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, 2000
[ ] 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)
4010-12 Convention Plaza Office Tower, 1 Harbour Road Wanchai, Hong Kong
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(Address of principal executive offices)
(852) 2507-2211
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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 March 31, 2000, 99,000,000 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, 2000
and December 31, 1999 (audited) 3
Unaudited Consolidated Statements of Income -
For the three months ended March 31, 2000 and 1999 4
Unaudited Consolidated Statements of Cash Flows -
For the three months ended March 31, 2000 and 1999 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)
March 31, Dec. 31,
2000 1999
--------- ---------
ASSETS
Current Assets
Cash and deposits 5,657 870
Accounts receivable, net of provision 9,304 7,411
Prepayments, deposits and other receivable 170,835 170,835
Amount due from related companies 4,337 4,337
--------- ---------
Total Current Assets 190,133 183,453
--------- ---------
Fixed Assets 364 390
Investment in joint ventures 8,638 8,638
Other assets 645 645
--------- ---------
Total Assets 199,780 193,126
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdraft 504 510
Payable and accruals 3,865 2,830
Bank import loans 360 385
Secured bank loan 17 17
Due to related companies 582 582
Income taxes payable 15,988 15,284
Amounts due to directors 3,883 3,351
--------- ---------
Total current liabilities 25,199 22,959
--------- ---------
Long-term liabilities 1,241 1,245
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Total Liabilities 26,440 24,204
--------- ---------
Stockholders' Equity
Share capital 99 99
Contributed surplus 56,556 56,556
Retained earnings 116,685 112,267
--------- ---------
Total Stockholders' Equity 173,340 168,922
--------- ---------
Total Liabilities and Stockholders' Equity 199,780 193,126
========= =========
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)
Three Months Ended March 31,
------------------------------
2000 1999
--------- --------
Revenues
Sales of turnkey projects 8,417 7,870
Sales of raw materials 0 380
Total revenues 8,417 8,250
Cost of sales (2,946) (3,253)
--------- --------
Gross profit 5,471 4,997
Depreciation of fixed assets (26) (1,122)
Selling and administrative expenses (295) (302)
Financial income (expenses) net (28) (19)
Minority interest in operation of consolidated
subsidiary 0 537
--------- --------
Incomes before income taxes 5,122 4,091
Income taxes (704) (570)
--------- --------
Net income 4,418 3,521
--------- --------
Earnings per share 0.045 0.05
========= ========
Weighted average common and equivalent
shares outstanding 99,000,000 69,000,000
============ ===========
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)
<TABLE>
Three Months Ended March, 31
----------------------------
2000 1999
------ ------
<S> <C> <C>
Cash Flow From Operating Activities:
Net Income 4,418 3,521
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 26 1,122
Minority interest in operation of consolidated subsidiary 0 (537)
Changes in Non-Cash Working Capital 378 1,674
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Net Cash Provided by Operating Activities 4,822 5,780
======= =======
Cash Flows from Investing Activities:
Proceeds from issue of shares 0 0
------- -------
Payments for Acquisition of Fixed assets 0 0
======= =======
Net Cash Provided by (Used in) Investing Activities 0 0
Financing Activities:
Repayment of bank overdraft (6) 11
Repayment of secured loan (4) 0
Net Borrowings Under Bank Import Loans (25) 50
------- -------
Net Cash Provided by (Used in) Financing Activities (35) 61
------- -------
Net Increase (Decrease) in Cash 4,787 5,841
Cash, Beginning of Period 870 35,668
------- -------
Cash, End of Period 5,657 41,509
======= =======
</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, 1999.
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, 2000 to the Three Months
Ended March 31, 1999
Revenues
Revenues increased by $167,000 or 2.0% to $8,417,000 for the three months
ended March 31, 2000 from $8,250,000 for the corresponding period of the prior
year. The increase is attributable to an increase of $547,000 in the sale of
turnkey projects which was partially offset by a $380,000 decline in the sale of
raw materials.
Cost of Sales
Cost of sales of turnkey projects includes cost of machinery purchased and
salaries and wages paid to engineers and consultants. Cost of sale of turnkey
projects was 35% for the three months ended March 31, 2000 compared to 36.5% in
prior period.
Depreciation of Fixed Assets
Depreciation expenses decreased by $ 1,096,000 or 97.60% to $26,000 for the
three months ended March 31, 2000 from $1,122,000 for the corresponding period
of the prior year. The decrease resulted from the disposal of the principal
depreciable assets, Chengde Dafeng Agriculture & Animal Husbandry Co., Ltd. in
October, 1999.
Selling and Administrative Expenses
Selling and administrative expenses decreased by $ 7,000 or 2.3% to $
295,000 for the three months ended March 31, 2000 from $ 302,000 for the
corresponding period of the prior year. The decrease is attributable to no
selling expense being incurred on the sale of raw materials.
Financial Income / (Expense), net
Financial income/(expense) net, is interest earned on cash and cash
equivalents, less interest expense. Net financial expense increased by $ 9,000,
or 47.30% to $28,000 for the three months ended March 31, 2000 from $19,000 for
the corresponding period of the prior year. This decrease resulted from
decreased bank borrowings.
7
<PAGE>
Income Taxes
Income taxes for the three months ended March 31, 2000 were $704,000 or
13.74% of pretax income. This compares with $ 570,000 or 13.9% of pretax income
for the corresponding period of the prior period.
Net Income
Net income increased by $897,000 or 25.47% to $ 4,418,000 for the three
months ended March 31, 2000 from $3,521,000 for the corresponding period of the
prior year. This increase is principally attributable to the decrease in
depreciation charge for the period.
Liquidity and Capital Resources
At March 31, 2000, the Company had working capital of $183,560,000
including a cash balance of $5,657,000 This compares to working capital of
$34,806,000 and a cash balance of $41,509,000 at March 31, 1999.
Net cash provided by operating activities decreased to $4,822,000 for the
three months ended March 31, 2000 from $5,780,000 for the corresponding period
of the prior year. This decrease resulted from changes in working capital.
The Company had no investing activities for either the three months ended
March 31, 2000 or March 31, 1999.
For the three months ended March 31, 2000, the Company used $35,000 in its
financing activities compared to $61,000 provided by financing activities for
the corresponding period of the prior year. This change is nearly entirely
attributable to the receipt of a $50,000 loan in the prior period, while $25,000
of that loan was repaid in the current period.
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, the purchase of the new farm will require outside
financing. Apart from the foregoing, the Company has sufficient capital to
execute its business plan for the next twelve months.
8
<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
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
May 23, 2000
/s/ Eric Ng
------------------------------------
Eric Ng
Chief Financial Officer and Secretary
May 23, 2000
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,657
<SECURITIES> 0
<RECEIVABLES> 9,304
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 190,133
<PP&E> 364
<DEPRECIATION> 0
<TOTAL-ASSETS> 199,790
<CURRENT-LIABILITIES> 25,199
<BONDS> 0
0
0
<COMMON> 99
<OTHER-SE> 173,241
<TOTAL-LIABILITY-AND-EQUITY> 199,790
<SALES> 8,417
<TOTAL-REVENUES> 8,417
<CGS> 2,946
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 321
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 5,122
<INCOME-TAX> 704
<INCOME-CONTINUING> 4,418
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,418
<EPS-BASIC> .045
<EPS-DILUTED> .045
</TABLE>
