SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CHINA RESOURCES DEVELOPMENT, INC.
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|_| $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2).
|_| $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
|X| No fee required.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
|_| Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
1) Amount previously paid: _________________________________________________
2) Form, Schedule or Registration No. ______________________________________
3) Filing party: ___________________________________________________________
4) Date filed: _____________________________________________________________
___________
*Set forth the amount on which the filing fee is calculated and state how it was
determined.
(032796DTI)
<PAGE>
CHINA RESOURCES DEVELOPMENT, INC.
36/F. Far East Finance Center
16 Harcourt Road, Admiralty, Hong Kong
-----------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held December 15, 1998
To the Shareholders:
Notice is hereby given that an Annual Meeting of Shareholders (the
"Annual Meeting") of CHINA RESOURCES DEVELOPMENT, INC. (the "Company"), will be
held at the offices of Hainan Zhongwei Agricultural Resources Company Limited,
Sixth Floor, International Hong Yun Hotel, 13 Haixiu Avenue, Haikou City, Hainan
Province, People's Republic of China, on December 15, 1998, at 3:00 p.m., local
time, for the following purposes:
1. To elect directors in Class II;
2. To consider and vote upon the ratification of the appointment of
Ernst & Young as the Company's independent accountants for the fiscal
year ending December 31, 1998; and
3. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
Shareholders of record at the close of business on November 20, 1998,
are entitled to notice of and to vote at the Annual Meeting or any adjournment
or postponement thereof. The Company's annual report on Form 10-K for the year
ended December 31, 1997, is enclosed for your convenience.
Please sign and date the enclosed proxy card and return it promptly in
the accompanying envelope (no postage required if mailed in the United States)
to ensure that your shares will be represented at the Annual Meeting. If you
attend the Annual Meeting, you may vote your shares in person even if you have
previously submitted a proxy.
By Order of the Board of Directors,
/s/ Wong Wah On
-------------------
Wong Wah On
Corporate Secretary
November 30, 1998
<PAGE>
CHINA RESOURCES DEVELOPMENT, INC.
36/F. Far East Finance Center
16 Harcourt Road, Admiralty, Hong Kong
----------------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON DECEMBER 15, 1998
This proxy statement and the accompanying proxy card are being
furnished in connection with the solicitation of proxies by the Board of
Directors of China Resources Development, Inc., a Nevada corporation (the
"Company"), from holders of the Company's outstanding shares of Common Stock,
par value $0.001 per share (the "Common Stock"), and from the holder of the
Company's outstanding shares of Series B preferred stock (the "Preferred
Stock"), for the Annual Meeting of Shareholders to be held December 15, 1998,
for the purposes set forth in the accompanying notice (the "Annual Meeting").
The Company will bear the costs of soliciting proxies from its shareholders. In
addition to soliciting proxies by mail, directors, officers and employees of the
Company, without receiving additional compensation therefor, may solicit proxies
by telephone, by telegram or in person. Arrangements will also be made with
brokerage firms and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of Common Stock held of record
by such persons, and the Company will reimburse such brokerage firms,
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred by them in connection therewith. This proxy statement is first being
mailed to shareholders of the Company on or about November 30, 1998.
VOTING AT THE MEETING
At the close of business on November 20, 1998, the record date for
determining shareholders entitled to notice of and to vote at the Annual Meeting
(the "Record Date"), there were outstanding and entitled to vote approximately
5,929,004 shares of Common Stock and 3,200,000 shares of Preferred Stock. All of
the outstanding shares of Common Stock and Preferred Stock are entitled to vote
on all matters which properly come before the annual meeting, and each
shareholder will be entitled to one vote for each share of Common Stock or
Preferred Stock held.
Each proxy that is properly signed and received prior to the Annual
Meeting will, unless revoked, be voted in accordance with the instructions on
such proxy. If no instruction is indicated, the shares will be voted FOR the
election of the nominees for director listed in this proxy statement, FOR
ratification of the appointment of Ernst & Young, and FOR the approval of such
other business that may properly come before the Annual Meeting or any
postponement or adjournment thereof. A shareholder who has given a proxy may
revoke such proxy at any time before it is voted at the Annual Meeting by
delivering a written notice of revocation or duly executed proxy bearing a later
date to the Secretary of the Company or by attending the meeting and voting in
person.
A quorum of shareholders is necessary to take action at the Annual
Meeting. A majority of the outstanding shares of Common Stock and Preferred
Stock, counted together, of the Company, represented in person or by proxy, will
constitute a quorum. Votes cast by proxy or in person at the Annual Meeting will
be tabulated by the inspectors of election appointed for the Annual Meeting. The
inspectors of election will determine whether or not a quorum is present at the
Annual Meeting. The inspectors of election will treat abstentions as shares of
Common Stock or Preferred Stock that are present and entitled to vote for
purposes of determining the presence of a quorum. Under certain circumstances, a
broker or other nominee may have discretionary authority to vote certain shares
of Common Stock if instructions have not been received from the beneficial owner
or other person entitled to vote. If a broker or nominee indicates on the proxy
that it does not have instructions or discretionary authority to vote certain
shares of Common Stock on a particular matter, those shares will not be
considered as present for purposes of determining whether a quorum is present or
whether a matter has been approved.
1
<PAGE>
The nominees for director who receive the greatest number of votes cast
in person or by proxy at the Annual Meeting shall be elected directors of the
Company. The vote required for adoption of the other proposals herein is the
affirmative vote of a majority of the shares of Common Stock and Preferred Stock
present in person or represented by proxy at the Annual Meeting; and, for
purposes of determining shareholder approval of such proposals, abstentions will
be treated as shares of Common Stock or Preferred Stock voted against adoption
of such proposals.
CONVENTIONS
Unless otherwise specified, all references in this report to "U.S.
Dollars," "Dollars," "US$," or "$" are to United States dollars; all references
to "Hong Kong Dollars" or "HK$" are to Hong Kong dollars; and all references to
"Renminbi" or "RMB" or "Yuan" are to Renminbi Yuan, which is the lawful currency
of the People's Republic of China ("China" or "PRC"). The Company and Billion
Luck maintain their accounts in U.S. Dollars and Hong Kong Dollars,
respectively. HARC and the Operating Subsidiaries maintain their accounts in
Renminbi. The financial statements of the Company and its subsidiaries are
prepared in Renminbi. Translations of amounts from Renminbi to U.S. Dollars and
from Hong Kong Dollars to U.S. Dollars are for the convenience of the reader.
Unless otherwise indicated, any translations from Renminbi to U.S. Dollars or
from U.S. Dollars to Renminbi have been made at the single rate of exchange as
quoted by the People's Bank of China (the "PBOC Rate") on September 30, 1998,
which was approximately U.S.$1.00 = Rmb8.27. Translations from Hong Kong Dollars
to U.S. Dollars have been made at the single rate of exchange as quoted by the
Hongkong and Shanghai Banking Corporation Limited on September 30, 1998, which
was approximately US$1.00 = HK$7.75. The Renminbi is not freely convertible into
foreign currencies and the quotation of exchange rates does not imply
convertibility of Renminbi into U.S. Dollars or other currencies. All foreign
exchange transactions take place either through the Bank of China or other banks
authorized to buy and sell foreign currencies at the exchange rates quoted by
the People's Bank of China. No representation is made that the Renminbi or U.S.
Dollar amounts referred to herein could have been or could be converted into
U.S. Dollars or Renminbi, as the case may be, at the PBOC Rate or at all.
References to "Billion Luck" are to Billion Luck Company Ltd., a
British Virgin Islands company, which is a wholly-owned subsidiary of the
Company.
References to "Company" and "Registrant" are to China Resources
Development, Inc., and include, unless the context requires otherwise, the
operations of Billion Luck, HARC, First Supply, and Second Supply (all as
hereinafter defined).
References to "Farming Bureau" are to the Hainan Agricultural
Reclamation General Company, a division of the Ministry of Agriculture, the PRC
government agency responsible for matters relating to agriculture.
References to "First Supply" are to First Goods And Materials Supply
And Sales Corporation, a company organized in the PRC and a wholly-owned
subsidiary of HARC.
References to "Guilinyang Farm" are to Hainan Province Guilinyang State
Farm, a PRC entity which is owned and controlled by the Farming Bureau.
References to "Hainan" are to Hainan Province of the PRC.
References to "Hainan State Farms" are to the rubber farms in Hainan
controlled by the Farming Bureau.
References to "HARC" are to Hainan Zhongwei Agricultural Resources
Company Limited, a company organized in the PRC, whose capital is owned 61% by
Billion Luck and 39% by the Farming Bureau.
2
<PAGE>
References to "Operating Subsidiaries" are to the consolidated
operations, assets and/or activities, as the context indicates, of First Supply,
and Second Supply.
References to the "PRC" or "China" include all territory claimed by or
under the control of the Central Government, except Hong Kong, Macau, and
Taiwan.
References to "Second Supply" are to Second Goods And Materials Supply
And Sales Corporation, a company organized in the PRC and a wholly-owned
subsidiary of HARC.
References to "Tons" are to metric tons.
BENEFICIAL OWNERSHIP OF CERTAIN SHAREHOLDERS
BENEFICIAL OWNERS OF MORE THAN 5%
OF THE COMPANY'S COMMON STOCK
The following table sets forth, to the knowledge of management, each
person or entity who is the beneficial owner of more than 5% of the shares of
the Company's Common Stock or Series B Preferred Stock outstanding as of
November 20, 1998, the number of shares owned by each such person and the
percentage of the outstanding shares represented thereby.
<TABLE>
<CAPTION>
Amount and
Name and Address Nature of Percent
of Beneficial Owner Beneficial Ownership (1) of Class
------------------- ------------------------ --------
<S> <C> <C>
Everbright Growth Fund 334,800 Common Stock 5.66%
36/F., Far East Finance Centre
16 Harcourt Road
Admiralty, Hong Kong
China Everbright Financial 3,200,000 Series B Preferred Stock 100%
Holdings Limited
36/F., Far East Finance Centre
16 Harcourt Road
Admiralty, Hong Kong
Worlder International Company 486,000 Common Stock 8.20%
Limited (2)
21/F., Great Eagle Centre
No. 23 Harbour Road
Hong Kong
</TABLE>
- --------------------
(1) The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of these shares.
(2) Of the 486,000 shares of Common Stock indicated, Worlder International
Company Limited ("Worlder") directly owns 351,000 shares, and the remaining
135,000 shares represent shares of Common Stock owned by Silverich Limited,
which is wholly-owned by Worlder.
3
<PAGE>
SHARE OWNERSHIP OF OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of November 20, 1998, by (i) each
director of the Company, (ii) each executive officer of the Company named in the
summary compensation table, and (iii) all directors and executive officers of
the Company as a group. All information with respect to beneficial ownership has
been furnished by the respective director or executive officer (in the case of
shares beneficially owned by each of them). Unless otherwise indicated in a
footnote, each stockholder possesses sole voting and investment power with
respect to the shares indicated as beneficially owned.
<TABLE>
<CAPTION>
Amount and
Name of Nature of Percent of
Beneficial Owner Beneficial Ownership (1) Class
<S> <C> <C>
Ching Lung Po -0- N/A
Li Shunxing -0- N/A
Li Fei Lie -0- (2) N/A
Lin Yu Quan -0- N/A
Tam Cheuk Ho -0- (3) N/A
Wan Ying Lin -0- N/A
Wong Wah On 43,200 Common Stock (4) 0.73%
Zhang Yibing -0- N/A
All executive officers 43,200 Common Stock 0.73%
and directors as a group
</TABLE>
- -------------------------
(1) The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of these shares.
(2) Li Fei Lie was granted options to purchase 10,000 shares of Common Stock
under the Company's Stock Option Plan as described in the Company's annual
report on Form 10-K for the fiscal year ended December 31, 1997, provided
herewith.
(3) Tam Cheuk Ho was granted options to purchase 600 shares of Common Stock
under the Company's Stock Option Plan as described in the Company's annual
report on Form 10-K for the fiscal year ended December 31, 1997, provided
herewith.
(4) Brender Services Limited owns 43,200 shares of Common Stock. Brender
Services Limited is beneficially owned by Wong Wah On, the Director and
Financial Controller of the Company. In addition, Brender was granted options to
purchase 10,000 shares of Common Stock under the Company's Stock Option Plan,
and Mr. Wong was granted options to purchase 600 shares of Common Stock under
the Plan, as described in the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1997, provided herewith.
4
<PAGE>
FINANCIAL INFORMATION
The following financial information and management's discussion and
analysis of financial condition and results of operations are excerpted from the
Company's Form 10-Q quarterly report for the quarterly period ended September
30, 1998. This information supplements the information contained in the
Company's annual report on Form 10-K for the fiscal year ended December 31,
1997, a copy of which is provided herewith and incorporated herein by reference.
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1998 1997 1998 1998 1997 1998
---- ---- ---- ---- ---- ----
RMB RMB US$ RMB RMB US$
<S> <C> <C> <C> <C> <C> <C>
SALES 155,122 419,295 18,757 368,489 893,762 44,557
COST OF SALES (148,944) (410,396) (18,010) (352,948) (860,071) (42,678)
----------- ----------- ---------------------- ----------------------
GROSS PROFIT 6,178 8,899 747 15,541 33,691 1,879
DEPRECIATION OF FIXED ASSETS (491) (1,195) (59) (1,312) (2,039) (158)
SELLING AND ADMINISTRATION
EXPENSES (6,110) (6,263) (739) (21,645) (21,979) (2,618)
----------- ----------- ---------- ----------- ---------- -----------
OPERATING INCOME/(LOSS) (423) 1,441 (51) (7,416) 9,673 (897)
FINANCIAL INCOME/(EXPENSES),
NET 1,728 (859) 209 6,460 31 781
OTHER INCOME, NET 403 19,981 49 2,021 38,726 244
----------- ----------- ---------- ----------- ---------- -----------
INCOME BEFORE INCOME TAXES 1,708 20,563 207 1,065 48,430 128
INCOME TAXES (749) (1,806) (91) (1,802) (7,959) (217)
----------- ----------- ---------- ----------- ---------- -----------
NET INCOME/(LOSS) BEFORE
MINORITY INTERESTS 959 18,757 116 (737) 40,471 (89)
MINORITY INTERESTS (1,421) (9,979) (172) (3,359) (21,577) (406)
----------- ----------- ---------- ----------- ----------- ----------
NET INCOME/(LOSS) (462) 8,778 (56) (4,096) 18,894 (495)
=========== =========== ========== =========== ========== ===========
BASIC AND DILUTED
EARNINGS/(LOSS) PER SHARE (0.08) 1.46 (0.01) (0.68) 3.19 (0.08)
=========== =========== ========== =========== ========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 5,995,671 6,029,004 5,995,671 6,017,893 5,917,893 6,017,893
=========== =========== ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE>
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1998
RMB RMB US$
Notes (Unaudited) (Note) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 145,320 124,547 17,572
Trade receivables 10,784 11,249 1,304
Inventories 2 18,288 61,792 2,211
Other receivables, deposits and 26,574 29,139 3,213
prepayments
Amount due from Farming Bureau 9,608 14,921 1,162
Amounts due from related companies 54,878 40,044 6,636
---------- ---------- ----------
Total current assets 265,452 281,692 32,098
PROPERTY AND EQUIPMENT, NET 3 6,550 7,496 792
INVESTMENTS 140,074 147,671 16,938
GOODWILL 1,001 1,021 121
---------- ---------- ----------
TOTAL ASSETS 413,077 437,880 49,949
========== ========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable 14,147 20,284 1,711
Other payables and accrued liabilities 23,052 21,106 2,788
Income taxes payable 18,161 22,375 2,196
---------- ---------- ----------
TOTAL CURRENT LIABILITIES 55,360 63,765 6,695
MINORITY INTERESTS 121,705 133,143 14,716
---------- ---------- ----------
TOTAL LIABILITIES AND MINORITY
INTERESTS 177,065 196,908 21,411
---------- ---------- ----------
SHAREHOLDERS' EQUITY
Common stock, US$0.001 par value:
Authorized:
200,000,000 shares in 1998 and 1997,
Issued and outstanding:
5,929,004 (1997: 5,779,004) shares, 4 49 50 6
Preferred stock, authorized:
10,000,000 shares in 1998 and 1997
Series B preferred stock, US$0.001
par value:
Authorized: 3,200,000 shares in
1998 and 1997
Issued and outstanding: 3,200,000
shares in 1998
And 1997 27 27 3
Additional paid-in capital 156,553 157,416 18,930
Reserves 25,514 25,514 3,085
Retained earnings 53,869 57,965 6,514
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY 236,012 240,972 28,538
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 413,077 437,880 49,949
========= ========== =========
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
<PAGE>
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
Series B
Series A Convertible Series B Additional
Common Preferred Preferred Preferred Paid-in Retained
stock Stock Stock Stock Capital Reserves Earnings Total
RMB RMB RMB RMB RMB RMB RMB RMB
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1998 50 - - 27 157,416 25,514 57,965 240,972
Stock repurchase (1) - - - (863) - - (864)
Comprehensive income:
Net loss for the - - - - - - (4,096) (4,096)
period
---------- ---------- ----------- ---------- ---------- --------- --------- ---------
Balance at September
30,
1998 49 - - 27 156,553 25,514 53,869 236,012
========== ========== =========== ========== ========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
7
<PAGE>
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1998 1997 1998
---- ---- ----
RMB RMB US$
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES::
Net income/(loss) (4,096) 18,894 (495)
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interests 3,359 21,577 406
Depreciation and amortization 1,332 2,060 161
Loss on disposal of fixed assets -- 799 --
Decrease/(increase) in assets:
Trade receivables 465 (5,918) 56
Inventories 43,504 (14,422) 5,261
Other receivables, deposits and prepayments 2,565 (4,269) 310
Amount due from Farming Bureau 5,313 (177) 643
Amounts due from related companies (21,834) 4,005 (2,640)
Increase/(decrease) in liabilities:
Accounts payable (6,137) (6,254) (742)
Amounts due to related companies -- 8,929 --
Other payables and accrued liabilities 1,946 (26,672) 235
Income taxes payable (4,214) 4,573 (510)
-------- -------- --------
Net cash provided by operating activities 22,203 3,125 2,685
-------- -------- --------
CASH FLOW PROVIDED BY/(USED IN)
INVESTING ACTIVITIES
Purchase of fixed assets (366) (2,821) (44)
Purchase of investments (250) -- (30)
Increase in minority interests 50 -- 6
Proceeds from disposal of fixed assets -- 3 --
Proceeds from sale of investments -- 1,216 --
-------- -------- --------
Net cash used in investing activities (566) (1,602) (68)
-------- -------- --------
CASH FLOW PROVIDED BY/(USED IN) FINANCING
ACTIVITIES:
Repayments of loans to shareholders -- (4,677) --
Stock repurchase (864) -- (105)
-------- -------- --------
Net cash used in financing activities (864) (4,677) (105)
-------- -------- --------
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS 20,773 (3,154) 2,512
Cash and cash equivalent, at beginning of period 124,547 131,006 15,060
-------- -------- --------
Cash and cash equivalent, at end of period 145,320 127,852 17,572
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
8
<PAGE>
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine months period ended
September 30, 1998, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998.
<TABLE>
<CAPTION>
2. INVENTORIES
September 30, December 31,
1998 1997
RMB RMB
<S> <C> <C>
Finished goods 18,288 61,792
====== ======
</TABLE>
<TABLE>
<CAPTION>
3. PROPERTY AND EQUIPMENT, NET
September 30, December 31,
1998 1997
RMB RMB
At cost:
<S> <C> <C>
Buildings and leasehold improvements 5,267 5,267
Machinery, equipment and motor vehicles 6,965 6,599
---------- ----------
12,232 11,866
Accumulated depreciation: (5,682) (4,370)
---------- ----------
Net book value 6,550 7,496
========== ==========
</TABLE>
4. SHARE CAPITAL
During the fiscal quarter ended September 30, 1998, the Company
repurchased 100,000 shares of common stock of the Company in the
secondary market.
5 NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income, became effective in the first quarter of 1998.
SFAS no. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement has no impact on the Company's net income or stockholders'
equity.
In 1997, the Financial Accounting Standards Board also issued SFAS no.
131, Disclosures About Segments of an Enterprise and Related
Information. The Company plans to adopt this Statement effective
December 31, 1998.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATION
RESULTS OF OPERATIONS
The following table shows the selected unaudited condensed consolidated
income statements data of the Company and its subsidiaries for the three months
and nine months ended September 30, 1998 and 1997. The data should be read in
conjunction with the unaudited Condensed Consolidated Financial Statements of
the Company and related notes thereto.
The discussions below are presented in the Company's primary operating
currency, which is the Renminbi Yuan ("RMB"). For information purposes, the
amounts have been translated into U.S. dollars at an exchange rate of $1.00 =
RMB8.27, which represents the approximate single rate of exchange as quoted by
the People's Bank of China on September 30, 1998. No representation is made that
RMB amounts could have been, or could be, converted into U.S. dollars at that
rate or any other rate.
<TABLE>
<CAPTION>
(Amounts in thousands) Three months ended September Nine months ended September 30,
---------------------------- -------------------------------
30,
1998 1997 1998 1997
RMB RMB RMB RMB
Sales:
<S> <C> <C> <C> <C>
Distribution of natural rubber 147,558 408,073 314,320 857,222
Procurement of materials and 7,564 11,222 54,169 36,540
supplies
---------- ---------- ---------- ----------
155,122 419,295 368,489 893,762
---------- ---------- ---------- ----------
Gross profit 6,178 8,899 15,541 33,691
Gross profit margin (%) 3.98 2.12 4.22 3.77
Income before income taxes 1,708 20,563 1,065 48,430
Income taxes (749) (1,806) (1,802) (7,959)
---------- ---------- ---------- ----------
Net income/(loss) 959 18,757 (737) 40,471
Minority interests (1,421) (9,979) (3,359) (21,577)
---------- ---------- ---------- ----------
Net income/(loss) after minority (462) 8,778 (4,096) 18,894
interests
========== ========== ========== ==========
</TABLE>
NET SALES AND GROSS PROFIT
Total net sales for the third quarter of fiscal 1998 decreased by
approximately RMB264 million (US$31.9 million) or 63.0% to approximately RMB155
million (US$18.8 million), compared to approximately RMB419 million (US$50.7
million) for the corresponding period in 1997. Net sales of natural rubber
declined by approximately RMB261 million (US$31.6 million) or 63.8% to
approximately RMB148 million (US$17.9 million), compared to approximately RMB408
million (US$49.3 million) for the corresponding period in 1997. Net sales
revenue from the procurement of materials and supplies decreased by
approximately RMB4 million (US$484,000) or 32.6% to approximately RMB8 million
(US$1 million), compared to approximately RMB11 million (US$1.3 million) for the
corresponding period in 1997.
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<PAGE>
For the nine months of 1998, the Company's total net sales decreased by
approximately RMB525 million (US$63.5 million) or 58.8%. The net sales of
natural rubber decreased by approximately RMB543 million (US$65.7 million) or
63.3% while the net sales of materials and supplies increased by approximately
RMB18 million (US$2.2 million) or 48.2%.
The domestic natural rubber consumption market remained weak in 1998.
The decline in natural rubber sales revenue was due to the decrease in both the
natural rubber price and the quantity sold. The average natural rubber price was
approximately RMB7,000 (US$846) per ton for the nine months of 1998 compared
with approximately RMB10,000 (US$1,209) per ton for the corresponding period in
1997. Renminbi Yuan remained relatively strong while most of the Asian
currencies were weakened against the U.S. Dollar during 1998, resulting in
intense competition from imported natural rubber.
Given the adverse impact of the Asian financial crisis on the Chinese
economy, the consumption market for materials and supplies remained weak in
1998. It was the Company's policy to reduce prices to boost sales in the first
quarter of 1998. The price level was back to normal since the second quarter of
1998.
Overall gross profit decreased by approximately RMB18.1 million
(US$2.2) or 53.9% to RMB15.5 million (US$1.9 million) for the nine months of
1998 from approximately RMB33.7 million (US$4.1 million) for the corresponding
period in 1997. Gross profit margin increased to 4.22% for the nine months of
1998 from 3.77% for the corresponding period in 1997. The increase in gross
profit margin was primarily due to the Company having stockpiled some natural
rubber stock in early 1997, which was sold at a loss in 1997 as the natural
rubber price started to decline since early 1997.
SELLING AND ADMINISTRATION EXPENSES
Selling and administration expenses for the nine months of 1998 were
RMB21.6 million (US$2.6 million) which were comparable to RMB22.0 million
(US$2.7 million) for the corresponding period in 1997.
FINANCIAL INCOME/(EXPENSES), NET
Net financial income increased by RMB6.4 million (US$774,000) to RMB6.5
million (US$786,000) for the nine months of 1998 compared to RMB31,000
(US$4,000) for the corresponding period in 1997. The significant increase was
due to the fact that the Company had more cash deposits with financial
institutions after the recovery of debts from several large customers since the
second quarter of 1998, and withdrawal of deposits from the Rubber Futures
Exchange.
OTHER INCOME, NET
Other income decreased significantly by approximately RMB36.7 million
(US$4.4 million) or 95% from RMB38.7 million (US$4.7 million) for the nine
months of 1997 to RMB2.0 million (US$242,000) for the corresponding period in
1998. The decrease was primarily due to less income from the trading of rubber
futures contracts during 1998.
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<PAGE>
MINORITY INTERESTS
Pursuant to an Agreement for the Sale and Purchase of Share in HARC
dated April 30, 1998 between Guilinyang Farm and the Company, the Company
purchased 5,000,000 shares, representing 5% of the total issued and outstanding
share capital of HARC, from Guilinyang Farm for a total consideration of RMB7
million (US$846,000). After the said purchase, the Company's effective interest
in HARC increased from 56% to 61%. Minority interests after the said purchase
represent a 39% interest in HARC held by the Farming Bureau compared with 44%
before the said purchase.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs are to fund inventories and trade
receivables and, to a lesser extent, to expand business operations. The Company
has financed its working capital requirements primarily through internally
generated cash.
The Company has a working capital surplus of approximately RMB210
million (US$25.4 million) as of September 30, 1998, compared to that of
approximately RMB218 million (US$26.4 million) as of December 31, 1997. Net cash
provided by operating activities for the nine months ended September 30, 1998
was approximately RMB22.2 million (US$2.7 million) as compared to approximately
RMB3.1 million (US$375,000) for the corresponding period in 1997. Net cash flows
from the Company's operating activities are attributable to the Company's income
and changes in operating assets and liabilities.
There has been no other significant change in financial condition and
liquidity since the fiscal year ended December 31, 1997. The Company believes
that internally generated funds will be sufficient to satisfy its anticipated
working capital needs for at least the next twelve months.
12
<PAGE>
PROPOSAL 1 - ELECTION OF DIRECTORS
During 1998, the Company's Board of Directors was comprised of seven
directors, and, according to Article VIII of the Company's Articles of
Incorporation, the membership of the Board may be increased to no more than 25
directors or decreased to no fewer than three directors by action of the Board
of Directors. At the 1996 annual meeting, the shareholders approved an amendment
to the Articles of Incorporation to divide the directors into three classes. One
class of directors is to be elected each year for a three-year term. However, as
three classes of directors were newly established, the Class I directors were
elected at the 1996 annual meeting for one-year terms, the Class II directors
were elected for two-year terms and the Class III directors were elected for
normal three-year terms. At the annual meeting held in 1997, Messrs. Tam Cheuk
Ho and Wong Wah On were elected to serve in Class I until the annual meeting to
be held in 2000 and until their successors have been duly elected and qualified.
Messrs. Ching Lung Po (who was selected by the Board of Directors to fill the
vacancy created by the resignation of Mr. Wang Faren) and Lin Yu Quan (who was
selected by the Board of Directors to fill the vacancy created by the
resignation of Mr. Han Jianzhun) continue to serve in Class II until the annual
meeting to be held in 1998 and until their successors have been duly elected and
qualified. Messrs. Wan Ying Lin (who was selected by the Board of Directors to
fill the vacancy created by the resignation of Mr. Yang Jiangang), Li Shunxing
and Zhang Yibing continue to serve in Class III until the annual meeting to be
held in 1999 and until their successors have been duly elected and qualified.
Therefore, in accordance with the Articles of Incorporation and the actions
taken at the 1996 annual meeting, the election of directors in Class II is to be
conducted at the 1998 Annual Meeting.
The nominees for Class II, if elected, will serve a three-year term
until the annual meeting to be held in 2001 and until their successors have duly
elected and qualified. Messrs. Ching and Lin are currently serving as directors
of the Company. Both nominees have consented to being named herein and have
indicated their intention to serve as directors of the Company, if elected.
Unless authority to do so is withheld, the persons named as proxies will vote
the shares represented by such proxies for the election of the nominees. In case
any of the nominees shall become unavailable for election to the Board of
Directors, which is not anticipated, the persons named as proxies shall have
full discretion and authority to vote or refrain from voting for any other
nominees in accordance with their judgment. Vacancies on the Board of Directors
may be filled by the remaining director or directors, even though less than a
quorum, for the unexpired term of such vacant position.
The nominees and certain information about them are set forth below:
Class II Directors:
Ching Lung Po, aged 51, is a graduate of the Harbin Military and
Engineering Institute and holds the title of Senior Engineer in the PRC. Mr.
Ching was an engineer in the Heilongjiang Suihua Electronic Factory from 1969 to
1976, and he headed the Heilongjiang Suihua Industrial Science & Technology
Research Institute from 1975 to 1976. He became the General Manager of the
Heilongjiang Qingan Factory in 1976. In 1988, Mr. Ching started his own business
and established the Shenzhen Hongda Science and Technology Company Limited, an
electronic products manufacturer in Shenzhen, the PRC. Since October of 1995,
Mr. Ching has been the Chairman of Harbin Asibao Chemical Fiber Company Limited,
a PRC established company. Mr. Ching has also been the Chairman and President of
OVM International Holding Corp. ("OVM") since September of 1996. He is also the
Vice Chairman and a director of Liuzhou OVM Construction Machinery Company
Limited, a PRC registered company in which OVM owns a majority equity interest.
13
<PAGE>
Mr. Lin Yu Quan, aged 50, is a graduate of the School of Central
Communist Party with a major in economic development. From July of 1984 to July
of 1989, he was the Deputy Mayor of Dan County of the Hainan Province. From
August of 1989 to July of 1996, Mr. Lin was the Mayor and Secretary of the
Communist Party of Wanning County. From July of 1996 to December of 1997, he
served as the Mayor of Wanning City. In January of 1998, Mr. Lin was appointed
the Director of the Hainan Farming Bureau.
Information Regarding Board of Directors and Committees
The Company's Board of Directors held five meetings during 1998, and
all other actions of the Board were taken pursuant to unanimous written
consents. The Board of Directors does not have a compensation or nominating
committee. The Board has established an audit committee consisting of two
"independent" directors, Ching Lung Po and Wan Ying Lin. The Board as a whole
operates as a committee to nominate directors and to administer the Company's
1995 Stock Option Plan (except that a committee of three disinterested persons
was formed to act with respect to stock options issued to directors). Each
director attended all of the meetings of the Board of Directors during the
period for which he was a director.
The Board of Directors, acting as a nominating committee, will consider
candidates for director nominated by shareholders. A shareholder who wishes to
submit a candidate for consideration at the 1999 annual meeting must notify the
Secretary of the Company in writing no later than March 1, 1999. The
shareholder's written notice must include information about each proposed
nominee, including name, age, business address, principal occupation, shares
beneficially owned and other information required in proxy solicitations. The
nomination notice must also include the nominating shareholder's name and
address and the number of shares of stock beneficially owned by the shareholder.
The shareholder must also furnish a statement from the candidate indicating that
the candidate wishes and is able to serve as a director. These procedures, and a
statement that the shareholder intends to make the nomination, are prerequisites
to a stockholder nominating a candidate at the annual meeting.
Compensation of Directors
During 1998, directors of the Company did not receive compensation for
their service as directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ELECTION OF THE NOMINEES DESCRIBED ABOVE.
PROPOSAL 2 - APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Subject to ratification by the shareholders, the Board of Directors has
reappointed Ernst & Young, Certified Public Accountants, as independent
accountants to audit the consolidated financial statements of the Company for
the year 1998. Ernst & Young has served as the Company's Independent Accountants
since March of 1995.
On March 16, 1995, the Company executed an engagement letter with the
certified public accounting firm of Ernst & Young, which detailed the scope of
work to be performed by Ernst & Young during the next year. After executing the
letter agreement with Ernst & Young to serve as independent auditors for the
Company, the Company terminated its relationship with the certified public
accounting firm of H. J. Swart & Company, P.A. (the "Former Accountants"), by
letter from the Company's counsel dated March 21, 1995. The Company's decision
to change accountants was approved by the Company's Board of Directors.
14
<PAGE>
The Former Accountants' reports on the Company's financial status for
the years ended December 31, 1992, and December 31, 1993, did not contain an
adverse opinion or a disclaimer of opinion, nor was it qualified or modified as
to uncertainty, audit scope, or accounting principles. Since the engagement of
the Former Accountants in 1993 and until the dismissal of the Former
Accountants, there were no disagreements with the Former Accountants on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of the Former Accountants, would have caused it to make reference
to the subject matter of the disagreements in connection with its reports.
The Company filed a Form 8-K current report dated March 16, 1995,
setting forth the above information. The Company, through its counsel, delivered
a copy of the Form 8-K to the Former Accountants on March 21, 1995, and
requested that the Former Accountants review the disclosures contained therein
and provide a response as promptly as possible so the Company could file the
response within ten business days after the filing of the Form 8-K. The Company
received a response from the Former Accountants by letter dated March 22, 1995,
in which the Former Accountants indicated that they agreed with the disclosures
and statements made by the Company in the Form 8-K. The Company then amended the
previously filed Form 8-K by filing a Form 8-K/A to include the response of the
Former Accountants, which was attached thereto as an exhibit.
If the shareholders should fail to ratify the appointment of Ernst &
Young as its independent accountants, the Board of Directors would reconsider
the appointment. It is expected that representatives of Ernst & Young will be
present at the Annual Meeting, will have an opportunity to make a statement if
they desire to do so and will be available to answer appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.
OTHER INFORMATION
For other information regarding the Company, including Executive
Compensation, Financial and Other Information, Certain Relationships and Related
Transactions and Compliance with Section 16(a) of the Securities Exchange Act of
1934, as amended, please see the appropriate Items of the Company's Form 10-K
annual report for the fiscal year ended December 31, 1997, a copy of which is
provided herewith and incorporated herein by reference.
This proxy statement and the Form 10-K provided herewith may contain
forward-looking statements. Shareholders are cautioned that any such
forward-looking statement is not a guarantee of future performance and involves
risks and uncertainties, and that actual results may differ materially from
those in this proxy statement and the Form 10-K as a result of various factors.
The information contained herein and in the Form 10-K, including without
limitation the information under the heading, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," identifies important
factors that could cause such differences. With respect to any such
forward-looking statement that includes a statement of its underlying
assumptions or bases, the Company cautions that, while it believes such
assumptions or bases to be reasonable and has formed them in good faith, assumed
facts or bases almost always vary from actual results, and the differences
between assumed facts or bases and actual results can be material depending on
the circumstances. When, in any forward-looking statement, the Company, or its
management, expresses an expectation or belief as to future results, that
expectation or belief is expressed in good faith and is believed to have a
reasonable basis, but there can be no assurance that the stated expectation or
belief will result or be achieved or accomplished.
15
<PAGE>
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
To be considered for inclusion in next year's proxy materials,
shareholder proposals to be presented at the Company's 1999 annual meeting must
be in writing and be received by the Company no later than March 1, 1999.
OTHER BUSINESS
The Board of Directors does not know of any business to be brought
before the Annual Meeting other than the matters described in the Notice of
Annual Meeting. However, if any other matter are properly presented for action,
it is the intention of each person named in the accompanying proxy to vote said
proxy in accordance with his judgment on such matters.
16
<PAGE>
PROXY FOR ANNUAL MEETING
OF SHAREHOLDERS
December 15, 1998
This Proxy is Solicited on
Behalf of the Board of Directors
The undersigned hereby appoints Li Shunxing and Zhang Yibing,
or either of them acting singly in the absence of the other, as attorneys and as
proxies, with full power of substitution, to vote all shares of Common Stock and
Preferred Stock of China Resources Development, Inc. (the "Company"), which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of the
Company to be held on December 15, 1998, at 3:00 p.m., local time, at the
offices of Hainan Zhongwei Agricultural Resources Company Limited, located at
Sixth Floor, International Hong Yun Hotel, 13 Haixiu Avenue, Haikou City, Hainan
Province, People's Republic of China, and at any adjournments or postponements
thereof, upon the matters described in the accompanying Proxy Statement and upon
other business that may properly come before the meeting. Said proxy is directed
to vote as instructed on the matters set forth below and otherwise at his
discretion. Receipt of a copy of the Notice of said meeting and Proxy Statement
is hereby acknowledged.
1. ELECTION OF NOMINEES FOR DIRECTORS in Class II.
SHAREHOLDERS MAY WITHHOLD THEIR VOTE FOR ANY NOMINEES BY STRIKING OUT
THE NAME OF SUCH NOMINEE OR NOMINEES:
Ching Lung Po, Lin Yu Quan
[ ]FOR [ ]WITHHOLD AUTHORITY
all nominees listed to vote for all nominees listed
2. PROPOSAL TO RATIFY THE SELECTION of Ernst & Young,
Certified Public Accountants, as the Company's independent accountants for the
fiscal year ending December 31, 1998. (The Board of Directors recommends a vote
FOR)
[ ]FOR [ ]AGAINST [ ]ABSTAIN
3. To transact such other business as may properly come before
the meeting and any adjournment or postponement thereof.
[ ]FOR [ ]AGAINST [ ]ABSTAIN
<PAGE>
Number of Shares:__________________ Name of Owner:____________________________
of Common Stock (Please type or print)
Signature:________________________________
Title or Capacity:________________________
(if applicable) (Please type or print)
Date:_____________________________________
Name of Owner:____________________________
(Please type or print)
Signature:________________________________
Title or Capacity:________________________
(if applicable) (Please type or print)
Date:_____________________________________
This Proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, this proxy will be voted
FOR proposals 1 through 3. If signing as attorney, executor, trustee or
guardian, please give your full title as such. If stock is held jointly, each
owner should sign.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
