(as electronically filed November 14, 1997 15:03)
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 September 30, 1997
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 [ ]
The number of shares outstanding of each of the issuer's classes
of common equity, as of November 13, 1997, was 4,772,500 shares of Common Stock
and 2,000,000 of Common Stock Class B.
<PAGE>
<TABLE>
PART I. - FINANCIAL INFORMATION
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
September 30, December 31,
1997 1996
___________ ____________
ASSETS
<S> <C> <C>
Current assets:
Cash & cash equivalents $ 6,765,000 $ 13,374,000
Receivables:
Trade accounts, less allowance 6,651,000 4,626,000
Current portion-long term accounts 2,298,000 3,612,000
Commissions receivable 194,000 449,000
Inventories 3,316,000 2,188,000
Other current assets 1,220,000 716,000
__________ __________
Total current assets 20,444,000 24,965,000
Plant, property & equipment 3,445,000 1,783,000
Accounts receivable, long term 3,553,000 2,068,000
Other 1,031,000 148,000
__________ __________
Total assets $ 28,473,000 $28,964,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 6,890,000 $ 6,118,000
Accrued contract training 779,000 724,000
Current portion-long term accounts payable 342,000 1,615,000
Short term loan payable 335,000 0
Income taxes payable 40,000 465,000
__________ __________
Total current liabilities 8,386,000 8,922,000
Long term accounts payable, net 2,264,000 1,126,000
__________ __________
Total liabilities 10,650,000 10,048,000
Shareholders' equity:
Preferred stock, $.01 par value:
Authorized 5,000,000 shares,
none issued
Common stock, $.01 par value
Authorized 30,000,000 shares
(including 2,000,000 designated class B);
Common stock - 4,772,500 shares issued
and outstanding 48,000 48,000
Common stock-Class B - 2,000,000 shares
issued and outstanding 20,000 20,000
Additional paid in capital 17,235,000 17,278,000
Foreign currency equity translation
adjustment (6,000) (8,000)
Retained earnings 526,000 1,578,000
__________ __________
Total shareholders' equity 17,823,000 18,916,000
__________ __________
Total Liabilities and shareholders' equity $28,473,000 $28,964,000
=========== ===========
<FN>
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<TABLE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales $6,755,000 $4,254,000 $16,010,000 $16,832,000
Cost of goods sold 5,035,000 3,327,000 11,705,000 11,821,000
_________ _________ __________ _________
Gross profit on sales 1,720,000 927,000 4,305,000 5,011,000
Net commission income 178,000 408,000 374,000 712,000
_________ _________ __________ _________
Total gross profit on sales
and net commission income 1,898,000 1,335,000 4,679,000 5,723,000
Selling, general and administrative
Salaries and payroll taxes 1,275,000 921,000 3,130,000 2,514,000
Travel and entertainment 627,000 458,000 1,575,000 1,081,000
Other 1,022,000 448,000 2,597,000 1,752,000
_________ _________ __________ _________
(1,026,000) (492,000) (2,623,000) 376,000
Other income and expenses
Interest expense 0 (5,000) 0 (12,000)
Interest income 119,000 75,000 417,000 269,000
Miscellaneous income 140,000 204,000 420,000 547,000
_________ _________ __________ _________
Total other income/expenses 259,000 274,000 837,000 804,000
(Loss)/income before provision
for taxes ( 767,000) (218,000) (1,786,000) 1,180,000
Benefit from/(provision for)
income taxes 311,000 82,000 735,000 (443,000)
_________ _________ __________ _________
Net (loss)/income $( 456,000) $( 136,000) $ (1,051,000) $ 737,000
========== ========== =========== ==========
Net (loss)/income per share $( 0.07) $( 0.04) $ ( 0.17) $ 0.22
========== ========== =========== ==========
Weighted average shares outstanding 6,336,000 3,390,000 6,336,000 3,390,000
========== ========== =========== ==========
</TABLE>
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<TABLE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine months ended Sept. 30,
1997 1996
<S> <C> <C>
Operating activities
Net (loss)/income $(1,051,000) $ 737,000
Adjustments to reconcile net (loss)/income
to net cash used in operating activities:
Depreciation & amortization 145,000 83,000
Provision for doubtful accounts 15,000 15,000
Provision for deferred taxes (504,000) 0
Inventory write-down 69,000 98,000
Sales of demo equipment 11,000 0
Changes in operating assets and liabilities:
Accounts receivable (2,211,000) (693,000)
Commissions receivable 255,000 494,000
Inventories (1,208,000) (713,000)
Other current assets 0 (482,000)
Other assets (885,000) (189,000)
Accounts payable and accrued expenses 692,000 1,495,000
Income taxes payable (425,000) 360,000
_________ _________
Net cash (used in)/provided by operating
activities (5,097,000) 1,205,000
Investing activities
Purchase of property and equipment (1,806,000) (101,000)
Increase in other assets 0 (590,000)
_________ _________
Net cash used in investing activities (1,806,000) (749,000)
Financing activities
Additional costs related to issuance of
common stock (43,000) 0
Short term loan payable 335,000 0
-------- ---------
Net cash provided by financing activities 292,000 0
Effect of foreign exchange rate changes
on cash and cash equivalents 2,000 0
_________ _________
Net (decrease)/increase in cash and
cash equivalents (6,609,000) 456,000
Cash and cash equivalents at beginning of
period 13,374,000 3,599,000
__________ _________
Cash and cash equivalents at end of period $ 6,765,000 $4,055,000
========== ==========
<FN>
</TABLE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
Note 1. Statement of Information Furnished
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three- and nine-month periods ended September 30,
1997 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31, 1996.
Note 2. FASB No. 128, Earnings Per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact is not
expected to result in an increase in earnings per share for the third quarter
ended September 30, 1997 and September 30, 1996 respectively.
<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. The Company often elects the form of transactions based on the
circumstances of the transaction, including the nature of the products and
parties involved. Consequently, the Company does not believe that the changes
between periods in the mix comprising total gross profit on sales and net
commission income necessarily reflect any trends.
Three months ended September 30, 1997 compared to three months ended
September 30, 1996
The Company's net sales for the three months ended September 30, 1997
increased $2,501,000 or 59% and net commission income decreased $230,000 or
56% over the three months ended September 30, 1996. The total gross profit
on sales and net commission income increased $563,000 or 42%.
The Company believes that the total gross profit on sales and net
commission income has been negatively impacted during the three months ended
September 30, 1997 by restrictions imposed by the Chinese government on the
availability of credit from the Chinese banking system to the Company's
customers. While there has been some recent relaxation of these restrictions
for some Chinese organizations, the Company believes restrictions on the
availability of credit will nevertheless 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 September 30, 1997 was 25% as compared to 22% for the three
months ended September 30, 1996. The higher gross profit margin in 1997 is
attributable primarily to better supplier pricing and improved freight and
handling costs compared to the three months ended September 30, 1996.
The Company opened its Beijing United Family Hospital ("Beijing Hospital")
on September 1, 1997 and recorded a small amount of patient revenue.
Selling, general and administrative expenses for the three months ended
September 30, 1997 and 1996 were $2,924,000 and $1,827,000, respectively,
representing an increase of 60%. The Company has expanded its selling efforts
which included an increase in the number of employees and related travel and
entertainment expenses, and increased its pre-opening costs related to the
Beijing Hospital. The Company also incurred higher general and administrative
expenses due to increased efforts in connection with the proposed distribution
of consumable and pharmaceutical products, and the expansion of the Beijing
Hospital concept. These costs are expected to continue into the near term.
Interest income for the three months ended September 30, 1997 and 1996
$119,000 and $75,000 respectively. The increase is principally due to the
Company's return on invested proceeds from the Company's second underwritten
public offering in November 1996. Miscellaneous income of $140,000 was
revised from prior year to include certain related expenses.
Nine months ended September 30, 1997 compared to nine months ended
September 30, 1996
The Company's net sales for the nine months ended September 30, 1997
decreased $822,000 or 5% and net commission income decreased $338,000 or 47%
over the nine months ended September 30, 1996. The total gross profit on sales
and net commission income decreased $1,044,000 or 18%.
Most of the Company's net sales for the nine months ended
September 30, 1996 were facilitated by Export-Import bank financing to certain
identified Chinese organizations for the purchase of equipment sold by the
Company. No such financing was available for the Company's sales for the nine
months ended September 30, 1997. 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 nine months ended
September 30, 1997 by restrictions imposed by the Chinese government on the
availability of credit from the Chinese banking system to the Company's
customers. While there has been some recent relaxation of these restrictions
for some Chinese organizations, the Company believes the restrictions on the
availability of credit will nevertheless continue to impact operations for the
immediate future.
The Company's gross profit on sales as a percentage of net sales for the
nine months ended September 30, 1997 was 27% as compared to 30% for the nine
months ended September 30, 1996. The decreased gross profit margin is
attributable primarily to the favorable pricing achieved on sales financed by
the Export-Import Bank in 1996.
Selling, general and administrative expenses for the nine months ended
September 30, 1997 and 1996 were $7,302,000 and $5,347,000, respectively,
representing an increase of 37%. This increase primarily relates to costs
associated with an increase in the number of employees and related travel
and entertainment expense, as well as organizational expenses associated with
the startup of the Beijing Hospital. The Company has also incurred costs
in connection with the proposed distribution of consumable medical products,
the evaluation of pharmaceutical distribution and the expansion of the Beijing
Hospital concept. These costs are expected to continue into the near term.
Interest income for the nine months ended September 30, 1997 and 1996 were
$417,000 and $269,000 respectively. The increase is principally due to the
Company's return on invested proceeds from the Company's second underwritten
public offering in November 1996. Miscellaneous income during 1997 reflects
an adjustment for certain related expenses.
Liquidity and Capital Resources
Beijing Hospital opened its doors on September 1, 1997. The development
process for opening this facility spanned three years and required significant
expenditures for equipment, leasehold improvements and other start-up
requirements totaling approximately $3.1 million. The Company will continue
to have significant expense in connection with the Beijing Hospital, the
operation of which the Company believes will not become profitable prior to
late 1998 as it markets its services and further establishes its presence.
In July 1997, the Company prepaid approximately $600,000 toward a
10-year extension of the lease for the building that houses the Beijing
Hospital.
To date in 1997, the Company has not located a financing program similar
to the prior year's Ex-Im Bank arrangement. Alternatively, during 1997, with
the participation of certain suppliers, the Company offered more financing
arrangements to purchasers, which resulted in an increase in accounts
receivable. This increase was the principal reason for the $2,211,000
increase in accounts receivable since the end of 1996.
In addition, during the nine months ended September 30, 1997, inventories
increased by $1,208,000 due primarily to expansion of existing product lines
and their related spare parts. The Company anticipates inventory increases in
the foreseeable future in connection with its proposed entrance into
consumable medical products markets.
As a result of the Company's recent efforts in connection with the
proposed distribution of consumable medical and pharmaceutical products
and the establishment of the Beijing Hospital as well as costs associated
with the operation of the Beijing Hospital, the Company's use of cash has
grown significantly as compared to prior periods. Although the Company
currently believes that its cash and cash equivalents as well as cash flow
from operations is sufficient to maintain its current and planned operations
for approximately the next nine months, the Company currently is considering
various financing alternatives in order to satisfy its future capital
requirements.
On June 26, 1997, the Company increased its credit facility to $1,750,000
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 short-term cash equivalents
held in a safekeeping account by the bank. As of September 30, 1997, the
Company had available approximately $1,415,000 under the credit facility.
Forward looking statements
Safe Harbor Statement Under Private Securities Litigation Reform Act of 1995
With the exception of historical information, the matters discussed in
this report are forward-looking statements that involve risks and uncertainties,
including but not limited to, statements about the Company's (i) performance
goals, (ii) future revenues and earnings, (iii) markets and (iv) proposed
new operations. Actual results could differ materially from such forward-
looking statements because of, among other things, the following factors:
developments relating to conducting business in China (including political,
economic and legal matters), the timing of the Company's revenues, risks
relating to commencement of healthcare services operations and dependence on
certain suppliers.
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.
November 14, 1997 S/Lawrence Pemble
Date Lawrence Pemble
Executive Vice President Finance and Director
November 14, 1997 S/Ronald Zilkowski
Date Ronald Zilkowski
Vice President Finance and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 6765000
<SECURITIES> 0
<RECEIVABLES> 12826000
<ALLOWANCES> (130000)
<INVENTORY> 3316000
<CURRENT-ASSETS> 20444000
<PP&E> 4094000
<DEPRECIATION> (650000)
<TOTAL-ASSETS> 28473000
<CURRENT-LIABILITIES> 8386000
<BONDS> 0
0
0
<COMMON> 68000
<OTHER-SE> 17755000
<TOTAL-LIABILITY-AND-EQUITY> 28473000
<SALES> 16010000
<TOTAL-REVENUES> 16384000
<CGS> 11705000
<TOTAL-COSTS> 11705000
<OTHER-EXPENSES> 7302000
<LOSS-PROVISION> (15000)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1786000)
<INCOME-TAX> 735000
<INCOME-CONTINUING> (1051000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1051000)
<EPS-PRIMARY> (0.17)
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</TABLE>
