<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 December 30, 1998
Dransfield China Paper Corporation
----------------------------------
(Registrant's name)
8th Floor, North Wing, Kwai Shun Industrial Centre
51-63 Container Port Road, Kwai Chung
New Territories, Hong Kong, China
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(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-_________]
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Attached for filing are the unaudited, interim, consolidated financial
statements of the registrant, Dransfield China Paper Corporation, and its
subsidiaries for the six months ended September 30, 1998.
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: December 30, 1998
2
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES:
Consolidated Balance Sheets as of March 31, 1998 and
September 30, 1998 2
Consolidated Statements of Income (unaudited) for the six months
ended September 30, 1997 and September 30, 1998 3
Condensed Consolidated Statements of Cash Flows (unaudited) for
the six months ended September 30, 1997 and September 30, 1998 4
Notes to Consolidated Financial Statements 5 - 11
</TABLE>
1
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DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998 AND SEPTEMBER 30, 1998
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
(unaudited) (unaudited)
Notes 3/31/98 9/30/98 9/30/98
HK$ HK$ US$
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and bank balances 2,065 240 31
Accounts receivable, net 10,663 2,022 261
Inventories, net 4 2,521 2,033 262
Prepaid expenses 934 1,018 131
Income tax recoverable 61 83 11
------- ------- ------
Total current assets 16,244 5,396 696
Fixed assets 178,434 188,832 24,369
Loan to a related company 5 14,350 14,350 1,852
Deposit for fixed assets 2,049 -- --
Other assets 200 200 26
------- ------- ------
211,277 208,778 26,943
======= ======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 465 192 25
Accrued liabilities 1,219 2,423 312
Due to a minority shareholder 2,452 2,452 316
------- ------- ------
Total current liabilities 4,136 5,067 653
Due to holding company 6 39,182 38,672 4,991
Loan from a related company 5 14,350 14,350 1,852
------- ------- ------
57,668 58,089 7,496
Shareholders' equity:
Common Stock, no par value,
40,000,000 shares authorized;
15,585,000 shares issued, 153,584 153,584 19,820
and fully paid up
Contributed surplus 7 2,714 3,362 434
Accumulated deficit (2,689) (6,257) (807)
------- ------- ------
Total shareholders' equity 153,609 150,689 19,447
------- ------- ------
Total liabilities and shareholders' equity 211,277 208,778 26,943
======= ======= ======
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
2
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DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1998
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
Six Six Six
months months months
Notes ended ended ended
9/30/97 9/30/98 9/30/98
HK$ HK$ US$
<S> <C> <C> <C> <C>
Net sales
Paper handkerchiefs
- third parties 143 -- --
- fellow subsidiaries 14,048 -- --
Other paper products to third parties 23,923 3,389 437
----------- ----------- -----------
38,114 3,389 437
Cost of sales:
Paper handkerchiefs (12,329) -- --
Other paper products (22,849) (3,139) (405)
----------- ----------- -----------
(35,178) (3,139) (405)
Gross profit 2,936 250 32
Selling, general and administrative expenses
- third parties (3,321) (2,514) (324)
- fellow subsidiaries (1,597) (1,304) (168)
----------- ----------- -----------
(4,918) (3,818) (492)
Interest income 4 -- --
Interest expense (311) (3) --
----------- ----------- -----------
(307) (3) --
Other income/ (expenses)
- compensation from supplier 750 -- --
- loss on disposal of subsidiaries (406) -- --
- corporate promotion expenses 8 (644) (11) (1)
- others 672 14 2
----------- ----------- -----------
372 3 1
Loss before income taxes (1,917) (3,568) (459)
Provision for income taxes 3
- Current (51) -- --
- Deferred -- -- --
----------- ----------- -----------
(51) -- --
----------- ----------- -----------
Net loss (1,968) (3,568) (459)
=========== =========== ===========
Basic and diluted net loss per share (cents) (19.79) (22.89) (2.95)
=========== =========== ===========
Shares used in computation of
basic and diluted loss per share 12,195,083 15,585,000 15,585,000
=========== =========== ===========
</TABLE>
The accompanying notes form an integral part of
these consolidated financial statements.
3
<PAGE> 6
DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1998
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
Six Six Six
months months months
ended ended ended
9/30/97 9/30/98 9/30/98
HK$ HK$ US$
<S> <C> <C> <C>
Net cash provided by operating activities 15,999 180 23
Cash flows from investing activities:
Acquisition of fixed assets (38,693) (1,486) (192)
Acquisition of further interest in a subsidiary (5,182) -- --
Proceeds from disposal of subsidiaries 674 -- --
------- ------- -------
Net cash used in investing activities (43,201) (1,486) (192)
------- ------- -------
Cash flows from financing activities:
Advances from holding company 33,330 -- --
Repayment of loan to holding company -- (519) (67)
Repayment of loan to a minority shareholder (2,103) -- --
New issue of common stock 5,779 -- --
Bank loans and overdrafts, secured (6,555) -- --
------- ------- -------
Net cash provided by financing activities 30,451 (519) (67)
------- ------- -------
Net (decrease) in cash and cash equivalents 3,249 (1,825) (236)
Cash and cash equivalents, at beginning
of period 3,254 2,065 267
------- ------- -------
Cash and cash equivalents, at end of period 6,503 240 31
======= ======= =======
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
4
<PAGE> 7
DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
1. BASIS 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 six months period ended September
30, 1998 are not necessarily indicative of the results that may be expected
for the year ending March 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
March 31, 1998 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 September 30, 1998 which was US$1.00 =
HK$7.749. No representation is made that the Hong Kong dollar amounts could
have been, or could be, converted into US$ at that rate or any other
certain rate on September 30, 1998.
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 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.
5
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DRANSNSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
3. INCOME TAXES (continued)
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 September 30, 1998.
Total income tax expense differs from the amount computed by applying Hong
Kong statutory income tax rate of 16% (1997: 16.5%) to income before taxes
as follows:
<TABLE>
<CAPTION>
Six months Six months Six months
ended ended ended
9/30/97 9/30/98 9/30/98
HK$ HK$ US$
<S> <C> <C> <C>
Computed expected income taxes 316 571 74
Non-deductible losses of subsidiaries (367) (201) (26)
Valuations allowance -- (370) (48)
---- ---- ----
(51) -- --
==== ==== ====
</TABLE>
Deferred tax asset is comprised of the following :
<TABLE>
<CAPTION>
(unaudited) (unaudited)
3/31/98 9/30/98 9/30/98
HK$ HK$ US$
<S> <C> <C> <C>
Tax losses carried forward 648 1,018 131
Valuations allowance (648) (1,018) (131)
------ ------ ------
-- -- --
====== ====== ======
</TABLE>
6
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DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Six Months ended September 30, 1998
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
4. INVENTORIES, NET
Inventories are comprised of:
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
3/31/98 9/30/98 9/30/98
HK$ HK$ US$
<S> <C> <C> <C>
Raw materials 2,053 1,585 204
Finished goods 1,571 1,547 200
Less: Allowance for obsolescence (1,103) (1,099) (142)
------ ------ ------
Inventories, net 2,521 2,033 262
====== ====== ======
</TABLE>
5. 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.
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DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Six Months ended September 30, 1998
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
5. LOANS WITH A RELATED COMPANY (Continued)
As at September 30, 1998, 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 as long term loan payable to
Broadsino by DBPHL. The loan to and loan from a related company have no
fixed repayment term.
6. 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 October 1,
1999.
7. CONTRIBUTED SURPLUS
The amount represents a net compensation of HK$1,530 (US$198) from a
minority shareholder, which was accounted for as a capital transaction in
1997, and stock compensation expenses of HK$1,184 (US$153) recognised for
the year ended March 31, 1998, and HK$648 (US$83) recognised for the six
months ended September 30, 1998.
8. CORPORATE PROMOTION EXPENSES
The Company became a listed company on Nasdaq in April 1997. An amount of
approximately HK$11 (US$2) has been incurred and expended during the six
months period to September 30, 1998 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.
8
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DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Six Months ended September 30, 1998
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
9. LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share". In accordance with this statement, the
Company changed the method previously used to compute net income/loss per
share and restated all prior periods presented.
Basic net income/loss per share is computed using the weighted average
number of common shares outstanding during the periods. Diluted net
income/loss per share is computed using the weighted average number of
common and potentially dilutive common shares during the periods, except
those that are antidilutive.
The basic net loss per share for the six months ended September 30, 1997
and 1998 were computed by dividing net loss applicable to common stock,
including the cumulative dividends in arrears (note 10), by the weighted
average number of 12,195,083 and 15,585,000 shares of common stock,
respectively, which were outstanding during the two years on the assumption
that the 9.3 million shares of common stock issued to DHL upon the
effectiveness of the merger had existed at April 1, 1996.
The effect of employee stock options, warrants and the preferred stock
outstanding during the two periods is anti-dilutive.
10. PREFERRED STOCK
The holders of the Series A convertible preferred stock are entitled to
receive, out of surplus, a cumulative dividend at the rate of US$0.15 per
share per annum and, after the payment of this dividend, they are entitled
to participate in dividends set apart or paid on other capital stock of the
Company on the same basis as the holders of the Company's common stock. In
case of liquidation of the Company, these preferred stock holders shall be
entitled to receive US$1.50 for each share of the Series A convertible
preferred stock before any distribution of the assets of the Company to
other capital stock holders, plus all accrued and unpaid dividends declared
hereon and other considerations before the other capital stockholders share
in the liquidation of the assets. This class of preferred stock is
convertible at the option of the holders into one share of common stock of
the Company and has equal voting rights with the common stockholders.
9
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DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Six Months ended September 30, 1998
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
10. PREFERRED STOCK (Continued)
The 2.3 million shares of the Series A convertible preferred stock were
converted to 2.3 million shares of common stock on May 30, 1997.
Up to May 30,1997 , the aggregate amount of the dividends in arrears for
the six months ended September 30, 1997 was HK$446 (US$58). There is no
dividends in arrears in respect of these preferred stock for the six months
ended September 30, 1998.
11. 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 amount 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.
12. 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.
10
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DRANSFIELD CHINA PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Six Months ended September 30, 1998
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
12. CONCENTRATION OF RISK (Continued)
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.
11