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, 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 August 13, 1997, was 4,772,500 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,
1997 1996
___________ ____________
ASSETS
<S> <C> <C>
Current assets:
Cash & cash equivalents $10,195,000 $ 13,374,000
Receivables:
Trade accounts, less allowance 4,358,000 4,626,000
Current portion-long term accounts 3,642,000 3,612,000
Commissions receivable 253,000 449,000
Inventories 3,154,000 2,188,000
Other current assets 896,000 716,000
__________ __________
Total current assets 22,498,000 24,965,000
Plant, property & equipment 2,819,000 1,783,000
Accounts receivable, long term 2,517,000 2,068,000
Other 165,000 148,000
__________ __________
Total assets $ 27,999,000 $28,964,000
=========== ===========
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<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 6,068,000 $ 6,118,000
Accrued contract training 601,000 724,000
Current portion-long term accounts payable 1,292,000 1,615,000
Income taxes payable 0 465,000
__________ __________
Total current liabilities 7,961,000 8,922,000
Long term accounts payable, net 1,756,000 1,126,000
__________ __________
Total liabilities 9,717,000 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 17,238,000 17,278,000
Foreign currency equity translation
adjustment (6,000) (8,000)
Retained earnings 982,000 1,578,000
__________ __________
Total shareholders' equity 18,282,000 18,916,000
__________ __________
Total Liabilities and shareholders' equity $27,999,000 $28,964,000
=========== ===========
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U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales $3,757,000 $8,918,000 $ 9,255,000 $12,578,000
Cost of goods sold 2,744,000 5,853,000 6,669,000 8,497,000
_________ _________ __________ _________
Gross profit on sales 1,013,000 3,065,000 2,586,000 4,081,000
Net commission income 81,000 138,000 195,000 304,000
_________ _________ __________ _________
Total gross profit on sales
and net commission income 1,094,000 3,203,000 2,781,000 4,385,000
Selling, general and administrative
Salaries and payroll taxes 1,020,000 898,000 1,855,000 1,593,000
Travel and entertainment 644,000 403,000 949,000 623,000
Other 935,000 729,000 1,575,000 1,303,000
_________ _________ __________ _________
(1,505,000) 1,173,000 (1,598,000) 866,000
Other income and expenses
Interest expense (5,000) (2,000) (21,000) (7,000)
Interest income 111,000 89,000 320,000 195,000
Miscellaneous income 140,000 208,000 279,000 344,000
_________ _________ __________ _________
Total other income/expenses 246,000 295,000 578,000 532,000
(Loss)/income before provision
for taxes (1,259,000) 1,468,000 (1,020,000) 1,398,000
Benefit from/(provision for)
income taxes 498,000 (550,000) 424,000 (525,000)
_________ _________ __________ _________
Net (loss)/income $( 761,000) $ 918,000 $ ( 596,000) $ 873,000
========== ========== =========== ==========
Net (loss)/income per share $( 0.12) $ 0.27 $ ( 0.09) $ 0.26
========== ========== =========== ==========
Weighted average shares outstanding 6,336,000 3,390,000 6,336,000 3,390,000
========== ========== =========== ==========
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U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six months ended June 30,
1997 1996
<S> <C> <C>
Operating activities
Net (loss)/income $ (596,000) $ 873,000
Adjustments to reconcile net (loss)/income
to net cash used in operating activities:
Depreciation & amortization 90,000 65,000
Provision for doubtful accounts 10,000 10,000
Provision for deferred taxes (11,000) 0
Inventory write-down 40,000 61,000
Sales of demo equipment 11,000 0
Changes in operating assets and liabilities:
Accounts receivable (221,000) (1,812,000)
Commissions receivable 196,000 655,000
Inventories (996,000) (446,000)
Other current assets (191,000) (217,000)
Other assets (17,000) (48,000)
Accounts payable and accrued expenses 134,000 1,643,000
Income taxes payable (465,000) 486,000
_________ _________
Net cash (used in)/provided by operating
activities (2,016,000) 1,270,000
Investing activities
Purchase of property and equipment (1,126,000) (101,000)
_________ _________
Net cash used in investing activities (1,126,000) (101,000)
Financing activities
Additional costs related to issuance of
common stock (40,000) 0
-------- ---------
Net cash used in financing activities (40,000) 0
Effect of foreign exchange rate changes
on cash and cash equivalents 2,000 0
_________ _________
Net (decrease)/increase in cash and
cash equivalents (3,179,000) 1,169,000
Cash and cash equivalents at beginning of
period 13,374,000 3,599,000
__________ _________
Cash and cash equivalents at end of period $10,195,000 $4,768,000
========== ==========
<FN>
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U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS
June 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 six-month periods ended June 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 second quarter
ended June 30, 1997 and June 30, 1996 respectively.
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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
over periods in the mix comprising total gross profit on sales and net
commission income necessarily reflect any trends.
Three months ended June 30, 1997 compared to three months ended June 30, 1996
The Company's net sales for the three months ended June 30, 1997 decreased
$5,161,000 or 58% and net commission income decreased $57,000 or 41% over the
three months ended June 30, 1996. The total gross profit on sales and net
commission income decreased $2,109,000 or 63%.
Most of the Company's net sales for the three months ended June 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 three months ended
June 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 three months 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
three months ended June 30, 1997 was 27% as compared to 34% for the three
months ended June 30, 1996. The higher gross profit margin in 1996 is
attributable primarily to improved pricing achieved on the Export-Import Bank
financed sales for the three months ended June 30, 1996.
Selling, general and administrative expenses for the three months ended
June 30, 1997 and 1996 were $2,599,000 and $2,030,000, respectively,
representing an increase of 28%. This increase is related to an increase in
the number of Company employees, increased travel and entertainment, and
pre-operating expenses related to the future Beijing United Family Health
Center.
Interest income for the three months ended June 30, 1997 and 1996 was
$106,000 and $89,000 respectively. Miscellaneous income of $146,000 was
revised from prior year to include certain related expenses.
Six months ended June 30, 1997 compared to six months ended June 30, 1996
The Company's net sales for the six months ended June 30, 1997 decreased
$3,323,000 or 26% and net commission income decreased $109,000 or 36% over the
six months ended June 30, 1996. The total gross profit on sales and net
commission income decreased $1,604,000 or 37%.
Most of the Company's net sales for the six months ended June 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 six months ended
June 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 six months 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
six months ended June 30, 1997 was 28% as compared to 32% for the six months
ended June 30, 1996. The decreased gross profit margin is attributable
primarily to last years pricing achieved on the Export-Import Bank financed
sales.
Selling, general and administrative expenses for the six months ended June
30, 1997 and 1996 were $4,379,000 and $3,519,000, respectively, representing an
increase of 24%. The increase in expenses was primarily related to costs
associated with an increase in the number of Company employees and organization
expenses associated with the startup of the Beijing United Family Health
Center.
Interest income for the six months ended June 30, 1997 and 1996 were
$320,000 and $195,000 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. 1997 miscellaneous income reflects an
adjustment for certain related expenses.
Liquidity and Capital Resources
During the first six months of 1997 the Company continued to invest funds
toward the Beijing United Family Health Center. Through June 30, 1997 the
Company has spent approximately $2.0 million toward equipment, building
improvements and organization expenses for the center. The total expenditure
is expected to be approximately $3,000,000 through substantial completion.
Also during the first six months ended June 30, 1997, inventories increased
by $996,000 due primarily to expansion of existing product lines and their
related spare parts. The Company anticipates that inventory will increase in
the forseeable future in connection with its entrance into consumable health-
care products markets.
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 securities held in a safekeeping
account by the bank. As of June 30, 1997, the Company had available
approximately $1,594,000 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.
August 14, 1997 S/Lawrence Pemble
Date Lawrence Pemble
Executive Vice President Finance and Director
August 14, 1997 S/Ronald Zilkowski
Date Ronald Zilkowski
Vice President Finance and Controller
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