SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARIERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ART OF 1934
For the quarterly period ended September 30, 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.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Utah 87-0431063
---------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2407 China Resources Building, 26 Harbour Road Wanchai, Hong Kong
-------------------------------------------------------------------
(Address of principal executive offices)
(852) 2802-8988
-------------------------
(Issuer 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, 2000, 99,000,000 shares of Common Stock of the issuer
were outstanding.
<PAGE>
CHINA CONTINENTAL, INC.
INDEX
Page
Number
-----------
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets September 30, 2000 and
December 31, 1999 3
Unaudited Consolidated Statements of Income - For the
three months and nine months ended September 30, 2000 and 1999 4
Unaudited Consolidated Statements of cash Flows -
For the nine months ended September 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Signatures 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CHINA CONTINENTAL, INC.
CONSOLIDATED BALANCE SHEETS
(Stated in ' 000 United States Dollars)
Sept. 30 Dec. 31,
2000 2000
---------- ----------
(unaudited (audited)
ASSETS
Current Assets
Cash and deposits 7,351 870
Accounts receivable, net of provision 2,350 7,411
Prepayments, deposits and other receivable 20 1
---------- ----------
Total Current Assets 9,721 8,282
---------- ----------
Deposit on investment in Land Holding Company 0 170,835
Fixed Assets 170,578 390
Investment in joint ventures 7,478 7,478
Amount due from related Companies 1,289 1,312
Other assets 645 645
---------- ----------
Total Assets 189,711 188,942
========== ==========
LIABILITIES AND STOCKHOLDERS ' EQUITY
Current Liabilities
Bank overdraft 351 510
Payable and accruals 398 2,830
Bank import loans 152 385
Secured bank loan 17 17
Due to related companies 582 582
Income taxes payable 15,988 15,284
Amounts due to directors 83 3,351
---------- ----------
Total current liabilities 17,571 22,959
---------- ----------
Long - term liabilities 1,241 1,245
---------- ----------
Total Liabilities 18,812 24,204
---------- ----------
Stockholders ' Equity
Share capital 99 99
Contributed surplus 56,556 56,556
Retained earnings 114,244 108,083
---------- ----------
Total Stockholders ' Equity 170,899 164,738
---------- ----------
Total Liabilities and Stockholders ' Equity 189,711 188,942
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CHINA CONTINENTAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Stated in ' 000 United States Dollars)
<TABLE>
Three Months Ended Sept 30, Nine Months Ended Sept. 30,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues
Sales of turnkey projects 0 10,530 8,417 29,100
Sales of raw materials 0 573 0 1,328
Sale of forage grass 3,850 3,850
Total revenues 3,850 11,103 12,267 30,428
Cost of sales (947) (4,415) (3,893) (11,962)
Gross Profit 2,903 6,688 8,374 18,466
Depreciation and amoritzation (595) (1,109) (647) (3,353)
Selling and administration expenses (247) (328) (794) (980)
Financial income (expenses) net (14) (18) (68) (57)
Income before income taxes 2,047 5,233 6,865 14,076
Income taxes 0 (800) (704) (2,185)
Minority interest in operation
of consolidated subsidiary 0 537 0 1,611
Net Income 2,047 4,970 6,161 13,502
Earnings per share 0.024 0.072 0.062 0.20
Weighted average common
and equivalent shares outstanding 99,000,000 69,000,000 99,000,000 69,000,000
</TABLE>
The accompanying notes are an intergral part of these financial statements.
<PAGE>
CHINA CONTINENTAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in ' 000 United States Dollars)
<TABLE>
Nine Months Ended Sept. 30,
2000 1999
------ ------
<S> <C> <C>
Cash Flow From Operating Activities:
Net Income/(Loss) 6,161 13,502
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 647 3,353
Minority interest in operation of consolidated subsidiary 0 (1,611)
Changes in Non-Cash Working Capital 165 2,148
---------- ----------
Net Cash Provided by Operating Activities 6,973 17,392
Cash Flow From Investing activities:
Deposit on investment in land 170,834 0
Purchase of land use right (170,834) 0
Net cash used in investing activities 0 0
Financing Activities
Repayment of bank overdraft (259) (216)
Repayment of secured loan 0 0
Net (Repayment) / Borrowings Under Bank Import Loans (233) 117
---------- ----------
Net Cash Provided by (Used in) Financing Activities (492) (99)
Net Increase in Cash 6,481 17,293
Cash, Beginning of Period 870 35,668
Cash, End of Period 7,351 52,961
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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 From 10-K for the fiscal year ended December 31, 1999.
Note 2 -- Foreign Currency Conversation
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. Reminbi
has been converted into US dollars at the exchange rate of 8.3 to 1.
<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 September 30, 2000 to the Three Months
Ended September 30, 1999
Prior to the current fiscal year, the Company's primary source of income
was from the sale of turn-key assembly projects and the sale of new materials
related thereto. During the current fiscal year, a division development between
management personnel over the future direction of the Company. Following a proxy
battle, new management assumed control and changed the Company's focus from the
turn-key assembly projects to agribusiness. The Company has revenue, albeit
limited, from the sale of hay and other natural grasses. This source of revenue
helps, on an interim basis to defray a portion of the cost of the Company's
investment in agricultural genetics. The Company does not anticipate any
significant revenue from its agricultural genetics operations, until calendar
year 2001. Because of this change in corporate focus, comparisons to price
periods are difficult and all material changes in revenue and expenses should be
evaluated based on this change in corporate focus.
Revenues
Revenues decreased by $7,253,000 or 65.32% to $3,850,000 for the three
months ended September 30, 2000 from $11,103,000 for the corresponding period of
the prior year. The decrease is attributable to the change in the Company's
business. For the 1999 period all the income of the Company was derived from the
sale of turnkey projects and related raw material sales. Following the change in
management,the sale of turnkey projects and the related sales of raw materials
were abandoned, and management refocused the Company on agricultural genetics
and the sale of forage grass. Revenue for the quarter under review represented
revenue from the sale of natural grass.
Cost of Sales
Cost of sales decreased by $3,468,000 or 78.55% to $947,000 for the three
months ended September 30, 2000 from $4,415,000 for the corresponding period of
the prior year. Cost of sales represents direct labor cost, transportation cost
and other direct overhead associated with the sale of forage grass. The decrease
in cost of sales can be explained by the discontinuation of the sale of turnkey
projects and the sale of related raw materials.
Depreciation of Fixed Assets
Depreciation expenses decreased by $514,000 or 46.35% to $595,000 for the
three months ended September 30, 2000 from $1,109,000 for the corresponding
period of the prior year. The decrease is temporary as only one month of
depreciation was accrued on the Dongwu Bio Tech Farm as the final documents of
transfer were not concluded until September, 2000.
Selling and Administrative Expenses
Selling and administrative expenses decreased by $81,000 or 24.70% to
$247,000 for the three months ended September, 2000 from $328,000 for the
corresponding period of the prior year. The decrease is principally attributable
to the decrease in sales which in turn required fewer support services.
<PAGE>
Financial Income / (Expense), net
Financial income / (expense) net, consists of interest earned on cash and
cash equivalents, less interest expense. Net financial expense decreased by
$4,000, or 22.22% to $14,000 for the three months ended September 30, 2000 from
$18,000 for the corresponding period of the prior year. This decrease resulted
from decreased bank borrowings.
Income Taxes
No income tax was incurred during the period under review as all income
derived from Dongwu Bio Tech Farm is eligible for a five year tax holiday
beginning with the first profitable year.
Net Income
Net income decreased by $2,563,000 or 51.57% to $2,047,000 for the three
months ended September 30, 2000 from $4,970,000 for the corresponding period of
the prior year. The decrease is principally attributable to the lack of revenue
from the sale of turnkey projects and the sale of related materials, which was
partially offset by the sale of forage grass.
Comparison of the Nine Months Ended September 30, 2000 to the Nine Months Ended
September 30, 1999
Revenues
Revenues decreased by $18,161,000 or 59.69% to $12,267,000 for the nine
months ended September 30, 2000 from $30,428,000 for the corresponding period of
the prior year. The decrease is attributable to the changes in the Company's
business. For the 1999 period, all of the income of the Company was derived from
the sale of turnkey projects and related raw material sales. Following the
change in management, the sale of turnkey projects and the related sales of raw
material were abandoned, and management has successfully refocused on
agricultural genetics operations and the sale of forage grass. Revenue for the
quarter under review represented revenue from the sale of natural grass and the
old business of turnkey projects which were discontinued at the end of the first
calendar quarter of 2000.
Cost of Sales
Cost of sales decreased by $8,069,000 or 67.46% to $3,893,000 for the nine
months ended September 30, 2000 from $11,962,000 for the corresponding period of
the prior year. Cost of sales represents direct labor costs, transportation
costs and other direct overhead associated with the sale of forage grass. The
decrease in cost of sales can be explained by the discontinuation at the end of
the first quarter of the sale of turnkey projects and the sales of related raw
materials.
Depreciation of Fixed Assets
Depreciation expenses decreased by $2,706,000 or 80.70% to $647,000 for the
nine months ended September 30, 2000 from $3,353,000 for the corresponding
period of the prior year. The decrease is principally attributable to the
inclusion of the Dongwu Bio Tech Farm as an asset for only the month of
September 2000 while the farm situated at Chengde Dafeng was subject to
depreciation for the entire nine months of 1999, this farm was sold in October
1999.
Selling and Administrative Expenses
Selling and administrative expenses decreased by $186,000 or 18.98% to
$794,000 for the nine months ended September, 2000 from $980,000 for the
corresponding period of the prior year. The decrease is principally attributable
to the decrease in sales which in turn required fewer support services.
<PAGE>
Financial Income / (Expense), net
Financial income / (expense) net, consist of interest earned on cash and
cash equivalents, less interest expense. Net financial expense increased by
$11,000, or 19.29% to $68,000 for the nine months ended September 20, 2000 from
$57,000 for the corresponding period of the prior year. This increase resulted
from increased bank borrowings in the first two quarters of 2000.
Income Taxes
Income tax for the nine months ended September 30, 2000 were $704,000 or
10.25% of pre tax income. This compares with $2,185,000 or 15.52% of pre tax
income for the corresponding period. The decrease is principally attributable to
the fact that there was no income tax expense for the third quarter of 2000 as
all income derived from Dong Wu Bio Tech Farm is eligible for a tax holiday of
five years beginning with the first profitable year.
Net Income
Net income decreased by $7,441,000 or 55.11% to $6,161,000 for the nine
months ended September 30, 2000 from $13,502,000 for the corresponding period of
the prior year. The decrease is primarily attributable to the lack of revenue
from the sale of turnkey projects and the sale of related raw materials which
was partially offset by the sale of forage grass.
Liquidity and Capital Resources
At September 30, 2000, the Company had a deficit in working capital of
$8,300,000 including a cash balance of $7,351,000. This compares to working
capital of $45,823,000 and a cash balance of $52,961,000 at September 30, 1999.
Net cash provided by operating activities decreased to $6,973,000 for the
nine months ended September 30, 2000 from $17,392,000 for the corresponding
period of the prior year. This decrease resulted from a decrease in income and
changes in working capital.
The Company had no investing activities for either the nine months ended
September 30, 2000 or September 30, 1999.
For the nine months ended September 30, 2000, the Company used $492,000 in
its financing activities compared to $99,000 for the corresponding period of the
prior year. This change is nearly entirely attributable to the repayment of a
loan and a bank overdraft.
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 development of the new farm will require
outside financing. Apart from the capital improvements for the farm, the Company
has sufficient capital to execute its business plan for the next twelve months.
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
<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.
November 13, 2000
/s/ Jia Ji Shang
-----------------------------------------
Jia Ji Shang
Chairman and Chief Executives Officer
/s/ Jian Sheng Wei
November 13, 2000,
----------------------------------------
Jian Sheng Wei
Chief Financial Officer and Secretary
