<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] 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 000-28358
____________________
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITY EXCHANGE
ACT OF 1934
For the transition period from _____________ to ______________
CHINA CONTAINER HOLDINGS LIMITED
(Exact Name of Registrant as Specified in Its Charter)
NEVADA 11-2243727
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
61, EAST GARDEN ROAD, YANGZHOU, JIANGSU, CHINA 225003
(Address of principal executive offices)
Registrant's Telephone Number, Including area code, (212) 629-7378
Indicate by check mark whether the registrant: (1) has filed all
reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 90 days Yes ________ No _________
Indicate the number of shares outstanding of each of the issue's class
of common stock, as of the latest practical date.
Common stock $0.001 par value; 25,000,273 shares outstanding at June
30, 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(Amounts in thousands, except for per share data)
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
(Unaudited) (Unaudited)
--------------------------------------- ------------------------------------------
1997 1996 1997 1996
US$ US$ US$ US$
<S> <C> <C> <C> <C>
NET SALES 38,481 42,124 68,121 66,317
COST OF SALES ( 34,142) ( 35,774) ( 61,400) ( 55,529)
SELLING AND ADMINISTRATIVE EXPENSES ( 1,540) ( 930) ( 2,379) ( 2,151)
FINANCIAL EXPENSES, NET ( 1,959) ( 858) ( 4,724) ( 1,332)
OTHER INCOME/(EXPENSES), NET 14 (5) 37 11
-------- -------- -------- --------
INCOME/(LOSS) BEFORE INCOME TAXES 854 4,557 (345) 7,316
INCOME TAXES (0) (315) (0) (561)
-------- -------- -------- --------
854 4,242 (345) 6,755
SHARE OF NET INCOME/(LOSSES) OF ASSOCIATED (68) 43 (163) ( 15)
COMPANIES -------- -------- -------- --------
INCOME BEFORE MINORITY INTERESTS 786 4,285 (508) 6,740
MINORITY INTERESTS (92) (1,600) 295 (2,367)
-------- -------- -------- --------
NET INCOME/(LOSS) 694 2,685 (213) 4,373
======== ======== ======== ========
NET INCOME/(LOSS) PER COMMON SHARE 0.03 0.11 (0.01) 0.17
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 25,000 25,000 25,000 25,000
OUTSTANDING ======== ======== ======== ========
</TABLE>
Unaudited condensed consolidated financial statements.
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30
(unaudited) December 31
(Note 1) (audited)
Note ---------------- ---------------
1997 1996
US$ US$
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 1,104 2,873
Accounts receivable 39,875 6,188
Deposits and other receivables 3,666 7,544
Inventories 3 22,606 41,804
Amount due from associated companies 1,327 908
Amount due from related companies 43,112 6,181
------- -------
TOTAL CURRENT ASSETS 111,690 65,498
INTANGIBLE ASSETS 3,203 2,864
FIXED ASSETS 24,488 23,137
CONSTRUCTION IN PROGRESS 131 747
INTERESTS IN ASSOCIATED COMPANIES 2,761 2,009
AMOUNTS DUE FROM RELATED COMPANIES 4,233 15,783
OTHER ASSETS 874 1,317
------- -------
TOTAL ASSETS 147,380 111,355
======= =======
==================================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30 December 31
(Unaudited) (Audited)
(Note 1)
---------------- ---------------
1997 1996
US$ US$
<S> <C> <C>
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Bank loans and overdrafts 97,895 80,758
Accounts payable 13,727 14,428
Accrued liabilities and other payables 16,553 4,735
Income taxes payable 1,566 -
Amount due to related companies 6,474 191
Amount due to associated companies 999 320
------- -------
TOTAL CURRENT LIABILITIES 137,214 100,432
MINORITY INTERESTS 4,422 3,893
------- -------
TOTAL LIABILITIES 141,636 104,325
------- -------
SHAREHOLDERS' EQUITY
Paid-up capital - shares of 100,000,000 common 25 25
stock of US$0.001 each and 5,000,000 preferred stock
of US$0.01 each authorized; shares 25,000,273
common stock of US$0.001 each outstanding
Additional paid-in capital 4,683 4,683
Reserves 7,603 7,603
Accumulated losses (6,567) (5,217)
Currency translation adjustments ( 0) ( 64)
------- -------
TOTAL SHAREHOLDERS' EQUITY 5,744 7,030
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 147,380 111,355
=======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Six month ended
June 30
(unaudited)
--------------------------
1997 1996
US$ US$
<S> <C> <C>
(15,789) (20,665)
Net cash used in operating activities
CASH FLOWS USED IN INVESTING ACTIVITIES
Increase in construction in progress - ( 7,225)
Purchases of fixed assets (3,117) (1,206)
-------- -------
Net cash used in investing activities (3,117) (8,431)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Repayments of bank loans and overdrafts ( 16,715) -
Proceeds from bank loans and overdrafts 33,852 22,656
-------- -------
Net cash provided by financing activities 17,137 22,656
-------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,769) ( 6,440)
Cash and cash equivalents, at beginning of period 2,873 7,431
-------- -------
Cash and cash equivalents, at end of period 1,104 991
======== =======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instruction to Form 10-Q and
Article 10 of Regulation S-X. 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. The unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and footnotes thereto included in the Company's audited
financial statement for the year ended December 31, 1996.
The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
2. INCOME TAX
A reconciliation of the effective income tax rates (excluding the
reorganization expenses) with the statutory income tax in the PRC is as
follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
(unaudited) (unaudited)
---------------------------- --------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Statutory PRC tax rate 24.0% 24.0% 24.0% 24.0%
Tax holiday (23.9%) (17.0%) (24.0%) (16.3%)
----- ----- ----- -----
Other items (0.1%) (0.1%) 0% (0.0%)
0% 6.9% 0% 7.7%
===== ===== ===== =====
</TABLE>
3. INVENTORIES
Inventories comprise:
<TABLE>
<CAPTION>
June 30 December 31
(unaudited) (audited)
--------- ---------
1997 1996
US$ US$
--------- ---------
<S> <C> <C>
11,147 20,801
Raw materials
Work in Progress 11,459 4,283
------
Finished goods 22,606 41,981
------ ------
Less: Provision for inventories (177)
------ ------
22,606 41,804
</TABLE> ====== ======
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is a Nevada corporation whose principal activity is the
management of the business of its indirectly held operating subsidiaries, which
manufacture international standard commercial freight containers in the People's
Republic of China.
The statements in this section relate to the operations and conditions of
the Company and its consolidated subsidiaries.
RESULTS OF OPERATIONS
Second Quarter of 1997 Compared With Second Quarter of 1996
1. Sales decreased by 8.6% from US$42.1 million in the three
months ended June 30, 1996 to US$38.5 million in the three months ended June 30,
1997, and sales quantity decreased by 0.6% from 14,508 TEU in 1996 to 14,423 TEU
in 1997, reflecting a decrease in the average sales price per unit equal to 15%
for dry boxes and 22% for refrigerated containers.
2. The gross profit margin decreased from 15.2% on net sales in the second
quarter of 1996 to 11.4% in the second quarter of 1997 primarily because the
average sales price per unit decreased 15% for dry boxes and 22% for
refrigerated containers.
3. Selling and administrative expenses increased by 66% from US$900,000 in
the second quarter of 1996 to US$1.5 million in the second quarter of 1997
primarily because of an increase in the cost delivering containers to the
Company's customers in the second quarter.
4. Financial expenses increased by 122.2% from US$900,000 in the second
quarter of 1996 to US$2.0 million in the second quarter of 1997, due to (i) the
recharacterization of certain construction in progress (relating to the
Company's Tongsheng subsidiary) as a fixed asset, causing the interest on the
loan balance relating thereto to be recognized as an expense in 1997, (ii) an
increase in average interest rates of approximately 0.5%, and (iii) a 21.2%
increase in loan balances from US$80.8 million as at December 31, 1996 to
US$97.9 million as at June 30, 1997. The increase in the loan balances was
mainly due to an increase in the Company's working capital requirements as a
result of filling a large order from the PRC Railway Ministry, based on eight
year payment terms.
Six Months Ended June 30, 1997 Compared With Six Months Ended June 30, 1996
1. Sales increased by 2.7% from US$66.3 million in the six months
ended June 30, 1996 to US$68.1 million in the six months ended June 30, 1997,
and sales quantity increased by 10% from 22,891 TEU in 1996 to 25,183 TEU in
1997, reflecting an increase in orders and capacity together with the decrease
in the average sales price per unit.
<PAGE>
2. The gross profit margin decreased from 16.3% on net sales in 1996 to
9.8% in 1997 primarily because the average sales price per unit decreased, 15%
for dry boxes and 22% for reefers.
3. Selling and administrative expenses increased by 9.1% from US$2.2
million in 1996 to US$2.4 million in 1997 primarily because of the 10% increase
in the number of TEU sold in during this period.
4. Financial expenses increased by 261.5% from US$1.3 million in 1996 to
US$4.7 million in 1997, due to (i) the recharacterization of certain
construction in progress (relating to the Company's Tongsheng subsidiary) as a
fixed asset, causing the interest on the loan balance relating thereto to be
recognized as an expense in 1997, (ii) an increase in average interest rates of
approximately 0.5%, and (iii) a 21.2% increase in loan balances from US$80.8
million as at December 31, 1996 to US$97.9 million as at June 30, 1997. The
increase in the loan balances was mainly due to an increase in the Company's
working capital requirements as a result of filling a large order from the PRC
Railway Ministry, based on eight year payment terms.
FINANCIAL CONDITION
1. Accounts Receivable increased by 543.5% from US$6.2 million as at
December 31, 1996 to US$39.9 million as at June 30, 1997, primarily due to the
recognition in the first quarter of 1997 of the sales of certain containers to
the PRC Railway Ministry which had previously been classified as Inventories,
which decreased by 45.9% from US$41.8 million as at December 31, 1996 to US$22.6
million as at June 30, 1997.
2. Accrued Liabilities and other payables increased by 253.2% from US$4.7
million as at December 31, 1996 to US$16.6 million as at June 30, 1997,
primarily due to (i) the lengthening of the average payment terms to certain
creditors, and (ii) provision for the payment of certain non-salary employee
benefits.
3. Cash and cash equivalents decreased by 62.1% from US$2.9 million as at
December 31, 1996 to US$1.1 million as at March 31, 1997, primarily due to
payments to suppliers ?
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i) Articles of Incorporation of Registrant, filed August 8,
1995 and Articles of Amendment thereto filed April 16, 1986 and May
15, 1995, incorporated by reference to the Registrant's Form 10 and
Amendment No. 1 thereto.
3(ii) By-laws of Registrant, incorporated by reference to the
Registrant's Form 10 and Amendment No. 1 thereto.
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHINA CONTAINER HOLDINGS LIMITED
Date: November 7, 1997 By: /s/ Ma Tieyi
Ma Tieyi
Secretary and Treasurer
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
3(i) Articles of Incorporation of Registrant,
filed August 8, 1995 and Articles of
Amendment thereto filed April 16, 1986
and May 15, 1995, incorporated by
reference to the Registrant's Form 10
and Amendment No. 1 thereto.
3(ii) By-laws of Registrant, incorporated by
reference to the Registrant's Form 10
and Amendment No. 1 thereto.
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1104
<SECURITIES> 0
<RECEIVABLES> 39875
<ALLOWANCES> 0
<INVENTORY> 22606
<CURRENT-ASSETS> 111690
<PP&E> 21693
<DEPRECIATION> 5204
<TOTAL-ASSETS> 147380
<CURRENT-LIABILITIES> 137214
<BONDS> 0
0
0
<COMMON> 25
<OTHER-SE> 5719
<TOTAL-LIABILITY-AND-EQUITY> 147380
<SALES> 38481
<TOTAL-REVENUES> 38481
<CGS> 34142
<TOTAL-COSTS> 34142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1730
<INCOME-PRETAX> 854
<INCOME-TAX> 0
<INCOME-CONTINUING> 694
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 694
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
