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 June 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.
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(Exact name of registrant as specified in its charter)
Utah 87-0431063
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2407 China Resources Building, 26 Harbour Road Wanchai, Hong Kong
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(Address of principal executive offices)
(852) 2802-8988
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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 June 30, 2000, 99,000,000 shares of Common Stock of the issuer were
outstanding.
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CHINA CONTINENTAL, INC.
INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - June 30, 2000 and
December 31, 1999..............................................3
Consolidated Statements of Income - For the
three months and six months ended June 30, 2000 and 1999.......4
Consolidated Statements of cash Flows -
For the six months ended June 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
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CHINA CONTINENTAL, INC.
CONSOLIDATED BALANCE SHEETS
(Stated in '000 United
June 30, December 31,
2000 1999
(unaudited) (audited)
----------- ------------
ASSETS
Current assets
Cash and deposits 6,813 870
Accounts receivable, net of provision 878 7,411
Prepayments, deposits and other receivables 1 1
-------- --------
Total Current Assets 7,692 8,282
-------- --------
Deposit on investment in Land Holding Company 170,835 170,835
Fixed Assets 338 390
Investment in joint ventures 7,478 7,478
Amount due from related Companies 1,312 1,312
Other assets 645 645
-------- --------
Total Assets 188,300 188,942
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Bank overdraft 452 510
Payable and accruals 827 2,830
Bank omport loans 258 385
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
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Total current liabilities 18,207 22,959
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Long-term liabilities 1,241 1,245
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Total liabilities 19,448 24,204
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Stockholders' Equity
Share capital 99 99
Contributed surplus 56,556 56,556
Retained earnings 112,197 108,083
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Total Stockholders' Equity 168,852 164,738
-------- --------
Total Liabilities & Stockholders' Equity 188,300 188,942
======== ========
The accompanying notes are an integral part of these financial statements
3
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CHINA CONTINENTAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Stated in '000 United States Dollars)
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Revenues
Sales of turnkey projects $ 0 $ 10,700 $ 8,417 $ 18,570
Sales of raw materials 0 375 0 755
--------- --------- ---------- ----------
Total revenues 0 11,075 8,417 19,325
Cost of sales 0 (4,294) (2,946) (7,547)
--------- --------- ---------- ----------
Gross Profit 0 6,781 5,471 11,778
Depreciation and amortization (26) (1,122) (52) (2,244)
Selling and administration expenses (252) (350) (547) (652)
Financial income (expenses) net (26) (20) (54) (39)
--------- --------- ---------- ----------
Income before income taxes (304) 5,289 4,818 8,843
Income taxes 0 (815) (704) (1,385)
Minority interest in operation
of consolidated subsidiary 0 537 0 1,074
--------- --------- ---------- ----------
Net Income (loss) $ (304) $ 5,011 $ 4,114 $ 8,532
========= ========= ========== ==========
Earnings (loss) per share (0.003) 0.073 0.042 0.12
========= ========= ========== ==========
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 integral part of these financial statements
4
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CHINA CONTINENTAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(States in '000 United States Dollars)
Six Months Ended June 30,
2000 1999
------ ------
Cash Flows From Operating Activities:
Net Income/(loss)
Adjustments to Reconcile Net Income to Net Cash $ (304) $ 3,521
Provided by Operating Activities:
Depreciation 26 1,122
Minority interest in operation of
consolidated subsidiary 0 (537)
Changes in non-cash working capital 6,406 1,674
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Net Cash Provided by Operating Activities 6,128 5,780
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Financing Activities
Repayment of bank overdraft (58) 11
Repayment of secured loan 0 0
Net (Repayment)/Borrowings Under Bank
Import Loans (127) 50
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Net cash provided by (used in) financing
activities 185 61
Net increase in cash 5,943 5,841
Cash, beginning of period 870 35,668
---------- ---------
Cash, end of period $ 6,813 $ 41,509
========== =========
The accompanying notes are an integral part of these financial statements
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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) that 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.
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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 June 30, 2000 to the Three Months Ended
June 30, 1999
Revenues
Revenues decreased by $11,075,000 or 100% to $0 for the three months ended
June 30, 2000 from $11,075,000 for the corresponding period of the prior year.
The decrease is attributable to fact that all the income of the Company is
derived from the sale of turnkey projects and related raw material and is
considered as a business through personal relationship which no longer exists.
With the internal dispute of management in identifying the core business of the
Company, the sale of turnkey projects and the raw material had been abandoned.
Management is of the opinion that the Company should refocus the energy on
agricultural genetics operation which is in the best interest of the company and
its shareholders. Management is confident that the Company can generate revenue
from the Dong Wu Bio Tech Farm in the third quarter that is under review.
Cost of Sales
The cost of sales of turnkey projects includes the cost of machinery
purchased and salaries and wages paid to engineers and consultants.The decrease
in cost of sales can be explained by the decrease in sales.
Depreciation of Fixed Assets
Depreciation expenses decreased by $1,096,000 or 97.60% to $26,000 for the
three months ended June 30, 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 $98,000 or 28% to $252,000
for the three months ended June, 2000 from $350,000 for the corresponding period
of the prior year. The decrease is attributable to the decrease in sales.
Financial Income / (Expense), net
Financial income / (expense) net, is interest earned on cash and cash
equivalents, less interest expense. Net financial expense increased by $6,000,
or 30% to $26,000 for the three months ended June 20, 2000 from $20,000 for the
corresponding period of the prior year. This increase resulted from increased
bank borrowings.
Income Taxes
No income tax was accrued during the three months ended June 30, 2000, as
the Company had no taxable income.
7
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Net Income
Net income decreased by $5,315,000 or 106% to $(304,000) for the three
months ended June 30, 2000 from $5,011,000 for the corresponding period of the
prior year. The decrease resulted from the lack of revenues for the three months
ended June 30, 2000 which was partially offset by a reduction in expenses.
Comparison of the Six Months Ended June 30, 2000 to the Six Months Ended June
30, 1999
Revenues
Revenues decreased by $10,980,000 or 56.44% to $8,417,000 for the six
months ended June 30, 2000 from $19,325,000 for the corresponding period of the
prior year. The decrease is attributable to fact that all the income of the
Company is derived from the sale of turnkey projects and related raw material
and is considered as a business through a personal relationship that no longer
exists. With the internal dispute of management in identifying the core business
of the Company, the sale of turnkey projects and the raw material has been
abandoned. Management is of the opinion that the Company should refocus the
energy on agricultural genetics operation which is in the best interest of the
company and its shareholders. Management is confident that the Company can
generate revenue from the Dong Wu Bio Tech Farm in the third quarter that is
under review
Cost of Sales
The cost of sales of turnkey projects includes the cost of machinery
purchased and salaries and wages paid to engineers and consultants. The cost of
sale of turnkey projects was 35% for the six months ended June 30, 2000 compared
to 39.2% in prior period. However, cost of sales declined $4,601,000 or 61% to
$2,946,000 for the six months ended June 30, 2000 from $7,547,000 for the
corresponding period of the prior year. This decrease reflects the lack of sales
in the second quarter of calendar year 2000.
Depreciation of Fixed Assets
Depreciation expenses decreased by $2,192,000 or 97.68% to $52,000 for the
six months ended June 30, 2000 from $2,244,000 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 $105,000 or 16.10% to
$547,000 for the six months ended June, 2000 from $652,000 for the corresponding
period of the prior year. The decrease is attributable to the decrease in sale.
Financial Income / (Expense), net
Financial income / (expense) net, is interest earned on cash and cash
equivalents, less interest expense. Net financial expense increased by $15,000
or 38.46% to $54,000 for the six months ended June 20, 2000 from $39,000 for the
corresponding period of the prior year. This increase resulted from increase
bank borrowings.
Income Taxes
Income tax for the six months ended June 30, 2000 was $704,000 or 14.60% of
pre tax income. This compares with $1,385,000 or 15.66% of pre tax income for
the corresponding period.
8
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Net Income
Net income decreased by $4,418,000 or 51.78% to $4,114,000 for the six
months ended June 30, 2000 from $8,532,000 for the corresponding period of the
prior year. The decrease in net income resulted from the lack of revenue during
the three months ended June 30, 2000 which was partially offset by reduced
expenses.
Liquidity and Capital Resources
At June 30, 2000, the Company had cash of $6,813,000 but a working capital
of $10,515,000. This compares to working capital of $45,641,000 and a cash
balance of $45,430,000 at June 30, 1999. The decrease in working capital is due
a portion of the payment for the Dong Wu Bio Tech Farm.
Net cash provided by operating activities increased to $6,128,000 for the
six months ended June 30, 2000 from $5,780,000 for the corresponding period of
the prior year. This increased resulted from changes in non-cash working
capital.
The Company had no investing activities for either the six months ended
June 30, 2000 or June 30, 1999.
For the six months ended June 30, 2000, the Company used $185,000 in its
financing activities compared to $166,000 for the corresponding period of the
prior year. This change is nearly attributable to repayment of a loan of
$127,000 for 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 financial 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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27.1 Financial Data Schedule
b) Reports on Form 8-K
None
9
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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.
August 21, 2000
/s/ Jia Ji Shang
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Jia Ji Shang
Chairman and Chief Executives Officer
/s/ Jian Sheng Wei
August 21, 2000, ---------------------------------------
Jian Sheng Wei
Chief Financial Officer and Secretary
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