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, 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 2005, 20/F, Universal Trade Centre,
3-5A Arbuthnot Road, Central, 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,
$0.001 par value, as of August 11, 2000.
Page 1 of 20 pages Exhibit Index on Page 18
<PAGE>
CONVENTIONS
Unless otherwise specified, all references in this report to "U.S.
Dollars," "Dollars," "US$," 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 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, 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 June 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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Note 2000 1999 2000 2000 1999 2000
---- ---- ---- ---- ---- ----
RMB RMB US$ RMB RMB US$
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES 2,316 - 280 3,713 - 448
COST OF SALES (2,548) - (308) (3,844) - (464)
--------- -------- -------- ------- ------- -------
GROSS PROFIT/(LOSS) (232) - (28) (131) - (16)
DEPRECIATION (351) - (42) (551) - (67)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (3,789) (2,849) (458) (8,238) (5,388) (995)
FINANCIAL INCOME, NET 3,668 192 443 3,708 271 448
OTHER INCOME, NET (2,481) 6,664 (300) 10,538 6,664 1,273
--------- -------- -------- ------- ------- -------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES (3,185) 4,007 (385) 5,326 1,547 643
INCOME TAXES 187 (620) 23 (1,770) (620) (214)
--------- -------- -------- ------- ------- -------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS
BEFORE MINORITY INTERESTS (2,998) 3,387 (362) 3,556 927 429
MINORITY INTERESTS 814 (1,874) 98 (3,603) (1,874) (435)
--------- -------- -------- ------- ------- -------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS (2,184) 1,513 (264) (47) (947) (6)
DISCONTINUED OPERATIONS 2 - (1,285) - - (3,174) -
--------- -------- -------- ------- ------- -------
NET INCOME/(LOSS) (2,184) 228 (264) (47) (4,121) (6)
========= ======== ======== ======= ======= =======
BASIC AND DILUTED
EARNINGS/(LOSS) PER SHARE*
Continuing operations (3.68) 2.55 (0.45) (0.08) (1.60) (0.01)
Discontinued operations - (2.17) - - (5.35) -
--------- -------- -------- ------- ------- -------
(3.68) 0.38 (0.45) (0.08) (6.95) (0.01)
========= ======== ======== ======= ======= =======
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING* 592,900 592,900 592,900 592,900 592,900 592,900
========= ======== ======== ======= ======= =======
</TABLE>
* The computation of basic and diluted loss per share for the three months
and six months ended June 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 JUNE 30, 2000 AND DECEMBER 31, 1999
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
2000 1999 2000
RMB RMB US$
Notes (Unaudited) (Note) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 109,763 31,088 13,256
Marketable securities 981 57,035 119
Trade receivables 159 - 19
Inventories 4 2,796 1,702 338
Other receivables, deposits and prepayments 13,686 11,781 1,653
Short term loan receivable 45,000 45,000 5,435
Amount due from Farming Bureau 36,426 47,013 4,399
Amounts due from related companies 571 1,500 69
Tax refundable - 1,382 -
Net assets of discontinued operations - 70,527 -
---------- ---------- ----------
TOTAL CURRENT ASSETS 209,382 267,028 25,288
PROPERTY AND EQUIPMENT 5 13,550 9,855 1,636
INVESTMENTS 116,714 116,714 14,096
---------- ---------- ----------
TOTAL ASSETS 339,646 393,597 41,020
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 801 296 97
Other payables and accrued liabilities 40,497 15,860 4,891
Income taxes payable 457 - 55
Amounts due to related companies 296 86,781 36
---------- ---------- ----------
TOTAL CURRENT LIABILITIES 42,051 102,937 5,079
MINORITY INTERESTS 117,189 110,226 14,153
---------- ---------- ----------
TOTAL LIABILITIES AND MINORITY
INTERESTS 159,240 213,163 19,232
---------- ---------- ----------
SHAREHOLDERS' EQUITY
Common stock, US$0.001 par value:
Authorized - 200,000,000 shares in 2000 and 1999
Issued and outstanding - 592,900 shares in 2000
and 1999 5 5 1
Preferred stock, authorized -
10,000,000 shares in 2000 and 1999
Series B preferred stock, US$0.001 par value:
Authorized - 320,000 shares in 2000 and 1999
Issued and outstanding - 320,000 shares
in 2000 and 1999 3 3 -
Additional paid-in capital 156,632 156,632 18,917
Reserves 26,830 26,830 3,240
Accumulated deficits (3,065) (3,018) (370)
Accumulated other comprehensive loss 1 (18) -
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY 180,406 180,434 21,788
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 339,646 393,597 41,020
========== ========== ==========
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
4
<PAGE>
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Series B Additional Other
Common preferred paid-in Accumulated Comprehensive
stock stock capital Reserves deficits Loss Total
RMB RMB RMB RMB RMB RMB RMB
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January
1, 2000 5 3 156,632 26,830 (3,018) (18) 180,434
Net loss - - - - (47) - (47)
Currency translation
Adjustment - - - - - 19 19
--------
Comprehensive
Income (28)
--------
-------- ------ -------- ------- ---------- ---------- --------
Balance at June 30,
2000 5 3 156,632 26,830 (3,065) 1 180,406
======== ====== ======== ======= ========== ========== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
2000 1999 2000
---- ---- ----
RMB RMB US$
<S> <C> <C> <C>
Net cash provided by operating activities 71,209 8,350 8,600
INVESTING ACTIVITIES
Purchases of property and equipment (4,246) (3,434) (513)
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 (1,771) (48,434) (214)
---------- ---------- ----------
FINANCING ACTIVITIES
Increase in minority interests 2,187 - 264
---------- ---------- ----------
Net cash provided by/(used in) continuing operations 71,625 (40,084) 8,650
Net cash provided by discontinued operations (Note 2) - 15,572 -
---------- ---------- ----------
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS 71,625 (24,512) 8,650
Cash and cash equivalents, at beginning of period 38,138 129,238 4,606
---------- ---------- ----------
Cash and cash equivalents, at end of period 109,763 104,726 13,256
========== ========== ==========
</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 six-month
periods ended June 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 RMB105,315,000 for the six months ended
June 30, 1999. Loss from discontinued operations of Rubber and
Procurement Operations of RMB4,701,000 for the three months ended June
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 six months ended June 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 June 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 at 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, 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.
4. INVENTORIES
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
RMB RMB
<S> <C> <C>
Raw materials 182 -
Work in progress 1,110 -
Finished goods 1,504 1,702
---------- ----------
2,796 1,702
========== ==========
</TABLE>
5. PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
RMB RMB
<S> <C> <C>
At cost:
Buildings and leasehold improvements 5,906 5,906
Machinery, equipment and motor vehicles 10,638 6,392
---------- ----------
16,544 12,298
Accumulated depreciation: (2,994) (2,443)
---------- ----------
Net book value 13,550 9,855
========== ==========
</TABLE>
8
<PAGE>
6. SEGMENT FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Six months ended
June 30, 2000
RMB
<S> <C>
Net sales to external customers:
Supermarket operations, net sales to
unaffiliated customers 2,431
Processed timber, net sales to
Unaffiliated customers 1,282
----------
Total consolidated net sales 3,713
==========
Segment loss:
Supermarket operations (53)
Processed timber (695)
----------
Total segment profit/(loss) (748)
Reconciling items:
Corporate expenses (8,120)
Gain on trading of marketable securities 10,486
Interest income 4,574
Exchange loss (866)
----------
Total consolidated profit before
income taxes 5,326
==========
</TABLE>
<TABLE>
<CAPTION>
June 30,
2000
RMB
<S> <C>
Segment assets:
Supermarket operations 6,306
Processed timber 8,422
----------
Total segment assets 14,728
Reconciling items:
Corporate assets 208,204
Investments 116,714
----------
Total consolidated assets 339,646
==========
</TABLE>
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 six months ended June 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 June 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.
<TABLE>
<CAPTION>
(Amounts in thousands) Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
RMB RMB RMB RMB
<S> <C> <C> <C> <C>
Net sales:
Supermarket operations 1,280 - 2,431 -
Processed timber 1,036 - 1,282 -
---------- ---------- ---------- ----------
2,316 - 3,713 -
---------- ---------- ---------- ----------
Gross profit/(loss) (232) - (131) -
Gross profit/(loss) margin (%) (10.02) - (3.53) -
Income/(loss) from continuing
before income taxes (3,185) 4,007 5,326 1,547
Income taxes 187 (620) (1,770) (620)
---------- ---------- ---------- ----------
Income/(loss) from continuing
before minority interest (2,998) 3,387 3,556 927
Minority interests 814 (1,874) (3,603) (1,874)
---------- ---------- ---------- ----------
Income/(loss) from continuing operations (2,184) 1,513 (47) (947)
Discontinued operations - (1,285) - (3,174)
---------- ---------- ---------- ----------
Net income/(loss) (2,184) 228 (47) (4,121)
========== ========== ========== ==========
</TABLE>
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 January1, 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 June 30, 2000, the Company
has set up two lines of business, the supermarket operation and the processing
and sale of timber. The supermarket operation has gross profit and gross profit
margin of RMB420,000 (US$51,000) and 17.3%, respectively, for the first half of
2000. The sale of processed timber business has a gross loss of RMB551,000
(US$67,000) or 43.0% on sales for the first half of 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 second quarter of 2000, the supermarket operation has gross
profit and gross profit margin of RMB224,000 (US$27,000) and 17.5%,
respectively, while the processed timber business has a gross loss of RMB455,000
(US$55,000) or 43.9% on sales for the same period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the first half of 2000
were RMB8.2 million (US$995,000), compared to RMB5.4 million (US$651,000) for
the corresponding period in 1999. The increase was mainly attributable to
selling and administrative expenses of HARC, which amounted to RMB2.7 million
(US$326,000) for the first half of 1999 and were grouped in the procurement of
materials and supplies business, which is shown as discontinued operations. For
the first half of 2000, selling and administrative expenses of HARC were grouped
as corporate administrative expenses.
Selling, general and administrative expenses for the second quarter of
2000 were RMB3.8 million (US$458,000), compared to RMB2.8 million (US$344,000)
for the corresponding period in 1999. The increase was mainly attributable to
selling and administrative of HARC, which amounted to RMB1.0 million
(US$122,000) for the second quarter of 1999 and were grouped in the procurement
of materials and supplies business, which is shown as discontinued operations.
For the second quarter of 2000, selling and administrative expenses of HARC were
grouped as corporate administrative expenses.
FINANCIAL INCOME, NET
Net financial income increased by more than thirteen times from
RMB271,000 (US$33,000) for the first half of 1999 to RMB3.7 million (US$448,000)
for the corresponding period in 2000. The increase was mainly attributable to
the interest received in the second quarter of 2000 on a RMB45 million (US$5.4
million) short-term loan to an unaffiliated third party, which amounted to
RMB4.2 million (US$507,000). The increase in interest income was partly offset
by an exchange loss amounting to RMB860,000 (US$104,000), arising from the
conversion of Renminbi to Hong Kong dollars.
Net financial income increased by more than nineteen times from
RMB192,000 (US$23,000) for the second quarter of 1999 to RMB3.7 million
(US$443,000) for the corresponding period in 2000. The increase was also
attributable to the reasons aforementioned.
OTHER INCOME, NET
Other income increased from RMB6.7 million (US$805,000) for the first
half of 1999 to RMB10.5 million (US$1.3 million) for the corresponding period in
2000 and from RMB6.7 million (US$805,000) for the second quarter of 1999 to a
loss of RMB2.5 million (US$300,000) for the corresponding period in 2000. Other
income in 1999 represented the dividend income received on a long-term
investment while the other income/(loss) in 2000 mainly represented a net
gain/(loss) on trading of marketable securities.
DISCONTINUED OPERATIONS
Discontinued operations for the first half of 1999 represented a loss
from operations of the discontinued rubber distribution and procurement of
materials and supplies businesses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's and its subsidiaries' primary liquidity needs are to fund
inventories and trade receivables and 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 RMB167
million (US$20.2 million) as of June 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 six months ended June 30, 2000 was approximately
RMB71.2 million (US$8.6 million), as compared to RMB8.4 million (US$1.0 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.
11
<PAGE>
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 June 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 June 30, 2000, the Company had short-term investments in
marketable securities in Hong Kong stock market with a total market value of
RMB981,000 (US$119,000). 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 June 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:
NONE
ITEM 5. OTHER INFORMATION
NONE
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.)
13
<PAGE>
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.)
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.)
14
<PAGE>
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.)
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.)
11 Computation of Earnings/(Loss) Per Share (Contained in
Financial Statements in Part I, Item I hereof.)
27 Financial Data Schedule (Filed herewith. For SEC use only.)
(b) During the three months ended June 30, 2000, the Company filed
one current report on Form 8-K, dated June 30, 2000. That
report reported, in Item 2, the Company's acquisition of an
80% equity interest in Silver Moon Technologies Limited
("Silver Moon") for total consideration of US$1,500,000 which
the Company paid by issuing to Silver Moon's former sole
equity owner, E-link Investment Limited, 244,897 shares of the
Company's unregistered restricted common stock, $0.001 par
value. No financial statements were filed therewith.
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 11, 2000 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 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.)
17
<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.)
18
<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.)
11 Computation of Earnings/(Loss) Per Share (Contained in
Financial Statements in Part I, Item I hereof.)
27 Financial Data Schedule (Filed herewith. For SEC use only.)
19
