<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
[ ] Transition Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________ to _________
Commission file number: 0-8128
FREMONT CORPORATION
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 76-0402886
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9454 Wilshire Boulevard, 6th Floor
Beverly Hills, California 90212
-----------------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (310) 358-1006
Not applicable
-----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
As of September 30, 1998, the issuer had 5,861,639 shares of common
stock issued and outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
1
<PAGE>
FREMONT CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) -
December 31, 1997 and September 30, 1998
Consolidated Statements of Operations (Unaudited) -
Three Months and Nine Months Ended
September 30, 1997 and 1998
Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended September 30, 1997 and 1998
Notes to Consolidated Financial Statements
(Unaudited) - Nine Months Ended
September 30, 1997 and 1998
Item 2. Management's Discussion and Analysis or
Plan of Operation
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
<PAGE>
FREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands,
except number of shares and per share data)
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1998
----------------- ------------------
RMB USD RMB USD
------- ------ ------- ------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents 5,016 604 2,102 253
Accounts receivable,
net (Note 1) 72,600 8,747 79,638 9,595
Inventories (Note 2) 64,117 7,725 66,722 8,039
Due from (payable to)
SCH (Note 3) 8,338 1,005 (2,465) (297)
Due from Easy Keen
(Note 3) 17,370 2,093 16,191 1,950
Prepayments and
other current assets 21,017 2,532 22,574 2,720
------- ------ ------- ------
Total current assets 188,458 22,706 184,762 22,260
------- ------ ------- ------
Property, plant and
equipment 163,826 19,737 166,605 20,073
Less accumulated
depreciation (31,291) (3,770) (37,840) (4,559)
------- ------ ------- ------
132,535 15,967 128,765 15,514
------- ------ ------- ------
Rental deposit to SCH 22,800 2,747 20,700 2,494
Goodwill, net 35,811 4,315 35,076 4,226
Other long-term assets 6,631 799 6,535 788
------- ------ ------- ------
Total assets 386,235 46,534 375,838 45,282
======= ====== ======= ======
</TABLE>
(continued)
3
<PAGE>
FREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (continued)
(Amounts in thousands,
except number of shares and per share data)
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1998
----------------- ------------------
RMB USD RMB USD
------- ------ ------- ------
<S> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings 75,041 9,041 73,752 8,886
Accounts payable 32,662 3,935 35,125 4,232
Accrued expenses and
other liabilities 49,312 5,941 65,062 7,839
Taxes payable 12,839 1,547 13,772 1,659
Finance lease
obligations, current
portion 8,246 994 8,246 993
------- ------ ------- ------
Total current
liabilities 178,100 21,458 195,957 23,609
Finance lease
obligations,
non-current portion 2,363 284 1,655 199
Long-term bank loans 6,100 735 6,600 795
Loan from MTE (Note 3) 33,280 4,010 33,280 4,010
Other long-term payables 3,350 403 3,585 432
------- ------ ------- ------
Total liabilities 223,193 26,890 241,077 29,045
------- ------ ------- ------
Minority interests 11,103 1,338 12,273 1,479
------- ------ ------- ------
</TABLE>
(continued)
4
<PAGE>
FREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (continued)
(Amounts in thousands,
except number of shares and per share data)
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1998
----------------- ------------------
RMB USD RMB USD
------- ------ ------- ------
<S> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Shareholders' equity
(Note 4):
Common stock, par value
US$ .001 per share;
authorized -
100,000,000 shares;
issued and
outstanding -
5,861,639 shares at
December 31, 1997 and
September 30, 1998 49 6 49 6
Additional paid-in
capital 118,134 14,233 118,146 14,235
Dedicated capital 11,785 1,420 11,785 1,420
Retained earnings
(deficit) 21,971 2,647 (7,492) (903)
------- ------ ------- ------
Total shareholders'
equity 151,939 18,306 122,488 14,758
------- ------ ------- ------
Total liabilities
and shareholders'
equity 386,235 46,534 375,838 45,282
======= ====== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
FREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands,
except number of shares and per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------
1997 1998
--------- ---------------------
RMB RMB USD
--------- --------- ---------
<S> <C> <C> <C>
Sales
- to related companies 2,734 4,700 566
- to others 46,451 24,032 2,896
------ ------ -----
49,185 28,732 3,462
------ ------ -----
Cost of goods sold
- purchases from related
companies 2,380 3,900 470
- others 35,446 20,942 2,523
------ ------ -----
37,826 24,842 2,993
------ ------ -----
Gross profit 11,359 3,890 469
Selling, general and
administrative expenses 5,706 4,200 506
Less: Shared by SCH (329) (291) (35)
Provision for bad debts
(Note 1) 27,070 3,262
Interest expense, net 6,091 2,553 308
Interest income from SCH
(Note 3) (2,500)
Other income, net (430) (106) (13)
------ ------ -----
Income (loss) before
income taxes 2,821 (29,536) (3,559)
Benefit from income taxes 304 523 63
------ ------ -----
Income (loss) before
minority interests 3,125 (29,013) (3,496)
Minority interests (93) (891) (107)
------ ------ -----
Net income (loss) 3,032 (29,904) (3,603)
====== ====== =====
Net income (loss) per
common share (Note 5):
-Basic .52 (5.10) (.61)
====== ====== =====
-Diluted .51 (5.10) (.61)
====== ====== =====
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
FREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands,
except number of shares and per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1997 1998
--------- ---------------------
RMB RMB USD
--------- --------- ---------
<S> <C> <C> <C>
Sales
- to related companies 15,681 13,675 1,648
- to others 124,697 82,938 9,992
------- ------ ------
140,378 96,613 11,640
------- ------ ------
Cost of goods sold
- purchases from related
companies 9,523 12,093 1,457
- others 99,100 64,233 7,739
------- ------ ------
108,623 76,326 9,196
------- ------ ------
Gross profit 31,755 20,287 2,444
Selling, general and
administrative expenses 15,152 16,156 1,946
Less: Shared by SCH (2,606) (3,853) (464)
Provision for bad debts
(Note 1) 29,070 3,502
Interest expense, net 11,365 7,260 875
Interest income from SCH
(Note 3) (2,500)
Other (income) expense, net 22 (53) (6)
------- ------ ------
Income (loss) before
income taxes 10,322 (28,293) (3,409)
Provision for income taxes (871)
------- ------ ------
Income (loss) before
minority interests 9,451 (28,293) (3,409)
Minority interests 882 (1,170) (141)
------- ------ ------
Net income (loss) 10,333 (29,463) (3,550)
======= ====== ======
Net income (loss) per
common share (Note 5):
-Basic 1.77 (5.03) (.61)
======= ====== ======
-Diluted 1.75 (5.03) (.61)
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
FREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1997 1998
--------- ---------------------
RMB RMB USD
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) 10,333 (29,463) (3,550)
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Depreciation 7,727 6,549 789
Amortization 1,099 1,101 133
Minority interests (882) 1,170 141
Provision for bad debts 29,070 3,502
Rental expense offset
against rental deposit
to SCH 2,100 2,100 253
Fair value of warrant
issued as compensation 12 1
Changes in operating
assets and liabilities:
(Increase) decrease in -
Accounts receivable (27,463) (36,108) (4,350)
Inventories 16,131 (2,605) (314)
Due from (payable to)
SCH (4,300) 10,803 1,302
Due from Easy Keen 5,743 1,179 142
Prepayments and other
current assets (15,500) (1,557) (188)
Other long-term assets (835) (270) (32)
Increase (decrease) in -
Accounts payable (8,801) 2,463 297
Accrued expenses and
other liabilities 27 15,750 1,898
Taxes payable 5,010 933 112
Other long-term
payables 2 235 28
------ ------ ------
Net cash provided by
(used in) operating
activities (9,609) 1,362 164
------ ------ ------
</TABLE>
(continued)
8
<PAGE>
FREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1997 1998
--------- ---------------------
RMB RMB USD
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from investing
activities:
Additions to property,
plant and equipment (2,244) (2,779) (335)
------ ------ ------
Net cash used in
investing activities (2,244) (2,779) (335)
------ ------ ------
Cash flows from financing
activities:
Net proceeds from
(repayments of)
short-term borrowings 18,307 (1,289) (155)
Net proceeds from
long-term bank loans 500 60
Payments of finance
lease obligations (7,540) (708) (85)
Exercise of warrants,
net of costs 896
------ ------ ------
Net cash provided by
(used in) financing
activities 11,663 (1,497) (180)
------ ------ ------
Cash and cash equivalents:
Net decrease (190) (2,914) (351)
At beginning of period 4,806 5,016 604
------ ------ ------
At end of period 4,616 2,102 253
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
FREMONT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION - Fremont Corporation, a Delaware corporation (the "Company"),
was incorporated in the State of Utah on April 22, 1955, as Fremont Uranium
Corporation. As of July 1, 1993, the Company reincorporated in the State of
Delaware and changed its name to Fremont Corporation.
BUSINESS - From 1989 through April 28, 1995, the Company was engaged in
acquiring interests in oil and natural gas properties and in seeking
potential acquisition or merger opportunities. The Company entered into a
Share Exchange Agreement dated as of March 23, 1995, and as amended on March
30, 1995, with Million Treasure Enterprises Limited ("MTE") and Winfill
Holdings International Limited ("Winfill"), both of which are British Virgin
Islands corporations. Pursuant to the Share Exchange Agreement, on April 28,
1995, the Company acquired from MTE 41,000 shares of common stock of Winfill,
representing all of the issued and outstanding capital stock of Winfill, in
exchange for the issuance of 4,760,000 shares of the Company's common stock,
together with a warrant which allows MTE and/or its designee to receive up to
2,000,000 shares of Class B common stock in exchange for an equivalent number
of shares of common stock. The terms of the Class B common stock are
identical to that of the common stock (which will be designated Class A
common stock) except that the holder thereof will be entitled to three votes
per share. The warrant can be exercised after the Company's Certificate of
Incorporation is amended to authorize the Class B common stock.
Immediately prior to this transaction, after a 1-for-100 reverse stock split
effective April 28, 1995, the Company had a total of 842,639 shares of common
stock issued and outstanding, including 770,000 shares issued to certain
consultants in conjunction with the reverse acquisition which were valued at
RMB 6,405,000 and charged to operations. The 4,760,000 shares of common
stock represented approximately 85% of the outstanding shares of common stock
of the Company, after the 1-for-100 reverse stock split and the issuance of
the shares as set forth in the Share Exchange Agreement. All common share,
common share equivalent and per share amounts in the accompanying
consolidated financial statements have been restated to reflect this reverse
stock split.
Pursuant to the terms of the Share Exchange Agreement, the Company
transferred to Joseph W. Petrov, the Company's former president and
controlling shareholder, all of its operating
10
<PAGE>
assets existing immediately subsequent to the closing of the previously
described transaction (excluding the shares of Winfill) in exchange for the
assumption by Mr. Petrov of all of the liabilities of the Company as of the
closing and the delivery of a release of all obligations owed by the Company
to an affiliate of Mr. Petrov. In addition, at the closing, each member of
the Company's Board of Directors resigned, and was replaced by
representatives of MTE and Winfill.
South China Bicycles Winfill Limited ("SCBW") is a Sino-foreign joint venture
formed to engage in the design, manufacture and marketing of bicycles,
bicycle parts and components and steel tubes. Winfill owns a 98% equity
interest in SCBW and South China Bicycles Company (Holdings) Limited ("SCH"),
a state-owned enterprise incorporated in the People's Republic of China, owns
the remaining 2% equity interest in SCBW. Winfill and SCH formed SCBW
effective July 1, 1994, to acquire and operate the bicycle, bicycle parts and
components and steel tube manufacturing operations of SCH at a consideration
of RMB 152,076,000. Except for a 69% interest in South China Bicycles Co.
Ltd. ("SCB"), SCBW owns 100% interests in its principal operating
subsidiaries, all of which are organized in the People's Republic of China.
The factory operations of SCBW's subsidiaries are located at several sites in
Zhaoqing City, Guangdong Province, People's Republic of China. SCB owns a
99.99% interest in Fogance Industries Limited, which is the Hong Kong-based
overseas purchasing and sales agent for the Company.
The 31% minority interest in SCB is owned by a company whose president is a
director of the Company. The director is also a shareholder of Hong Kong
Easy Keen Industries Ltd. ("Easy Keen") and of MTE, the controlling
shareholder of the Company. The Company has historically conducted a
substantial portion of its sales and purchases through related parties (SCH
and Easy Keen), and has additional significant continuing transactions with
such related parties. Sales to related companies are for both domestic and
export purposes.
A substantial portion of the Company's sales are made to a small number of
customers on a open account basis and generally no collateral is required.
These customers generally account for a substantial portion of total accounts
receivable.
BASIS OF PRESENTATION - For accounting purposes, the acquisition of Winfill
by the Company has been treated as a recapitalization of Winfill with Winfill
as the acquiror (reverse acquisition). The consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles in the United States of America.
FOREIGN CURRENCY TRANSLATION - In preparing the consolidated financial
statements, the financial statements of the Company are
11
<PAGE>
measured using Renminbi ("RMB") as the functional currency. All foreign
currency transactions are translated into RMB using the applicable floating
rates of exchange as quoted by the People's Bank of China prevailing at the
date of the transactions. Monetary assets and liabilities denominated in
foreign currencies are translated into RMB using the applicable exchange
rates prevailing at the balance sheet dates. The resulting exchange gains or
losses are recorded in the consolidated statements of operations for the
periods in which they occur.
The Company's share capital is denominated in United States dollars ("USD" or
"US$") and the reporting currency is the RMB. For financial reporting
purposes, the USD share capital amounts have been translated into RMB at the
applicable rates prevailing on the transaction dates.
Translation of amounts from RMB into USD for the convenience of the reader
has been made at the noon buying rate in New York City for cable transfers in
foreign currencies as certified for customs purposes by the Federal Reserve
Bank of New York on September 30, 1998 of US$1.00 = RMB 8.3. No
representation is made that the RMB amounts could have been, or could be,
converted into USD at that rate or at any other certain rate.
COMMENTS - The accompanying consolidated financial statements are unaudited
but, in the opinion of management of the Company, contain all adjustments
necessary to present fairly the financial position at September 30, 1998, the
results of operations for the three months and nine months ended September
30, 1997 and 1998, and the changes in cash flows for the nine months ended
September 30, 1997 and 1998. Except as described below, these adjustments
are of a normal recurring nature. The consolidated balance sheet as of
December 31, 1997 is derived from the Company's audited financial statements.
The accompanying consolidated financial statements include the operations of
the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
During the three months and nine months ended September 30, 1998, the Company
recorded a provision for bad debts of RMB 27,070,000 and RMB 29,070,000,
respectively, primarily as a result of the bankruptcy of a major United
States-based customer during September 1998.
Certain information and footnote disclosures normally included in financial
statements that have been prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission, although
management of the Company believes that the disclosures contained in these
financial statements are adequate to make the information presented therein
not misleading. For further information, refer to the consolidated financial
statements and notes thereto included in
12
<PAGE>
the Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1997, as filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
results of operations for the three months and nine months ended September
30, 1998 are not necessarily indicative of the results of operations to be
expected for the full fiscal year ending December 31, 1998.
Certain prior period amounts have been reclassified to conform with the
current year presentation.
2. INVENTORIES
Inventories consisted of the following at December 31, 1997 and September 30,
1998:
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1998
--------------------- ---------------------
RMB USD RMB USD
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Raw materials 33,498,000 4,036,000 31,883,000 3,841,000
Work-in-progress 7,330,000 883,000 10,558,000 1,272,000
Finished goods 23,289,000 2,806,000 24,281,000 2,926,000
---------- --------- ---------- ---------
64,117,000 7,725,000 66,722,000 8,039,000
========== ========= ========== =========
</TABLE>
3. RELATED PARTY TRANSACTIONS
LOAN FROM MTE - The unsecured loan of RMB 33,280,000 from MTE, the parent
company, is denominated in USD, bears no interest, and has no fixed repayment
terms.
EASY KEEN - As of December 31, 1997 and September 30, 1998, RMB 17,370,000
and RMB 16,191,000, respectively, was due from Easy Keen. A director of the
Company is also a shareholder of Easy Keen and MTE. SCBW and Easy Keen have
agreed to settle the net amount due SCBW by Easy Keen supplying raw materials
of the same value during 1998, or otherwise by payment in cash.
SCH - During the three months ended September 30, 1997, SCBW and SCH agreed
that SCH would pay interest on its average outstanding balance due SCBW
during 1997 at a standard bank reference rate in
13
<PAGE>
China. SCBW did not recognize any interest income from SCH during the six
months ended June 30, 1997. Accordingly, the Company recorded interest
income from SCH of RMB 2,500,000 during the three months and nine months
ended September 30, 1997, and included such amount in the amount due from SCH.
During the nine months ended September 30, 1998, SCH made payments to the
Company in excess of amounts owed, resulting in a net payable of RMB
2,465,000 at September 30, 1998, as compared to a net receivable of RMB
8,338,000 at December 31, 1997.
4. SHAREHOLDERS' EQUITY
Pursuant to consulting service agreements dated August 1, 1997 and subsequent
amendments, the Company engaged two consultants to provide corporate and
financial consulting services for a period of three years commencing January
1, 1998. As consideration for their services, the Company agreed to issue to
the consultants a total of 120,000 shares of common stock in 1998. As of
September 30, 1998, the shares of common stock had not been issued.
Pursuant to an agreement dated August 21, 1998, the Company engaged a
consultant to provide marketing and public relations services through
February 28, 1999. In conjunction with this agreement, the Company issued a
stock purchase warrant for 20,000 shares of common stock exercisable at $2.50
per share, vesting at the rate of one-sixth per month from September 1998
through February 1999, and expiring on August 21, 2001. The Company agreed
to register the warrant at the end of the six month period.
The Company accounts for warrants granted to non-employees in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). Under SFAS 123, the fair value
of warrants is calculated according to the Black-Scholes pricing model and
amortized to expense over the vesting period. The fair value of the warrant
of $8,400 is being amortized over the period from September 1998 through
February 1999, and accordingly, the Company recorded non-cash compensation
expense related to such warrant of $1,400 during the three months ended
September 30, 1998.
5. NET INCOME (LOSS) PER COMMON SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which
establishes standards for computing and presenting earnings per share. SFAS
No. 128 replaces the presentation of primary earnings per share and fully
diluted earnings per share with basic earnings per share and diluted
14
<PAGE>
earnings per share, respectively. Basic earnings per share excludes the
dilutive effects of options and convertible securities, if any, and is
computed by dividing net income (loss) available to common shareholders by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed assuming the exercise or conversion of
common equivalent shares, if dilutive, consisting of unissued shares under
stock options, stock purchase warrants and debt instruments. In accordance
with SFAS No. 128, all prior periods presented have been restated to conform
to the new presentation.
At September 30, 1998, potentially dilutive securities representing 76,000
shares of common stock were outstanding, consisting of a warrant to purchase
56,000 shares of common stock at US$2.50 per share exercisable through May
31, 2000, and a warrant to purchase 20,000 shares of common stock at US$1.50
per share exercisable through August 21, 2001 (see Note 4).
The following tables present the components of basic and diluted earnings
(loss) per share for the three months and nine months ended September 30,
1997 and 1998:
15
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------
1997 1998
--------- ----------------------
RMB RMB USD
--------- --------- ---------
<S> <C> <C> <C>
Basic Earnings (Loss)
Per Share Computation
- ---------------------
Net income (loss) - as
reported 3,032,000 (29,904,000) (3,603,000)
========= ========== =========
Weighted average number
of shares of common
stock outstanding 5,861,639 5,861,639 5,861,639
========= ========= =========
Net income (loss) per
common share - Basic .52 (5.10) (.61)
========= ========= =========
Diluted Earnings (Loss)
Per Share Computation
- -----------------------
Net income (loss) - as
reported 3,032,000 (29,904,000) (3,603,000)
========= ========== =========
Weighted average number
of shares of common
stock outstanding 5,861,639 5,861,639 5,861,639
Net shares of common
stock issuable upon
exercise of warrants 77,036 -- (1) -- (1)
--------- --------- ---------
Weighted average number
of shares of common
stock and common
stock equivalents
outstanding 5,938,675 5,861,639 5,861,639
========= ========= =========
Net income (loss) per
common share - Diluted .51 (5.10) (.61)
========= ========= =========
</TABLE>
(1) Not calculated, as effect would be anti-dilutive.
16
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------
1997 1998
--------- ----------------------
RMB RMB USD
--------- --------- ---------
<S> <C> <C> <C>
Basic Earnings (Loss)
Per Share Computation
- ---------------------
Net income (loss) - as
reported 10,333,000 (29,463,000) (3,550,000)
========== ========== =========
Weighted average number
of shares of common
stock outstanding 5,839,417 5,861,639 5,861,639
========= ========= =========
Net income (loss) per
common share - Basic 1.77 (5.03) (.61)
========= ========= =========
Diluted Earnings (Loss)
Per Share Computation
- -----------------------
Net income (loss) - as
reported 10,333,000 (29,463,000) (3,550,000)
========== ========== =========
Weighted average number
of shares of common
stock outstanding 5,839,417 5,861,639 5,861,639
Net shares of common
stock issuable upon
exercise of warrants 73,401 -- (1) -- (1)
--------- --------- ---------
Weighted average number
of shares of common
stock and common
stock equivalents
outstanding 5,912,818 5,861,639 5,861,639
========= ========= =========
Net income (loss) per
common share - Diluted 1.75 (5.03) (.61)
========= ========= =========
</TABLE>
(1) Not calculated, as effect would be anti-dilutive.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:
This Quarterly Report on Form 10-QSB for the quarterly period ended
September 30, 1998 contains "forward-looking statements" within the meaning
of the Federal securities laws. These forward-looking statements include,
among others, statements concerning the Company's expectations regarding
sales trends, gross margin trends, the availability of short-term bank
borrowings to fund operations and capital expenditures, the repayment of
loans, facility expansion plans, and other statements of expectations,
beliefs, future plans and strategies, anticipated events or trends, and
similar expressions concerning matters that are not historical facts. The
forward-looking statements contained in this Quarterly Report on Form 10-QSB
for the quarterly period ended September 30, 1998 are subject to risks and
uncertainties that could cause actual results to differ materially from those
results expressed in or implied by the statements contained herein.
Recent Development:
As a result of the Company's common stock having failed to maintain a
closing bid price greater than or equal to $1.00 per share, The Nasdaq Stock
Market, Inc. notified the Company that its common stock was subject to
delisting from The Nasdaq SmallCap Market, effective October 8, 1998. The
Company is evaluating its alternatives, and has filed an appeal of the
delisting action, however, there can be no assurances that the Company will
be successful in preventing its common stock from being delisted. If the
Company's common stock is delisted from The Nasdaq SmallCap Market, the
Company expects that its common stock will subsequently be traded on the OTC
Electronic Bulletin Board.
Overview:
Effective April 28, 1995, the Company acquired Winfill. Winfill owns a
98% interest in SCBW, a Sino-foreign joint venture engaged in the design,
manufacture and marketing of bicycles, bicycle parts and components, steel
tubes, and exercise equipment. Winfill commenced operations effective July
1, 1994. Except for a 69% interest in SCB, SCBW owns 100% interests in its
principal operating subsidiaries, all of which are organized in the People's
Republic of China. The factory operations of SCBW's subsidiaries are located
at several sites in Zhaoqing City, Guangdong Province, People's Republic of
China. SCB owns a 99.99% interest in Fogance Industries Limited, which is the
Hong Kong-based overseas purchasing and sales agent for the Company.
18
<PAGE>
For accounting purposes, the transaction has been treated as a
recapitalization of Winfill with Winfill as the acquiror (reverse
acquisition). The consolidated financial statements include the accounts of
Winfill and its majority owned and controlled subsidiaries.
The Company has historically conducted a substantial portion of its
sales and purchases through related parties, and has additional significant
continuing transactions with such related parties. Sales to related
companies are for both domestic and export purposes.
A substantial portion of the Company's sales are made to a small number
of customers on a open account basis and generally no collateral is required.
These customers generally account for a substantial portion of total accounts
receivable.
Consolidated Results of Operations - Three Months and Nine Months Ended
September 30, 1997 and 1998:
Sales:
Sales for the three months ended September 30, 1998 were RMB 28,732,000,
as compared to RMB 49,185,000 for the three months ended September 30, 1997,
a decrease of RMB 20,453,000 or 41.6%. Sales to related companies for the
three months ended September 30, 1998 were RMB 4,700,000 or 16.4% of sales,
as compared to RMB 2,734,000 or 5.6% of sales for the three months ended
September 30, 1997, an increase of RMB 1,966,000 or 71.9%. Sales to
unrelated companies for the three months ended September 30, 1998 were RMB
24,032,000 or 83.6% of sales, as compared to RMB 46,451,000 or 94.4% of sales
for the three months ended September 30, 1997, a decrease of RMB 22,419,000
or 48.3%.
Sales for the nine months ended September 30, 1998 were RMB 96,613,000,
as compared to RMB 140,378,000 for the nine months ended September 30, 1997,
a decrease of RMB 43,765,000 or 31.2%. Sales to related companies for the
nine months ended September 30, 1998 were RMB 13,675,000 or 14.2% of sales,
as compared to RMB 15,681,000 or 11.2% of sales for the nine months ended
September 30, 1997, a decrease of RMB 2,006,000 or 12.8%. Sales to unrelated
companies for the nine months ended September 30, 1998 were RMB 82,938,000 or
85.8% of sales, as compared to RMB 124,697,000 or 88.8% of sales for the nine
months ended September 30, 1997, a decrease of RMB 41,759,000 or 29.7%.
For the three months ended September 30, 1998, PRC domestic sales were
RMB 9,459,000 or 32.9% of sales, and export sales were RMB 19,273,000 or
67.1% of sales. For the three months ended September 30, 1997, PRC domestic
sales were RMB 7,511,000 or 15.3% of sales, and export sales were RMB
41,674,000 or 84.7% of
19
<PAGE>
sales. For the three months ended September 30, 1998, sales of bicycles and
bicycle parts were RMB 26,558,000 or 92.4% of sales, and sales of exercise
equipment were RMB 2,174,000 or 7.6% of sales. For the three months ended
September 30, 1997, sales of bicycles and bicycles parts were RMB 29,038,000
or 59.0% of sales, and sales of exercise equipment were RMB 20,147,000 or
41.0% of sales.
For the nine months ended September 30, 1998, PRC domestic sales were
RMB 41,152,000 or 42.6% of sales, and export sales were RMB 55,461,000 or
57.4% of sales. For the nine months ended September 30, 1997, PRC domestic
sales were RMB 30,856,000 or 22.0% of sales, and export sales were RMB
109,522,000 or 78.0% of sales. For the nine months ended September 30, 1998,
sales of bicycles and bicycle parts were RMB 73,836,000 or 76.4% of sales,
and sales of exercise equipment were RMB 22,777,000 or 23.6% of sales. For
the nine months ended September 30, 1997, sales of bicycles and bicycles
parts were RMB 83,861,000 or 59.7% of sales, and sales of exercise equipment
were RMB 56,517,000 or 40.3% of sales.
SCBW began to manufacture an exercise equipment product line during 1996
and a bicycle with an automatic transmission during 1997. SCBW manufactures
such products on a purchase order basis for original equipment manufacturers
("OEMs") that market their products in the United States under various brand
names through infomercials, television home shopping networks and mass market
retailers. As a contract manufacturer, SCBW does not own any rights with
respect to these products or the names under which they are marketed.
The decrease in sales in 1998 as compared to 1997 was primarily
attributable to the following factors:
ASIAN FINANCIAL CRISIS - During late 1997, the Company began to suffer from
the effects of the Asian financial crisis. Although China was not directly
affected by the turmoil in South Korea and other Asian countries, the
devaluation of currencies in those countries had the effect of undermining
the competitiveness of China's basic steel, petrochemical and textile
industries, and reducing one of the Company's main competitive advantages,
its low labor cost. Manufacturers in Taiwan, which represent the Company's
primarily competition, have reduced their prices over the last several
months, thus decreasing demand for the Company's products and increasing
pressure on the Company's revenues and gross margin. Industrial production
in China has decreased by one-third and retail sales have dropped by half in
1998 as compared to 1997. Export sales, which are a critical part of the
Chinese economy, have been negatively impacted by these factors, and have
been exacerbated by the central government of China's policy of maintaining a
strong currency and refusing to devalue its currency. The significant
reduction in the Company's export
20
<PAGE>
sales reflects this trend. In addition, as a result of the turmoil and
uncertainty in the Chinese economy, short-term bank credit has been
restricted by the central government of China.
WORKING CAPITAL REQUIREMENTS - The completion of the new production facility
at the end of 1995 substantially increased the Company's production capacity.
However, the Company's ability to increase production is dependent on
adequate working capital. The Company has not been successful in completing
a substantial long-term debt or equity financing to provide the working
capital necessary to support increased production levels at the new facility.
The Company's ability to utilize short-term bank debt to support its
operations has been impaired as a result of the Asian financial crisis, as
short-term bank debt is now subject to restrictions imposed by the central
government of China. As a result, during the latter part of 1997, the
Company began to experience a shortage of working capital, which has caused
the Company to decline orders that under normal conditions it would have
accepted. In addition, the Company's normal production cycle and its ability
to provide timely shipments to customers was negatively impacted. As a
result of this working capital shortage, the Company has instituted a change
in the way it acquires certain out-sourced parts. The Company has arranged
for certain customers to purchase, pay for and deliver specific parts, such
as bicycle pedals and derailleurs, to the Company's production facility that
in the past the Company would have purchased directly from the manufacturer.
Sales of approximately RMB 7,782,000 and RMB 33,290,000 during the three
months and nine months ended September 30, 1998, respectively, were recorded
under this new policy. This policy allows the Company to maintain a higher
level of unit sales than it could otherwise maintain under the current
operating conditions. In addition, in order to remain competitive, during
1998 the Company began to grant extended credit terms to certain export
accounts, which has also negatively impacted the Company's operating cash
flow. Accordingly, the Company expects that it will continue to experience
working capital shortages during the remainder of 1998 and 1999, which could
continue to have a material adverse effect on results of operations.
DOMESTIC SALES OF PARTS - The Company is a major supplier of parts to other
Chinese bicycle manufacturers which are significant exporters of finished
bicycles to the United States. The domestic sales of parts decreased in 1998
as compared to 1997 as a result of the Asian financial crisis, which had the
effect of reducing the export of finished bicycles from China to the United
States.
BANKRUPTCY OF MAJOR CUSTOMER - The Company's export sales of exercise
equipment decreased by RMB 17,973,000 or 89.3% during the three months ended
September 30, 1998 as compared to the three months ended September 30, 1997,
as a result of the
21
<PAGE>
bankruptcy of a major United States-based customer of the Company, which
accounted for a substantial portion of the Company's exercise equipment
sales. The Company had also manufactured a bicycle with an automatic
transmission for this customer. This customer had accounted for approximately
RMB 53,465,000 or 31% of the Company's sales for the year ended December 31,
1997. As a result of the bankruptcy filing, the Company recorded a provision
for bad debts with respect to this customer of RMB 24,070,000 during the
three months and nine months ended September 30, 1998. The Company
anticipates that its sales of exercise equipment, as well as sales of the
bicycle with an automatic transmission, will be negatively impacted during
the remainder of 1998 and during 1999 as a result of the bankruptcy of this
customer.
As a result of the foregoing factors, the Company expects that its
operations will continue to be adversely affected during the remainder of
1998 and during 1999.
Gross Profit:
Gross profit for the three months ended September 30, 1998 was RMB
3,890,000 or 13.5% of sales, as compared to RMB 11,359,000 or 23.1% of sales
for the three months ended September 30, 1997. Gross profit for the nine
months ended September 30, 1998 was RMB 20,287,000 or 21.0% of sales, as
compared to RMB 31,755,000 or 22.6% of sales for the nine months ended
September 30, 1997.
The decrease in gross profit as a percentage of sales in 1998 as
compared to 1997 was a result of the substantial decrease in sales, resulting
in less efficient utilization of fixed manufacturing costs. Also
contributing to the decrease in gross profit was the significant reduction in
sales of exercise equipment, as well as bicycles with the automatic
transmission, both of which have higher margins than standard bicycles, as a
result of the bankruptcy of the customer described above.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses for the three months ended
September 30, 1998 decreased by RMB 1,468,000 or 27.3%, to RMB 3,909,000 or
13.6% of sales, as compared to RMB 5,377,000 or 10.9% of sales for the three
months ended September 30, 1997, net of amounts assumed by SCH. Selling,
general and administrative expenses for the nine months ended September 30,
1998 decreased by RMB 243,000 or 1.9%, to RMB 12,303,000 or 12.5% of sales,
as compared to RMB 12,546,000 or 8.9% of sales for the nine months ended
September 30, 1997, net of amounts assumed by SCH. During the three months
and nine months ended September 30, 1998, the Company recorded a provision
for bad debts of RMB 27,070,000 and RMB 29,070,000, respectively. Of such
amounts, RMB 24,070,000 was specifically related to the bankruptcy of the
22
<PAGE>
customer described above. No provision for bad debts was recorded during the
three months and nine months ended September 30, 1997.
Selling, general and administrative expenses decreased on an absolute
basis in 1998 as compared to 1997 as a result of the decrease in sales, which
caused a decrease in certain sales-related expenses, as well as a reduction
in the number of employees in response to declining sales. General and
administrative expenses increased as a percentage of sales in 1998 as
compared to 1997 as a result of lower sales over which to allocate fixed
costs.
Pursuant to a cost-sharing agreement between SCBW and SCH effective
January 1, 1995, SCH agreed to bear 40% of certain selling, general and
administrative expenses incurred by SCBW, which represents its share of
management and selling activities incurred by SCBW on SCH's behalf. For the
three months ended September 30, 1998 and 1997, such amounts aggregated
approximately RMB 291,000 and RMB 329,000, respectively. For the nine months
ended September 30, 1998 and 1997, such amounts aggregated approximately RMB
3,853,000 and RMB 2,606,000, respectively.
Interest Income and Interest Expense:
Interest expense for the three months ended September 30, 1998 was RMB
2,553,000 or 8.9% of sales, as compared to RMB 6,091,000 or 12.4% of sales
for the three months ended September 30, 1997. Interest expense for the nine
months ended September 30, 1998 was RMB 7,260,000 or 7.5% of sales, as
compared to RMB 11,365,000 or 8.1% of sales for the nine months ended
September 30, 1997. Interest expense decreased in 1998 as compared to 1997 as
a result of a reduction in short-term borrowings. The reduction in
short-term borrowings was accomplished through an agreement between SCBW and
SCH pursuant to which SCH assumed SCBW's short-term borrowings of RMB
49,997,000 effective October 1, 1997, as settlement of amounts due SCBW by
SCH.
Interest income for the three months and nine months ended September 30,
1998 was not material. During the three months and nine months ended
September 30, 1997, the Company recorded approximately RMB 2,500,000 of
interest income on amounts due from SCH primarily for the purchase of goods,
which was calculated at a rate of 8.0% per annum. Due to the significant
reduction in the balance due from SCH, the Company does not expect interest
income from SCH to be material during 1998.
Net Income (Loss):
For the three months ended September 30, 1998, net loss was (RMB
29,904,000), as compared to net income of RMB 3,032,000 for
23
<PAGE>
the three months ended September 30, 1997.
For the nine months ended September 30, 1998, net loss was (RMB
29,463,000), as compared to net income of RMB 10,333,000 for the nine months
ended September 30, 1997.
Consolidated Financial Condition - September 30, 1998:
Liquidity and Capital Resources -
For the nine months ended September 30, 1998, the Company's operations
provided cash resources of RMB 1,362,000, as compared to utilizing cash
resources of RMB 9,609,000 for the nine months ended September 30, 1997. The
most significant components of the cash provided by operations in 1998 were
the decrease in due from (payable to) SCH of RMB 10,803,000 and the increase
in accrued expenses and other liabilities of RMB 15,750,000, which was offset
by the increase in accounts receivable of RMB 36,108,000. The significant
increase in net accounts receivable between December 31, 1997 and September
30, 1998 was primarily a result of extended credit terms that the Company
began to grant to certain export accounts beginning in 1998. As a result of
the recent bankruptcy of a significant customer, the Company is reviewing its
credit evaluation procedures in order to control its credit risk.
During the nine months ended September 30, 1998, SCH made payments to
the Company in excess of amounts owed, resulting in a net payable of RMB
2,465,000 at September 30, 1998, as compared to a net receivable of RMB
8,338,000 at December 31, 1997.
Operating cash flow is adversely affected by the long collection cycle
that is typical of Chinese companies that have a substantial proportion of
their customers in China. Accordingly, to the extent that the Company's
business in China increases, the Company expects that its operating cash flow
will be negatively impacted.
The Company had a working capital deficit of (RMB 11,195,000) at
September 30, 1998, as compared to working capital of RMB 10,358,000 at
December 31, 1997. As a result, the Company's current ratio at September 30,
1998 was .94:1, as compared to 1.06:1 at December 31, 1997. The decrease in
working capital was caused primarily by increases in the provision for bad
debts and in accrued expenses and other liabilities, and the decrease in due
from (payable to) SCH.
Except with regard to the initial transaction pursuant to which SCBW was
organized and capitalized, the Company's primary method of financing its
capital requirements has been borrowings. Short-term borrowings consist
primarily of bank loans, are
24
<PAGE>
unsecured, repayable within one year, have interest rates ranging from 7.63%
to 21.6%, and have been utilized for working capital purposes and, prior to
1996, to finance the expansion of the production facility and the purchase of
equipment.
During the nine months ended September 30, 1998, short-term borrowings
decreased by RMB 1,289,000, and long-term borrowings increased by RMB
500,000. As of September 30, 1998, short-term borrowings were RMB 73,752,000
and long-term borrowings were RMB 6,600,000.
SCBW is considered by the government of China as an important component
of the bicycle production and exporting base of China, and has been
designated for continuing financial support by the Zhaoqing Branch of the
Bank of China. SCBW has utilized borrowings from the Bank of China to
support increases in production and sales, and to finance the expansion of
the production facility and to purchase equipment. Pursuant to guidelines
issued by the government of China, SCBW increased its short-term borrowings
during 1995, 1996 and 1997 from the Bank of China with loans having
maturities ranging from one to two months. The working capital loans that the
Bank of China has made to SCBW are renewed, and new loans have historically
been available, as long as SCBW's production and business operations have
continued to meet certain operating and financial criteria. Management
believes that the Bank of China will continue to renew SCBW's existing
borrowings. However, increases to SCBW's borrowing base, although granted in
the past, are now subject to restrictions imposed by the central government
of China.
In connection with the formation of SCBW as a Sino-foreign joint venture
between SCH and Winfill in June 1994, Winfill issued a note payable to MTE
for USD 5,000,000. MTE assigned USD 1,000,000 of such note to a third party,
which is included in accrued expenses and other liabilities in the
consolidated balance sheets at December 31, 1997 and September 30, 1998, and
which became due and payable on June 30, 1998, at which time it became a
demand note. The USD 4,000,000 note payable to MTE is unsecured, bears no
interest, has no fixed repayment terms, and is expected to remain outstanding
for the indefinite future. There have been no payments on this note, which
is presented as loan from MTE of RMB 33,280,000 in the consolidated balance
sheets at December 31, 1997 and September 30, 1998.
Additions to property, plant and equipment totalled RMB 2,779,000 during
the nine months ended September 30, 1998. SCBW does not expect to make any
major capital expenditures during the remainder of 1998, and had no
significant capital expenditure commitments outstanding at September 30, 1998.
As a result of the recent operating losses and the decrease in net
working capital, the Company intends to commence a review
25
<PAGE>
of the useful life of goodwill and assess whether there has been any
permanent diminution in value. The Company is currently unable to predict
the results of such review and the potential effect on the Company's results
of operations and financial position.
As of December 31, 1997 and September 30, 1998, RMB 17,370,000 and RMB
16,191,000, respectively, was due from Easy Keen. A director of the Company
is also a shareholder of Easy Keen and MTE. SCBW and Easy Keen have agreed
to settle the net amount due SCBW by Easy Keen supplying raw materials of the
same value during 1998, or otherwise by payment in cash. The Company is
reviewing various alternatives in an attempt to resolve this matter by
December 31, 1998.
The Company believes that its operations will be constrained during the
remainder of 1998 and during 1999 as a result of reduced sales and operating
margins, and the reduction in working capital available to fund operations.
As a result, although the Company expects that it will be able to continue to
operate, it may have to reject certain purchase orders, reduce operating and
employee levels, delay payments to suppliers, and rely on advances from SCH
for working capital. However, the inability of the Company to significantly
increase sales and maintain acceptable gross margins in 1999 may result in
insufficient working capital resources available to fund operations, and
accordingly, the Company may have to substantially curtail operating
activities.
In order for the Company to increase sales and fully utilize the
expanded production capacity of the new production complex, the Company will
require operating capital substantially in excess of that normally available
from domestic Chinese sources. The Company has been unsuccessful to date in
arranging a substantial long-term debt or equity financing, and there can be
no assurances that the Company will be successful in completing such a
financing in the future.
Inflation and Currency Matters -
In recent years, the Chinese economy has experienced periods of rapid
economic growth as well as relatively high rates of inflation, which in turn
has resulted in the periodic adoption by the Chinese government of various
corrective measures designed to regulate growth and contain inflation. Since
1993, the Chinese government has implemented an economic program designed to
control inflation, which has resulted in the tightening of working capital
available to Chinese business enterprises. The recent Asian financial crisis
has resulted in a general reduction in domestic production and sales, and a
general tightening of credit, throughout China. The success of the Company
depends in substantial part on the continued growth and development of the
Chinese economy.
Foreign operations are subject to certain risks inherent in conducting
business abroad, including price and currency exchange
26
<PAGE>
controls, and fluctuations in the relative value of currencies. A
substantial portion of the Company's revenues are denominated in RMB. As a
result, devaluation of the RMB against the USD would adversely affect the
Company's financial performance when measured in USD. Although prior to 1994
the RMB experienced significant devaluation against the USD, the RMB has
remained fairly stable since then. In addition, the RMB is not freely
convertible into foreign currencies, and the ability to convert the RMB is
subject to the availability of foreign currencies. Effective December 1,
1998, all foreign exchange transactions involving the RMB must take place
through authorized banks in China at the prevailing exchange rates quoted by
the People's Bank of China.
The continuing Asian financial crisis has inhibited the growth and
general level of activity of the Chinese economy, with respect to both
Chinese domestic sales and export sales, which has had a negative impact on
the Company's results of operations, financial condition and cash flows. In
addition, as a result of the Asian financial crisis, China recently tightened
foreign exchange controls. However, the Company does not expect that the
recently tightened foreign exchange controls will affect the Company's
ability to fund its activities outside of China.
Although the central government of China has recently indicated that it
does not intend to devalue its currency in the near future, devaluation still
remains a possibility. Should the central government of China decide to
devalue its currency, the Company believes that such an action would have a
positive impact on operations by stimulating export sales, which are
denominated in USD. As of September 30, 1998, the Company's only
USD-denominated debt, which would be more expensive to repay in the event of
a devaluation, are the capital lease obligations of RMB 9,901,000 and the MTE
loan of RMB 33,280,000. However, MTE is the Company's parent, owning
approximately 80% of the Company's outstanding common stock, and the loan is
not currently scheduled for repayment.
Year 2000 Issue:
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year.
Computer programs that have sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
The Company does not rely on computers with respect to most
27
<PAGE>
aspects of its operations. Accordingly, based on a recent internal
assessment, the Company does not believe that the cost to modify its existing
software and/or convert to new software will be significant.
28
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K -
Three Months Ended September 30, 1998: None.
29
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
FREMONT CORPORATION
-------------------
(Registrant)
Date: November 11, 1998 By: /s/ WINSTON WU
-------------------------
Winston Wu (Wu Fa Pei)
President
(Duly authorized officer)
Date: November 11, 1998 By: /s/ EDWARD DING
-------------------------
Edward Ding (Ding Yuehua)
Vice President and Chief
Financial Officer
(Principal financial
officer)
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S
QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> CHINESE RENMINBI
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> .12048
<CASH> 2,102
<SECURITIES> 0
<RECEIVABLES> 79,638
<ALLOWANCES> 0
<INVENTORY> 66,722
<CURRENT-ASSETS> 184,762
<PP&E> 166,605
<DEPRECIATION> 37,840
<TOTAL-ASSETS> 375,838
<CURRENT-LIABILITIES> 195,957
<BONDS> 8,255
0
0
<COMMON> 49
<OTHER-SE> 122,439
<TOTAL-LIABILITY-AND-EQUITY> 375,838
<SALES> 96,613
<TOTAL-REVENUES> 96,613
<CGS> 76,326
<TOTAL-COSTS> 76,326
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 29,070
<INTEREST-EXPENSE> 7,260
<INCOME-PRETAX> (28,293)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,463)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,463)
<EPS-PRIMARY> (5.03)
<EPS-DILUTED> (5.03)
</TABLE>
