<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1974.
For the transition period from _____________ to _____________
Commission File No. 0-3132
SUNBASE ASIA, INC.
(Exact name of Registrant as specified in its charter)
Nevada 94-1612110
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19/F., First Pacific Bank Centre, 51-57 Gloucester Road,
Wanchai, Hong Kong
(Address of principal executive offices)
Registrant's telephone number, including area code: (852) 2865-1511
Indicate by check mark whether the registrant (1) has filed all reports required
to filed by Section 13 or 15(d) of the Securities Exchange Act 1934 during the
preceding 12 months, 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 practicable date: Common Stock $0.001 Par
Value - 11,700,063 shares outstanding at June 30, 1995
Page 1 of 16
<PAGE>
SUNBASE ASIA, INC.
------------------
Page
PART I: Financial Information
ITEM 1 -- Financial statements and footnotes 3-8
ITEM 2 -- Management's discussion and analysis of financial
condition and results of operations 9-15
PART II: Other Information 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
SUNBASE ASIA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND JUNE 30, 1995
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Notes 12/31/94 12/31/94 6/30/95 6/30/95
RMB US$ RMB US$
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and bank balances 65,646 7,909 46,251 5,572
Accounts receivable, net 298,210 35,929 487,501 58,735
Notes receivable -- -- 26,744 3,222
Inventories, net 4 361,455 43,549 282,237 34,004
Other receivables 35,636 4,293 66,447 8,006
Due from related companies 133,047 16,030 94,122 11,340
--------- -------- ---------- ----------
Total current assets 893,994 107,710 1,003,302 120,879
Fixed assets 481,295 57,987 493,798 59,494
Deferred asset 35,729 4,305 35,062 4,224
Long term investments 6,999 843 6,999 843
--------- -------- ---------- ----------
Total assets 1,418,017 170,845 1,539,161 185,440
========= ======== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short term bank loans 227,078 27,359 233,107 28,085
Accounts payable 151,853 18,296 105,988 12,770
Notes payable - - 15,225 1,834
Other payables 44,761 5,393 86,124 10,376
Short term obligations
under capital leases 15,873 1,912 16,557 1,995
Other loans 33,810 4,073 33,810 4,073
Income tax payable 9,342 1,126 16,079 1,937
Taxes other than income 20,970 2,527 43,825 5,280
Due to related companies 130,635 15,739 119,157 14,356
Due to shareholders 11,682 1,407 10,342 1,246
--------- -------- ---------- ----------
Total current liabilities 646,004 77,832 680,214 81,952
Long term bank loans 68,424 8,244 83,866 10,104
Long term obligations under
capital leases 124,982 15,058 116,529 14,040
Secured promissory note 5 42,250 5,090 42,250 5,090
Minority interests 288,175 34,720 328,082 39,528
--------- -------- ---------- ----------
1,169,835 140,944 1,250,941 150,714
Shareholders' equity:
Common Stock, par value US$0.001 each,
50,000,000 shares authorized;
11,700,063 issued and outstanding 99 12 99 12
Preferred Stock, par value US$0.001 each,
25,000,000 shares authorized;
Convertible Preferred Stock - Series A;
36 shares issued and outstanding 44,533 5,366 44,533 5,366
Contributed surplus 151,942 18,306 151,942 18,306
Reserves 13,011 1,567 12,939 1,559
Retained earnings 38,597 4,650 78,707 9,483
--------- -------- ---------- ----------
Total shareholders' equity 248,182 29,901 288,220 34,726
--------- -------- ---------- ----------
Total liabilities and shareholders' equity 1,418,017 170,845 1,539,161 185,440
========= ======== ========== ==========
</TABLE>
The accompanying notes form an integral part of these consolidated condensed
financial statements.
3
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE PERIODS ENDED JUNE 30, 1994 AND JUNE 30, 1995
(Amounts in thousands, except number of shares and per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Six Six Three Three Three
months months months months months months
ended ended ended ended ended ended
Notes 6/30/94 6/30/95 6/30/95 6/30/94 6/30/95 6/30/95
RMB RMB US$ RMB RMB US$
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales 391,039 434,833 52,390 208,362 235,979 28,431
Cost of sales ( 244,468) ( 265,683) ( 32,010) ( 128,103) ( 143,587) ( 17,300)
---------- ---------- ---------- --------- ---------- ----------
Gross profit 146,571 169,150 20,380 80,259 92,392 11,131
Selling, general and
administrative
expenses ( 42,421) ( 51,045) ( 6,150) ( 17,386) ( 26,626) ( 3,208)
Interest expense, net ( 23,168) ( 23,589) ( 2,842) ( 11,682) ( 7,540) ( 908)
---------- ---------- ---------- --------- ---------- ----------
Income before income taxes 80,982 94,516 11,388 51,191 58,226 7,015
Provision for income taxes:
-Current ( 12,501) ( 14,499) ( 1,747) ( 7,856) ( 8,888) ( 1,071)
-Deferred -- -- -- -- -- --
---------- ---------- ---------- --------- ---------- ----------
Income before minority
interests 68,481 80,017 9,641 43,335 49,338 5,944
Minority interests ( 34,406) ( 39,907) ( 4,808) ( 21,620) ( 24,466) ( 2,948)
---------- ---------- ---------- --------- ---------- ----------
Net income 34,075 40,110 4,833 21,715 24,872 2,996
====== ====== ===== ====== ====== =====
Earnings per common share 6 2.23 2.62 0.32 1.42 1.62 0.20
==== ==== ==== ==== ==== ====
Numbers of shares
outstanding 6 15,300,063 15,300,063 15,300,063 15,300,063 15,300,063 15,300,063
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes form an integral part of these consolidated condensed
financial statements.
4
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND JUNE 30, 1995
(Amounts in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Six Six
Months Months Months
ended ended ended
6/30/94 6/30/95 6/30/95
RMB RMB US$
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income 34,075 40,110 4,832
Adjustments to reconcile income to net
cash provided by operating activities:
Minority interests 34,406 39,907 4,808
Depreciation 22,281 22,220 2,677
Loss on disposal of fixed assets -- 969 117
Others ( 391) ( 463) ( 56)
(Increase) decrease in assets:
Accounts receivable (243,715) (189,291) ( 22,806)
Notes receivable -- ( 26,744) ( 3,222)
Inventories ( 17,936) 80,276 9,672
Other receivables ( 33,980) ( 30,811) ( 3,712)
Due from related companies ( 736) 38,925 4,690
Increase (decrease) in liabilities:
Accounts payable 14,544 ( 45,865) ( 5,526)
Notes payable -- 15,225 1,834
Other payables 31,422 41,363 4,983
Income tax payable 14,858 6,737 812
Taxes other than income 34,053 22,855 2,754
Due to related companies 19,718 ( 19,247) ( 2,319)
Due to shareholders ( 354) ( 1,340) ( 162)
-------- -------- --------
Net cash used in operating activities ( 91,755) ( 5,174) ( 624)
Cash flows from investing activities:
Proceeds from disposal of fixed assets -- 274 33
Disposal of long term investment 263 -- --
Addition to fixed assets ( 25,119) ( 35,966) ( 4,333)
-------- -------- --------
Net cash used in investing activities ( 24,856) ( 35,692) ( 4,300)
-------- -------- --------
Cash flows from financing activities:
Proceeds from short term bank loans 228,863 186,889 22,517
Repayment of short term bank loans (189,394) (180,860) ( 21,790)
Redemption of debentures ( 10,000) -- --
Proceeds from long term bank loans 8,852 15,442 1,860
-------- -------- --------
Net cash provided by financing activities 38,321 21,471 2,587
-------- -------- --------
Net decrease in cash and cash equivalents ( 78,290) ( 19,395) ( 2,337)
Cash and cash equivalents, at beginning of
period 166,615 65,646 7,909
-------- -------- --------
Cash and cash equivalents, at end of period 88,325 46,251 5,572
======== ======== ========
Non-cash transaction:
Financing of lease arrangements 7,449 7,769 936
===== ===== ===
</TABLE>
The accompanying notes form an integral part of these consolidated condensed
financial statements.
5
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED JUNE 30, 1994 AND JUNE 30, 1995
(Amounts in thousands, except number of shares and per share data)
1. GENERAL
Sunbase Asia, Inc. ("the Company") acquired 100% of the issued share capital
of China Bearing Holdings Limited ("China Bearing") on December 2, 1994 pursuant
to a Share Exchange Agreement with Asean Capital Limited. At the date of the
exchange, 1,439,063 shares of common stock were outstanding. Immediately
following the exchange, the total number of shares of common stock outstanding
was 11,700,063. The exchange has been treated as a recapitalization of China
Bearing with China Bearing as the acquirer (reverse acquisition). The
historical financial statements prior to December 2, 1994 are those of China
Bearing.
The Company is a Nevada Corporation which owns, through various subsidiaries
and joint venture interests, a 51.4% indirect ownership in Harbin Bearing
Company Limited, a joint stock limited company organized under the law of the
People's Republic of China.
Harbin Bearing Company Limited develops and manufactures bearings in China
and sells bearings primarily in China as well as western countries, including
the United States.
2. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements are unaudited
but, in the opinion of the management of the Company, contain all adjustments,
consisting of only normal recurring accruals, necessary to present fairly the
financial position at June 30, 1995, the results of operations for the three
months and six months ended June 30, 1994 and 1995, and the changes in cash
flows for the six months ended June 30, 1994 and 1995. Certain information and
footnote disclosures normally included in financial statements that have been
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, although management of the Company believes that the
disclosures contained in these financial statements are adequate to make the
information presented therein not misleading. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994, as filed with the Securities and Exchange Commission.
6
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIODS ENDED JUNE 30, 1994 AND JUNE 30, 1995
(Amounts in thousands, except number of shares and per share data)
The results of operations for the three months and six months ended June 30,
1995 are not necessarily indicative of the results of operations to be expected
for the full fiscal year ending December 31, 1995.
3. FOREIGN CURRENCY EXCHANGE
The Company's reporting currency is Renminbi. For financial reporting
purposes, translation of amounts from Renminbi (RMB) into United States Dollars
(US$) for the convenience of the reader has been made at the exchange rate
quoted by the People's Bank of China on June 30, 1995 of US$ 1.00 - RMB 8.3. No
representation is made that the RMB amounts would have been, or would be
converted into US$ at the rate on June 30, 1995 or at any other time.
4. INVENTORIES
Inventories are comprised of:
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
1994 1995
RMB RMB
<S> <C> <C>
Raw materials 122,684 91,633
Work-in-progress 87,839 107,563
Finished goods 169,948 101,175
-------- --------
380,471 300,371
Less: Allowance for obsolescence ( 19,016) ( 18,134)
-------- --------
Inventories, net 361,455 282,237
======== ========
</TABLE>
7
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIODS ENDED JUNE 30, 1994 AND JUNE 30, 1995
(Amounts in thousands, except number of shares and per share data)
5. SECURED PROMISSORY NOTE
The promissory note (the "Note") was issued to Asean Capital Limited
in connection with the Share Exchange Agreement and is secured by a continuing
security interest in all of the Company's title and interest in the outstanding
capital stock of its wholly-owned subsidiary China Bearing Holdings Limited
("China Bearing"). The net assets of China Bearing represents all of the net
assets of the Company before taking into account the carrying value of the Note
together with the accrued interest.
The Note is repayable in full on December 31, 1996 and bears interest
at 8% per annum.
6. EARNINGS PER SHARE/NUMBER OF SHARES OUTSTANDING
During December 1994, the Company issued new shares in consideration
for the acquisition of the interests in China Bearing, which acquisition has
been accounted for as a reverse acquisition. As a result, the earnings per
share for the periods ended June 30, 1994 are presented on a pro forma basis,
and have been calculated using the common stock and common stock equivalents
outstanding, after assuming that all convertible preferred stock has been
converted into common stock, as if the existing and new shares had been
outstanding throughout all 1994 periods presented. The earnings per common
share for the periods ended June 30, 1995 have been calculated using the
weighted average number of shares of common stock and common stock equivalents
outstanding, after assuming that all convertible preferred stock has been
converted into common stock. The Series A Convertible Preferred Stock may be
converted at the option of the holder at the rate of 100,000 shares of common
stock for one share of Series A Convertible Preferred Stock.
8
<PAGE>
ITEM 2 - Management's discussion and analysis of financial condition and results
of operations
OVERVIEW
The Company owns, through various subsidiaries and joint venture
interests, a 51.4% indirect ownership in Harbin Bearing Company Limited, a joint
stock limited company organized under the law of the People's Republic of China
("Harbin Bearing"), which develops and manufactures bearings in China and sells
bearings in China as well as western countries, including the United States.
The Company produces six types of bearings with a focus on medium and
large sized bearings which have a relatively higher profit margin. During the
second quarter of 1995, there were six new bearing products in production of
which approximately two thousand units were sold. In total, there were eleven
new bearing products in production of which about seven thousand units were sold
during the six months ended June 30, 1995. Those new bearing products are
mainly medium and large-sized self-aligning ball bearings and angular contact
ball bearings which are used for motor vehicles and machine-tools applications,
respectively.
Unless specifically stated, all amounts in this Management's
Discussion and Analysis are in thousands (RMB '000).
9
<PAGE>
RESULTS OF OPERATION
I. Second Quarter Comparison
<TABLE>
<CAPTION>
Quarter Quarter
ended ended
June 30, June 30,
1995 1994
RMB RMB
<S> <C> <C>
Sales 235,979 208,362
Cost of sales (143,587) (128,103)
-------- --------
Gross Profit 92,392 80,259
Gross Profit percentage 39.1% 38.5%
Selling, General and Administrative
expenses ( 26,626) ( 17,386)
Finance Expenses ( 7,540) ( 11,682)
-------- --------
Income Before Taxes and Minority
Interests 58,226 51,191
======== ========
</TABLE>
10
<PAGE>
Sales
Sales increased by RMB 27,617 or 13.3% in the quarter ended June 30, 1995 as
compared with the quarter ended June 30, 1994. The increase in sales was
attributable to:
(i) an increase in demand from industries such as automotive and
machine-tools;
(ii) a change in sales mix as the Company focused on producing and
selling higher margin medium and large sized ball bearings since
the third quarter of 1994.
Gross Profit
Cost of sales increased from RMB 128,103 in the second quarter of 1994 to RMB
143,587 in the second quarter of 1995. The net result was that gross profit
increased by 15.1% or RMB 12,133 in the second quarter of 1995 compared to the
second quarter of 1994. Gross profit as a percentage of revenue increased from
38.5% in the second quarter of 1994 to 39.1% in the second quarter of 1995. The
increase was mainly due to higher general sales prices during the period from
1994 to 1995 and the effect of the sales mix change to higher-margin products.
Selling, General and Administrative Expenses
Total Selling, General and Administrative Expenses were RMB 26,626 or 11.3% of
net revenue in the second quarter of 1995 as compared to RMB 17,386 or 8.3% of
net revenue in the second quarter of 1994.
Selling Expenses increased by RMB 1,912 in the second quarter of 1995 compared
to the second quarter of 1994. The increase was mainly due to additional
royalty expenses resulting from the increase in sales. In addition, marketing
and transportation costs increased as the Company put forth significant efforts
to improve its customer and market focus. Selling expenses as a percentage of
revenue increased from 2.7% in 1994 to 3% in 1995.
General and Administrative Expenses increased by 22% or RMB 3,692 in the second
quarter of 1995 compared to the second quarter of 1994. General and
Administrative Expenses as a percentage of revenue increased from 7.9% in 1994
to 8.6% in 1995. The increase in General and Administrative Expenses was mainly
due to the increase in staff wages and welfare costs associated with the hiring
of new workers. There was no significant change in number of workers between
the first quarter and second quarter of 1995.
Other expenses increased by RMB 3,636 in the second quarter of 1995 compared to
the second quarter of 1994. The increase was mainly due to the compensation for
a voluntary
11
<PAGE>
early retirement program established after July 1994. The purpose of the early
retirement program is to streamline the organizational structure and improve
operating efficiency. Under this program, a worker could get up to a maximum
amount of RMB 25 depending on years of service. In 1994, the total amount paid
for this program was RMB 7,243. The Company expects the compensation paid for
this year will not be more than RMB 7,000.
Finance Expenses
Finance Expenses mainly represent interest expense. As a result of the
overaccrual of interest expense of RMB 4,750 during the first quarter of 1995
(which was subsequently reversed during the second quarter of 1995), interest
expense for the second quarter of 1995 was underaccrued by a similar amount.
Excluding the effect of this RMB 4,750 adjustment, Finance Expenses increased by
5.2% or RMB 608 in the second quarter of 1995 compared to the second quarter of
1994. The increase was mainly attributable to interest expense related to a US$
5,000 promissory note issued on December 31, 1994, with interest payable at 8%
per annum.
II. Six Months Period Comparison
<TABLE>
<CAPTION>
Six months Six months
ended ended
June 30, June 30,
1995 1994
RMB RMB
<S> <C> <C>
Sales 434,833 391,039
Cost of Sales (265,683) (244,468)
-------- --------
Gross Profit 169,150 146,571
Gross Profit percentage 38.9% 37.5%
Selling, General and Administrative
expenses ( 51,045) ( 42,421)
Finance Expenses ( 23,589) ( 23,168)
-------- --------
Income Before Income Taxes and Minority
Interests 94,516 80,982
======== ========
</TABLE>
12
<PAGE>
Sales
Sales increased by RMB 43,794 or 11.2% during the six months ended June 30, 1995
as compared with the six months ended June 30, 1994. The reasons for the
increase in sales are the same as the reasons stated in the previous comparison
of the second quarter of 1995 to the second quarter of 1994.
Gross Profit
Cost of sales increased from RMB 244,468 in the six months ended June 30, 1994
to RMB 265,683 in the six months ended June 30, 1995. The net result was that
gross profit increased by RMB 22,579 or 15.4% in 1995 compared to 1994. Gross
profit as a percentage of revenue increased from 37.5% in 1994 to 38.9% in 1995,
reflecting the increase in general sales prices during the period from 1994 to
1995 and the effect of the sales mix change to higher-margin products.
Selling, General and Administrative Expenses
Total Selling, General and Administrative Expenses were RMB 51,045 or 11.7% of
net revenue in the six months ended June 30, 1995 as compared to RMB 42,421 or
10.8% of net revenue in the six months ended June 30, 1994.
Selling Expenses increased by RMB 1,457 in the six months ended June 30, 1995
compared to the six months ended June 30, 1994. The increase was mainly due to
additional royalty expenses, marketing and transportation costs as discussed in
the previous comparison of the second quarter of 1995 to the second quarter of
1994. Selling expenses as a percentage of revenue increased from 1.4% in 1994
to 1.6% in 1995.
General and Administrative Expenses increased by RMB 7,167 or 20% RMB in the six
months ended June 30, 1995 compared to the six months ended June 30, 1994. The
significant increase was mainly due to the compensation for a voluntary early
retirement program, as previously discussed, during the six months ended June
30, 1995 of RMB 5,051 which was established after July 1994. Also, during the
six months ended June 30, 1995, there was a loss on disposal of fixed assets of
RMB 917 whereas in the six months ended June 30, 1994, there was a gain on
disposal of fixed assets of RMB 1,087.
13
<PAGE>
Finance Expenses
Finance Expenses increased by RMB 421 in the six months ended June 30, 1995
compared to the six months ended June 30, 1994. The increase was mainly
attributable to interest expense related to a US$ 5,000 promissory note issued
on December 30, 1994 with interest payable at 8% per annum.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position decreased by RMB 19,395 during the six months ended
June 30, 1995 as compared to the decrease in cash position during the six months
ended June 30, 1994 of RMB 78,290.
Operating activities
The Company utilized cash in operating activities of RMB 5,174 in the six months
ended June 30, 1995 compared to RMB 91,755 in the six months ended June 30,
1994. The decrease in cash outflow was mainly due to the decrease in accounts
receivable (including notes receivable) and inventories of RMB 27,680 and RMB
98,212 in the six months ended June 30, 1995, respectively, as a result of
improvement in cash settlements from customers and better inventory control.
This was partially offset by an increase in cash outflow of RMB 45,184 in the
six months ended June 30, 1995 due to increased payments to suppliers (denoted
by decreases in accounts payable and notes payable). The Company intends to
strengthen the enforcement of credit control and the acceleration of the cash
collection.
As of June 30, 1995, the Company's working capital had increased to RMB 323,088
as compared to RMB 247,990 at December 31, 1994 and RMB 254,634 at June 30,
1994. The Company's current ratio was 1.47:1 as of June 30, 1995, as compared
to 1.38:1 at December 31, 1994 and 1.5:1 at June 30, 1994.
Investing activities
Total capital expenditures for the six months ended June 30, 1995 were RMB
35,966 and were mainly for construction of new plant, buildings and renovating
existing facilities and equipment. They were mainly financed by internally
generated funds and the long term bank loans (see below).
The Company had outstanding capital commitments for the purchase of equipment
and the construction of plant of approximately RMB 91,500 at December 31, 1994,
and RMB 55,000 at June 30, 1995.
14
<PAGE>
Financing activities
The Company relies on both long- and short-term bank loans from Chinese banks to
support its operating and capital requirements. Short-term bank loans have
terms ranging from three months to six months, and are renewed on a revolving
basis. During the six months ended June 30, 1995, new bank loans drawn down
(after deducting repayment of previous loans) totalled RMB 6,029. The increase
in short-term bank loans in 1995 was utilized for funding operating activities.
Long-term bank loans are utilized to fund capital expansion projects. During
the six months ended June 30, 1995, new long-term bank loans totalled RMB
15,442, whereas during the six months ended June 30, 1994, new long-term bank
loans totalled RMB 8,852. The increase in long-term bank loans in 1995 compared
to 1994 was mainly due to additional capital projects requirements.
The Company believes that it will be able to continue to maintain and expand its
bank borrowings under existing terms and conditions. The Company believes that
cash flow from operations, combined with bank borrowings, will provide
sufficient cash flow to finance internal growth and debt service requirements
for the foreseeable future.
Effect of Inflation
In China, the general inflation rate continued to be in excess of 10% on an
annualized basis during the six months ended June 30, 1995, but it is expected
that the Chinese government will make substantial efforts to control inflation
over the near term.
Inflation affects the performance of the Company in two ways: pricing and
costs. The Company has raised its product price to shift part of the inflated
costs to the customers. For cost, regarding the major raw material (bearing
steel), the price remained fairly stable during 1994 and 1995. The only major
impact of inflation on cost was on labor cost as wages of the employees has been
increased. However, due to the improved operational efficiency as reflected by
the increased gross profit ratio during the six months ended June 30, 1995, the
overall effect of inflation did not have a material impact on the Company's
performance. Due to the establishment of a higher scale of production and
better control on its production cost structure, management believes that the
high inflation rate would have a favorable impact on the market share of the
Company because it would increase its relative competitiveness in the market to
the detriment of other smaller manufacturers which would experience the same
effects of inflation.
Part II. OTHER INFORMATION
Item 6. Exhibit
(a) Exhibits:
27 Financial Data Schedule
15
<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.
SUNBASE ASIA, INC.
Date: August 17, 1995 BY /s/ GUNTER GAO
__________________________________________
Gunter Gao
Chairman of the Board, President and Director
(Duly authorized officer)
Date: August 17, 1995 BY /s/ ROGER LI
_______________________________________
Roger Li
Director and Chief Financial Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> RENMINBI
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> .12048
<CASH> 46,251
<SECURITIES> 0
<RECEIVABLES> 514,245
<ALLOWANCES> 0
<INVENTORY> 282,237
<CURRENT-ASSETS> 1,003,302
<PP&E> 493,798
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,539,161
<CURRENT-LIABILITIES> 680,214
<BONDS> 200,395
<COMMON> 99
0
44,533
<OTHER-SE> 243,588
<TOTAL-LIABILITY-AND-EQUITY> 1,539,161
<SALES> 434,833
<TOTAL-REVENUES> 434,833
<CGS> 265,683
<TOTAL-COSTS> 265,683
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,589
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<INCOME-TAX> 14,499
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<NET-INCOME> 40,110
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</TABLE>
