<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________ .
Commission File No. 0-26232
CHINA PACIFIC, INC.
-------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Nevada 87-0429945
- -------------------------------- ----------------------------------
(STATE OR OTHER JURISDICTION OF (IRS Employer Identification No.)
INCORPORATION OR ORGANIZATION)
Rm. 2008 Sun Hung Kai Centre, 30 Harbour Road
Wanchai, Hong Kong
------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(852) 2802 3068
---------------
(Issuer's telephone number)
____________________________________________________________________________
(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 May 1, 1997, 8,956,384 shares of Common Stock of the issuer were
outstanding.
<PAGE>
CHINA PACIFIC, INC.
INDEX
PAGE
NUMBER
------
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1997 and December 31,
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations - For the three months
ended March 31, 1997 and 1996. . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows - For the three months
ended March 31, 1997 and 1996. . . . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements . . . . . . . . . . 4-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . 8-9
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 10
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHINA PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(AMOUNTS EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------------------------- --------------------------
RMB USD RMB USD
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash 82,212 9,917 61,296 7,394
Accounts receivable, net 139,952 16,882 112,006 13,511
Due from related companies 25,666 3,095 2,031 245
Due from CISP, current portion 13,007 1,568 12,999 1,568
Prepayments, deposits, and other current assets 35,199 4,247 48,264 5,822
Inventories, net 288,268 34,773 316,919 38,229
----------- ---------- ---------- ----------
Total current assets 584,304 70,482 553,515 66,769
Investment Properties 104,089 12,556 - -
Due from CISP, long-term portion 60,509 7,299 38,192 4,607
Investment in an associated company 61,288 7,393 58,992 7,116
Investments and notes receivable 30,789 3,714 30,789 3,714
Deferred value added tax recoverable 35,050 4,228 35,050 4,228
Property, plant and equipment, net 212,705 25,658 214,222 25,841
Goodwill, net 16,953 2,045 17,061 2,058
----------- ---------- ---------- ----------
Total assets 1,105,687 133,375 947,821 114,333
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings 33,143 3,998 49,715 5,997
Long-term debt, current portion 8,946 1,079 10,603 1,279
Accounts payable 107,463 12,963 164,159 19,802
Deposits from customers 181,558 21,901 132,798 16,019
Accrued liabilities 96,131 11,596 103,882 12,531
Value added tax payable 23,460 2,830 22,449 2,708
Due to related companies 8,348 1,006 9,368 1,130
----------- ---------- ---------- ----------
Total current liabilities 459,049 55,373 492,974 59,466
Long-term debt 186,060 22,444 - -
Total liabilities 645,110 77,817 492,974 59,466
----------- ---------- ---------- ----------
Minority interests 153,893 18,564 147,454 17,787
----------- ---------- ---------- ----------
Shareholders' equity:
Preferred stock, par value $0.001 - - - -
Series A convertible - - - -
Series B convertible and redeemable - - - -
Common stock, par value $0.001 75 9 75 9
Treasury stock, 27,500 shares (1,420) (171) (1,420) (171)
Additional paid-in capital 179,995 21,712 189,418 22,849
Dedicated capital 25,686 3,098 23,245 2,804
Retained earnings 98,137 11,838 92,235 11,126
Cumulative translation adjustments 4,212 508 3,840 463
----------- ---------- ---------- ----------
Total shareholders' equity 306,685 36,994 307,393 37,080
----------- ---------- ---------- ----------
Total liabilities, minority interests and shareholders' equity 1,105,687 133,375 947,821 114,333
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements
Pg. 1
<PAGE>
CHINA PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
------------------------------- ------------------------------
RMB USD RMB USD
<S> <C> <C> <C> <C>
Net sales 251,900 30,386 234,010 28,228
Cost of goods sold (222,354) (26,822) (199,648) (24,083)
--------- --------- --------- ---------
Gross profit 29,546 3,564 34,362 4,145
Selling, general and administrative expenses (16,240) (1,959) (16,331) (1,970)
Interest income/(expenses), net (1,376) (166) 555 67
Other income, net 2,851 344 16,099 1,942
--------- --------- --------- ---------
Income before income taxes 14,781 1,783 34,685 4,184
Provision for income taxes - - - -
--------- --------- --------- ---------
Income before minority interests 14,781 1,783 34,685 4,184
Minority interests (6,439) (777) (9,078) (1,095)
--------- --------- --------- ---------
Net income 8,342 1,006 25,607 3,089
--------- --------- --------- ---------
--------- --------- --------- ---------
Primary earnings per common share:
Net income 0.97 0.12 3.58 0.43
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of shares outstanding 8,569,459 8,569,459 7,153,787 7,153,787
--------- --------- --------- ---------
--------- --------- --------- ---------
Fully dilutive earnings per common share 0.84 0.10
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of shares
outstanding used in fully dilutive calculation 12,779,483 12,779,483
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements
Pg. 2
<PAGE>
CHINA PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
(AMOUNTS EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
----------------------- ----------------------
RMB USD RMB USD
<S> <C> <C> <C> <C>
Cash flows from operating activities :
Net income (loss) 8,340 1,006 25,607 3,089
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Equity gain on CPC (2,296) (277) (2,338) (282)
Amortization of goodwill 108 13
Amortization of depreciation 1,650 199 2,271 274
Loss on disposals of fixed assets - - 274 33
Minority interests 6,441 777 9,078 1,095
Effect of cumulative translation adjustment 373 45 (17) (2)
(Increase) Decrease in operating assets
Accounts receivable, (27,946) (3,371) (33,226) (4,008)
Inventories, net 28,650 3,456 21,761 2,625
Prepayments and other current assets 13,057 1,575 (5,413) (653)
Increase (Decrease) in operating liabilities:
Accounts payable, net (56,695) (6,839) (24,140) (2,912)
Accrued liabilities (7,751) (935) (2,479) (299)
Deposit from customers 48,762 5,882 3,059 369
Taxation 1,010 122 8,307 1,002
--------- --------- --------- ---------
Net cash provided by (used in) operating activities 13,703 1,653 2,744 331
--------- --------- --------- ---------
Cash flows from investing activities:
Acquisition of investments and notes receivable - - (3,026) (365)
Acquisition of fixed assets (133) (16) (1,078) (130)
Acquisition of development properties, net (104,089) (12,556) - -
Acquisition of construction progress - - (30,698) (3,703)
--------- --------- --------- ---------
Net cash provided by (used in) investing activities (104,222) (12,572) (34,802) (4,198)
--------- --------- --------- ---------
Cash flows from financing activities:
Decrease in short-term borrowings (16,572) (1,999) (29,015) (3,500)
(Decrease) increase in obligations under
lease purchase contracts - - (1,849) (223)
Other long-term liabilities 184,403 22,244 (18,868) (2,276)
Due from related companies and holding company (45,943) (5,542) - -
Due to related companies and holding company (1,028) (124) (8,149) (983)
Proceeds from issuance of stock (9,426) (1,137) 86,954 10,489
--------- --------- --------- ---------
Net cash provided by (used in) financing activities 111,434 13,442 29,073 3,507
--------- --------- --------- ---------
Net increase (decrease) in cash 20,915 2,523 (2,985) (360)
Cash at beginning of period 61,296 7,394 121,788 14,691
--------- --------- --------- ---------
Cash at end of period 82,211 9,917 118,803 14,331
--------- --------- --------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements
Pg. 3
<PAGE>
China Pacific, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
1. INTERIM FINANCIAL PRESENTATION
The interim financial statements are prepared pursuant to the requirements
for reporting on Form 10-Q. The December 31, 1996 balance sheet data was
derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles. The
interim financial statements and notes thereto should be read in
conjunction with the financial statements and notes included in the
Company's Form 10-KSB dated December 31, 1996. In the opinion of
management, the interim financial statements reflect all adjustments of a
normal recurring nature necessary for a fair statement of the results for
the interim periods presented.
2. CURRENCY PRESENTATION AND FOREIGN CURRENCY TRANSLATION
The Company's financial information is presented in Reminbi (RMB). The
translation of the financial statements of foreign subsidiaries into U.S.
dollars (USD) is performed for balance sheet accounts using closing
exchange rates in effect at the balance sheet date and for revenue and
expense accounts using an average exchange rate during each reporting
period. The gains or losses resulting from translation are included in
shareholders' equity separately as cumulative translation adjustments.
3. BUSINESS AND ORGANIZATION
Effective July 1, 1995, the Company acquired a 60% interest in Chengdu
Chengkang Iron and Steel Company Limited ("Chengdu Steel"), a sino-foreign
joint venture engaged in the manufacturing of iron and steel products in
the People's Republic of China.
Effective December 29, 1995, the Company's then 51% owned subsidiary, China
Pacific Construction (B.V.I.) Limited (formerly known as China Treasure
Construction (B.V.I.) Limited), disposed of its entire equity interest in
the Sun City development.
4. INVENTORIES
Inventories comprised: March 31, 1997
---------------
RMB'000 USD'000
Raw materials 216,535 26,120
Work-in-process 59,754 7,208
Finished goods 11,979 1,445
------- ------
288,268 34,773
------- ------
------- ------
Inventories are stated at the lower of cost, on a first-in first-out basis,
or market value. Costs of work-in-process and finished goods are composed
of direct materials, direct labour and an attributable portion of
production overheads.
5 INVESTMENT PROPERTIES
During the three months ended March 31, 1997, the Company acquired two
residential properties in Hong Kong for investment purposes for an
aggregate consideration of approximately RMB104.1 million.
Pg. 4
<PAGE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised :
March 31, 1997
--------------------------
RMB'000 USD'000
Buildings 146,758 17,703
Machinery and equipment 39,452 4,759
Motor Vehicles 4,336 523
Furniture and office equipment 1,210 146
------- ------
191,756 23,131
Less: Accumulated depreciation (16,812) (2,028)
------- ------
174,944 21,103
Construction-in-progress : 37,761 4,555
------- ------
212,705 25,658
------- ------
------- ------
7. GOODWILL
Goodwill, being the excess of cost over fair value of the net assets of CPS
and CCIS acquired, is amortized on a straight-line basis over forty years.
The amortization recorded for 1996 and March 31, 97 was approximately RMB
439,370.00 and RMB107,770.00 respectively. Accumulated amortization as of
December 31, 1996 and March 31, 1997 was approximately RMB671,490.00 and
RMB779,260.00. At each balance sheet date, the Company evaluates the
realizability of goodwill based on expectations of non-discounted cash
flows and operating income for CPS/CCIS having a material goodwill balance.
Based on its most recent analysis, the Company believes that no material
impairment of goodwill exists at March 31, 1997.
8. SHAREHOLDERS' EQUITY
ISSUANCE OF 9% CONVERTIBLE NOTES
During the three months ended March 31, 1997, the Company offered
Convertible Notes to non-US Investors pursuant to the provisions of
Regulation S under the U.S. Securities Act of 1933. Pursuant to such
offering, the Company sold USD15 million (equivalent to RMB124.35 million)
of 9% Convertible Notes for net consideration of USD13..95 million
(equivalent to RMB115.65 million)
10% CONVERTIBLE DEBENTURE
As of March 31, 1997, USD200,000.00 (equivalent to RMB1.66 million) of 10%
Convertible debentures remained outstanding.
TREASURY STOCK
During May 1996, the Company acquired 27,500 shares of its common stock in
the open market for aggregate consideration of USD171,000.00 (equivalent to
RMB1.42 million) representing an average price of USD6.20.
WARRANTS
In 1995, the Company issued 550,755 warrants to a third party for
investment banking services on a conversion basis of 4 warrants for 1 share
of common stock of the Company at an exercise price of USD15.24 per share
(after adjusting for the one-for-four reverse stock split). The warrants
will expire in September 2000. No warrants have been excereised.
During the three months ended March 31, 1997, the placement agent for the
sale of the 9% Convertible Notes described above was granted a five year
warrant exercisable to acquire up to 300,000 shares of the Company's common
stock at a price of USD4.00 per share.
Pg. 5
<PAGE>
CHINA PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK TREASURY ADDITIONAL EARNINGS CUMULATIVE
-------------------- ------------------
NUMBER OF NUMBER OF PAID-IN DEDICATED (ACCUMULATED TRANSLATION
SHARES* AMOUNT SHARES* AMOUNT CAPITAL CAPITAL DEFICIT) ADJUSTMENTS
--------- -------- --------- -------- -------- --------- ----------- -----------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1996 8,956,384 75 (27,500) 1,420 189,418 23,245 92,235 3,840
Net income - - - - - - 8,342 -
Issuance of 10% debenture Notes - - - - (9,423) - - -
Transfer to dedicated capital - - - - - 2,441 (2,441) -
Translation adjustments - - - - - - - 372
--------- ------- --------- --------- --------- -------- --------- ---------
Bal. as of March 31, 1997 8,956,384 75 (27,500) 1,420 179,995 25,686 98,137 4,212
--------- ------- --------- --------- --------- -------- --------- ---------
--------- ------- --------- --------- --------- -------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Pg. 6
<PAGE>
OPTIONS
In 1995, the Company granted common stock options under an incentive plan
to purchase 125,000 shares of common stock at exercise prices ranging from
USD9.60 to USD16.00 (after adjusting for the one-for-four reverse stock
split) to be exercised according to a pre-determined schedule from 1996 to
2000. No options were exercised in 1996 or during the first quarter of
1997.
REVERSE STOCK SPLIT
The Company declared a 1-for-4 reverse stock split effective July 9, 1996.
All information herein relating to shares issued or outstanding, including
information in the footnotes, reflects the effect of such reverse stock
split.
9. OTHER INCOME - MINIMUM PROFIT GUARANTEES
In 1996, pursuant to the terms governing the formation of Chengdu Steel and
the Company's acquisition of a 60% interest in Chengdu Steel, Chengdu Iron
and Steel Plant guaranteed a minimum after tax profit to Chengdu Steel of
Rmb 150 million (approximately equivalent to USD18 million). The Company
estimates annual after tax profits of Chengdu Steel periodically in order
to determine whether payments will be due to China Pacific Steel Limited,
the Company's wholly-owned subsidiary and 60% owner of Chengdu Steel,
pursuant to such profit guarantee. Based on earnings in the three months
ended March 31, 1996, the estimated short-fall in after tax profits of
Chengdu Steel during 1st quarter 1996 resulted in a payment to China
Pacific Steel Limited of USD1,665,000 pursuant to the estimated payments
under such guarantee. Such estimated guarantee payments are recorded as
other income and will be adjusted periodically to reflect actual results
of Chengdu Steel.
During the period ended March 31, 1997, no guarantee payments were
applicable because no such guarantee payments are to be made after December
31, 1996.
10. EARNINGS PER SHARE
Earnings per share is calculated for each period and the shares outstanding
have been adjusted to give retroactive effect to the 1-for-4 reverse stock
split which became effective July 9, 1996.
11. OUTSTANDING LITIGATION
On or about March 5, 1997 , a brokerage firm filed a civil action against
the Company in the United States District Court, Southern District of New
York. The complaint alleges breach of contract by the Company in
connection with a Selling Agreement allegedly entered into between the
Company and the brokerage firm, and
Pg. 7
<PAGE>
involves securities of the Company that were sold in private placements in 1995
and 1996. The brokerage firm is seeking monetary damages and expenses in excess
of US$5 million, and an order compelling the Company to issue warrants to
subscribe to 1,141,000 shares of common stock (after considering the one-for-
four reverse stock split) under the terms of the alleged Selling Agreement. The
Company believes this claim is without merit and plans to contest such claim
vigorously. However, the Company is unable to predict the outcome of this
dispute and if the outcome is adverse to the Company, the Company's financial
position and operating results could be adversely affected. No provision has
been recorded in the financial statements in connection with the aforesaid
claims.
Subsequent to the period, the Company filed an answer to the Complaint and
a counterclaim for breach of contract and misappropriation of property against
the brokerage firm, seeking damages of not less than USD0.5 million (equivalent
to Rmb4.15 million).
In addition, the Company also filed a third-party complaint against the
Company's former counsel for fraud, fraud-concealment and breach of fiduciary
duty, professional malpractice and misappropriation of property, seeking
compensatory damages of not less than USD 5 million (equivalent to Rmb 41.5
million) and punitive damages of not less than USD1.5 million (equivalent to
Rmb12.44 million).
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
MATERIAL CHANGES AND RESULTS OF OPERATIONS
Net sales during the three months ended March 31, 1997 totaled USD30.4
million compared to net sales of USD 28.2 million during the three months ended
March 31, 1996. The increase in net sales was attributable to increased
production capacity relating to the installation of a new blast furnace in the
second quarter of 1996.
Cost of goods sold during the three months ended March 31,1997 totaled
USD26.8 million as compared to USD24.1 million during the three months ended
March 31, 1996. The increase in cost of goods sold was attributable to the
increase in sales resulting from commencement of operations of the new blast
furnace and also to an increase in direct materials costs of about 10% as
compared with the three months ended March 31, 1996.
Gross profits decreased by 16.3% from USD4.1 million (14.7% of net sales)
during the period in 1996 to USD3.6 million (11.7% of net sales) during 1997.
The decline in profit margin during the period was attributable to direct
materials costs increasing by more than 10% as compared with the period ended
March 31, 1996.
Selling, general and administrative expenses ("SG&A") during the three
months ended March 31, 1997 totaled USD1.96 million as compared to USD1.97
million during the three months ended March 31, 1996. There is no significant
change as compared with the last period.
Interest Expenses net, during the three months ended March 31, 1997 totaled
USD166,000 as compared to interest income of USD67,000 during the three months
ended March 31, 1996. There are debenture interest expenses represented during
the period ended March 31, 1997.
Other income, net, during the three months ended March 31, 1997 totaled
USD344,000 The Company reported USD1.9 million of other income, net, during the
three months ended March 31, 1996. Other income was attributable to (1)
estimated compensation of USD1.65 million payable to the Company's subsidiary,
China Pacific Steel Limited, based on estimated 1996 earnings of Chengdu Steel,
pursuant to a letter of guarantee from Chengdu Iron and Steel Plant ("CISP") to
China Pacific Steel Limited whereby CISP guaranteed after tax
Pg. 8
<PAGE>
profits of Chengdu Steel of not less than Rmb 150 million (approximately USD18
million) during 1996, and (2) the Company's allocable share of profits of
USD286,000 and USD277,000 in 1996 and 1997, respectively, from China Pacific
Construction (B.V.I.) Limited following the sale of the Company's interest in
Sun City and the reduction in the Company's ownership interest in China Pacific
Construction to 50%. The letter of guarantee from CISP to China Pacific Steel
Limited described in item (1) above does not apply to Chengdu Steel's after tax
profits in 1997.
Minority interest represents the allocable share of income or loss
attributable to the 40% share of Chengdu Steel not owned by the Company during
the first three months of 1996 and 1997.
Net income during the quarter ended March 31, 1997 totaled USD1.0 million
as compared to USD3.1 million during the first three months of 1996.
MATERIAL CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At March 31 , 1997 the Company had working capital of USD15.4 million and
cash balances of USD9 million as compared to a working capital balance of USD7.3
million and a cash balance of USD7.4 million at December 31 1996. The change in
cash and working capital was attributable to a combination of (i) cash flows
from profitable operations (ii) the receipt of USD13.95 million (equivalent to
Rmb115.65 million ) of net proceeds from the sale of 9% convertible notes during
1997 , (iii) the acquisition of various fixed assets and inventories, (iv)
the acquisition of two residential properties in Hong Kong for investment
purposes, for an aggregate consideration of approximately USD12.56 million
(equivalent to Rmb104.1 million) and (v) other expenditures .
At March 31, 1996, the primary obligations of the Company consisted of USD4
million (equivalent to RMB33.1 million) which remained payable to an affiliate
relating to the Chengdu Steel Acquisition, as well as long-term debt in the
amount of USD22.4 million including (i) mortgage loans for financing the
investment properties of USD7.3 million, (ii) 9% convertible notes in the amount
of USD13.9 million and (iii) 10% convertible debentures in the amount of USD0.2
million.
Other than the foregoing, the Company has no sources of available capital
or commitments to provide additional capital. Management believes that the
Company has sufficient capital resources to fund its current operations for the
foreseeable future.
Pg. 9
<PAGE>
PART II .OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
On or about March 5, 1997, a brokerage firm filed a civil action
against the Company in the United States District Court, Southern
District of New York. The complaint alleges breach of contract by the
Company in connection with a Selling Agreement allegedly entered into
between the Company and the brokerage firm, and involves securities of
the Company that were sold in private placements in 1995 and 1996.
The brokerage firm is seeking monetary damages and expenses in excess
of USD5 million, and an order compelling the Company to issue warrants
to subscribe to 1,141,000 shares of common stock (after considering
the one-for-four reverse stock split) under the terms of the alleged
Selling Agreement. However, the Company is unable to predict the
outcome of this dispute, and if the outcome is adverse to the Company,
the Company's financial position and operating results could be
adversely affected.
Subsequent to the period, the Company filed an answer to the complaint
and a counterclaim for breach of contract and misappropriation of
property against the brokerage firm, seeking damages of not less than
USD0.5 million. In addition, the Company has also filed a third-party
complaint against the Company's former counsel for fraud, fraud-
concealment and breach of fiduciary duty, professional malpractice and
misappropriation of property, seeking compensatory damages of not less
than USD5 million and punitive damages of not less than USD1.5
million.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
Report of sale of USD15 million (equivalent to RMB124.35
million) of 9% Convertible notes pursuant to Regulation S, dated
January 15, 1997.
Pg. 10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHINA PACIFIC, INC.
Date: May 15, 1997 /s/ Clement Mak Shiu Tong
------------------------------------
Clement Mak Shiu Tong, President and
Chief Executive Officer
Date: May 15, 1997 /s/ Thomas Tong
-------------------------------------
Thomas Tong, Treasurer and Chief
Financial Officer
Pg. 11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,917
<SECURITIES> 0
<RECEIVABLES> 16,882
<ALLOWANCES> 0
<INVENTORY> 34,773
<CURRENT-ASSETS> 70,482
<PP&E> 25,658
<DEPRECIATION> 2,028
<TOTAL-ASSETS> 133,375
<CURRENT-LIABILITIES> 55,373
<BONDS> 22,444
0
0
<COMMON> 9
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 133,375
<SALES> 30,386
<TOTAL-REVENUES> 30,386
<CGS> 26,822
<TOTAL-COSTS> 1,959
<OTHER-EXPENSES> 166
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,783
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,783
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,006
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.10
</TABLE>
