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 September 30, 2000
------------------
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to _____________
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 2105, 21/F., West Tower, Shun Tak Centre,
168-200 Connaught Road C., Sheung Wan, Hong Kong
Telephone: 011-852-2810-7205
(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: 837,797 shares of common stock,
$0.001 par value, as of November 13, 2000.
Page 1 of 21 pages Exhibit Index on Page 18
<PAGE>
CONVENTIONS
Unless otherwise specified, all references in this report to "U.S.
Dollars," "Dollars," "US$," 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 its 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, 2000, 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 September 30, 2000, which was
approximately US$1.00 = HK$7.80. 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" are to China Resources Development, Inc., and
include, unless the context requires otherwise, the operations of its
subsidiaries (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 "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 "Hainan Weilin" are to Hainan Weilin Timber Limited
Liability Company, a limited liability company organized in the PRC, whose
capital is owned 58% by HARC and 42% by Haikou Mechanical Factory, a PRC entity
which is owned and 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 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 "Sales Centre" are to Rubber Sales Centre, a company
organized in the PRC and a wholly-owned subsidiary of HARC.
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 "Zhuhai Zhongwei" are to Zhuhai Zhongwei Development
Company Limited, a company organized in the PRC and a wholly-owned subsidiary of
HARC.
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30,
-------------------------------------- --------------------------------------
Note 2000 1999 2000 2000 1999 2000
-------- -------- -------- -------- -------- --------
RMB RMB US$ RMB RMB US$
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES 1,445 -- 174 5,158 -- 623
COST OF SALES (1,135) -- (137) (4,979) -- (601)
-------- -------- -------- -------- -------- --------
GROSS PROFIT 310 -- 37 179 -- 22
DEPRECIATION AND -- --
AMORTIZATION (1,571) (189) (2,122) (256)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (4,470) (3,107) (540) (12,708) (8,495) (1,535)
FINANCIAL INCOME/(EXPENSES),
NET (3,088) 141 (373) 620 412 75
OTHER INCOME/(EXPENSES), NET (129) 2,858 (15) 10,409 9,522 1,257
-------- -------- -------- -------- -------- --------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES (8,948) (108) (1,080) (3,622) 1,439 (437)
INCOME TAXES (79) (323) (10) (1,849) (943) (224)
-------- -------- -------- -------- -------- --------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS
BEFORE MINORITY INTERESTS (9,027) (431) (1,090) (5,471) 496 (661)
MINORITY INTERESTS 214 (1,333) 26 (3,389) (3,207) (409)
-------- -------- -------- -------- -------- --------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS (8,813) (1,764) (1,064) (8,860) (2,711) (1,070)
DISCONTINUED OPERATIONS 2 -- 938 -- -- (2,236) --
-------- -------- -------- -------- -------- --------
NET INCOME/(LOSS) (8,813) (826) (1,064) (8,860) (4,947) (1,070)
======== ======== ======== ======== ======== ========
BASIC AND DILUTED
EARNINGS/(LOSS) PER SHARE*
Continuing operations (10.90) (2.97) (1.32) (13.32) (4.57) (1.61)
Discontinued operations -- 1.58 -- -- (3.77) --
-------- -------- -------- -------- -------- --------
(10.90) (1.39) (1.32) (13.32) (8.34) (1.61)
======== ======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING* 808,516 592,900 808,516 665,296 592,900 665,296
======== ======== ======== ======== ======== ========
</TABLE>
* The computation of basic and diluted loss per share for the three months
and nine months ended September 30, 1999 are based on weighted average
number of shares outstanding as if the one-for-ten reverse stock split,
effective on June 11, 1999, had been completed at the beginning of the
period.
See notes to condensed consolidated financial statements.
3
<PAGE>
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
2000 1999 2000
RMB RMB US$
Notes (Unaudited) (Note) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 81,582 31,088 9,853
Marketable securities 1,102 57,035 133
Inventories 4 3,009 1,702 363
Other receivables, deposits and prepayments 13,556 11,781 1,637
Short term loan receivable -- 45,000 --
Amount due from Farming Bureau 13,511 47,013 1,632
Amounts due from related companies 470 1,500 57
Tax refundable -- 1,382 --
Net assets of discontinued operations -- 70,527 --
------------ ------------ ------------
TOTAL CURRENT ASSETS 113,230 267,028 13,675
PROPERTY AND EQUIPMENT 5 15,037 9,855 1,816
INVESTMENTS 184,329 116,714 22,262
GOODWILL 9,357 -- 1,130
------------ ------------ ------------
TOTAL ASSETS 321,953 393,597 38,883
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 781 296 94
Other payables and accrued liabilities 21,062 15,860 2,544
Income taxes payable 536 -- 65
Amounts due to related companies 296 86,781 35
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 22,675 102,937 2,738
MINORITY INTERESTS 115,273 110,226 13,922
------------ ------------ ------------
TOTAL LIABILITIES AND MINORITY
INTERESTS 137,948 213,163 16,660
------------ ------------ ------------
SHAREHOLDERS' EQUITY
Common stock, US$0.001 par value:
Authorized - 200,000,000 shares in 2000 and 1999
Issued and outstanding - 837,797 shares in 2000
and 592,900 shares in 1999 7 5 1
Preferred stock, authorized -
10,000,000 shares in 2000 and 1999
Series B preferred stock, US$0.001 par value:
Authorized - 320,000 shares in 2000 and 1999
Issued and outstanding - 320,000 shares
in 2000 and 1999 3 3 --
Additional paid-in capital 169,050 156,632 20,417
Reserves 26,830 26,830 3,240
Accumulated deficits (11,878) (3,018) (1,434)
Accumulated other comprehensive loss (7) (18) (1)
------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY 184,005 180,434 22,223
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 321,953 393,597 38,883
============ ============ ============
</TABLE>
Note: The balance sheet at December 31, 1999 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.
4
<PAGE>
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Series B Additional other
Common preferred paid-in Accumulated comprehensive
stock stock capital Reserves deficits loss Total
RMB RMB RMB RMB RMB RMB RMB
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January
1, 2000 5 3 156,632 26,830 (3,018) (18) 180,434
Issuance of 244,897
shares of common
Stock 2 -- 12,418 -- -- -- 12,420
Net loss -- -- -- -- (8,860) -- (8,860)
Currency translation
Adjustment -- -- -- -- -- 11 11
--------
Comprehensive
Income (8,849)
--------
--------- -------- -------- -------- -------- -------- --------
Balance at September
30, 2000 7 3 169,050 26,830 (11,878) (7) 184,005
======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
--------------------------------------------
2000 1999 2000
-------- -------- --------
RMB RMB US$
<S> <C> <C> <C>
Net cash provided by/(used in) operating activities 46,451 (19,893) 5,610
INVESTING ACTIVITIES
Purchases of property and equipment (5,967) (5,016) (721)
Proceeds from disposal of an investment 928 -- 112
Proceeds from disposal of property and equipment 1,547 -- 187
Short term loan -- (45,000) --
-------- -------- --------
Net cash used in investing activities (3,492) (50,016) (422)
-------- -------- --------
FINANCING ACTIVITIES
Increase in minority interests 485 -- 59
-------- -------- --------
Net cash provided by/(used in) continuing operations 43,444 (69,909) 5,247
Net cash provided by discontinued operations (Note 2) -- 4,857 --
-------- -------- --------
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS 43,444 (65,052) 5,247
Cash and cash equivalents, at beginning of period 38,138 129,238 4,606
-------- -------- --------
Cash and cash equivalents, at end of period 81,582 64,186 9,853
======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements
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 three-month and nine-month
periods ended September 30, 2000, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
2. DISCONTINUED OPERATIONS AND BUSINESS RESTRUCTURING
In the fourth quarter of 1999, the Company initiated a plan to
restructure its business in Hainan, the PRC. On March 3, 2000, the
Board of Directors of the Company approved a business restructuring
involving HARC and certain subsidiaries of HARC (the "Restructuring").
The Restructuring resulted in the discontinuation of substantially all
of the existing operations of the Company as of December 31, 1999,
including its two principal lines of business, the distribution of
natural rubber and the procurement of materials, supplies and other
agricultural products (collectively the "Rubber and Procurement
Operations"). The financial data related to the Company's indirect
investments in the Rubber and Procurement Operations prior to December
31, 1999 is classified as discontinued operations for all periods
presented. The financial data of the Rubber and Procurement Operations
reflects the historical results of operations and cashflows of the
businesses that were considered part of the business segments of the
Rubber and Procurement Operations during each respective period.
On March 3, 2000, HARC and certain of its subsidiaries entered into an
Assets and Staff Transfer Agreement with the Farming Bureau, pursuant
to which HARC and certain of its subsidiaries transferred all the
assets, liabilities and staff related to the discontinued operations to
the Farming Bureau, effective from January 1, 2000. The consideration
for the net assets transferred was determined based on the lower of
their net book value or their fair value, as determined by an
independent professional valuer, as of December 31, 1999. Based on the
valuation, there were no material differences between the fair value
and the net book value (as determined under US GAAP) of those assets
and liabilities as of December 31, 1999, which was RMB70,527,000.
Net sales of the Rubber and Procurement Operations included in
discontinued operations totaled RMB295,505,000 for the nine months
ended September 30, 1999. Loss from discontinued operations of Rubber
and Procurement Operations of RMB4,298,000 for the three months ended
September 30, 1999 is reported without set-off of any income tax
expenses.
The net assets of the Rubber and Procurement Operations were as
follows:
December 31,
1999
RMB
Current assets 110,703
Property and equipment - net 1,547
Cost method investments 928
Current liabilities (42,651)
--------
Net assets of discontinued operations 70,527
=========
7
<PAGE>
The Company and its subsidiaries accrued certain expenses totaling RMB3
million in relation to the Restructuring in the fourth quarter of 1999.
There were no other significant expenses in relation to the
Restructuring in the nine months ended September 30, 2000.
Notwithstanding the discontinuation of the Rubber and Procurement
Operations, the Company has contemplated setting up several new lines
of business as part of the Restructuring. As of September 30, 2000, the
Company has set up two lines of business, namely, supermarket
operations and processing and sale of timber.
3. BUSINESS ACQUISITION
The Company has determined to engage in the information technology
market. As of June 30, 2000, the Company entered into an Acquisition
Agreement to acquire an 80% equity interest in Silver Moon Technologies
Limited, a British Virgin Islands corporation ("Silver Moon"), for
total consideration of US$1,500,000 (the "Purchase Consideration"). The
Company has satisfied the Purchase Consideration by issuing to Silver
Moon's former sole equity owner, E-link Investment Limited ("E-link"),
244,897 shares of the Company's unregistered restricted common stock,
$0.001 par value. The Acquisition Agreement is included in the
Company's Current Report on Form 8-K, dated June 30, 2000. The
principal business of Silver Moon, and its wholly-owned subsidiary,
Zhongwei Medi-China.com Limited (formally known as Sky Creation
Technology Limited), a Hong Kong company, is the provision of online
Internet healthcare content, through its website, medi-china.com, which
offers health-related content in both English and Chinese, with a focus
on Chinese herbal medicine and therapies. The closing date of the
acquisition was on July 12, 2000.
<TABLE>
<CAPTION>
4. INVENTORIES
September 30, December 31,
2000 1999
RMB RMB
<S> <C> <C>
Raw materials 177 --
Work in progress 1,578 --
Finished goods 1,254 1,702
------- -------
3,009 1,702
======= =======
5 PROPERTY AND EQUIPMENT, NET
September 30, ecember 31,
2000 1999
RMB RMB
At cost:
Buildings and leasehold improvements 5,906 5,906
Machinery, equipment and motor vehicles 12,359 6,392
------- -------
18,265 12,298
Accumulated depreciation: (3,228) (2,443)
------- -------
Net book value 15,037 9,855
======= =======
</TABLE>
8
<PAGE>
6. SEGMENT FINANCIAL INFORMATION
Nine months ended
September 30, 2000
RMB
Net sales to external customers:
Supermarket operations, net sales to
unaffiliated customers 3,876
Processed timber, net sales to
unaffiliated customers 1,282
------
Total consolidated net sales 5,158
======
Segment profit/(loss):
Supermarket operations 18
Processed timber (750)
------
Total segment profit/(loss) (732)
Reconciling items:
Corporate expenses (13,828)
Gain on trading of marketable securities 10,318
Interest income 4,800
Exchange loss (4,180)
------
Total consolidated profit/(loss) from
continuing operations before income taxes (3,622)
======
September 30,
2000
RMB
Segment assets:
Supermarket operations 6,361
Processed timber 8,417
------
Total segment assets 14,778
Reconciling items:
Corporate assets 122,846
Investments 184,329
-------
Total consolidated assets 321,953
=======
9
<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 nine months ended September 30, 2000 and 1999. 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 September 30, 2000. 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.
(Amounts in thousands) Three months ended Nine months ended
September 30, September 30,
------------------- ------------------
2000 1999 2000 1999
RMB RMB RMB RMB
Net sales:
Supermarket operations 1,445 -- 3,876 --
Processed timber -- -- 1,282 --
------ ------ ------ ------
1,445 -- 5,158 --
------ ------ ------ ------
Gross profit/(loss) 310 -- 179 --
Gross profit/(loss) margin (%) 21.45 -- 4.62 --
Income/(loss)from continuing
operations
before income taxes (8,948) (108) (3,622) 1,439
Income taxes (79) (323) (1,849) (943)
------ ------ ------ ------
Income/(loss) from continuing
operations
before minority interest (9,027) (431) (5,471) 496
Minority interests 214 (1,333) (3,389) (3,207)
------ ------ ------ ------
Income/(loss) from continuing operations (8,813) (1,764) (8,860) (2,711)
Discontinued operations -- 938 -- (2,236)
------ ------ ------ ------
Net income/(loss) (8,813) (826) (8,860) (4,947)
====== ====== ====== ======
NET SALES AND GROSS PROFIT
The Company previously engaged in marketing and distribution of natural
rubber and rubber products produced by the Hainan State Farms and non-state
farms in the PRC, and procurement of production materials and supplies,
including chemicals, farm equipment and machinery, automobiles and other
commodities, for use primarily by the Hainan State Farms and other unaffiliated
customers. Pursuant to a Shareholders' Agreement on Business Restructuring dated
March 3, 2000, among the Company, Billion Luck and the Farming Bureau, the
natural rubber distribution business and the procurement of materials and
supplies business ceased effective as of January 1, 2000. Pursuant to an Assets
and Staff Transfer Agreement dated March 3, 2000, among the Farming Bureau,
HARC, First Supply, Second Supply and Sales Centre, the assets, liabilities and
staff related to the ceased businesses were transferred to the Farming Bureau
effective as of January 1, 2000. The restructuring resulted in the
discontinuation of substantially all of the existing operations of the Company
as of December 31, 1999. The Company has contemplated setting up several new
lines of business as part of the restructuring. As of September 30, 2000, the
Company has set up two lines of business, the supermarket operation and the
processing and sale of timber. The supermarket operation had gross profit and
gross profit margin of RMB730,000 (US$88,000) and 18.8%, respectively, for the
nine months ended September 30, 2000. The sale of processed timber business had
a gross loss of RMB551,000 (US$67,000) or 43.0% on sales for the nine months
ended September 30, 2000, as the processing factory is still in the start-up
phase and is currently operated at one-third of its full capacity.
10
<PAGE>
For the third quarter of 2000, the supermarket operation had gross
profit and gross profit margin of RMB310,000 (US$37,000) and 21.5%,
respectively. There were no sales of processed timber in the third quarter of
2000 as the market conditions were poor and the Company was reluctant to sell
the processed timber at a reduced price.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the nine months ended
September 30, 2000 were RMB12.8 million (US$1.5 million), compared to RMB8.5
million (US$1 million) for the corresponding period in 1999. The apparent
increase was mainly attributable to different classification of selling and
administrative expenses of HARC. For the nine months ended September 30, 1999,
selling and administrative expenses of HARC, which amounted to RMB3.9 million
(US$471,000), were grouped in the procurement of materials and supplies
business, which is shown as discontinued operations. For the nine months ended
September 30, 2000, selling and administrative expenses of HARC were grouped as
corporate administrative expenses.
Selling, general and administrative expenses for the third quarter of
2000 were RMB4.5 million (US$543,000), compared to RMB3.1 million (US$374,000)
for the corresponding period in 1999. The apparent increase was mainly
attributable to different classification of selling and administrative of HARC.
For the third quarter of 1999, selling and administrative expenses of HARC,
which amounted to RMB1.2 million (US$145,000), were grouped in the procurement
of materials and supplies business, which is shown as discontinued operations.
For the third quarter of 2000, selling and administrative expenses of HARC were
grouped as corporate administrative expenses.
FINANCIAL INCOME/(EXPENSES), NET
Net financial income increased by RMB208,000 (US$25,000) or 50.5%, from
RMB412,000 (US$50,000) for the nine months ended September 30, 1999 to
RMB620,000 (US$75,000) for the corresponding period in 2000. The increase was
mainly attributable to interest income earned of RMB4.2 million (US$507,000)
in the second quarter of 2000 from a RMB45 million (US$5.4 million) short-term
loan granted to an unaffiliated third party, and additional bank interest income
was earned during the period as a result of an increase in the average bank
balance. The increase in interest income was partly offset by a realized
currency exchange loss amounting to RMB4.2 million (US$507,000), arising from
the conversion of Renminbi to Hong Kong dollars.
Net financial income for the third quarter of 1999 was RMB141,000
(US$17,000), while the net financial expense for the third quarter of 2000 was
RMB3.1 million (US$373,000). The net financial expense included a realized
currency exchange loss amounting to RMB3.3 million (US$400,000), arising from
the conversion of Renminbi to Hong Kong dollars.
OTHER INCOME, NET
Other income increased from RMB9.5 million (US$1.1 million) for the
nine months ended September 30, 1999 to RMB10.4 million (US$1.2 million) for the
corresponding period in 2000. Other income in 1999 represented dividend income
received on a long-term investment, which amounted to RMB6.6 million
(US$797,000), and a net gain from the trading of marketable securities, which
amounted to RMB2.8 million (US$338,000). Other income in 2000 represented mainly
the net gain on trading of marketable securities.
Other income for the third quarter of 1999 amounted RMB2.8 million
(US$338,000), representing a net gain from the trading of marketable securities.
Other expenses for the third quarter of 2000 amounted to RMB129,000 (US$15,000),
representing a net loss from the trading of marketable securities.
DISCONTINUED OPERATIONS
Discontinued operations for the nine months ended September 30, 1999
represented a loss from operations of the discontinued rubber distribution and
procurement of materials and supplies businesses.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's and its subsidiaries' primary liquidity needs are to fund
inventories, trade receivables and operating expenses, and to expand business
operations. The Company has financed its working capital requirements primarily
through internally generated cash.
The Company had a working capital surplus of approximately RMB90.6
million (US$10.9 million) as of September 30, 2000, compared to that of
approximately RMB164 million (US$19.8 million) as of December 31, 1999. Net cash
provided by operating activities for the nine months ended September 30, 2000
was approximately RMB46.5 million (US$5.6 million), as compared to net cash used
in operating activities of RMB19.9 million (US$2.4 million) for the
corresponding period in 1999. Net cash flows from the Company's operating
activities are attributable to the Company's income and changes in operating
assets and liabilities.
Pursuant to an Assets and Staff Transfer Agreement dated March 3, 2000,
the Farming Bureau purchased assets and assumed liabilities and staff related to
the ceased businesses effective as of January 1, 2000. The purchase price was
the lower of the book value or fair value of the net assets transferred (which
were not materially different), determined as of January 1, 2000, which amounted
to RMB70,527,000 (US$8,518,000).
There has been no other significant change in financial condition and
liquidity since the fiscal year ended December 31, 1999. 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
All of the Company's sales and purchases are made domestically and are
denominated in Renminbi. Accordingly, the Company and its subsidiaries do not
have material market risk with respect to currency fluctuation. As the reporting
currency of the Company's consolidated financial statements is also Renminbi,
there is no significant translation difference arising on consolidation.
However, the Company may suffer exchange loss when it converts Renminbi to other
currencies, such as Hong Kong dollars or United States dollars.
The Company's interest income is most sensitive to changes in the
general level of Renminbi interest rates. In this regard, changes in Renminbi
interest rates affect the interest earned on the Company's cash equivalents. As
at September 30, 2000, the Company's cash equivalents are mainly Renminbi, Hong
Kong Dollar and United States Dollar deposits with financial institutions,
bearing market interest rates without fixed term.
As at September 30, 2000, the Company had short-term investments in
marketable securities in the Hong Kong stock market with a total market value of
RMB1.1 million (US$133,000). These investments expose the Company to market
risks that may cause the future value of these investments to be lower than the
original cost of such investments at the time of purchase.
YEAR 2000 ISSUE
The Year 2000 issue is the result of information technology systems and
embedded systems using a two-digit format, as opposed to four digits, to
indicate the year. The Company and its subsidiaries use a limited amount of
computer software primarily in connection with their accounting and financial
reporting systems. Such programs have been upgraded so that they are year 2000
compatible. In addition to software issues, certain of the computer hardware of
the Company and its subsidiaries have been replaced with more current
technology.
As of September 30, 2000, the Company has not experienced any
disruptions or failures to its normal operations as a result of the transition
into calendar year 2000.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
NONE
ITEM 2. CHANGES IN SECURITIES:
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
On October 12, 2000, 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 and preferred stock on September
14, 2000, 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 ratify the issuance of
244,897 shares of the Company's unregistered common stock, par
value $0.001 per share (496,808 votes for, 14,371 votes
against, 10 votes abstentions);
2. a proposal by the Board of Directors to amend the Amended and
Restated 1995 Stock Option Plan to modify the pricing
procedure for the exercise of nonqualified stock options and
to eliminate the requirement of shareholder approval of any
modification of the Plan that would materially increase the
benefits accruing to participants in the Plan (729,140 votes
for, 24,926 votes against, 20 votes abstentions);
3. the election of Tam Cheuk Ho and Wong Wah On to serve as
directors in Class I (745,133 votes for, 10,953 votes
abstentions);
4. the ratification of the appointment of Ernst & Young as the
Company's independent accountants for the fiscal year ending
December 31, 2000 (748,471 vote for, 7,615 votes against).
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
NONE
13
<PAGE>
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:
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 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 as Exhibit 10.14 to Annual Report on
Form 10-K/A for the fiscal year ended December 31, 1994, and
incorporated herein by reference.)
10.2 China Resources Development, Inc., 1995 Stock Option Plan,
adopted as of March 31, 1995 (Filed as Exhibit 10.18 to
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.)
10.3 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 as
14
<PAGE>
Exhibit 10.26 to Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, and incorporated herein by
reference.)
10.4 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 as Exhibit 10.28 to Annual Report on Form 10-K/A
for the fiscal year ended December 31, 1996,and incorporated
herein by reference.)
10.5 Loan Agreement between HARC and the Registrant, dated March
25, 1996 (Certified English translation of original Chinese
version filed as Exhibit 10.29 to Annual Report on Form 10-K/A
for the fiscal year ended December 31, 1996, and incorporated
herein by reference.)
10.6 Rental Agreement between HARC and the Hainan Farming Bureau
Testing Center, dated August 9, 1996 (Certified English
translation of original Chinese version filed as Exhibit 10.30
to Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996, and incorporated herein by reference.)
10.7 China Resources Development, Inc., Amended and Restated 1995
Stock Option Plan, as amended on December 30, 1996 (Filed as
Exhibit 10.34 to Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1996, and incorporated herein by
reference.)
10.8 Advertising and Media Agreement by and between the Registrant
and Marketing Direct Concepts, Inc., dated April 1, 1997
(Filed as Exhibit 10.36 to Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1997, and incorporated
herein by reference.)
10.9 Financial Consulting Agreement by and between the Registrant
and Integrated Capital Development Group, Inc., dated May 1,
1997 (Filed as Exhibit 10.37 to Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1997, and incorporated
herein by reference.)
10.10 Stock Purchase Agreement, by and between HARC and Guilinyang
Farm, dated December 29, 1997. (Filed as Exhibit 10.39 to
Annual Report on Form 10-K for the fiscal year ended December
31, 1997 and incorporated herein by reference.)
10.11 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
as Exhibit 10.41 to Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1998 and incorporated herein by
reference.)
10.12 Employment Agreement between the Company and Li Feilie, dated
August 1, 1998 (Filed as Exhibit 10.42 to Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 and
incorporated herein by reference.)
10.13 Employment Agreement between the Company and Tam Cheuk Ho,
dated February 1, 1999 (Filed as Exhibit 10.43 to Annual
Report on Form 10-K for the fiscal year ended December 31,
1998 and incorporated herein by reference.)
10.14 Employment Agreement between the Company and Wong Wah On,
dated February 1, 1999 (Filed as Exhibit 10.44 to Annual
Report on Form 10-K for the fiscal year ended December 31,
1998 and incorporated herein by reference.)
10.15 Service Agreement between the Company and Ching Lung Po, dated
February 1, 1999 (Filed as Exhibit 10.45 to Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 and
incorporated herein by reference.)
10.16 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
15
<PAGE>
English translation of original Chinese version filed as
Exhibit 10.22 to Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1999 and incorporated herein by
reference.)
10.17 Assets and Staff Transfer Agreement by and among the Farming
Bureau, HARC, First Supply, Second Supply and Sales Centre
dated March 3, 2000 (Certified English translation of original
Chinese version filed as Exhibit 10.23 to Current Report on
Form 8-K dated March 3, 2000, and incorporated herein by
reference.)
10.18 Shareholders' Agreement on Business Restructuring by and among
the Farming Bureau, the Company and Billion Luck dated March
3, 2000 (Certified English translation of original Chinese
version filed as Exhibit 10.24 to Current Report on Form 8-K
dated March 3, 2000, and incorporated herein by reference.)
10.19 Acquisition Agreement among the Registrant, E-link Investment
Limited and Silver Moon Technologies Limited, dated June 30,
2000 (Filed as Exhibit 10.25 to Current Report on Form 8-K
dated June 30, 2000, and incorporated herein by reference.)
10.20 Stock Purchase Agreement by and between HARC and Guilingyang
Farm dated July 28, 2000 (Certified English translation of
original Chinese version filed as Exhibit 10.26 to Current
Report on Form 8-K dated July 28, 2000, and incorporated
herein by reference.)
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 October 12, 2000 (Filed with Schedule 14A dated October 2,
2000, and incorporated herein by reference.)
(b) During the three months ended September 30, 2000, the Company
filed one current report on Form 8-K, dated July 28, 2000.
That report reported, in Item 2, HARC's purchase of 24,587,200
legal person shares, par value Rmb1 per share, of Sundiro
Motorcycle Company Limited ("Sundiro"), a PRC company, from
Guilinyang Farm for total consideration of Rmb67,614,800
(US$8,166,000) or Rmb2.75 (US$0.33) per share. No financial
statements were filed therewith.
16
<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.
November 13, 2000 By:/s/ Ching Lung Po
----------------------------------
Ching Lung Po, Chairman
By:/s/ Tam Cheuk Ho
-----------------------------------
Tam Cheuk Ho, Chief Financial Officer
17
<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 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 as Exhibit 10.14 to Annual Report on
Form 10-K/A for the fiscal year ended December 31, 1994, and
incorporated herein by reference.)
10.2 China Resources Development, Inc., 1995 Stock Option Plan,
adopted as of March 31, 1995 (Filed as Exhibit 10.18 to
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.)
10.3 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 as
Exhibit 10.26 to Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, and incorporated herein by
reference.)
18
<PAGE>
10.4 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 as Exhibit 10.28 to Annual Report on Form 10-K/A
for the fiscal year ended December 31, 1996,and incorporated
herein by reference.)
10.5 Loan Agreement between HARC and the Registrant, dated March
25, 1996 (Certified English translation of original Chinese
version filed as Exhibit 10.29 to Annual Report on Form 10-K/A
for the fiscal year ended December 31, 1996, and incorporated
herein by reference.)
10.6 Rental Agreement between HARC and the Hainan Farming Bureau
Testing Center, dated August 9, 1996 (Certified English
translation of original Chinese version filed as Exhibit 10.30
to Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996, and incorporated herein by reference.)
10.7 China Resources Development, Inc., Amended and Restated 1995
Stock Option Plan, as amended on December 30, 1996 (Filed as
Exhibit 10.34 to Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1996, and incorporated herein by
reference.)
10.8 Advertising and Media Agreement by and between the Registrant
and Marketing Direct Concepts, Inc., dated April 1, 1997
(Filed as Exhibit 10.36 to Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1997, and incorporated
herein by reference.)
10.9 Financial Consulting Agreement by and between the Registrant
and Integrated Capital Development Group, Inc., dated May 1,
1997 (Filed as Exhibit 10.37 to Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1997, and incorporated
herein by reference.)
10.10 Stock Purchase Agreement, by and between HARC and Guilinyang
Farm, dated December 29, 1997. (Filed as Exhibit 10.39 to
Annual Report on Form 10-K for the fiscal year ended December
31, 1997 and incorporated herein by reference.)
10.11 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
as Exhibit 10.41 to Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1998 and incorporated herein by
reference.)
10.12 Employment Agreement between the Company and Li Feilie, dated
August 1, 1998 (Filed as Exhibit 10.42 to Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 and
incorporated herein by reference.)
10.13 Employment Agreement between the Company and Tam Cheuk Ho,
dated February 1, 1999 (Filed as Exhibit 10.43 to Annual
Report on Form 10-K for the fiscal year ended December 31,
1998 and incorporated herein by reference.)
10.14 Employment Agreement between the Company and Wong Wah On,
dated February 1, 1999 (Filed as Exhibit 10.44 to Annual
Report on Form 10-K for the fiscal year ended December 31,
1998 and incorporated herein by reference.)
10.15 Service Agreement between the Company and Ching Lung Po, dated
February 1, 1999 (Filed as Exhibit 10.45 to Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 and
incorporated herein by reference.)
10.16 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 as Exhibit 10.22 to Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 1999
and incorporated herein by reference.)
19
<PAGE>
10.17 Assets and Staff Transfer Agreement by and among the Farming
Bureau, HARC, First Supply, Second Supply and Sales Centre
dated March 3, 2000 (Certified English translation of original
Chinese version filed as Exhibit 10.23 to Current Report on
Form 8-K dated March 3, 2000, and incorporated herein by
reference.)
10.18 Shareholders' Agreement on Business Restructuring by and among
the Farming Bureau, the Company and Billion Luck dated March
3, 2000 (Certified English translation of original Chinese
version filed as Exhibit 10.24 to Current Report on Form 8-K
dated March 3, 2000, and incorporated herein by reference.)
10.19 Acquisition Agreement among the Registrant, E-link Investment
Limited and Silver Moon Technologies Limited dated June 30,
2000 (Filed as Exhibit 10.25 to Current Report on Form 8-K
dated June 30, 2000, and incorporated herein by reference.)
10.20 Stock Purchase Agreement by and between HARC and Guilinyang
Farm dated July 28, 2000 (Certified English translation of
original Chinese version filed as Exhibit 10.26 to Current
Report on Form 8-K dated July 28, 2000, and incorporated
herein by reference.)
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 October 12, 2000 (Filed with Schedule 14A dated October 2,
2000, and incorporated herein by reference.)
20
