<PAGE> 1
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of March 9 , 1998
-----------
Dransfield China Paper Corporation
- --------------------------------------------------------------------------------
(Translation of registrant's name into English)
36-42 Pok Man Street, 2/F, Mongkok, Kowloon, Hong Kong
- --------------------------------------------------------------------------------
(Address of principal executive offices)
[Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.]
Form 20-F X Form 40-F
--- ---
[Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.]
Yes No X
--- ---
[If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule
12g3-2(b):82-_________]
<PAGE> 2
Attached for filing are the unaudited interim financial statements of the
registrant for the nine months ended December 31, 1997.
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.
DRANSFIELD CHINA PAPER CORPORATION
By: /s/ Thomas J. Kenan
--------------------------------
Thomas J. Kenan, Director
Date: March 9, 1998
2
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FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
<PAGE> 4
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES:
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1997 2
Consolidated Statements of Income (unaudited) for the nine months ended
December 31, 1996 and December 31, 1997 3
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended
December 31, 1996 and December 31, 1997 4
Notes to Consolidated Financial Statements 5 - 12
</TABLE>
1
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DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997 AND DECEMBER 31, 1997
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
(unaudited) (unaudited)
Notes 3/31/97 12/31/97 12/31/97
HK$ HK$ US$
ASSETS
<S> <C> <C> <C> <C>
Current assets
Cash and bank balances 3,254 419 54
Accounts receivable, net 21,255 13,043 1,683
Inventories, net 5 12,441 4,223 545
Prepaid expenses 4,359 2,009 259
Due from fellow subsidiaries 6 29,902 54 7
------- ------- ------
Total current assets 71,211 19,748 2,548
Fixed assets 123,161 176,304 22,748
Loan to a related company 7 13,366 14,350 1,852
Deposit for fixed assets 1,011 - -
Deferred tax asset 3 517 517 67
Other assets 200 200 26
------- ------- ------
209,466 211,119 27,241
======= ======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank loans and overdrafts, secured 16,718 5,559 717
Accounts payable 8,050 644 83
Accrued liabilities 7,007 2,924 377
Income tax payable 719 885 114
Due to fellow subsidiaries 6 15,851 1,183 153
Due to a minority shareholder 2,103 - -
------- ------- ------
Total current liabilities 50,448 11,195 1,444
Minority interests 5,101 (1) -
Due to holding company 8 107,286 76,488 9,869
Loan from a related company 7 13,366 14,350 1,852
------- ------- ------
176,201 102,032 13,165
Shareholders' equity:
Common Stock, no par value,
40,000,000 shares authorized;
(3/31/97:9,800,000) 14,250,000 shares issued, 9 3,004 107,091 13,818
and fully paid up
Preferred Stock, no par value,
10,000,000 shares authorized;
Convertible preferred stock - Series A:
(3/31/97:2,300,000) Nil shares issued 26,687 - -
and outstanding
Additional paid-in capital 11 - 862 111
Contributed surplus 1,530 1,530 197
Retained earnings/(accumulated deficits) 2,044 (396) (50)
------- ------- ------
Total shareholders' equity 33,265 109,087 14,076
------- ------- ------
Total liabilities and shareholders' equity 209,466 211,119 27,241
======= ======= ======
The accompanying note form an integal part of these
consolidated financial statements.
2
</TABLE>
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DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
Nine Nine Nine
months months months
Notes ended ended ended
12/31/96 12/31/97 12/31/97
HK$ HK$ US$
<S> <C> <C> <C>
Net sales:
Paper handkerchiefs
- third parties -- 143 18
- fellow subsidiaries 58,976 14,553 1,878
Other paper products to third parties 55,972 32,569 4,202
------------ ------------ ------------
114,948 47,265 6,098
Cost of sales:
Paper handkerchiefs (50,714) (12,638) (1,630)
Other paper products (51,974) (30,666) (3,957)
------------ ------------ ------------
102,688 (43,304) (5,587)
Gross profit 12,260 3,961 511
Commission income 3,978 -- --
Selling, general and administrative expenses
- third parties 11 (9,244) (4,286) (554)
- fellow subsidiaries (3,955) (1,871) (241)
------------ ------------ ------------
(13,199) (6,157) (795)
Interest income 32 5 1
Interest expense (1,583) (491) (63)
------------ ------------ ------------
(1,551) (486) (62)
Other income/(expenses)
- compensation from supplier -- 750 97
- loss on disposal of subsidiaries 4 -- (406) (52)
- corporate promotion expenses 12 -- (644) (83)
- others 97 573 73
------------ ------------ ------------
97 273 35
Income/(loss) before income taxes 1,585 (2,409) (311)
Provision for income taxes 3
- Current (905) (31) (4)
- Deferred (21) -- --
------------ ------------ ------------
(926) (31) (4)
------------ ------------ ------------
Income/(loss) before minority interests 659 (2,440) (315)
Minority interests 319 -- --
------------ ------------ ------------
Net income/(loss) 978 (2,440) (315)
============ ============ ============
Earnings/(loss) per share (cent) 10 98.26 (22.40) (2.89)
============ ============ ============
Shares used in computation of
earnings/(loss) per share 10 995,353 12,882,546 12,882,546
============ ============ ============
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
3
<PAGE> 7
DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
Nine Nine Nine
months months months
ended ended ended
12/31/96 12/31/97 12/31/97
HK$ HK$ US$
<S> <C> <C> <C>
Net cash provided by
operating activities 41,241 14,361 1,853
Cash flows from investing activities:
Acquisition of fixed assets (52,672) (53,143) (6,858)
Acquisition of further interest in a subsidiary -- (5,182) (669)
Proceeds from disposal of subsidiaries -- 674 87
-------- -------- --------
Net cash used in investing activities (52,672) (57,651) (7,440)
-------- -------- --------
Cash flows from financing activities:
Advances from holding company 40,949 47,938 6,186
Repayment of loan to a minority shareholder (3,218) (2,103) (271)
New issue of common stock -- 5,779 746
Bank loans and overdrafts, secured (23,693) (11,159) (1,440)
-------- -------- --------
Net cash provided by financing activities 14,038 40,455 5,221
-------- -------- --------
Net increase/(decrease) in cash and cash equivalents 2,607 (2,835) (366)
Cash and cash equivalents, at beginning
of period 853 3,254 420
-------- -------- --------
Cash and cash equivalents, at end of period 3,460 419 54
======== ======== ========
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
4
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DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Nine Months ended December 31, 1997
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of the management, all adjustments (consisting
of normal recurring accruals) considered necessary for a presentation have
been included. Operating results for the nine months period ended December
31, 1997 are not necessarily indicative of the results that may be expected
for the year ending March 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
March 31, 1997 included in the previous Registration Statement.
2. FOREIGN CURRENCY EXCHANGE
The financial information has been prepared in Hong Kong dollars ("HK$"),
the official currency of Hong Kong. Solely for the convenience of the
reader, the financial statements have been translated into United States
dollars ("US$") prevailing on December 31, 1997 which was US$1.00 =
HK$7.75. No representation is made that the Hong Kong dollar amounts could
have been, or could be, converted into US$ at that rate or any other
certain rate on December 31, 1997.
3. INCOME TAXES
The Company was incorporated in the British Virgin Islands and, under
current law of the British Virgin Islands, is not subject to tax on income
or on capital gains.
Grandom Dransfield (International) and Company Limited and Dransfield Paper
(HK) Trading Limited ("DPT"), wholly-owned subsidiaries of the Company,
were incorporated in Hong Kong and under the current Hong Kong
5
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DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Nine Months ended December 31, 1997
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
3. INCOME TAXES (continued)
tax law, any income arising in and deriving from business carried on in
Hong Kong is subject to Hong Kong tax. No tax is charged on dividends
received and capital gains earned.
Guangzhou Dransfield Paper Limited, a co-operative joint venture formed in
the PRC in which the Company has a 100% interest, and Jiang Ying Dransfield
Paper Co. Ltd. ("JYDP"), an equity joint venture formed in the PRC in which
the Company has a 48% interest, are subject to PRC income taxes at the
applicable tax rate of 33% for Sino-foreign joint venture enterprises.
These two joint ventures are eligible for full exemption from joint venture
income tax for the first two years starting from its first profitable year
of operations followed by a 50% deduction from the third to fifth year.
Under the Income Tax Law applicable to Sino-foreign joint ventures, no PRC
income tax was levied on the above companies as they have not commenced
operation as at December 31, 1997.
Total income tax expense differs from the amount computed by applying Hong
Kong statutory income tax rate of 16.5% (1996: 16.5%) to income before
taxes as follows:
<TABLE>
<CAPTION>
Nine Nine Nine
months months months
ended ended ended
12/31/96 12/31/97 12/31/97
HK$ HK$ US$
<S> <C> <C> <C>
Computed expected income taxes (261) 397 51
Non-deductible losses of subsidiaries (625) (428) (55)
Difference between Hong Kong
statutory rate and Singapore
statutory tax rate (40) - -
------ ------- -----
(926) (31) (4)
====== ======= =====
</TABLE>
The deferred tax asset arises from temporary difference associated with tax
losses carried forward.
6
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DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Nine Months ended December 31, 1997
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
4. ACQUISITION AND DISPOSAL OF SUBSIDIARIES
On March 27, 1997, the Company entered into a sale and purchase agreement
to acquire the remaining 33.3% interest in CS Paper Holdings
(International) Limited, a 66.7% subsidiary of the Company, and certain of
its wholly-owned subsidiaries (collectively the "CSP Group") and to dispose
of Dransfield Paper (S.E.A.) Pte. Limited ("DPSEA") and Central National
Hong Kong Limited ("CN"), subsidiaries in which the group have 66.7% and
34% equity interests, respectively. The consideration for the disposal of
DPSEA was HK$0.001. The consideration for the acquisition of the CSP Group
and the disposal of CN was based on the net book value of the respective
companies as at September 30, 1996.
The amount of consideration payable to the minority shareholder of HK$3,000
was settled in cash during the nine months ended December 31, 1997.
The agreement was conditional on the shareholders of the DHL passing, at an
extraordinary general meeting, an ordinary resolution approving the
agreement and the transactions. The agreement was declared unconditional on
9 May 1997 pursuant to a shareholders resolution.
The above transaction has been accounted for using the purchase method of
accounting. The excess of cost over the fair value of the net assets is
HK$406 (US$52), which is reflected in the Company's statements of income
for the nine months ended December 31, 1997.
5. INVENTORIES, NET
Inventories are comprised of:
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
3/31/97 12/31/97 12/31/97
HK$ HK$ US$
<S> <C> <C> <C>
Raw materials 2,207 2,376 307
Finished goods 11,496 2,601 336
Less: Allowance for obsolescence (1,262) (754) (97)
-------- ------- ------
Inventories, net 12,441 4,223 545
======== ======= ======
</TABLE>
7
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DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Nine Months ended December 31, 1997
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
6. DUE FROM (TO) FELLOW SUBSIDIARIES
Balances with fellow subsidiaries are unsecured, interest-free and
repayable within one year. The Group utilised the banking facilities of
certain fellow subsidiaries and the interest incurred on the banking
facilities were reimbursed by the Group
7. LOANS WITH A RELATED COMPANY
In May 1995, the Company entered into an agreement with a third party,
Broadsino Investment Company Limited ("Broadsino") to establish Dransfield
Broadsino Paper Holdings Limited ("DBPHL"), a company which is 80% owned by
the Company. DBPHL then entered into an agreement to establish a
Sino-foreign equity joint venture company, JYDP, which is 60% owned by
DBPHL and is principally engaged in paper manufacturing. DBPHL has
committed to contribute an amount of US$9.26 million (approximately HK$72
million) to JYDP, to be financed by a shareholders' loan.
The Company, DBPHL and Broadsino entered into a loan agreement whereby the
Company and Broadsino agreed to make an interest-free shareholders' loan of
US$9.26 million (approximately HK$72 million) (the "Shareholders' Loan") to
DBPHL. Pursuant to another agreement, the Company agreed to make a loan of
US$1,852 (approximately HK$14 million) to Broadsino, bearing compound
interest at the rate of 6 percent per annum, to finance its share of the
Shareholders' Loan to DBPHL. DBPHL has pledged all its assets with the
Company and Broadsino for the repayment in full of the Shareholders' Loan.
In addition, DBPHL also undertakes to apply any amounts, including
dividends, which may be distributed by JYDP to it to repay, in full, the
Shareholders' Loan. Broadsino has pledged both its 20 percent shareholding
in DBPHL and any amount it may receive from DBPHL as repayment of its
proportion of the Shareholders' Loan to secure the repayment, in full, of
the loan from the Company. A promissory note has been issued by a wholly
owned subsidiary of Broadsino in favour of the Company.
As at December 31, 1997, the Company advanced HK$14,350 (US$1,852) to
Broadsino for the capital injection in JYDP, which is classified as a loan
to a related company. The same amount of HK$14,350 (US$1,852) is recorded
in the consolidated financial statements a long term loan payable to
Broadsino by DBPHL. The loan to and loan from a related company have no
fixed repayment terms.
8
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DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Nine Months ended December 31, 1997
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
8. DUE TO HOLDING COMPANY
The long term liability balance, which is used to finance the Group's
capital investment, is unsecured and interest-free. The holding company has
agreed that it will not demand payment of the amount prior to April 1,
1999.
9. NUMBER OF SHARES OUTSTANDING
On May 30, 1997, the Company issued 2.3 million shares of common stock to
the holding company on conversion of its 2.3 million shares of Series A
convertible preferred stock and issued an additional one million shares of
common stock to the holding company at US$5 per share on conversion of
HK$38,685 (US$5,000) of the amount due to the holding company.
At December 31, 1997, the aggregate and per share amount of the cumulative
dividends in arrears was HK$1,977 (US$255) and HK$0.86 (US$0.11),
respectively.
In early June 1997, the Company issued 150,000 new shares of common stock
at US$5 per share and is currently in the progress of public offering of
150,000 additional new shares of common stock of the Company at US$5 per
share (based on the market price on that date).
On September 19, 1997, the Company issued one million shares of common
stock to the holding company at US$4.25 per share (based on the market
price on that date) on conversion of HK$32,936 (US$4,250) of the amount due
to the holding company.
9
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DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Nine Months ended December 31, 1997
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
10. EARNINGS/(LOSS) PER SHARE
The earnings per common and common equivalent share for the nine months
ended December 31, 1996 were computed by dividing net income applicable to
common and common equivalent shares by the weighted average number of
995,353 shares of common stock and common stock equivalents outstanding
during the nine months ended December 31, 1996. The 2.3 million shares of
convertible preferred stock has been considered to be the equivalent of
common stock from its issuance on September 4, 1996. Each share of the
preferred stock was converted into one share of common stock on May 30,
1997. The number of shares issuable on conversion of preferred stock was
added to the number of common shares.
The loss per common and common equivalent share for the nine months ended
December 31, 1997 were computed by dividing net loss applicable to common
and common equivalent shares by the weighted average number of 12,882,546
shares of common stock and common stock equivalents outstanding during the
nine months ended December 31, 1997. The net loss applicable to common and
common equivalent shares excludes dividends in arrears amounting to HK$446
(US$57) attributable to the series A convertible preferred stock for the
period from April 1, 1997 to May 30, 1997 (date of conversion to common
stock - see note 9). The conversion of the 2.3 million shares of the series
A convertible preferred stock before May 30, 1997 and the exercise of
warrants and stock options were not assumed in the calculation of loss per
common and common equivalent share because the effect would have been
antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per" ("FAS 128"), which is required to be adopted on
March 31, 1998. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The
impact of FAS 128 on the calculation of earnings per share for the year
ended March 31, 1997 is not expected to be material.
10
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DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Nine Months ended December 31, 1997
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
11. STOCK OPTION
The Company has adopted a stock option plan ("the Plan") since November 20,
1996, which were further amended on May 29, 1997. The Plan provides that
non-transferable option may be granted by the directors to any employee,
director, officer, consultant or advisor of the Company, its corporate
parent, or its subsidiaries. The options are for 4-year terms but may not
be exercised during the first year from date of grant. The exercise price
for each option shall be set by the directors but may not be less than 80
percent of the average or closing price of the Company's Common Stock
during the five trading days prior to the date of grant or, if the Common
Stock is not trading, not less than the net book value per share of the
Company's Common Stock as reflected in the Company's latest balance sheet.
The total number of shares of Common Stock which can be subject to the
options at any time, both under the Plan and otherwise, shall not exceed 10
percent of the number of shares of Common Stock then issued and
outstanding. No person can be granted options which, if fully exercised,
would result in that person's owning more than 25 percent of the aggregate
number of shares issuable under the Plan.
The options of 575,000 shares with an exercise price of US$2.80 per share
remained outstanding on December 31, 1997. The Company accounts for all
options under APB Opinion No. 25 and related interpretations, under which
an amount of HK$862(US$111) representing amortization of stock option
expenses for the nine months period to December 31, 1997 has been charged
to selling, general and administrative expenses with the corresponding
credit being reflected as additional paid in capital.
12. CORPORATE PROMOTION EXPENSES
The Company became a listed company on Nasdaq in April 1997. An amount of
approximately HK$644 (US$83) has been incurred and expended during the nine
months period to December 31, 1997 for corporate expenses incurred in
relation to various expenses associated with reporting, communicating to
shareholders and investors and the maintenance costs associated with the
various compliance filings as required by various authorities.
11
<PAGE> 15
DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Nine Months ended December 31, 1997
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
13. FINANCIAL INSTRUMENTS
The carrying amount of the Company's cash and bank balances approximate
their fair value because of the short maturity of those instruments. The
carrying amounts of the Company's borrowing approximate their fair value
based on the borrowing rates currently available for borrowings with
similar terms and average maturities, except for the loans from holding
company, which, due to their nature, the fair value is not determinable.
14. CONCENTRATION OF RISK
Concentration of credit risk:
The Group's principal activities are distribution of fine paper and paper
handkerchiefs. The Group has long standing relationships with most of its
customers. The Group performs ongoing credit evaluation of its customers'
financial conditions and, generally does not require collateral.
The allowance for doubtful accounts the Group maintains is based upon the
expected collectibility of all accounts receivable.
Current vulnerability due to certain concentrations:
The Group has investments in the PRC. The value of the Group's investment
may be adversely affected by significant political, economic and social
uncertainties in the PRC. Although the PRC government has been pursuing
economic reform policies for the past 18 years, no assurance can be given
that the PRC government will continue to pursue such policies or that such
policies may not be significantly altered, especially in the event of a
change in leadership, social or political disruption or unforeseen
circumstances affecting the PRC's political, economic and social life.
There is also no guarantee that the PRC government's pursuit of economic
reforms will be consistent or effective.
12
