<PAGE>
U.S. SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter Ended: Commission File Number:
September 30, 2000 1-8334
ASIA FIBER HOLDINGS LIMITED
--------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 75-1071589
------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
52/F Bank of China Tower
No. 1 Garden Road
Central, Hong Kong
--------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(852) 2844-2988
--------------------------------------------------------------------------------
(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 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to filing requirements
for the past 90 days.
Yes X No
----- -----
The number of shares of Common Stock, par value $ .01 per share, outstanding as
of September 30, 2000 is 9,952,234
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
1
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ASIA FIBER HOLDINGS LTD.
INDEX TO FORM 10-QSB
September 30, 2000
PART I. Financial Information Page #
Item 1. Financial Statements -
Condensed Consolidated Income Statements 3
(Unaudited) for the three months ended September
30, 2000 and 1999 and the nine months ended
September 30, 2000 and 1999
Condensed Consolidated Balance Sheet as of 4
September 30, 2000 and December 31, 1999
Consolidated Statements of Changes in Shareholders' 5
Equity (Unaudited) for the nine months ended
September 30, 2000
Condensed Consolidated Statements of Cash Flows 6
(Unaudited) for the nine months ended September
30, 2000 and 1999
Notes to Condensed Consolidated Financial 7
Statements (unaudited)
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operation
PART II. Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security 12
Holders
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASIA FIBER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------- --------------------------------------
2000 1999 2000 2000 1999 2000
---------- ---------- ---------- ---------- ---------- ----------
RMB RMB US$ RMB RMB US$
<S> <C> <C> <C> <C> <C> <C>
SALES 156,664 139,543 18,921 415,472 308,398 50,178
COST OF SALES (163,667) (117,232) (19,767) (378,809) (259,773) (45,750)
---------- ---------- ---------- ---------- ---------- ----------
GROSS PROFIT/(LOSS) (7,003) 22,311 (846) 36,663 48,625 4,428
OTHER INCOME -- 913 -- -- 913 --
SELLING AND ADMINISTRATIVE
EXPENSES (4,400) (3,747) (531) (14,803) (13,016) (1,788)
PROVISION FOR DOUBTFUL
DEBTS -- (3,000) -- -- (9,000) --
FINANCIAL INCOME/(EXPENSES),
NET 2,743 (492) 331 3,838 (3,514) 464
---------- ---------- ---------- ---------- ---------- ----------
INCOME/(LOSS) BEFORE INCOME
TAXES (8,660) 15,985 (1,046) 25,698 24,008 3,104
INCOME TAXES 602 -- 73 (2,129) -- (257)
---------- ---------- ---------- ---------- ---------- ----------
INCOME/(LOSS) BEFORE
MINORITY INTERESTS (8,058) 15,985 (973) 23,569 24,008 2,847
MINORITY INTERESTS 2,227 (4,831) 269 (7,879) (7,432) (952)
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME/(LOSS) (5,831) 11,154 (704) 15,690 16,576 1,895
========== ========== ========== ========== ========== ==========
BASIC AND DILUTED EARNINGS/
(LOSS) PER SHARE (0.59) 1.19 (0.07) 1.58 1.77 0.19
========== ========== ========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 9,952,234 9,355,102 9,952,234 9,899,930 9,355,102 9,899,930
========== ========== ========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
ASIA FIBER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
2000 1999 2000
RMB RMB US$
Notes (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 10,141 8,427 1,225
Trade receivables 63,785 56,868 7,703
Bills receivable 2,680 1,300 324
Other receivables, deposits and prepayments 665 561 80
Inventories 3 10,398 26,789 1,256
Amount due from a minority joint venture 351,636 261,070 42,468
partner
Amounts due from related companies 4,612 29,161 557
------------ ------------ ------------
TOTAL CURRENT ASSETS 443,917 384,176 53,613
FIXED ASSETS 4 123,460 133,642 14,911
INVESTMENT 13,995 13,390 1,690
DEFERRED INCOME TAXES 2,042 2,042 247
------------ ------------ ------------
TOTAL ASSETS 583,414 533,250 70,461
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank loans 179,880 177,880 21,725
Accounts payable 508 4,315 61
Deposits from customers 26,424 44,280 3,192
Accrued liabilities and other payables 25,706 29,677 3,104
Amount due to a director 6,792 5,734 820
Amounts due to related companies 57,871 12,098 6,989
Income taxes payable 2,665 536 322
Dividend payable 19,961 19,961 2,411
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 319,807 294,481 38,624
MINORITY INTERESTS 29,867 21,988 3,607
------------ ------------ ------------
TOTAL LIABILITIES AND MINORITY
INTERESTS 349,674 316,469 42,231
------------ ------------ ------------
SHAREHOLDERS' EQUITY
Common stock, par value of US$0.1 each
Authorized: 30,000,000 shares in 2000
and 1,100,000,000 in 1999
Issued and outstanding - 9,952,234 shares
in 2000 and 597,132 shares in 1999 1,864 622 225
Preferred stock, par value of US$0.1 each
Authorized: 10,000,000 shares in 2000
and 1999
Additional paid-in capital 69,931 69,931 8,446
Reserves 15,845 15,845 1,914
Retained earnings 145,692 130,002 17,596
Accumulated other comprehensive income 408 381 49
------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY 233,740 216,781 28,230
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 583,414 533,250 70,461
============ ============ ============
</TABLE>
Translations of amounts from Renminbi (RMB) into United States Dollars (US$) for
the convenience of the reader has been made at the unified exchange rate quoted
by the People's Bank of China on September 30, 2000 of US$1.00 = RMB8.28. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States Dollars at that rate on September 30, 2000 or at
any other certain rate.
See notes to condensed consolidated financial statements.
4
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ASIA FIBER HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional other
Common paid-in Retained comprehensive
stock capital Reserves Earnings income Total
RMB RMB RMB RMB RMB RMB
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 622 69,931 15,845 130,002 381 216,781
Issuance of common stock 1,242 - - - - 1,242
Comprehensive income:
Net income for the period - - - 15,690 - 15,690
Currency translation - - - - 27 27
adjustments
------ ------- ------- ------- ------- -------
15,717
-------
Balance at September 30, 2000 1,864 69,931 15,845 145,692 408 233,740
====== ======= ======= ======= ======= =======
</TABLE>
Translations of amounts from Renminbi (RMB) into United States Dollars (US$) for
the convenience of the reader has been made at the unified exchange rate quoted
by the People's Bank of China on September 30, 2000 of US$1.00 = RMB8.28. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States Dollars at that rate on September 30, 2000 or at
any other certain rate.
See notes to condensed consolidated financial statements.
5
<PAGE>
ASIA FIBER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
2000 1999 2000
---------- ---------- ----------
RMB RMB US$
<S> <C> <C> <C>
Net cash provided by operating activities 90,189 71,661 10,892
INVESTING ACTIVITIES
Purchases of fixed assets (546) (491) (66)
Increase in investment (605) - (73)
Advances to a minority joint venture partner (90,566) (57,032) (10,938)
---------- ---------- ----------
Net cash used in investing activities (91,717) (57,523) (11,077)
---------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from bank borrowings 95,080 84,000 11,483
Repayments of bank borrowings (93,080) (96,000) (11,241)
Issuance of common stock 1,242 - 150
---------- ---------- ----------
Net cash provided by (used in) financing activities 3,242 (12,000) 392
---------- ---------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 1,714 2,138 207
Cash and cash equivalent, at beginning of period 8,427 5,456 1,018
---------- ---------- ----------
Cash and cash equivalent, at end of period 10,141 7,594 1,225
========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
ASIA FIBER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands)
1. DISPOSAL AND ACQUISITION TRANSACTIONS
On January 24, 2000, pursuant to an Acquisition Agreement dated as of
September 10, 1999 (the "Far Beyond Acquisition Agreement") by and among
the Company, Horler Holdings Limited ("Horler"), Far Beyond Investments
Limited ("Far Beyond") and the shareholders of Far Beyond (the "FB
Shareholders"), the FB Shareholders transferred all of the issued and
outstanding shares of the capital stock of Far Beyond to the Company in
exchange for 8,757,951 shares of the Common Stock of the Company,
representing approximately 88% of the outstanding shares of the Common
Stock of the Company.
Concurrently with and as a condition of the closing of the Far Beyond
Acquisition Agreement, pursuant to a Disposal Agreement between the Company
and Horler and an Assignment Agreement between the Company and China
Strategic Holdings Limited, the Company disposed of all of its assets other
than approximately $150,000 in cash or cash equivalents and all of its
liabilities.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
the Company and its subsidiaries have been prepared as a continuation of
the financial statements of Far Beyond and not of the Company. The
comparative figures presented in the condensed consolidated financial
statements are those of Far Beyond and not the Company.
The unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q 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 management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the nine months period ended September 30, 2000, are not necessarily
indicative of the results that may be expected for the year ending December
31, 2000.
3. INVENTORIES
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
RMB RMB
<S> <C> <C>
Raw materials 5,335 21,453
Work in progress 2,442 2,480
Finished goods 2,621 4,763
---------- ----------
10,398 28,696
Less: Provision for inventories - (1,907)
---------- ----------
10,398 26,789
========== ==========
</TABLE>
7
<PAGE>
4. FIXED ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
RMB RMB
<S> <C> <C>
At cost:
Plant, machinery and equipment 188,772 188,226
Motor vehicles 1,418 1,418
---------- ----------
190,190 189,644
Accumulated depreciation (66,730) (56,002)
---------- ----------
Net book value 123,460 133,642
========== ==========
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATION
OVERVIEW
On January 24, 2000, pursuant to an Acquisition Agreement dated as of
September 10, 1999 (the "Far Beyond Acquisition Agreement") by and among the
Company, Horler Holdings Limited ("Horler"), Far Beyond Investments Limited
("Far Beyond") and the shareholders of Far Beyond (the "FB Shareholders"), the
FB Shareholders transferred all of the issued and outstanding shares of the
capital stock of Far Beyond to the Company in exchange for 8,757,951 shares of
the Common Stock of the Company, representing approximately 88% of the
outstanding shares of the Common Stock of the Company.
Concurrently with and as a condition of the closing of the Far Beyond
Acquisition Agreement, pursuant to a Disposal Agreement between the Company and
Horler and an Assignment Agreement between the Company and China Strategic
Holdings Limited, the Company disposed of all of its assets other than
approximately $150,000 in cash or cash equivalents and all of its liabilities.
The financial information presented below is that of Far Beyond and not the
Company.
RESULTS OF OPERATIONS
The following table shows the selected unaudited condensed consolidated
income statement data of the Company and its subsidiaries for the three months
and nine months ended September 30, 2000 and 1999. The data should be read in
conjunction with the unaudited Condensed Consolidated Financial Statements of
the Company and related notes thereto.
The discussions below are presented in the Company's primary operating
currency, which is the Renminbi Yuan ("RMB"). For information purposes only, the
amounts may be translated into U.S. dollars at an exchange rate of $1.00 =
RMB8.28, which represents the approximate single rate of exchange as quoted by
the People's Bank of China on September 30, 2000. No representation is made that
RMB amounts could have been, or could be, converted into U.S. dollars at that
rate or any other rate.
<TABLE>
<CAPTION>
(Amounts in thousands) Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
RMB RMB RMB RMB
<S> <C> <C> <C> <C>
Sales 156,664 139,543 415,472 308,398
Cost of sales (163,667) (117,232) (378,809) (259,773)
---------- ---------- ---------- ----------
Gross profit (loss) (7,003) 22,311 36,663 48,625
Gross profit margin (%) (4.5) 16.0 8.8 15.8
Income/(loss) before income taxes (8,660) 15,985 25,698 24,008
Income taxes 602 - (2,129) -
---------- ---------- ---------- ----------
Income/(loss) before minority (8,058) 15,985 23,569 24,008
interests
Minority interests 2,227 (4,831) (7,879) (7,432)
---------- ---------- ---------- ----------
Net income/(loss) (5,831) 11,154 15,690 16,576
====== ====== ====== ======
</TABLE>
SALES AND GROSS PROFIT MARGIN
Total sales for the nine months ended September 30, 2000 increased by
RMB107,074,000 (US$12,932,000) or 34.7% to RMB415.5 million (US$50.2 million),
compared to RMB308.4 million (US$37.2 million) for the corresponding period in
1999. The positive influence of the anti-smuggling campaigns and expansionary
fiscal policies launched by the PRC government in 1999 persists in 2000. This
has resulted in the selling price of the polyester fiber products generally
increasing by approximately 6%-13% for the nine months ended September 30, 2000
compared to those of the corresponding period in 1999. Despite the increase in
selling
9
<PAGE>
price, gross profit margin decreased from 15.8% for the nine months ended
September 30, 1999 to 8.8% for the corresponding period in 2000. The decrease in
gross profit margin was mainly attributable to an increase in purchase price of
polyester chip (a major raw material) by approximately 30%, resulting from an
increase in the price of oil. The cost of polyester chip accounted for
approximately 66% to 85% of total cost of sales of the Company's products. Sales
volume also increased by 4% in 2000 compared to that of the corresponding period
in 1999 as one production plant of polyester filaments temporarily suspended
production from August 1998 to September 1999 for renovation and repairing.
Total sales for the third quarter of 2000, increased by RMB17,121,000
(US$2,068,000) or 12.3% to RMB156.7 million (US$18.9 million), compared to
RMB139.5 million (US$16.8 million) for corresponding period in 1999. Gross
profit margin for the third quarter of 1999 was 16.0% while the gross loss
margin for the third quarter of 2000 was 4.5%. The effect of increase in cost of
polyester chip became more significant in the third quarter of 2000 as the
Company has used up raw material stockpiled in 1999 and needed to replenish the
raw material which was purchased at higher price.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses increased by RMB1,787,000 (US$216,000)
or 13.7% to RMB14.8 million (US$1.8 million) for the nine months ended September
30, 2000 from RMB13.0 million (US$1.6 million) for the corresponding period in
1999. The increase was mainly due to an increase in sales and an increase in
legal and professional fees which amounted to approximately RMB800,000
(US$97,000) in relation to the disposal and acquisition transactions occurred in
early 2000.
Selling and administrative expenses increased by RMB653,000 (US$79,000) or
17.4% to RMB4.4 million (US$531,000) for the third quarter of 2000 from RMB3.7
million (US$447,000) for the corresponding period in 1999. The increase was
mainly due to an increase in sales and an increase in legal and professional
fees which amounted to approximately RMB330,000 (US$40,000) in relation to the
compliance obligations of the Company following the acquisition transaction.
FINANCIAL INCOME/(EXPENSES), NET
Net financial income/(expenses) changed from an expense of RMB3.5 million
(US$423,000) for the nine months ended September 30, 1999 to an income of RMB3.8
million (US$464,000) for the corresponding period in 2000. The change was mainly
attributable to an increase in interest income received on the amount due from
Heilongjiang Longdi Group Co., Ltd., a 30% interest minority shareholder of
Harbin Asibao Chemical Fiber Co. Limited ("Asibao").
Net financial income/(expenses) changed from an expense of RMB492,000
(US$59,000) for the third quarter of 1999 to an income of RMB2.7 million
(US$331,000) for the corresponding period in 2000. The change was due to the
aforementioned reason.
INCOME TAXES
The Company, through Far Beyond, owns a 70% interest in Asibao which is
governed by the Income Tax Laws of the PRC. Being a Sino-foreign joint venture
established in the Harbin Economic Development Zone and being awarded the status
of "advanced technology enterprise", Asibao is exempted from income taxes for a
period of two years commencing from its first profitable year and is entitled to
a preferential income tax rate of 15% for the remaining years of the Joint
Venture with a 50% reduction for three consecutive years commencing from its
third profitable year. 1999 and 2000 are the fourth and fifth profitable years,
respectively, and the income taxes are provided accordingly, based on the
preferential income tax rate of 15%.
Asibao has, however, successfully claimed 3 years' tax-free holiday in 1999
under certain tax regulations for the advanced technology enterprises issued by
the local government. Accordingly, the income taxes provided in 1998 were
reversed in 1999.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's and its subsidiaries' primary liquidity needs are to fund
inventories and trade receivables and to expand business operations. The Company
has financed its working capital requirements primarily through internally
generated cash.
The Company has a working capital surplus of approximately RMB124 million
(US$15.0 million) as of September 30, 2000, compared to that of approximately
RMB90 million (US$10.8 million) as of December 31, 1999. Net cash provided by
operating activities for the nine months ended September 30, 2000 was
approximately RMB90.2 million (US$10.9 million), as compared to RMB71.7 million
(US$8.7 million) for the corresponding period in 1999. Net cash flows from the
Company's operating activities are attributable to the Company's income and
changes in operating assets and liabilities.
There has been no other significant change in financial condition and
liquidity since the fiscal year ended December 31, 1999. The Company believes
that internally generated funds will be sufficient to satisfy its anticipated
working capital needs for at least the next twelve months.
YEAR 2000 ISSUE
The Year 2000 issue is the result of information technology systems and
embedded systems using a two-digit format, as opposed to four digits, to
indicate the year. The Company and its subsidiaries use a limited amount of
computer software primarily in connection with their accounting and financial
reporting systems. Such programs have been upgraded so that they are year 2000
compatible. In addition to software issues, certain of the computer hardware of
the Company and its subsidiaries have been replaced with more current
technology.
As of September 30, 2000, the Company has not experienced any disruptions
or failures to its normal operations as a result of the transition into calendar
year 2000.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults 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:
Financial Data Schedule
(b) Reports on Form 8-K:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: November 10, 2000
ASIA FIBER HOLDINGS LIMITED
By: /s/ RUI MIN ZHAO
-----------------------------------
Rui Min Zhao, President and
Vice Chairman of the Board
By: /s/ FENG JIE LIU
-----------------------------------
Feng Jie Liu, Chief Financial Officer
and Director (principal financial and
accounting officer)
12
