SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended June 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-29895
Royce Biomedical, Inc.
--------------------------------
(Name of Small Business Issuer in its charter)
Nevada 98-0206542
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(State of incorporation) (IRS Employer
Identification No.)
1100-1200 West 73rd Avenue
Vancouver, British Columbia V6P 6G5
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(Address of Principal Executive Office) Zip Code
Registrant's telephone number, including Area Code: (604)-267-7080
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of the 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. [X]
The Company's revenues during the year ended June 30, 2000 were $46,800.
The aggregate market value of the voting stock held by non-affiliates of the
Company, (1,053,028 shares) based upon the average bid and asked prices of the
Company's common stock on September 14, 2000 was approximately $198,000
Documents incorporated by reference: None
As of September 30, 2000 the Company had 3,364,138 issued and outstanding shares
of common stock.
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
Royce Biomedical, Inc. (the "Company") was incorporated in the State of
Nevada on March 22, l995.
Health care around the world is divided into two segments, diagnosis and
treatment. This segmentation has given rise to two separate markets: the
pharmaceutical market for treatment and the medical diagnostic testing devices
market for diagnosis. There is a rapidly growing array of diagnostic testing
devices which have a high degree of accuracy, sensitivity, and specificity.
These testing devices, which provide accurate and cost effective results in
minutes, are part of what is often referred to as the "point of care" market.
Between August 1995 and April 1998, the Company manufactured and sold
diagnostic test kits used to detect pregnancy, thyroid disorders and other
medical conditions. Between August 1995 and January 1998 the Company assembled
its diagnostic testing kits at a laboratory in Irvine, California. The Company
closed this facility in April 1998.
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. The H. Pylori diagnostic kit manufactured by Chembio
Diagnostics Systems Inc., is considered by the Company and independent
evaluators, to be very accurate and sensitive. It is a rapid two step test for
the detection of antibodies to H. Pylori in human serum, plasma or whole blood
and is used as an aid in the diagnosis of infection due to H. Pylori.
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.
Reports indicate that H. Pylori has infected over 780 million people in
China. H. Pylori infection is a main cause of chronic gastritis (50-80%
detectable rate in China), chronic active gastritis (over 90%), duodenal ulcer
(95%), and gastric ulcer (80%). The early treatment of H. Pylori infection can
reduce the need for invasive endoscopy and long-term traditional therapy
associated with duodenal and gastric ulcers, as well as antral gastritis.
Xili has a large sales force in China that services the medical purchasing
needs of clinics, laboratories, hospitals, and consumers. Xili has more than 60
branch offices throughout China. Xili has a strong working relationship with
over 2000 hospitals in China, the Chinese Medical Association and several of the
largest drug stores and test kit distributors in China. Xili is controlled by
Dr. Yan Xiao Wen, the Chairman of the Company's Board of Directors..
In November 1999 Xili began distributing 20,000 H. Pylori test kits
supplied by the Company to 100 hospitals in China as samples. The Company
believes that each 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
<PAGE>
hospital during the year 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. A
variety of other diagnostic test kits will be sampled in key 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 has indicated a willingness to sell the Company the 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 and/or manufacture additional diagnostic
testing kits which will detect the presence of various diseases, infections,
viruses and other medical conditions. There can be no assurance that the Company
will be successful in these efforts. The Company does not know, and at this time
cannot predict, the cost of acquiring the rights to any new products.
If the Company has success in the Chinese market, the Company may explore
marketing and sales opportunities in other countries.
All of the Company's sales have been to customers outside of the United
States. For the foreseeable future, the Company does not plan to sell any of its
products in the United States.
The Company's executive offices are located at 1100-1200 West 73rd Avenue
Vancouver, British Columbia V6P 6G5 CANADA. The Company's telephone number is
(604) 267-7080 and its facsimile number is (604) 267-7078.
Competition
There are competitors presently operating in China but comparative tests
conducted by ImmunoReagent Products Inc. have shown the Company's products to be
superior. The field in which the Company operates is subject to rapid
technological change and there can be no assurance that the Company will be able
to react and adapt to any such change or that developments by competitors will
not cause the products distributed by the Company to be obsolete.
<PAGE>
Regulation
Foreign Regulation. The Company has licenses from the State Drug Authority
of the People's Republic of China for the import and distribution of H. Pylori
and TB test kits in China. The Company, if suitable opportunities exist, will
attempt to acquire the rights and licenses necessary to distribute other types
of diagnostic test kits in China. Although the process to secure a license is
relatively expensive and time consuming, the Company believes that having Xili
as a partner in China will assist the Company in future dealings with Chinese
regulatory agencies. There is no assurance however that the Company will be
successful in obtaining licenses for the sale of additional diagnostic testing
kits in China.
In order to be sold outside the United States, medical device,
manufactured in the United States, including diagnostic testing kits, are
subject to FDA permit requirements that are conditioned on clearance by the
importing country's appropriate regulatory authorities. Many countries further
require imported medical devices to comply with their own or international
standards. Although the Company believes its products can be produced in
compliance with the regulations, no assurance can be given that the Company's
products will continue to meet standards which may be established form time to
time by the Chinese or other foreign government.
Regulation in the United States. The sale of medical devices are regulated
in the United States under the Federal Food, Drug and Cosmetic Act, the Public
Health Service Act, and the laws of certain states. The Federal Food and Drug
Administration (FDA) exercises significant regulatory control over the
manufacture of medical devices.
Prior to the time a medical device can be marketed in the United States,
approval of the FDA must normally be obtained. Certain states however have
passed laws which allow a state agency having functions similar to the FDA to
approve the testing and use of medical devices within the state. In the case of
either FDA or state regulation, testing programs are typically required in order
to establish product safety and efficacy.
FDA regulations pertain not only to medical devices, but also to the
processes and facilities used to manufacture such products. Among the conditions
for marketing products cleared by the FDA is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to the FDA's Good Manufacturing Practice ("GMP") regulations, which must be
followed at all times. In complying with standards set forth in these
regulations, manufacturers must continue to expend time, money and effort in the
areas of production and quality control to ensure full technical compliance. GMP
regulations require adherence to strict quality control procedures, including
documentation of all aspects of the manufacturing process, to demonstrate that
products are made by a "controlled" process that ensures consistency and
reliability of the end product. Significant changes to the manufacturing process
require notification to the FDA, and all changes require documentation. The FDA
has the right to conduct inspections of the manufacturing facility at any time
at its discretion. To the extent all or a portion of the manufacturing process
for a product is handled by an entity other than the Company, the Company must
similarly receive FDA approval for the other entity's
<PAGE>
participation in the manufacturing process. Domestic manufacturing
establishments are subject to inspections by the FDA and by other Federal, state
and local agencies and must comply with Good Manufacturing Practices ("GMP") as
appropriate for production. In complying with GMP regulations, manufacturers
must continue to expend time, money and effort in the area of production and
quality control to ensure full technical compliance.
Stock Splits
All information in this registration statement has been adjusted to
reflect a five-for-one reverse split of the Company's common stock which was
effective May 11, 1998 and a three-for-one reverse split of the Company's common
stock which was effective May 30, 1999.
Employees
As of September 30, 2000, the Company did not have any full-time
employees. The Company plans to hire employees as may be required by the level
of the Company's operations.
ITEM 2. DESCRIPTION OF PROPERTY
See Item 1 of this report.
ITEM 3. LEGAL PROCEEDINGS.
--------------------------
The Company and Ken Pappas, a director of the Company are defendants in a
lawsuit brought by Raymond Law in the Supreme Court of British Columbia, Canada.
In his complaint, Mr. Law contends that Mr. Pappas, while the President of the
Company, made certain misrepresentations to Mr. Law in connection with Mr. Law's
purchase of shares of the Company's common stock. The complaint seeks a
judgement against the Company in the amount of $100,000.
Other than the foregoing, the Company is not engaged in any litigation,
and the officers and directors presently know of no threatened or pending
litigation in which it is contemplated that the Company will be made a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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Not Applicable
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
As of September 30, 2000, there were approximately 360 record owners of
the Company's Common Stock. The Company's Common Stock is traded on the National
Association of Securities Dealers OTC Bulletin Board under the symbol "RYBO".
<PAGE>
Set forth below are the range of high and low bid quotations for the periods
indicated as reported by the NASD. The market quotations reflect interdealer
prices, without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
The share prices shown in the table have been adjusted to reflect a five-one
reverse stock effective May 11, 1998 and a three-for-one reverse stock split
effective May 30, 1999.
Quarter Ending High Low
9/30/97 $0.87 $0.35
12/31/97 $0.75 $0.34
3/31/98 $0.47 $0.24
6/30/98 $0.75 $0.13
9/30/98 $0.44 $0.07
12/31/98 $0.10 $0.02
3/31/99 $0.11 $0.04
6/30/99 $0.14 $0.06
9/30/99 $0.12 $0.10
12/31/99 $0.18 $0.06
3/31/00 $0.12 $0.06
6/30/00 $0.44 $0.06
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefor and,
in the event of liquidation, to share pro rata in any distribution of the
Company's assets after payment of liabilities. The Board of Directors is not
obligated to declare a dividend. The Company has not paid any dividends and the
Company does not have any current plans to pay any dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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.
<PAGE>
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 between December 2000 and January 2001.
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 June 30, 2001 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.
During the year ended June 30, 2000 the Company had gross sales of
$46,800, interest income of $1,326, and a net loss of $(159,585). However
substantially all of the costs and expenses incurred by the Company during
fiscal 2000 were prepaid by the Company during fiscal 1999. In addition, during
fiscal 2000 the Company received a $50,000 loan from an unrelated third party.
As a result of the foregoing, the Company's cash position increased by $100,254
during the year ending June 30, 2000.
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 year ending June 30, 2001 the Company will need
approximately $3,000,000 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 year ending June 30,
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.
ITEM 7. FINANCIAL STATEMENTS
See the financial statements attached to this report.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
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None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following sets forth certain information concerning the present
management of the Company:
Name Age Position with Company
Dr. Yan Xiao Wen 41 Chairman of the Board of Directors
Kathy Jiang 42 President
Gregory Sharpe 54 Vice President
Ken Pappas 39 Director
Dr. Yan Xiao Wen has been a director of the Company since April 1999. Dr.
Yan has been the President of Xili Pharmaceutical (Group) Inc., (Xili Beijing,
Xili Hebei, Xili Zaozhuang, Xili Hezhe, Xili Chongqing, Xili Hubai) and Xili USA
Inc. since December 1993.
Kathy Jiang has been the President of the Company since April 1999. Ms.
Jiang was the Vice President of Shandong Canada Trading from March 1993 to
November 1998.
Gregory Sharpe has been the Company's Vice President since April 1999. From
August 1991 to April 1998 Mr. Sharpe was the President of Harbourside College.
Ken Pappas was the Company's President between August 1995 and June 1998.
Mr. Pappas has been a director of the Company since March 1995. Mr. Pappas has
been the president of the Knight and Day Restaurants and Hymark Foods since
1986.
Consultant
Dr. Robert Bohannon is an expert in the field of immunoreagents and
diagnostics and provides consulting services to the Company. Dr. Bohannon
identifies leading diagnostic test kits through independent clinical analysis.
Dr. Bohannon also provides training to Xili's marketing and sales force.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation received
by (i) the Chief Executive Officer of the Company and (ii) by each other
executive officer of the Company who received in excess of $100,000 during the
fiscal years ended June 30, 1999 and June 30, 2000.
<PAGE>
Annual Compensation Long Term Compensation
------------------------------- ---------------------------
Re- All
Other stric- Other
Annual ted Com-
Name and Compen- Stock Options pensa-
Principal Fiscal Salary Bonus sation Awards Granted tion
Position Year (1) (2) (3) (4) (5) (6)
-------- ------ ------ ----- ------- ------ ------- ------
Kathy Jiang, 2000 $33,931 -- -- -- -- --
President and 1999 $12,000 -- -- -- -- --
Chief Executive
Officer since April 1999
Ken Pappas,
President and 1998 $ -- -- -- -- 50,000 --
Chief Executive 1997 $ -- -- -- -- -- --
Officer prior to
June 1998
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as salary or bonus,
including perquisites and other personal benefits, securities or property.
Amount in the table represents automobile allowances.
(4) During the period covered by the foregoing table, the shares of restricted
stock issued as compensation for services. The table below shows the number of
shares of the Company's Common Stock owned by the officers listed above, and the
value of such shares as of June 30, 2000.
Name Shares Value
Kathy Jiang 100,000 $25,000
Ken Pappas 96,666 $24,166
(5) The shares of Common Stock to be received upon the exercise of all stock
options granted during the period covered by the table. In the case of Mr.
Pappas, includes options granted to Knight & Day Restaurant Corp. Mr. Pappas is
a director of Knight & Day Restaurant Corp. All of the options in the table
expired without being exercised.
(6) All other compensation received that the Company could not properly report
in any other column of the table including annual Company contributions or other
allocations to vested and unvested defined contribution plans, and the dollar
value of any insurance premiums paid by, or on behalf of, the Company with
<PAGE>
respect to term life insurance for the benefit of the named executive officer,
and the full dollar value of the remainder of the premiums paid by, or on behalf
of, the Company.
The following shows the amounts which the Company expects to pay its
officers during the year ending June 30, 2001 and the time which the Company's
executive officers plan to devote to the Company's business. The Company does
not have employment agreements with any of its officers.
Proposed Time to be Devoted
Name Compensation To Company's Business
Dr. Yan Xiao Wen $-0- 25%
Kathy Jiang * 50%
Gregory Sharpe $30,000 50%
* Ms. Jiangs future compensation had not been determined as of October 25,
2000.
Options Granted During Fiscal Year Ending June 30, 2000
The following tables set forth information concerning the options granted,
during the fiscal year ended June 30, 2000, to the Company's officers and
directors, and the fiscal year-end value of all unexercised options (regardless
of when granted) held by these persons. The options held by Mr. Sharpe were not
granted pursuant to the Company's stock option plans.
Individual Grants
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% of Total
Options
Granted to Exercise
Options Employees in Price Per Expiration
Name Granted (#) Fiscal Year Share Date
------ ----------- ------------ --------- ----------
N/A None N/A N/A N/A
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
<PAGE>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
June 30, 2000 June 30, 2000
Shares Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized Unexercisable Unexercisable
Gregory Sharpe -- -- 66,666/-- -/-
Long Term Incentive Plans - Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
The Company does not have a defined benefit, pension plan, profit sharing
or other retirement plan, although the Company may adopt one or more of such
plans in the future.
Compensation of Directors
Standard Arrangements. At present the Company does not pay its directors
for attending meetings of the Board of Directors, although the Company expects
to adopt a director compensation policy in the future. The Company has no
standard arrangement pursuant to which directors of the Company are compensated
for any services provided as a director or for committee participation or
special assignments.
Other Arrangements. During the year ended June 30, 2000, and except as
disclosed elsewhere in this registration statement, no director of the Company
received any form of compensation from the Company.
See " Stock Option and Bonus Plans" below for information concerning stock
options and stock bonuses granted to the Company's officers and directors.
Stock Option and Bonus Plans
The Company has an Incentive Stock Option Plan, a Non-Qualified Stock
Option Plan and a Stock Bonus Plan. A summary description of each Plan follows.
In some cases these three Plans are collectively referred to as the "Plans".
Incentive Stock Option Plan. The Incentive Stock Option Plan authorizes
the issuance of options to purchase up to 300,000 shares of the Company's Common
Stock, less the number of shares already optioned under both this Plan and the
Non-Qualified Stock Option Plan. The Incentive Stock Option Plan became
<PAGE>
effective on September 15, 1999 and will remain in effect until September 15,
2009 unless terminated earlier by action of the Board. Only officers, directors
and key employees of the Company may be granted options pursuant to the
Incentive Stock Option Plan.
In order to qualify for incentive stock option treatment under the
Internal Revenue Code, the following requirements must be complied with:
1. Options granted pursuant to the Plan must be exercised no later than:
(a) The expiration of thirty (30) days after the date on which an
option holder's employment by the Company is terminated.
(b) The expiration of one year after the date on which an option
holder's employment by the Company is terminated, if such termination is due to
the Employee's disability or death.
2. In the event of an option holder's death while in the employ of the
Company, his legatees or distributees may exercise (prior to the option's
expiration) the option as to any of the shares not previously exercised.
3. The total fair market value of the shares of Common Stock
(determined at the time of the grant of the option) for which any employee may
be granted options which are first exercisable in any calendar year may not
exceed $100,000.
4. Options may not be exercised until one year following the date of
grant. Options granted to an employee then owning more than 10% of the Common
Stock of the Company may not be exercisable by its terms after five years from
the date of grant.
5. The purchase price per share of Common Stock purchasable under an
option is determined by the Committee but cannot be less than the fair market
value of the Common Stock on the date of the grant of the option (or 110% of the
fair market value in the case of a person owning the Company's stock which
represents more than 10% of the total combined voting power of all classes of
stock).
Non-Qualified Stock Option Plan. The Non-Qualified Stock Option Plan
authorizes the issuance of options to purchase up to 300,000 shares of the
Company's Common Stock less the number of shares already optioned under both
this Plan and the Incentive Stock Option Plan. The Non-Qualified Stock Option
Plan became effective on September 9, 1997 and will remain in effect until
September 9, 2007 unless terminated earlier by the Board of Directors. The
Company's employees, directors, officers, consultants and advisors are eligible
to be granted options pursuant to the Plan, provided however that bona fide
services must be rendered by such consultants or advisors and such services must
not be in connection with the offer or sale of securities in a capital-raising
transaction. The option exercise price is determined by the Committee but cannot
be less than the market price of the Company's Common Stock on the date the
option is granted.
<PAGE>
Options granted pursuant to the Plan not previously exercised terminate
upon the date specified when the option was granted.
Stock Bonus Plan. Up to 100,000 shares of Common Stock may be granted
under the Stock Bonus Plan. Such shares may consist, in whole or in part, of
authorized but unissued shares, or treasury shares. Under the Stock Bonus Plan,
the Company's employees, directors, officers, consultants and advisors are
eligible to receive a grant of the Company's shares; provided, however, that
bona fide services must be rendered by consultants or advisors and such services
must not be in connection with the offer or sale of securities in a
capital-raising transaction.
Other Information Regarding the Plans. The Plans are administered by the
Company's Board of Directors. The Board of Directors has the authority to
interpret the provisions of the Plans and supervise the administration of the
Plans. In addition, the Board of Directors is empowered to select those persons
to whom shares or options are to be granted, to determine the number of shares
subject to each grant of a stock bonus or an option and to determine when, and
upon what conditions, shares or options granted under the Plans will vest or
otherwise be subject to forfeiture and cancellation.
In the discretion of the Board of Directors, any option granted pursuant
to the Plans may include installment exercise terms such that the option becomes
fully exercisable in a series of cumulating portions. The Board of Directors may
also accelerate the date upon which any option (or any part of any options) is
first exercisable. Any shares issued pursuant to the Stock Bonus Plan and any
options granted pursuant to the Incentive Stock Option Plan or the Non-Qualified
Stock Option Plan will be forfeited if the "vesting" schedule established by the
Board of Directors at the time of the grant is not met. For this purpose,
vesting means the period during which the employee must remain an employee of
the Company or the period of time a non-employee must provide services to the
Company. At the time an employee ceases working for the Company (or at the time
a non-employee ceases to perform services for the Company), any shares or
options not fully vested will be forfeited and cancelled. In the discretion of
the Board of Directors payment for the shares of Common Stock underlying options
may be paid through the delivery of shares of the Company's Common Stock having
an aggregate fair market value equal to the option price, provided such shares
have been owned by the option holder for at least one year prior to such
exercise. A combination of cash and shares of Common Stock may also be permitted
at the discretion of the Board of Directors.
Options are generally non-transferable except upon death of the option
holder. Shares issued pursuant to the Stock Bonus Plan will generally not be
transferable until the person receiving the shares satisfies the vesting
requirements imposed by the Board of Directors when the shares were issued.
The Board of Directors of the Company may at any time, and from time to
time, amend, terminate, or suspend one or more of the Plans in any manner it
deems appropriate, provided that such amendment, termination or suspension
cannot adversely affect rights or obligations with
<PAGE>
respect to shares or options previously granted. The Board of Directors may not,
without shareholder approval: make any amendment which would materially modify
the eligibility requirements for the Plans; increase or decrease the total
number of shares of Common Stock which may be issued pursuant to the Plans
except in the case of a reclassification of the Company's capital stock or a
consolidation or merger of the Company; reduce the minimum option price per
share; extend the period for granting options; or materially increase in any
other way the benefits accruing to employees who are eligible to participate in
the Plans.
The Plans are not qualified under Section 401(a) of the Internal Revenue
Code, nor are they subject to any provisions of the Employee Retirement Income
Security Act of 1974.
Summary. The following sets forth certain information as of September 30,
2000, concerning the stock options and stock bonuses granted by the Company.
Each option represents the right to purchase one share of the Company's Common
Stock.
Total Shares Remaining
Shares Reserved for Shares Options/
Reserved Outstanding Issued As Shares
Name of Plan Under Plan Options Stock Bonus Under Plan
------------ ---------- ------------ ----------- ----------
Incentive Stock Option Plan 300,000 -- N/A 300,000
Non-Qualified Stock Option
Plan 300,000 N/A 300,000
Stock Bonus Plans 150,000 N/A -- 150,000
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
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The following table sets forth the number of and percentage of
outstanding shares of common stock owned by the Company's officers, directors
and those shareholders owning more than 5% of the Company's Common Stock as
of September 30, 2000.
Shares of
Name and Address Common Stock (1) Percent of Class
---------------- ---------------- --------------------
Dr. Yan Xiao Wen 2,022,222 (2) 66%
#205 - 1057 S.E. 17th Street
Fort Lauderdale, FL 33316, USA.
Kathy Jiang 100,000 3.1%
7531 Francis Rd.
Richmond, B.C. Canada V6Y 1A1
<PAGE>
Gregory Sharpe 92,222 2.7%
954 Roche Point Drive
North Vancouver, British Columbia
Canada, V7H 2T7
Ken Pappas 96,666 (3) 2.9%
5940 Sandpiper Ct.
Richmond, British Columbia
CANADA V7E-2P7
All officers and directors as 2,311,110 71.7%
a group (4 persons).
(1) Excludes shares issuable prior to December 31, 2000 upon the exercise of
options or warrants granted to the following persons:
Name Options exercisable prior to December 31, 2000
Gregory Sharpe 66,666
(2) Represents shares held by Xili USA, Inc., a corporation controlled by Dr.
Yan Xiao Wen
(3) Includes shares held by Knight & Day Restaurant Corp. Mr. Pappas is a
Director of Knight & Day Restaurant Corp.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The following table provides information concerning shares of the
Company's common stock issued to the Company's officers and directors since the
inception of the Company:
Date Shares Shareholder Consideration
---- ------ ----------- -------------
03-25-95 133,333 Ken Pappas $ 2,000
08-15-97 6,666 Ken Pappas Services Rendered
01-20-98 33,333 Knight & Day Restaurant Corp. $125,000
09-21-98 100,000 Knight & Day Restaurant Corp. $ 45,000
01-19-99 92,222 Gregory Sharpe Services Rendered
04-12-99 2,222,222 Xili USA, Inc. $300,000
In September 1997 Ken Pappas returned 33,333 shares of common stock to the
Company. These shares were cancelled and Mr. Pappas did not receive any
consideration for the return of these shares.
Ken Pappas, a director of the Company, is also a director of Knight & Day
Restaurant Corp.
<PAGE>
In January 2000 Xili USA, Inc. transferred 100,000 shares of common stock
to Kathy Jiang, an officer and director of the Company, and 100,000 shares of
common stock to an unrelated third party.
Xili USA, Inc. is controlled by Dr. Yan Xiao Wen, a director of the
Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
Exhibit
Number Exhibit Name Page Number
Exhibit 2 Plan of Acquisition, Reorganization, Arrangement,
Liquidation, etc. None
Exhibit 3 Articles of Incorporation, as amended, and Bylaws (1)
--------
Exhibit 4 Instruments Defining the Rights of Security Holders
Exhibit 4.1 Incentive Stock Option Plan (1)
--------
Exhibit 4.2 Non-Qualified Stock Option Plan (1)
--------
Exhibit 4.3 Stock Bonus Plan (1)
--------
Exhibit 5 Subscription Agreement None
Exhibit 9 Voting Trust Agreement None
Exhibit 10 Material Contracts None
Exhibit 27 Financial Data Schedule ____
(1) Incorporated by reference to the same exhibit filed with the Company's
registration statement on Form 10-SB.
<PAGE>
ROYCE BIOMEDICAL INC.
Vancouver, BC
FINANCIAL STATEMENTS
For the Year Ended June 30, 2000
<PAGE>
ROYCE BIOMEDICAL INC.
INDEX TO FINANCIAL STATEMENTS
Auditors' Report
Balance Sheet Exhibit "A"
Statement of Loss and Deficit Exhibit "B"
Statement of Changes in Shareholders' Equity Exhibit "C"
Statement of Cash Flows Exhibit "D"
Notes to Financial Statements Exhibit "E"
---------------------------
<PAGE>
AUDITORS' REPORT
To The Shareholders of Royce Biomedical Inc.:
We have audited the balance sheets of Royce Biomedical Inc. as at June 30,
2000 and 1999 and the statements of loss and deficit, changes in shareholders=
deficiency and cash flows for the years then ended. 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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at June 30, 2000 and 1999 and
the results of its operations and its cash flows for the years then ended in
accordance with generally accepted accounting principles applied on a basis
consistent with the prior year.
"Cinnamon Jang Willoughby & Company"
Chartered Accountants
Burnaby, BC
September 11, 2000
Comments by Auditor for US Readers on Canada-US Reporting Difference
In the United States, reporting standards for auditors require the
addition of an explanatory paragraph when the financial statements are affected
by conditions and events that cast substantial doubt on the company's ability to
continue as a going concern, such as those described in Note 7 to the financial
statements. Our report to the shareholders dated September 15, 2000 is expressed
in accordance with Canadian reporting standards which do not permit a reference
to such events and conditions in the auditors' report when these are adequately
disclosed in the financial statements.
"Cinnamon Jang Willoughby & Company"
Chartered Accountants
Burnaby, BC
September 11, 2000
<PAGE>
Exhibit "A"
ROYCE BIOMEDICAL INC.
Balance Sheet
June 30, 2000
(US Dollars)
Assets 2000 1999
------------------------------------------------------------------------------
Current:
Cash $ 137,655 $ 37,401
Accounts receivable 824 --
Prepaid expenses and deposits 513 200,513
------------------------------------------------------------------------------
138,992 237,914
Product licence fees (Note 4) -- --
------------------------------------------------------------------------------
$ 138,992 $ 237,914
------------------------------------------------------------------------------
Liabilities
------------------------------------------------------------------------------
Current:
Accounts payable and accrued liabilities $ 77,476 $ 82,978
Loan payable 50,000 --
------------------------------------------------------------------------------
127,476 82,978
Loan payable to a related party (Note 5) 37,509 37,944
------------------------------------------------------------------------------
164,985 120,922
------------------------------------------------------------------------------
Shareholders' Deficiency
------------------------------------------------------------------------------
Share Capital (Note 6) 14,296 14,019
Contributed Surplus (Note 6) 2,322,006 2,305,683
Deficit, per Exhibit _B_ 2,362,295 2,202,710
------------------------------------------------------------------------------
(25,993) 116,992
Going Concern (Note 7)
Commitments (Note 8)
Contingency (Note 11)
------------------------------------------------------------------------------
$ 138,992 $ 237,914
------------------------------------------------------------------------------
- See accompanying notes -
<PAGE>
Exhibit "B"
ROYCE BIOMEDICAL INC.
Statement of Loss and Deficit
For the Year Ended June 30, 2000
(US Dollars)
2000 1999
------------------------------------------------------------------------------
Sales $ 46,800 $ --
Cost of Sales 18,000 --
------------------------------------------------------------------------------
Gross margin 28,800 --
Other income:
Interest 1,326 --
------------------------------------------------------------------------------
30,126 --
------------------------------------------------------------------------------
Expenses:
Consulting fees 77,940 51,341
Office and sundry 2,160 2,869
Professional fees 51,881 30,192
Rent 5,820 26,662
Stock transfer agents fees 1,675 1,910
Telephone 1,342 9,991
Travel and promotion 14,962 21,050
Wages and benefits 33,931 19,929
------------------------------------------------------------------------------
189,711 163,944
------------------------------------------------------------------------------
Net Loss 159,585 163,944
Deficit, beginning 2,202,710 2,038,766
------------------------------------------------------------------------------
Deficit, ending, to Exhibit _A_ $2,362,295 $2,202,710
------------------------------------------------------------------------------
Loss per share $ 0.05 $ 0.10
------------------------------------------------------------------------------
- See accompanying notes -
<PAGE>
Exhibit "C"
ROYCE BIOMEDICAL INC.
Statement of Changes in Shareholders' Deficiency
For the Year Ended June 30, 2000
(US Dollars)
Common Shares Capital Accumulated
Shares Amount Surplus Deficit
------------------------------------------------------------------------------
Balance at June 30, 1998 1,475,618 $ 5,679 $1,796,639 $(2,038,766)
Shares issued for cash 6,886,667 6,887 358,247 --
Shares exchanged for debt to
related parties 1,453,333 1,453 150,797 --
Reduction due to consolidation
of 3 existing common shares
into 1 common share effective
May 10, 1999 (6,543,702) -- -- --
Net Loss, per Exhibit "B" -- -- -- (163,944)
------------------------------------------------------------------------------
Balance at June 30, 1999 3,271,916 14,019 2,305,683 (2,202,710)
Shares issued for services
rendered 92,222 277 16,323 --
Net Loss, per Exhibit _B_ -- -- -- (159,585)
------------------------------------------------------------------------------
Balance at June 30, 2000, to
Exhibit _A_ 3,364,138 $14,296 $2,322,006 $(2,362,295)
------------------------------------------------------------------------------
- See accompanying notes -
<PAGE>
Exhibit "D"
ROYCE BIOMEDICAL INC.
Statement of Cash Flows
For the Year Ended June 30, 2000
(US Dollars)
2000 1999
------------------------------------------------------------------------------
Operating Activities:
Net Loss, per Exhibit _B_ $(159,585) $(163,944)
Changes in non-cash working capital -
(Increase) Decrease in accounts receivable (824) --
(Increase) Decrease in prepaid expenses
and deposits 200,000 (200,513)
Increase (Decrease) in accounts payable
and accrued liabilities (5,502) (6,431)
Increase (Decrease) in loan payable 50,000 --
------------------------------------------------------------------------------
Cash flows from (used in) operating activities 84,089 (370,888)
------------------------------------------------------------------------------
Financing Activities:
Proceeds from issuance of common shares 16,600 517,384
Repayment of bank loan -- (6,200)
Repayment of loan payable -- (30,000)
Repayment of loan to related party (435) (73,003)
------------------------------------------------------------------------------
Cash flows from financing activities 16,165 408,181
------------------------------------------------------------------------------
Net Increase in Cash 100,254 37,293
Cash, beginning 37,401 108
------------------------------------------------------------------------------
Cash, ending $ 137,655 $ 37,401
------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Interest paid $ -- $ 229
Non-cash transaction (1999 only) -
1,453,333 common shares were issued in settlement
of $152,251 debt to a related party.
- See accompanying notes -
<PAGE>
Exhibit "E"
ROYCE BIOMEDICAL INC.
Notes to Financial Statements
June 30, 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) Cash -
Cash consists of bank accounts and short-term deposits integral to the
company's cash management.
b) 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.
c) 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.
3. Financial Instruments:
a) Fair Values -
Unless otherwise noted, cash, accounts payable and accrued liabilities,
loan payable and loan payable to a related party are stated at amounts
that approximate their book value.
<PAGE>
Exhibit "E"
ROYCE BIOMEDICAL INC. Continued
Notes to Financial Statements
June 30, 2000
(US Dollars)
b) Liability Risk -
The company does not have significant risk for the repayment of advances
from a related party because under agreements with other shareholders,
the related party has agreed not to demand repayment.
4. Product Licence Fees: 2000 1999
------------------------------------------------------------------------------
Product licence fees, at cost $10,000 $10,000
Less: Accumulated amortization 10,000 10,000
------------------------------------------------------------------------------
$ -- $ --
------------------------------------------------------------------------------
5. Loan Payable to a Related Party: 2000 1999
------------------------------------------------------------------------------
Knight & Day Restaurants Ltd. -
The loan payable has no specific
repayment terms and is non-interest
bearing. (See Note 3(b)). $37,509 $37,944
------------------------------------------------------------------------------
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
-------- ------ -----------
Balance at June 30, 1998 1,475,618 $ 5,679 $1,796,639
Shares issued for cash 6,886,667 6,887 358,247
Shares exchanged for debt to related
parties 1,453,333 1,453 150,797
Reduction due to consolidation of 3
existing common shares into 1 common
share effective May 10, 1999 (6,543,702) -- --
------------------------------------------------------------------------------
Balance at June 30, 1999 3,271,916 14,019 2,305,683
Shares issued in exchange for services
rendered 92,222 277 16,323
------------------------------------------------------------------------------
Balance at June 30, 2000 3,364,138 $14,296 $2,322,006
------------------------------------------------------------------------------
<PAGE>
Exhibit "E"
Continued
ROYCE BIOMEDICAL INC.
Notes to Financial Statements
June 30, 2000
(US Dollars)
The following options for the purchase of common shares are outstanding:
Number of Exercise Expiry
Warrants Price Date
------------------------------------------------------------------------------
20,000 $10.50 August 15, 2000
33,333 1.50 December 31, 2000
33,333 3.90 December 31, 2001
83,333 0.30 December 31, 2001
6. Share Capital: (Continued)
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.
At June 30, 2000, 176,666 (1999 - 183,333) common shares were restricted
from trading.
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 $159,585 in the current year and has an accumulated deficit of
$2,362,295 at June 30, 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.
<PAGE>
Exhibit "E"
ROYCE BIOMEDICAL INC. Continued
Notes to Financial Statements
June 30, 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 this did not occur, 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 $20,357. At June 30,
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
------------------------------------------------------------------------------
Expenses -
Consulting fees $46,600 $26,706
Wages 33,931 12,000
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
$2,352,500 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
------------------------------------------------------------------------------
Deferred tax asset, beginning of year $767,550 $710,185
Benefit of current year=s operating loss
carried forward 51,715 57,365
------------------------------------------------------------------------------
Deferred tax asset, end of year 819,265 767,550
------------------------------------------------------------------------------
Valuation allowance, beginning of year 767,550 710,185
Current year=s provision 51,715 57,365
------------------------------------------------------------------------------
Valuation allowance, end of year 819,265 767,550
------------------------------------------------------------------------------
$ -- $ --
------------------------------------------------------------------------------
<PAGE>
Exhibit _E_
ROYCE BIOMEDICAL INC. Continued
Notes to Financial Statements
June 30, 2000
(US Dollars)
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 508,976
2014 163,944
2015 159,585
11. Contingency:
The company is a defendant in a lawsuit in which the plaintiff is claiming
$100,000 plus damages. It arose from the company being enjoined in the claim
by the plaintiff against a director of the company.
The company does not anticipate that a loss will result; accordingly no
provision has been made in the accounts for such occurrence.
12. 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>
17
SIGNATURES
In accordance with Section 13 or 15(a) of the Exchange Act, the Registrant
has caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized on the 10th day of October, 2000.
ROYCE BIOMEDICAL, INC.
By /s/
---------------------------------------
Kathy Jiang, President and Principal
Financial Officer
Pursuant to the requirements of the Securities Act of l933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Title Date
/s/
------------------------
Dr. Yan Xiao Wen Director October 10, 2000
/s/
------------------------
Kathy Jiang Director October 10, 2000
/s/
------------------------
Ken Pappas Director October 12, 2000
