UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________
Commission File Number ______________
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3993618
- --------------------------------------------- ---------------------------------
(State or other jurisdiction of incorporation (I.R.S Employer Identification
or organization) Number)
575 Lexington Avenue, Suite 410, New York, New York 10022
- --------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(212) 572-9612
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15d of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
7,596,936 common shares, $.01 par value, were outstanding as of July 31, 1998.
- -----------
<PAGE>
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated condensed financial statements:
Balance sheets
Statements of operations
Statements of shareholders' equity
Statements of cash flows
Note to consolidated condensed financial statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. OTHER INFORMATION
<PAGE>
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(US dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
---- ----
(unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents..................................................... $ 4,723 $ 5,911
Trade receivables, net of allowance of $67 and $128, respectively............. 719 192
Other assets.................................................................. 366 5,152
Inventories................................................................... 97 48
Property and equipment, net................................................... 1,363 1,209
Revenue earning equipment, net................................................ 31,488 30,008
Taxi licenses, net............................................................ 12,093 11,945
Construction-in-progress...................................................... 2,321 2,335
Organization costs, net....................................................... 847 877
Deposit....................................................................... 1,937 1,932
------ ------
$55,954 $59,609
======= =======
Liabilities and Shareholders' Equity
Liabilities:
Bank loans................................................................. $ 3,776 $ 2,861
Notes payable (Note 2)..................................................... 4,320 320
Trade payables............................................................. 1,619 153
Other payables............................................................. 3,522 3,954
Due to directors........................................................... 286 120
Due to affiliates.......................................................... 6,220 4,979
Due to minority shareholders, net.......................................... 19 19
Deferred revenue........................................................... 2,983 2,451
Accrued expenses........................................................... 476 120
Income tax payable......................................................... 883 1,303
Deferred income taxes...................................................... 102 255
------ ------
Total liabilities............................................... 24,206 16,535
------ ------
Minority interest............................................................. 1,567 2,397
======= =======
Shareholders' equity (Notes 2 & 4):
Common stock, $.01 par value - authorized 50,000,000
shares; issued and outstanding 6,041,573 shares at
December 31, 1997 and 7,596,396 shares at June 30, 1998................. 60 76
Additional paid-in capital................................................. 12,665 17,761
Retained earnings.......................................................... 17,050 22,470
Accumulated other comprehensive income - foreign currency
translation adjustments................................................. 406 370
------ ------
Total shareholders' equity...................................... 30,181 40,677
------ ------
$55,954 $59,609
======= =======
See accompanying note to consolidated condensed financial statements.
</TABLE>
<PAGE>
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(US dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1997 1998 1997 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue, net........................................ $2,429 $5,990 $4,745 $11,151
------ ------ ------ -------
Expenses:
Depreciation of revenue earning equipment........ 445 969 889 1,867
Amortization of taxi licenses.................... 73 67 132 134
Other operating expenses......................... 369 1,100 848 2,337
Interest expense, net of interest income......... 195 163 309 415
------ ------ ------ -------
Total expenses.............................. 1,082 2,299 2,178 4,753
------ ------ ------ -------
Income before provision for income tax and
minority interest................................ 1,347 3,691 2,567 6,398
Provision for income tax............................ 110 367 211 568
------ ------ ------ -------
Income before minority interest..................... 1,237 3,324 2,356 5,830
------ ------ ------ -------
Minority interest................................... 46 217 85 410
------ ------ ------ -------
Net income.......................................... 1,191 3,107 2,271 5,420
Other comprehensive income net of tax -
foreign currency translation adjustments......... - (38) 1 (36)
------ ------ ------ -------
Comprehensive income................................ $1,191 $3,069 $2,272 $5,384
====== ====== ====== ======
Net income per common share:
Basic............................................ $ .20 $ .42 $ .38 $ .80
Diluted.......................................... .20 .42 .38 .74
====== ====== ====== ======
Weighted average common shares
outstanding:
Basic ........................................ 6,042 7,477 6,042 6,771
Diluted....................................... 6,042 7,477 6,042 7,430
===== ===== ===== =====
See accompanying note to consolidated condensed financial statements.
</TABLE>
<PAGE>
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(US dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
other
comprehensive
income-foreign
Additional currency Total
Common Stock paid-in Retained translation shareholders'
Shares Amount capital earnings adjustments equity
------------------------- ------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998........ 6,041,573 $60 $12,665 $17,050 $406 $30,181
Issuance of shares for consulting
services (unaudited) (Note 4). 7,500 -- 33 -- -- 33
Issuance of shares for liquidated
damages under financing
agreement (unaudited)
(Note 2(a))................... 17,268 1 163 -- -- 164
Issuance of shares with respect to
conversion of promissory notes
(unaudited) (Note 2(b))....... 1,324,345 13 4,227 -- -- 4,240
Issuance of shares in connection
with private placement during
May 1998, net of issuance costs
(unaudited) (Note 4).......... 206,250 2 673 -- -- 675
Foreign currency translation
adjustments (unaudited)....... -- -- -- -- (36) (36)
Net income (unaudited).......... -- -- -- 5,420 -- 5,420
---------- ------- ------- ------- ------- -------
Balance, June 30, 1998
(unaudited)................... 7,596,936 $76 $17,761 $22,470 $370 $40,677
========= ======= ======= ======= ======= =======
See accompanying note to consolidated condensed financial statements.
</TABLE>
<PAGE>
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(US dollars in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1998
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................... $ 2,271 $ 5,420
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of property, equipment and revenue
earning equipment.................................................... 1,000 1,947
Amortization of taxi licenses........................................... 132 134
Minority interest....................................................... 85 830
Amortization of organization costs...................................... 18 211
Deferred income tax..................................................... (75) 153
Exchange adjustment..................................................... - 10
Loss (gain) on disposal of fixed assets................................. (1) 63
Changes in assets and liabilities:
(Increase) decrease in trade and other receivables................... (1,612) 687
(Increase) decrease in inventories................................... (60) 49
(Decrease) increase in trade and other payables...................... (337) (960)
Increase in accrued expenses......................................... 35 (159)
Increase in income tax payable....................................... 251 420
(Decrease) increase in deferred income............................... 876 (532)
----- -----
Net cash provided by operating activities......................... 2,583 8,273
----- -----
Cash flow from investing activities:
Acquisition of property, and equipment and revenue earning equipment......... - (522)
Proceeds from sale of property, equipment and revenue earning equipment...... 33 20
Organization costs........................................................... (70) (241)
Prepayment for acquisition of revenue earning equipment...................... - (4,944)
----- -----
Net cash used in investing activities............................. (37) (5,687)
----- -----
Cash flows from financing activities:
Borrowing on bank loans...................................................... 602 -
Repayments of bank loans..................................................... (179) (710)
Repayments of amount due to affiliates....................................... (3,214) (1,363)
Proceeds from issuance of common stock, net.................................. - 675
------ -------
Net cash used in financing activities............................. (2,791) (1,398)
------ -------
Net increase (decrease) in cash and cash equivalents............................ (245) 1,188
Cash and cash equivalents, beginning of period.................................. 1,259 4,723
------ -------
Cash and cash equivalents, end of period........................................ $ 1,014 $ 5,911
======= =======
See accompanying note to consolidated condensed financial statements.
</TABLE>
<PAGE>
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(US dollars in thousands) (unaudited)
1. Basis of Presentation --
The consolidated condensed interim financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading.
These statements reflect all adjustments, consisting of normal
recurring adjustments which, in the opinion of management, are necessary for
fair presentation of the information contained therein. It is suggested that
these consolidated condensed financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's annual
audited financial statements for the year ended December 31, 1997 and its
unaudited financial statements for the three months ended March 31, 1998
included in its Form S-1 prospectus dated June 29, 1998 which was declared
effective by the Securities and Exchange Commission on June 30, 1998. Such
financial statements include a detailed description of (i) the reverse
acquisition of Dawson Science Corporation ("Dawson") by Shenzhen Jinzhenghua
Transport Industrial Development Co. Ltd. during March 1997, and (ii) Dawson's
plan of reorganization which was approved during June 1998. The Company follows
the same accounting policies in preparation of interim reports.
Results of operations for the interim periods are not indicative of
annual results.
2. Notes Payable --
Notes payable consist of the following:
<TABLE>
<CAPTION>
Year ended December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
Principal Interest rate Maturity Collateral
- --------------------- --------------------- -------------------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
$ 320 8.0% 4/02/98 (a)
500 12.0 3/18/98 (b)
1,500 12.0 3/29/98 (b)
2,000 12.0 5/02/98 (b)
- --------------------- --------------------- -------------------------- ---------------- ---------------------
$4,320
- -------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1998 (unaudited)
- ----------------------------------------------------------------------------------------------------------------
Principal Interest rate Maturity Collateral
- --------------------- --------------------- -------------------------- ---------------- ---------------------
$320 8.0% 4/02/98 (in default) (a)
- -------------------------------------------------------------------------------------------------------------------
- ---------------
(a) On July 3, 1997, the Company entered into a financing agreement which
provides for borrowings of up to $1,000. Advances are payable monthly.
The loan is collateralized by the Company's inventory, equipment and
machinery, existing or acquired. The balance outstanding at December
31, 1997 and June 30, 1998 was $320. The balance was due April 2, 1998
and is in default.
</TABLE>
<PAGE>
Under the terms of the agreement, if the Company did not file a
registration statement with the Securities and Exchange Commission
declared effective by October 2, 1997, certain shares of common stock
were due the lender as liquidated damages. As of December 31, 1997,
these shares had not been issued but the liability for such issuance
was included in accrued expenses at December 31, 1997. The Company
issued 17,268 shares as liquidated damages on March 31, 1998.
(b) On September 19, September 30 and November 3, 1997, the Company issued
convertible promissory notes to three entities. Interest accrues at
12% per annum and is payable monthly. At any time after the maturity
date and prior to repayment of all amounts due, the notes, at the
option of the holders, were convertible into shares of the Company's
common stock equal to an amount determined by formula, as defined, in
the agreement. The notes were collateralized by 1,000,000 shares of
common stock pledged personally by a principal shareholder. On March
31, 1998, upon default under these notes due to non-payment of
interest and principal, the holders opted to convert such debt
($4,000) and accrued interest ($240) into shares of the Company's
common stock. Accordingly, under the terms of the three agreements,
1,324,345 shares of common stock were issued in settlement of such
obligations.
3. Contractual Obligations --
The Company contracted with a building contractor in 1996 to construct the
group's hotel in Hunan, PRC. The budgeted costs of the whole project are
estimated to be $4,073. The Company has also contracted with a car manufacturing
company in early 1998 to purchase two thousand cars for rental business
purposes. The contracted amount is $31,366. At June 30, a deposit of $4,944 for
acquisition of such cars is included in other assets.
4. Shareholders' Equity --
On March 31, 1998, the Company issued 7,500 shares to a consultant as
consideration for provision of consulting services. The Company is presently
negotiating an agreement with such consultant to provide consulting services for
$9 monthly.
During May 1998, the Company issued, for an aggregate of $750 (less
issuance costs of $75), 206,250 shares of common stock and warrants to purchase
an aggregate of 220,000 shares of common stock to certain private investors.
<PAGE>
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
General
The Company, through its 92%-owned subsidiary, Shenzhen Jinzhenghua
Transport Industrial Development Co., Ltd. ("Jinzhenghua Transport"), primarily
operates a group of transportation related businesses (the "Transportation
Businesses"). The Transportation Businesses are comprised of the automobile
rental business (the "Rental Business"), the taxi business (the "Taxi Business")
and the automobile repair services business (the "Repair Business"). All the
Company's operations are located in China. Jinzhenghua Transport also has been
developing a hotel in a resort town in Hunan Province, which is scheduled to
commence operations in early 1999.
In 1986, Wu Zhi Jian ("Mr. Wu") organized Shenzhen Zhenghua Group Co.
Ltd. (the "Zhenghua Group") to own and operate a diversified group of
businesses. In 1988, Jinzhenghua Transport, an affiliate of the Zhenghua Group,
established a transportation business. The transportation business began with
the acquisition of taxi licenses in the first auction of such licenses in 1988
in Shenzhen, China. Jinzhenghua Transport has continued to acquire taxi licenses
and expand its taxi business into other cities and provinces.
In 1994, Jinzhenghua Transport expanded its transportation business to
include automobile repair services in Shenzhen.
In 1997, Jinzhenzhua Transport further expanded its transportation
business to include automobile rental services in Jiangxi Province, Guangdong
Province, Jiangsu Province and Shaanxi Province.
The Company does not have any operating business, other than the
businesses operated through Jinzhenghua Transport.
On a consolidated basis, revenue, net, increased from $4,745,000 in the
six months ended June 30, 1997 to $11,151,000 in the six months ended June 30,
1998. Net income increased from $2,271,000 in the six months ended June 30, 1997
to $5,420,000 in the six months ended June 30, 1998.
The Rental Business, which began operations in August 1997, accounted
for $2,636,000, or 21.0%, of the Company's total revenue, net, in 1997 and
$6,261,000, or 56.2%, of the Company's total revenue, net, in the six months
ended June 30, 1998. At September 30, 1997, December 31, 1997, March 31,1998 and
June 30, 1998, the Rental Business had deployed 370, 570, 1,218 and 1,218
automobiles, respectively. The Company's average purchase price for each
automobile deployed in the Rental Business during 1997 and the six months ended
June 30, 1998 was $19,432 and $19,757, respectively; the average depreciation
and other operating expenses for each such automobile during 1997 and the six
months ended June 30, 1998 was $1,381 and $1,402, respectively; and the average
revenue, net, from each such automobile during 1997 and the six months ended
June 30, 1998 was $4,625 and $5,140, respectively. The Rental Business
contributed 27.2%, or $1,814,000, to the Company's $6,680,000 of total income
before provision for income tax and minority interest in 1997 and 61.4%, or
$4,494,000, to the Company's $6,398,000 total income before provision for income
tax and minority interest in the six months ended June 30, 1998.
<PAGE>
The Taxi Business accounted for 37.1% of the Company's total revenue,
net, in the six months ended June 30, 1998. At December 31, 1995, 1996 and 1997
and June 30, 1998, the Taxi Business had deployed 678, 678, 728 and 728 taxi
cabs, respectively. An amount equal to the sum of the Company's average purchase
price for each taxi license plus the average purchase price for each automobile
deployed in the Taxi Business during 1997 and the six months ended June 30, 1998
was $18,379 and $18,357, respectively, and $19,200 and $20,412, respectively;
the depreciation, amortization and other operating expenses for each such taxi
during 1997 and the six months ended June 30, 1998 was $4,277 and $2,011,
respectively; and the average revenue, net, from each such taxi during 1997 and
the six months ended June 30, 1998 was $11,573 and $5,690, respectively. The
Taxi Business contributed $2,494,000 to income before provision for income tax
and minority interest in the six months ended June 30, 1998, representing 34.1%
of the Company's total income before provision for income tax and minority
interest in the six months ended June 30, 1998.
The Repair Business accounted for 6.7% of the Company's total revenue,
net, and 4.6% of the Company's total income before provision for income tax and
minority interest in the six months ended June 30, 1998.
The Company's only operations besides the Rental Business, the Taxi
Business and the Repair Business relate to the hotel being developed in Hunan
Province, in respect of which neither revenue nor expenses were recorded through
June 30, 1998.
In 1997 and the six months ended June 30, 1998, the Company's income
before provision for income tax and minority interest reflects $822,000 and
$754,000, respectively, of accounting, legal and other professional and advisory
expenses that related primarily to the Company's reorganization.
During the six months ended June 30, 1998, the Company had interest
expense, net of interest income, of $415,000 which reflected interest expense of
$424,000 and interest income of $9,000.
The Company plans to continue to expand the Rental Business as rapidly
as the Company's capital resources permit. The Company plans to continue to
expand the Taxi Business through selective acquisitions in certain cities. The
Company plans to expand the Repair Business as necessary to accommodate the
expansion of the Rental Business and Taxi Business.
The Company enjoys preferential tax treatment as a result of its
location in Shenzhen, a Special Economic Zone. Enterprises in Shenzhen are
subject to an income tax rate of 15%, compared with the standard enterprise
income tax rate in China of 33%. In addition, enterprises in the transportation
service industry have a 100% income tax credit for the first year in which they
have a profit, and a 50% income tax credit for the second and third years.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1997 Compared With Three Months Ended June 30, 1998
Three Percentage Three Percentage
Months of Months of
Ended June Revenue, Ended June Revenue,
30, 1997 Net 30, 1998 Net
---------- ----- ---------- ----
<S> <C> <C> <C> <C>
Revenue, net..................................... $2,429,000 100.0% $5,990,000 100.0%
Total expenses................................... 1,082,000 44.6 2,299,000 38.4
Income before provision for income tax 1,347,000 55.4 3,691,000 61.6
and minority interest......................
Income before minority interest.................. 1,237,000 50.9 3,324,000 55.5
Net income....................................... 1,191,000 49.0 3,107,000 51.9
</TABLE>
Revenue, net, was $5,990,000 in the three months ended June 30, 1998,
an increase of 146.6% from $2,429,000 in the three months ended June 30, 1997.
The increase was primarily due to the contribution of $3,491,000 in the 1998
period from the new Rental Business. The Taxi, Rental and Repair Businesses
contributed 35.3%, 58.3% and 6.4%, respectively, to revenue, net, in the 1998
period, compared with 85.6%, 0% and 14.4%, respectively, in the 1997 period.
Revenue, net, from the Taxi Business increased to $2,117,000 in the 1998 period
from $2,080,000 in the 1997 period, a 1.8% increase. The increase was primarily
due to $95,000 of revenue from the expanded Taxi Business in Ganzhou. Revenue,
net, from the Repair Business was $382,000 in the 1998 period, from $349,000 in
the 1997 period, a 9.5% increase.
Total expenses were $2,299,000 in the three months ended June 30, 1998,
an increase of $1,217,000, or 112.5%, from $1,082,000 in the three months ended
June 30, 1997. The increase was comprised of $524,000 of depreciation of revenue
earning equipment and $731,000 of other operating expenses offset by $32,000 of
net interest expense and $6,000 of amortization of taxi licenses. The increase
in depreciation of revenue earning equipment was primarily due to $488,000 of
depreciation on rental cars related to the new Rental Business and to a $32,000
increase in depreciation of new taxis. The decrease in net interest expense was
primarily due to a decrease in new bank loans. The increase in other operating
expenses was primarily due to $488,000 of other operating expenses related to
the new Rental Business, which commenced operations in August 1997, and $295,000
of accounting, legal and other professional and advisory expenses related to the
Company's reorganization (see "General" above). The increase in other operating
expenses was offset, in part, by an operating expense reduction of $52,000
related mainly to decreases in certain taxi regulation fees, road maintenance
charges and insurance. The Rental, Taxi and Repair Businesses contributed 46.3%,
54.2% and - 0.5%, respectively, to total depreciation and amortization in the
1998 period, compared to 0%, 96.7% and 3.3%, respectively, in the 1997 period.
The negative percentage of contribution from the Repair Business to total
depreciation and amortization was a result of overstatements of depreciation
deductions in previous years and, thus, a corresponding adjustment has been made
in this quarter.
Income before provision for income tax and minority interest was
$3,691,000 in the three months ended June 30, 1998, an increase of 174.0% from
$1,347,000 in the three months ended June 30, 1997. The Rental, Taxi and Repair
Businesses contributed 67.4%, 36.0% and 5.5%, respectively, to total income
before provision for income tax and minority interest in the 1998 period,
compared with 0%, 90.6% and 12.0%, respectively, in the 1997 period. The
increase in income before provision for income tax and minority interest is
primarily attributable to income from the Company's new Rental Business, income
generated from additional taxi cabs in Ganzhou, as well as reductions in
operating expenses associated with the Taxi Business. The increase in income
before provision for income tax and minority interest was partially offset by
increases in operating expenses associated with the Repair Business.
<PAGE>
Income before provision for income tax and minority interest as a percentage of
revenue, net, did not change materially from the 1997 period to the 1998 period.
Provision for income tax was $367,000 in the three months ended June
30, 1998 (9.9% of income before provision for income tax and minority interest),
compared with $110,000 in the three months ended June 30, 1997 (8.2% of income
before provision for income tax and minority interest).
The increase was primarily a result of increased taxable income.
Minority interest was $217,000 in the three months ended June 30, 1998,
an increase of 371.7% from $46,000 in the three months ended June 30, 1997,
which reflects the fact that the Company entered into new joint venture projects
in 1997.
As a result of the foregoing, net income was $3,107,000 in the three
months ended June 30, 1998, an increase of 160.9% from $1,191,000 in the three
months ended June 30, 1997.
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 Compared With Six Months Ended June 30, 1998
Percentage Percentage
Six Months of Six Months of
Ended June Revenue, Ended June Revenue,
30, 1997 Net 30, 1998 Net
---------- ----- --------- ----
<S> <C> <C> <C> <C>
Revenue, net..................................... $4,745,000 100.0% $11,151,000 100.0%
Total expenses................................... 2,178,000 45.9 4,753,000 42.6
Income before provision for income tax 2,567,000 54.1 6,398,000 57.4
and minority interest......................
Income before minority interest.................. 2,356,000 49.7 5,830,000 52.3
Net income....................................... 2,271,000 47.9 5,420,000 48.6
</TABLE>
Revenue, net, was $11,151,000 in the six months ended June 30, 1998, an
increase of 135.0% from $4,745,000 in the six months ended June 30, 1997. The
increase was primarily due to the contribution of $6,261,000 in the 1998 period
from the new Rental Business. The Taxi, Rental and Repair Businesses contributed
37.1%, 56.2% and 6.7%, respectively, to revenue, net, in the 1998 period,
compared with 84.8%, 0% and 15.2%, respectively, in the 1997 period. Revenue,
net, from the Taxi Business increased to $4,142,000 in the 1998 period from
$4,025,000 in the 1997 period, a 2.9% increase. The increase was primarily due
to $177,000 of revenue from the expanded Taxi Business in Ganzhou. Revenue, net,
from the Repair Business was $748,000 in the 1998 period, from $720,000 in the
1997 period, a 3.9% increase.
Total expenses were $4,753,000 in the six months ended June 30, 1998,
an increase of $2,575,000, or 118.2%, from $2,178,000 in the six months ended
June 30, 1997. The increase was comprised of $978,000 of depreciation of revenue
earning equipment, $106,000 of net interest expense, $2,000 of amortization of
taxi licenses and $1,489,000 of other operating expenses. The increase in
depreciation of revenue earning equipment was primarily due to $939,000 of
depreciation on rental cars related to the new Rental Business and to an $68,000
increase in depreciation of new taxis. The increase in net interest expense was
primarily due to an increase in new bank loans. The increase in other operating
expenses was primarily due to $769,000 of other operating expenses related to
the new Rental Business, which commenced operations in August 1997, $754,000 of
accounting, legal and other professional and advisory expenses that related to
the Company's reorganization (see "General" above), $35,000 increase in
advertising and promotion costs, and to a $71,000 increase in other operating
<PAGE>
expenses relating to the Repair Business, primarily associated with a $42,000
increase in the provision for bad debts. The increase in other operating
expenses was offset, in part, by a $44,000 reversal in bad debts provision, and
to an operating expense reduction of $115,000 related mainly to decreases in
certain taxi regulation fees, road maintenance charges and insurance. The
Rental, Taxi and Repair Businesses contributed 45.1%, 54.2% and 0.7%,
respectively, to total depreciation and amortization in the 1998 period,
compared to 0%, 96.5% and 3.5%, respectively, in the 1997 period.
Income before provision for income tax and minority interest was
$6,398,000 in the six months ended June 30, 1998, an increase of 149.2% from
$2,567,000 in the six months ended June 30, 1997. The Rental, Taxi and Repair
Businesses contributed 70.2%, 39.0%, and 5.2%, respectively, to total income
before provision for income tax and minority interest in the 1998 period,
compared with 0%, 88.0% and 13.5%, respectively, in the 1997 period. The
increase in income before provision for income tax and minority interest is
primarily attributable to income from the Company's new Rental Business, income
generated from additional taxi cabs in Ganzhou, as well as reductions in
operating expenses associated with the Taxi Business. The increase in income
before provision for income tax and minority interest was partially offset by
increases in operating expenses associated with the Repair Business. Income
before provision for income tax and minority interest as a percentage of
revenue, net, did not change materially from the 1997 period to the 1998 period.
Provision for income tax was $568,000 in the six months ended June 30,
1998 (8.9% of income before provision for income tax and minority interest),
compared with $211,000 in the six months ended June 30, 1997 (8.2% of income
before provision for income tax and minority interest). The increase was
primarily a result of increased taxable income.
Minority interest was $410,000 in the six months ended June 30, 1998,
an increase of 382.4% from $85,000 in the six months ended June 30, 1997, which
reflects the fact that the Company entered into new joint venture projects in
1997.
As a result of the foregoing, net income was $5,420,000 in the six
months ended June 30, 1998, an increase of 138.7% from $2,271,000 in the six
months ended June 30, 1997.
Liquidity and Capital Resources
Generally, the Rental and Taxi Businesses are cash flow businesses that
do not require significant amounts of working capital. Working capital for the
Repair Business was initially financed mainly by cash flow from the Taxi
Business. In the six months ended June 30, 1998, the Company had net cash flow
from operating activities of $8,273,000.
The Company made capital expenditures in the six months ended June 30,
1998 of $522,000 for the acquisition of vehicles for its taxi and rental
operations, the acquisition of taxi licenses, the expansion of operations
generally and the development of the hotel project; almost all capital
expenditures for the six months ended June 30, 1998 were for replacement of old
taxis. During this period, a prepayment of $4,944,000 was made for the
acquisition of new automobiles as discussed below. The Company has relied on
cash flow from operations, borrowings and capital contributions by the Zhenghua
Group to finance these expenditures.
During 1997, net cash used in financing activities totaled $7,928,000,
which consisted of $11,565,000 of repayment of advances to the Zhenghua Group
and $1,288,000 of repayment of other debt, offset by $4,320,000 of borrowings
pursuant to notes payable and $605,000 of borrowings from banks. During the six
months ended June 30, 1998, net cash used in financing activities totaled
$1,398,000, which consisted of $1,363,000 of repayments of advances to the
<PAGE>
Zhenghua Group and $710,000 of repayment of bank loans, offset by $675,000 of
net proceeds from the issuance of common stock.
At June 30, 1998, the Company had total liabilities of $16,535,000,
which included indebtedness of (i) $2,861,000 of bank loans, which the banks may
declare due and payable at any time after March 1999, (ii) $320,000 of notes
payable to others, which currently are due and payable, and (iii) $4,979,000 of
debt to the Zhenghua Group, which has no stated repayment terms, but which the
Zhenghua Group and the Company understand may be declared due and payable at any
time upon demand by the Zhenghua Group; the Zhenghua Group does not presently
intend to declare due and payable what the Company owes it, until and unless the
Company is able to refinance such indebtedness. The bank loans bear interest at
an annual rate of 15.1%; notes payable of $320,000 bear interest at an annual
rate of 8%; and the debt to the Zhenghua Group does not bear interest.
At present, the Company expects to make capital expenditures in 1998
and thereafter primarily for the purchase of new automobiles for the Rental
Business, and, to a lesser extent, for new automobiles for the Taxi Business and
the completion of construction of the Company's hotel project. At June 30, 1998,
the Company had committed to purchase 2,000 new automobiles for an aggregate
purchase price of $31,366,000 (in respect of which a $4,944,000 deposit was made
as of June 30, 1998). At June 30, 1998, the estimated cost of completing
construction of the hotel project was approximately $1,740,000.
The Company will require additional capital to finance capital
expenditures, including the purchase of the 2,000 new automobiles referred to
above, and to refinance debt. At present, the Company has no other commitments
from third parties to finance capital expenditures or to refinance any of its
existing indebtedness, and does not have sufficient resources to finance capital
expenditures, or to repay such indebtedness without refinancing. The Company
will seek to obtain capital from the sale of securities, borrowings, vendor
financing arrangements and operations. There can be no assurance the Company
will be successful in raising additional capital, or, if it raises additional
capital, the terms on which such capital will be raised. To date, the Company
has obtained a substantial portion of its financing from the Zhenghua Group, and
a substantial portion of the Company's indebtedness to third parties has been
guaranteed by Mr. Wu. There can be no assurance the Zhenghua Group will be
willing or able to provide capital in the future, or that Mr. Wu will be willing
or able to guarantee the Company's indebtedness in the future. If the Company
does not obtain sufficient capital to refinance its existing indebtedness, the
Company will be materially and adversely affected. Even if the Company obtains
sufficient capital to refinance its existing indebtedness, the Company may not
obtain sufficient capital to expand as contemplated.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: August 14, 1998 INTEGRATED TRANSPORTATION
NETWORK GROUP INC.
By: /s/ Wu Zhi Jian
------------------------
Wu Zhi Jian
Chairman of the Board
By: /s/ Willy Wu
---------------------
Willy Wu
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Integrated Transportation Network Group Inc. and
subsidiaries and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 5,911
<SECURITIES> 0
<RECEIVABLES> 320
<ALLOWANCES> (128)
<INVENTORY> 48
<CURRENT-ASSETS> 0
<PP&E> 1,967
<DEPRECIATION> (758)
<TOTAL-ASSETS> 59,609
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> 40,601
<TOTAL-LIABILITY-AND-EQUITY> 59,609
<SALES> 11,151
<TOTAL-REVENUES> 11,151
<CGS> 0
<TOTAL-COSTS> 4,338
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 415
<INCOME-PRETAX> 6,398
<INCOME-TAX> 568
<INCOME-CONTINUING> 5,830
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,420
<EPS-PRIMARY> .80
<EPS-DILUTED> .74
</TABLE>
