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, 1998
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.
-----------------------------------------------------------------
(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
--------------------------------------------------------------
(Address of principal executive offices)
852-2541-1999
---------------------------
(Issuer's telephone number)
N/A
---------------------------------------------------
(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
---- ----
As of November 15, 1998, 35,991,964 shares of Common Stock of the issuer
were outstanding.
<PAGE>
OPAL TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
Page
------
PART I - FINANCIAL INFORMATION
ITEM 1 . Financial Statements
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997................................................ 3
Consolidated Statements of Operations-for the three months
and nine months ended September 30, 1998 and 1997................ 4
Consolidated Statements of Cash Flows-for the three months
and nine months ended September 30, 1998 and 1997................ 5
Notes to Consolidated Financial Statements....................... 6
ITEM 2. Management's Discussion and Analysis or Plan of Operations.... 7
PART II - OTHER INFORMATION............................................ 9
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OPAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
September 30, 1998 December 31, 1997
------------------- ------------------
US$'000 US$'000
(Unaudited)
------------------- ------------------
<S> <C> <C>
ASSETS
Current assets 90 1,453
Cash and bank deposits 2,891 2,590
Accounts receivable, net - 412
Due from a shareholder - 2
Due from a director -
Due from a related company 240 26
Prepayments and other current assets 1,009 642
Inventories, net
---------------- -----------------
Total current assets 4,230 5,125
Property, machinery and equipment, net 9,744 2,123
Construction-in-progress 6,570 11,626
Licensing costs, net 868 907
Goodwill, net 178 186
---------------- -----------------
Total assets 21,590 19,967
================ =================
LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS' EQUITY
================ =================
Current liabilities:
Short-term borrowings 1,946 1,239
Accounts payable 797 625
Accrued liabilities 85 201
Taxation payable 38 38
---------------- -----------------
Total current liabilities 2,866 2,103
Non-current payable 2,700 2,877
Loans from PRC joint venture partner 678 639
Loans from a shareholder 1,384
---------------- -----------------
Total liabilities 7,628 5,619
---------------- -----------------
Minority interests 2,591 2,649
---------------- -----------------
Shareholders' equity:
Common stock, par value US$0.001:
- authorized - 49,000,000 shares as of December 31, 1997 and
September 30, 1998
- outstanding and fully paid - 35,991,964 shares as of December 31, 36 36
1997 and September 30, 1998
Preferred stock, par value US$0.001:
- authorized - 1,000,000 shares as of December 31, 1997 and
September 30, 1998
- outstanding and fully paid - 100,000 shares of December 31, 1997 -
and September 30, 1998
Additional paid in capital 12,213 12,213
Accumulated losses (855) (506)
Cumulative translation adjustments (23) (44)
---------------- -----------------
Total shareholders' equity 11,371 11,699
---------------- -----------------
Total liabilities, minority interest and shareholders' equity 21,590 19,967
================ =================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
3
<PAGE>
OPAL TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
For the three months ended For the nine months ended
September 30 September 30
------------------------------------ -----------------------------------
1998 1997 1998 1997
-------------- ---------------- -------------- ---------------
US$'000 US$'000 US$'000 US$'000
-------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales 31 932 847 2,870
Cost of goods sold (10) (733) (417) (1,950)
-------------- ---------------- -------------- ---------------
Gross profit 21 199 430 920
Selling, general and administrative expenses (250) (795) (717) (1,239)
Interest expenses, net (41) 3 (120) 4
-------------- ---------------- -------------- ---------------
Loss before income taxes (270) (593) (407) (315)
Provision for income taxes - - - -
-------------- ---------------- -------------- ---------------
Profit / (loss) before minority interests (270) (593) (407) (315)
Minority interest 43 8 58 (33)
-------------- ---------------- -------------- ---------------
Net income / (loss) (227) (585) (349) (348)
============== ================ ============== ===============
Weighted Average Number of Shares Outstanding 35,991,964 25,231,084 35,991,964 8,929,381
============== ================ ============== ===============
Loss per common share (0.01) (0.02) (0.01) (0.04)
============== ================ ============== ===============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
4
<PAGE>
OPAL TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the nine months ended
September 30,
-----------------------------
1998 1997
------------- -----------
US$`000 US$`000
------------- -----------
<S> <C> <C>
Cash flow from operating activities
Net income/(losses) (349) (348)
Adjustments to reconcile net income /(loss) to net cash provided by /
(used in) operating activities -
Depreciation of property, machinery & equipment 120 42
Amortization of good will 8 6
Amortization of licensing costs 40 45
Minority interest (58) 33
(Increase)/Decrease in operating assets -
Accounts receivable, net (301) (1,891)
Prepayments, and other current assets (214) (520)
Inventories, net (367) (188)
Increase /(Decrease) in operating liabilities -
Accounts payables 172 108
Accrued liabilities (116) 205
Taxation payable - -
Non-current payable (177) -
------------ ------------
Net cash provided by/(used in) operating activities (1,242) (2,508)
------------ ------------
Cash flows from investing activities
Acquisition of property, machinery & equipment (2,686) (1,803)
(Advance to) Repayment from a shareholder 412 -
(Advance to) Repayment from a director 2 1
(Advance to) Repayment from a related company - (465)
------------ ------------
Net cash provided by/(used in) investing activities (2,272) (2,267)
------------ ------------
Cash flows from financing activities
Issuance of common shares - 5,700
New loans from a shareholder 1,384 (1,470)
New loans from PRC joint venture partner 39 828
Net short-term bank loan 592 -
Other loans 115 -
------------ ------------
Net cash provided by/(used in) financing activities 2,130 5,058
------------ ------------
Effect of cumulative translation adjustments 21 (19)
------------ ------------
Net increase / (decrease) in cash and bank deposits (1,363) 264
Cash and bank deposits, as of beginning of period 1,453 67
------------ ------------
Cash and bank deposits, as of end of period 90 331
============ ============
</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, 1997 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, 1997. 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. 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 manufacture and production of organic agricultural
fertilizer.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
This release contains forward looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company's actual results could differ
materially from those set forth on the forward looking statements as a result of
the risks set forth in a Company's filings with the Securities and Exchange
Commission in general economic conditions and changes in the assumptions used in
making such forward looking statements.
Material Changes in Results of Operations
Three Months Ended September 30, 1998 Compared to the Three Months Ended
September 30, 1997
Net Sales. Net sales for the three months ended September 30, 1998 decreased by
US$901,000 or 96.7% to US$31,000 from US$932,000 for the three months ended
September 30, 1997. This decrease was primarily due to the devastating Yangtze
River floods in China, which virtually wiped out agriculture in the Company's
market and reduced the demand for fertilizers. The Company expects demand to
increase substantially in the fourth quarter as the waters recede.
Gross Profit. Gross profit for the three months ended September 30, 1998
decreased by US$178,000 or 89.4% to US$21,000 from US$199,000 for the same
period last year. This decrease is attributable to reduced sales volume. Gross
profit as a percent of sales was 67.7% for the three months ended September 30,
1998 compared to 21.4% for the corresponding period of the prior year. This
increase in gross profit percentage is attributable to the replacement of the
old foliar pilot production line used during the first seven months of 1997 by a
new modern foliar production line in August 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 30, 1998 decreased
by US$545,000 or 68.6% to US$250,000 from US$795,000 for the corresponding
period of the prior year. This decrease resulted from the decline in sales which
forced a cut back in the Company's level of operations.
Interest Expense, Net. Interest expense, net for the three months ended
September 30, 1998 increased by US$38,000 or 1267% to US$41,000 from US$3,000
for the corresponding period of the prior year. This increase in interest
expense reflects increased borrowings by the Company.
Net Loss. The net loss for the three months ended September 30, 1998 was
US$227,000 compared with a net loss of US$585,000 for the corresponding period
of the prior year. The decrease in net loss is attributable to reduced selling,
general administrative expenses which was partially offset by reduced gross
profits.
Nine Months Ended September 30, 1998 Compared to the Nine Months Ended September
30, 1997.
Net Sales. Net sales for the nine months ended September 30, 1998 decreased by
US$2,023,000 or 70.5% to US$847,000 from US$2,870,00 for the nine months ended
September 30, 1997. This decrease was primarily due to the Yangtze River floods
in China.
Gross Profits. Gross profits for the nine months ended September 30, 1998
decreased by US$490,000 or 53% to US$430,000 from US$920,000 for the
corresponding period of the prior year. This decrease is attributable to reduced
sales volume. Gross profit as a percent of sales was 50.8% for the nine months
ended September 30, 1998 compared to 32.1% for the corresponding period of the
prior year. This increase in gross profit is attributable to the replacement of
the old foliar pilot production line used during the first seven months of 1997
by the new modern foliar production line installed in August 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1998 decreased
by US$522,000 or 42% to US$717,000 from US$1,239,000 for the corresponding
period of the prior year. This decrease resulted from the decline in sales which
forced a cut back in the Company's level of operations.
Interest Expense, Net. Interest expense, net for the nine months ended September
30, 1998 increased to $120,000 from net interest income of $4,000 for the
corresponding period of the prior year. This increase in interest expense
reflects increased borrowings by the Company.
Net Loss. The net loss for the nine months ended September 30, 1998 was
US$349,000 compared with net loss of US$348,000 for the corresponding period of
the prior year. The loss for the nine months ended September 30, 1998 was due to
lower sales volume and higher interest expense, which was partially offset by
the reduction in selling, general and administrative expenses, and a much higher
gross profit margin.
7
<PAGE>
Changes in Financial Condition, Liquidity and Capital Resources
For the past twelve months, the Company has funded its operating and
capital requirements with loans from the parent company and its PRC
joint-venture partner and bank loan. As of September 30, 1998, the Company had
cash of US$90,000 and working capital of US$1,364,000. This compares with cash
of US$331,000 and working capital of US$3,560,000 as of September 30, 1997.
Net cash used in operating activities decreased to US$1,242,000 for the
nine months ended September 30, 1998 from US$2,508,000 for the nine months ended
September 30, 1997. This decrease resulted from an increase in account
receivable, other assets and inventories and a decrease in accrued liabilities
and non-current payables.
Net cash used in investing activities increased to US$2,272,000 for the
nine months ended September 30, 1998 from US$2,267,000 for the corresponding
period of the prior year. While the Company had an increase of US$883,000 for
the acquisition of property machinery and equipment, it was substantially offset
by the repayment of a shareholder loan and the absence of any advances to
related company. This increase is primarily due to additional expenditures for
the acquisition of machinery and equipment.
Cash flows from financing activities decreased to US$2,130,000 for the nine
months ended September 30, 1998 for US$5,058,000 for the corresponding period of
the prior year. The decrease is attributable to the absence of share sales and
loans from joint venture partners which were partially offset by loans from
shareholders, bank loans and other loans.
The new organic granular fertilizer line has been installed and completed
at the Company's Beijing facility. The Company will complete the testing of the
line in November and will begin trial production in December. The Company hopes
to begin commercial shipments in January 1999.
The annual production of the new organic granular fertilizer line is
approximately 75,000 metric tons which at current prices represents a sales of
US$18 million and should produce gross profit margins of 30%. 30,000 metric tons
of this production have been allocated to a Taiwanese customer and the balance
for the domestic market.
To provide the working capital to operate the new organic granular
fertilizer line, the Company will be required to immediately place additional
equity, develop additional lending sources or collect on its outstanding
receivable. Without the availability of such sources of funds, the Company will
be unable to begin commercial production. While the Company is currently
negotiating with several banks in the PRC for funding, there is no assurance
that such funding will be forthcoming, or if forthcoming will be in sufficient
amount for the Company to execute its business plan.
Year 2000 Disclosure
In the opinion of management, the Company does not believe that year 2000
issues will have a material impact on the Company's business, results of
operations or financial condition.
8
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
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 19, 1998 By: /s/ John K. C. Koon
---------------------------
John K. C. Koon
President and Chief Executive Officer
Dated: November 19, 1998 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-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 90
<SECURITIES> 0
<RECEIVABLES> 2,891
<ALLOWANCES> 0
<INVENTORY> 1,009
<CURRENT-ASSETS> 4,230
<PP&E> 16,314
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,590
<CURRENT-LIABILITIES> 2,866
<BONDS> 4,762
0
0
<COMMON> 36
<OTHER-SE> 11,335
<TOTAL-LIABILITY-AND-EQUITY> 21,590
<SALES> 847
<TOTAL-REVENUES> 847
<CGS> 417
<TOTAL-COSTS> 417
<OTHER-EXPENSES> 717
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120
<INCOME-PRETAX> (407)
<INCOME-TAX> 58
<INCOME-CONTINUING> (349)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (349)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
