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BRAVO! BRANDS INC. - 10KSB - 20010402 - NOTES_TO_FINANCIAL_STATEMENT
NOTES TO FINANCIAL STATEMENTS
Note 1. Investment in and Advance to GFP
Investment in and advance to GFP consists of:
December 31,
---------------------
1999 2000
---------------------
Investment in GFP $ 3,500,000 $ -
Advance to GFP 1,398,368 -
Equity interest in GFP's accumulated deficit (4,898,368) -
---------------------
Investment in and advance to GFP $ - $ -
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From the inception of GFP, the Company recognized the corresponding GFP's
comprehensive loss on its own book. The Company advanced to GFP
approximately $527,779 in 1998 and approximately $870,529 in 1999,
respectively. The Company picked up 70% of total loss in GFP in 1998, which
was $972,062. The Company also wrote off the goodwill of $94,533, which
resulted from the acquisition of 2.4% of equity interest in GFP in 1998. In
late 1999, GFP substantially stopped its operation and the Company decided
to terminate this joint venture. Accordingly, the Company wrote off the
entire balance of investment in and advance to GFP as of December 31, 1999.
Note 2. Investment in and Advance to Meilijian
Investment in and advance to Meilijian consists of:
December 31,
---------------------
1999 2000
---------------------
Investment in Meilijian $ 2,731,831 $ -
Advance to Meilijian 196,537 -
Equity interest in Meilijian's accumulated
deficit and comprehensive loss (1,681,946) -
---------------------
Investment in and advance to Meilijian $ 1,246,422 $ -
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CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 2. Investment in and Advance to Meilijian (Continued)
In November 2000, the Company sold its 52% equity interest in Meilijian to
the Chinese partner for consideration of $895,000. The Company
recognized the disposal loss as follows:
Year ended
December 31, 2000
-----------------
Total proceeds from Chinese partner $ 895,000
Investment in and advance to Meilijian
Investment in Meilijian 2,731,831
Advance to Meilijian 196,537
Equity interest in Meilijian's accumulated deficit (2,215,540)
-----------
Net 712,828
Translation adjustment 134,228
Goodwill 170,529
-----------
Total assets to be written off 1,017,585
-----------
Loss recognized at November 30, 2000 $ (122,585)
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Of the $895,000 consideration, $179,000 was received before December 31, 2000.
Note 3 - Restricted Cash and Bank Loan in Shanghai
During 2000, the Company wired $161,000 to a Chinese commercial bank in
Shanghai as collateral to borrow RMB loans from the bank. With the $160,000
of time deposit as collateral, the bank agreed to loan CPFC Shanghai the
maximum RMB amount not to exceed 90% of the value of certificate of deposit.
The bank loans bear interest at 6.435% per annum and mature on September 11,
2001 for RMB1,180,000 (equivalent of US$142,557) at December 31, 2000. The
proceeds of RMB loans from the bank can be used only for working capital
purpose.
Note 4 - Extension of Note Payable to International Paper
During the process of acquiring its 52% equity interest in Meilijian, the
Company issued a promissory note to assume existing debt owed to a supplier,
International Paper. The face value of that unsecured note was $282,637 at
an interest rate of 10.5% per annum. The note originally required a monthly
installment payment of $7,250 with 23 payments and a balloon payment of
$159,862 due on July 15, 2000. During 2000, the Company negotiated an
extension of this note to July 1, 2001. International Paper imposed a
charge of $57,000 to renegotiate the note, which amount represents interest
due through the extension date. The outstanding balance of this note was
$202,743 at December 31, 2000. The Company is delinquent on payment at
December 31, 2000.
CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 5 - Licensing Agreements with Warner Brothers Consumer Products Co.
On January 1, 1999, the Company entered into a license agreement (the Original
Agreement) with Warner Brothers Consumer Products Co. (Warner) for the right
to print cartoon characters, as defined in the Original Agreement, on its
products in Shanghai and Hangzhou, PRC. The Company agreed to pay 3% royalty
fee of net invoiced price of each licensed article with minimum guaranteed
consideration of $300,000, of which $45,000 was paid at inception of the
Original Agreement, and the balance to be paid by 10 installments of $21,250
each quarter starting on September 30, 1999 and a balloon payment of $42,500
on or before March 31, 2002. The Company recorded license rights of $300,000
and will amortize it over a period of three years.
The Original Agreement noted above only allowed the licensed material to be
used on beverages. The Company desired to expand this licensing to allow
the cartoon characters to be put onto cracker packages. In June 2000, the
Company entered into a license agreement (the New Agreement) with Warner for
the right to print cartoon characters on certain cracker packages as defined
in the New Agreement. The Company agreed to pay 5% wholesale price of each
licensed article with minimum guaranteed consideration of $50,000 paid at the
inception of the Agreement. The Company recorded license rights of $50,000
and will amortize it over a period of 16 months.
On November 21, 2000, the Company entered into an amendment of the above
Original Agreement with Warner. Per the amendment the term of the agreement
was extended to June 30, 2003 with the guaranteed consideration being
increased to $400,000. The amended agreement extended the territory that
the Company can market the beverage containers to The People's Republic of
China. From September 30, 1999 to September 30, 2000 the installment
payment of $21,250 did not change. As of January 31, 2001, the installment
payment increases to $33,750 until September 30, 2002. The last installment
payment at December 31, 2002 is back to the original amount of $21,250. The
Company recorded additional license rights of $100,000 and will amortize it
with the remaining balance over a period of 25 months.
Notes Payable to Warner Brothers By Bravo!
On July 26, 2000, Bravo! entered into a licensing agreement with Warner and
obtained rights to utilize Warner Brothers' Looney Tunes(tm) character images
and names in the U.S. This licensing agreement gives the Company rights to
such images and names in the U.S. for use in connection with specified
categories of products sold by Bravo!
The Company recorded the gross amount of $500,000 as licensing agreement and
an obligation to licensing agreement of $500,000 simultaneously. An amount
of $250,000 was paid upon the signing of this agreement and the balance is
due as follows: $100,000 on or before June 1, 2001, $100,000 on or before
December 1, 2001, and $50,000 on or before June 1, 2002.
The licensing agreement is effective from January 1, 2000 through December
21, 2002. However, the Company signed the agreement on July 26, 2000
resulting in an effective period of 30 months. Accordingly, the Company
will amortize the licensing agreement over a period of 30 months. The
amortization for the year-end December 31, 2000 was $100,000.
CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 5 - Licensing Agreements with Warner Brothers Consumer
Products Co. (Continued)
The outstanding notes payable to Warner Brothers were as follows:
December 31,
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1999 2000
------------------------
Note payable $ 212,500 $ 500,750
Current portion (85,000) (335,000)
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Long-term note payable $ 127,500 $ 165,750
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Note 6. Related Party Transactions
The Company advanced $870,529 in 1999 to GFP and $8,330 to Meilijian in
1999.
Note 7. Income Taxes
The Company is subject to Federal income taxes. As the Company experienced
operating losses for the years of 1999 and 2000, no income tax provision was
provided.
The Company has gross deferred tax assets of approximately $2,383,000 and
$3,620,000 at December 31, 1999 and 2000, respectively, relating principally
to tax effects of net operating loss carryforwards. In assessing the
recoverability of deferred tax assets, management considers whether it is
more likely than not that the assets will be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers projected future
taxable income and tax planning strategies in making this assessment. Based
upon the level of historical taxable loss and projections for future taxable
income over the periods in which the deferred tax items are recognizable for
tax reporting purposes, it is more likely than not the Company will not
realize the benefits of these differences at December 31, 1999 and 2000. As
such, management has recorded a valuation allowance for the full amount of
deferred tax assets at December 31, 1999 and 2000.
At December 31, 2000, the Company has available net operating losses of
approximately $10,648,000 for federal income tax purpose, to offset future
taxable income, if any, and expire at various dates through the year 2015
for federal income tax. However, the utilization of net operating losses
may be subject to certain limitations as prescribed by Section 382 of the
Internal Revenue Code.
Note 8. Commitments and Contingencies
Commitments
The Company leases office space at its corporate office in Florida under
operating leases expiring in April 2004.
CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 8. Commitments and Contingencies (Continued)
Future minimum rental payments required under operating leases as of
December 31, 2000 are as follows:
Years ending December 31, Amount
-------------------------------------
2001 $ 67,633
2002 71,015
2003 74,566
2004 26,098
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$239,312
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Rental expense for the years ended December 31, 1999 and 2000 was
approximately $42,000 and $64,000, respectively.
Note 9. Shareholders' Equity
1999
An institutional holder of Preferred Stock Series C converted 27,938 shares
into 93,959 shares of common stock from January 4, 1999 through to February
23, 1999.
In January 1999 the Company collected net proceeds of $135,000, net of
issuance expenses of $15,000 and issued 50,000 shares of Preferred stock
Series C.
An institutional holder of Preferred Stock Series C converted a total of
50,000 shares of Preferred Stock Series C into 150,000 shares of common
stock on February 18, 1999 and February 19, 1999, respectively, (25,000
shares per each conversion).
In March 1999 the Company collected proceeds of $30,000 which represented
30,000 warrants exercised at a price of $1.00 per share and issued 30,000
shares of common stock. These warrants were issued in November 1998, as
part of the Company's Rule 504 offering of its Series C Convertible
Preferred Stock.
From January 1 to March 31, 1999 the Company conducted a private sale of its
common stock and received total proceeds of $415,000 through issuing 415,000
share of common stock. Among $415,000 received, $105,000 were paid back to
investors per their request for cancellation in April, 1999. Accordingly,
105,000 shares of common stock were cancelled.
In March 1999, the Company conducted a Rule 506, Regulation D offering to
issue 100,000 shares of its Series D Convertible Preferred Stock, with
possible total gross proceeds of $1,000,000. The Company also issued 3,500
shares of the Series D Preferred Stock at a price of $10.00 per share to pay
a finder's fee to a financial institution. On March 9, 1999, the Company
issued 50,000 shares of the Series D Preferred Stock. The net proceeds of
these 50,000 shares of Preferred Stock Series D was $470,000, net of $15,000
placement fee and $15,000 of legal expense. In line with the conversion
feature embedded in Series D Preferred Stock, the Company recognized a total
of $535,000 of deemed dividends.
CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 9. Shareholders' Equity (Continued)
In April 1999, the Company issued 25,000 shares of Preferred Stock Series D
at $10 per share. The net proceeds of this issuance were $240,000, net of
$7,500 of placement fee and $2,500 legal expense. The Company also issued
1,750 shares of Series D Preferred Stock in exchange for a finder's fee at
$10 per share. In line with the conversion feature embedded in Series D
Preferred Stock, the Company recognized $106,485 of deemed dividends for the
second tranche of 26,750 shares of Series D in the second quarter.
During April, the Company issued 53,334 shares of common stock at $1 per
share as the result of the exercise of 53,334 warrants.
During May and June, the Company conducted a private sale of its common
stock and received total proceeds of $262,200 and issued 262,200 shares of
common stock.
During June 1999, the Company issued 1,999 shares of its common stock at a
market price of approximately $1 per share in exchange of $2,000 consulting
fee and 4,084 shares of common stock at a market price of approximate $1.47
per share in exchange for $6,000 of consulting fee with the same consulting
service provider.
During June 1999, the Company signed stock option agreements with five non-
employees, who had provided bookkeeping, research and organization services
to the Company, for a total of 55,000 restrictive shares of common stock.
These option agreements contain an exercise price of $1 per share and expire
in five years. Accordingly, the Company recognized consulting expense of
$48,563.
During July 1999, an institutional holder of Preferred Stock Series C
converted 7,672 shares into 20,000 shares of common stock.
During July, August and September 1999, the Company conducted a private sale
of its convertible Preferred Stock Series E and issued 330,000 shares in
five tranches to investors at $2.50 per share. The net proceeds of this
issuance were $711,962 net of $113,038 of finder's fee, legal and printing
expenses. In line with the conversion feature embedded in Series E
Preferred Stock, the Company recognized $111,302 of deemed dividends.
The Series E Preferred Stock has the following features: The holders of
Series E Convertible Preferred stock shall be entitled to convert such stock
into the Company's common stock at any time subsequent to the issuance of
such stock, subject to a one year "lockup" agreement entered into by the
holders of such stock. The number of shares of common stock issuable upon
conversion of each share of Series E Preferred Stock shall equal (I) the sum
of (A) the Stated Value per share and (B) at the holder's election accrued
and unpaid dividends on such share, divided by (ii) the conversion price.
The conversion price shall be equal to the greater of: (I) $1.25 per share
of common stock or (ii) 80% of the average of the closing bid prices for the
5 trading days immediately preceding the conversion of the respective shares
of Series E Preferred Stock, but in no event shall the conversion price be
greater than $2.50 per share of common stock.
During July 1999, four accredited and sophisticated holders of Preferred
Stock Series E converted 60,000 shares into 104,896 shares of common stock.
CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 9. Shareholders' Equity (Continued)
During August 1999, the Company issued 1,082 shares of common stock at a
market price of $1.85 per share in exchange for $2,000 of consulting fees
and 1,274 shares of common stock at a market price of approximately $1.57 in
exchange for a further $2,000 of consulting fees with the same service
provider.
Four accredited and sophisticated investors converted a total of 50,000
shares of Preferred Stock Series E into 89,444 shares of common stock on
August 3, 1999 (40,000 shares), and August 23, 1999 (10,000 shares),
respectively.
During August the Company conducted a private sale of its common stock and
received total proceeds of $65,000 and issued 65,000 shares of common stock.
During September 1999, the Company issued 1,163 shares of common stock, at a
market price of $1.72 per share, in exchange for $2,000 of consulting fee to
a service provider.
During October 1999, sixteen investors holding Convertible Preferred Stock
Series E, converted a total of 220,000 shares of Preferred Stock Series E
into 440,000 shares of common stock.
An institutional holder of Preferred Stock Series C converted a total of
6,961 shares of Preferred Stock Series C into 30,000 shares of common stock
on October 20, 1999.
Sixteen shareholder of Preferred Stock Series E converted a total 220,000
shares of Preferred Stock Series E into 440,000 shares of common stock on
October 29, 1999 (180,000 shares) and on November 24, 1999 (40,000 shares).
During October 1999, the Company signed stock option agreements with three
non-employees who provided advisory and consulting services to the Company
in 1999, for a total of 1,016,000 restrictive shares of common stock. These
option agreements contain an exercise price of $0.50 per share for 516,000
options and an exercise price of $0.75 per share for 500,000 options.
Accordingly, the Company has recognized a non-employee compensation cost of
$467,300. 250,000 options were exercised at $0.50 per option on November
11, 1999, a further 250,000 were exercised on November 18, 1999 at $0.50 per
option and 266,000 were exercised on November 23, 1999 at $0.75 per option
of which 16,000 shares were in exchange for $12,000 of legal fee.
On November 26, 1999 an institutional holder of Preferred Stock Series C
converted a total of 25,858 shares of Preferred Stock Series C into 134,000
shares of common stock.
During November 1999, the Company issued 1,713 shares of common stock, at a
market price of $1.15 per share, in exchange for $2,000 of consulting fee to
a service provider.
2000
On January 27, 2000, the Company issued 100,000 shares of common stock
pursuant to the exercise of options.
CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 9. Shareholders' Equity (Continued)
On February 1, 2000, the Company amended its Rule 506 offering with respect
to the Series D Preferred Stock originally offered on March 9, 1999 and
April 23, 1999, respectively. Pursuant to this amended offering, the
Company issued an additional 50,000 shares of the Series D Preferred Stock
and amended the total number of warrants to be issued by the issuance of
additional warrants for 1,300,000 shares of common stock to the existing
sophisticated and accredited holders of its Series D Preferred Stock. The
Series D Preferred and accompanying warrants were priced at $10.00 per unit
and resulted in proceeds of $490,000 in cash, net of $10,000 of legal and
issuance expenses. The warrants were issued to the investors with an
exercise price of $0.625 per share and an expiration date of January 31,
2003. The Company recognized $500,000 of deemed dividends for warrants and
the conversion features.
In connection with this sale, the Company issued 125,000 shares of its
common stock to these holders to compensate them for the delay in
registering the resale of the common stock underlying the Series D Preferred
and the warrants, and 50,000 shares of common stock to a finder. These
shares of common stock are valued at $0.75 per share, the market value on
February 1, 2000.
On April 6, 2000, the Company issued 6,374 shares of its common stock at
$0.94 per share (market value) to The Omega Company for consulting service
provided. The Company did not receive cash for these shares.
On April 6, 2000, the Company issued 150,000 of its Series F convertible
preferred stock and warrants to three sophisticated and accredited investors
and one finder. In addition, the Company agreed to issue 75,000 shares of
common stock upon the exercise of the warrants by the respective holders.
The Series F convertible preferred stock and the warrants were priced at
$10.00 per unit and resulted in proceeds of $1,480,000, net of $20,000 of
legal and issuance expenses. Each share of Series F convertible preferred
stock (1) has a stated value of $10.00 per share; (2) does not have dividend
rights beyond those of the Company's common stock; (3) has no voting rights;
(4) has a conversion feature equal to $0.50 per share, subject to a maximum
conversion into no greater than 9.99% of the Company's issued and
outstanding common stock at conversion and (5) is redeemable at the option
of the holder in the event of defined events of default at 125% of the
stated value. (The redemption rights on certain defined events which are
outside the control of the Company were permanently waived.) Warrants for
3,000,000 shares of common stock were issued to the investors with an
exercise price of $1.00 per share and an expiration date of April 5, 2003.
Warrants for 1,600,000 shares of common stock were issued to a finder with
an exercise price of $0.84 per share and have an expiration date of April 5,
2000. The Company recognized $400,505 of deemed dividends relating to the
conversion feature.
On April 25, 2000, the Company issued 66,785 shares of its common stock upon
the conversion of 14,904 shares of Series C convertible preferred stock
including accrued dividends of $16,875.
On May 11, 2000, the Company issued 10,260 shares of its common stock at
$0.78 per share (market price) to a related party consultant, The Omega
Company, for consulting service provided. The Company did not receive cash
for these shares.
CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 9. Shareholders' Equity (Continued)
On May 22, 2000, the Company issued 184,638 shares of its common stock to
two holders of Series D convertible preferred stock pursuant to their
conversion of 10,000 shares of the preferred including accrued dividends of
$10,095. The Company did not receive cash for these shares.
On May 23, 2000, the Company issued 1,517,441 shares of its common stock to
one holder, pursuant to the conversion of 500,000 shares of Series A
convertible preferred stock and 1,017,441 shares of Series B convertible
preferred stock including accrued dividends of $275,562. The Company did
not receive cash for these shares.
On May 25, 2000, the Company issued 131,314 shares of common stock at $0.75
per share in exchange for services provided.
On June 8, 2000, the Company issued 219,566 shares of its common stock to
two holders of Series D convertible preferred stock pursuant to the
conversion of 10,000 shares of the preferred including accrued dividends of
$10,095. The Company did not receive cash for these shares.
On June 19, 2000, the Company issued 75,000 shares of its Series G
convertible preferred stock and warrants for 344,330 shares at $0.9625 per
share to three sophisticated and accredited investors and two finders. The
Series G convertible preferred stock was priced at $10.00 per unit and
resulted in proceeds of $675,000 in cash, net of $60,000 in finder's fees
and $15,000 of legal and issuance expenses. Each share of Series G
convertible preferred stock (1) has a stated value of $10.00 per share; (2)
accrues dividends at 8% simple interest per annum, payable in cash or, at
the option of the holder, added to the stated value of the preferred for
conversion computation purposes; (3) has no voting rights; (4) has a
conversion feature equal to the lesser of $0.85 per share or 80% of the
average of the three lowest closing bid prices in a lookback period of the
22 days immediately preceding the conversion of the preferred, subject to a
maximum conversion into no greater than 9.99% of the Company's issued and
outstanding common stock at conversion; (5) is redeemable at the option of
the Company at 135% of the stated value, plus accrued dividends. (The
redemption rights on certain defined events which are outside the control of
the Company were permanently waived.); and (6) has a mandatory conversion
feature exercisable by the Company 3 years from issue at the stated
conversion prices, subject to a minimum daily trading volume of 250,000
shares during a lookback period and closing bid prices not less that 300% of
the lower conversion prices. The Company has a "put" for up to an
additional 75,000 shares of the Series G convertible preferred, contingent
upon the occurrence of certain defined events. Each put share has the above
described features, except a conversion feature equal to 75% of the average
of the three lowest closing bid prices in a lookback period of the 10 days
immediately preceding the conversion of the preferred or 80% of the average
of the three lowest closing bid prices in a lookback period of the 22 days
immediately preceding the conversion of the preferred, at the option of the
investors. The Company recognized $144,854 of deemed dividends relating to
the conversion feature. The Series G warrants for 334,330 shares of common
stock have an exercise price of $0.9625 per share and an expiration date of
June 18, 2003.
CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 9. Shareholders' Equity (Continued)
On June 29, 2000, the Company issued 225,735 shares of its common stock at
$0.75 per share to thirteen former holders of its Series E convertible
preferred stock. This common stock was issued pursuant to the exercise of
certain participation rights in favor of these holders at a price determined
by the market value of the common stock on the day of exercise. The Company
received $169,303.50 in cash from the issuance of this common stock.
On August 3, 2000, the Company issued 18,199 shares of its common stock at
$0.82 per share (market price) to an employee.
On August 15, 2000, the Company issued 6,439 shares at $0.93 per share
(market price) of its common stock to a related party for consulting service
provided. The Company did not receive cash for these shares.
On October 2, 2000, the Company issued 25,000 shares of its amended Series G
convertible preferred stock to two sophisticated and accredited investors
and warrants to a finder for 114,777 shares of common stock. This issuance
was pursuant to an agreed upon partial exercise of the put granted to the
Company by the Series G investors. The amended Series G convertible
preferred stock was priced at $10.00 per unit and resulted in proceeds of
$226,500 in cash, net of $20,000 in finder's fees and $3,500 in escrow fees.
Each share of the amended Series G convertible preferred stock has the same
features as the original Series G issue, except a conversion feature for the
partial put exercise equal to the lesser of $0.60 per share or 75% of the
average of the three lowest closing bid prices of the 22 days immediately
preceding the conversion of the preferred. The remaining 50,000 shares of
the amended Series G convertible preferred subject to put rights have a
conversion feature equal to 75% of the average of the three lowest closing
bid prices in a lookback period of the 10 days immediately preceding the
conversion of the preferred or 75% of the average of the three lowest
closing bid prices in a lookback period of the 22 days immediately preceding
the conversion of the preferred, at the option of the investors. The
warrants for 114,777 shares of common stock have an exercise price of
$0.9625 per share and an expiration date of October 1, 2003. The Company
recognized $98,509 of deemed dividends relating to the conversion feature.
On October 13, 2000, the Company issued 24,999 shares of its amended Series
F convertible preferred stock and warrants for 114,777 shares of common
stock to three sophisticated and accredited investors. The amended Series F
convertible preferred stock and warrants were priced at $10.00 per unit and
resulted in proceeds of $224,990 in cash, net of $20,000 in finder's fees
and $5,000 in legal fees. Each share of the amended Series F convertible
preferred stock has the same features as the original Series F issue, except
a conversion feature equal to the lesser of $0.60 per share or 75% of the
average of the three lowest closing bid prices of the 22 days immediately
preceding the conversion of the preferred. The warrants for 114,777 shares
of common stock have an exercise price of $0.9625 per share and an
expiration date of October 12, 2003. . The Company recognized $62,340 of
deemed dividends relating to the conversion feature.
On November 15, 2000, the Company issued 5,415 shares of its common stock at
$0.74 per share (market value) to a related party for consulting services
provided. The Company did not receive cash for these shares.
CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 9. Shareholders' Equity (Continued)
On December 1, 2000, the Company issued 15,000 shares of common stock valued
at $1.00 per share, in exchange for services provided. The Company did not
receive cash for these shares.
On December 13, 2000, the Company issued 135,119 shares of its common stock
to one holder, pursuant to the conversion of 135,119 shares of Series B
convertible preferred stock including accrued dividends of $48,919.
Note 10. Stock Warrants and Options
1999
In 1997, the Company issued warrants for 975,000 shares of common stock, at
an exercise price of $5.00 per share, as part of the units sold in the Rule
504, Regulation D limited public offering. These warrants may be exercised
at any time after May 31, 1998, and from time to time thereafter through and
including March 31, 1999. The Company also changed the exercise price for
the 975,000 warrants issued in 1997 from $5.00 to $1.00. 165,000 warrants
were exercised at $1.00 per share in December 1998. The remaining 810,000
warrants expired on March 31, 1999.
During 1998 557,000 warrants for shares of common stock relating to a Rule
506 Regulation D offering were issued at an exercise price of $1.00 per
share. These warrants had not been exercised as of December 31, 1999 and
expire on June 30, 2003.
During 1998, 553,334 warrants relating to series C Preferred Stock were
issued. 83,334 warrants for shares of common stock were exercised on March
12, 1999 (30,000) and May 19, 1999 (53,334) respectively at an exercise
price $1.00 per share. The remaining 450,000 warrants expired on April 30,
1999.
During 1999 125,000 warrants relating to series D Preferred Stock were
issued at an exercise price of $2.96 per share. These warrants expire
during 2002, and had not been exercised as of December 31, 1999.
During 1999 231,000 warrants relating to series E Preferred Stock were
issued. 33,000 of these warrants were issued at an exercise price of $2.75
per share, 165,000 were issued at an exercise price of $3.00 per share and
33,000 were issued at an exercise price of $5.00 per share. These options
have expiration dates ranging from July 2001 through September 2004. None
of these options had been exercised as of December 31, 1999.
During June 1999, the Company signed stock option agreements with five non-
employees, who had provided bookkeeping, research and organization services
to the Company, for a total of 55,000 shares of common stock. These option
agreements contain an exercise price of $1 per share and expire in five
years. None of these options had been exercised by December 31, 1999.
Using the Black Scholes option pricing model the Company determined that the
fair value of each option granted was approximately $0.88. Accordingly,
pursuant to SFAS No. 123 the Company recognized non-employee compensation
cost of $48,563.
CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 10. Stock Warrants and Options (Continued)
During October 1999, the Company signed stock option agreements with three
non-employees who are to provide advisory and consulting services to the
Company, for a total of 1,016,000 restrictive shares of common stock. These
option agreements contain an exercise price of $0.50 per share for 516,000
options and an exercise price of $0.75 per share for 500,000 options. These
option agreements expire on October 17, 2000. In November 1999, 766,000
options were exercised. During January 2000, another 100,000 options were
exercised. Using the Black Scholes option pricing model the Company
determined that the fair value of each option granted was approximately
$0.46. Accordingly, pursuant to SFAS 123 the Company recognized a non-
employee compensation cost of $467,300.
On December 1, 1999 the Company issued 100,000 options to three employees
with an exercise price of $1.125 per share. According to APB No. 25, the
Company did not recognize any stock compensation expense because the
exercise price was higher than the market price.
2000
On June 1, 2000 the Company issued 50,000 options to an employee with an
exercise price of $0.69 per share, which was below the market price.
Accordingly, the Company recognized stock compensation of $21,750 at
December 31, 2000.
On September 1, 2000 the Company issued 50,000 options to an employee with
an exercise price at the market price. One third of the 50,000 options will
be vested at the anniversary of the granting date. The Company did not
recognize any stock compensation expense.
On September 1, 2000 the Company issued 50,000 options to consultant with an
exercise price of $0.75, which was equal to the market price on the granting
date. According to SFAS No. 123, the Company recognized $7,746 of stock
compensation.
On November 29, 2000 the Company issued another 50,000 to the same
consultant with an exercise price of $1.50 per share, which was higher than
the market price. The Company determined that the options granted did not
have present value using Black Scholes model and did not record any stock
compensation.
The Company adopted APB No. 25 to account for the options granted to
employees and SFAS No. 123 to account for the options granted non-employees.
At December 31, 1999 and 2000, the Company recorded the total stock
compensation expense of $515,863 and $29,496.
CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 10. Stock Warrants and Options (Continued)
The assumption used in the Black Scholes option pricing model in 1999 and
2000 were as follows:
December 31,
--------------------------
1999 2000
--------------------------
Discount rate - bond yield rate 5.85% - 6.00% 5.85%
Volatility 17.28% - 37.2% 17.28%
Expected life 3 - 5 years 3 year
Expected dividend yield - -
|
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss
would have been increased to the pro forma amount indicated below:
Year ending December 31,
------------------------------
1999 2000
------------------------------
Net loss:
As reported $(4,975,511) $(5,889,320)
Pro forma $(4,997,425) $(5,902,603)
Loss per share:
As reported $ (0.67) $ (0.49)
Pro forma $ (0.67) $ (0.49)
|
CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 10. Stock Warrants and Options (Continued)
These warrants and stock option agreements are summarized as follows:
Warrants/
Grant Options Exercise Vesting Expiration
Date Granted Price Period Date
---------------------------------------------------------------
Warrants issued in Rule 504 Regulation D offering 5/31/97 975,000 $1.00 12 months 3/31/99
Warrants exercised 12/15/98 (165,000) 1.00 None
Warrants expired 3/31/99 (810,000) 1.00
Warrants issued in Rule 506, Regulation D offering 6/02/98 557,000 1.00 None 6/30/03
Warrants issued with Series C Preferred Stock 11/19/98 83,334 1.00 None 5/31/99
Warrants exercised 3/12/99 (30,000) 1.00 None
Warrants exercised 5/19/99 (53,334) 1.00
Warrants issued with Series C Preferred Stock 12/29/98 450,000 1.00 None 4/30/99
Warrants expired 4/30/99 (450,000) 1.00
Warrants issued with Series D Preferred Stock 3/09/99 100,000 2.96 None 3/08/02
Warrants issued with Series D Preferred Stock 4/23/99 25,000 2.96 None 4/22/02
Warrants issued with Series E Preferred Stock 7/23/99 50,000 3.00 None 7/22/01
Warrants issued with Series E Preferred Stock 7/23/99 10,000 2.75 None 7/22/04
Warrants issued with Series E Preferred Stock 7/23/99 10,000 5.00 None 7/22/02
Warrants issued with Series E Preferred Stock 8/16/99 15,000 3.00 None 8/15/01
Warrants issued with Series E Preferred Stock 8/16/99 3,000 2.75 None 8/15/04
Warrants issued with Series E Preferred Stock 8/16/99 3,000 5.00 None 8/15/02
Warrants issued with Series E Preferred Stock 9/01/99 30,000 3.00 None 8/31/01
Warrants issued with Series E Preferred Stock 9/01/99 6,000 2.75 None 8/31/04
Warrants issued with Series E Preferred Stock 9/01/99 6,000 5.00 None 8/31/02
Warrants issued with Series E Preferred Stock 9/14/99 20,000 3.00 None 9/13/01
Warrants issued with Series E Preferred Stock 9/14/99 4,000 2.75 None 9/13/04
Warrants issued with Series E Preferred Stock 9/14/99 4,000 5.00 None 9/13/02
Warrants issued with Series E Preferred Stock 9/27/99 50,000 3.00 None 9/26/01
Warrants issued with Series E Preferred Stock 9/27/99 10,000 2.75 None 9/26/04
Warrants issued with Series E Preferred Stock 9/27/99 10,000 5.00 None 9/26/02
---------
Total outstanding warrants at December 31, 1999 913,000
---------
Warrants issued with Series D Preferred Stock 2/01/00 1,300,000 0.63 None 1/31/03
Warrants issued with Series F Preferred Stock 4/06/00 3,000,000 1.00 None 4/05/03
Warrants issued with Series F Preferred Stock 4/06/00 1,600,000 0.84 None 4/05/03
Warrants issued with Series G Preferred Stock 6/19/00 344,330 0.96 None 6/18/03
Warrants issued with Series G Preferred Stock 10/02/00 114,777 0.96 None 10/01/03
Warrants issued with Series F Preferred Stock 10/13/00 114,777 0.96 None 10/12/00
---------
Total outstanding warrants 7,386,884
=========
|
CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 10. Stock Warrants and Options (Continued)
Warrants/
Grant Options Exercise Vesting Expiration
Date Granted Price Period Date
---------------------------------------------------------------
Agreement One 4/29/97 1,005,533 $1.00 None 4/28/02
Agreement Two 4/30/97 2,000,000 1.00 None 4/29/02
Agreement Three 10/1/97 25,000 1.00 None 9/30/02
Agreement Four 10/1/97 15,000 1.00 None 9/30/02
Agreement Five 6/15/99 20,000 1.00 None 6/14/01
Agreement Six 6/15/99 20,000 1.00 None 6/14/01
Agreement Seven 6/15/99 5,000 1.00 None 6/14/01
Agreement Eight 6/15/99 5,000 1.00 None 6/14/01
Agreement Nine 6/15/99 5,000 1.00 None 6/14/01
Stock options pursuant to S-8 registration 10/06/99 500,000 0.50 None 10/17/00
Stock options pursuant to S-8 registration 10/06/99 516,000 0.75 None 10/17/00
Options exercised 11/16/99 (250,000) 0.50
Options exercised 11/18/99 (250,000) 0.50
Options exercised 11/23/99 (266,000) 0.75
Options pursuant to employment agreement 12/01/99 50,000 1.125 None 11/30/04
Options pursuant to employment agreement 12/01/99 50,000 1.125 None 11/30/04
---------
Total options outstanding at December 31, 1999 3,450,533
=========
Options exercised 01/27/00 (100,000) 0.75
Options pursuant to employment agreements 06/01/00 50,000 0.69 05/30/05 12/31/00
Options pursuant to employment agreements 09/01/00 50,000 0.75 1/3 at each 5 yrs. from
annual vesting
anniversary
Options pursuant to consulting agreement 09/01/00 50,000 0.75 None 08/31/02
Options pursuant to consulting agreement 11/29/00 50,000 1.50 None 11/28/02
Options expired at October 17, 2000 (150,000)
---------
Total options outstanding at December 31, 2000 3,400,533
=========
|
A summary of the status of the Company's stock options and warrants as of
December 31, 1999 and 2000 with changes during the years then ended are
presented below:
CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 10. Stock Warrants and Options (Continued)
Weighted
Average
Exercise
Shares Price
-------------------------
Total warrants and options outstanding at December 31, 1998 4,945,867 $ 1.00
Warrants/options granted 1,527,000 $ 1.26
Warrants/options exercised (849,334) $(0.63)
Warrants/options expired (1,260,000) $(1.00)
------------------------
Total warrants and options outstanding at December 31, 1999 4,363,533 $ 1.16
========================
Warrants and options granted 6,673,884 0.88
Warrants and options exercised (100,000) (0.75)
Warrants and options expired (150,000) (0.75)
------------------------
Total warrants and options outstanding at December 31, 2000 10,787,417 (0.97)
========================
|
The following table summarizes information about stock options and warrants
outstanding at December 31, 1999:
Warrants/Options Outstanding Options Exercisable
-------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
-------------------------------------------------------------------------------------
$0.00 to $0.75 1,450,000 2.24 yrs. $0.64 1,400,000 $0.63
$0.76 to $1.00 8,831,417 2.55 yrs. $0.93 8,831,417 $0.93
$1.01 to $2.00 150,000 3.25 yrs. $1.25 150,000 $1.25
$2.01 to $3.00 323,000 1.18 yrs. $2.96 323,000 $2.96
$5.00 33,000 1.65 yrs. $5.00 33,000 $5.00
---------- --------------------------------
10,787,417 0.97 10,737,417 0.97
========== ================================
|
CHINA PREMIUM FOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 11. Subsequent Events
On March 6, 2001, a sophisticated and accredited investor deposited $250,000
with the Company as consideration for 25,000 shares of Series H convertible
preferred stock to be issued. The Series H convertible preferred stock is
priced at $10.00 per unit. The Series H convertible preferred stock has a
stated value of $10.00 per share and a conversion feature of $0.50 per share
The Series H convertible preferred stock will be issued pursuant to an
exemption to registration provided by Regulation D, Rule 506 and Section
4(2) of the 1933 Act. The gross proceeds of $250,000 are the first tranche
of a total offering of Series H convertible preferred stock having aggregate
gross proceeds of $1,100,000.
On January 2, 2001, the Company hired a new President and Chief Operating
Officer and entered into an employment agreement with him pursuant to which
the Company granted the individual 100,000 shares of its common stock and
options to purchase an additional 400,000 shares of common stock at a per
share price of $0.75.
ITEM 8. CHANGES IN AND DISSAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
FINANCIAL DISCLOSURE
None
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors, executive officers and significant employees/advisors
are as follows. Directors serve for staggered terms of two years or until
their successors are elected.
Name of Officer Position with the Company Year Appointed
--------------- ------------------------- --------------
China Premium Food Corporation
Stanley A. Hirschman Chairman and Director 2000
Roy G. Warren Director and Chief Executive Officer 19971999
John McCormack Director, President & Chief Operating Officer 1997/2000
Michael L. Davis Chief Financial Officer 1997
Susan E. Lurvey Treasurer and Secretary 1997
Arthur W. Blanding Director 1999
Robert Cummings Director 1997
Paul Downes Director 1997
George Holdsworth Director 1997
Robert L. Holz Director 2000
Michael Lucci Director 1998
Phillip Pearce Director 1997
Bravo! Foods, Inc. - US subsidiary
Arthur W. Blanding Chairman and Director 2000
Roy G. Warren Director and Treasurer 1999
Anthony P. Guiliano Director, President & Chief Operating Officer 2000
Stanley A. Hirschman Director 2000
John McCormack Director and Chief Executive Officer 2000/2001
Phillip Pearce Director 2000
China Premium Food Corp (Shanghai) Co., Ltd. - Chinese subsidiary
Stephen Langley Chairman, Director and General Manager 1999
Roy G. Warren Director since December 1999
Anthony P. Guiliano Director since December 1999
|
The experience and background of our executive officers and directors
follows:
Mr. Stanley A. Hirschman - Chairman and Director since September 2000
Mr. Hirschman is president of CPointe Associates, Inc., an executive
management and consulting firm specializing in solutions for emerging
companies with technology-based products.
CPointe was formed in 1996. In addition, he is a director of ObjectSoft
Corp., RetailHighway.com and former chairman of the board of Mustang.com.
Prior to establishing CPointe Associates, Mr. Hirschman was vice president
of operations of Software, Etc., Inc., a retail software chain, from 1989
until 1996. Mr. Hirschman has also held senior management positions with
retailers T.J. Maxx, Gap Stores and Banana Republic.
Mr. Hirschman currently serves on the Executive Committee of our
board of directors and is a director of our US subsidiary Bravo! Foods.
Inc.
Mr. Roy G. Warren - Chief Executive Officer since May 1999; Director since
1997
Mr. Warren serves as our Chief Executive Officer and as a director.
Mr. Warren was in charge of our day to day operations as from 1997 until
the appointment of John McCormack as President and Chief Operating Officer
in December 2000. As Chief Executive Officer, Mr. Warren continues to
develop strategy for our growth and external financial matters.
For 15 years from 1981 through 1996, Mr. Warren was in the securities
brokerage industry. During those years, Mr. Warren acted as executive
officer, principal, securities broker, and partner with brokerage firms in
Florida, most notably Kemper Financial Companies, Alex Brown & Sons and
Laffer Warren & Company. Mr. Warren currently serves on the Executive
Committee of our board of directors.
Mr. Warren also serves as a director of our U.S. subsidiary, Bravo!
Foods, Inc. and our wholly owned Chinese subsidiary, China Premium Food
Corp (Shanghai) Co., Ltd.
Mr. John McCormack - President, Chief Operating Officer since December
2000; Director since 1997
Prior to his appointment as our President and Chief Operating
Officer, Mr. McCormack served as an executive with Dean Foods Co. for over
15 years. Dean Foods is a US national processor and distributor of a full
line of branded and private label products, including fluid milk, cottage
cheese and ice cream. Prior to a 1999 move to the Chicago area for Dean Foods,
Mr. McCormack managed McArthur Dairy in Miami, Florida, a wholly- owned
subsidiary of Dean Foods Co. As a Vice President of Dean Foods, he was in
charge of Dean Food's mid-western division out of Chicago, Illinois.
Mr. McCormack currently serves on the compensation committee of our
board of directors and is a director of our U.S. subsidiary, Bravo! Foods,
Inc.
Mr. Michael L. Davis - Chief Financial Officer since October, 1997
Mr. Davis has been associated with the securities industry over 35
years, as a securities and special situations analyst with ValueLine, and
as a tactical planner, general portfolio manager and short sale portfolio
manager with a number of hedge funds. In 1972, he was a member of the
Investment Committee at Anchor Corp. which supervised its $2.5 billion
family of funds, as well as serving as Anchor's chief market analyst. From
1978 through 1989, Mr. Davis was the portfolio manager of Merrill Lynch's
Special Value Fund. In addition to his position with us, for the past
eight years, Mr. Davis has operated a private consulting firm, M.L. Davis
Financial Services. Mr. Davis advises clients on stock selection and general
market timing considerations. He researches and writes investment reports on
selected small and mid-cap growth companies. In addition. Mr. Davis supervises
an investment portfolio for a group of United Arab Emirates investors.
Mr. Arthur W. Blanding - Director Since November, 1999
Mr. Blanding is president of The Omega Company, an international
dairy industry consulting company. Mr. Blanding has over 50 years
experience in management of dairy processing, sales and strategic planning
consulting. He graduated from Michigan State University in 1956, with a
degree in food science, and in 1964 from Oregon State University with a
degree in Food Microbiology, and attended Harvard Business School.
As President of The Omega Company for the past 20 years, Mr. Blanding
has completed over 200 projects successfully, both in the U.S. and abroad.
Clients of The Omega Company include Abbott International, Cumberland
Farms, Dairy Gold, Farm Fresh, Inc., Haagen Dazs, Labatt, Ross
Laboratories, and Stop & Shop Company, among others. Mr. Blanding was a
consultant for the design and construction of the dairy processing facility
built in Shanghai by Green Food Peregrine. The Omega Company is a party to
a consulting contract with us concerning technical and production issues.
Mr. Blanding also serves as a director and Chairman of our U.S. subsidiary,
Bravo! Foods, Inc.
Mr. Robert J. Cummings - Director Since 1997
Mr. Cummings' work experience includes ten years in purchasing at
Ford Motor Company. In 1975, he founded and currently operates J & J
Production Service, Inc., a manufacturing representative business, which is
currently responsible for over $300 million in annual sales. Mr. Cummings
currently serves on the executive committee of the our board of directors.
Mr. Paul Downes - Director Since 1997
Mr. Downes is a director and, from August of 1997 to April of 1998,
served as our Chairman. For the past 12 years, Mr. Downes has managed his
personal diverse portfolio of international investments with concentration
in the United Kingdom, Eastern Europe, North Africa and Asia. In 1985, he
founded a group of nursing homes for the elderly in Great Britain which he
sold in 1990. Prior to that time, Mr. Downes, spent several years
organizing golf tournaments and international golf matches in Malaysia,
Singapore, Thailand, Philippines, Indonesia and Hong Kong, spending two
years living in Southeast Asia. Mr. Downes is one of our "founders" and
played a leading role in our initial raising efforts. From March of 1999,
Mr. Downes has served as the Chairman of a start up marble quarry company
located in Alabama.
Mr. George Holdsworth - Director Since 1997
From March of 1997 until May, 1998, Mr. Holdsworth was responsible
for the operational aspects of our China operations. Since 1998, Mr.
Holdsworth has managed his personal investment portfolio and has served as
a director and consultant to U.S. Stone Corporation, a start up marble
quarry company located in Alabama.
Mr. Holdsworth is a graduate of the University of London with a B.S.
in Mathematics and an Associate of the London College of Music. He started
in business as a manufacturing manager in Earlsdon Components, Ltd., where
he became Director of Operations, then owner and Managing Director. In
1993, Mr. Holdsworth became owner of Earlsdon Technology, Ltd., a JV
Partner of Shanghai Earlsdon Valve Company, Ltd., and lived in Shanghai for
four years, until May, 1998. Mr. Holdsworth sold his interest in Shanghai
Earlsdon and commenced his duties for us in March, 1997.
Mr. Robert L. Holz - Director since 2000
For the past six years, Mr. Holz has managed a portfolio of private
investments in start up companies under the aegis of Explorer Fund
Management, L.L.C., an entity which he founded in 1994. Prior to 1994, Mr.
Holz held senior management positions in securities related firms such as
Nomura Securities International, Inc., National Investment Services of
America and was a partner in Kidder, Peabody & Co., Inc. Mr. Holz
specializes in identifying and analyzing new business opportunities and
managing resources for goal realization. Mr. Holz currently serves on our
audit committee.
Michael G. Lucci - Director Since 1998
Mr. Lucci is a former All Pro linebacker who played for the Detroit
Lions of the National Football League from 1964 through his retirement from
professional football in 1973. Mr. Lucci became associated with Bally's
Total Fitness Corporation in 1971 and rose through the ranks to become that
corporation's Vice President of club operations in the mid-west, Senior
Vice-President, and President and Chief Operating Officer in 1993. Mr.
Lucci retired in 1996 and, since that time, has managed a diverse
investment portfolio for himself and directed the business of his
construction company in the Detroit MI area. Mr. Lucci serves on the
executive committee of our board of directors.
Mr. Phillip Pearce - Director Since 1997
Mr. Pearce is a "retired" member of the securities industry. Mr.
Pearce served as Chairman of the NASD during which time he was instrumental
in the founding of NASDAQ. Additionally, Mr. Pearce was a former Director
of E.F. Hutton and has served as Governor of the New York Stock Exchange.
Since his retirement in 1988, Mr. Pearce has remained active in the
securities industry as a corporate financial consultant. Mr. Pearce serves
on the compensation committee of our board of directors.
Mr. Pearce also serves on our audit committee and is a director of
our U.S. subsidiary, Bravo! Foods, Inc.
Mr. Stephen Langley - Chairman, Director and General Manager of our wholly
owned Chinese subsidiary, China Premium Food Corp (Shanghai) Co., Ltd. since
October 1999
Mr. Langley's has been in the sales, marketing, and management of the
agribusiness for approximately 22 years. Seventeen of those years have been
with multinational companies, including IBP Inc., a processor of fresh beef
and pork. Mr. Langley was responsible for establishing a market presence
for IBP in China in 1997 for the sales of products imported from IBP-US
which amounted to US$ 250,000 in 1997 and grew to over US $7 million in
1998. Mr. Langley was responsible for the development of business strategy
and directed all sales activities in China for IBP.
Mr. Langley and his family have lived in China continuously for the
last 6 years. He studied Chinese full time for two years from 1993-1995 and
achieved Chinese language Level 3 fluency (Foreign Service scale of 1-5,
with Level 5 equal to native speaker.)
Mr. Anthony P. Guiliano - President and Director of our US subsidiary,
Bravo! Foods, Inc.
Mr. Guiliano has 20 years of experience in senior level marketing and
management positions with consumer products companies, including Dial Co.,
Welch Foods, Kayser-Roth, Cleo, a division of Gibson Greetings, and
Schering-Plough. While with these companies, Mr. Guiliano's
responsibilities included marketing and sales management of branded
consumer products, launching new branded consumer products and negotiating
licensing for product brands, including Looney Tunes(TM), Lion King and
Disney. Prior to his appointment as President and his election Bravo!'s
board in 2000, Mr. Guiliano served as a consultant to us since 1998 for our
China sales and marketing efforts. Mr. Guiliano has been an independent
consumer products sales and marketing consultant since1996 and an employee
of our Bravo! subsidiary since 2000.
As of the date of this prospectus, there have been no family
relationships among the directors and executive officers. Further, no
director, executive officer, promoter or control person has been involved
in any legal proceedings during the past five years that are material to an
evaluation of the ability or integrity of such director, person nominated
to become a director, executive officer, promoter or control person of the
Company. None of the individuals listed in this Item 5 has had a
bankruptcy petition filed by or against any business of which such person
was a general partner or executive officer either at the time of such
bankruptcy, if any, or within two years prior to that time. No director,
executive officer, promoter or control person was or has been convicted in
a criminal proceeding or is subject to a pending criminal proceeding or
subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, borrowing, or otherwise limiting his or her
involvement in any type of business, securities or banking activities. No
director, executive officer, promoter or control person has been found by a
court of competent jurisdiction in a civil action to violate federal or
state securities or commodities law.
ITEM 10. EXECUTIVE COMPENSATION
Summary compensation table
The following table sets forth the compensation paid during the last
three fiscal years to the Company's Chief Executive Officer, and the four
other most highly compensated executive officers whose total 2000 salary
and bonus exceeded $100,000:
------------Annual Compensation------------ -Long-Term Compensation-
Restricted Stock
Name & Position Year Salary Bonus Other Awards and options
Stanley Hirschman 2000 30,000 (partial yr.) 400,000 (1)
Chairman 2001 15,000 (partial yr)
Roy G. Warren 1998 $120,000 410,914 (2)
President & 1999 $120,000
Chief Executive Officer 2000 $180,000 (retroactive
to 1/1/00)
2001 $180,000
John McCormack 2001 $180,000 100,000 shares (3) 900,000 (4)
President &
Chief Operating Officer
Steven Langley 1999 $ 75,000 $30,000 $70,000 (5) 200,000 (6)
General Manager 2000 $ 75,000 $30,000 $70,000 (5) (6)
Chairman (China)
Michael Edwards 2000 $ 55,000 (partial yr.) $65,000 (7) 200,000 (7)
Sales VP 2001 $110,000
Anthony Guiliano 2000 $ 60,000 (partial yr.) $30,000 (8)
President & 2001 $120,000
Chief Operating Officer
Bravo! Foods, Inc.
Charles Beech 1997 510,914
Chairman 1998
Chief Executive Officer 1997-99 $120,000(9)
Paul Downes (9) 1997 1,383,705(10)
Chairman 1998
--------------------
<F1> Incentive bonus options for 400,000 shares of common stock issued in
100,000 share tranches when our stock trades at $2.00, $3.00, $4.00
and $5.00, respectively. Exercise price is the market price at
issue, with a term of three years.
<F2> These options were authorized by a directors' resolution on April 20,
1997. At that time, a market did not exist for our unrestricted
shares, which had a par value of $0.001.
<F3> One time signing bonus in common stock issued pursuant to an S-8
registration statement.
<F4> Signing bonus of 400,000 options at $0.75 per share with 50% vested
at December 31, 2001 and 2002, respectively, with expiration dates
five years from vesting. Incentive bonus options for 500,000 shares
of common stock issued in 100,000 share tranches when stock trades at
$1.00, $2.00, $3.00, $4.00 and $5.00, respectively. Exercise price
is the market price at issue, with a term of five years.
<F5> Includes $48,000 annual allowance for housing in Shanghai, PRC for
Mr. Langley and his family and $22,000 educational expense for family
members.
<F6> Pursuant to October 1, 1999 agreement for five year options (from
vesting) at market as of September 1, 1999, subject to the following
vesting schedule: 50,000 at 9-1-99; 50,000 at 9-1-00; 50,000 at 9-1-
01; 50,000 at 9-1-02.
<F7> $65,000 bonus paid in quarterly installments for one year with review
thereafter. All options have an exercise price at market, when
issued. Options for 50,000 issued as signing bonus on November 27,
2000; 50,000 to be issued on 5-31-01; 50,000 on 5-31-02;and 50,000 on
5-31-03. Options have a five year term from issuance.
<F8> Incentive options for 127,500 shares of common stock of Bravo!. If
exercised now, the common stock underlying these options represents
15% of the issued and outstanding common stock of Bravo!. Mr.
Guiliano receives from $5,000 to $30,000 for each dairy signed to
participate in Bravo!'s Looney Tunes(TM) branded milk production
program, depending upon the size of the dairy. Mr. Guiliano's
compensation is an expense of Bravo!.
<F9> Salary deemed paid to Mr. Beech for expense accounting purposes only.
<F10> These options were granted to Tamarind Management, Ltd., an affiliate
of Mr. Downes.
|
Option grant table 1999 and 2000
Underlying Percentage Per Share Expiration
Name & Position Common of Total Exercise $ Date
1999
----
Stephen Langley 200,000 88.88% market at 5 years from
Chief Operating 12-1-99($1.10) vesting
Officer (China)
Nancy Yuan 25,000 11.12% market at 9-12-04
Chief Financial 12-1-99 ($1.10)
Officer (China)
2000
----
Michael Edwards 50,000 100% market at 5 years from
Sales VP 11-27-00($0.50) vesting
|
Aggregated option exercises in fiscal 1998, 1999 and 2000
None of the named executive officers exercised any stock options
during fiscal 1998,1999 or 2000. The following table provides information
on the value of such officers' unexercised options at December 31, 2000.
Aggregated 1999 and 2000 Fiscal Year End Option Value Table
Securities Underlying Value of "In The Money"
Name & Position Unexercised Options Unexercised Options (1)
--------------- --------------------- -----------------------
Roy G. Warren 410,914 $-0-
Stephen Langley 100,000 (100,000 unexercisable) $-0-
Michael Edwards 50,000 (150,000 unexercisable) $-0-
Nancy Yuan 25,000 $-0-
Charles Beech 510,914 $-0-
Paul Downes (2) 1,383,705 $-0-
--------------------
<F1> On December 31, 1999 and 2000, our unrestricted common stock was
quoted on the NASD Over The Counter Electronic Bulletin Board at a
closing price of $0.81 and $0.2656, respectively; the reported dollar
values represent the "in-the money" value of the options listed as of
each year end.
<F2> These options were granted to Tamarind Management, Ltd., an affiliate
of Mr. Downes.
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Compensation of Directors
Directors were compensated for their travel expenses to and from
board of directors' meetings in 1998, 1999 and 2000. There were four in
person meetings and eleven telephonic meetings of the board in 1998, two in
person meetings and eleven telephonic meetings of the board in 1999 and
three in person meetings and five telephonic meetings of the board in 2000.
Employment contracts
* Stanley Hirschman, Chairman of the Board
The Company has a month-to-month contract with Mr. Hirschman with
monthly compensation set at $7,500 for the six-month period commencing
September 1, 2000. During his employment, Mr. Hirschman also will receive
three year incentive options for an additional 400,000 shares in tranches
of 100,000 as the public trading price for the Company's stock attains
certain pre-determined levels. The exercise price for these options will
track the market price for common stock when granted.
* John McCormack, President and Chief Operating Officer
The Company has a two-year contract with Mr. McCormack commencing
December 1, 2000, at an annual base salary of $180,000. Mr. McCormack will
receive100,000 shares of common stock and options for 400,000 shares at
$0.75 per share as a signing bonus. The options for 400,000 shares vest
50% on December 31, 2001 and 2002, respectively and expire five years from
vesting. During his employment, he also will receive five-year incentive
options for an additional 500,000 shares in tranches of 100,000 as the
public trading price for our stock attains certain pre-determined levels.
The exercise price for these options will track the market price for The
Company's common stock when granted.
* Michael Edwards, our Vice President for Sales
The Company has a three-year contract with Mr. Edwards commencing
June 1, 2000, at an annual base salary of $110,000 plus a $65,000 one-year
bonus, payable quarterly. Mr. Edwards received five-year options for
50,000 shares of common stock at an exercise price of $0.69 per share as a
signing bonus. He also will receive five-year option for an additional
150,000 shares in three annual tranches of 50,000, commencing May 1, 2001.
These additional options will have an exercise prices that track the market
price for the Company's common stock when granted.
* Nancy Yuan, Chief Financial Officer for Chinese operations through
mid 2000 and presently Comptroller for overall US operations
Ms. Yuan has a five-year contract dated December 1, 1999 and
effective September 13, 1999, at a base annual salary of $40,000, with an
annual bonus of $5,000 in the first year. Ms. Yuan's employment agreement
calls for her receipt of one time five-year stock options for 25,000 shares
at an exercise price of $1.12 per share.
* Stephen Langley, Chief Operating Officer (General Manager) of China
Premium (Shanghai), wholly owned Chinese subsidiary
Mr. Langley has a five-year contract dated December 1, 1999 and
effective September 1, 1999, at a base annual salary of $75,000, with a
quarterly bonus of $7,500 in the first year. In subsequent years, Mr.
Langley's bonus is performance based. In addition, Mr. Langley receives a
$48,000 annual housing allowance and a $22,000 education allowance for his
family. Mr. Langley's employment agreement calls for his receipt of five-
year stock options for 200,000 shares at an exercise price of $1.12 per
share. These options are in four equal tranches of 50,000 with vesting over
a three-year period.
* Anthony Guiliano, President and Chief Operating Officer of Bravo!
Foods, Inc.
Mr. Guiliano has a five-year contract with the Company's Bravo!
subsidiary, dated November 2000 and effective July 1, 2000. Mr. Guiliano
receives a base salary of $120,000 plus an annual bonus of $30,000, payable
quarterly, and incentive options for 127,500 shares of the common stock of
Bravo!. If exercised now, the common stock underlying these options
represents 15% of the issued and outstanding common stock of Bravo!. Mr.
Guiliano receives from $5,000 to $30,000 for each dairy signed to
participate in Bravo!'s Looney Tunes(TM) branded milk production program,
depending upon the size of the dairy. Mr. Guiliano's compensation is an
expense of Bravo!. Mr. Guiliano has received three-year options for
250,000 shares of the Company's common stock at $1.00 per share.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our common
stock on of January 31, 2001, as to
* each person known to beneficially own more than 5% of our common
stock
* each of the Company's directors
* each executive officer
* all directors and officers as a group
The following conditions apply to all of the following tables:
* except as otherwise noted, the named beneficial owners have direct
ownership of the stock and have sole voting and investment power
with respect to the shares shown
* the class listed as "common" includes the shares of common stock
underlying our issued convertible preferred stock, options and
warrants
Holders of 5% or more of the Company's common stock follows:
Name & Address of Amount & Nature of Percent
Title of Class Beneficial owner Beneficial Ownership of Class
-------------- ----------------- -------------------- --------
Common Amro International, S.A. 2,903,284 11.5%
P.O. Box 4401
Zurich, Switzerland CH 8022
Common Austinvest Anstalt Balzers 2,802,841 11%
Landstrasse 938
9494 Furstentums
Balzers, Liechtenstein
Common Esquire Trade & Finance Inc. 2,802,841 11%
Trident Chambers
P.O. Box 146
Road Town, Tortola, B.V.I.
Common Mr. Dale Reese 3,157,985 11.7%
125 Kingston Road
Media, PA
Common Paul Downes 24,182 (direct) 0.095%
Tamarind Management Ltd. 2,098,145 (indirect/control) 8.29%
5646 Windrift Lane
Boca Raton, FL 33433
Common Libra Finance, S.A. 1,662,500 6.57%
P.O. Box 4603
Zurich, Switzerland
Common American Flavors China, Inc. 1,531,685 6.05%
Florence & Noam Sender
(principal beneficial owners)
1007 Chestnut Street
Newton, MA 02164
Common stock owned by our directors follows:
Name & Address of Amount & Nature of Percent
Title of Class Beneficial owner Beneficial Ownership of Class
-------------- ----------------- -------------------- --------
Common Paul Downes 24,182 (direct) 0.095%
Tamarind Management Ltd. 2,098,145 (indirect/control) 8.29%
5646 Windrift Lane
Boca Raton, FL 33433
Common Roy G. Warren 717,414 2.83%
1128 Country Club Road
N. Palm Beach, FL 33408
Common Robert Cummings 310,000 1.22%
2829 N.E. 44th Street
Lighthouse Point, FL 33064
Common Michael G. Lucci 210,000 0.83%
49 Spanish River Drive
Ocean Ridge, FL 33435
Common John McCormack 200,000 0.79%
8750 South Grant
Burridge, IL 60521
Common Mr. Arthur W. Blanding 75,811 0.29%
Janesville, WI 53545
Common Phillip Pearce 25,000 0.098%
6624 Glenleaf Court
Charlotte, NC 28270
Common Stanley Hirschman 9,670 0.38%
2600 Rutgers Court
Plano, Texas 75093
Common stock owned by our executive officers follows:
Name & Address of Amount & Nature of Percent
Title of Class Beneficial owner Beneficial Ownership of Class
-------------- ----------------- -------------------- --------
Common Roy G. Warren 717,414 2.83%
CEO/Director
Common John McCormack 200,000 0.79%
President/COO/Director
Common Stephen Langley 70,000 0.27%
Chairman/GM- China
Common Michael L. Davis 25,000 0.098%
Chief Financial Officer
Common Susan Lurvey 12,000 0.049%
Treasurer/Secretary
Common stock owned by our directors
and executive officers as a group 3,777,222 14.9%
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The following is a breakdown of the amount of underlying common stock
the listed holders have the right to acquire within sixty (60) days from
convertible preferred stock, options and warrants. This underlying common
stock has been included as part of the "common stock" listed in the above
tables. For Amro International, S.A., Austinvest Anstalt Balzers, Esquire
Trade & Finance Inc., Libra Finance, S.A., please refer to page 11 of this
prospectus.
Total Equity and Underlying
Holder Rights to Equity Type of Security Common Stock
------ ---------------- ---------------- ------------
Amro International, S.A. 2,903,284 Series D Convertible 456,890
Series F Convertible 778,812
Warrants 1,505,759
Austinvest Anstalt Balzers 2,802,841 Series D Convertible 437,841
Series F Convertible 771,298
Warrants 1,406,759
Esquire Trade & Finance Inc. 2,802,841 Series D Convertible 437,841
Series F Convertible 771,298
Warrants 1,406,759
Mr. Dale Reese 3,157,985 Options 700,000
Tamarind 2,122,327 Series B Convertible 107,440
Management, Ltd. Options 1,383,705
(Mr. Paul Downes)
Libra Finance, S.A. 1,662,500 Warrants 1,662,500
Roy G. Warren 670,414 Options 410,914
Michael L. Davis 25,000 Options 25,000
Steve Langley 70,000 Options 50,000
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There currently are no arrangements that may result in a change of
ownership or control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Loans/Fees
In February, 1997 the Company issued 25,000 shares of common stock in
exchange for 100% of equity interest of Manor Products Corp. Manor was a
Delaware company established on January 10, 1996. In early 1996, 80% of
equity interest of Manor was bought by the principal of the initial
founding entity of the Company. Accordingly, this acquisition was regarded
as a related party transaction.
In January, 1997, the major limited partner of China Peregrine
Enterprises loaned US $200,000 to that limited partnership in order for
China Peregrine Enterprises to meet interim registered capital requirements
of the Green Food Peregrine Articles of Association and Joint Venture
Contract. In March, 1997, three shareholders together provided a loan of
US $1,315,000 to pay China Peregrine Enterprises' final registered capital
requirement to Green Food Peregrine. This last capital contribution was
set by the Board of Directors of Green Food Peregrine as a condition
precedent to the approval of the Company's acquisition of the interest of
China Peregrine Enterprises in and to the
Green Food Peregrine joint venture. These two loans were paid off during
May and June, 1997, utilizing the proceeds from a Rule 504 regulation D
offering.
In March, 1997, a holder of the majority of the partnership interests
in China Peregrine Enterprises, together with two other investors of ours,
assumed a US $1,260,000 outstanding line of credit owed by the limited
partnership to a Tennessee-based financial institution. On March 15, 1997,
the Company issued 1,260,000 shares of its Series B preferred stock to
these shareholders in consideration for this assumption. The line of credit
was paid in full in October, 1997.
In the course of setting up the Hangzhou Meilijian joint venture,
Meilijian contributed fixed assets with a value in excess of its required
capital contribution amount. Based on an agreement signed by the Chinese
and American investors, the excess portion was treated as a fixed asset
loan from Meilijian at an interest rate of 8% per annum. The balance of
this loan at December 31, 1998 was $560,080.
On January 1, 1994, Meilijian provided the use of its trademark,
which was valued at RMB500,000 -approximately US $60,245. This was
recorded this trademark value as a part of deferred assets and a
shareholder loan. We recorded amortization of RMB50,000 -approximately US
$6,025- per year for trademark and paid cash of RMB50,000 to Meilijian per
year against the shareholder loan. The balance of this loan at December
31, 1998 was $36,238. Accumulated interest on these loans amounted to
$81,265.
Relationships
Mr. Paul Downes has investment power with respect to the affairs of
Tamarind Management, Ltd. Accordingly, the Company's securities held by
Mr. Downes and Tamarind have been combined in this document for reporting
purposes. The Downes/Tamarind ownership of issued and underlying shares of
common stock, Series B Preferred Stock and Options represents 8.93% of all
issued and outstanding common stock and shares of common stock underlying
the preferred stock plus unexercised options and warrants.
The Company purchased the assets of China Peregrine Enterprises,
Limited in March of 1997, in exchange for 1,040,000 shares of common stock.
At the time of this asset purchase, Mr. Dale Reese was the major equity
holder in the China Peregrine Enterprises limited partnership and Mr.
Charles Beech controlled the activities of China Peregrine Enterprises by
virtue of his control of China Peregrine International, Inc., the General
Partner of China Peregrine Enterprises. At the time of the asset purchase,
Messrs. Reese and Beech were two of the Company's three directors. As
noted above, through the assumption of a loan in excess of one million
dollars owed by China Peregrine Enterprises to a Tennessee bank, and by
virtue of his position as one of our founders, and through stock purchases,
Mr. Reese presently holds 9.7% of our equity. Mr. Beech, directly and
through Peregrine Enterprises, Inc., presently holds less than 1% of the
Company's equity.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
SEC
Exhibit Reference
No. No. Title of Document
------- --------- -----------------
1a 2 Asset Purchase Agreement China Peregrine Enterprises, Limited (1)
1b 2 Interim Agreement to Operate China Peregrine Project (1)
2a 3(i) Articles of Incorporation (1)
2b 3(i) Amended Articles (name change) (1)
3 3(ii) Restated Bylaws China Peregrine Food Corporation (1)
4a 4 Rights of Equity Holders Common see Articles of Incorporation (1)
4b 4 Preferred, Series A and B Designation (1)
4c 4 Preferred, Series C Designation (1)
4d 4 Preferred, Series D Designation (2)
4e 4 Preferred, Series D Amended (4)
4f 4 Preferred, Series E Designation (3)
4g 4 Preferred, Series F Designation (4)
4h 4 Preferred, Series G Designation (5)
5 10 Material Contracts Green Food Joint Venture Contract (1)
6 10 Material Contracts Hangzhou Meilijian Joint Venture Contract (1)
7a 10 Material Contracts Asset Purchase Agreement (1)
American Flavors China, Inc
7b 10 First Amendment (1-28-98) (1)
7b 10 Second Amendment (6-19-98) (1)
7f 10 Agreement to Form Yangling Mandarin (6)
7g 10 Milk Supply Agreement Hangzhou Meilijian (6)
7h 10 Milk Supply Agreement Huai Nan Dairy (6)
7i 10 Bravo! - Quality Chekd Promotion Agreement (6)
7j 10 Bravo! - Dairy Production Agreement (6)
7k 10 Warner Bros./China Premium License Agreement (7)
7l 10 Warner Bros./China Premium License Agreement (modified) (7)
7m 10 Warner Bros./Bravo! Foods License Agreement (7)
7o 10 Employment Contracts (7)
7p 10 Omega Consulting Contract (7)
7q 10 Lane Cracker Contract (7)
7r 10 Lease: US corporate offices, N.Palm Beach, FL (7)
7s 10 Lease: Langley residence Pudong, Shanghai, PRC (7)
8 21 Subsidiaries Articles of Association Green Food Peregrine (1)
9 21 Subsidiaries Articles of Association Hangzhou Meilijian (1)
9a 21 Subsidiaries Certificate of Incorporation Bravo! Foods, Inc. (6)
9b 21 Subsidiaries Articles of Association (6)
China Premium Food Corporation (Shanghai) Co., Inc.
11 99 Hangzhou Meilijian Audited Financial (4)
Statements, Years Ending December 31,1998 and 1999
--------------------
<F1> Filed with Form 10SB/A First Amendment
<F2> Filed with Form 10QSB for 3-31-99
<F3> Filed with Form 10QSB for 6-30-99
<F4> Filed with Form 10K-SB for 12-31-99
<F5> Filed with Form 10QSB for 6-30-00
<F6> Filed with Form SB-2/A Second Amendment
<F7> Filed with Form SB-2/A Third Amendment
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(b) Reports on Form 8-k During the Last Quarter of 2000:
December 9, 2000 Item 3. Sale of Hangzhoou Meilijian
Item 5. Election of Mr. John McCormack as President and COO
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, China Premium Food Corporation has caused this eport to be signed on
its behalf by the undersigned, thereunder duly authorized, this March 29,
2001.
CHINA PREMIUM FOOD CORPORATION
(Formerly China Peregrine Food Corporation)
By: /S/ Roy G. Warren,
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, China Peregrine
Food Corporation has caused this amended report to be signed on its behalf
by the undersigned in the capacities and on the dates stated.
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Signature Title Date
--------- ----- ----
/S/ Roy G. Warren Chief Executive Officer March 29, 2001
and Director
/S/ Michael L. Davis Chief Financial Officer March 29, 2001
/S/ Susan Lurvey Secretary, Treasurer March 29, 2001
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