SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] 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.
----------------------------------------
(Name of small business issuer in its charter)
Utah 87-0431063
- -------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1801-1806 Hua Qin International Building, 340 Queen's Road Central, Hong Kong
-----------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
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 twelve (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 ninety (90)
days. Yes No X
As of June 30, 1997, 26,000,000 shares of Common Stock of the issuer were
outstanding.
<PAGE>
CHINA CONTINENTAL, INC.
INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - June 30, 1997
(unaudited) and March 31, 1997............................... 3
Unaudited Consolidated Statements of Income and
Retained Earnings - For the three months ended June 30, 1997
and 1996..................................................... 4
Unaudited Consolidated Statements of Cash Flows- For
the three months ended June 30, 1997 and 1996................ 5
Notes to Unaudited Consolidated Financial Statements......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................ 9
Signatures...................................................... 9
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CHINA CONTINENTAL, INC.
CONSOLIDATED BALANCE SHEETS
(Stated in '000 United States Dollars)
(unaudited)
June 30, March 31,
1997 1997
----------- -----------
ASSETS
Current Assets
Cash and deposits $23,091 $21,131
Accounts receivable, net, prepaid and deposits 11,436 13,475
Amount due from related companies 2,280 2,326
Short term investments 43,033 34,618
Total Current Assets 79,840 71,550
---------- -----------
Property and equipment 510 530
Investment in joint ventures 297 297
Other assets 905 905
---------- -----------
Total Assets $81,552 $73,282
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Payable and accruals $7,607 $4,870
Bank import loans 1,133 1,043
Due to related companies 285 756
Income taxes payable 8,811 8,316
Amounts due to directors 782 782
Total current liabilities 18,618 15,767
---------- -----------
Stockholders' Equity
Share capital 26 26
Contributed surplus 1,728 1,728
Retained earnings 61,180 55,761
Total Stockholders' Equity 62,934 57,515
---------- -----------
Total Liabilities and Stockholders' Equity $81,552 $73,282
========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
CHINA CONTINENTAL, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Stated in '000 United States Dollars)
(unaudited)
Three Months Ended June 30,
---------------------------------
1997 1996
-------------- -------------
Revenues
Sale of turnkey projects $ 9,516 $ 9,170
Sale of raw materials 631 476
-------------- -------------
10,147 9,646
Cost of sales 3,987 4,572
-------------- -------------
Gross Profit 6,160 5,074
Depreciation of fixed assets
(20) (22)
Selling and administrative expenses
(172) (353)
Financial income (expenses) net
(54) (8)
Other income (expenses) net 0 12
Share of losses of associated companies 0 (22)
-------------- --------------
Income before income taxes 5,914 4,681
Income taxes (495) (390)
-------------- --------------
Net Income $ 5,419 $ 4,291
Retained Earnings, Beginning of Period 55,761 51,470
-------------- --------------
Retained Earnings - June 30 $ 61,180 $ 55,761
============== ==============
Earnings per share $ 0.208 $ 0.165
============== ==============
Weighted average common and
equivalent shares outstanding 26,000,000 26,000,000
============== ==============
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CHINA CONTINENTAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in '000 United States Dollars)
(unaudited)
Three Months Ended June 30,
1997 1996
---------- ----------
Cash Flows From Operating Activities:
Net Income $5,419 $4,291
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 20 22
Share of (Profit) Loss in Joint Venture 0 22
Changes in Non-Cash Working Capital (3,569) 15,385
---------- ----------
Net Cash Provided by Operating Activities 1,870 19,720
---------- ----------
Investing 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 0 (87)
Repayment of Long-term Debt 0 (190)
Net Borrowings Under Bank Import
Loans 90 219
---------- ----------
Net Cash Provided by (Used in) Financing
Activities 90 (58)
---------- ----------
Net Increase in Cash 1,960 19,662
Cash, Beginning of Period 21,131 963
---------- ----------
Cash, End of Period $ 23,091 $20,625
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Basis of Presentation
The unaudited condensed consolidated financial statements of China Continental,
Inc. have been prepared in accordance with generally accepted accounting
principles for interim financial information and pursuant to the requirements
for reporting on Form 10-Q. Accordingly, they do not include all the information
and footnotes required by generally accepted accounting principles for complete
financial statements. 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, 1997.
Note 2 -- Foreign Currency Conversion
The Company's financial information is presented in US dollars. Hong Kong
dollars have been converted into US dollars at the exchange rate of 7.73 to 1.
7
<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 Operations
Comparison of the Three Months Ended June 30, 1997 to the Three Months
Ended June 30, 1996
Revenues
Revenues increased by $501,000 or 5% to $10,147,000 for the three months
ended June 30, 1997 from $9,646,000 for the corresponding period of the prior
year. 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
Cost of sales decreased by $585,000 or 13% to $3,987,000 for the three
months ended June 30, 1997 from $4,572,000 for the corresponding period of the
prior year. This decrease resulted from negotiating better purchase terms with
suppliers and the devaluation of other Southeast Asian countries' currencies.
Depreciation of Fixed Assets
Depreciation expenses decreased by $2,000 or 9.1% to $20,000 for the three
months ended June 30, 1997 from $22,000 for the corresponding period of the
prior year. This decrease resulted from a change in accounting policy whereby
buildings are depreciated over the remaining period of the 50-year lease as
opposed to the useful life of the building utilized in prior periods.
Selling and Administrative Expenses
Selling and administrative expenses decreased by $181,000 or 51% to
$172,000 for the three months ended June 30, 1997 from $353,000 for the
corresponding period of the prior year. This decrease resulted from a
streamlining of operational procedures and improved controls.
Financial Income / (Expense), net
Financial income (expense), net is interest owed on cash and cash
equivalents, less interest expense. Net financial expense increased by $46,000,
or 575% to $54,000 for the three months ended June 30, 1997 from $8,000 for the
corresponding period of the prior year. This increase resulted from increased
short term borrowings by the Company.
8
<PAGE>
Income Taxes
Income taxes for the three months ended June 30, 1997 were $495,000 or
8.37% of pretax income. This compares with $390,000 or 8.33% of pretax income
for the corresponding period of the prior year.
Net Income
Net income increased by $1,128,000 or 26% to 5,419,000 for the three months
ended June 30, 1997 from $4,291,000 for the corresponding period of the prior
year. This increase resulted from both higher revenues and lower costs.
Liquidity and Capital Resources
At June 30, 1997, the Company had working capital of $61,222,000 including
a cash balance of $23,091,000. This compares to working capital of $55,783,000
and a cash balance of $21,131,000 at March 31, 1997.
Net cash provided by operating activities decreased to $1,870,000 for the
three months ended June 30, 1997 from $19,720,000 for the corresponding period
of the prior year. This decrease resulted from changes in non-cash working
capital which was partially offset by increased earnings. For the three months
ended June 30, 1997 the change in non-cash working capital was $(3,569,000).
This compares with $15,385,000 for the three months ended June 30, 1996.
Net cash provided by financing activities was $90,000 for the three months
ended June 30, 1997, all of which came from bank import loans. This compares to
$58,000 used in financing activities for the three months ended June 30, 1996
when loan repayments exceeded borrowings.
The Company's business has historically not been capital-intensive. In most
years internally generated funds were sufficient to fund the Company's
operations and finance its growth. While the cash generated from earnings and
available lines of credit has historically provided sufficient liquidity to meet
ordinary capital requirements, the Company's purchase of Wealthy Asia Limited
for US$52,000,000 and 40,000,000 shares has substantially depleted the Company's
cash reserves. Accordingly, the Company anticipates seeking additional debt or
equity financing during the next twelve months to cover its capital requirements
for its new agricultural genetics joint venture.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
1. 27.1 Financial Data Schedule
b) Reports on Form 8-K
None
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHINA CONTINENTAL, INC.
Date: May 20, 1998 /s/ Harry H.H. Ho
-------------------------------------
Harry H.H. Ho
Chairman and Chief Executive Officer
Date: May 20, 1998 /s/ Eric Ng
-------------------------------------
Eric Ng
Chief Financial Officer and Secretary
10
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<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-1-1997
<PERIOD-END> JUN-30-1997
<CASH> 23,091
<SECURITIES> 0
<RECEIVABLES> 11,436
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<INVENTORY> 0
<CURRENT-ASSETS> 79,840
<PP&E> 510
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0
0
<COMMON> 26
<OTHER-SE> 62,908
<TOTAL-LIABILITY-AND-EQUITY> 81,552
<SALES> 10,147
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<INCOME-TAX> 495
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