<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/x/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1997
/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________
Commission file number 1-13890
BUREAU OF ELECTRONIC PUBLISHING, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its charter)
DELAWARE 22-2894444
- ----------------------------------- ----------------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
745 Alexander Road, Princeton, New Jersey 08540
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(609) 514-1600
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes _____ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 4,647,619 at May 15, 1997
<PAGE>
BUREAU OF ELECTRONIC PUBLISHING, INC.
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
The Financial Statements commence at page F-1.
Item 2. Management's Discussion and Analysis or Plan of
Operations
The following discussion and analysis should be read in conjunction
with the Company's Financial Statements and Notes thereto included elsewhere in
this Form 10-QSB. On January 23, 1997 the Agreement and Plan of Merger between
the Company, the Company's British Virgin Islands ("BVI") subsidiary, Pacific
Chemical Group Limited ("PCG"), and Jinan Chemical Fibre Corporation ("JCF")
(the "Agreement") was simultaneously executed and closed. 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. 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 owns 51% and JCF owns 49% of a joint venture, Jinan Dayang Chemical
Fibre Corporation (the "Joint Venture"). PCG's only asset is its 51% interest in
the Joint Venture. The Joint Venture has succeeded to the business of
manufacturing and sale of purified terephthalic acid ("PTA") conducted by JCF's
No. 1 Plant in Jinan, People's Republic of China ("PRC"). 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
Company's multimedia education products business carried out prior to the Merger
has been substantially discontinued. The Financial Statements and Notes and
discussion below relate primarily to the business of the Joint Venture after the
date of the closing of the Merger.
Working Capital and Liquidity
On a pro forma basis, the Company had working capital of
$12,257,000 at March 31, 1997. Plant No. 1's working capital was
Rmb 12,164,000. The Company believes that the Company and Plant
2
<PAGE>
No. 1 have sufficient working capital to carry out their normal
operations for the next 12 months.
Pursuant to the Agreement, the Company is required to pay $14,995,000
in cash as its capital contribution for its 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 by February
1999, 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 Company
currently does not have the resources to pay the remainder of the Purchase
Price. The Company intends to finance the payment of the remainder of the
Purchase Price through the public or private sale of its equities. The company
does not currently have any commitments or arrangements with respect to the
financing of the remainder of the Purchase Price.
In connection with the Merger, the Company carried out a private
placement to obtain funds to be used in the operations of the Joint Venture and
to defray certain costs of the Merger. The Company has issued in the private
placement 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. Each share of Series B Preferred Stock is automatically convertible
into 100,000 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 at a price
which is equal to the lesser of (a) US$1.00 or (b) 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. Each share of Series C and
Series D Preferred Stock is automatically 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. The Company has received
total proceeds of approximately $2,800,000 from the private placement.
Results of Operations
In late 1996, the Company substantially discontinued its previous
business operations and in January 1997 completed the Merger. On a pro forma
basis the Company had net income after provision for income taxes of $4,002,000
in the three months ended March 31, 1997 (the "1997 Period"). Pro forma sales
were $17,357,000 in the 1997 Period. Due to the change in the Company's
business, prior periods of the Company's historical operations are not
comparable.
The Company's principal asset is its 51% interest in the Joint
3
<PAGE>
Venture which operates the business of Plant No. 1. Almost all of Plant No. 1's
sales are to other units of JCF. Pro forma sales for the 1997 and 1996 Periods
are based upon prices set by a government price bureau. Sales of Plant No. 1
were Rmb 143,981,000 in the 1997 Period as compared to Rmb 200,706,000 in the
three months ended March 31, 1996 (the "1996 Period"). The decrease in sales was
due to a decline of approximately 40% in the price established by the government
price bureau. Actual tonnage of PTA produced and sold increased by approximately
18% from the 1996 Period to the 1997 Period. JCF and the Joint Venture have
entered into an agreement which permits the Joint Venture to set the price of
PTA at the Joint Venture's choice of the government price bureau or the general
market price of PTA. The Company believes that this agreement will help
alleviate some of the effect of price swings on revenues.
Plant No. 1's cost of goods sold also declined from Rmb 131,877,000 in
the 1996 Period to Rmb 75,589,000 in the 1997 Period. This decline was
principally due to a decline in raw material costs. As a result primarily of the
decline in cost of goods sold and a small decease in general and administrative
expenses, Plant No. 1's income from operations before income taxes increased
slightly from Rmb 64,711,000 in the 1996 Period to Rmb 65,091,000 in the 1997
Period.
For purposes of these financial statements, translation of amounts from
Chinese Renminbi into United States dollars has been made at the rate of $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.
In recent years, the economy of the PRC 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 inflation
control 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 adversely affect continued economic
growth. Such actions could have a material adverse effect on the Company's
results of operation, financial condition and/or expansion plans. In 1996 and to
date in 1997, Plant No. 1's operations have not been materially affected by
inflation.
4
<PAGE>
Part II: OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently involved in any material legal
proceedings.
Item 2. Changes in Securities
On January 23, 1997 the Company completed the Merger. In connection
with the Merger, 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. In connection with the Company's private placement, other series of
Preferred stock were created and issued as described more fully in "Management's
Discussion and Analysis or Plan of Operations -- Working Capital and Liquidity."
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders in the first
quarter of 1997. In May 1997, holders of Common Stock representing approximately
55.5% of the Company's outstanding Common Stock executed written consents to the
following actions:
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.,
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 having selected a ratio of six-to-one),
and
4. ratification of issuance of Series A and Series B Preferred
Stock having voting rights in excess of one vote per share.
The foregoing actions will be effective 20 days after the
5
<PAGE>
distribution of an Information Statement relating thereto to the
Company's stockholders.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
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
27 Financial Data Schedule
</TABLE>
- -------------------------------------------
(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.
<PAGE>
(b) 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.
Amended reports on Form 8-K/A were filed on April 8 and 22, 1997 containing Item
7(a) and (b) - Financial Statements relating to the Merger.
6
<PAGE>
BUREAU OF ELECTRONIC PUBLISHING, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUREAU OF ELECTRONIC PUBLISHING, INC.
/s/ J. S. Pan
-----------------------------------
J. S. Pan, Vice President and Chief
Financial Officer
May 20, 1997
7
<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 QUARTER ENDED MARCH 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Historical Statement of Expenditure
-------------------------------------------------------------------------------------------
Jinan Da Yang Jinan Chemical
Bureau of Pacific Chemical Chemical Fibre Fibre Corporation
Electronic Publishing, Inc. Group Limited Company Limited -Plant One
US$ US$ Rmb Rmb
<S> <C> <C> <C> <C>
Sales -- -- -- --
--------------------------- ------------------- ------------------- -------------------
Cost of goods sold -- -- -- (75,589)
General and
administrative
expenses (113) -- -- (3,301)
--------------------------- ------------------- ------------------- -------------------
Total costs and
expenses (113) -- -- (78,890)
--------------------------- ------------------- ------------------- -------------------
(Loss) income from
operations before
income taxes (113) -- -- (78,890)
Equity in Loss of Investment
in Joint Venture (3) -- -- --
Interest Income
(Expense), net 7 -- -- --
Other Income 4 -- -- --
Provision for income --
taxes -- -- --
--------------------------- ------------------- ------------------- -------------------
(Loss) income from continuing
operations before
minority interest -- -- -- (78,890)
Minority interests -- -- -- --
--------------------------- ------------------- ------------------- -------------------
(Loss) income from continuing
operations (105) -- -- (78,890)
Loss from operation of
discontinued multimedia
business (176) -- -- --
--------------------------- ------------------- ------------------- -------------------
Net (loss) income (281) -- -- (78,890)
--------------------------- ------------------- ------------------- -------------------
<CAPTION>
Pro forma Consolidated
Pro forma Statement of Income of Bureau of
Adjustment Electronic Publishing, Inc.
Note Rmb Rmb US$
<C> <C> <C> <C>
Sales (1) 143,981 143,981 17,357
------------------- -------------------
Cost of goods sold (2) 4,229 (80,619) (9,718)
(3) (489)
(4) (8,770)
(5) --
General and
administrative
expenses (4,238) (511)
------------------- -------------------
Total costs and
expenses (79,827) (9,623)
------------------- -------------------
(Loss) income from
operations before
income taxes 64,154 7,734
Equity in Loss of Investment
in Joint Venture (25) (3)
Interest Income
(Expense), net 58 7
Other Income 33 4
Provision for income
taxes (6) -- -- --
(Loss) income from continuing operations
before minority interest
------------------- -------------------
64,220 7,742
Minority interests (7) 29,568 (29,568) (3,564)
------------------- -------------------
(Loss) income from continuing operations 34,652 4,178
Loss from operation of discontinued
multimedia software business (1,460) (176)
------------------- -------------------
Net (loss) income 33,192 4,002
------------------- -------------------
Pro Forma Consolidated Income from
continuing operations per Common Shares
Outstanding $0.04
Pro Forma Consolidated Loss from operations
of discontinued business per Common Shares
Outstanding $0.00
-------------------
Pro Forma Consolidated Net Income Per
Common Shares Outstanding $0.04
===================
Common Shares Outstanding 91,283,557
===================
</TABLE>
Translation of amounts from Renminbi (Rmb) into United States dollars (US$) 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.
The accompanying notes are an integral part of these statements.
F-1
<PAGE>
Jinan Chemical Fibre Corporation - Plant One
Statement of Expenditures
For the Quarter Ended March 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
1996 1997
------------------------- -------------------------
Rmb Rmb
<S> <C> <C>
Sales 200,706 143,981
------------------------- -------------------------
Cost of goods sold 131,877 75,589
General and administrative expenses 4,118 3,301
------------------------- -------------------------
Total costs and expenses 135,995 78,890
(Loss) income from operations before income taxes 64,711 65,091
------------------------- -------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
Notes to Statement of Expenditures
1. Sales:
January-March 1997 21,109 tons
January-March 1996 17,925 tons
2. Sales, unit price:
January-March 1997 (from the Price Bureau) Rmb 8,050
per ton, or Rmb 6,880 per ton
before tax
January-March 1996 (as audited by Arthur Andersen)
Rmb 13,100 per ton, or Rmb 11,197
per ton before tax
3. PX unit price (reflected in cost of goods sold)
1997 Rmb 2,906 per ton before tax (actual price)
1996 Rmb 6,865 per ton before tax
The original audited PX unit price was Rmb 6,760 per
ton before tax. The adjusted pro forma PX unit price
was Rmb 4,046 per ton before tax, which was the
average PX unit price for 1996. In accordance with
the "PX Pricing Amendment Agreement," the agreed
upon PX unit price was high during the period of
January-March 1996; therefore, the price of Rmb
6,865 per ton was used in the statement.
F-3
<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 MARCH 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Historical Balance Sheet/Statement of Net Assets
-----------------------------------------------------------------------
Jinan Da Yang Jinan Chemical
Bureau of Pacific Chemical Fibre Fibre
Electronic Chemical Group Company Corporation- Pro forma
Publishing, Inc. Limited Limited Plant One Note Adjustment
---------------- ------- ------- --------- ---- ----------
US$ US$ Rmb Rmb Rmb
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash at bank 1,079 21 (8) 121,479
Accounts receivable 14 126
Inventories and
spare parts, net 19,824
Prepayments and
other current
assets 123 27,748
----------------- ----------------- ----------------- -----------------
Total current assets 1,216 21 47,698
Fixed assets, net 164 116,255 266,930 (9) (278,363)
(10) 38,558
Investment in joint
venture 1,223
Other assets 6
----------------- ----------------- ----------------- -----------------
Total assets 2,609 21 116,255 314,628
----------------- ----------------- ----------------- -----------------
LIABILITIES
Current liabilities
Accounts payable 85 122 33,981
Accrued expenses
and other
liabilities 70 1,553
Amount due to JCFC (9) 1,372
(10) 38,558
----------------- ----------------- ----------------- -----------------
<CAPTION>
Pro forma Consolidated Balance
Sheet of Bureau of Electronic
Publishing, Inc.
----------------
Rmb US$
<S> <C> <C>
ASSETS
Current assets
Cash at bank 130,604 15,744
Accounts receivable 242 29
Inventories and
spare parts, net 19,824 2,390
Prepayments and
other current
assets 28,768 3,468
----------------- -----------------
Total current assets 179,438 21,631
Fixed assets, net 145,382 17,525
Investment in joint
venture 10,145 1,223
Other assets 50 6
----------------- -----------------
Total assets 335,015 40,385
----------------- -----------------
LIABILITIES
Current liabilities
Accounts payable 35,698 4,303
Accrued expenses
and other
liabilities 2,134 257
Amount due to JCFC 39,930 4,814
----------------- -----------------
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Historical Balance Sheet/Statement of Net Assets
-----------------------------------------------------------------------
Jinan Da Yang Jinan Chemical
Bureau of Pacific Chemical Fibre Fibre
Electronic Chemical Group Company Corporation- Pro forma
Publishing, Inc. Limited Limited Plant One Note Adjustment
---------------- ------- ------- --------- ---- ----------
US$ US$ Rmb Rmb Rmb
<S> <C> <C> <C> <C> <C> <C>
Total current
liabilities 155 122 35,534
----------------- ----------------- ----------------- -----------------
Minority interest (7) 116,896
----------------- ----------------- ----------------- -----------------
INVESTORS' EQUITY
(DEFICIT)
Share capital 6 8 116,896 (7) (116,896)
(8) 121,479
Appreciation of share
value / Additional
paid-in capital 10,088 15
Warrants 335
Accumulated deficit (7,975) (124) (641)
----------------- ----------------- ----------------- -----------------
Investors' equity
(deficit) 2,454 (101) 116,255
================= ================= ================= =================
Total liabilities and
investors'
(deficit) 2,609 21 116,255 35,534
equity
================= ================= ================= =================
<CAPTION>
Pro forma Consolidated Balance
Sheet of Bureau of Electronic
Publishing, Inc.
----------------
Rmb US$
<S> <C> <C>
Total current
liabilities 77,762 9,374
----------------- -----------------
Minority interest 116,896 14,091
----------------- -----------------
INVESTORS' EQUITY
(DEFICIT)
Share capital 121,595 14,658
Appreciation of share
value / Additional
paid-in capital 83,809 10,103
Warrants 2,779 335
Accumulated deficit (67,826) (8,176)
----------------- -----------------
Investors' equity
(deficit) 140,357 16,920
----------------- -----------------
Total liabilities and
investors'
(deficit) 335,015 40,385
equity
================= =================
</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.
The accompanying notes are an integral part of these statements.
F-5
<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.
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$14,995,000 capital
contribution to Jinan Da Yang and must seek external financing. The pro
forma financial statements assume this financing will be in the form of
additional capital contributions from the existing shareholders of Bureau
of Electronic Publishing, Inc. or Pacific Chemical. There is no assurance
that Bureau of Electronic Publishing, Inc. or Pacific Chemical will be
successful in raising the funds required to make its capital contribution.
Accordingly, there is no assurance that Jinan Da Yang will become
operational.
9. To record the amount due to JCFC assuming the transfer of all assets and
liabilities directly related and/or attributable to Plant One other than
fixed assets.
10. To record the one-off license and know-how fee for the use of certain
fixed assets of Plant One to be transferred from Plant One to Jinan Da
Yang.
F-6
<PAGE>
BUREAU OF ELECTRONIC PUBLISHING, INC.
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Bureau of Pacific Jinan Da Yang Jinan Chemical
Electronic Chemical Chemical Fibre Fibre Corporation
Publishing, Inc. Group Limited Company Limited Plant-One
---------------- ------------- --------------- -----------------
US$ US$ Rmb Rmb
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (281) (78,890)
--------------- -----------------
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation of property and equipment 7 11,433
Equity in loss of investment in joint venture 3
Changes in operating assets and liabilities-
Decrease (increase) in accounts receivable 55 47
Decrease in inventories and spare parts 34 25,931
(Increase) decrease in prepaid expenses
and other current assets (100) (11,082)
(Decrease) increase in accounts payable,
accrued expenses, and other current
liabilities (203) (26,329)
--------------- -----------------
Total adjustments (204) 0
--------------- -----------------
Net cash used in operating activities (485) (78,890)
--------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (150)
Increase in prepublication costs 0
Investment in joint venture -
Jinan Chem Fibre (1,000)
---------------
Net cash used in investing activities (1,150)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash transferred from Jinan Chemical
Fibre-head office 78,890
Proceeds from issuance of preferred
stock-series A, net 79
Proceeds from issuance of preferred
stock-series B, net 1,279
Proceeds from issuance of preferred
stock-series C, net 500
Issuance of common stock to pay liablities,
net 128
--------------- ------------- --------------- -----------------
Net cash provided by financing activities 1,986 78,890
--------------- ------------- --------------- -----------------
Net increase (decrease) in cash and
cash equivalents 351 --
CASH and CASH EQUIVALENTS, beginning of period 728 21 --
--------------- ------------- -----------------
CASH and CASH EQUIVALENTS, end of period $ 1,079 21 --
=============== ============= =================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for interest $ 0 -- -- --
Cash paid during the period for taxes 0 -- -- --
=============== ============= =============== =================
<CAPTION>
Pro Forma Consolidated
Pro Forma Statement of Cash Flow of Bureau
Note Adjustment of Electronic Publishing, Inc.
------------- ------------- --------------- -----------------
Rmb Rmb US$
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (81,221) (9,791)
--------------- -----------------
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation of property and equipment 11,491 1,385
Equity in loss of investment in joint venture 25 3
Changes in operating assets and liabilities-
Decrease (increase) in accounts
receivable 503 61
Decrease in inventories
and spare parts 26,213 3,161
(Increase) decrease in prepaid expenses
and other current assets (11,920) (1,437)
(Increase) in other assets
(Decrease) increase in accounts payable,
accrued expenses, and other current
liabilities (28,013) (3,377)
--------------- -----------------
Total adjustments (1,701) (204)
--------------- -----------------
Net cash used in operating activities (82,922) (9,995)
--------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,244) (150)
Investment in joint venture -
Jinan Chem Fibre (8,296) (1,000)
--------------- -----------------
Net cash used in investing activities (9,540) (1,150)
--------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash transferred from Jinan Chemical
Fibre-head office 78,890 9,510
Proceeds from issuance of preferred
stock-series A, net 655 79
Proceeds from issuance of preferred
stock-series B, net 10,609 1,279
Proceeds from issuance of preferred
stock-series C, net 4,148 500
Issuance of common stock to pay liablities,
net 1,062 128
--------------- -----------------
Net cash provided by financing activities 95,364 11,496
--------------- -----------------
Net increase in cash and
cash equivalents 2,902 351
Pro Forma adjustment to cash (8) (2,902) (351)
CASH and CASH EQUIVALENTS, beginning of period (8) 124,391 130,604 15,744
CASH and CASH EQUIVALENTS, end of period (8) 121,479 130,604 15,744
============= =============== =================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for interest -- -- -- --
Cash paid during the period for taxes -- -- -- --
============= ============= =============== =================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
BUREAU OF ELECTRONIC PUBLISHING, INC.
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Bureau of Electronic Publishing, Inc.
----------------------------------------------------------------------------------------------------
US $
Issued and Issued and Issued and
Outstanding Outstanding Outstanding Additional
Preferred Common Common Paid-in Accumulated
Shares Amount Shares Amount Warrants Amount Capital (Deficit) Total
----------- ------ ----------- ------ ----------- ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1996 0 $ 0 4,520 $ 5 1,340 $ 335 $ 8,103 ($ 7,694) $ 749
Issuance of common stock 0 0 128 0 0 0 128 0 128
Issuance of preferred stock
- Series A 834 1 0 0 0 0 78 0 79
Issuance of preferred stock
- Series B 0 0 0 0 0 0 1,279 0 1,279
Issuance of preferred stock
- Series C 500 0 0 0 0 0 500 0 500
Pro Forma adjustment to
reflect increase in cash
from 1/1/97 to 3/31/97
Net loss for the three months
ended March 31, 1997 0 0 0 0 0 0 0 (281) (281)
----- ---- ----- ---- ----- ------ ------- ------- ------
Balance - March 31, 1997 1,334 $ 1 4,648 $ 5 1,340 $ 335 $10,088 $(7,975) $2,454
===== ==== ===== ==== ===== ====== ======= ======= ======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
Jinan Da Yang Chemical Fibre
Pacific Chemical Group Limited Company Limited
---------------------------------- ----------------------------------
US $ Rmb
Additional Additional
Share Paid-in Accumulated Share Paid-in Accumulated
Capital Capital (Deficit) Capital Capital (Deficit)
------- ---------- ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1996 8 15 (124) 116,896 0 (641)
Issuance of common stock
Issuance of preferred stock
- Series A
Issuance of preferred stock
- Series B
Issuance of preferred stock
- Series C
Pro Forma adjustment to
reflect increase in Cash
from 1/1/97 to 3/31/97
Net loss for the three months
ended March 31, 1997 0 0 0 0 0 0
----- ---- ----- ------- ----- -----
Balance - March 31, 1997 8 15 (124) 116,896 0 (641)
===== ==== ===== ======= ===== =====
<CAPTION>
Jinan Chemical Fibre
Corporation Plant One Pro Forma Adjustment
---------------------------------- ----------------------------------
Rmb Rmb
Additional Additional
Share Paid-in Accumulated Share Paid-in Accumulated
Capital Capital (Deficit) Note Capital Capital (Deficit)
------- ---------- ----------- ---- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1996 0 0 0 (7) (116,896)
Issuance of common stock (8) 121,479
Issuance of preferred stock
- Series A
Issuance of preferred stock
- Series B
Issuance of preferred stock
- Series C
Pro Forma adjustment to
reflect increase in Cash
from 1/1/97 to 3/31/97
Net loss for the three months
ended March 31, 1997 0 0 0
----- ---- -----
Balance - March 31, 1997 0 0 0
===== ==== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Consolidated Statement of
Changes in Shareholders' Equity of
Bureau of Electronic Publishing, Inc.
---------------------------------------------- -----------------------------------------------
Rmb US $
Additional Additional
Share Paid-in Accumulated Share Paid-in Accumulated
Capital Capital Warrants (Deficit) Total Capital Capital Warrants (Deficit) Total
------- ---------- -------- ----------- ----- ------- --------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1996 124,499 67,343 2,779 (65,495) 129,126 15,008 8,118 335 (7,895) 15,566
Issuance of common stock 1,062 1,062 128 128
Issuance of preferred stock
- Series A 647 647 78 78
Issuance of preferred stock
- Series B 10,609 10,609 1,279 1,279
Issuance of preferred stock
- Series C 4,148 4,148 500 500
Pro Forma adjustment to
reflect increase in Cash
from 1/1/97 to 3/31/97 (8) (2,904) (2,904)(8) (350) (350)
Net loss for the three months
ended March 31, 1997 0 0 0 (2,331) (2,331) 0 0 (281) (281)
------- ------ ----- ------- ------- ------ ------ ---- ------ ------
Balance - March 31, 1997 121,595 83,809 2,779 (67,826) 140,357 14,658 10,103 335 (8,176) 16,920
======= ====== ===== ======= ======= ====== ====== === ====== ======
</TABLE>
<PAGE>
BUREAU OF ELECTRONIC PUBLISHING, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
The balance sheet/statement of net assets as of March 31, 1997 and the related
statement of expenditure, shareholders equity and cash flow for the period ended
March 31, 1997 have been prepared by Bureau of Electronic Publishing, Inc.
("BEPI"), without audit, in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows of BEPI for the interim period
presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the December 31, 1996 audited financial statements
and notes thereto included with Form 10-KSB and the unaudited pro forma
financial information included in Form 8-K/A filed in April 1997. The statement
of expenditure for the three month period ended March 31, 1997 is not
necessarily indicative of the operating results for the full year.
2. 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-7
<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-8
<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-9
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Taxation
(i) Income Taxes
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.
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.
(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. 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.
d. 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.
e. Inventories
Inventories are stated at the lower of cost, on a first-in, first-out basis,
or net realizable value. Provision is made for obsolete, slow moving or
defective items, where appropriate.
f. 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.
g. Pro Forma Net Income Per Common Share
Pro forma net income per common share has been computed by dividing pro
forma consolidated net income by the weighted number of common shares
outstanding assuming full conversion of issued and outstanding preferred
shares. 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 pro
forma net income per common share as they would be anti-dilutive.
F-10
<PAGE>
EXHIBIT NO. 11
--------------
BUREAU OF ELECTRONIC PUBLISHING, INC.
-------------------------------------
CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
-------------------------------------------------
Three Months Ended
----------------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
Net income (loss) as reported on
a pro forma consolidated basis $ 4,002,000 $(1,193,870)
=========== ===========
Weighted average number of common
shares outstanding 4,616,391 2,932,891
Stock options and warrants issued
prior to initial public offering at
prices less than initial public
offering price 0 9,715
Other stock options and warrants (a) 0 0
Common shares assuming full
conversion of preferred shares 86,667,166 0
----------- -----------
Total weighted average common shares
and equivalent common shares 91,283,557 2,942,606
=========== ===========
Income (loss) per share $ 0.04 $ (0.41)
=========== ===========
(a) Stock options and warrants issued subsequent to
December 31, 1995 were not dilutive and accordingly not
considered in the calculation above.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 15,744
<SECURITIES> 0
<RECEIVABLES> 29
<ALLOWANCES> 0
<INVENTORY> 2,390
<CURRENT-ASSETS> 21,631
<PP&E> 17,525
<DEPRECIATION> 11,901
<TOTAL-ASSETS> 40,385
<CURRENT-LIABILITIES> 9,374
<BONDS> 0
0
1
<COMMON> 14,657
<OTHER-SE> 2,262
<TOTAL-LIABILITY-AND-EQUITY> 40,385
<SALES> 17,357
<TOTAL-REVENUES> 17,357
<CGS> 9,718
<TOTAL-COSTS> 9,623
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7)
<INCOME-PRETAX> 4,178
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,178
<DISCONTINUED> (176)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,002
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
