10QSB 1 chinaresources-10qsb.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter period ended March 31, 2002 -------------- [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ___________ to _____________ CHINA RESOURCES DEVELOPMENT, INC. (Exact Name of registrant as Specified in Charter) Nevada 0-26046 87-02623643 (State or other Jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) Room 2105, West Tower, Shun Tak Centre, 200 Connaught Road C., Sheung Wan, Hong Kong Telephone: 011-852-2810-7205 (Address and telephone number of principal executive offices) 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 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: 837,823 shares of common stock, $0.001 par value, as of May 12, 2002. CONVENTIONS Unless otherwise specified, all references in this report to "U.S. Dollars," "Dollars," "US$," or "$" are to United States dollars; all references to "Hong Kong Dollars" or "HK$" are to Hong Kong dollars; and all references to "Renminbi" or "RMB" or "Yuan" are to Renminbi Yuan, which is the lawful currency of the People's Republic of China ("China" or "PRC"). The Company and Billion Luck maintain their accounts in U.S. Dollars and Hong Kong Dollars, respectively. HARC and its subsidiaries maintain their accounts in Renminbi. The financial statements of the Company and its subsidiaries are prepared in Renminbi. Translations of amounts from Renminbi to U.S. Dollars and from Hong Kong Dollars to U.S. Dollars are for the convenience of the reader. Unless otherwise indicated, any translations from Renminbi to U.S. Dollars or from U.S. Dollars to Renminbi have been made at the single rate of exchange as quoted by the People's Bank of China (the "PBOC Rate") on March 31, 2002, which was approximately U.S.$1.00 = Rmb8.28. Translations from Hong Kong Dollars to U.S. Dollars have been made at the single rate of exchange as quoted by the Hongkong and Shanghai Banking Corporation Limited on March 31, 2002, which was approximately US$1.00 = HK$7.80. The Renminbi is not freely convertible into foreign currencies and the quotation of exchange rates does not imply convertibility of Renminbi into U.S. Dollars or other currencies. All foreign exchange transactions take place either through the Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People's Bank of China. No representation is made that the Renminbi or U.S. Dollar amounts referred to herein could have been or could be converted into U.S. Dollars or Renminbi, as the case may be, at the PBOC Rate or at all. References to "Billion Luck" are to Billion Luck Company Ltd., a British Virgin Islands company, which is a wholly-owned subsidiary of the Company. References to "Company" are to China Resources Development, Inc., and include, unless the context requires otherwise, the operations of its subsidiaries (all as hereinafter defined). References to "Farming Bureau" are to the Hainan Agricultural Reclamation General Company, a division of the Ministry of Agriculture, the PRC government agency responsible for matters relating to agriculture. References to "Hainan" are to Hainan Province of the PRC. References to "HARC" are to Hainan Cihui Industrial Company Limited (formerly known as Hainan Zhongwei Agricultural Resources Company Limited), a company organized in the PRC, and is a wholly-owned subsidiary of the Company. References to the "PRC" or "China" include all territory claimed by or under the control of the Central Government, except Hong Kong, Macau, and Taiwan. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (Amounts in thousands, except share and per share data) Three Months Ended March 31, ------------------------------------ 2002 2001 2002 -------- -------- -------- RMB RMB US$ NET SALES 1,714 4,528 207 COST OF SALES (1,465) (4,346) (177) -------- -------- -------- GROSS PROFIT 249 182 30 DEPRECIATION (211) (154) (25) AMORTIZATION -- (1,338) -- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (3,024) (3,820) (365) FINANCIAL INCOME/ (EXPENSES), NET 282 (70) 34 OTHER INCOME, NET 411 10,547 49 -------- -------- -------- INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (2,293) 5,347 (277) INCOME TAXES -- (1,262) -- -------- -------- -------- INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY INTERESTS (2,293) 4,085 (277) MINORITY INTERESTS -- 1,053 -- -------- -------- -------- INCOME/(LOSS) FROM CONTINUING OPERATIONS (2,293) 5,138 (277) DISCONTINUED OPERATIONS Loss from operations of discontinued timber segment -- (24) -- -------- -------- -------- NET INCOME/(LOSS) (2,293) 5,114 (277) ======== ======== ======== INCOME/(LOSS) PER SHARE: Basic and diluted Continuing operations (2.74) 6.13 (0.33) Discontinued operations -- (0.03) -- -------- -------- -------- (2.74) 6.10 (0.33) ======== ======== ======== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 837,797 837,797 837,797 ======== ======== ======== See notes to condensed consolidated financial statements. 3 CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2002 AND DECEMBER 31, 2001 (Amounts in thousands, except share and per share data)
March 31, December 31, March 31, 2002 2001 2002 RMB RMB US$ Notes (Unaudited) (Note) (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents 6,195 7,627 748 Marketable securities 2 11,207 5,744 1,354 Inventories - finished goods 547 610 66 Other receivables, deposits and prepayments 757 4,635 91 Short term loans receivable 3 16,960 15,488 2,048 Amounts due from related companies -- 636 -- Amounts due from employees 1,009 896 122 -------- -------- -------- TOTAL CURRENT ASSETS 36,675 35,636 4,429 PROPERTY AND EQUIPMENT 4 7,072 7,279 854 INVESTMENTS 109,615 109,615 13,239 VALUE-ADDED TAX RECEIVABLE 4,687 4,687 566 -------- -------- -------- TOTAL ASSETS 158,049 157,217 19,088 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable 212 247 26 Other payables and accrued liabilities 5 19,619 16,569 2,369 Income taxes 454 454 55 Amounts due to related companies 366 366 44 -------- -------- -------- TOTAL CURRENT LIABILITIES 20,651 17,636 2,494 -------- -------- -------- SHAREHOLDERS' EQUITY Common stock, US$0.001 par value: Authorized - 200,000,000 shares Issued and outstanding - 837,797 shares in 2002 and 2001 7 7 1 Preferred stock, authorized - 10,000,000 shares in 2002 and 2001 Series B preferred stock, US$0.001 par value: Authorized - 320,000 shares Issued and outstanding - 320,000 shares in 2002 and 2001 3 3 -- Additional paid-in capital 169,052 169,052 20,417 Reserves 28,028 28,028 3,385 Accumulated deficit (59,853) (57,560) (7,229) Accumulated other comprehensive gains 161 51 20 -------- -------- -------- TOTAL SHAREHOLDERS' EQUITY 137,398 139,581 16,594 -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 158,049 157,217 19,088 ======== ======== ========
Note: The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. See notes to condensed consolidated financial statements. 4 CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2002 (Amounts in thousands)
Accumulated Series B Additional other Common preferred paid-in Accumulated comprehensive stock stock capital Reserves deficits gains Total RMB RMB RMB RMB RMB RMB RMB -------- -------- -------- -------- -------- -------- -------- Balance at January 1, 2002 7 3 169,052 28,028 (57,560) 51 139,581 Net loss -- -- -- -- (2,293) -- (2,293) Currency translation adjustments -- -- -- -- -- 110 110 -------- Comprehensive loss -- -- -- -- -- -- (2,183) -------- -------- -------- -------- -------- -------- -------- -------- Balance at March 31, 2002 7 3 169,052 28,028 (59,853) 161 137,398 ======== ======== ======== ======== ======== ======== ========
See notes to condensed consolidated financial statements. 5 CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (Amounts in thousands)
Three months ended March 31, ----------------------------------------------- 2002 2001 2002 ------- ------- ------- RMB RMB US$ Net cash provided by operating activities 56 41,747 7 ------- ------- ------- INVESTING ACTIVITIES Purchases of property and equipment (4) (17) (1) Advances of short term loans to third parties (10,600) -- (1,280) Repayments of short term loans from third parties 9,116 -- 1,101 ------- ------- ------- Net cash used in investing activities (1,488) (17) (180) ------- ------- ------- NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (1,432) 41,730 (173) Cash and cash equivalents, at beginning of period 7,627 37,547 921 ------- ------- ------- Cash and cash equivalents, at end of period 6,195 79,277 748 ======= ======= =======
See notes to condensed consolidated financial statements. 6 CHINA RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except per share data) 1. BASIS OF PRESENTATION As of December 31, 2001, the Company meets the eligibility requirements for entry into the small business (SB) disclosure system. Accordingly, this quarterly report is filed on Form 10-QSB. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America 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 month period ended March 31, 2002, are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. 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 year ended December 31, 2001. Certain comparative amounts have been reclassified to conform with the current period classifications. 2. MARKETABLE SECURITIES March 31, December 31, 2002 2001 RMB RMB ------- ------- Trading securities listed on NASDAQ At cost 7,656 1,478 Add: unrealized gain 33 -- Less: unrealized losses (62) (21) ------- ------- Fair value 7,627 1,457 ------- ------- Trading securities listed on the Hong Kong Stock Exchange At cost 3,941 4,839 Add: unrealized gain 106 113 Less: unrealized loss (408) (665) ------- ------- Fair value 3,639 4,287 ------- ------- Written put option to sell American Depository Receipts ("ADR") in the United States (59) -- ------- ------- 11,207 5,744 ======= ======= 7 During the three months ended March 31, 2002, the Company wrote put options to sell certain ADR in the United States. These options expire on June 22, 2002. The market price of the put options at March 31, 2002 was RMB59. 3. SHORT TERM LOANS RECEIVABLE In March 2002, the Company advanced an interest free short term loan of RMB10,600 to an unaffiliated third party. The loan was repaid in April 2002. In addition, short term loans amounting to RMB9,116, which were advanced to two unaffiliated third parties in 2001, were repaid in the first quarter of 2002. 4. PROPERTY AND EQUIPMENT March 31, December 31, 2002 2001 RMB RMB At cost: Buildings 4,260 4,260 Machinery, equipment and motor vehicles 4,128 4,124 Fixtures and furniture 208 208 ------- ------- 8,596 8,592 Accumulated depreciation (1,524) (1,313) ------- ------- 7,072 7,279 ======= ======= 5. OTHER PAYABLES AND ACCRUED LIABILITIES March 31, December 31, 2002 2001 RMB RMB Advances from a former vice president 13,959 11,298 Accrued salary of a director 1,201 1,106 Other payables 1,601 1,368 Accrued liabilities 2,858 2,797 ------- ------- 19,619 16,569 ======= ======= 8 6. SEGMENT FINANCIAL INFORMATION Three months ended March 31, 2002 2001 RMB RMB Net sales: Supermarket operations, net sales to unaffiliated customers 1,714 1,343 Natural rubber, net sales to unaffiliated customers -- 3,185 -------- -------- Total consolidated net sales 1,714 4,528 ======== ======== Segment profit/(loss): Supermarket operations 135 89 Natural rubber -- (501) -------- -------- Total segment income/(loss) 135 (412) Reconciling items: Corporate expenses (3,101) (4,559) Gain on trading of marketable securities 391 7,208 Premium earned on written call options -- 3,180 Interest income 282 159 Interest expense -- (229) -------- -------- Total consolidated income/(loss) before income taxes and discontinued operations (2,293) 5,347 ======== ======== March 31, December 31, 2002 2001 RMB RMB Segment assets: Supermarket operations 6,969 6,895 Natural rubber -- -- -------- -------- Total segment assets 6,969 6,895 Reconciling items: Corporate assets 41,465 40,707 Investments 109,615 109,615 -------- -------- Total consolidated assets 158,049 157,217 ======== ======== 7. COMPREHENSIVE GAIN/(LOSS) Three months ended March 31, 2002 2001 RMB RMB -------- -------- Total comprehensive gain/(loss) (2,183) 5,130 ======== ======== 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table shows the selected unaudited condensed consolidated statement of operations data of the Company and its subsidiaries for the three months ended March 31, 2002 and 2001. The data should be read in conjunction with the unaudited Condensed Consolidated Financial Statements of the Company and related notes thereto. The discussions below are presented in the Company's primary operating currency, which is the Renminbi Yuan ("RMB"). For information purposes only, the amounts may be translated into U.S. dollars at an exchange rate of $1.00 = RMB8.28, which represents the approximate single rate of exchange as quoted by the People's Bank of China on March 31, 2002. No representation is made that RMB amounts could have been, or could be, converted into U.S. dollars at that rate or any other rate. (Amounts in thousands) Three months ended March 31, --------------------------- 2002 2001 RMB RMB Net sales: Supermarket operations 1,714 1,343 Natural rubber -- 3,185 ------ ------ 1,714 4,528 ------ ------ Gross profit 249 182 Gross profit margin (%) 14.5 4.02 Income/(loss) from continuing operations before income taxes (2,293) 5,347 Income taxes -- (1,262) ------ ------ Income/(loss) from continuing operations before minority interests (2,293) 4,085 Minority interests -- 1,053 ------ ------ Income/(loss)from continuing (2,293) 5,138 operations Discontinued operations Loss from operations of discontinued timber segment -- (24) ------ ------ Net income/(loss) (2,293) 5,114 ====== ====== NET SALES AND GROSS PROFIT Net sales from supermarket operations increased by 27.6% from RMB1.3 million (US$162,000) for the first quarter of 2001 to RMB1.7 million (US$207,000) for the first quarter of 2002. For the first quarter of 2002, supermarket operations had gross profit and gross profit margin of RMB249,000 (US$30,000) and 14.5%, respectively. For the first quarter of 2001, supermarket operations had gross profit and gross profit margin of RMB178,000 (US$21,000) and 13.3%, respectively. The increases in net sales and gross profit margin were due to increased sales volume resulting from the successful marketing efforts of the Company and its ability to source less expensive and better quality products from suppliers. The Company periodically engages in the trading of natural rubber, depending on market conditions. The Company had sales of RMB3.2 million (US$385,000) for the first quarter of 2001, with a gross loss of RMB4,000 (US$483). 10 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses decreased by RMB796,000 (US$96,000) or 20.8% to RMB3.0 million (US$365,000) for the first quarter of 2002 from RMB3.8 million (US$461,000) for the first quarter of 2001. The decrease was due to the reduction in personnel and the Company's tightened cost control measures. AMORTIZATION Amortization expense for the first quarter of 2001 represented amortization of website technology, acquired on June 30, 2000, which was recorded on the straight-line basis over two years. The Company wrote off the acquired website technology in 2001. FINANCIAL INCOME, NET Net financial income for the first quarter of 2002 was RMB282,000 (US$34,000), which primarily represented interest income on short term loans receivable. Net financial expense for the first quarter of 2001 was RMB70,000 (US$8,000), which was comprised of margin loan interest expenses of RMB216,000 (US$26,000) and interest income of RMB106,000 (US$13,000) from bank deposits. OTHER INCOME/(EXPENSES), NET Other income for the first quarter of 2002 represented a net loss on trading of marketable securities of RMB77,000 (US$9,000) offset by the premium earned on written put options of RMB488,000 (US$59,000). Other income for the first quarter of 2001 represented a net gain on trading of marketable securities of RMB7.2 million (US$870,000) and a premium earned on written call options of RMB3.2 million (US$386,000). INCOME TAXES It is management's intention to reinvest all the income attributable to the Company earned by its operations outside the US. Accordingly, no US federal and state income taxes have been provided in these consolidated financial statements. Income taxes consist of PRC federal income tax computed at 15% on assessable income for foreign investment enterprises operating in Hainan. DISCONTINUED OPERATIONS Discontinued operations represented the loss from the operations of the discontinued processed timber business resulting from the exchange of the Company's 58% interest in Hainan Weilin Timber Limited Liability Company as partial consideration for the minority interest of HARC in 2001. LIQUIDITY AND CAPITAL RESOURCES The Company's primary liquidity needs are to fund inventories, trade receivables and operating expenses, and to expand business operations. The Company has financed its working capital requirements primarily through internally generated cash. The Company had a working capital surplus of approximately RMB16.0 million (US$1.9million) as of March 31, 2002, compared to that of approximately RMB18.0 million (US$2.2 million) as of December 31, 2002. Net cash provided by operating activities for the three months ended March 31, 2002 was approximately RMB56,000 (US$7,000), as compared to RMB41.7 million (US$5.0 million) for the corresponding period in 2001. Net cash inflows/outflows from the Company's operating activities are attributable to the Company's net loss and changes in operating assets and liabilities. The cash inflows in 2001 primarily consisted of cash proceeds from the disposal of marketable securities. Net cash provided by investing activities for the three months ended March 31, 2002 was primarily attributable to advances and repayments of short term loans to/from third parties. Except as disclosed above, there has been no other significant changes in financial condition and liquidity since the fiscal year ended December 31, 2001. The Company believes that internally generated funds will be sufficient to satisfy its anticipated working capital needs for at least the next twelve months. 11 MARKET RISK AND RISK MANAGEMENT POLICIES All of the Company's sales and purchases are made domestically and are denominated in RMB. Accordingly, the Company and its subsidiaries do not have material market risk with respect to currency fluctuation. As the reporting currency of the Company's consolidated financial statements is also RMB, there is no significant translation difference arising on consolidation. However, the Company may suffer exchange loss when it converts RMB to other currencies, such as Hong Kong Dollar or United States Dollar. The Company's interest income is most sensitive to changes in the general level of RMB interest rates. In this regard, changes in RMB interest rates affect the interest earned on the Company's cash equivalents. As at March 31, 2002, the Company's cash equivalents are mainly RMB, Hong Kong Dollar and United States Dollar deposits with financial institutions, bearing market interest rates without fixed term. At March 31, 2002, the Company had short-term investments in marketable securities in the Hong Kong and United States stock markets with a total market value of RMB11.2 million (US$1.4 million). These investments expose the Company to market risks that may cause the future value of these investments to be lower than the original cost of such investments. The Company wrote put options to purchase certain ADR in the United States in the first quarter of 2002. These options which expire on June 22, 2002 expose the Company to market risk relating to unfavourable changes in the price of the ADR underlying the written option. 12 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) None. (b) During the three months ended March 31, 2002, the Company filed no current reports on Form 8-K. 13 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 RESOURCES DEVELOPMENT, INC. May 14, 2002 By: /s/ Ching Lung Po ------------------------------------- Ching Lung Po, Chairman By: /s/ Tam Cheuk Ho ------------------------------------- Tam Cheuk Ho, Chief Financial Officer 14