UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
Commission file number 0-24624
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
(Exact name of registrant as specified in its charter.)
NEW YORK 13-3097642
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7201 Wisconsin Avenue, Bethesda, MD 20814
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code:
(301) 215-7777
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 practical
date:
The number of shares outstanding of each of the issuer's classes of common
equity, as of August 10, 1996, was 1,840,000 shares of Common Stock and
2,000,000 of Common Stock Class B.
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PART I. - FINANCIAL INFORMATION
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
June 30, December 31,
1996 1995
___________ ____________
<S> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents $ 4,768,000 $ 3,599,000
Accounts receivable, less allowance 5,174,000 3,725,000
Commissions receivable 307,000 962,000
Inventories 1,600,000 1,215,000
Current portion-long term
accounts receivable 2,370,000 2,396,000
Other current assets 907,000 690,000
__________ __________
Total current assets 15,126,000 12,587,000
Plant, property & equipment 442,000 406,000
Accounts receivable, long term 2,727,000 2,348,000
Other 141,000 93,000
__________ __________
Total assets $ 18,436,000 $15,434,000
=========== ===========
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<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 5,500,000 $ 4,139,000
Accrued contract training 872,000 683,000
Current portion-long term accounts payable 646,000 984,000
Income taxes payable 672,000 186,000
__________ __________
Total current liabilities 7,690,000 5,992,000
Long term accounts payable, net 1,364,000 933,000
_________ _________
Total liabilities 9,054,000 6,925,000
Shareholders' equity:
Preferred stock, $.01 par value:
Authorized - 5,000,000 shares,
none issued
Common stock, $.01 par value
Authorized - 20,000,000 shares
(including 2,000,000 designated class B);
Common stock - 1,840,000 shares issued
and outstanding 18,000 18,000
Common stock-Class B - 2,000,000 shares
issued and outstanding 20,000 20,000
Additional paid in capital 7,477,000 7,477,000
Foreign currency equity translation
adjustment (8,000) (8,000)
Retained earnings 1,875,000 1,002,000
__________ __________
Total shareholders' equity 9,382,000 8,509,000
__________ __________
Total liabilities and shareholders' equity $18,436,000 $15,434,000
=========== ===========
<FN>
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<TABLE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Sales $8,918,000 $1,615,000 $12,578,000 $4,425,000
Cost of goods sold 5,853,000 1,254,000 8,497,000 3,469,000
_________ _________ __________ _________
Gross profit on sales 3,065,000 361,000 4,081,000 956,000
Net commission income 138,000 256,000 304,000 561,000
_________ _________ __________ _________
Total gross profit on sales
and net commission income 3,203,000 617,000 4,385,000 1,517,000
Selling, general and administrative
Salaries and payroll taxes 898,000 631,000 1,593,000 1,244,000
Travel and entertainment 403,000 353,000 623,000 639,000
Other 729,000 634,000 1,303,000 1,059,000
_________ _________ __________ _________
1,173,000 (1,001,000) 866,000 (1,425,000)
Other Income and Expenses
Interest Expense (2,000) (19,000) (7,000) (41,000)
Interest Income 89,000 124,000 195,000 241,000
Miscellaneous Income 208,000 1,000 344,000 3,000
_________ _________ __________ _________
Total Other Income/Expenses 293,000 106,000 532,000 203,000
Income/(loss) before provision
for taxes 1,468,000 (895,000) 1,398,000 (1,222,000)
(Provision)/benefit for income taxes (550,000) 317,000 (525,000) 432,000
_________ _________ __________ _________
Net income/(loss) $ 918,000 $ (578,000) $ 873,000 $ (790,000)
========== ========== =========== ==========
Income/(loss) per share $ 0.27 $ (0.17) $ 0.26 $ (0.23)
========== ========== =========== ==========
Weighted average shares outstanding 3,390,000 3,390,000 3,390,000 3,390,000
========== ========== =========== ==========
<FN>
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<TABLE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six months ended June 30,
1996 1995
<S> <C> <C>
Operating activities
Net income/(loss) $ 873,000 $ (790,000)
Adjustments to reconcile net income/(loss)
to net cash used in operating activities:
Depreciation & amortization 65,000 74,000
Provision for doubtful accounts 10,000 10,000
Provision for deferred taxes 0 (22,000)
Inventory write-down 61,000 42,000
Changes in operating assets and liabilities:
Accounts receivable (1,812,000) (92,000)
Commissions receivable 655,000 421,000
Inventories (446,000) (292,000)
Other current assets (217,000) (21,000)
Other assets (48,000) 73,000
Accounts payable and accrued expenses 1,643,000 (104,000)
Income taxes payable 486,000 (442,000)
_________ _________
Net cash used in operating activities 1,270,000 (1,143,000)
Investing activities
Interest from investment security 0 (70,000)
Purchase of property and equipment (101,000) (38,000)
_________ _________
Net cash used in investing activities (101,000) (108,000)
Effect of foreign exchange rate changes
on cash and cash equivalents 0 (9,000)
_________ _________
Net increase/(decrease) in cash and
cash equivalents 1,169,000 (1,260,000)
Cash and cash equivalents at beginning of
period 3,599,000 3,139,000
_________ _________
Cash and cash equivalents at end of period $4,768,000 $1,879,000
========== ==========
<FN>
</TABLE>
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U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
Note 1. Statement of Information Furnished
The accompanying unaudited consolidated financial statements have
been prepared in accordance with form 10-QSB instructions and in the opinion
of management contain all adjustments and normal or recurring accruals as
necessary to present fairly the financial position as June 30, 1996, the
results of operations for the quarter and six months ended June 30, 1996 and
1995 and the cash flows for the six months ended June 30, 1996 and 1995.
These results have been determined on the basis of generally accepted
accounting principles and practices applied consistently with those used in
the preparation of the Company's Form 10-KSB.
Certain information and footnote disclosure normally included in
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
the accompanying consolidated financial statements be read in conjunction
with the financial statements and notes thereto incorporated in the
Company's Form 10-KSB.
Note 2. Concentrations of Credit Risk
The Company maintains a $900,000 credit facility for short term
working capital needs, standby letters of credit, and spot and forward
foreign exchange transactions. Collateral for the credit facility consists
of securities held in a safekeeping account by a bank. On March 22, 1996
the Company issued a standby letter of credit in the amount of $420,000 in
connection with its obligation for shipment of $8.4 million in Export-Import
Bank financed goods. This obligation expires April 30, 1997. As of July 30,
1996 the Company has available approximately $380,000 under the credit
facility.
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operation
The Company's revenues are derived in two ways: net sales by the
Company for its own account and net commission income consisting of
commissions on sales made by manufacturers that are represented by the
Company. Since the Company often elects the form of transactions, it
does not believe that the changes over periods in the mix comprising total
gross profit on sales and net commission income necessarily reflect any
trends.
Three months ended June 30, 1996 compared to three months ended June 30, 1995
The Company's net sales for the three months ended June 30, 1996
increased $7,303,000 or 452% and net commission income decreased $118,000 or
46% over the three months ended June 30, 1995. The total gross profit on
sales and net commission income increased $2,586,000 or 419%.
During the recent three months the Company was able to complete
shipment of the final portion of the $8.4 million of goods financed by the
Export-Import Bank tied aid credits to certain identified Chinese organizations
for the purchase of equipment sold by the Company. While the Company continues
to explore additional financing opportunities, including with the Export-
Import Bank, there can be no assurances that any such financing will be
available in the future.
The Company believes that the total gross profit on sales and net
commission income has been negatively impacted during the quarters by
restrictions imposed by the Chinese government on the availability of credit
from the Chinese banking system to the Company's customers. The Company
believes the restrictions on the availability of credit will continue to
impact operations for the immediate future.
The Company's gross profit on sales as a percentage of net sales for
the three months ended June 30, 1996 was 34% as compared to 22% for the three
months ended June 30, 1995. The improved gross profit margin is attributable
primarily to improved pricing achieved on the Export-Import Bank financed sales
for the recent three month period compared to the period ended June 30, 1995.
Selling, general and administrative expenses for the three months
ended June 30, 1996 and 1995 were $2,030,000 and $1,618,000, respectively,
representing an increase of 25%. This increase is related to an increase in
the number of Company employees, increased staff bonuses as a result of
higher sales, increased travel and entertainment, and increased rent expense
related to the new building housing the future Beijing United Family Health
Center. As a percentage of net sales and net commission income, the selling,
general and administrative expenses decreased from 86% in the three months
ended June 30, 1995 to 22% in the three months ended June 30, 1996. The
reduction in percentage was due principally to shipment of the Export-Import
financed $8.4 million sale and to the fact that substantially all of the
related selling and administrative expenses were incurred in prior periods.
Interest income for the three months ended June 30, 1996 and 1995 was
$89,000 and $124,000 respectively. Miscellaneous income of $207,000 was due
to the Company's three year sub-lease of a portion of the building housing
the future Beijing United Family Health Center.
Six months ended June 30, 1996 compared to six months ended June 30, 1995
The Company's net sales for the six months ended June 30, 1996
increased $8,153,000 or 184% and net commission income decreased $257,000 or
46% over the quarter ended June 30, 1995. The total gross profit on sales
and net commission income increased $2,868,000 or 189%.
The Company shipped $8.4 million of goods financed by the Export-
Import Bank tied aid credits to certain identified Chinese organizations for
the purchase of equipment sold by the Company. While the Company continues
to explore additional financing opportunities, including with the Export-
Import Bank, there can be no assurances that any such financing will be
available in the future.
<PAGE>
The Company believes that the total gross profit on sales and net
commission income has been negatively impacted during the periods by
restrictions imposed by the Chinese government on the availability of credit
from the Chinese banking system to the Company's customers. The Company
believes the restrictions on the availability of credit will continue to
impact operations for the immediate future.
The Company's gross profit on sales as a percentage of net sales for
the six months ended June 30, 1996 was 32% as compared to 22% for the six
months ended June 30, 1995. The improved gross profit margin is attributable
primarily to improved pricing achieved on the Export-Import Bank financed
sales as well as decreased freight and training costs for the six months
ended June 30, 1996.
Selling, general and administrative expenses for the six months ended
June 30, 1996 and 1995 were $3,519,000 and $2,942,000, respectively,
representing an increase of 20%. These expenses represent costs associated
with an increase in the number of Company employees, increased staff bonuses
as a result of higher sales, and increased rent expense related to the new
building housing the future Beijing United Family Health Center, offset
somewhat by lower travel and entertainment. As a percentage of net sales
and net commission income, the selling, general and administrative expenses
decreased from 59% in the six months ended June 30, 1995 to 27% in the six
months ended June 30, 1996. The reduction in percentage was due principally
to shipment of the Export-Import financed $8.4 million sale and to the fact
that substantially all of the related selling and administrative expenses
were incurred in prior periods.
Interest income for the six months ended June 30, 1996 and 1995 were
$195,000 and $241,000 respectively. Miscellaneous income of $344,000 was
principally due to the Company's three year sub-lease of a portion of the
building housing the future Beijing United Family Health Center.
Liquidity and Capital Resources
During 1996, the Company expects to enter into commitments for capital
expenditures in an aggregate amount exceeding $2,000,000 for equipment and
renovations in connection with the Beijing United family Health Center
(Beijing United). The Company believes that the Beijing United facility will
provide much-needed Western standard health care services, including maternity
and birthing services as well as neonatal and pediatric care, to specified
target markets in China, including the expatriate business and diplomatic
community in Beijing. The Company currently anticipates that the Beijing
United facility will open in late 1996. The Company intends to finance
these capital expenditures principally from available sources, including
cash and cash equivalents. Although the Company believes that such sources
will be sufficient for these purposes during the next twelve months, the
Company may be required to obtain additional funds thereafter. There can be
no assurances that such funds will be available to the Company on favorable
terms, if at all. The Company anticipates funding any additional clinics
through outside sources of funding. As of June 30, 1996 the company has
spent less than $500,000 in connection with the Beijing United facility.
The Company received all of the cash receipts from the $8.4 million
Export-Import Bank financing by the end of July 1996 and made substantial
payments of accounts payable prior thereto. As of July 31, 1996 the Company
had cash and cash equivalents of approximately $4.0 million.
In light of the uncertainty of available financing to the Company's
markets, the Company continues to search for alternate financing programs.
The tied aid credits from the Export-Import Bank for the purchasers of the
Company's products provides an attractive financing alternative and the
Company will continue to explore additional similar financing opportunities.
There can be no assurance that similar Export-Import Bank financing will be
available in the future.
Also during the six months ended June 30, 1996, increased sales
resulted in a $1,812,000 increase in accounts receivable offset somewhat by
a $1,643,000 increase in accounts payable and a decrease of $655,000 due to
collections of commission receivable.
An increase in inventories of $446,000 is attributable to purchases
of equipment and parts for resale.
<PAGE>
On February 16, 1995, the Company established a $900,000 credit
facility with the First National Bank of Maryland for short term working
capital needs, standby letters of credit, and spot and forward foreign
exchange transactions. Collateral for the credit facility consists of
securities held in a safekeeping account by the bank. As of June 30, 1996,
the Company had available approximately $380,000 under the credit facility.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. None
b. Reports on Form 8-K
None
<PAGE>
US-CHINA INDUSTRIAL EXCHANGE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
August 14, 1996 S/Lawrence Pemble
Date Lawrence Pemble
Executive Vice President Finance and
Director
August 14, 1996 S/Ronald Zilkowski
Date Ronald Zilkowski
Vice President Finance and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4728000
<SECURITIES> 0
<RECEIVABLES> 10683000
<ALLOWANCES> (105000)
<INVENTORY> 1600000
<CURRENT-ASSETS> 15126000
<PP&E> 883000
<DEPRECIATION> (441000)
<TOTAL-ASSETS> 18436000
<CURRENT-LIABILITIES> 7690000
<BONDS> 0
0
0
<COMMON> 38000
<OTHER-SE> 9344000
<TOTAL-LIABILITY-AND-EQUITY> 18436000
<SALES> 12578000
<TOTAL-REVENUES> 12882000
<CGS> 8497000
<TOTAL-COSTS> 12016000
<OTHER-EXPENSES> 0
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</TABLE>
