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Previous: CHINA CONTINENTAL INC /UT/, 10-K, 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 September 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.
-----------------------
(Exact name of registrant as specified in its charter)
Utah 87-0431063
---- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1801-1806 Hua Qin 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 September 30, 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 - September 30, 1996 (unaudited)
and March 31, 1996 (audited) 1
Unaudited Consolidated Statements of Income For the three and
six months ended September 30, 1996 and 1995 2
Unaudited Consolidated Statements of Cash Flows- For the six
months ended September 30, 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>
Sept 30, March 31,
1996 1996
---------- ---------
(unaudited)
ASSETS
Current Assets
<S> <C> <C>
Cash and deposits $21,213 $ 963
Accounts receivable, net,
prepaids and deposits 21,953 1,837
Short term investments 0 0
------- -------
Total Current Assets $43,166 $ 2,800
------- -------
Long term receivable 0 31,897
Property and equipment 559 602
Investment in joint ventures 734 747
Due from related companies 2,219 2,191
Other assets 15,536 15,536
------- -------
Total Assets $62,214 $53,773
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdraft 0 87
Payables and accruals 5,013 5,371
Bank import loans 986 727
Due to related companies 754 790
Income taxes payable 5,840 5,875
Current portion of long-term debt 0 190
------- -------
Total current liabilities $12,593 $13,040
------- -------
Long term debt 0 0
Deferred income taxes 20 20
------- -------
Total Liabilities $12,613 $13,060
------- -------
Stockholders' Equity
Share capital 26 26
Contributed surplus 1,713 1,713
Retained earnings 47,862 38,974
------- -------
Total Stockholders' Equity $49,601 $40,713
------- -------
Total Liabilities and Stockholders'
Equity $62,214 $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 Six months ended
Sept 30, Sept 30, Sept 30, Sept 30,
1996 1995 1996 1995
------- ------- ------- -------
Revenues
<S> <C> <C> <C> <C>
Sale of turnkey projects $ 9,932 $ 9,197 $19,102 $17,312
Sale of raw materials 455 923 931 1,721
------ ------ ------ ------
Total revenues $10,387 $10,120 $20,033 $19,033
Costs and expenses
Cost of turnkey projects 4,460 4,136 8,592 7,805
Cost of raw materials 432 848 872 1,584
Depreciation of fixed assets 21 22 43 44
Selling and administrative
expenses 437 387 790 707
------ ------ ------ ------
Total costs and expenses $ 5,350 $ 5,393 $10,297 $10,140
------ ------ ------ ------
Operating income $ 5,037 $ 4,727 $ 9,736 $ 8,893
Financial income (expenses)
net (7) 9 (15) 10
Other income (expenses)
net 5 3 17 14
Share of losses of
associated companies (20) (11) (42) (67)
------ ------ ------ ------
Income (loss) before
income taxes 5,015 4,728 9,696 8,850
Income taxes (418) (390) (808) (734)
------ ------ ------ ------
Net Income $ 4,597 $ 4,338 $ 8,888 $ 8,116
------ ------ ------ ------
Earnings per share $ 0.18 $ 0.17 $ 0.34 $ 0.31
------ ------ ------ ------
Dividends per share -- -- -- --
------ ------ ------ ------
Weighted average common and
equivalent shares
outstanding 26,000,000 26,000,000 26,000,000 26,000,000
---------- ---------- ---------- ----------
</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>
Six months ended
-------------------------------
Sept 30, Sept 30,
1996 1995
------- -------
Cash Flow From Operating Activities:
<S> <C> <C>
Net Income $ 8,888 $8,115
Adjustments to Reconcile Net Earnings to Net Cash
From (Used in) Operating Activities:
Depreciation 43 44
Loss (Gain) on Disposal of Investment 0 0
Share of (Profit) Loss in Joint Venture 42 67
Changes in Non-Cash Working Capital 11,191 (6,758)
------- -------
Net Cash Provided by (Used in) Operating Activities $20,164 $ 1,468
======= =======
Investment Activities:
Proceeds from Disposal of Investments 0 0
Payments For Acquisition of Equipment 0 0
Investments in Joint Ventures 0 0
------- -------
Net Cash Provided by (Used in) Investing Activities $ 0 $ 0
======= =======
Financing Activities:
Repayment of bank overdraft (87) (46)
Repayment of Long-term Debt 0 0
Net Borrowings (Repayments) Under Bank Import Loans 173 99
------- -------
Net Cash Provided by (Used in) Financing Activities $ 86 $ 53
======= =======
Net Increase (Decrease) in Cash $20,250 $1,521
======= =======
Cash, Beginning of Period $ 963 $1,376
------- -------
Cash, End of Period $21,213 $2,897
======= =======
</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 Six months ended
Sept 30, Sept 30, Sept 30, Sept 30,
1996 1995 1996 1995
-------- -------- -------- --------
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of turnkey projects $ 9,932 95.62% $ 9,197 90.80% $19,102 95.35% $17,312 90.95%
Sale of raw materials 455 4.38% 923 9.20% 931 4.65% 1,721 9.05%
------ ------ ------ ------
Total revenue $10,387 100.00% $10,120 100.00% $20,033 100.00% $19,033 100.00%
------ ------ ------ ------
Cost of revenues (1)
Cost of turnkey projects 4,460 42.94% 4,136 40.86% 8,592 42.89% 7,806 41.00%
Cost of raw materials 432 4.16% 848 8.38% 872 4.35% 1,584 8.30%
------ ------ ------ ------
Total cost of revenue $ 4,892 47.10% $ 4,984 49.24% $ 9,464 47.24% $ 9,390 49.34%
------ ------ ------ ------
Gross margin (2) $ 5,495 52.90% $ 5,136 50.75% $10,569 52.76% $ 9,643 50.86%
------ ------ ------ ------
Other expenses (3)
Depreciation of fixed assets 21 22 43 44
Selling and administrative expenses 437 387 790 707
Financial income (expenses) net (7) 9 (15) 10
Other income (expenses) net 5 3 17 14
Share of losses of associated (20) (11) (42) (67)
companies
------ ------ ------ ------
Total other expenses $ 480 4.62% $ 408 4.10% $ 873 4.36% $ 794 4.17%
------ ------ ------ ------
Income (loss) before income taxes 5,015 48.28% 4,728 46.70% 9,696 48.40% 8,849 46.44%
Income taxes (418) 4.02% (390) 3.85% (808) 4.03% (734) 3.80%
------ ------ ------ ------
Net income (3) $ 4,597 44.25% $ 4,338 42.86% $ 8,888 44.37% $ 8,116 42.64%
====== ====== ====== ======
</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 September 30, 1996
to the Three Months Ended September 30, 1995
--------------------------------------------
Total revenues increased 2.6% to $10.4 million during the second quarter of 1996
over total revenue of $10.1 million recorded during the second quarter of 1995.
The increase in revenue reflects the consistently increasing demand for the
Company's products and services in the People's Republic of China.
Cost of revenues decreased by 1.5% during the second quarter of 1996. The
decreased cost of sales was due to management's efforts in negotiating better
terms with its major suppliers.
Selling and administrative expenses increased by 12.9% mainly represented by an
increase in salaries.
Liquidity and Capital Resources
Cash and cash equivalents increased from $0.96 million at March 31, 1996 to
$21.2 million at September 30, 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) No reports on Form 8-K were filed by
the Company during the quarter ended
September 30, 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
September 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
-----------------------
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> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 21,213
<SECURITIES> 0
<RECEIVABLES> 21,953
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,166
<PP&E> 559
<DEPRECIATION> 0
<TOTAL-ASSETS> 62,214
<CURRENT-LIABILITIES> 12,593
<BONDS> 0
0
0
<COMMON> 1,739
<OTHER-SE> 47,862
<TOTAL-LIABILITY-AND-EQUITY> 62,214
<SALES> 10,387
<TOTAL-REVENUES> 10,387
<CGS> 4,892
<TOTAL-COSTS> 4,892
<OTHER-EXPENSES> 480
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,015
<INCOME-TAX> (418)
<INCOME-CONTINUING> 4,597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,597
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
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