SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from__________to__________.
Commission File Number 33-18834-LA
OPAL TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 87-0306464
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Suite 4704, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong
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(Address of principal executive offices)
852-2541-1999
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(Issuer's telephone number)
N/A
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(Former name, former address and formal fiscal year, if changed since last
report)
Check whether the issuer (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
twelve (12) months (or such shorter period that the Registrant was required to
file such reports) and (2) has been subject to such filing requirements for the
past ninety (90) days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Class Shares Outstanding Date
----- ------------------ ----
Common, $.001 par value 35,991,954 November 1, 1997
<PAGE>
OPAL TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1 . Financial Statements
Consolidated Balance Sheets as of September 30, 1997 and
December 31, 1996............................................... 3
Consolidated Statements of Operations for the three
and nine months ended September 30, 1997 and 1996............... 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996........................ 5
Notes to Consolidated Financial Statements...................... 6
ITEM 2. Management's Discussion and Analysis or Plan of Operations....... 7
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K................................. 9
SIGNATURES................................................................ 9
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OPAL TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
------------------ -----------------
US$`000 US$`000
------------------ -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash $1,022 $ 835
Accounts receivable 2,427 537
Inventories 539 19
Due from related company/director 555 91
Prepayments, etc. 331 67
------------------ -----------------
Total current assets 4,874 1,549
Property, plant and equipment, net 10,550 8,788
Licensing costs, net 917 962
Goodwill, net 190 196
------------------ -----------------
Total assets $ 16,531 $ 11,495
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Accounts Payable 921 814
Accrued Expenses 393 188
------------------ -----------------
Total current liabilities 1,314 1,002
Loans from PRC joint venture - 122
Loans from parent company 74 7,044
------------------ -----------------
Total liabilities 1,388 8,168
------------------ -----------------
Minority interest 3,790 2,806
------------------ -----------------
Shareholder equity
Common stock; $0.001 par value; 49,000,000 shares authorized,
35,991,954 and 13,591,964 issued and outstanding shares respectively
Preferred stock, $0.001 par value; 1,000,000 shares authorized, 100,000 36 14
issued and outstanding shares - -
Additional paid-in capital 12,167 989
Cumulative translation adjustments (69) (49)
Retained earnings (781) (433)
------------------ -----------------
Total shareholders' equity 11,353 521
------------------ -----------------
Total liabilities and shareholders' equity $ 16,531 $ 11,495
================== =================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
3
<PAGE>
OPAL TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months For the nine months
ended ended
September 30, September 30,
----------------------------------- -----------------------------------
1997 1996 1997 1996
-------------- --------------- -------------- --------------
US$`000 US$`000 US$`000 US$`000
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Sales $932 $ 89 $2,870 $ 89
Cost of Goods Sold (733) (28) (1,950) (28)
-------------- --------------- -------------- --------------
Gross Profit 199 61 920 61
General and administrative expenses (796) (127) (1,239) (186)
Interest Income 4 - 4 -
-------------- --------------- -------------- --------------
Income/(Loss) before income taxes (593) (66) (315) (125)
Provision for income taxes - - - -
-------------- --------------- -------------- --------------
Income/(Loss) from continuing
operations (593) (66) (315) (125)
Loss from discontinuing operations - (57) - (223)
-------------- --------------- -------------- --------------
Income/(Loss) before minority interest (593) (123) (315) (348)
Minority interest 8 - (33) -
-------------- --------------- -------------- --------------
Net income/(loss) $(585) $(123) $(348) $(348)
============== =============== ============== ==============
Weighted Average Number of Shares
Outstanding 25,231,084 939,186 8,929,381 939,186
============== =============== ============== ==============
Net Income (Loss) Per Share $ (0.02) $ (0.13) $ (0.04) $ (0.37)
============== =============== ============== ==============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
4
<PAGE>
OPAL TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months ended
September 30,
-----------------------------------------------
1997 1996
-------------------- ---------------------
US$`000 US$`000
-------------------- ---------------------
<S> <C> <C>
Cash flow from operating activities
Net income/(loss) $ (315) $ (348)
Adjustments to reconcile net income to net cash provided by/(used
in) operating activities
Depreciation of property, machinery & equipment 41 4
Amortization of good will 6 23
Amortization of licensing costs 45 (906)
Minority interest (33) -
(Increase)/Decrease in operating assets
Inventories, net (187) (261)
Accounts receivable, net (1,890) 17
Prepayments, and other current assets (520) (40)
Due from related company (464) -
(Decrease)/Increase in operating liabilities - -
Accounts payable 107 (48)
Accrued expenses 206 76
-------------------- ---------------------
Net cash provided by/(used in) operating activities (3,004) (1,483)
-------------------- ---------------------
Cash flows from investing activities
Acquisition of property, machinery & equipment (1,803) (359)
Effect of translation adjustment (20) -
-------------------- ---------------------
Net cash provided by/(used in) investing activities (1,823) (359)
-------------------- ---------------------
Cash flows from financing activities
Minority interest capital injection 984 -
Issuance of common shares 5,700 -
Decrease in loans from related companies (1,593) 1,830
-------------------- ---------------------
Net cash provided by/(used in) financing activities 5,091 1,830
-------------------- ---------------------
Net increase/(decrease) in cash and bank deposits 264 (12)
Cash and bank deposits as of beginning of period 67 18
-------------------- ---------------------
Cash and bank deposits as of end of period $ 331 $ 6
==================== =====================
Supplemental disclosure of noncash financing activities:
Conversion of loans from parent company to common stock $ 7,600 -
==================== =====================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
5
<PAGE>
OPAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
1. INTERIM PRESENTATION
The interim financial statements were prepared pursuant to the requirements
for reporting on Form 10-QSB. The December 31, 1996 balance sheet data was
derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles. The
interim financial statements and notes thereto should be read in
conjunction with the financial statements and notes thereto included in the
Company's report on Form 10-KSB for the year ended December 31, 1996. In
the opinion of management, the interim financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of
the results for the interim periods presented.
2. ACQUISITION OF OPERATING BUSINESSES
The acquisition of Opal Agriculture Development Limited and Triple Star
Holding Limited by the Company on June 6, 1997 was treated as a
recapitalization of the acquired companies with the acquired entities
considered the acquirer (a reverse acquisition). Accordingly, the
historical consolidated financial statements of the Company prior to June
6, 1997 are those of the combined financial statements of two acquired
companies. The shareholders equity of the Company as of December 31, 1996
has been retroactively restated to reflect the one for ten reverse stock
split, the reauthorization of 50,000,000 shares of (49,000,000 common
shares and 1,000,000 preferred shares) and the issuance of Series A
preferred stock. The Series A preferred stock has a vote on all corporate
matters equal to thirty percent of the total vote, is not subject to
redemption and has a liquidation preference of $.001 per share.
3. SALE OF COMMON STOCK
On July 1, 1997 the Company sold 11,400,000 shares of common stock for
$5,700,000. These shares were sold purusant to Regulation S of the
Securities Act of 1933, as amended.
4. CONVERSION OF PARENT LOANS TO EQUITY
On July 1, 1997 and September 29, 1997 the Company capitalized loans and
advances from the parent company of $2,100,000 and $5,500,000 for 4,200,000
shares of common stock and 11,000,000 shares of common stock, respectively.
5. MINORITY INTEREST
The minority interest reflects the 45% interest held by a non-related party
in Beijing Opal Agriculture Biochemistry, Co. Ltd., a PRC joint-venture
engaged in the manufactur and production of organic agricultural
fertilizer.
6
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
Material Changes in Results of Operations
In June of 1997, the Company acquired the operations of OpalAgriculture
Development Limited ("OAD") and Triple Star Holding Limited ("Triple Star").
Prior to the acquisition of OAD and Triple Star, the Company had no operations.
OAD and Triple Star are engaged in the production and sale of fertilizer in the
People's Republic of China and had limited operations during 1996. The financial
statements of the Company and the following discussion includes the operations
of OAD and Triple Star for all periods presented.
Three Months Ended September 30, 1997 Compared to the Three Months Ended
September 30, 1996.
Net Sales. Net sales for the three months ended September 30, 1997 increased by
$843,000 to $932,000 from $89,000 for the three months ended September 30, 1996.
This increase is the result of the Company beginning the commercial production
and sale of fertilizer.
Gross Profits. Gross profits for the three months ended September 30, 1997
increased by $138,000 to $199,000 from $61,000 for the three months ended
September 30, 1996. This increase is the result of the Company beginning the
commercial production and sale of fertilizer.
General and Administrative Expenses. General and administrative expenses for the
three months ended September 30, 1997 increased by $669,000 or 626.77% to
$796,000 from $127,000 for the three months ended September 30, 1996. This
increase resulted mainly from a management fee of $530,000 charged by the parent
company in the quarterly period ended September 30, 1997.
Net Loss. The net loss for the three months ended September 30, 1997 increased
by $462,000 to $593,000 from $123,000 for the three months ended September 30,
1996. This increase is primarily attributable to a management fee of $530,000
charged by the parent company in the period ended September 30, 1997.
Nine Months Ended September 30, 1997 Compared to the Nine Months Ended September
30, 1996.
Net Sales. Net sales for the nine months ended September 30, 1997 increased by
$2,781,000 to $2,870,000 from $89,000 for the nine months ended September 30,
1996. This increase is the result of the Company beginning the commercial
production and sale of fertilizer.
Gross Profit. Gross profits for the nine months ended September 30, 1997
increased by $859,000 to $920,000 from $61,000 for the nine months ended
September 30, 1996. This increase is the result of the Company beginning the
commercial production and sale of fertilizer.
General and Administrative Expenses. General and administrative expenses for the
nine months ended September 30, 1997 increased by $1,053,000 or 566.13% to
$1,239,000 from $186,000. This increase resulted from the Company staffing its
operations to begin the commercial production and sale of fertilizer and from a
management fee of $530,000 charged by the parent company.
7
<PAGE>
Net Loss. The net loss for the nine months ended September 30, 1997 was
$348,000, identical with that for the nine months ended September 30, 1996. The
loss for the nine months ended September 30, 1997 was due to the expenses
incurred by the subsidiaries for the production and sales of fertilizer and the
management fee charged by the parent company. The loss for the corresponding
period of 1996 was the result of a trading loss of $125,000 and the loss of
$233,000 from discontinued operations.
Changes in Financial Condition, Liquidity and Capital Resources.
For the past twelve months, the Company has funded its operations and
capital requirements with loans from the parent company and the sale of common
stock. As of September 30, 1997, the Company had cash of $1,022,000 and working
capital of $3,560,000 as compared to a cash balance of $835,000 and working
capital of $547,000 at December 31, 1996.
Net cash used in operating activities increased to $3,004,000 from
$1,483,000 for the nine months ended September 30, 1997 and 1996, respectively.
This increase resulted from the loss for the period, increases in accounts
receivable inventories and other operating assets acquired in connection with
the commencement of commercial fertilizer operations and was partially offset by
an increase in accounts payable and accrued expenses.
Net cash used in investing activities increased to $1,823,000 from
$359,000 for the nine months ended September 30, 1997 and 1996 respectively.
This increase resulted from the acquisition of machinery and equipment to
support commercial fertilizer operations.
Net cash provided by financing activities increased to $5,091,000 from
$1,830,000 for the nine months ended September 30, 1997 and 1996, respectively.
This increase is attributable to the issuance of common shares for $5,700,000
and the injection of capital by the minority interest ($984,000), which was
partially offset by the repayment of debt to the parent company.
At September 30, 1997, the Company had long-term debt of $74,000 all
payable to the parent company.
On July 1, 1997 the Company issued 11,400,000 shares of common stock for
$5,700,000 and 4,200,000 shares of common stock for the cancellation of a
promisorry note of $2,100,000. On September 29, 1997, an additional $5,500,000
of the loan from the parent company was capitalized in exchange for 11,000,000
shares of common stock. These funds have been used for working capital and the
acquisition of additional property, plant and equipment. With the capitalization
of the loan from its parent and the funds from the sale of shares, the Company
believes it has sufficient working capital for the next twelve months.
On August 8, a new production facility in Beijing under the management
of the Company's Beijing joint-venture subsidiary was commissioned. The
Joint-venture is also constructing an additional production facility in Beijing.
It is expected that this new facility will be completed by the end of calendar
year 1997, and have a production capacity of approximately 75,000 metric tons of
organic fertilizer granules. The Company has minimal remaining funding
obligations for this new production facility.
8
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
1. Form 8-K of the Company dated July 1, 1997 reporting under Item 9
the sale of shares pursuant to Regulation S.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
OPAL TECHNOLOGIES, INC.
Date: November 18, 1997 By: /s/ John K. C. Koon
--------------------------------------
John K. C. Koon
President and Chief Executive Officer
Dated: November 18, 1997 By: /s/ Kenneth Poon
--------------------------------------
Kenneth Poon
Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,022
<SECURITIES> 0
<RECEIVABLES> 2,427
<ALLOWANCES> 0
<INVENTORY> 539
<CURRENT-ASSETS> 4,874
<PP&E> 10,550
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,531
<CURRENT-LIABILITIES> 1,314
<BONDS> 0
0
0
<COMMON> 36
<OTHER-SE> 11,317
<TOTAL-LIABILITY-AND-EQUITY> 16,531
<SALES> 2,870
<TOTAL-REVENUES> 2,870
<CGS> 1,950
<TOTAL-COSTS> 1,950
<OTHER-EXPENSES> 1,239
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (315)
<INCOME-TAX> 0
<INCOME-CONTINUING> (348)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (348)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
