<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 June 30, 1996
[ ] 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. 33-3276-D
CHINA CONTINENTAL, INC.
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(Exact name of registrant as specified in its charter)
Utah 87-0431063
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(State or other jurisdiction of (IRS EmployerIdentification No.)
incorporation or organization)
1801-1806 Hua Qin International Building, 340 Queen's Road Central, Hong Kong
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(Address of principal executive offices)
852-2542-2612
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(Registrant's telephone number)
1140 Avenue of the Americas, Penthouse Floor, New York, New York 10036
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the registrant has (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 NO X
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As of June 30, 1996, 26,000,000 shares of Common Stock of the registrant were
outstanding.
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CHINA CONTINENTAL, INC.
INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - June 30, 1996 1
(unaudited) and March 31, 1996 (audited)
Unaudited Consolidated Statements of Income - 2
For the three months ended June 30, 1996 and 1995
Unaudited Consolidated Statements of Cash Flows- 3
For the three months ended June 30, 1996 and 1995
Notes to Unaudited Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial 5
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 6
Item 2. Changes in Securities 6
Item 3. Defaults Upon Senior Securities 6
Item 4. Submission of Matters to a Vote of Security Holders 6
Item 5. Other Information 6
Item 6. Exhibits and Reports on Form 8-K 6
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CHINA CONTINENTAL, INC.
CONSOLIDATED BALANCE SHEETS
(Stated in '000 United States Dollars)
June 30, March 31,
1996 1996
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(unaudited)
ASSETS
Current Assets
Cash and deposits $20,625 $963
Accounts receivable, net,
prepaids and deposits 17,325 1,837
Short term investments 0 0
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Total Current Assets $37,950 $ 2,800
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Long term receivable 0 31,897
Property and equipment 580 602
Investment in joint ventures 750 747
Due from related companies 1,890 2,191
Other assets 15,536 15,536
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Total Assets $56,706 $53,773
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdraft 0 87
Payables and accruals 4,562 5,371
Bank import loans 1,032 727
Due to related companies 658 790
Income taxes payable 5,430 5,875
Current portion of
long-term debt 0 190
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Total current liabilities $11,682 $13,040
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Long term debt 0 0
Deferred income taxes 20 20
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Total Liabilities $11,702 $13,060
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Stockholders' Equity
Share capital 26 26
Contributed surplus 1,713 1,713
Retained earnings 43,265 38,974
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Total Stockholders' Equity $45,004 $40,713
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Total Liabilities and Stockholders'
Equity $56,706 $53,773
====== ======
The accompanying notes are an integral part of these financial statements.
1
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CHINA CONTINENTAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Stated in '000 United States Dollars)
(Unaudited)
3 months ended
June 30, June 30,
1996 1995
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Revenues
Sale of turnkey projects $9,170 $8,115
Sale of raw materials 476 798
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Total revenues $9,646 $8,913
Costs and expenses
Cost of turnkey projects 4,132 3,670
Cost of raw materials 440 736
Depreciation of fixed assets 22 22
Selling and administrative
expenses 353 320
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Total costs and expenses $4,947 $4,748
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Operating income $4,699 $4,165
Financial income (expenses) net (8) 1
Other income (expenses) net 12 11
Share of losses of associated
companies (22) (56)
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Income (loss) before income taxes 4,681 4,121
Income taxes (390) (344)
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Net Income $4,291 $3,777
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Earnings per share $0.165 $0.15
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Dividends per share __ __
Weighted average common ---------- ----------
and equivalent shares
outstanding 26,000,000 26,000,000
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The accompanying notes are an integral part of these financial statements.
2
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CHINA CONTINENTAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Stated in '000 United States Dollars)
(Unaudited)
3 months ended
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June 30, June 30,
1996 1995
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Cash Flow From Operating Activities:
Net Income ..................................... $ 4,291 $ 3,777
Adjustments to Reconcile Net Earnings
to Net Cash From (Used in) Operating
Activities:
Depreciation .............................. 22 22
Loss (Gain) on Disposal of
Investment .............................. 0 0
Share of (Profit) Loss in
Joint Venture ........................... 22 56
Changes in Non-Cash Working
Capital ................................. 15,385 (2,287)
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Net Cash Provided by (Used in)
Operating Activities .............. $19,720 $ 1,568
======= =======
Investment Activities:
Proceeds from Disposal of
Investments ............................. 0 0
Payments for Acquisition of
Equipment ............................... 0 0
Investments in Joint Ventures ............. 0 0
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Net Cash Provided by (Used in)
Investing Activities .............. $ 0 $ 0
======= =======
Financing Activities:
Repayment of bank overdraft ............... (87) (46)
Repayment of Long-term Debt ............... (190) 0
Net Borrowings (Repayments)
Under Bank Import Loans ................. 219 115
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Net Cash Provided by (Used
in) Financing Activities .......... $ (58) $ 69
======= =======
Net Increase (Decrease) in Cash ........... $19,662 $ 1,637
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Cash, Beginning of Period ................. $ 963 $ 1,376
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Cash, End of Period ....................... $20,625 $ 3,013
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The accompanying notes are an integral part of these financial statements.
3
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Basis of Presentation
The consolidated financial statements of China Continental, Inc. have been
prepared pursuant to the requirements for reporting on Form 10-Q. Except for the
consolidated balance sheet for the fiscal year ended March 31, 1996, the
financial information included herein is unaudited. However, such information
reflects all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods. Results shown for interim periods are not
necessarily indicative of the results to be obtained for a full fiscal year.
These interim financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's Form
10-K for the fiscal year ended March 31, 1996.
Note 2 -- Foreign Currency Conversion
The Company's financial information is presented in U.S. dollars. Hong Kong
dollars have been converted into U.S. dollars at the exchange rate of 7.728
to 1.
4
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
Results of Operation
Comparison of the Three Months Ended June 30, 1996
to the Three Months Ended June 30, 1995
---------------------------------------
Total revenues increased 8.2% to $9.6 million during the first quarter of 1996
over total revenue of $8.9 million recorded during the first quarter of 1995.
The increase in revenue reflects an increase in the demand for the Company's
products and services in the People's Republic of China.
Cost of sales increased by 3.7% during the first quarter of 1996 which is
slightly less than the increase in sales. The increase in cost of sales by a
lesser percentage was due to management's effort in negotiating better terms
with its suppliers.
Selling and administrative expenses increased by 10.3% represented mainly by an
increase in salaries.
Liquidity and Capital Resources
Cash and cash equivalents increased from $0.96 million at March 31, 1996 to
$20.6 million at June 30, 1995. The entire long term receivable reflected on the
March 31, 1996 balance sheet (representing the amount due from the Company's
major customer) was satisfied in exchange for a 100% interest in Gain Whole
Limited (the principal asset of which is a $20,000,000 certificate of deposit)
and the acquisition of a 15.3% interest in Weifang Great Dragon Chemical Fibre
Company Limited (a manufacturer of polyester tire cord fabrics) during the
quarter and the balance in cash was received after March 31, 1997. The increase
in cash and cash equivalents during the quarter ended June 30, 1996 is primarily
due to this transaction. Substantially all of the Company's accounts receivable
at March 31, 1996 were included in the long term receivable reflected on the
March 31, 1996 balance sheet.
Management anticipates that cash generated from operations combined with current
working capital and available credit lines will provide sufficient liquidity to
meet ordinary capital requirements for the foreseeable future.
5
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule.
(b) No reports on Form 8-K were filed
by the Company during the quarter
ended June 30, 1996.
6
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report on Form 10-Q for the quarter ended June
30, 1996 to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: July 25, 1997
China Continental, Inc.
By:/s/ Chan Kwai Chiu
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Chan Kwai Chiu,
Chairman, President and
Chief Executive Officer
By:/s/ Eric Ng
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Eric Ng,
Chief Financial Officer,
Treasurer and Secretary
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<PAGE>
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<NAME> CHINA CONTINENTAL, INC.
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<S> <C>
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<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
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