SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarter period ended June 30, 1999
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ___________ to _____________
CHINA RESOURCES DEVELOPMENT, INC.
(Exact Name of registrant as Specified in Charter)
Nevada 33-5628-NY 87-0263643
(State or other Jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
Room 2005, 20/F, Universal Trade Centre,
3-5A Arbuthnot Road, Central, Hong Kong
Telephone: 011-852-28107205
(Address and telephone number of
principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 592,900 shares of common stock,
$0.001 par value, as of August 13, 1999.
Exhibit Index on Page 17
1
<PAGE>
CONVENTIONS
Unless otherwise specified, all references in this report to "U.S.
Dollars," "Dollars," "US$," 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 June 30, 1999, which
was approximately U.S.$1.00 = Rmb8.28. 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 June 30, 1999, 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 56% by
Billion Luck, 39% by the Farming Bureau and 5% by the Company.
References to "Operating Subsidiaries" are to the consolidated
operations, assets and/or activities, as the context indicates, of First Supply,
Second Supply and HARC.
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.
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1999 1998 1999
---- ---- ---- ---- ---- ----
RMB RMB US$ RMB RMB US$
<S> <C> <C> <C> <C> <C> <C>
NET SALES 83,960 120,140 10,140 105,315 213,367 12,719
COST OF SALES (81,928) (113,680) (9,895) (103,068) (204,004) (12,448)
---------- --------- ------- -------- --------- --------
GROSS PROFIT 2,032 6,460 245 2,247 9,363 271
DEPRECIATION (337) (432) (41) (822) (821) (99)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (6,017) (7,529) (726) (11,156) (15,535) (1,347)
FINANCIAL INCOME, NET 399 4,689 48 582 4,732 70
OTHER INCOME, NET 6,636 2,960 802 6,306 1,618 762
---------- --------- ------- -------- --------- --------
INCOME/(LOSS) BEFORE
INCOME TAXES 2,713 6,148 328 (2,843) (643) (343)
INCOME TAXES (620) (1,053) (75) (620) (1,053) (75)
---------- --------- ------- -------- --------- --------
INCOME/(LOSS) BEFORE
MINORITY INTERESTS 2,093 5,095 253 (3,463) (1,696) (418)
MINORITY INTERESTS (1,865) (3,254) (225) (658) (1,938) (80)
---------- --------- ------- -------- --------- --------
NET INCOME/(LOSS) 228 1,841 28 (4,121) (3,634) (498)
======= ======= ======= ======= ======= =======
BASIC AND DILUTED
INCOME/(LOSS) PER SHARE 0.38 0.31 0.05 (6.95) (0.60) (0.84)
========== ========= ======= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 592,900 6,029,004 592,900 592,900 6,029,004 592,900
========== ========= ======= ========= ========= =========
See notes to condensed consolidated financial statements.
</TABLE>
3
<PAGE>
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999 AND DECEMBER 31, 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1999 1998 1999
RMB RMB US$
Notes (Unaudited) (Note) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 104,726 129,238 12,648
Trade receivables 3,675 8,463 444
Inventories 2 13,355 10,569 1,613
Other receivables, deposits and prepayments 63,095 30,449 7,620
Amount due from Farming Bureau 34,658 33,667 4,186
Amounts due from related companies 35,732 30,802 4,315
------- ------- ------
TOTAL CURRENT ASSETS 255,241 243,188 30,826
PROPERTY AND EQUIPMENT 3 9,233 7,243 1,115
INVESTMENTS 119,301 119,301 14,409
GOODWILL 979 994 118
------- ------- ------
TOTAL ASSETS 384,754 370,726 46,468
======= ======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 15,255 12,204 1,842
Other payables and accrued liabilities 28,753 15,476 3,473
Income taxes payable 16,986 16,366 2,052
Amounts due to related companies 28,834 31,291 3,482
------- ------- ------
TOTAL CURRENT LIABILITIES 89,828 75,337 10,849
MINORITY INTERESTS 111,603 107,945 13,479
------- ------- ------
TOTAL LIABILITIES AND MINORITY
INTERESTS 201,431 183,282 24,328
------- ------- ------
SHAREHOLDERS' EQUITY Common stock, US$0.001 par value:
Authorized - 200,000,000 shares in 1999
and 1998
Issued and outstanding - 592,900 shares in
1999
and 5,929,004 shares in 1998 5 49 1
Preferred stock, authorized -
10,000,000 shares in 1999 and 1998
Series B preferred stock, US$0.001 par
value:
Authorized - 3,200,000 shares in 1999
and 1998
Issued and outstanding - 320,000
shares
1999 and 3,200,000 shares in 1998 3 27 -
Additional paid-in capital 156,632 156,564 18,917
Reserves 26,274 26,274 3,173
Retained earnings 413 4,534 49
Accumulated other comprehensive income/(loss) (4) (4) -
------- ------- ------
TOTAL SHAREHOLDERS' EQUITY 183,323 187,444 22,140
------- ------- ------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 384,754 370,726 46,468
======= ======= ======
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Series A Series B Additional other
Common preferred preferred paid-in Retained comprehensive
stock stock stock capital Reserves earnings income/(loss) Total
RMB RMB RMB RMB RMB RMB RMB
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1999 49 - 27 156,564 26,274 4,534 (4) 187,444
One-for-ten reverse
stock split (44) - (24) 68 - - - -
Net loss - (4,121) - (4,121)
------ ------ ------- ------- ----- ------- ------ --------
Balance at June 30,
1999 5 - 3 156,632 26,274 413 (4) 183,323
====== ====== ======= ======= ====== ======= ====== =======
See notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE>
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1999 1998 1998
RMB RMB US$
--- --- ---
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss (4,121) (3,634) (498)
Adjustments to reconcile net loss to
net cash provided by/(used by) operating activities:
Depreciation and amortization 837 834 101
Minority interests 658 1,938 79
Loss on disposal of property and equipment 522 - 63
Changes in operating assets and liabilities:
Trade receivables 4,788 5,032 578
Inventories (2,786) 40,886 (336)
Other receivables, deposits and prepayments (32,646) (3,531) (3,943)
Amount due from Farming Bureau (991) 10,184 (120)
Amounts due from related companies (4,930) (20,616) (595)
Accounts payable 3,051 (6,410) 369
Other payables and accrued liabilities 13,277 (2,646) 1,604
Income taxes payable 620 (4,963) 75
Amounts due to related companies (2,457) - (297)
-------- -------- --------
Net cash provided by/(used in) operating activities (24,178) 17,074 (2,920)
-------- -------- --------
INVESTING ACTIVITIES
Purchases of property and equipment (3,434) (366) (414)
Proceeds from disposal of property and equipment 100 - 12
Increase in minority interests 3,000 - 362
-------- -------- --------
Net cash used in investing activities (334) (366) (40)
-------- -------- --------
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS (24,512) 16,708 (2,960)
Cash and cash equivalent, at beginning of period 129,238 124,547 15,608
-------- -------- --------
Cash and cash equivalent, at end of period 104,726 141,255 12,648
======== ======== ========
See notes to condensed consolidated financial statements.
</TABLE>
6
<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 six months period ended June
30, 1999, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
2. INVENTORIES
June 30, December 31,
1999 1998
RMB RMB
Finished goods 13,355 10,569
====== =======
3. PROPERTY AND EQUIPMENT, NET
June 30, December 31,
1999 1998
RMB RMB
At cost:
Buildings and leasehold improvements 8,862 6,052
Machinery, equipment and motor vehicles 6,117 6,904
-------- -------
14,979 12,956
Accumulated depreciation: (5,746) (5,713)
-------- -------
Net book value 9,233 7,243
======== =======
7
<PAGE>
4. SEGMENT FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Three months ended June Six months ended June
30, 30,
1999 1998 1999 1998
RMB RMB RMB RMB
<S> <C> <C> <C> <C> <C> <C>
Net sales to external customers:
Natural rubber
Net sales to unaffiliated customers 71,894 94,439 88,461 147,579
Net sales to affiliates - 15,887 - 19,183
------ ------- ------- -------
71,894 110,326 88,461 166,762
------ ------- ------- -------
Materials, supplies and other Agricultural products:
Net sales to unaffiliated customers 3,130 2,553 3,213 33,037
Net sales to affiliates 8,936 7,261 13,641 13,568
------ ------- ------- -------
12,066 9,814 16,854 46,605
------ ------- ------- -------
Total consolidated net sales 83,960 120,140 105,315 213,367
====== ======= ======= =======
Segment profit/(loss):
Natural rubber (1,153) 6,920 (4,251) 4,567
Material, supplies and other
agricultural products (349) (2,034) (450) (3,069)
------ ------- ------- -------
Total segment profit/(loss) (1,502) 4,886 (4,701) 1,498
Reconciling items:
Corporate expenses (2,848) (3,336) (5,388) (6,895)
Income from long term investment 6,664 - 6,664 -
Interest income 399 4,769 608 5,011
Interest expense - (171) (26) (257)
------ ------- ------- -------
Total consolidated profit/(loss) before
income taxes 2,713 6,148 (2,843) (643)
====== ======= ======= =======
June 30, December 31,
1999 1998
RMB RMB
Segment assets:
Natural rubber 267,151 258,090
Material, supplies and other
agricultural products 14,538 16,298
-------- -------
Total segment asset 281,689 274,388
Reconciling items:
Corporate assets 12,097 8,046
Investments 119,301 119,301
Intersegment receivables (28,333) (31,009)
-------- --------
Total consolidated assets 384,754 370,726
======== =======
</TABLE>
8
<PAGE>
ITEM 2. 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 statement data of the Company and its subsidiaries for the three months
and six months ended June 30, 1999 and 1998. 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 only, the
amounts may be translated into U.S. dollars at an exchange rate of $1.00 =
RMB8.28, which represents the approximate single rate of exchange as quoted by
the People's Bank of China on June 30, 1999. 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 June 30, Six months ended June 30,
- ---------------------- --------------------------- -------------------------
1999 1998 1999 1998
RMB RMB RMB RMB
<S> <C> <C> <C> <C>
Net sales:
Natural rubber 71,894 110,326 88,461 166,762
Materials, supplies and other
agricultural products 12,066 9,814 16,854 46,605
------- ------- ------- -------
83,960 120,140 105,315 213,367
------- ------- ------- -------
Gross profit 2,032 6,460 2,247 9,363
Gross profit margin (%) 2.42 5.38 2.13 4.39
Income/(loss) before income taxes 2,713 6,148 (2,843) (643)
Income taxes (620) (1,053) (620) (1,053)
------- ------- ------- -------
Income/(loss) before minority 2,093 5,095 (3,463) (1,696)
interests
Minority interests (1,865) (3,254) (658) (1,938)
------- ------- ------- -------
Net income/(loss) 228 1,841 (4,121) (3,634)
======= ======= ======= =======
</TABLE>
NET SALES AND GROSS PROFIT
Total net sales for the second quarter of fiscal 1999 decreased by
approximately RMB36 million (US$4.3 million) or 30% to approximately RMB84
million (US$10.1 million), compared to approximately RMB120 million (US$14.5
million) for the corresponding period in 1998. Net sales of natural rubber
declined by approximately RMB38 million (US$4.6 million) or 35% to approximately
RMB72 million (US$8.7 million), compared to approximately RMB110 million
(US$13.3 million) for the corresponding period in 1998. Net sales revenue from
the procurement of materials and supplies increased by approximately RMB2
million (US$242,000) or 23% to approximately RMB12 million (US$1.4 million),
compared to approximately RMB10 million (US$1.2 million) for the corresponding
period in 1998.
For the first half of 1999, the Company's total net sales decreased by
approximately RMB108 (US$13.0 million) or 50.6% to approximately RMB213 million
(US$25.7 million), compared to approximately RMB105 million (US$12.7 million)
for the corresponding period in 1998. The net sales of natural rubber decreased
by approximately RMB78 (US$9.4 million) or 47.0% while the net sales of
materials and supplies decreased by RMB30 million (US$3.6 million) or 63.8%.
Net sales of natural rubber decreased by 35% and 47% for the second
quarter and the first half year of 1999, respectively, despite of the fact that
the average natural rubber price in fiscal 1999 increased to approximately
Rmb8,200 per ton, compared to approximately Rmb7,000 per ton for the
corresponding period in 1998. The decrease in net sales was attributable to the
weak consumption market and the competition from imported rubber.
9
<PAGE>
The decrease in net sales of procurement of materials, supplies and
other agricultural products for the first half year of 1999 was mainly due to
the sales of barley of Rmb29 million (US$3.5 million) in 1998. There were no
sales of barley in 1999 as this product was not profitable and the management
decided to suspend the trading of this product.
Overall gross profit decreased by approximately RMB7.1 million
(US$857,000) or 76% to RMB2.2 million (US$266,000) for the six months ended June
30, 1999, from approximately RMB9.4 million (US$1.1 million) for the
corresponding period in 1998. Gross profit margin decreased to 2.13% for the six
months ended June 30, 1999 from 4.39% for the corresponding period in 1998. The
decrease in gross profit margin was primarily due to the decrease in guaranteed
profit on natural rubber sales by the Farming Bureau from 3.5% to 1.5%. The
selling price of domestic natural rubber reached a record low in the year 1998,
and the existing state of the natural rubber market is expected to persist for
quite some time. Upon a request by the Farming Bureau, and in view of the
existing state of the natural rubber market, a mutual agreement dated May 21,
1999 between the Farming Bureau and the Operating Subsidiaries was entered into.
Pursuant to this agreement, the minimum gross profit guarantee of 3.5% earned by
the Operating Subsidiaries on natural rubber sales has been reduced to 1.5% in
order to reflect the prevailing market rate more realistically. The agreement
took effect from April 1, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the second quarter of
1999 were RMB6.0 million (US$726,000), compared to RMB7.5 million (US$906,000)
for the corresponding period in 1998.
Selling, general and administration expenses for the first half of 1999
were RMB11.2 (US$1.4 million), compared to RMB15.5 million (US$1.9 million) for
the corresponding period in 1998.
The decrease was mainly due to the decrease in the Company's net sales.
The Company also successfully adopted additional measures to control costs,
including salary cuts and reduction of entertainment expenses.
FINANCIAL INCOME, NET
Net financial income decreased significantly from RMB4.7 million
(US$568,000) for the first half year of 1998 to RMB582,000 (US$70,000) for the
corresponding period in 1999 and from RMB4.7 million (US$568,000) for the second
quarter of 1998 to RMB399,000 (US$48,000) for the corresponding period in 1999.
The Company placed RMB123 million time deposits with financial institutions in
the second quarter of 1998 that matured in the fourth quarter of 1998. These
time deposit earned higher interest than the saving accounts which accounted for
the decrease in financial income in 1999.
OTHER INCOME, NET
Other income increased significantly from RMB1.6 million (US$193,000)
for the first half of 1998 to RMB6.3 million (US$762,000) for the corresponding
period in 1999 and from RMB3.0 million (US$362,000) for the second quarter of
1998 to RMB6.6 million (US$802,000) for the corresponding period in 1999. Other
income in 1998 mainly represented net income from the trading of rubber futures
contracts while the other income in 1999 mainly represented the dividend income
received on the long-term investment.
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.
10
<PAGE>
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 RMB165
million (US$19.9 million) as of June 30, 1999, compared to that of approximately
RMB168 million (US$20.0 million) as of December 31, 1998. Net cash used in
operating activities for the six months ended June 30, 1999 was approximately
RMB24 million (US$2.9 million) as compared to net cash provided by operating
activities of approximately RMB17 million (US$2.1 million) for the corresponding
period in 1998. 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, 1998. The Company believes
that internally generated funds will be sufficient to satisfy its anticipated
working capital needs for at least the next twelve months.
MARKET RISK AND RISK MANAGEMENT POLICIES
The Company's interest income is most sensitive to changes in the
general level of interest rates. As at June 30, 1999, approximately 95% of the
Company's cash equivalents are mainly Renminbi and Hong Kong Dollar deposits
with financial institutions, bearing market interest rates without fixed term.
The remaining balance of cash equivalents are United States Dollar and Hong Kong
Dollar short-term fixed deposits.
Since 1996, the Company's board of directors has adopted a risk
management resolution authorizing the management to enter into natural rubber
commodities futures contracts for hedging the price risk associated with certain
firm commitments for the purchase of natural rubber. The Company also trades
natural rubber commodity futures contracts that are not specific hedges. As at
June 30, 1999, the Company had neither a position in natural rubber commodity
futures contracts, nor firm commitments for the purchase of natural rubber.
YEAR 2000 ISSUE
As is more fully described in the Company's annual report on Form 10-K
for the fiscal year ended December 31, 1998, the Company is modifying or
replacing its software and hardware to ensure Year 2000 compliance. The Company
believes that the costs directly associated with the year 2000 issue will be
less than US$20,000 and that all required upgrades and replacements will be
completed prior to the end of the third quarter of 1999.
Although the Company believes that its internal exposure to the year
2000 issue is limited and that its remediation efforts will be successful in
addressing its year 2000 issues, there can be no assurance that such remediation
efforts will be successful or that its upgraded software or any newly installed
systems will be fully year 2000 compatible. At this time, the Company is unable
to accurately predict the consequences of failed remediation efforts or a
failure of the Company's upgraded software or new systems to effectively address
the year 2000 issue, although management does not believe that any such failures
will result in a material adverse effect on the Company or its subsidiaries, or
the operation of their business.
Any failure of the software or systems of the suppliers, customers,
financial institutions or other third parties with which the Company or its
subsidiaries conducts business to address their year 2000 issues could impair
the Company's ability to perform normal operational functions. Because the
Company is still evaluating the status of the systems of the third parties with
which the Company and its subsidiaries conducts business, management has not yet
developed a comprehensive contingency plan and is unable to identify "the most
reasonably likely worst case scenario" at this time. As management identifies
significant risks related to these issues, management will develop appropriate
contingency plans.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
NONE
ITEM 2. CHANGES IN SECURITIES:
On May 28, 1999, the Company's shareholders approved a one-for-ten
reverse stock split at the annual shareholders meeting. The reverse split
becomes effective upon the close of trading on June 11, 1999.
On April 30, 1999, the record date for the annual shareholders meeting,
there were 5,929,004 shares of common stock and 3,200,000 shares of Series B
preferred stock outstanding. Following the reverse split, there are 592,900
shares of common stock and 320,000 shares of Series B preferred stock
outstanding. The par value of the stock and the number of authorized shares were
not affected.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
On May 28, 1999, pursuant to proper notice, the Company held its annual
meeting of shareholders. Several matters were submitted to a vote of the
shareholders of the Company, and proxies were properly solicited from the
holders of shares of the Company's common stock on April 30, 1999, the record
date for the meeting established by the Company's Board of Directors. A quorum
of shares entitled to vote was present at the meeting or represented by proxies,
and the following matters were approved by the holders of a majority of the
outstanding shares of the Company:
1. a proposal by the Board of Directors to effect a one-for-ten
reverse stock split of the Company's outstanding common stock, par
value $0.001 per share, and of the Company's outstanding Series B
Preferred stock, par value $0.001 per share (5,370,843 votes for,
71,328 votes against, 188,920 abstentions);
2. the election of Wan Ying Lin (5,545,285 votes for, 575
votes withheld, 85,231 abstentions) and Ng Kin Sing (5,542,705
votes for, 3,155 votes withheld, 85,231 abstentions) to
serve as directors in Class III; and,
3. the ratification of the appointment of Ernst & Young as the
Company's independent accountants for the fiscal year ending
December 31, 1999 (5,598,041 votes for, 29,540 votes against,
3,510 abstentions).
The proxy materials sent to the shareholders of the Company, which included the
notice to shareholders and the full text of each of the above proposals as
proposed and adopted are incorporated herein by reference.
ITEM 5. OTHER INFORMATION
On May 6, 1999, pursuant to the oral hearing before a Nasdaq Listing
Qualifications Panel (the "Panel"), the Company's securities continue its
listing on the Nasdaq SmallCap Market as determined by the Panel.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are filed as part of this Form 10-Q or
incorporated by reference as indicated below:
12
<PAGE>
Exhibit No. Exhibit Description
----------- -------------------
3.1 Articles of Incorporation of the Registrant, filed on January
15, 1986 (Filed with Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1994, and incorporated herein
by reference.)
3.2 By-laws of the Registrant (Filed with Annual Report on Form
10-K/A for the fiscal year ended December 31, 1994, and
incorporated herein by reference.)
3.3 Certificate of Amendment of Articles of Incorporation of the
Registrant, filed on November 18, 1994 (Filed with Annual
Report on Form 10-K/A for the fiscal year ended December 31,
1994, and incorporated herein by reference.)
3.4 Certificate of Amendment of Articles of Incorporation of the
Registrant, filed on November 18, 1994 (Filed with Annual
Report on Form 10-K/A for the fiscal year ended December 31,
1994, and incorporated herein by reference.)
3.5 Certificate of Amendment of Articles of Incorporation of the
Registrant, effective March 31, 1995, and filed on June 19,
1995 (Filed with Quarterly Report on Form 10-Q/A for the
fiscal quarter ended March 31, 1995, and with Current Report
on Form 8-K dated June 19, 1995, and incorporated herein by
reference.)
3.6 Certificate of Amendment of Articles of Incorporation of the
Registrant, effective December 30, 1996 (Filed with Annual
Report on Form 10-K/A for the fiscal year ended December 31,
1996, and incorporated herein by reference.)
3.7 Amended and Restated By-laws of the Registrant, as amended on
December 30, 1996 (Filed with Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1996, and incorporated
herein by reference.)
4.1 Certificate of Designation of Series B Convertible Preferred
Stock, filed on December 13, 1995 (Filed with Current Report
on Form 8-K dated March 8, 1996, and incorporated herein by
reference.)
4.2 Certificate of Amendment of Certificate of Designation of
Series B Convertible Preferred Stock, effective December 31,
1997 (Filed with Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1996, and incorporated herein by
reference.)
10.1 Land Use Agreement dated November 5, 1994, by and between
Hainan Province Agricultural Reclamation No. 1 Materials
Supply & Sales Company (First Supply) and Hainan Province
Agricultural Reclamation Jin Long Materials General Company
(Original Chinese version with certified English translation
filed with Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1994, and incorporated herein by
reference.)
10.2 Land Use Agreement dated November 5, 1994, by and between
Hainan Province Agricultural Reclamation No. 2 Materials
Supply & Sales Company (Second Supply) and Hainan Province
Agricultural Reclamation Jin Huan Materials General Company
(Original Chinese version with certified English translation
filed with Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1994, and incorporated herein by
reference.)
10.3 Long-Term Sale and Purchase Agreement dated November 5, 1994,
by and among Hainan Province Agricultural Reclamation General
Company (the Farming Bureau), Hainan Agricultural Resources
Company Ltd., Hainan Province Agricultural Reclamation No. 1
Materials Supply & Marketing Company (First Supply), and
Hainan Province Agricultural Reclamation No. 2 Materials
Supply & Marketing Company (Second Supply) (Original Chinese
version with English translation filed with Annual Report on
13
<PAGE>
Form 10-K/A for the fiscal year ended December 31, 1994, and
incorporated herein by reference.)
10.4 Rental Agreement, by and between General Bureau of Hainan
State Farms (the Farming Bureau) and Hainan Agricultural
Resources Company Limited (Original Chinese version with
English Translation filed with Annual Report on Form 10-K/A
for the fiscal year ended December 31, 1994, and incorporated
herein by reference.)
10.5 Guaranty Agreement, by and among Hainan Province Agricultural
Reclamation General Company (the Farming Bureau), Hainan
Agricultural Reclamation No. 1 Materials Supply & Sales
Company (First Supply) and Hainan Agricultural Reclamation No.
2 Materials Supply & Sales Company (Second Supply) (Original
Chinese version with certified English Translation filed with
Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1994, and incorporated herein by reference.)
10.6 China Resources Development, Inc., 1995 Stock Option Plan,
adopted as of March 31, 1995 (Filed with Quarterly Report on
Form 10-Q/A for the fiscal quarter ended March 31, 1995, and
the Current Report on Form 8-K dated June 19, 1995, and
incorporated herein by reference.)
10.7 Contract on Investment in the Xilian Timber Mill between HARC
and the State-Run Xilian Farm of Hainan Province dated July 7,
1994, and Supplementary Agreement dated December 24, 1994
(Original Chinese version with English translation filed with
Annual Report on Form 10-K for the fiscal year ended December
31, 1995, and incorporated herein by reference.)
10.8 Loan Agreement between HARC and the Farming Bureau, dated
March 25, 1996, and the supplementary agreement dated December
31, 1996 (Certified English translation of original Chinese
version filed with Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1996,and incorporated herein by
reference.)
10.9 Loan Agreement between HARC and the Registrant, dated March
25, 1996 (Certified English translation of original Chinese
version filed with Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1996, and incorporated herein by
reference.)
10.10 Rental Agreement between HARC and the Hainan Farming Bureau
Testing Center, dated August 9, 1996 (Certified English
translation of original Chinese version filed with Annual
Report on Form 10-K/A for the fiscal year ended December 31,
1996, and incorporated herein by reference.)
10.11 China Resources Development, Inc., Amended and Restated 1995
Stock Option Plan, as amended on December 30, 1996 (Filed with
Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996, and incorporated herein by reference.)
10.12 Advertising and Media Agreement by and between the Registrant
and Marketing Direct Concepts, Inc., dated April 1, 1997
(Filed with Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1997, and incorporated herein by
reference.)
10.13 Financial Consulting Agreement by and between the Registrant
and Integrated Capital Development Group, Inc., dated May 1,
1997 (Filed with Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1997, and incorporated herein by
reference.)
10.14 Consulting Agreement between the Registrant and Brender
Services Limited, dated April 30, 1997 (Filed with Annual
Report on Form 10-K for the fiscal year ended December 31,
1997 and incorporated herein by reference.)
14
<PAGE>
10.15 Stock Purchase Agreement, by and between HARC and Guilinyang
Farm, dated December 29, 1997. (Filed with Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 and
incorporated herein by reference.)
10.16 Agreement for the Sale and Purchase of Share in Hainan Zhongya
Aluminum Company Ltd., dated December 29, 1997, by and between
First Supply and Guilinyang Farm. (Filed with Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 and
incorporated herein by reference.)
10.17 Agreement for the Sale and Purchase of Share in Hainan
Zhongwei Agricultural Resources Company Ltd., dated April 30,
1998, by and between Guilinyang Farm and the Company. (Filed
with Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1998 and incorporated herein by reference.)
10.18 Employment Agreement between the Company and Li Feilie, dated
August 1, 1998 (Filed with Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and incorporated herein by
reference.)
10.19 Employment Agreement between the Company and Tam Cheuk Ho,
dated February 1, 1999 (Filed with Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 and incorporated
herein by reference.)
10.20 Employment Agreement between the Company and Wong Wah On,
dated February 1, 1999 (Filed with Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 and incorporated
herein by reference.)
10.21 Service Agreement between the Company and Ching Lung Po, dated
February 1, 1999 (Filed with Annual Report on Form 10-K for
the fiscal year ended December 31,
1998 and incorporated herein by reference.)
10.22 Long-Term Sale and Purchase Supplementary Agreement No. 3 by
and among Farming Bureau, HARC, First Supply and Second
Supply, dated May 21, 1999 (Certified English translation of
original Chinese version filed herewith.)
11 Computation of Earnings/(Loss) Per Share (Contained in
Financial Statements in Part I, Item I hereof.)
27.1 Financial Data Schedule (Filed herewith. For SEC use only.)
99.2 Notice of Annual Meeting, Proxy Statement and Proxy
distributed to shareholders in advance of annual meeting held
on May 28, 1999 (Filed with Schedule 14A dated May 6, 1999,
and incorporated herein by reference.)
(b) During the three months ended June 30, 1999, the Company filed
no current reports on Form 8-K.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHINA RESOURCES DEVELOPMENT, INC.
August 13, 1999 By:/s/ Ching Lung Po
---------------------------------
Ching Lung Po, President
By:/s/ Tam Cheuk Ho
-----------------------------------
Tam Cheuk Ho, Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Description
----------- -------------------
3.1 Articles of Incorporation of the Registrant, filed on January
15, 1986 (Filed with Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1994, and incorporated herein
by reference.)
3.2 By-laws of the Registrant (Filed with Annual Report on Form
10-K/A for the fiscal year ended December 31, 1994, and
incorporated herein by reference.)
3.3 Certificate of Amendment of Articles of Incorporation of the
Registrant, filed on November 18, 1994 (Filed with Annual
Report on Form 10-K/A for the fiscal year ended December 31,
1994, and incorporated herein by reference.)
3.4 Certificate of Amendment of Articles of Incorporation of the
Registrant, filed on November 18, 1994 (Filed with Annual
Report on Form 10-K/A for the fiscal year ended December 31,
1994, and incorporated herein by reference.)
3.5 Certificate of Amendment of Articles of Incorporation of the
Registrant, effective March 31, 1995, and filed on June 19,
1995 (Filed with Quarterly Report on Form 10-Q/A for the
fiscal quarter ended March 31, 1995, and with Current Report
on Form 8-K dated June 19, 1995, and incorporated herein by
reference.)
3.6 Certificate of Amendment of Articles of Incorporation of the
Registrant, effective December 30, 1996 (Filed with Annual
Report on Form 10-K/A for the fiscal year ended December 31,
1996, and incorporated herein by reference.)
3.7 Amended and Restated By-laws of the Registrant, as amended on
December 30, 1996 (Filed with Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1996, and incorporated
herein by reference.)
4.1 Certificate of Designation of Series B Convertible Preferred
Stock, filed on December 13, 1995 (Filed with Current Report
on Form 8-K dated March 8, 1996, and incorporated herein by
reference.)
4.2 Certificate of Amendment of Certificate of Designation of
Series B Convertible Preferred Stock, effective December 31,
1997 (Filed with Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1996, and incorporated herein by
reference.)
10.1 Land Use Agreement dated November 5, 1994, by and between
Hainan Province Agricultural Reclamation No. 1 Materials
Supply & Sales Company (First Supply) and Hainan Province
Agricultural Reclamation Jin Long Materials General Company
(Original Chinese version with certified English translation
filed with Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1994, and incorporated herein by
reference.)
10.2 Land Use Agreement dated November 5, 1994, by and between
Hainan Province Agricultural Reclamation No. 2 Materials
Supply & Sales Company (Second Supply) and Hainan Province
Agricultural Reclamation Jin Huan Materials General Company
(Original Chinese version with certified English translation
filed with Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1994, and incorporated herein by
reference.)
10.3 Long-Term Sale and Purchase Agreement dated November 5, 1994,
by and among Hainan Province Agricultural Reclamation General
Company (the Farming Bureau), Hainan Agricultural Resources
Company Ltd., Hainan Province Agricultural Reclamation No. 1
<PAGE>
Materials Supply & Marketing Company (First Supply), and
Hainan Province Agricultural Reclamation No. 2 Materials
Supply & Marketing Company (Second Supply) (Original Chinese
version with English translation filed with Annual Report on
Form 10-K/A for the fiscal year ended December 31, 1994, and
incorporated herein by reference.)
10.4 Rental Agreement, by and between General Bureau of Hainan
State Farms (the Farming Bureau) and Hainan Agricultural
Resources Company Limited (Original Chinese version with
English Translation filed with Annual Report on Form 10-K/A
for the fiscal year ended December 31, 1994, and incorporated
herein by reference.)
10.5 Guaranty Agreement, by and among Hainan Province Agricultural
Reclamation General Company (the Farming Bureau), Hainan
Agricultural Reclamation No. 1 Materials Supply & Sales
Company (First Supply) and Hainan Agricultural Reclamation No.
2 Materials Supply & Sales Company (Second Supply) (Original
Chinese version with certified English Translation filed with
Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1994, and incorporated herein by reference.)
10.6 China Resources Development, Inc., 1995 Stock Option Plan,
adopted as of March 31, 1995 (Filed with Quarterly Report on
Form 10-Q/A for the fiscal quarter ended March 31, 1995, and
the Current Report on Form 8-K dated June 19, 1995, and
incorporated herein by reference.)
10.7 Contract on Investment in the Xilian Timber Mill between HARC
and the State-Run Xilian Farm of Hainan Province dated July 7,
1994, and Supplementary Agreement dated December 24, 1994
(Original Chinese version with English translation filed with
Annual Report on Form 10-K for the fiscal year ended December
31, 1995, and incorporated herein by reference.)
10.8 Loan Agreement between HARC and the Farming Bureau, dated
March 25, 1996, and the supplementary agreement dated December
31, 1996 (Certified English translation of original Chinese
version filed with Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1996,and incorporated herein by
reference.)
10.9 Loan Agreement between HARC and the Registrant, dated March
25, 1996 (Certified English translation of original Chinese
version filed with Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1996, and incorporated herein by
reference.)
10.10 Rental Agreement between HARC and the Hainan Farming Bureau
Testing Center, dated August 9, 1996 (Certified English
translation of original Chinese version filed with Annual
Report on Form 10-K/A for the fiscal year ended December 31,
1996, and incorporated herein by reference.)
10.11 China Resources Development, Inc., Amended and Restated 1995
Stock Option Plan, as amended on December 30, 1996 (Filed with
Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996, and incorporated herein by reference.)
10.12 Advertising and Media Agreement by and between the Registrant
and Marketing Direct Concepts, Inc., dated April 1, 1997
(Filed with Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1997, and incorporated herein by
reference.)
10.13 Financial Consulting Agreement by and between the Registrant
and Integrated Capital Development Group, Inc., dated May 1,
1997 (Filed with Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1997, and incorporated herein by
reference.)
10.14 Consulting Agreement between the Registrant and Brender
Services Limited, dated April 30, 1997 (Filed with Annual
Report on Form 10-K for the fiscal year ended December 31,
1997 and incorporated herein by reference.)
10.15 Stock Purchase Agreement, by and between HARC and Guilinyang
Farm, dated December 29, 1997. (Filed with Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 and
incorporated herein by reference.)
10.16 Agreement for the Sale and Purchase of Share in Hainan Zhongya
Aluminum Company Ltd., dated December 29, 1997, by and between
First Supply and Guilinyang Farm. (Filed with Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 and
incorporated herein by reference.)
10.17 Agreement for the Sale and Purchase of Share in Hainan
Zhongwei Agricultural Resources Company Ltd., dated April 30,
1998, by and between Guilinyang Farm and the Company. (Filed
with Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1998 and incorporated herein by reference.)
10.18 Employment Agreement between the Company and Li Feilie, dated
August 1, 1998 (Filed with Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and incorporated herein by
reference.)
10.19 Employment Agreement between the Company and Tam Cheuk Ho,
dated February 1, 1999 (Filed with Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 and incorporated
herein by reference.)
10.20 Employment Agreement between the Company and Wong Wah On,
dated February 1, 1999 (Filed with Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 and incorporated
herein by reference.)
10.21 Service Agreement between the Company and Ching Lung Po, dated
February 1, 1999 (Filed with Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 and incorporated
herein by reference.)
10.22 Long-Term Sale and Purchase Supplementary Agreement No. 3 by
and among Farming Bureau, HARC, First Supply and Second
Supply, dated May 21, 1999 (Certified English translation of
original Chinese version filed herewith.)
11 Computation of Earnings/(Loss) Per Share (Contained in
Financial Statements in Part I, Item I hereof.)
27.1 Financial Data Schedule (Filed herewith. For SEC use only.)
99.2 Notice of Annual Meeting, Proxy Statement and Proxy
distributed to shareholders in advance of annual meeting held
on May 28, 1999 (Filed with Schedule 14A dated May 6, 1999,
and incorporated herein by reference.)
EXHIBIT 10.22
Long-Term Sale and Purchase Supplementary Agreement No.3 by and among
Farming Bureau, HARC, First Supply and Second Supply, dated May 21,
1999
The undersigned officer of China Resources Development, Inc., hereby represents
that the following is a fair and accurate English translation of the original
Chinese version of the Agreement for the Long-Term Sale and Purchase
Supplementary Agreement No. 3 by and among Farming Bureau, HARC, First Supply
and Second Supply, dated May 21, 1999.
/s/ Wong Wah On
---------------------------------
Wong Wah On, Financial Controller
<PAGE>
Long-Term Sale and Purchase Supplementary Agreement No. 3
This Agreement is made and entered into by and among:
1. General Bureau of Hainan State Farms (the "Farming Bureau") Registered
address: Nongken Street, Xiuying Caobo, Haikou City, Hainan Province.
2. Hainan Zhongwei Agricultural Resources Company Limited ("HARC")
Registered address: 6th Floor., Hongyun International Hotel, No. 13
Haixiu Road, Haikou City, Hainan Province
3. First Goods And Materials Supply And Sales Corporation (the "First
Supply") Registered address: No. 57 Haixiu Road, Haikou City, Hainan
Province
4. Second Goods And Materials Supply And Sales Corporation (the "Second
Supply") Registered address: No. 64 Haixiu Road, Haikou City, Hainan
Province
WHEREAS:
(1) all the parties to this agreement had entered into "Long-Term Sale and
Purchase Agreement", "Long-Term Sale and Purchase Supplementary
Agreement" and "Long-Term Sale and Purchase Supplementary Agreement No.
2" dated November 5, 1994, March 30, 1995 and December 31, 1996,
respectively;
(2) Farming Bureau has made a "request to reduce the minimum gross profit
margin on natural rubber sales" to be earned by HARC, First Supply and
Second Supply on May 21, 1999.
NOW THEREFORE, pursuant to mutual agreement, all parties agree that, due to the
drastic changes occurred in the domestic natural rubber market, the original
Article 2.2 (3) as set forth in the Long-Term Sale and Purchase Agreement and
all of its respective supplementary agreements is amended as follows:
Original: The selling price of natural rubber as provided by the Farming
Bureau and the Hainan State Farms to First Supply and Second
Supply are determined by the market condition. The Farming
Bureau guarantees First Supply and Second Supply a minimum
gross profit margin of 3.5% on natural rubber purchased from
the Farming Bureau and the Hainan State Farms.
Amended as: A minimum gross profit margin of 3.5% as set forth in the
original article is amended to a minimum gross profit margin
of 1.5%. It means that the Farming Bureau guarantees First
Supply and Second Supply a minimum gross profit margin of 1.5%
on natural rubber purchased from the Farming Bureau and the
Hainan State Farms.
This Supplementary Agreement becomes effective on April 1, 1999 and has a term
of 15 years. This Supplementary Agreement shall remain effective as long as the
Long-Term Sale and Purchase Agreement remains effective. Unless mutually agreed
by all parties, this Supplementary Agreement shall not be terminated or amended.
<PAGE>
Dated this: May 21, 1999
General Bureau of Hainan State Farms
- -----------------------------
Authorized representative
Hainan Zhongwei Agricultural Resources Company Limited
- -----------------------------
Authorized representative
First Goods And Materials Supply And Sales Corporation
- -----------------------------
Authorized representative
Second Goods And Materials Supply And Sales Corporation
- -----------------------------
Authorized representative
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q REPORT OF CHINA RESOURCES DEVELOPMENT, INC. FOR THE SIX MONTHS ENDED JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
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<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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