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 SEPTEMBER 30, 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 of (I.R.S.) Employer
incorporation Identification No.
Royce Biomedical, Inc.
1100-1200 West 73rd Avenue
Vancouver, British Columbia V6P 6G5
Address of principal executive offices
(604) 267-7080
---------------------------- ---------------
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 September 30, 2000 the Company had 3,364,138 outstanding shares of
common stock.
<PAGE>
ROYCE BIOMEDICAL INC.
Vancouver, BC
INTERIM FINANCIAL STATEMENTS
(unaudited)
For the Three Months Ended September 30, 2000
<PAGE>
ROYCE BIOMEDICAL INC.
INDEX TO INTERIM FINANCIAL STATEMENTS
Review Engagement Report
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>
REVIEW ENGAGEMENT REPORT
To The Directors of Royce Biomedical Inc.:
We have reviewed the interim balance sheet of Royce Biomedical Inc. as at
September 30, 2000 and the interim statements of loss and deficit, changes in
shareholders' equity and cash flows for the three months then ended. Our review
was made in accordance with generally accepted standards for review engagements
and accordingly consisted primarily of enquiry, analytical procedures and
discussion related to information supplied to us by the company.
A review does not constitute an audit and consequently we do not express
an audit opinion on these financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that these interim financial statements are not, in all material
respects, in accordance with generally accepted accounting principles.
"Cinnamon Jang Willoughby & Company"
Chartered Accountants
Burnaby, BC
November 5, 2000
<PAGE>
Exhibit "A"
ROYCE BIOMEDICAL INC.
Interim Balance Sheet
(unaudited)
September 30, 2000
(US Dollars)
September 30, June 30,
2000 2000
Assets
Current:
Cash $ 154,001 $ 137,655
Accounts receivable 1,354 824
Inventory 1,020 --
Prepaid expenses 500 513
156,875 138,992
Product licence fees (Note 4) -- --
$ 156,875 $ 138,992
Liabilities
Current:
Accounts payable and accrued liabilities $ 82,063 $ 77,476
Loan payable 100,000 50,000
182,063 127,476
Loan payable to a related party (Note 5) 37,509 37,509
219,572 164,985
Shareholders' Equity
Share Capital (Note 6) 14,296 14,296
Contributed Surplus (Note 6) 2,322,006 2,322,006
Deficit, per Exhibit "B" (2,398,999) (2,362,295)
(62,697) (25,993)
Going Concern (Note 7)
Commitments (Note 8)
$ 156,875 $ 138,992
- See accompanying notes -
<PAGE>
Exhibit "B"
ROYCE BIOMEDICAL INC.
Interim Statement of Loss and Deficit
(unaudited)
For the Three Months Ended September 30, 2000
(US Dollars)
Three Months Ended Three months Ended
September 30, 2000 September 30, 1999
Sales $ -- $ --
Cost of sales -- --
Gross Margin -- --
Expenses:
Consulting fees 10,500 45,555
Office and sundry 672 927
Professional fees 10,622 3,500
Rent 1,500 1,500
Stock transfer agents fees 611 --
Telephone 332 305
Travel and promotion 4,967 3,190
Wages and benefits 7,500 12,650
36,704 67,627
Net Loss (36,704) (67,627)
Deficit, beginning (2,362,295) (2,202,710)
Deficit, ending, to Exhibit "A" $(2,398,999) $(2,270,337)
Loss per share $ ( 0.01) $ (0.02)
- See accompanying notes -
<PAGE>
Exhibit "C"
ROYCE BIOMEDICAL INC.
Interim Statement of Changes in Shareholders' Equity
(unaudited)
For the Three Months Ended September 30, 2000
(US Dollars)
Common Shares Capital
Shares Amount Surplus Deficit
------ ------ ------- --------
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" -- -- -- (67,627)
Balance at September 30,
1999 3,364,138 $14,296 $2,322,006 $(2,270,337)
Balance at June 30, 2000 3,364,138 $14,296 $2,322,006 $(2,362,295)
Net Loss, per Exhibit "B" -- -- -- (36,704)
Balance at September 30,
2000 3,364,138 $14,296 $2,322,006 $(2,398,999)
- See accompanying notes -
<PAGE>
Exhibit "D"
ROYCE BIOMEDICAL INC.
Interim Statement of Cash Flows
(unaudited)
For the Three Months Ended September 30, 2000
(US Dollars)
Three Months Ended Three months Ended
September 30, 2000 September 30, 1999
Operating Activities:
Net Loss, per Exhibit "B" $ (36,704) $ (67,627)
Adjustment for -
Common shares issued for services
rendered -- 16,600
(36,704) (51,027)
Changes in non-cash working capital -
(Increase) Decrease in accounts receivable (530) (218)
(Increase) Decrease in inventory (1,019) (18,000)
(Increase) Decrease in prepaid expenses 13 100,000
Increase (Decrease) in accounts payable
and accrued liabilities 4,586 (7,648)
Increase (Repayment) in loan payable 50,000 --
Cash flows used in operating activities 16,346 23,107
Cash, beginning 137,655 37,400
Cash, ending $154,001 $ 60,507
Supplemental Disclosure of Cash Flow Information:
Non-cash transaction - 92,222 common shares were issued for $16,600 in
services rendered during 1999
- See accompanying notes -
<PAGE>
Exhibit "E"
ROYCE BIOMEDICAL INC.
Notes to Interim Financial Statements
(unaudited)
September 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 in 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.
d) Inventory -
Inventory is valued at the lower of cost and market value and includes
items held for resale.
3. Financial Instruments:
a) Fair Values -
Unless otherwise noted, cash, accounts receivable, 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"
Continued
ROYCE BIOMEDICAL INC.
Notes to Interim Financial Statements
(unaudited)
September 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.
September 30, June 30,
4. Product Licence Fees: 2000 2000
----------- ------------
Product licence fees, at cost $10,000 $10,000
Less: Accumulated amortization 10,000 10,000
$ -- $ --
September 30, June 30,
5. Loan Payable to a Related Party: 2000 2000
------------- ------------
Knight & Day Restaurants Ltd. -
The loan payable has no specific
repayment terms and is non-interest
bearing. (See Note 2(a)). $37,509 $37,509
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, 1999 3,271,916 $14,019 $2,305,683
Shares issued for services rendered 92,222 277 16,323
Balance at June 30, 2000 and
September 30, 2000 3,364,138 $14,296 $2,322,006
The following options for the purchase of common shares are outstanding:
Number of Exercise Expiry
Shares Price Date
--------- -------- -----------------
33,333 $1.50 December 31, 2000
33,333 3.90 December 31, 2001
83,333 .30 December 31, 2001
<PAGE>
Exhibit "E"
Continued
ROYCE BIOMEDICAL INC.
Notes to Interim Financial Statements
(unaudited)
September 30, 2000
(US Dollars)
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 $36,704 in the current period and has an accumulated deficit of
$2,398,999 at September 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.
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 September 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.
Three Months Ended Three months Ended
September 30, 2000 September 30, 1999
Expenses -
Consulting fees $7,500 $ 7,500
Wages 7,500 12,650
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.
<PAGE>
Exhibit "E"
Continued
ROYCE BIOMEDICAL INC.
Notes to Interim Financial Statements
(unaudited)
September 30, 2000
(US Dollars)
10. Income Taxes:
The Company has net losses for income tax purposes totalling approximately
$2,391,872 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 $819,265 $767,550
Benefit of current year's operating
loss carried forward 13,781 22,550
Deferred tax asset, end of year 833,046 790,100
Valuation allowance, beginning of year 819,265 767,550
Current year's provision 13,781 22,550
Valuation allowance, end of year 833,046 790,100
$ -- $ --
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
2016 39,372
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.
<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 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 the twelve months ending December
31, 2001. The Company expects to receive approximately $ 2.60 (net of product
and distribution costs) from the sale of each H. Pylori testing kit.
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 September 30, 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 September 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.
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ending
September 30, 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: November 27, 2000 By /s/ Kathy Jiang
--------------------------------------
Kathy Jiang
President and Principal Financial Officer
