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, 1999
[ ] 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
- --------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification 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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(Issuer's telephone number)
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 NO X
As of September 30, 1999, 69,000,000 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 - March 31, 1999
(unaudited) and December 31, 1998 (audited) 3
Unaudited Consolidated Statements of Income - For the
three months ended March 31, 1999 and 1998 4
Unaudited Consolidated Statements of Cash Flows-
For the three months ended March 31, 1999 and 1998 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II - OTHER INFORMATION
Signatures 9
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CHINA CONTINENTAL, INC.
CONSOLIDATED BALANCE SHEETS
(Stated in '000 United States Dollars)
(unaudited)
March 31, Dec. 31,
1999 1998
(unaudited) (audited)
ASSETS
Current Assets
Cash and deposits 41,509 35,668
Accounts receivable, net of provision 8,315 9,290
Prepayments, deposits and other receivable 613 613
Amount due from related companies 4,316 4,316
-------- ---------
Total Current Assets 54,753 49,887
-------- ---------
Fixed Assets 381 407
Investment in joint ventures 8,596 8,596
Land lease rights 169,814 170,910
Amount due from directors 5,239 5,239
Other assets 645 645
-------- ---------
Total Assets 239,428 235,684
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdraft 512 501
Payable and accruals 3,556 3,736
Bank import loans 513 463
Secured bank loan 15 15
Due to related companies 644 644
Income taxes payable 13,020 12,450
Amounts due to directors 1,687 1,378
-------- ---------
Total current liabilities 19,947 19,187
-------- ---------
Long-term liabilities 1,262 1,262
-------- ---------
Total Liabilities 21,209 20,449
-------- ---------
Minority interest 85,740 86,277
Stockholders' Equity
Share capital 69 69
Contributed surplus 45,273 45,273
Retained earnings 87,137 83,616
-------- ---------
Total Stockholders' Equity 132,479 128,958
-------- ---------
Total Liabilities and Stockholders' Equity 239,428 235,684
======== =========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CHINA CONTINENTAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Stated in '000 United States Dollars)
(Unaudited)
Three Months Ended March 31,
------------------------------
1999 1998
------ ------
Revenues
Sales of turnkey projects 7,870 7,868
Sales of raw materials 380 1,138
------- -------
Total Sales 8,250 9,006
Cost of Sales (3,253) (3,926
------- -------
Gross Profit 4,997 5,080
Depreciation and amortization (1,122) (1,096)
Selling and administrative expenses (302) (339)
Financial income (expenses), net (19) (23)
------- -------
Income before income taxes 4,091 4,270
Income taxes (570) (536)
------- -------
Income before minority interest 2,984 3,086
Loss allocated to minority interest in operation
of consolidated subsidiary 537 648
------- -------
Net income 3,521 3,734
======= =======
Earnings per share 0.05 0.08
======= =======
Weighted average common and
equivalent shares outstanding 69,000,000 47,777,777
=========== ============
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)
<TABLE>
Three Months Ended March 31,
-----------------------------
1999 1998
------ ------
<S> <C> <C>
Cash Flow From Operating Activities:
Net Income 3,521 3,734
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,122 1,096
Loss allocated to minority interest in operation
of consolidated subsidiary
Changes in non-cash working capital 1,674 (1,126)
------- -------
Net cash provided by operating activities 5,780 3,056
------- -------
Financing Activities:
Advances of bank overdrafts 11 11
Repayment of bank loan 0 (2)
Net borrowings (repayments) under bank import loans 50 (1,352)
------- -------
Net cash provided by (used in) financing activities 61 (1,343)
------- -------
Net Increase in Cash and bank balance 5,841 1,713
Cash and bank balances, Beginning of Period 35,668 17,808
------- -------
Cash and bank balances, End of Period 41,509 19,521
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<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 Form 10-K for the fiscal year ended December 31, 1998.
Note 2 -- Foreign Currency Conversion
The Company financial information is presented in US dollars. Hong Kong dollars
have been converted into US dollars at the exchange rate of 7.75 to 1.
6
<PAGE>
Item 2. Management 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 March 31, 1999 to the Three Months Ended
March 31, 1998
Revenues
Revenues decreased by $756,000 or 8.39% to $8,250,000 for the three months
ended March 31, 1998 from $9,006,000 for the corresponding period of the prior
year. The decrease can mainly be accounted for by the decrease in the sale of
raw materials. Management is currently shifting the emphasis from the sale of
raw materials to the sale of turnkey projects as it believes that resources of
the Company can best be utilized by concentrating on the marketing and sale of
turnkey projects. The sales of turnkey projects remained fairly constant during
each period.
Cost of Sales
The cost of sales of turnkey projects includes cost of machinery purchased
and salaries and wages paid to engineers and consultants. The cost of sales as a
percent of revenues was 36.5% for the three months ended March 31, 1999 compared
to 36.6% in prior period. The decrease in cost of sales can mainly be accounted
for by the decrease in the sale of raw material
Depreciation and Amortization
Depreciation and amortization expenses increased by $ 26,000 or 2.37% to
$1,122,000 for the three months ended March 31, 1999 from $1,096,000 for the
corresponding period of the prior year. The depreciation and amortization charge
remained relatively constant for each period.
Selling and Administrative Expenses
Selling and administrative expenses decreased by $ 37,000 or 10.9% to $
302,000 for the three months ended March 31, 1999 from $ 339,000 for the
corresponding period of the prior year. The decrease is attributable to the
decrease in the sales of raw materials.
7
<PAGE>
Financial Income (Expense), net
Financial income (expense), net is primarily interest earned on cash and
cash equivalents, less interest expense. Net financial expense decreased by $
4,000, or 17.30% to $19,000 for the three months ended March 31, 1999 from
$23,000 for the corresponding period of the prior year. This decrease resulted
from decreased bank borrowings.
Income Taxes
Income taxes for the three months ended March 31, 1999 were $570,000 or
16.0 % of pretax income. This compares with $ 536,000 or 14.80% of pretax income
for the corresponding period of the prior period.
Net Income
Net income decreased by $213,000 or 5.70% to $ 3,521,000 for the three
months ended March 31, 1999 from $3,734,000 for the corresponding period of the
prior year. This decrease can mainly be accounted for by the decrease in the
sale of raw materials.
Liquidity and Capital Resources
At March 31, 1999, the Company had working capital of $34,806,000 including
a cash balance of $41,509,000 This compares to working capital of $30,700,000
and a cash balance of $35,668,000 at March 31, 1997.
Net cash provided by operating activities increased to $5,780,000 for the
three months ended March 31, 1999 from $3,056,000 for the corresponding period
of the prior year. This increase resulted from the decrease in the accounts
receivable.
The Company business has historically not been capital-intensive. In most
years internally generated funds were sufficient to fund the Company 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.
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
8
<PAGE>
Signature
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 authorized.
CHINA CONTINENTAL, INC.
/s/ Harry H.H. Ho
------------------------------------
Harry H.H. Ho
Chairman and Chief Executive Officer
/s/ Eric Ng
------------------------------------
Eric Ng
Chief Financial Officer and Secretary
9
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 41,509
<SECURITIES> 0
<RECEIVABLES> 8,315
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 54,753
<PP&E> 381
<DEPRECIATION> 0
<TOTAL-ASSETS> 239,428
<CURRENT-LIABILITIES> 19,947
<BONDS> 0
0
0
<COMMON> 69
<OTHER-SE> 132,410
<TOTAL-LIABILITY-AND-EQUITY> 239,428
<SALES> 8,250
<TOTAL-REVENUES> 8,250
<CGS> 3,253
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,013
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,091
<INCOME-TAX> 570
<INCOME-CONTINUING> 3,521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,521
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
