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Previous: CHINA CONTINENTAL INC /UT/, 10-Q, 1997-07-25 |
Next: CHINA CONTINENTAL INC /UT/, 10-Q, 1997-07-25 |
<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 December 31, 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.
----------------------------------------------
(Exact name of registrant as specified in its charter)
Utah 87-0431063
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1801-1806 Hua Quin International Building, 340 Queen's Road Central, Hong Kong
- -------------------------------------------------------------------------------
(Address of principal executive offices)
852-2542-2612
---------------------------------
(Registrant's telephone number)
1140 Avenue of the Americas, Penthouse Floor, New York, New York 10036
----------------------------------------------------------------------
(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
----- -----
As of December 31, 1996, 26,000,000 shares of Common Stock of the
registrant were outstanding.
<PAGE>
CHINA CONTINENTAL, INC.
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - December 31, 1996 (unaudited)
and March 31, 1996 (audited) 1
Unaudited Consolidated Statements of Income - For the three and
nine months ended December 31, 1996 and 1995 2
Unaudited Consolidated Statements of Cash Flows-
For the nine months ended December 31, 1996 and 1995 3
Notes to Unaudited Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 7
Item 2. Changes in Securities 7
Item 3. Defaults Upon Senior Securities 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Item 5. Other Information 7
Item 6. Exhibits and Reports on Form 8-K 7
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CHINA CONTINENTAL, INC.
CONSOLIDATED BALANCE SHEETS
(Stated in '000 United States Dollars)
<TABLE>
<CAPTION>
Dec. 31, 1996 March 31, 1996
------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and deposits $20,543 $ 963
Accounts receivable, net,
prepaids and deposits 28,030 1,837
Short term investments 0 0
------- -----
Total Current Assets $48,573 $ 2,800
------- -----
Long term receivable 0 31,987
Property and equipment 13,538 602
Investment in joint ventures 762 747
Due from related companies 2,184 2,191
Other assets 2,536 15,536
------- ------
Total Assets $67,593 $53,773
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdraft 0 87
Payables and accruals 5,118 5,371
Bank import loans 1,125 727
Due to related companies 668 790
Income taxes payable 6,290 5,875
Current portion of long-term debt 0 190
------- ------
Total current liabilities $13,201 $13,040
------- ------
Long term debt 0 0
Deferred income taxes 20 20
------ ------
Total Liabilities $13,221 $13,060
------ ------
Stockholders' Equity
Share capital 26 26
Contributed surplus 1,713 1,713
Retained earnings 52,633 38,974
------ ------
Total Stockholders' Equity $54,372 $40,713
------ ------
Total Liabilities and Stockholders' Equity $67,593 $53,773
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
CHINA CONTINENTAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Stated in '000 United States Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
Dec. 31, Dec. 31, Dec. 31 Dec. 31
1996 1995 1996 1995
------- ------- -------- --------
Revenues
<S> <C> <C> <C> <C>
Sale of turnkey projects $10,720 $11,911 $29,822 $29,223
Sale of raw materials 543 1,147 1,474 2,868
------- ------- -------- --------
Total revenues $11,263 $13,058 $31,296 $32,091
Costs and expenses
Cost of turnkey projects 4,609 5,300 13,201 13,105
Cost of raw materials 510 1,050 1,382 2,634
Depreciation of fixed assets 21 22 64 66
Selling and administrative
expenses 899 452 1,689 1,159
------- ------- -------- --------
Total costs and expenses $ 6,039 $ 6,824 $ 16,336 $ 16,964
Operating income $ 5,224 $ 6,234 $ 14,960 $ 15,127
Financial income
(expenses) net (7) 11 (22) 21
Other income (expenses) net 3 0 20 14
Share of losses of associated (15) (5) (57) (72)
companies
------- ------- -------- --------
Income (loss) before income taxes 5,205 6,240 14,901 15,090
Income taxes (434) (514) (1,242) (1,248)
------- ------- -------- --------
Net Income $ 4,771 $ 5,726 $ 13,659 $ 13,842
======= ======= ======== ========
Earnings per share $ 0.18 $ 0.22 $ 0.53 $ 0.53
======= ======= ======== ========
Dividends per share -- -- -- --
------- ------- -------- --------
Weighted average common and
equivalent shares outstanding 26,000,000 26,000,0000 26,000,000 26,000,0000
---------- ----------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
CHINA CONTINENTAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in '000 United States Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
--------------------------------
Dec 31, Dec 31,
1996 1995
--------- ---------
<S> <C> <C>
Cash Flow From Operating Activities:
Net Income $13,659 $13,842
Adjustments to Reconcile Net Earnings to Net Cash
From (Used in) Operating Activities:
Depreciation 64 66
Loss (Gain) on Disposal of Investment 0 0
Share of (Profit) Loss in Joint Venture 57 72
Changes in Non-Cash Working Capital 18,575 (11,692)
-------- ---------
Net Cash Provided by (Used in) Operating Activities $ 32,355 $ 2,288
======== =========
Investment Activities:
Proceeds from Disposal of Investments 0 0
Payments For Acquisition of Equipment (13,000) 0
Investments in Joint Ventures 0 0
-------- ---------
Net Cash Provided by (Used in) Investing Activities $(13,000) $ 0
======== =========
Financing Activities:
Repayment of bank overdraft (87) (46)
Repayment of Long-term Debt 0 0
Net Borrowings (Repayments) Under Bank Import Loans 312 103
-------- ---------
Net Cash Provided by (Used in) Financing Activities $ 225 $ 57
======== =========
Net Increase (Decrease) in Cash $ 19,580 $ 2,345
======== =========
Cash, Beginning of Period $ 963 $ 1,376
-------- ---------
Cash, End of Period $ 20,543 $ 3,721
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Basis of Presentation
The consolidated financial statements include the accounts of China Continental,
Inc. and all its subsidiaries. All the financial information included herein is
unaudited. However, such information reflects all 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
<PAGE>
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: The following table presents, for the periods indicated,
certain information from the consolidated statements of income as a percentage
of revenues.
(Expressed in United States Dollars '000)
<TABLE>
<CAPTION>
Three months ended Nine months ended
Dec 31, Dec 31, Dec 31, Dec 31,
1996 1995 1996 1995
------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Sale of turnkey projects $10,720 95.17% $11,911 91.92% $29,822 95.29% $29,223 91.06%
Sale of raw materials 543 4.83% 1,147 8.08% 1,474 4.71% 2,868 8.94%
------- ------- ------- --------
Total revenue $11,263 100.00% $13,058 100.00% $31,296 100.00% $32,091 100.00%
------- ------- ------- --------
Cost of revenues (1)
Cost of turnkey projects 4,609 40.92% 5,300 40.58% 13,201 42.18% 13,105 40.83%
Cost of raw materials 510 4.53% 1,050 8.04% 1,382 4.41% 2,634 8.20%
------- ------- ------- --------
Total cost of revenue $ 5,119 45.45% $ 6,350 48.62% $14,583 46.59% $15,739 49.03%
------- ------- ------- --------
Gross margin (2) $ 6,144 54.55% $ 6,708 51.37% $16,713 53.14% $16,352 50.97%
------- ------- ------- --------
Other expenses (3)
Depreciation of fixed assets 21 22 64 66
Selling and administrative expenses 899 452 1,689 1,159
Financial income (expenses) net (7) 11 (22) 21
Other income (expenses) net 3 0 20 14
Share of losses of associated
companies (15) (5) (57) (72)
------- ------- ------- --------
Total other expenses $ 939 8.34% $ 468 3.58% $ 1,812 5.79% $ 1,262 3.93%
------- ------- ------- --------
Income (loss) before income taxes 5,205 46.21% 6,240 47.79% 14,901 47.61% 15,090 47.04%
Income taxes (434) 3.85% (514) 3.93% (1,242) 3.96% (1,248) 3.89%
======= ======= ======= =======
Net income (3) $ 4,771 42.36% $ 5,726 43.86% $13,659 43.65% $13,842 43.15%
======= ======= ======= =======
</TABLE>
(1) "%" refers to percentage of related revenue line above.
(2) Gross margin equals revenue less cost of revenue.
(3) "%" refers to percentage of total revenue.
5
<PAGE>
Results of Operations
Comparison of the Three Months Ended December 31, 1996
to the Three Months Ended December 31, 1995
-------------------------------------------
Total revenues decreased 13.7% to $11.2 million during the third quarter of 1996
over total revenue of $13 million recorded during the third quarter of 1995. The
decrease in revenue can mainly be accounted for by the fact that one turnkey
project which was expected to be completed in December 1996 was delayed and was
booked in the fourth quarter of fiscal 1997.
Cost of revenues decreased by 19.38% during the second quarter of 1996 due to
the decrease in sales.
During December 1996, the other receivable of U.S. $14,487,179 listed on the
March 31, 1997 balance sheet (and included in other assets on the March 31, 1996
balance sheet included in this Form 10-Q) was satisfied by the acquisition of
Cathay Mercantile (Overseas) Limited, which indirectly owns certain land use
rights in the People's Republic of China ("PRC"). As of the date hereof, it is
not certain whether such land use rights could be successfully utilized, and if
not, losses could be incurred by the Company. Property and equipment on the
December 31, 1996 balance sheet has been increased in order to reflect this
transaction.
Selling and administrative expenses increased by 98% from the corresponding
prior quarter primarily as a result of the retention by the Company of Mega
Capital Limited, a registered investment advisor located in Hong Kong. The
contract with Mega Capital Limited is for two years commencing in August 1996 at
a total fee of HK $6,000,000. Mega Capital Limited was retained by the Company
in order to advise the Company in connection with possible business acquisitions
in the PRC.
Liquidity and Capital Resources
Cash and cash equivalents increased from $0.96 million at March 31, 1996 to
$20.5 million at December 31, 1996. 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.
6
<PAGE>
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) There were no reports on Form 8-K filed
by the Company during the quarter ended
December 31, 1996.
7
<PAGE>
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
December 31, 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
-----------------------
Chan Kwai Chiu,
Chairman, President and
Chief Executive Officer
By: /s/ Eric Ng
-----------------------
Eric Ng,
Chief Financial Officer,
Treasurer and Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000789877
<NAME> CHINA CONTINENTAL, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS ('000)
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 20,543
<SECURITIES> 0
<RECEIVABLES> 28,030
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48,573
<PP&E> 13,538
<DEPRECIATION> 0
<TOTAL-ASSETS> 67,593
<CURRENT-LIABILITIES> 13,201
<BONDS> 0
0
0
<COMMON> 1,739
<OTHER-SE> 52,633
<TOTAL-LIABILITY-AND-EQUITY> 67,593
<SALES> 11,263
<TOTAL-REVENUES> 11,263
<CGS> 5,119
<TOTAL-COSTS> 5,119
<OTHER-EXPENSES> 939
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,205
<INCOME-TAX> (434)
<INCOME-CONTINUING> 4,771
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,771
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
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