<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: February 29, 1996
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)
011-852-2877-3857
(Registrant's telephone number, including area code)
Indicate by check market whether the registrant (1) has filed all reports
required to be filed by Section 12 or 15(d) o the Securities Exchange Act o\f
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 practical date: Common Stock --- 47,840,048
shares outstanding on February 29, 1996.
1
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated financial statements:
Unaudited Consolidated Balance Sheets at
February 29, 1996 and May 31, 1995 3-4
Unaudited Consolidated Statements of Income,
Three and Nine Months ended February 29, 1996
and March 31, 1995 5
Unaudited Consolidated Statements of Shareholders'
Equity, Nine Months ended February 29, 1996 6
Unaudited Consolidated Statements of Cash Flows,
Nine Months ended February 29, 1996 and March 31,
1995 7-8
Notes to Unaudited Consolidated Financial Statements 9-12
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operations 13-16
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(STATED IN UNITED STATES DOLLARS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
February 29, May 31,
1996 1995
------------- -----------
<S> <C> <C>
Current assets:
Cash $ 421,466 $ 6,224,243
Short-term investments 3,006,468 3,006,468
Accounts receivable 81,414,560 73,297,630
Inventories 18,463,986 11,687,930
Prepaid expenses 872,638 855,275
------------ ------------
Total current assets 104,179,118 95,071,546
------------ ------------
Property, plant and equipment:
Leasehold land and buildings 10,468,713 9,530,665
Plant and equipment 10,826,077 11,153,324
Furniture and fixtures 894,422 651,993
Motor vehicles 413,073 413,073
Construction in progress 900,852 385,757
------------ ------------
23,503,137 22,134,812
Less accumulated depreciation 3,723,476 2,780,391
------------ ------------
19,779,661 19,354,421
------------ ------------
Other assets:
Pre-operating costs 9,735,279 3,369,631
Long-term receivable 3,000,000
------------ ------------
12,735,279 3,369,631
------------ ------------
$136,694,058 $117,795,598
============ ============
</TABLE>
(Continued)
3
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(STATED IN UNITED STATES DOLLARS)
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
February 29, May 31,
1996 1995
------------ ------------
<S> <C> <C>
Current liabilities:
Current portion of long-term loan $ 40,574 $ 40,574
Short-term bank borrowings 8,718,086 9,854,996
Accounts payable, trade 15,662,452 16,248,716
Accounts payable, related parties 366,811
Customer deposits and other 2,165,487 996,220
Accrued expenses 2,163,750 1,211,300
----------- ------------
Total current liabilities 28,750,349 28,718,617
----------- ------------
Long-term debt, net of current portion 11,440,259 13,045,774
----------- ------------
Minority interests 4,825,438 4,444,929
----------- ------------
Commitments and contingencies (Note 7)
Shareholders' equity (Note 8):
Preferred stock; authorized 10,000,000 shares:
Series A convertible; issued and outstanding
24,375 shares (1995) 24,375
Common stock, par value $0.001; authorized
100,000,000 shares; issued and outstanding
47,840,048 shares (1996), 23,465,048 shares (1995) 47,840 23,465
Capital in excess of par 14,435,122 15,161,460
Retained earnings 71,860,090 51,730,022
Cumulative foreign currency translation adjustment 5,334,960 4,646,956
----------- ------------
91,678,012 71,586,278
------------ ------------
$136,694,058 $117,795,598
============ ============
</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>
Nine months ended Three months ended Two months ended
February 29, March 31, February 29, March 31 November 30,
1996 1995 1996 1995 1995
-------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 215,701,627 $237,501,527 $ 68,426,177 $76,781,398 $47,597,453
Cost of goods sold 179,457,749 200,803,198 56,942,810 65,213,195 38,669.196
-------------- ------------ ------------ ----------- -----------
Gross profit 36,243,878 36,698,329 11,483,367 11,568,203 8,928,257
-------------- ------------ ------------ ----------- -----------
Operating expenses:
General and administrative 12,011,746 10,545,773 4,068,890 3,607,567 2,509,156
Selling 1,562,298 1,810,664 466,767 598,963 336,286
-------------- ----------- ----------- ---------- -----------
13,574,044 12,356,437 4,535,657 4,206,530 2,845,442
-------------- ----------- ----------- ----------- ------------
Income from operations 22,669,834 24,341,892 6,947,710 7,361,673 6,082,815
-------------- ----------- ----------- ----------- ------------
Other income (expense):
Interest expense (1,763,938) (1,698,969) (547,872) (573,508) (387,319)
Other income 978,194 18,339
Other expense (2,149) (57,608) (2,149)
-------------- ----------- ----------- ----------- ------------
(1,766,087) (778,383) (547,872) (557,318) (387,319)
-------------- ----------- ----------- ----------- ------------
Income before income taxes
and minority interest 20,903,747 23,563,509 6,399,838 6,804,355 5,695,496
Income tax expense 258,236 299,886 45,924 120,165 66,727
-------------- ----------- ----------- ----------- ------------
20,645,511 23,263,623 6,353,914 6,684,190 5,628,769
Minority interest in the
earnings of subsidiaries 515,443 1,308,034 176,837 173,610 133,360
-------------- ----------- ----------- ----------- ------------
Net income $ 20,130,068 $ 21,955,589 $ 6,177,077 $ 6,510,580 $ 5,495,409
============== ============ ============ =========== ===========
Earnings per share $ 0.41 $ 0.45 $ 0.13 $ 0.13 $ 0.11
============== ============ ============ =========== ===========
Weighted average number
of shares outstanding 48,521,000 48,588,000 48,406,000 48,627,000 48,542,000
============== ============ ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS SHAREHOLDERS' EQUITY
(STATED IN UNITED STATES DOLLARS)
NINE MONTHS ENDED FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Foreign
Series A Capital currency Total
preferred Common in excess Retained translation shareholders'
stock stock of par earnings adjustment equity
---------------- --------------------- ---------- ----------- ----------- -------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, May 31, 1995 24,375 $24,375 23,465,048 $23,465 $15,161,460 $51,730,022 $4,646,956 $71,586,278
Conversion of
preferred stock (24,375) (24,375) 24,375,000 24,375
Cost related to securities (726,338) (726,338)
Net income 20,130,068 20,130,068
Translation adjustments 688,004 688,004
------ ------- ---------- ------- ----------- ----------- ---------- -----------
Balances, February 29, 1996 47,840,048 $47,840 $14,435,122 $71,860,090 $5,334,960 $91,678,012
====== ======= ========== ======= =========== =========== ========== ===========
</TABLE>
See notes to consolidated financial statement.
6
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN UNITED STATES DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
-----------------
February 29, March 31,
1996 1995
------------ ---------
<S> <C> <C>
Cash flows from
operating activities:
Net income $ 20,130,068 $ 21,955,589
------------ ------------
Adjustment to reconcile
net income to net cash
provided by (used in)
operating activities:
Provision for doubtful accounts 87,365
Depreciation and amortization 943,085 1,478,010
Gain on sale of securities
and other assets (558,102)
Minority interest 385,509 (6,219,395)
Translation adjustment (38,334) (531,622)
Decrease (increase) in assets:
Accounts receivable (8,116,931) (23,667,199)
Inventories (6,776,056) 11,478,842
Prepaid expenses (17,363) 338,503
Other assets (3,000,000) (333,569)
Increase (decrease) in
accounts payable and
accrued expenses 1,168,644 (12,667,108)
------------ ------------
Total adjustments (15,456,446) 30,594,275
------------ ------------
Net cash provided by
(used in) operating activities 4,673,622 (8,638,686)
------------ ------------
Cash flows from investing
activities:
Payments for securities
and other assets (6,365,648)
Proceeds from disposal
of securities and other assets 328,095
Purchase of securities and other assets 1,985,844
Acquisition of property,
plant equipment (1,368,326) (1,002,864)
Pre-operating costs (280,990)
------------ ------------
Net cash provided by (used in)
investing activities (7,733,974) 1,030,085
------------ ------------
</TABLE>
(Continued)
7
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(STATED IN UNITED STATES DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
-----------------------
February 29, March 31,
1996 1995
------------ ----------
<S> <C> <C>
Cash flows from financing activities:
Net decrease in short-term
bank borrowings (1,136,910) (4,871,789)
Proceeds from (repayment of)
long-term loans (1,605,515) 4,947,100
Proceeds from convertible
debentures 4,000,000
Proceeds from stock sales 8,481,532
----------- -----------
Net cash provided by (used in)
financing activities (2,742,425) 12,556,843
----------- -----------
Net increase (decrease) in cash (5,802,777) 4,948,242
Cash, beginning 6,224,243 841,415
----------- -----------
Cash, ending $ 421,466 $ 5,789,657
=========== ===========
Cash paid for interest $ 1,763,938 $ 1,078,827
=========== ===========
Cash paid for income taxes $ 173,662 $ 304,684
=========== ===========
Noncash investing and
financing activities:
Conversion of Series A
preferred stock into 24,375,000
shares of common stock $ 24,375
===========
Capital lease obligation
incurred for equipment $ 2,582,880
===========
Debentures converted
into 1,293,220 shares
of common stock $ 3,000,000
===========
Conversion of preferred
stock into 1,236,358
shares of common stock $ 3,400,000
===========
</TABLE>
See notes to consolidated financial statements.
8
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED FEBRUARY 29, 1996
AND THREE AND NINE MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
1. Business and organization of the Company:
Business of the Company:
The Company's operations consist of distribution, manufacturing, and
management consulting 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 Islands company
Eyemouth 100% British Marketing and
Limited Virgin Islands distribution
Nimrod (H.K.) Ltd. 100% Hong Kong Marketing and
(formerly M.S. distribution
Enterprise Company
Limited)
Eastern Assets 100% British Holding
Management Limited Virgin Islands company
Suzhou Nimrod 55%, by China Manufacturing
Woolen Textile Eastern Assets
Company Limited
(joint venture)
Harrington Worldwide 100% British Investment, Advisory
Holdings Limited Virgin Islands Management and
Nominee services
Ascot Holdings 100% British Management
Group Limited Virgin Islands
</TABLE>
9
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE AND NINE MONTHS ENDED FEBRUARY 29, 1996
AND THREE AND NINE MONTHS ENDED MARCH 31, 1995 (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 fair statements of results for the
interim periods presented. Certain information and footnote disclosure
made in the last annual report on Form 10-K have been condensed or omitted
for the consolidated statements. Certain costs are estimated for the full
year and allocated to interim period based on activity associated with the
period. 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-K, the disclosures are adequate to make information
presented not misleading. 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:
(a) the majority of the Company's purchase and sales transactions are
quoted in United States dollars;
(b) the majority of the expenses incurred by the Company are denominated
in Hong Kong dollars and the exchange rate between the Hong Kong
dollar and the United States dollar has been fixed at HK$7.80 to
US$1.00; as a result, exchange differences on translating from Hong
Kong dollars to United States dollars are minimal.
4. Change of fiscal year:
The Company changed its accounting year from December 31 to May 31 to
reflect a natural business cycle.
10
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE AND NINE MONTHS ENDED FEBRUARY 29, 1996
AND THREE AND NINE MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
5. 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 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
provision for the Series C preferred sock have been considered common
stock equivalents. Primary and fully diluted earnings per share are
the same for each period presented.
6. Inventories:
The components of inventories are as follows:
<TABLE>
<CAPTION>
February 29, May 31,
1996 1995
------------ -------
<S> <C> <C>
Raw materials $ 858,004 $ 973,569
Work-in-process 854,973 665,793
Finished goods 16,751,009 10,048,568
----------- -----------
$18,463,986 $11,687,930
=========== ===========
</TABLE>
7. Commitments and contingencies:
Letter of credit:
At February 29, 1996, the Company had approximately $3,496,700 in
letters of credit outstanding.
8. 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 to 1,000 shares of common stock. All Series A
preferred shares were converted into common stock in November 1995.
11
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE AND NINE MONTHS ENDED FEBRUARY 29, 1996
AND THREE AND NINE MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
8. Shareholders' equity (continued):
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. As of May 31, 1995, all of the Series C convertible preferred
stock had been converted into common stock.
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 1995. Under the terms of the
settlement, the Company agreed to issued 363,169 shares of common stock.
12
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
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 four operating entities. The operations of the
Group are divided into distribution and manufacturing. In addition,
Harrington Worldwide Holdings Limited, a wholly owned subsidiary of the
group provides investment and management services to customers in China
and the Asia Pacific region.
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 Peoples' 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 of wool in Renminbi, the Chinese Currency
(RMB). The Group then uses RMB to purchase industrial raw materials
such as chemical and pharmaceutical materials from manufacturers
located in China and export to customers overseas. Sales of these
products in turn generate U.S. dollars, which are then used to purchase
wool in Australia and New Zealand.
Although the Group bears the risk of non-payment from its customers,
the Group generally purchases products pursuant to outstanding orders.
Thus the Group's exposure to currency risk and inventory problems is
minimized.
The Group, through its wholly owned subsidiary, Harrington Worldwide
Holdings Limited, is engaged in providing investment, financial,
corporate advisory and nominee services to its clients including advice
on mergers and acquisitions, and joint ventures with Chinese
enterprises. The Company maintains close working relationships with
authorities, and commercial communities in China and the Asia Pacific
region and provides experienced judgment to help clients to achieve
their diverse objectives.
13
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
The Company participated in a number of strategically significant
transactions, including merger and acquisition, joint ventures and
restructuring. The company is responsible for leading and coordinating
clients in execution of their capital and investment transactions.
In addition, the Company provides financial and management consultancy
services to Chinese enterprise and develops innovative solutions, often
involving implementation of strategic initiatives, to meet their needs.
The Company identifies, structures, and manages investments in
acquisition and restructuring, on behalf of its clients. In addition,
the Company provides nominee services to foreign enterprises for their
China ventures.
The Group is also engaged in the manufacture of woolen products through
its interest in its joint venture company in China. These facilities
produce a variety of wool products ranging from scoured wool (washed
and comb wool), wool top (washed and combed wool that has been
processed into a spool of rope), yarns, rolls of wool fabric to woolen
sweaters mainly for the Chinese consumer market.
In December 1995, the Group changed its fiscal year from December 31 to
May 31 to reflect a natural business cycle.
THREE AND NINE MONTHS ENDED FEBRUARY 29, 1996
COMPARED TO THREE AND NINE MONTHS ENDED MARCH 31, 1995.
REVENUES. Revenues for the three and nine months ended February 29,
1996 decreased by $8.4 million and $21.8 million, or approximately
10.9% and 9.2% respectively, as compared to the three and nine months
ended March 31, 1995. The decreased revenues reflected the exceptional
demand for wool in early 1995 as the result of a shortage of cotton
crops during the period; revenues form the current period represented a
more normal level of operation when demand for wool returned to its
current level. Revenues from management service (new in 1996) amounted
to $9.4 million of total revenues for the nine months ended February
29, 1996, and were derived form providing advisory services to
customers.
GROSS PROFIT. The gross profit percentage increased from 15.1% for the
three months ended March 31, 1995 to 16.8% for the 1996 period and
gross profit remained approximately the same for the nine months ended
February 29, 1996 which was aided by contributions of $5.2 million
gross profit by the investment and advisory services.
14
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
increased by $0.5 million and $1.5 million or approximately 13.9% and
14.2% during these three and nine month periods of 1996 as compared to
the three and nine months ended March 31, 1995. The increase was
primarily a result of increased administrative expenses applicable to
the new management services activity.
SELLING EXPENSES. During the three and nine month 1996 periods,
revenues and marketing expenses decreased by $0.1 million and $0.2
million as compared to the three and nine months ended March 31, 1995.
The primary reason for the variation was the decease in marketing
activities due to reduced revenue potential .
INCOME TAXES. Income taxes of $45,924 were incurred during the three
months ended February 29, 1996 and $120,165 for the three months ended
March 31, 1995. The decrease is primarily due to income tax provisions
for the Company's China operations and the decrease in earnings from
the Company's Hong Kong distribution subsidiary.
NET INCOME. The net income during the three months ended February 29,
1996 was $6.2 million as compared to net income of $6.5 million for the
three months ended March 31, 1995. This represents approximately a 5.1%
decrease in net income. Net income for the nine month period ended
February 29, 1996 was $20.13 million as compared to $21.96 million for
the nine months ended March 31, 1995, an 8.3% decrease in net income.
INVENTORY. Inventory as of February 29, 1996 amounts to $18,463,986 as
a result of the low level of activities during the festive month of
Chinese New Year in China.
CUSTOMER DEPOSITS AND OTHER. Customer deposits and other represent
amounts received in advance from customers. As of February 29, 1996
this amounts to $2,165,487, which reflected the low demand in the month
of February.
CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT reflects the net
adjustment to the consolidated financial statements after the exclusion
of adjustment results in the translation of disposed subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
The Group's principal source of liquidity during the five months ended
February 29, 1996 was from operations.
15
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
As of February 29, 1996, the Group had working capital of approximately
$75 million compared to $66 million as of May 31, 1995, primarily as a
result of net income earned during this period.
Net cash generated from operating activities was $4.7 million during
the nine months ended February 29, 1996.
The Group believes that 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 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 rate which would be settled at by the Chinese Government. For
the Group's other subsidiaries, the United States dollar is the
functional currency.
EFFECTS OF INFLATION
Inflation has little impact on the operation of the Group. The price of
products the Group distributes is determined by the open market. Any
increase in costs is generally reflected in the selling price. However,
the cooling down of China's overheated economy does have a negative
effect on the sales of products manufactured in China. In addition,
inflation has caused some increase in the general and administrative
expenses
16
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27 Financial Data Schedule
(b) A report was filed on December 29, 1995 changing the Company's
fiscal year of December 31, to May 31.
17
<PAGE>
CHINA INDUSTRIAL GROUP, INC.
AND SUBSIDIARIES
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: April 19, 1996
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 421,466
<SECURITIES> 3,006,468
<RECEIVABLES> 81,414,560
<ALLOWANCES> 0
<INVENTORY> 18,463,986
<CURRENT-ASSETS> 104,179,118
<PP&E> 23,503,137
<DEPRECIATION> 3,723,476
<TOTAL-ASSETS> 136,694,058
<CURRENT-LIABILITIES> 28,750,349
<BONDS> 0
0
0
<COMMON> 47,840
<OTHER-SE> 91,678,012
<TOTAL-LIABILITY-AND-EQUITY> 136,694,058
<SALES> 215,701,627
<TOTAL-REVENUES> 215,701,627
<CGS> 179,457,749
<TOTAL-COSTS> 13,574,044
<OTHER-EXPENSES> 2,149
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,763,938
<INCOME-PRETAX> 20,903,747
<INCOME-TAX> 258,236
<INCOME-CONTINUING> 20,645,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,130,068
<EPS-PRIMARY> .41
<EPS-DILUTED> 0
</TABLE>
