<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:
June 30, 2000 1-8334
ASIA FIBER HOLDINGS LIMITED
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(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 June 30, 2000 is 9,952,234
Transitional Small Business Disclosure Format (check one): Yes No X
---- ----
1
<PAGE>
ASIA FIBER HOLDINGS LTD.
INDEX TO FORM 10-QSB
March 31, 2000
<TABLE>
<CAPTION>
PART I. Financial Information Page #
<S> <C> <C>
Item 1 Financial Statements -
Condensed Consolidated Income Statements 3
(Unaudited) for the three months ended
June 30, 2000 and 1999 and the six months
ended June 30, 2000 and 1999
Condensed Consolidated Balance Sheet as of 4
June 30, 2000 and December 31, 1999
Condensed Consolidated Statements of Changes 5
in Shareholders' Equity (Unaudited) for the
six months ended June 30, 2000
Condensed Consolidated Statements of Cash 6
Flows (Unaudited) for the six months ended
June 30, 2000 and 1999
Notes to Financial Statements 7
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
</TABLE>
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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2000 1999 2000 2000 1999 2000
---- ---- ---- ---- ---- -----
RMB RMB US$ RMB RMB US$
<S> <C> <C> <C> <C> <C> <C>
SALES 154,132 64,577 18,615 258,808 168,855 31,257
COST OF SALES (133,808) (57,435) (16,160) (215,142) (142,541) (25,983)
--------- --------- --------- --------- --------- ---------
GROSS PROFIT 20,324 7,142 2,455 43,666 26,314 5,274
SELLING AND ADMINISTRATIVE
EXPENSES (5,399) (5,005) (652) (10,403) (9,269) (1,256)
PROVISION FOR DOUBTFUL
DEBTS - (3,000) - - (6,000) -
FINANCIAL INCOME/(EXPENSES),
NET 2,162 (346) 261 1,095 (3,022) 132
--------- --------- --------- --------- --------- ---------
INCOME/(LOSS) BEFORE INCOME
TAXES 17,087 (1,209) 2,064 34,358 8,023 4,150
INCOME TAXES (1,344) - (163) (2,731) - (330)
--------- --------- --------- --------- --------- ---------
INCOME/(LOSS) BEFORE
MINORITY INTERESTS 15,743 (1,209) 1,901 31,627 8,023 3,820
MINORITY INTERESTS (4,975) 264 (601) (10,106) (2,601) (1,221)
--------- --------- --------- --------- --------- ---------
NET INCOME/(LOSS) 10,768 (945) 1,300 21,521 5,422 2,599
========= ========= ========= ========= ========= =========
BASIC AND DILUTED EARNINGS/
(LOSS) PER SHARE 1.08 (0.10) 0.13 2.18 0.58 0.26
========= ========= ========= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 9,952,234 9,355,102 9,952,234 9,873,491 9,355,102 9,873,491
========= ========= ========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
ASIA FIBER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, June 30,
2000 December 31, 2000
RMB 1999 US$
Notes (Unaudited) RMB (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 10,559 8,427 1,275
Trade receivables 54,722 56,868 6,609
Bills receivable - 1,300 -
Other receivables, deposits and prepayments 1,273 561 154
Inventories 3 28,486 26,789 3,440
Amount due from a minority joint venture 345,695 261,070 41,751
partner
Amounts due from related companies 4,867 29,161 588
---------- ---------- ----------
TOTAL CURRENT ASSETS 445,602 384,176 53,817
FIXED ASSETS 4 126,661 133,642 15,297
INVESTMENT 13,390 13,390 1,617
DEFERRED INCOME TAXES 2,042 2,042 247
---------- ---------- ----------
TOTAL ASSETS 587,695 533,250 70,978
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank loans 179,880 177,880 21,725
Accounts payable 398 4,315 48
Deposits from customers 38,843 44,280 4,692
Accrued liabilities and other payables 33,050 29,677 3,991
Amount due to a director 5,389 5,734 650
Amounts due to related companies 35,242 12,098 4,256
Income taxes payable 3,267 536 395
Dividend payable 19,961 19,961 2,411
---------- ---------- ----------
TOTAL CURRENT LIABILITIES 316,030 294,481 38,168
MINORITY INTERESTS 32,094 21,988 3,876
---------- ---------- ----------
TOTAL LIABILITIES AND MINORITY
INTERESTS 348,124 316,469 42,044
---------- ---------- ----------
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$0.1 each
Authorized: 10,000,000 shares in 2000 and
1999
Additional paid-in capital 69,931 69,931 8,446
Reserves 15,845 15,845 1,914
Retained earnings 151,523 130,002 18,300
Accumulated other comprehensive income 408 381 49
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY 239,571 216,781 28,934
========== ========== ==========
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 587,695 533,250 70,978
========== ========== ==========
</TABLE>
Translations of amounts from Renminbi (RMB) into United States Dollars (US$) for
the convenience of the reader has been made at the unified exchange rate quoted
by the People's Bank of China on June 30, 2000 of US$1.00 = RMB8.28. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States Dollars at that rate on June 30, 2000 or at any
other certain rate. See notes to condensed consolidated financial statements.
4
<PAGE>
ASIA FIBER HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional other
Common paid-in Retained comprehensive
stock capital Reserves earnings income Total
RMB RMB RMB RMB RMB RMB
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 622 69,931 15,845 130,002 381 216,781
Issuance of common stock 1,242 - - - - 1,242
Comprehensive income:
Net income for the period - - - 21,521 - 21,521
Currency translation adjustments - - - - 27 27
------ ------ ------ -------- --------- --------
21,548
--------
Balance at June 30, 2000 1,864 69,931 15,845 151,523 408 239,571
====== ====== ====== ======== ========= ========
</TABLE>
Translations of amounts from Renminbi (RMB) into United States Dollars (US$) for
the convenience of the reader has been made at the unified exchange rate quoted
by the People's Bank of China on June 30, 2000 of US$1.00 = RMB8.28. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States Dollars at that rate on June 30, 2000 or at any
other certain rate.
See notes to condensed consolidated financial statements.
5
<PAGE>
ASIA FIBER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
2000 1999 2000
---- ---- -----
RMB RMB US$
<S> <C> <C> <C>
Net cash provided by operating activities 83,968 15,905 10,140
INVESTING ACTIVITIES
Purchases of fixed assets (153) (431) (18)
Advances to a minority joint venture partner (84,925) (23,781) (10,257)
---------- ---------- ----------
Net cash used in investing activities (85,078) (24,212) (10,275)
---------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from bank borrowings 5,000 9,800 604
Repayments of bank borrowings (3,000) - (362)
Issuance of common stock 1,242 - 150
---------- ---------- ----------
Net cash provided by financing activities 3,242 9,800 392
---------- ---------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 2,132 1,493 257
Cash and cash equivalent, at beginning of period 8,427 5,456 1,018
---------- ---------- ----------
Cash and cash equivalent, at end of period 10,559 6,949 1,275
========== ========== ==========
</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 six months period ended June 30, 2000, are not necessarily indicative
of the results that may be expected for the year ending December 31, 2000.
3. INVENTORIES
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
RMB RMB
Raw materials 15,231 21,453
Work in progress 2,711 2,480
Finished goods 12,451 4,763
---------- ----------
30,393 28,696
Less: Provision for inventories (1,907) (1,907)
---------- ----------
28,486 26,789
========== ==========
7
<PAGE>
4. FIXED ASSETS
June 30, December 31,
2000 1999
RMB RMB
<S> <C> <C>
At cost:
Plant, machinery and equipment 188,379 188,226
Motor vehicles 1,418 1,418
---------- ----------
189,797 189,644
Accumulated depreciation (63,136) (56,002)
---------- ----------
Net book value 126,661 133,642
========== ==========
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 six months ended June 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 June 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 JUNE 30, SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
RMB RMB RMB RMB
<S> <C> <C> <C> <C>
Sales 154,132 64,577 258,808 168,855
Cost of sales (133,808) (57,435) (215,142) (142,541)
---------- ---------- ---------- ----------
Gross profit 20,324 7,142 43,666 26,314
Gross profit margin (%) 13.2 11.1 16.9 15.6
Income/(loss) before income taxes 17,087 (1,209) 34,358 8,023
Income taxes (1,344) - (2,731) -
---------- ---------- ---------- ----------
Income/(loss) before minority 15,743 (1,209) 31,627 8,023
interests
Minority interests (4,975) 264 (10,106) (2,601)
---------- ---------- ---------- ----------
Net income/(loss) 10,768 (945) 21,521 5,422
========== ========== ========== ==========
</TABLE>
SALES AND GROSS PROFIT MARGIN
Total sales for the first half of 2000 increased by RMB89,953,000
(US$10,864,000) or 53.3% to RMB258.8 million (US$31.3 million), compared to
RMB168.9 million (US$20.4 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 13%-19% for the first half of 2000 compared to
those of first half of 1999.
9
<PAGE>
Gross profit margin increased from 15.6% for the first half of 1999 to 16.9%
for the corresponding period in 2000, mainly resulting from the increase in
selling prices. Sales volume also increased by 15% in 2000 compared to that
of the corresponding period in 1999 as one production plant of polyester
filaments resumed production after temporary suspension from August 1998 to
September 1999 for renovation and repairing.
Total sales for the second quarter of 2000 increased by RMB89,555,000
(US$10,816,000) or 139% to RMB154.1 million (US$18.6 million), compared to
RMB64.6 million (US$7.8 million) for the corresponding period in 1999. Gross
profit margin increased from 11.1% for the second quarter of 1999 to 13.2% for
the corresponding period in 2000. The increases were due to the aforementioned
reasons.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses increased by RMB1,134,000
(US$137,000) or 12.2% to RMB10.4 million (US$1.3 million) for the first half
of 2000 from RMB9.3 million (US$1.1 million) for the corresponding period in
1999. The increase was mainly due to an increase in sales commissions 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 which occurred in the first half of 2000.
Selling and administrative expenses increased by RMB394,000 (US$48,000)
or 7.9% to RMB5.4 million (US$652,000) for the second quarter of 2000 from
RMB5.0 million (US$604,000) for the corresponding period in 1999. The
increase was mainly due to an increase in sales commissions and an increase
in legal and professional fees which amounted to approximately RMB200,000
(US$24,000) 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 RMB3.0 million
(US$365,000) for the first half of 1999 to income of RMB1.1 million (US$132,000)
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 RMB346,000
(US$42,000) for the second quarter of 1999 to income of RMB2.2 million
(US$261,000) 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 was 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.
The year ended December 31, 1998 was the third profitable year and the
income taxes were provided accordingly. Asibao has, however, successfully
claimed a 3 years' tax-free holiday in 1999 under certain tax regulations for
advanced technology enterprises issued by the local government. Accordingly,
the income taxes provided in 1998 were reversed in 1999. 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%.
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.
10
<PAGE>
The Company has a working capital surplus of approximately RMB130 million
(US$15.7 million) as of June 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 six months ended June 30, 2000 was approximately
RMB84.0 million (US$10.1 million), as compared to RMB15.9 million (US$1.9
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 June 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: AUGUST 11, 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
