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, 2000
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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Unit 2810, 28/F, Shun Tak Centre, West Tower, 200 Connaught Road
Central, Hong Kong
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(Address of principal executive offices)
(852) 2517-7674
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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
As of November 1, 2000, 67,241,964 shares of Common Stock of the issuer
were outstanding.
<PAGE>
OPAL TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
Page
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PART I - FINANCIAL INFORMATION
ITEM 1 . Financial Statements
Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999................................................. 3
Consolidated Statements of Operations-for the three months
and nine months ended September 30, 2000 and 1999................. 4
Consolidated Statements of Cash Flows- for the nine months ended
September 30, 2000 and 1999....................................... 5
Notes to Consolidated Financial Statements........................ 6
ITEM 2. Management's Discussion and Analysis or Plan of Operations........ 7
PART II - OTHER INFORMATION................................................ 9
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OPAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, December 31,
2000 1999
------------- -------------
US$'000 US$'000
------------- -------------
ASSETS
Current assets
Cash and bank deposits 8,042 19
Accounts receivable, net 91 285
Due from a director 0 1
Prepayments and other current 74 169
assets
Inventories, net 986 954
------------ -------------
Total current assets 9,193 1,428
Property, machinery and
equipment, net 7,981 8,045
Construction-in-progress 10,837 9,170
Licensing costs, net 763 803
Goodwill, net 159 166
Investment 4,882 4,882
------------ -------------
Total assets 33,815 24,494
============ =============
LIABILITIES, MINORITY INTERESTS AND
SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings 6,687 870
Accounts payable 2,785 4,475
Accrued liabilities 377 584
Due to a director 7 7
Due to a related company - 84
Taxation payable 38 38
------------ -------------
Total current liabilities 9,894 6,058
Convertible bond 10,000 -
Long-term borrowings - 2,053
Loan from PRC joint 686 686
venture partner
Loan from shareholder 1,766 2,908
------------ -------------
Total liabilities 22,346 11,705
------------ -------------
Minority interests 1,681 1,955
------------ -------------
Shareholders' equity:
Common stock, par value US$0.001:
-authorized - 100,000,000 shares as of
December 31, 1999 and September 30, 2000
-outstanding and fully paid - 60,991,964
shares as of December 31, 1999 and
67,241,964 shares as of September 30, 2000 67 61
Preferred stock, par value
US$0.001:
-authorized - 25,000,000 shares as of
December 31, 1999 and September 30, 2000
-outstanding and fully paid-100,000 shares
of December 31, 1999 and September 30, 2000 0 0
Additional paid in capital 17,775 17,281
Accumulated losses (8,015) (6,475)
Cumulative translation adjustments (39) (33)
------------ -------------
Total shareholders' equity 9,788 10,834
============ =============
Total liabilities,
minority interest and shareholders' 33,815 24,494
equity ============ =============
See Notes to Unaudited Consolidated Financial Statements
3
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OPAL TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
For the three For the nine
months ended months ended
September 30 September 30
-------------------------- -------------------------
2000 1999 2000 1999
US$'000 US$'000 US$'000 US$'000
-------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales 0 54 57 268
Cost of goods sold 0 (26) (37) (171)
-------- -------------- -------------- ------------
Gross profit 0 28 20 97
Selling, general and administrative 449 345 1,519 1,161
expenses 134 51 315 167
Interest expenses, net 0 0 0 0
Other expenses, net -------- -------------- -------------- ------------
Profit/(loss) before income taxes (583) (368) (1,814) (1,231)
Provision for income taxes 0 0 0 0
-------- -------------- -------------- ------------
Profit / (loss) before minority interests (583) (368) (1,814) (1,231)
Minority interest 93 67 274 218
-------- -------------- -------------- ------------
Net income / (loss) (490) (301) (1,540) (1,013)
======== ============== ============== ============
Profit/(loss) per common share 0 0 0 0
======== ============== ============== ============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
4
<PAGE>
OPAL TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the nine months ended
September 30,
------------------------------------
2000 1999
---------- ------------
US$`000 US$`000
----------- ------------
<S> <C> <C>
Cash flow from operating activities
Net income/(losses) (1,540) (1,013)
Adjustments to reconcile net income /(loss) to net cash
provided by / (used in) operating activities -
Depreciation of property, machinery & equipment 188 76
Amortization of good will 40 40
Amortization of licensing costs 7 8
Minority interest 4 0
(Increase)/Decrease in operating assets -
Accounts receivable, net (274) (219)
Prepayments, and other current assets 194 (30)
Inventories, net 95 (29)
Increase /(Decrease) in operating liabilities - (32) (121)
Accounts payables (1,690) (363)
Accrued liabilities (207) 108
Taxation payable 0 0
------------ ------------
Net cash provided by/(used in) operating activities (3,215) (1,543)
------------ ------------
Cash flows from (used in) investing activities
Acquisition of property, machinery & equipment (1,799) (17)
Proceeds from disposals of fixed assets 4 0
(Advance to) Repayment from a shareholder 0 0
(Advance to) Repayment from a director 1 10
(Advance to) Repayment from a related company (84) 5
----------- ------------
Net cash used in investing activities (1,878) (2)
------------ ------------
Cash flows from financing activities
Issuance of common stock 500 0
Issuance of convertible bond 10,000 0
Short-term bank loan 3,764 603
Other loans 0 (63)
Loans from PRC joint venture partner 0 0
Repayment of loans to a shareholder (1,142) 648
------------ ------------
Net cash provided by/(used in) financing activities
13,122 1,188
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Effect of cumulative translation adjustments (6) 0
------------ ------------
Net increase / (decrease) in cash and bank deposits 8,023 (357)
Cash and bank deposits, as of beginning of period 19 384
------------ ------------
Cash and bank deposits, as of end of period 8,042 27
============ ============
</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, 1999 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, 1999. 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. 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 report 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 Sep 30, 2000 Compared to the Three Months Ended Sep 30, 1999.
Net Sales. The Company reported no sales for the three months ended September
30, 2000, compared to $26,000 in sales for the corresponding period of the prior
year. This decrease resulted because the Company shut down the Beijing facility
to make the modifications necessary and put in the required additions to make
the facility capable of full production. Because of the historic lack of working
capital, numerous problems developed which made production difficult. With the
injection of capital, these problems are being addressed so that production can
begin before the end of the calendar year. Under new management, sales personnel
have also been asked to establish an accurate account of all prior sales with a
view to recovering receivables which were previously written off, or seek return
of the goods sold, as well as prepare to market the Company's products when the
Beijing facility resumes operation.
Gross Profits. Because there were no sales, the Company produced no gross
profits for the quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 30, 2000 increased
by US$104,000 or 30.1% to US$449,000 from US$345,000 for the corresponding
period of the prior year. The increase is primarily attributable to the
unusually low figure reported for the corresponding period of the prior year.
When compared to the prior quarter ended June 30, 2000, the selling, general and
administrative expenses have declined by approximately 10% from US$498,000. This
decline reflects the on going cost control efforts of management.
Interest Expense, Net. Interest expense, net for the three months ended
September 30, 2000 increased by US$82,000 or 162.7% to US$134,000 from US$51,000
for the corresponding period of the prior year. This increase in interest
expense reflects increased borrowings by the Company for expenditures at our
Beijing factory in preparation for the commencement of production of granule
fertilizer by the year-end. While the Company has been able to raise sufficient
working capital through the issuance of convertible notes, the monies so raised
cannot be used to fund our Beijing Joint Venture until the Foreign Exchange
Control Office of China approves our application for an increase in share
capital. Until the necessary approval is granted, our Beijing Joint Venture will
continue borrowing in Reminbi using our US dollar deposit as collateral to
discharge its expenses, thus resulting in heavy net interest expense due to the
spread between the low US dollar deposit rate and relatively higher Reminbi
borrowing rate. Once the necessary approval for capital increase is obtained,
the Company will be able to save on interest expense in the coming quarters.
Net Loss. The net loss after accounting for the minority interest for the three
months ended September 30, 2000 was US$490,000 compared with net loss of
US$301,000 for the corresponding period of the prior year. Comparison to prior
year figure is not meaningful as the Company did not generate any sales for the
current quarter. However, when compared to the previous quarter, the Company
reduced the net loss by 3% because of reductions in general expenditures.
7
<PAGE>
Nine Months Ended September 30, 2000 Compared to the Nine Months Ended September
30, 1999.
Net Sales. Net sales for the nine months ended September 30, 2000 decreased by
US$211,000 or 78.7% to US$57,000 from US$268,000 for the nine months ended
September 30, 2000. This decrease is attributable to a decrease in the sales of
liquid fertilizer because of a lack of working capital as well as a lack of
sales for the quarter ended September 30, 2000.
Gross Profits. Gross profits for the nine months ended September 30, 2000
decreased by US$77,000 or 79.4% to US$20,000 from US$97,000 for the same period
last year. This decrease is attributable to a lack of sales in the quarter ended
September 30, 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 2000 increased
by US$358,000 or 30.8% to US$1,519,000 from US$1,161,000 for the corresponding
period of the prior year. A substantial portion of the increase is attributable
to non-recurring expenditures incurred by the Company during March, 2000. These
expenditures relate to our sales office in Shanghai which were not provided for
in the corresponding period of the prior year.
Interest Expense, Net. Interest expense, net for the nine months ended September
30, 2000 increased by US$148,000 or 88.6% to US$315,000 from US$167,000 for the
corresponding period of the prior year. This increase in interest expense
reflects increased borrowings by the Company to fund expenditures at the Beijing
facility prior to the approval of an increase in authorized capital as well as
interest accrued on the convertible notes.
Net Loss. The net loss after accounting for the minority interest for the nine
months ended September 30, 2000 was US$1,814,000 compared with net loss of
US$1,213,000 for the corresponding period of the prior year. The increase in the
net loss is attributable to reduced sales, higher selling, general and
administrative expenses and increased interest charges.
In reporting the results for the quarterly period ended June 30, 2000, the
Company stated that it might be necessary to write-down, or write-off some of
its assets after receiving a report from Moores Rowland, an independent
accounting firm hired by the new management to review the Company's operations.
As a result of this report, the Company has conducted extensive negotiations
with the former Chief Executive Officer of the Company to resolve issues raised
by the Moores Rowland reports. As a result of these negotiations, on September
29, 2000, the Company signed a Memorandum of Understanding with the controlling
shareholder of the Company and other related parties involved. The spirit of the
Memorandum of Understanding permits the Company to recover from the controlling
shareholder and other related parties, assets whose validity was questioned by
the Moores Rowland report. An announcement containing the terms of the
Settlement Deed was issued on November 2, 2000.
Pursuant to the terms of the Memorandum of Understanding, a formal
Settlement Deedwas executed which provides for the repayment to the Company of
$5.87 million dollars and the recision of the China Can Holdings, Inc.
transaction. The $5.87 million is being repaid by the cancellation of a $1.67
million dollar payable to a shareholder, the transfer of a fertilizer production
facility located in Guizhou Province valued at $1.79 million and the
cancellation of 4.83 million shares of the Company's common stock previously
issued to the Bestalong Group, Inc. The China Can Holdings, Inc. transaction is
being recinded by the return of the five (5) million shares of China Can
Holdings, Inc. in exchange for the twenty-five (25) million shares of Opal
Technologies,Inc. All of the shares of the Company common stock being returned
to the treasury will be cancelled. This will reduce the issued and outstanding
shares from 67,241,964 to 37,405,428 or a reduction of 44.3%.
8
<PAGE>
New management has discovered that there are more problems with the Beijing
Joint Venture than it had previously anticipated. However, significant resources
both in personnel and capital have been dedicated to correcting the problems in
Beijing. Because of this management still believes that it will be able to
commence production of granules by the end of December, 2000.
Changes in Financial Condition, Liquidity and Capital Resources
For the past nine months, the Company has funded its operations and capital
requirements with temporary bank borrowings secured by US dollars deposits
raised through the issuance of the convertible notes. As of September 30, 2000,
the Company had cash of US$8,042,000 and a working capital deficit of $701,000.
This compares with cash of US$19,000 and a working capital deficit of $6,499,000
as of December 31, 1999.
Net cash used in operating activities increased to US$3,215,000 for the nine
months ended September 30, 2000 from US$1,543,000 for the nine months ended
September 30, 1999. This increase resulted from an increase in the net operating
loss and a decrease in operating liabilities which were partially offset by an
increase in depreciation and a decrease in operating assets.
Net cash provided by investing activities increased to US$1,878,000 for the nine
months ended September 30, 2000 from US$2,000 used in investing activities for
the nine months ended September 30, 1999. This increase in cash flows used in
investing activities is attributable to increased expenditures for machinery and
equipment as well as an increase in advances to a related company.
Net cash provided by financing activities increased to US$13,122,000 for the
nine months ended September 30, 2000 from US$1,188,000 for the nine months ended
September 30, 1999. This increase is principally attributable to the
US$10,000,000 received from the issuance of a convertible bond and the
US$3,764,000 from other short-term borrowings which were partially offset by the
partial repayment of a shareholder loan.
With the proceeds from the convertible bond and the other short-term borrowings,
the Company believes that is has sufficient resources to fund its operations and
execute its current business plan.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Settlement Deed by and between Opal Technologies, Inc., Bestalong
Group, Inc., Bestalong, Inc. and Koon King Chung, John
27.1 Financial Data Schedule
(b) Reports on Form 8-K
9
<PAGE>
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 ___, 2000 By: /s/ Eric Cheng
-----------------------------
Eric Cheng
President and Chief Executive Officer
Dated: November ___, 2000 By: /s/ Au Wah Edmond
-------------------------------
Au Wah Edmond
Chief Financial Officer
10
