<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
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)
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.
____________________________________
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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
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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
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(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
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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
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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
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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
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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
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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
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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
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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 14, 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 14, 1997
----------------
Name: J. S. Pan
Title: Vice President and Chief Financial Officer
and a Director
By: /s/ Jin Shan April 14, 1997
------------------
Name: Jin Shan
Chief Executive Officer
By: /s/ Bryan Finkel April 14, 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
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) (60,638,000)
Current Assets 7,567,000
Current Liabilities 7,579,000
Total Assets 55,507,000
Net Equity $ 48,130,000
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 NO. 11
--------------
BUREAU OF ELECTRONIC PUBLISHING, INC.
-------------------------------------
CALCULATIONS OF NET LOSS PER COMMON SHARE
-----------------------------------------
Year Ended Year Ended
December 31, 1996 December 31, 1995
----------------- -----------------
Net Loss $(5,326,874) $(2,067,983)
------------ ------------
Weighted average number of common
shares outstanding 3,774,305 1,770,273
Stock options and warrants issued
prior to initial public offering at
prices less than initial public
offering price 0 78,802
Other stock options and warrants (a) 0 0
Total weighted average common shares
and equivalent common shares 3,774,305 1,849,075
----------- -----------
Loss per share $ (1.41) $ (1.12)
----------- -----------
(a) Stock options and warrants issued during 1996 and 1995
were not dilutive and accordingly not considered in the
calculation above.
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES OF BUREAU OF ELECTRONIC PUBLISHING, INC.
-----------------------------------------------------
Name Jurisdiction of Incorporation
---- -----------------------------
Bureau Development, Inc. Delaware
Pacific Chemical Group Limited British Virgin Islands
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 727,931
<SECURITIES> 0
<RECEIVABLES> 69,302
<ALLOWANCES> 0
<INVENTORY> 34,051
<CURRENT-ASSETS> 853,453
<PP&E> 20,922
<DEPRECIATION> 4,304
<TOTAL-ASSETS> 1,106,625
<CURRENT-LIABILITIES> 358,018
<BONDS> 0
0
0
<COMMON> 4,520
<OTHER-SE> 744,087
<TOTAL-LIABILITY-AND-EQUITY> 1,106,625
<SALES> 553,566
<TOTAL-REVENUES> 553,566
<CGS> 2,340,575
<TOTAL-COSTS> 2,340,575
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 91,580
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,326,874)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,326,874)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,326,874)
<EPS-PRIMARY> (1.41)
<EPS-DILUTED> (1.41)
</TABLE>
