<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: June 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File Number 0-16365
CHINA INDUSTRIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-0974043
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
21st Floor, Central Plaza
18 Harbour Road
Wanchai, Hong Kong
(Address of principal executive offices)
011-852-2877-3830
(Registrant's telephone number, including area code)
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 filing
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: Common Stock --23,465,048
shares outstanding on June 30, 1995.
Page 1 of 16
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
INDEX
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at
June 30, 1995 (unaudited) and December 31, 1994 3-4
Unaudited Consolidated Statements of Income -
Three and Six months ended June 30, 1995
and 1994 5
Unaudited Consolidated Statements of Shareholders'
Equity, Six months ended June 30, 1995 6
Unaudited Consolidated Statements of Cash Flows,
Six months ended June 30, 1995 and 1994 7-8
Notes to Unaudited Consolidated Financial Statements 9-11
Item 2. Management Discussion and Analysis of
Financial Condition and Results of Operations 12-14
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
2
<PAGE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(STATED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 4,854,964 $ 6,009,700
Short-term investments 3,006,468 3,006,468
Accounts receivable 64,881,181 63,287,097
Inventories (Note 5) 20,556,679 21,838,540
Prepaid expenses 795,834 414,237
------------ ------------
Total current assets 94,095,126 94,556,042
------------ ------------
Property, plant and equipment:
Leasehold land and buildings 10,451,299 10,451,299
Plant and equipment 11,822,904 11,822,904
Furniture and fixtures 651,993 588,285
Motor vehicles 460,421 460,421
Construction in progress 428,494 83,403
------------ ------------
23,815,111 23,406,312
Less accumulated depreciation
and amortization 3,100,057 2,524,150
------------ ------------
20,715,054 20,882,162
------------ ------------
Other assets:
Pre-operating costs 1,052,617 885,556
Other 23,529 23,529
------------ ------------
1,076,146 909,085
------------ ------------
$115,886,326 $116,347,289
============ ============
</TABLE>
3
(Continued)
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(STATED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 40,574 $ 40,574
Short-term bank borrowings 9,322,686 9,107,042
Accounts payable:
Trade 12,495,925 23,636,664
Related parties 366,811 366,811
Customer deposits and other 2,819,942 5,072,997
Accrued expenses 715,102 1,210,146
------------ -----------
Total current liabilities 25,761,040 39,434,234
------------ -----------
Long-term debt, net of current portion 12,244,946 10,382,252
------------ -----------
Minority interest 5,454,356 5,117,763
------------ -----------
Commitments and contingencies (Note 6)
Shareholders' equity (Notes 7 and 8):
Preferred stock; authorized
10,000,000 shares:
Series A convertible; issued and
outstanding 24,375 shares 24,375 24,375
Series C convertible; issued and
outstanding 212 shares 5,900,000
Common stock par value $0.001;
authorized 100,000,000 shares;
issued and outstanding 23,465,048
shares (1995) and 19,931,252 shares
(1994) 23,465 19,931
Capital in excess of par 14,435,122 9,264,994
Retained earnings 54,518,288 41,777,471
Cumulative foreign currency
translation adjustment 3,424,734 4,426,269
------------ ------------
72,425,984 61,413,040
------------ ------------
$115,886,326 $116,347,289
============ ============
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(STATED IN UNITED STATES DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1995 1994 1995 1994
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues $73,669,278 $71,542,600 $150,450,676 $140,604,678
Cost of goods sold 62,251,624 60,596,150 127,464,819 118,923,339
----------- ----------- ------------ ------------
Gross profit 11,417,654 10,946,450 22,985,857 21,681,339
----------- ----------- ------------ ------------
Operating expenses:
General and administrative 3,785,579 3,312,647 7,393,146 6,651,681
Selling 568,177 485,777 1,167,140 991,959
----------- ----------- ------------ ------------
4,353,756 3,798,424 8,560,286 7,643,640
----------- ----------- ------------ ------------
Income from operations 7,063,898 7,148,026 14,425,571 14,037,699
----------- ----------- ------------ ------------
Other income (expense):
Interest expense:
Related party (14,449) (28,898)
Other (561,125) (533,926) (1,134,633) (1,078,827)
Other income 18,339
Other expenses (2,149)
----------- ----------- ------------ ------------
(561,125) (548,375) (1,118,443) (1,107,725)
----------- ----------- ------------ ------------
Income before income taxes
and minority interest 6,502,773 6,599,651 13,307,128 12,929,974
Income tax expense 109,553 79,690 229,718 124,963
----------- ----------- ------------ ------------
Income before minority interest 6,393,220 6,519,961 13,077,410 12,805,011
Minority interest in earnings of
subsidiaries 162,983 664,368 336,593 1,427,972
----------- ----------- ------------ ------------
Net income $ 6,230,237 $ 5,855,593 $ 12,740,817 $ 11,377,039
=========== =========== ============ ============
Earnings per share (Note 4) $0.13 $0.13 $0.26 $0.27
=========== =========== ============ ============
Weighted average number of shares
outstanding 48,457,000 43,518,000 48,425,000 42,495,000
=========== =========== ============ ============
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(STATED IN UNITED STATES DOLLARS)
SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
Series A Series C
preferred preferred Common
stock stock stock
---------------- ---------------------- --------------------
Shares Amount Shares Amount Shares Amount
------ ------- ------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1995 24,375 $24,375 295 $ 5,900,000 19,931,252 $19,931
Conversion of preferred stock
to common stock (295) (5,900,000) 3,533,796 3,534
Costs related to securities
(Note 8)
Net income
Translation adjustments
------ ------- ------- ------------ ---------- -------
Balances June 30, 1995 24,375 $24,375 0 $ 0 23,465,048 $23,465
====== ======= ======= ============ ========== =======
<CAPTION>
Cumulative
foreign
Capital currency Total
in excess Retained translation shareholders'
of par earnings adjustment equity
---------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Balances, January 1, 1995 $9,264,994 $41,777,471 $ 4,426,269 $61,413,040
Conversion of preferred stock
to common stock 5,896,466
Costs related to securities
(Note 8) (726,388) (726,388)
Net income 12,740,817 12,740,817
Translation adjustments (1,001,535) (1,001,535)
----------- ----------- ----------- -----------
Balances June 30, 1995 $14,435,122 $54,518,288 $ 3,424,734 $72,425,984
=========== =========== =========== ===========
</TABLE>
6
See notes to consolidated financial statements
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN UNITED STATES DOLLARS)
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,740,817 $ 11,377,039
------------ ------------
Adjustment to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 575,907 254,124
Gain on sale of securities
and other assets
Minority interest 336,593 (3,322,742)
Translation adjustment (1,004,535) (514,183)
Decrease (increase) in assets:
Accounts receivable (1,591,084) (19,142,438)
Inventories 1,281,861 (2,134,363)
Prepaid expenses (381,597) (650,992)
Other assets 357,219
Increase (Decrease) in accounts payable
and accrued expenses (14,615,176) 11,042,753
------------ ------------
Total adjustments (15,398,031) (14,110,622)
------------ ------------
Net cash used in operating activities (2,657,214) (2,733,583)
------------ ------------
Cash flows from investing activities:
Proceeds from sales of securities
and other assets 1,952,243
Purchases of securities and other assets (1,985,844)
Acquisition of property, plant and
equipment (408,799) (601,852)
Pre-operating costs (167,061) (255,955)
------------ ------------
Net cash used in investing activities (575,860) (891,408)
------------ ------------
</TABLE>
7
(Continued)
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(STATED IN UNITED STATES DOLLARS)
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Net increase in short-term
bank borrowings 215,644 5,803,173
Repayment of shareholders loans (1,926,532)
Increase (repayment) of long-term debt 1,862,694 (2,741,202)
Proceeds from stock sales 2,382,559
----------- -----------
Financing activities 2,078,338 3,517,998
----------- -----------
Net decrease in cash (1,154,736) (106,993)
Cash, beginning 6,009,700 948,408
----------- -----------
Cash, ending $ 4,854,964 $ 841,415
=========== ===========
Cash paid for:
Interest $ 1,134,633 $ 1,078,827
=========== ===========
Non-cash investing and financing activities:
Conversion of 295 shares of Series C
preferred stock into 3,533,796 shares of
common stock $ 5,900,000
===========
Conversion of debentures to 386,960 shares
of Common Stock $ 1,000,000
===========
</TABLE>
8
See notes to consolidated financial statement
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
1. Business and organization of the Company:
Business of the Company:
The Company's operations consist of distribution and manufacturing
activities performed by its operating subsidiaries. Distribution
activities primarily involve the purchase of wool products for sale
within the Peoples Republic of China (China) and the purchase of
chemicals and pharmaceuticals within China for export and sale outside of
China. Manufacturing activities primarily involve the manufacture and
sale of woolen products through two joint venture companies in China.
The Company's subsidiaries are:
<TABLE>
<CAPTION>
Name of Percent Place of Principal
Subsidiary Ownership Incorporation Activities
--------------------------- ----------------- -------------- -------------
<S> <C> <C> <C>
Nova Industrial 100% British Holding
Holdings Limited Virgin Company
Islands
Eyemouth Limited 100% British Marketing
Virgin and
Islands distribution
M.S. Enterprise 100% Hong Kong Marketing
Company Limited and
distribution
Eastern Assets 100% British Holding
Management Limited Virgin Company
Islands
M.S. (Ping Yuan) 70% by China Manufacturing
Industry Development M.S. Enterprise
Company Limited (joint
venture)
Suzhou Nimrod Woolen 55% by China Manufacturing
Textile Company Eastern Assets
Limited (joint venture)
Harrington Worldwide 100% British Holding
Holdings Limited Virgin Company
Islands
Ascot Holdings Group 100% British Holding
Limited Virgin Company
Islands
</TABLE>
9
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
2. Interim consolidated financial statements:
The interim consolidated financial statements have been prepared by the
Company and, in the opinion of the management, reflect all material
adjustments which are necessary to a fair statement of results for the
interim periods presented. Certain information and footnote disclosure
made in the last annual report on Form 10-KSB have been condensed or
omitted for the interim consolidated statements. Certain costs are
estimated for the full year and allocated to interim period based on
activity associated with the interim period. Accordingly such costs are
subject to year-end adjustment. It is the Company's opinion that, when
the interim consolidated statements are read in conjunction with the
December 31, 1994 annual report on Form 10-KSB, the disclosures are
adequate to make information presented not misleading. The interim
consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
3. Basis of accounting:
The financial statements are expressed in United States dollars and are
in conformity with United States generally accepted accounting
principles.
The United States dollar was adopted as the reporting currency for the
following reasons:
(i) the majority of the Company's purchase and sales transactions
are quoted in United States dollars;
(ii) the majority of the expenses incurred by the Company are
denominated in Hong Kong dollars and the exchange rate between
Hong Kong dollars and United States dollars has been fixed at
HK$7.8 to US$1.00; as a result, exchange differences on
translating from Hong Kong dollars to United States dollars are
minimal.
4. Earnings per share:
The computation of earnings per share is based on the weighted average
number of common shares outstanding. When dilutive, stock options and
warrants are included as common stock equivalents using the treasury
stock method. The shares issued in connection with the reverse
acquisition in 1994, including the common stock equivalent of the Series
A preferred stock, have been treated as being outstanding effective
January 1, 1993. Shares issued in connection with the convertible
debentures and the Series C preferred stock have been included in
weighted average shares as if the conversions had occurred at the date
the securities were issued. Shares issuable under the conversion
provisions of the Series C preferred stock have been considered common
stock equivalents. Primary and fully diluted earnings per share are the
same for each period presented.
10
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
5. Inventories
The components of inventories are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1995
------------ ------------
<S> <C> <C>
Raw materials $ 1,175,264 $ 1,096,326
Work-in-process 1,057,556 1,089,665
Finished goods 18,323,859 19,652,549
----------- -----------
$20,556,679 $21,838,540
=========== ===========
</TABLE>
6. Commitments and contingencies:
Letters of credit:
At June 30, 1995, the Company had approximately $4,908,606 in letters of
credit outstanding.
7. Shareholders' equity
Series A preferred stock:
The 24,375 shares of Series A preferred stock were issued in connection
with the reverse acquisition in 1994. Each share of Series A preferred
stock is convertible into 1,000 shares of common stock.
Series C preferred stock:
During August 1994, the Company sold 465 shares of Series C convertible
preferred stock, and warrants to purchase 309,997 shares of common stock
at $5.50 per share for $9,300,000. The warrants are exercisable through
August 1996. No warrants have been exercised through June 30, 1995.
During the year ended December 31, 1994, 170 shares of Series C
convertible preferred stock were converted into 1,236,358 shares of
common stock.
During the six months ended June 30, 1995, 295 shares of Series C
convertible preferred stock were converted into 3,533,796 shares of
common stock. As of June 30, 1995, all of the shares of Series C
convertible preferred stock had been converted.
8. On June 2, 1995, the Company entered into a settlement agreement with an
entity that provided services to the Company related to the reverse
acquisition which occurred in January 1994. Under the terms of the
settlement, the Company agreed to issue 363,169 shares of common stock.
The issuance was valued at the market price of the Company's stock at
the date of the agreement and has been charged to shareholders' equity.
11
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview of Principal Activities
--------------------------------
China Industrial Group, Inc. (the "Group") consists of Nova
Industrial Holdings Limited, a British Virgin Islands corporation, which is
a holding company for five operating entities. The operations of the Group
are divided into distribution and manufacturing.
The Group's distribution activities involve wool, industrial
chemicals and pharmaceutical products. The Group purchases wool from
unrelated persons mainly in New Zealand and Australia principally for US
dollars and, in turn, sells the wool through its sales representative
offices to its customers in the People's Republic of China (China).
The Group is responsible for all aspects of delivery of wool to the
factory, including customs clearance and transportation. To support its
distribution, the Group leases a number of bonded warehouses in China which
take delivery of the wool and arrange for shipment directly to the
factories.
The Group receives payment for the wool in Renminbi, the local
Chinese Currency (RMB). The Group then uses RMB to purchase industrial
chemicals and pharmaceutical products from manufacturers located in China.
The pharmaceutical products are principally generic products in powder
form, and are used by pharmaceutical manufacturers which convert the powder
into tablets or capsules. The chemical products are mainly industrial raw
materials used for various types of basic industries. Both the chemical
and pharmaceutical products are exported from China and sold to customers
located in India, Africa, Europe and Southeast Asia. The revenues of these
products in turn generate US dollars, which are then used to purchase wool
in Australia and New Zealand.
Although the Group bears the risk of non-payments from its customers,
the Group generally purchases products pursuant to outstanding orders.
Thus, the Group's exposure to currency risk and inventory problems are
minimized.
The Group is also engaged in the manufacture of woolen products
through its interest in two joint venture companies in China. These
facilities produce a variety of wool products ranging from scoured wool
(washed and comb wool), wool top (washed and comb wool that has been
processed into a spool of rope), yarn, rolls of wool fabric to woolen
sweaters mainly for the Chinese consumer market.
12
<PAGE>
Three and Six Months Ended June 30, 1995 Compared to June 30, 1994
------------------------------------------------------------------
Revenues. Revenues for the three and six months ended June 30, 1995
--------
increased by $2.1 million and $9.8 million, respectively, or approximately
3% and 7% compared to the three and six months ended June 30, 1994.
Revenues from distribution activities for the three and six months
ended June 30, 1995 increased by $2.8 million and $11.6 million or
approximately 4% and 9%, respectively, compared to the three and six months
ended June 30, 1994. The increases were primarily attributable to the
increase in sales of wool as a result of the natural growth of the market
and as a result of the change in consumers' behavior.
Revenues from the manufacturing of woolen products for the three and
six months ended June 30, 1995 decreased by $0.7 million and $1.8 million
or approximately 14.6% and 15.5%, respectively, compared to the three and
six months ended June 30, 1994. The decreases were primarily due to the
decrease in domestic sales in China which were impacted by the governmental
policy of "cooling down" the overheated economy.
Gross Profit. Gross profit increased by $0.5 million and $1.3
------------
million or approximately 4% and 6%, respectively, for the three and
six months ended June 30, 1995 compared to the three and six months ended
June 30, 1994. These increases are primarily due to the increases in
revenues. Gross profit as a percent of revenue was 15% for the three and
six month periods ended June 30, 1995 and 1994.
General and Administrative Expenses. General and administrative
-----------------------------------
expenses for the three and six month periods ended June 30, 1995 increased
by $0.47 million and $0.74 million or approximately 14% and 11%,
respectively, compared to the 1994 periods, primarily as a result of the
increase in sales activities. General and administrative expenses as a
percent of revenues remained constant at 5% of revenues for the three and
six month period ended June 30, 1995 compared to the 1994 periods.
Selling Expenses. Selling expenses for the three and six month
----------------
periods ended June 30, 1995 increased by $0.08 million and $0.18 million or
approximately 17% and 18% respectively, compared to the 1994 periods,
primarily as a result of the increase in the volume of sales. Selling
expenses as a percent of revenues remained constant at 1% of revenues for
the three and six month periods ended June 30, 1995 compared to the 1994
periods.
Income from Operations. During the three and six months ended June
----------------------
30, 1995, the Group generated income from operations of $7.1 million and
$14.4 million, respectively, compared to $7.1 and $14.0 during the 1994
periods. Income from operations as a percent of revenues remained constant
at 10% for the three and six month periods ended June 30, 1995 and 1994.
Other Income (Expense). Interest expense was $0.56 million and
----------------------
$0.53 million for the three month periods ended June 30, 1995 and 1994,
respectively, and $1.13 million and $1.08 million for the six month periods
ended June 30, 1995 and 1994, respectively. The amount remained relatively
constant because the average amount of short- and long-term borrowings were
approximately the same during the 1995 and 1994 periods.
Income Tax Expense. Income tax expense was $0.11 million and $0.08
------------------
million for the three month periods ended June 30, 1995 and 1994,
respectively, and $0.23 million and $0.12 million for the six month periods
ended June 30, 1995 and 1994, respectively. The increase is primarily due
to the increase in earnings from the Group's Hong Kong distribution
subsidiary.
Minority Interest in Earnings of Subsidiaries. Minority interest in
---------------------------------------------
earnings of subsidiaries for the three and six month periods ended June
30, 1995 decreased by $0.5 million and $1.1 million, respectively, compared
to the 1994 periods. The decreases were due to the decreases in net
earnings of the Group's manufacturing subsidiaries.
Net Income. Net income was $6.2 and $5.9 million for the three month
----------
periods ended June 30, 1995 and 1994, respectively, and $12.7 million and
$11.4 million for the six month periods ended June 30, 1995 and 1994,
respectively. This represents increases of 6% and 12% for the three and six
month periods, respectively.
Earnings per Share. Earnings per share were $0.13 for the three
------------------
month periods ended June 30, 1995 and 1994, and $0.26 and $0.27 for the six
month periods ended June 30, 1995 and 1994, respectively. Even though net
income was greater in the 1995 periods than in the 1994 periods, earnings
per share were impacted by the increase in weighted average number of
shares outstanding resulting from the sales of common and preferred stock
throughout 1994.
13
<PAGE>
Liquidity and Capital Resources
-------------------------------
The Group's principal source of liquidity during the six months ended
June 30, 1995 was the increase in long-term debts.
As of June 30, 1995, the group had a working capital excess of
approximately $68 million compared to $55 million as of December 31, 1994,
primarily as a result of an increase in revenues from this period.
Net cash used in operating activities was $2.66 million and $2.73
million for the six months ended June 30, 1995 and 1994, respectively.
The group believes the cash provided by operations will be sufficient
to meet its cash requirements for the next 12 months.
Foreign Exchange
----------------
The financial statements of the Company's subsidiaries operating in
China are generally measured using the local currency, Renminbi (RMB), as
the functional currency. The exchange rates adopted in the translation of
RMB to the United States dollar are the applicable Bank of China official
rates that are set by the Chinese Government. For the Company's other
subsidiaries, the United States dollar is the functional currency.
Effect of Inflation
-------------------
Inflation has little impact on the operations of the Group. The
price of products the Group distributes is determined by the open market,
and any increase in the price the Group pays for products is generally
passed on to customers. However, the "cooling down" of China's overheated
economy does have an effect on the volume of sales in the Group's products
manufactured in China. In addition, inflation also affects the general and
administration expenses.
Commitments for Capital Expenditure
-----------------------------------
The Group has no material commitment for capital expenditures.
Seasonal Aspects
----------------
The Group's distribution of wool tend to increase in fall and winter
while revenues from sales of wool tends to steady by late spring and
summer.
14
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
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 INDUSTRIAL GROUP, INC.
By: /s/ Benthony Ip
--------------------------------
Benthony Ip, Chief Financial
Officer (Chief financial officer
and accounting officer and duly
authorized officer)
Dated: August 14, 1995
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 4,854,964
<SECURITIES> 3,006,468
<RECEIVABLES> 64,881,181
<ALLOWANCES> 0
<INVENTORY> 20,556,679
<CURRENT-ASSETS> 90,095,126
<PP&E> 23,815,111
<DEPRECIATION> 3,100,057
<TOTAL-ASSETS> 115,886,326
<CURRENT-LIABILITIES> 25,761,040
<BONDS> 0
<COMMON> 23,465
0
24,375
<OTHER-SE> 72,378,144
<TOTAL-LIABILITY-AND-EQUITY> 115,886,326
<SALES> 150,450,676
<TOTAL-REVENUES> 150,450,676
<CGS> 127,464,819
<TOTAL-COSTS> 8,560,286
<OTHER-EXPENSES> 2,149
<LOSS-PROVISION> 0
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<INCOME-TAX> 229,718
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</TABLE>
