UNITED STATES
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________.
Commission File Number 0-29895
ROYCE BIOMEDICAL, INC.
Nevada 98-0206542
State or other jurisdiction (I.R.S.)Employer
of incorporation Identification No.
Royce Biomedical, Inc.
1100-1200 West 73rd Avenue
Vancouver, British Columbia V6P 6G5
Address of principal executive offices
(604) 267-7080
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Registrant's telephone number, including area code
N/A
Former address of principal executive offices
Indicate by check mark whether the Registrant (1) has files all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) had been subject to such filing
requirements for the past 90 days.
Yes X No ________
------------------
As of June 15, 2000 the Company had 3,364,138 outstanding shares of common
stock.
<PAGE>
ROYCE BIOMEDICAL INC.
Vancouver, BC
INTERIM FINANCIAL STATEMENTS
(Unaudited)
March 31, 2000
<PAGE>
ROYCE BIOMEDICAL INC.
INDEX TO INTERIM FINANCIAL STATEMENTS
Interim Balance Sheet Exhibit "A"
Interim Statement of Loss and Deficit Exhibit "B"
Interim Statement of Changes in Shareholders' Equity Exhibit "C"
Interim Statement of Cash Flows Exhibit "D"
Notes to Interim Financial Statements Exhibit "E"
---------------------------
<PAGE>
Exhibit "A"
ROYCE BIOMEDICAL INC.
Interim Balance Sheet
(Unaudited)
March 31, 2000
(US Dollars)
Assets 2000 1999
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Current:
Cash $ 118,800 $ 100
Accounts receivable 52,600 -
Prepaid expenses 500 -
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171,900 100
Product licence fees (Note 4) - -
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$ 171,900 $ 100
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Liabilities
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Current:
Bank loan $ - $ 3,900
Accounts payable and accrued liabilities 68,600 62,900
Loan payable 50,000 -
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118,600 66,800
Loan payable to a related party (Note 5) 37,500 36,800
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156,100 103,600
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Shareholders' Equity
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Share Capital (Note 6) 14,300 7,100
Contributed Surplus (Note 6) 2,322,000 2,042,600
Deficit, per Exhibit "B" (2,320,500) (2,153,200)
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15,800 (103,500)
Going Concern (Note 7)
Commitments (Note 8)
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$ 171,900 $ 100
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- See accompanying notes -
<PAGE>
Exhibit "B"
ROYCE BIOMEDICAL INC.
Interim Statement of Loss and Deficit
(Unaudited)
For the Nine Months Ended March 31, 2000
(US Dollars)
2000 1999
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Sales $ 52,000 $ -
Cost of sales 19,900 -
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Gross Margin 32,100 -
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Expenses:
Consulting fees 65,800 28,300
Office and sundry 2,000 5,000
Professional fees 36,900 15,800
Rent 6,200 26,400
Stock transfer agents fees 1,200 1,100
Telephone 1,000 11,400
Travel and promotion 10,600 13,500
Wages and benefits 26,200 13,000
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149,900 114,500
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Net Loss (117,800) (114,500)
Deficit, beginning (2,202,700) (2,038,700)
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Deficit, ending, to Exhibit "A" (2,320,500) $(2,153,200
---------------------------------------------------------------------------
Loss per share $ 0.04 $ 0.03
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<PAGE>
Exhibit "C"
ROYCE BIOMEDICAL INC.
Interim Statement of Changes in Shareholders' Equity
(Unaudited)
For the Nine Months Ended March 31, 2000
(US Dollars)
Common Shares Capital
Shares Amount Surplus Deficit
---------------------------------------------------------------------------
Balance at June 30, 1998 1,475,618 $ 5,700 $1,796,600 $(2,038,700)
Shares issued for cash 220,000 200 95,200 -
Shares exchanged for debt to
related parties 1,453,333 1,200 150,800 -
Net Loss, per Exhibit "B" - - - (114,500)
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Balance at March 31, 1999 3,148,951 $ 7,100 $2,042,600 $(2,153,200)
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Balance at June 30, 1999 3,271,916 $14,000 $2,305,700 ($2,202,700)
Shares issued for services
rendered 92,222 300 16,300 -
Net Loss, per Exhibit "B" - - - (117,800)
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Balance at March 31, 2000 3,364,138 $14,300 $2,322,000 $(2,320,500)
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<PAGE>
Exhibit "D"
ROYCE BIOMEDICAL INC.
Interim Statement of Cash Flows
(Unaudited)
For the Nine Months Ended March 31, 2000
(US Dollars)
2000 1999
---------------------------------------------------------------------------
Operating Activities:
Net Loss, per Exhibit "B" $(117,800) $(114,500)
Adjustment for -
Common shares issued for services rendered 16,600 -
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(101,200) (114,500)
Changes in non-cash working capital:
(Increase) Decrease in accounts receivable (52,600) -
(Increase) Decrease in prepaid expenses
and deposits 200,000 -
Increase (Decrease) in accounts payable and
accrued liabilities (14,400) (26,500)
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Cash flows from (used in) operating activities 31,800 (141,000)
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Financing Activities:
Proceeds from issuance of common shares - 247,400
Repayment of bank loan - (2,300)
Increase (Repayment) of loan payable 50,000 (30,000)
Decrease loan from related party (400) (74,100)
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Cash flows from financing activities 49,600 141,000
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Net Increase in Cash 81,400 -
Cash, beginning 37,400 100
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Cash, ending $ 118,800 $ 100
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Supplemental Disclosure of Cash Flow Information:
Interest $ - $ 500
Non-cash transaction -
92,222 common shares were issued for $16,600 in services rendered
<PAGE>
Exhibit "E"
ROYCE BIOMEDICAL INC.
Notes to Interim Financial Statements
(Unaudited)
March 31, 2000
(US Dollars)
1. Principles of Accounting and General Information:
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States.
The company was incorporated on March 22, 1995 under the jurisdiction of the
State of Nevada.
2. Accounting Policies:
a) Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying disclosures. Although these estimates are based on
management's best knowledge of current events and actions the company
may undertake in the future, actual results may differ from the
estimates.
b) Foreign Currency Translation -
Assets and liabilities of Canadian operations are translated into United
States currency at exchange rates prevailing at the balance sheet date
for monetary items and at rates prevailing at the transaction date for
non-monetary items. Revenue and expenses, except amortization, are
converted at the average exchange rates for the year. Amortization is
converted at the same rate as the related assets.
Foreign exchange gains or losses on monetary assets and liabilities are
included in operations.
c) Cash -
Cash consists of bank accounts and short-term deposits integral to the
company's cash management.
3. Financial Instruments:
a) Fair Values -
Unless otherwise noted, cash, accounts receivable, accounts payable and
accrued liabilities, loan payable and note payable to a related party
are stated at amounts that approximate their book value.
b) Liability Risk -
The company does not have significant risk for the repayment of advances
from a related party because under agreements with related party, they
have agreed not to demand repayment.
. . . 2
<PAGE>
Exhibit "E"
ROYCE BIOMEDICAL INC. Continued
Notes to Interim Financial Statements
(Unaudited)
March 31, 2000
(US Dollars)
4. Product Licence Fees: 2000 1999
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Product licence fees, at cost $ 10,000 $ 10,000
Less: Accumulated amortization 10,000 10,000
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$ - $ -
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5. Loan Payable to a Related Party: 2000 1999
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Knight & Day Restaurants Ltd. -
The loan payable has no specific
repayment terms and
is non-interest bearing. $ 37,500 $ 36,800
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6. Share Capital:
Authorized -
100,000,000 Common shares with a par value of $.001 each 5,000,000 Preferred
shares with a par value of $.001 each
Common Shares Contributed
Issued and Outstanding - # Shares Amount Surplus
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Balance at June 30, 1998 1,475,618 $ 5,700 $1,796,600
Shares issued for cash 220,000 200 95,200
Shares exchanged for debt to related parties1,453,333 1,200 150,800
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Balance March 31, 1999 3,148,951 7,100 2,042,600
Shares issued for private placement 6,666,667 6,900 263,100
Reduction due to consolidation of 5 existing common
shares into 1 (6,543,702) - -
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Balance at June 30,1999 3,271,916 14,000 2,305,700
Shares issued for services rendered 92,222 300 16,300
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Balance at December 31, 1999 3,364,138 $14,300 $2,322,000
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. . . 3
<PAGE>
Exhibit "E"
ROYCE BIOMEDICAL INC. Continued
Notes to Interim Financial Statements
(Unaudited)
March 31, 2000
(US Dollars)
6. Share Capital: (Continued)
The following options for the purchase of common shares are outstanding:
Number of Exercise Expiry
Shares Price Date
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10,000 $10.50 May 22, 2000
20,000 10.50 August 15, 2000
33,333 1.50 December 31, 2000
33,333 3.90 December 31, 2001
83,333 .30 December 31, 2001
At March 31, 2000, 183,333 common shares were restricted from trading.
Granting of stock options to employees and directors may give rise to a
charge to income for compensation. In accordance with APB 25 under which
stock options are measured by the intrinsic value method, employee and
director compensation cost is limited to the excess of the quoted market
price at date of grant over the option price. Alternatively, in accordance
with SFAS-123, stock options could be valued using a fair market value
method such as the Black-Scholes option pricing model. At the date the
options were granted, there were no available market prices, therefore, it
is not possible to determine the value of the options.
7. Going Concern:
While the financial statements have been prepared on the basis of accounting
principles applicable to a going concern, the occurrence of significant
losses to date raises substantial doubt upon the validity of this
assumption.
The company has experienced significant losses over the past five years,
including $117,800 in the current period and has an accumulated deficit of
$2,320,500 at March 31, 2000. The company's continued existence as a going
concern is dependent upon its ability to continue to obtain adequate
financing arrangements and to achieve and maintain profitable operations.
If the going concern assumption was not appropriate for these financial
statements, then adjustments may be necessary in the carrying value of
assets and liabilities, the reported net loss and the balance sheet
classifications used.
The company has financed its activities primarily from the proceeds of
various share issues and loans from related companies. As a result of the
company being in the early stages of operations, the recoverability of
assets on the balance sheet will be dependent on the company's ability to
obtain additional financing and to attain a level of profitable operations
from the existing facilities in production and/or the disposition thereof.
. . . 4
<PAGE>
Exhibit "E"
ROYCE BIOMEDICAL INC. Continued
Notes to Interim Financial Statements
(Unaudited)
March 31, 2000
(US Dollars)
8. Commitments:
During the year ended June 30, 1997, the company issued shares to a number
of investors in British Columbia, Canada at $1.42 ($2.00 Canadian). Pursuant
to the British Columbia Securities Act, an Offering Memorandum should have
accompanied the issuance of these shares. As they were not, the shareholders
were offered the opportunity to rescind the purchase of the shares for a
refund of the entire purchase price. Requests from shareholders to rescind
14,250 common shares were received within the required time limit. The
company is required to refund an amount of $20,347. At March 31, 2000, these
amounts have not been repaid and are included in accounts payable and
accrued liabilities.
9. Related Party Transactions:
In addition to the transactions described elsewhere in the financial
statements, the company had the following transactions with officers and
directors of the company.
2000 1999
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Expenses -
Consulting fees $36,600 $19,700
Wages 26,200 -
These transactions are in the normal course of operations and are measured
at the exchange amount, which is the amount of consideration established and
agreed to between the parties.
10. Income Taxes:
The company has net losses for income tax purposes totalling approximately
$2,310,700 which may be applied against future taxable income. The potential
benefit arising from these losses has been recognized as a deferred tax
asset. To the extent that those benefits may not be realized, a valuation
allowance is provided for. The company's deferred tax balances are as
follows:
2000 1999
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Deferred tax asset, beginning of year $767,600 $710,200
Benefit of current year's operating loss carried forward52,500 40,100
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Deferred tax asset, end of period 820,100 750,300
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Valuation allowance, beginning of year 767,600 710,200
Current year's provision 52,500 40,100
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Valuation allowance, end of year 820,100 750,300
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$ - $ -
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. . . 5
<PAGE>
13
Exhibit "E"
ROYCE BIOMEDICAL INC. Continued
Notes to Interim Financial Statements
(Unaudited)
March 31, 2000
(US Dollars)
11. Income Taxes: (Continued)
As the company has no history of profits, management believes that it is
more likely than not some or all of the deferred tax asset will not be
realized and has provided a full valuation allowance against the deferred
tax asset. The right to claim these losses expire as follows:
2010 $173,000
2011 599,000
2012 748,000
2013 509,000
2014 164,000
2015 149,900
2016 117,800
12. Comparative Figures:
Certain of the 1999 comparative figures have been reclassified to comply
with the current years' presentation.
13. Uncertainty Due to the Year 2000 Issue:
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
issue that may affect Royce Biomedical Inc., including those related to
customers, suppliers, or other third parties, have been fully resolved.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATION
At the present time the Company purchases medical diagnostic test systems
from American manufacturers. In September 1999 the Company signed an agreement
with Chembio Diagnostic Systems Inc. for the manufacture of H. Pylori and other
diagnostic testing kits.
In April 1999 the Company signed an agreement with Xili Pharmaceutical
Group, Inc. ("Xili") of the People's Republic of China to market and distribute
H. Pylori diagnostic test kits supplied by the Company to Xili's customers in
China. In addition to supplying H. Pylori test kits to Xili, the Company
provides clinical data and in-person training to Xili personnel.
In November 1999 Xili began distributing 20,000 sample H. Pylori test kits
supplied by the Company to 100 hospitals in China. The Company believes that the
hospital will use a minimum of 30 kits per day. The Company's goal is to sell at
least 10,000 test kits to each hospital during 2000. The Company expects to
receive approximately $ 2.60 (net of product and distribution costs) from the
sale of each H. Pylori testing kit.
During the twelve month period ending December 31, 2000 the Company,
through Xili, plans to market H. Pylori test kits to other hospitals in China.
The Company will analyze the results of first year sales of H. Pylori test
kits. If sales results are encouraging, the Company plans to assemble H. Pylori
test kit components in China to reduce costs. In this regard Chembio Diagnostic
Systems Inc. has indicated a willingness to sell to the Company, components that
would allow the assembly of H. Pylori and other diagnostic kits in China. Xili
has agreed to supply the required assembly space in one of their pharmaceutical
manufacturing plants.
The Company may also attempt to acquire the rights to manufacture H.
Pylori test kits in China. Rather than building its own manufacturing facility,
the Company would pursue the acquisition of a subsidiary of Xili that
manufactures pharmaceutical products.
Utilizing marketing research conducted by Xili, the Company, if it
believes suitable opportunities exists, will attempt to acquire the rights and
licenses necessary to distribute other types of diagnostic test kits in China.
The Company does not have any available credit, bank financing or other
external sources of liquidity. Due to historical operating losses, the Company's
operations have not been a source of liquidity. In order to obtain capital, the
Company may need to sell additional shares of its common stock or borrow funds
from private lenders. During the twelve months ending March 31, 2001 the Company
will need approximately $4,000,000 in additional capital for the acquisition of
a pharmaceutical manufacturing facility that will allow the Company to
manufacture H. Pylori test kits in China. In addition, if during the twelve
months ending March 31, 2001, the Company suffers additional losses, the Company
will need to obtain additional capital in order to continue operations. There
can be no assurance that the Company will be successful in obtaining additional
funding.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On February 2, 2000 Raymond Law filed suit in the Supreme Court of British
Columbia seeking a judgment against the Company and Ken Pappas for amounts
invested by Mr. Law in the Company and other damages. Mr. Law alleges that the
Company, through Mr. Pappas, made certain misrepresentations to Mr. Law in
connection with the sale of the Company's securities to Mr. Law and that the
Company failed to employ Mr. Law as a salesman and grant Mr. Law the exclusive
right to distribute the Company's products in Hong Kong.
Item 2. Changes in Securities and Use of Proceeds
During the three months ended March 31, 2000 the Company issued 92,222
shares of its common stock to Greg Sharpe, an officer of the Company, for
services valued at $16,600. The Company relied upon the exemption provided by
Section 4 (2) of the Securities Act of 1933 in connection with the sale of these
shares of common stock. The shares described above are "restricted securities"
as that term is defined in Rule 144 of the Securities and Exchange Commission.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No exhibits are filed with this report
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ending
March 31, 2000.
<PAGE>
SIGNATURES
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.
ROYCE BIOMEDICAL, INC.
Date: June 14, 2000 By /s/ Kathy Jiang
-----------------------------------------
Kathy Jiang
President and Principal Financial Officer
