned subsidiary of
BEPI. Pursuant to the merger agreement, the shareholders of the Company will
transfer their entire interests in the Company to BEPI Acquisition and will, in
return, receive an aggregate of 833,671.66 shares of Class A Preferred Stock of
BEPI.
F-21
<PAGE>
JINAN DA YANG CHEMICAL FIBRE COMPANY LIMITED
============================================
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996
TOGETHER WITH AUDITORS' REPORT
F-22
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN & CO]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: Jinan Da Yang Chemical Fibre Company Limited
We have audited the accompanying balance sheet of Jinan Da Yang Chemical Fibre
Company Limited (a company incorporated in the People's Republic of China) as of
December 31, 1996, and the related statements of expenditures, cash flows and
changes in investors' equity for the period from March 27, 1996 (date of
incorporation) to December 31, 1996, expressed in Chinese Renminbi. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jinan Da Yang Chemical Fibre
Company Limited as of December 31, 1996 and the results of its operations and
cash flows for the period from March 27, 1996 (date of incorporation) to
December 31, 1996, in conformity with generally accepted accounting principles
in the United States of America.
Hong Kong,
April 1, 1997.
F-23
<PAGE>
JINAN DA YANG CHEMICAL FIBRE COMPANY LIMITED
STATEMENT OF EXPENDITURES
FOR THE PERIOD FROM MARCH 27, 1996 (DATE OF INCORPORATION)
TO DECEMBER 31, 1996
Rmb US$
Operating expenses (640,525) (77,214)
Provision for income taxes - -
-------- -------
Net loss, carried forward (640,525) (77,214)
======== =======
The accompanying notes are an integral part of these financial statements.
Translation of amounts from Renminbi (Rmb) into United States dollars (US$) for
the convenience of the reader has been made at the rate of US$1.00=Rmb8.2955
announced by the Bank of China on March 17, 1997. No representation is made
that the Renminbi amounts could have been, or could be, converted into United
States dollars at that rate on March 17, 1997 or at any other certain rate.
F-24
<PAGE>
JINAN DA YANG CHEMICAL FIBRE COMPANY LIMITED
BALANCE SHEET AS OF DECEMBER 31, 1996
Rmb US$
ASSETS
Fixed assets, net 116,255,214 14,014,250
=========== ==========
INVESTORS' EQUITY
Share capital 116,895,739 14,091,464
Accumulated deficit (640,525) (77,214)
----------- ----------
Total investors' equity 116,255,214 14,014,250
=========== ==========
The accompanying notes are an integral part of these financial statements.
Translation of amounts from Renminbi (Rmb) into United States dollars (US$) for
the convenience of the reader has been made at the rate of US$1.00=Rmb8.2955
announced by the Bank of China on March 17, 1997. No representation is made
that the Renminbi amounts could have been, or could be, converted into United
States dollars at that rate on March 17, 1997 or at any other certain rate.
F-25
<PAGE>
JINAN DA YANG CHEMICAL FIBRE COMPANY LIMITED
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MARCH 27, 1996 (DATE OF INCORPORATION)
TO DECEMBER 31, 1996
Rmb US$
Cash flows from operating activities:
Net loss (640,525) (77,214)
Adjustment to reconcile net loss to net changes in
cash and cash equivalents
Depreciation of machinery and equipment 640,525 77,214
-------- -------
Net changes in cash and cash equivalents - -
======== =======
The accompanying notes are an integral part of these financial statements.
Translation of amounts from Renminbi (Rmb) into United States dollars (US$) for
the convenience of the reader has been made at the rate of US$1.00=Rmb8.2955
announced by the Bank of China on March 17, 1997. No representation is made
that the Renminbi amounts could have been, or could be, converted into United
States dollars at that rate on March 17, 1997 or at any other certain rate.
F-26
<PAGE>
JINAN DA YANG CHEMICAL FIBRE COMPANY LIMITED
STATEMENT OF CHANGES IN INVESTORS' EQUITY
FOR THE PERIOD FROM MARCH 27, 1996 (DATE OF INCORPORATION)
TO DECEMBER 31, 1996
Accumulated
Capital deficit Total
------- ----------- -----
Rmb Rmb Rmb
Contribution from a joint venture
partner 116,895,739 - 116,895,739
Net loss - (640,525) (640,525)
----------- -------- -----------
Balance as of December 31, 1996 116,895,739 (640,525) 116,255,214
=========== ======== ===========
F-27
<PAGE>
JINAN DA YANG CHEMICAL FIBRE COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPAL ACTIVITY
Jinan Da Yang Chemical Fibre Company Limited (the "Company") was incorporated in
the People's Republic of China (the "PRC") on March 27, 1996 as a Sino-foreign
equity joint venture enterprise.
Based on a joint venture agreement dated February 9, 1996 between Pacific
Chemical Group Limited ("Pacific Chemical"), a company incorporated in the
British Virgin Islands and Jinan Chemical Fibre Corporation ("JCFC"), a company
incorporated in the PRC, the Company was established. Pursuant to the aforesaid
agreement, Pacific Chemical will pay US$14,995,000 in cash as its capital
contribution for 51% of the equity interest in the Company. JCFC will own 49%
of the equity interest in the Company and will contribute to the Company part of
its production facilities and other assets including certain machinery and
equipment, valued at US$14,425,000, based on PRC regulations as its capital
investment. JCFC has also agreed to lease to the Company certain production
equipment, land and buildings of Plant One with an estimated valuation of
approximately Rmb 259 million for an annual payment of Rmb 35,083,000 for a
period of three years. The rental charges will be adjusted and mutually agreed
by JCFC and Pacific Chemical after the initial three years' rental period. The
Company will also succeed to the business of manufacturing and sale of Purified
Terephthalic Acid ("PTA") currently conducted by a production plant of JCFC.
During the period, JCFC contributed machinery and equipment of valued at
US$14,425,000 to the Joint Venture. However, as of December 31, 1996, the
injection of assets by Pacific Chemical and the transfer of operations of a
production plant of JCFC to the Company had not been completed. The machinery
and equipment injected by JCFC to the Company is being used by JCFC for its own
operations without charge pending completion of the capital contribution by
Pacific Chemical.
Other key provisions of the joint venture agreement and related supplemental
agreements between JCFC and Pacific Chemical included the following:
o the joint venture period of the Company is 50 years commencing from the
formation of the Company on March 27, 1996;
o the profit and loss sharing ratio of the Company is the same as the
percentage of equity interests held by the respective investors;
o the Company's Board of Directors consists of 7 members; 3 designated by JCFC
and 4 designated by Pacific Chemical;
F-28
<PAGE>
1. ORGANIZATION AND PRINCIPAL ACTIVITY (Cont'd)
o the production of the Company will first serve the demand of JCFC's annual
production requirements;
o the Company will guarantee approximately 70,000 tons of PTA per annum to
supply to JCFC at sales prices set by the PRC Price Bureau;
o JCFC will provide management and administrative services to the Company for a
management fee; and
o JCFC will transfer to the Company the right to use electricity and water,
and the Company will pay JCFC a one-off license and know-how fee for the
use of certain fixed assets of JCFC. The total cost to the Company will be
approximately Rmb 62.6 million; and
o JCFC will purchase certain raw materials for the Company. Such raw materials
will be sold to the Company based on the prevailing market prices of such raw
materials at the date of utilization for production by the Company.
The Company conducts its operations in the PRC and accordingly is subject to
special considerations and significant risks not typically associated with
investments in equity securities of United States and Western European
companies. These include risks associated with, among others, political,
economic and legal environments and foreign currency exchange. These risks are
described further in the following paragraphs:
a. Political Environment
The Company's results may be adversely affected by changes in the
political and social conditions in the PRC and by, among other things,
changes in governmental policies with respect to laws and regulations,
inflationary measures, currency conversion and remittance abroad, and rates
and methods of taxation. While the PRC government is expected to continue
its economic reform policies, many of the reforms are new or experimental
and may be refined or changed. It is also possible that a change in the PRC
leadership could lead to changes in economic policy.
b. Economic Environment
The economy of the PRC differs significantly from the United States economy
in many respects, including its structure, levels of development and capital
reinvestment, growth rate, government involvement, resource allocation,
self- sufficiency, rate of inflation and balance of payments position. The
adoption of economic reform policies since 1978 has resulted in a gradual
reduction in the role of state economic plans in the allocation of
resources, pricing and management of such assets, an increased emphasis on
the utilization of market forces, and rapid growth in the PRC economy.
However, such growth has been uneven among various regions of the country
and among various sectors of the economy.
F-29
<PAGE>
1. ORGANIZATION AND PRINCIPAL ACTIVITY (Cont'd)
b. Economic Environment (Cont'd)
In recent years, the PRC economy has experienced periods of rapid economic
expansion and high rates of inflation, which have led to the adoption by the
central government from time to time of various corrective measures designed
to regulate growth and contain inflation. High inflation may cause the
government to take other actions which could inhibit economic activity in
the PRC and may thereby delay planned expansion. Such actions could
adversely affect the Company's results of operations and expansion plans.
c. Legal Environment
The PRC's legal system is based on written statutes under which prior court
decisions may be cited as authority but do not have binding precedential
effect. The PRC's legal system is relatively new, and the government is
still in the process of developing a comprehensive system of laws, a process
that has been ongoing since 1979. Considerable progress has been made in
the promulgation of laws and regulations dealing with economic matters such
as corporate organization and governance, foreign investment, commerce,
taxation and trade. Such legislation has significantly enhanced the
protection afforded to foreign investors. However, experience with respect
to the implementation, interpretation and enforcement of such laws is
limited.
d. Foreign Currency Exchange
The Company expects that substantially all of its revenue will be
denominated in Renminbi. A portion of the future profits of the Company, if
any, will need to be converted to other currencies to meet its foreign
currency obligations such as payment of dividends declared. Both the
conversion of Renminbi into foreign currencies and the remittance of foreign
currencies abroad require PRC government approvals.
No assurance can be given that the Company will be able to convert
sufficient amounts of foreign currencies in the PRC foreign exchange market
in the future for payment of dividends.
2. BASIS OF PRESENTATION
The accompanying financial statements were prepared in accordance with
generally accepted accounting principles in the United States of America
("US GAAP"). This basis of accounting differs from that used in the
statutory accounts of the Company, which are prepared in accordance with the
accounting principles and other relevant financial regulations applicable to
Sino-foreign equity joint venture enterprises as established by the Ministry
of Finance of the PRC.
F-30
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Taxation
Pursuant to the relevant income tax laws applicable to Sino-foreign equity
joint venture enterprises in the PRC, the Company is subject to PRC income
taxes at the applicable tax rate (currently 33%) on the taxable income as
reported in its statutory accounts. In accordance with the provisions of
the same income tax laws, the Company will be fully exempted from income
taxes for two years starting from the first profit-making year followed by a
50% reduction for the next three years.
b. Fixed Assets and Depreciation
Machinery and equipment are stated at cost less accumulated depreciation.
Depreciation of machinery and equipment is computed using the straight-line
method over the assets' estimated useful lives of 14 years after taking into
account the estimated residual value of 5% of the costs of the fixed assets.
c. Use of Estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from
those estimates.
4. FIXED ASSETS
Machinery and equipment comprised:
Rmb US$
Machinery and equipment 116,895,739 14,091,464
Less: Accumulated depreciation (640,525) (77,214)
----------- ----------
Net book value 116,255,214 14,014,250
=========== ==========
The Company will be granted the right to use the parcel of land and buildings
presently occupied by a production plant of JCFC for an annual rental of Rmb
506,000 and Rmb 2,345,000 respectively. The rental period is not specified in
the agreement.
F-31
<PAGE>
JINAN CHEMICAL FIBRE CORPORATION - PLANT ONE
============================================
UNAUDITED PRO FORMA FINANCIAL INFORMATION OF
BUREAU OF ELECTRONIC PUBLISHING, INC.
F-32
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
BUREAU OF ELECTRONIC PUBLISHING, INC.
The unaudited pro forma consolidated statement of income from continuing
operations of Bureau of Electronic Publishing, Inc., a company incorporated in
the United States of America, for the year ended December 31, 1996 and the
unaudited pro forma consolidated balance sheet as of December 31, 1996 have
been prepared to give effect to (i) the formation of Jinan Da Yang Chemical
Fibre Company Limited ("Jinan Da Yang"), a joint venture between Jinan Chemical
Fibre Corporation ("JCFC") and Pacific Chemical Group Limited ("Pacific
Chemical"), pursuant to a joint venture agreement dated February 9, 1996 and
related supplemental agreements; (ii) the transfer of operations from Jinan
Chemical Fibre Corporation - Plant One ("Plant One") to Jinan Da Yang and (iii)
the exchange of shares between Bureau of Electronic Publishing, Inc. and
Pacific Chemical pursuant to an agreement dated January 23, 1997, in which the
shareholders of Pacific Chemical agreed to transfer their entire interests in
Pacific Chemical to a wholly owned subsidiary of Bureau of Electronic
Publishing, Inc. in exchange for 833,671.66 shares of Class A Preferred Stock
of Bureau of Electronic Publishing, Inc. The unaudited pro forma statement of
income and balance sheet are based upon the historical financial statements of
Bureau of Electronic Publishing, Inc, Pacific Chemical, Jinan Da Yang and Plant
One after giving effect to the pro forma adjustments described in the notes
thereto as if the formation of Jinan Da Yang, the transfer of operations from
Plant One to Jinan Da Yang and the share exchange between Bureau of Electronic
Publishing, Inc. and Pacific Chemical had occurred on January 1, 1996 and
December 31, 1996, respectively.
The unaudited pro forma statements do not purport to represent what the results
of operations and the financial position of Bureau of Electronic Publishing,
Inc. would actually have been if the events described above had in fact
occurred on January 1, 1996 or December 31, 1996, or to project the results of
operations of Bureau of Electronic Publishing, Inc. for any future period.
The unaudited pro forma statements should be read in conjunction with the
historical financial statements of Bureau of Electronic Publishing, Inc.,
Pacific Chemical, Jinan Da Yang and Plant One, including the notes thereto.
F-33
<PAGE>
HISTORICAL STATEMENTS OF EXPENDITURES OF
PACIFIC CHEMICAL GROUP LIMITED, JINAN DA YANG
CHEMICAL FIBRE COMPANY LIMITED AND
JINAN CHEMICAL FIBRE CORPORATION - PLANT ONE, AND
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FROM CONTINUING OPERATIONS
OF BUREAU OF ELECTRONIC PUBLISHING, INC.
FOR THE YEAR ENDED DECEMBER 31, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Historical Statement of
Expenditure
------------------------------------
Jinan Da Pro forma
Yang Jinan Consolidated
Pacific Chemical Chemical Statement of Income
Chemical Fibre Fibre of Bureau of
Group Company Corporation- Pro forma Electronic
Limited Limited Plant One Note Adjustment Publishing, Inc.
---------- ----------- ---------- ----- ----------- ----------------------
US$ Rmb Rmb Rmb Rmb US$
<S> <C> <C> <C> <C> <C> <C> <C>
Sales - - - (1) 603,806 603,806 72,787
---------- ----------- ---------- ---------- -----------
Cost of goods sold - - (484,880) (2) 16,918 (363,305) (43,795)
(3) (1,776)
(4) (35,083)
(5) 141,516
General and
administrative
expenses (124) (641) (16,472) (18,142) (2,187)
---------- ----------- ---------- ---------- ----------
Total costs and
expenses (124) (641) (501,352) (381,447) (45,982)
---------- ----------- ---------- ---------- ----------
(Loss) income from
operations before
income taxes (124) (641) (501,352) 222,359 26,805
Provision for income
taxes - - - (6) - - -
---------- ----------- ---------- ---------- ----------
(Loss) income before
minority interests (124) (641) (501,352) 222,359 26,805
Minority interests - - - (7) 109,460 (109,460) (13,195)
---------- ----------- ---------- ---------- ----------
Net (loss)
income (124) (641) (501,352) 112,899 13,610
========== =========== ========== ========== ==========
</TABLE>
Translation of amounts from Renminbi (Rmb) into United States dollars (US$) for
the convenience of the reader has been made at the rate of US$1.00=Rmb8.2955
announced by the Bank of China on March 17, 1997. No representation is made
that the Renminbi amounts could have been, or could be, converted into United
States dollars at that rate on March 17, 1997 or at any other certain rate.
F-34
<PAGE>
HISTORICAL BALANCE SHEETS/STATEMENT OF NET ASSETS
OF BUREAU OF ELECTRONIC PUBLISHING, INC,
PACIFIC CHEMICAL GROUP LIMITED, JINAN DA YANG
CHEMICAL FIBRE COMPANY LIMITED AND
JINAN CHEMICAL FIBRE CORPORATION - PLANT ONE, AND
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF
BUREAU OF ELECTRONIC PUBLISHING, INC.
AS OF DECEMBER 31, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Historical Balance Sheet/Statement of Net
Assets
-----------------------------------------------
Jinan Da Jinan
Bureau Yang Chemical Pro forma
of Pacific Chemical Fibre Consolidated Balance
Electronic Chemical Fibre Corporation- Pro Sheet of Bureau of
Publishing, Group Company Plant forma Electronic
Inc. Limited Limited One Note Adjustment Publishing, Inc.
---------- ----------- ---------- ---------- ------ ---------- ----------------------
US$ US$ Rmb Rmb Rmb Rmb US$
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash at bank and on 728 21 - - (8) 124,391 130,604 15,744
hand
Accounts receivable 70 - - 173 754 91
Inventories and
spare parts, net 34 - - 45,755 46,037 5,550
Prepayments and
other current
assets 22 - - 16,666 16,849 2,031
---------- ----------- ---------- ----------- ---------- -----------
Total current assets 853 21 - 62,594 194,244 23,416
Fixed assets, net 21 - 116,255 278,363 (9) (278,363) 155,628 18,760
(10) 38,558
Investment in joint
venture 226 1,875 226
Other assets 6 50 6
---------- ----------- ---------- ----------- ---------- -----------
Total assets 1107 21 116,255 340,957 351,797 42,408
---------- ----------- ---------- ----------- ---------- -----------
LIABILITIES
Current liabilities
Accounts payables 117 122 - 60,310 62,293 7,509
Accrued expenses &
other liabilities 241 - - 1,553 3,552 428
Amount due to JCFC - - - - (9) 1,372 39,930 4,814
(10) 38,558
---------- ----------- ---------- ----------- ---------- -----------
Total current
liabilities 358 122 - 61,863 105,775 12,751
---------- ----------- ---------- ----------- ---------- -----------
Minority interest - - - - (9) 116,896 116,896 14,091
---------- ----------- ---------- ----------- ---------- -----------
INVESTORS' EQUITY
(DEFICIT)
Share capital 5 8 116,896 - (7) (116,896) 124,499 15,008
(8) 124,391
Share 8,103 15 - - 67,343 8,118
preimium/Additional
paid-in capital
Warrants 335 - - 2,779 335
-
Accumulated deficit (7,694) (124) (641) - (65,495) (7,895)
---------- ----------- ---------- ----------- ---------- -----------
Investors' equity
(deficit) 749 (101) 116,255 - 129,126 15,566
---------- ----------- ---------- ----------- ---------- -----------
Total liabilities and
investors'
(deficit) equity 1,107 21 116,255 61,863 351,797 42,408
========== =========== ========== =========== ========== ===========
</TABLE>
Translation of amounts from Renminbi (Rmb) into United States dollars (US$) for
the convenience of the reader has been made at the rate of US$1.00=Rmb8.2955
announced by the Bank of China on March 17, 1997. No representation is made
that the Renminbi amounts could have been, or could be, converted into United
States dollars at that rate on March 17, 1997 or at any other certain rate.
F-35
<PAGE>
BUREAU OF ELECTRONIC PUBLISHING, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
A description of pro forma adjustments is as follows:
(1) To record sales revenue in relation to the transfer of products to
other production units of JCFC based on the sales prices set by the
Price Bureau.
(2) To adjust for the decrease in depreciation expense based on the cost
of fixed assets contributed by JCFC to Jinan Da Yang.
(3) To adjust for additional utility charges imposed by JCFC for the
supply of utilities to Jinan Da Yang.
(4) To record operating lease rentals in respect of land, buildings and
equipment which will be leased to Jinan Da Yang.
(5) To adjust for the changes in production costs as a result of the
purchase of a major raw material, P-Xylene directly from JCFC based on
the prevailing market prices at the dates of production. The market
prices of P-Xylene used for computation of this pro forma adjustment
are based on prices quoted on a confirmation reply from a major
supplier of JCFC.
(6) Under the Income Tax Law of the People's Republic of China (the "PRC")
concerning Enterprises with Foreign Investments and Foreign
Enterprises and related regulations, a Sino-foreign joint venture may,
on application with the relevant tax bureau, be eligible for a tax
holiday. If Jinan Da Yang qualifies for a tax holiday, it will be
exempted from PRC income tax for two years starting from the first
profitable year of operations and 50% reduction in the three years
thereafter. No provision for income taxes has been made in the
unaudited pro forma consolidated statement of income on the basis that
Jinan Da Yang would have been eligible for a tax holiday in 1996.
Jinan Da Yang may also be liable to other taxes such as business tax
and other local taxes.
F-36
<PAGE>
(7) To record minority interests of JCFC.
(8) Neither Bureau of Electronic Publishing, Inc. nor Pacific Chemical
currently has the financial resources to make the US$14,995,000
capital contribution to Jinan Da Yang and must seek external
financing. The pro forma financial statements assume this financing
will be in the form of additional capital contributions from the
existing shareholders of Bureau of Electronic Publishing, Inc. or
Pacific Chemical. There is no assurance that Bureau of Electronic
Publishing, Inc. or Pacific Chemical will be successful in raising the
funds required to make its capital contribution. Accordingly, there is
no assurance that Jinan Da Yang will become operational.
(9) To record the amount due to JCFC assuming the transfer of all assets
and liabilities directly related and/or attributable to Plant One
other than fixed assets.
(10) To record the one-off license and know-how fee for the use of certain
fixed assets of Plant One to be transferred from Plant One to Jinan
Da Yang.
F-37
