-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GL83kObk3Gp065GYH0EizSz6SPKv4zcWNAdD9WNJUtC/jcuarD5QgJ5ozuGliG7Q M4OpNfCBCLQY0GUqgmQMMA== 0000898430-96-002182.txt : 19960523 0000898430-96-002182.hdr.sgml : 19960523 ACCESSION NUMBER: 0000898430-96-002182 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960521 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUNBASE ASIA INC CENTRAL INDEX KEY: 0000095626 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 941612110 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-03132 FILM NUMBER: 96570725 BUSINESS ADDRESS: STREET 1: 19 F FIRST PACIFIC BANK CENTERE STREET 2: 51-57 GLOUCESTER ROAD CITY: WANCHAI HONG KONG STATE: K3 BUSINESS PHONE: 01185228651511 MAIL ADDRESS: STREET 1: P O BOX 2600 CITY: BAKERSFIELD STATE: CA ZIP: 93303 FORMER COMPANY: FORMER CONFORMED NAME: PAN AMERICAN INDUSTRIES INC DATE OF NAME CHANGE: 19941216 FORMER COMPANY: FORMER CONFORMED NAME: PAN AMERICAN ENERGY CORPORATION DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SUPREME OIL & GAS CORP DATE OF NAME CHANGE: 19901029 10-Q 1 FORM 10-Q 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 March 31, 1996. 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 be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of March 31, 1996, the Company had 11,700,063 shares of common stock issued and outstanding. 1 SUNBASE ASIA, INC. AND SUBSIDIARIES ----------------------------------- INDEX
PAGE ---- ITEM 1 -- Financial Statements 3-11 ITEM 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations 12-16 PART II: Other Information ITEM 6 -- Exhibits and Reports on Form 8-K 16
2 PART I. FINANCIAL INFORMATION ITEM 1 - Financial Statements SUNBASE ASIA, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND MARCH 31, 1996 (Amounts in thousands, except number of shares and per share data)
(Unaudited) (Unaudited) 12/31/95 12/31/95 3/31/96 3/31/96 Notes RMB US$ RMB US$ ----- --------- --------- ----------- ----------- ASSETS Current assets Cash and bank balances 30,944 3,715 24,144 2,898 Accounts receivable, net 264,186 31,715 397,070 47,667 Notes receivable 25,756 3,092 14,304 1,717 Inventories, net 4 476,997 57,262 460,988 55,341 Prepaid VAT 40,429 4,853 16,173 1,942 Other receivables 57,209 6,868 71,302 8,560 Due from related companies 137,079 16,456 185,093 22,220 --------- --------- ---------- ---------- Total current assets 1,302,600 123,961 1,169,074 140,345 Fixed assets 554,086 66,517 558,791 67,082 Deferred asset 18,134 2,177 17,419 2,091 Long term investments 1,438 173 1,012 122 Goodwill 12,144 1,458 11,956 1,435 --------- --------- ---------- ---------- Total assets 1,618,402 194,286 1,758,252 211,075 ========= ========= ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short term bank loans 276,813 33,231 370,864 44,522 Accounts payable 116,205 13,950 137,602 16,519 Notes payable 15,627 1,876 14,972 1,797 Accrued liabilities and other payables 90,108 10,817 76,247 9,153 Short term obligations under capital leases 17,269 2,073 17,637 2,117 Other loans 33,810 4,059 - - Secured promissory note 5 41,600 4,994 41,650 5,000 Income tax payable 5,874 705 14,222 1,707 Due to related companies 111,654 13,404 193,436 23,222 Due to shareholders 17,352 2,083 20,004 2,402 --------- --------- ---------- ---------- Total current liabilities 726,312 87,192 886,634 106,439 Long term bank loans 110,670 13,286 60,395 7,250 Long term obligations under capital leases 107,713 12,931 103,163 12,385 Minority interests 343,142 41,193 361,430 43,389 --------- --------- ---------- ---------- 1,287,837 154,602 1,411,622 169,463
Continued/... The accompanying notes form an integral part of these consolidated financial statements. 3 SUNBASE ASIA, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND MARCH 31, 1996 (continued) (Amounts in thousands, except number of shares and per share data)
(Unaudited) (Unaudited) 12/31/95 12/31/95 3/31/96 3/31/96 RMB US$ RMB US$ --------- -------- ----------- ----------- Shareholders' equity: Common Stock, par value US$0.001 each, 50,000,000 shares authorized; 11,700,063 issued, and fully paid up 99 12 99 12 Preferred Stock, par value US $0.001 each, 25,000,000 shares authorized; Convertible Preferred Stock - Series A; 36 shares issued and outstanding 44,533 5,346 44,533 5,346 Convertible Preferred Stock - Series B; 6,800 shares issued and outstanding 28,288 3,396 28,288 3,396 Contributed surplus 151,942 18,240 151,942 18,240 Reserves 25,266 3,033 25,266 3,033 Retained earnings 80,437 9,657 96,502 11,585 --------- ------- --------- ------- Total shareholders' equity 330,565 39,684 346,630 41,612 --------- ------- --------- ------- Total liabilities and shareholders' equity 1,618,402 194,286 1,758,252 211,075 ========= ======= ========= =======
The accompanying notes form an integral part of these consolidated financial statements. 4 SUNBASE ASIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE PERIODS ENDED MARCH 31, 1995 AND MARCH 31, 1996 (Amounts in thousands, except number of shares and per share data)
Three Three Three months months months ended ended ended 3/31/95 3/31/96 3/31/96 Notes RMB RMB US$ ----- ---------- ---------- ---------- Net sales 198,854 216,080 25,940 Cost of sales (122,096) (132,889) (15,953) ---------- ---------- ---------- Gross profit 76,758 83,191 9,987 Selling, general and administrative expenses (24,419) (28,223) (3,388) Interest expense, net (16,049) (13,970) (1,677) ---------- ---------- ---------- Income before income taxes 36,290 40,998 4,922 Provision for income taxes: - Current (5,611) (6,645) (798) - Deferred - - - ---------- ---------- ---------- Income before minority interests 30,679 34,353 4,124 Minority interests (15,441) (18,288) (2,196) ---------- ---------- ---------- Net income 15,238 16,065 1,928 ========== ========== ========== Earnings per common share 6 1.00 1.00 0.12 ========== ========== ========== Number of shares outstanding 6 15,300,063 15,980,063 15,980,063 ========== ========== ==========
The accompanying notes form an integral part of these consolidated financial statements. 5 SUNBASE ASIA, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE PERIODS ENDED MARCH 31, 1995 AND MARCH 31, 1996 (Amounts in thousands)
Three Three Three Months Months Months ended ended ended 3/31/95 3/31/96 3/31/96 RMB RMB US$ -------- -------- ------- Cash flows from operating activities: Net Income 15,238 16,065 1,929 Adjustments to reconcile income to net cash provided by (used in) operating activities: Minority interests 15,441 18,288 2,195 Depreciation 11,250 15,771 1,893 Loss on disposal of fixed assets 969 - - Exchange difference on secured promissory note - 50 6 Amortization of goodwill - 188 22 Others (263) 715 86 (Increase) decrease in assets: Accounts receivable (105,026) (132,884) (15,952) Inventories 30,932 16,009 1,922 Notes receivable (23,468) 11,452 1,375 Prepaid VAT - 24,256 2,912 Other receivables (22,679) (14,093) (1,692) Due from related companies 45,641 (48,014) (5,764) Increase (decrease) in liabilities: Accounts payable (15,990) 21,397 2,569 Notes payable 18,642 (655) (79) Accrued liabilities and other payables 16,245 (13,861) (1,664) Income tax payable (2,720) 8,348 1,002 Taxes other than income 2,441 - - Due to related companies (16,618) 77,600 9,316 Due to shareholders (4,440) 2,652 318 -------- -------- ------- Net cash provided by (used in) operating activities (34,405) 3,284 394 Cash flows from investing activities: Disposal of long term investment - 426 51 Proceeds from disposal of fixed assets 274 - - Addition to fixed assets (11,349) (20,476) (2,458) -------- -------- ------- Net cash used in investing activities (11,075) (20,050) (2,407) -------- -------- -------
Continued/... The accompanying notes form an integral part of these consolidated financial statements. 6 SUNBASE ASIA, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued) FOR THE PERIODS ENDED MARCH 31, 1995 AND MARCH 31, 1996 (Amounts in thousands)
Three Three Three Months Months Months ended ended ended 3/31/95 3/31/96 3/31/96 RMB RMB US$ -------- -------- ------- Cash flows from financing activities: Proceeds from short term bank loans 105,533 211,255 25,361 Repayment of short term bank loans (90,444) (117,204) (14,070) Repayment of other loans - (33,810) (4,059) Decrease in long term bank loans (343) (50,275) (6,036) -------- -------- ------- Net cash provided by financing activities 14,746 9,966 1,196 -------- -------- ------- Net decrease in cash and cash equivalents (30,734) (6,800) (817) Cash and cash equivalents, at beginning of period 65,646 30,944 3,715 -------- -------- ------- Cash and cash equivalents, at end of period 34,912 24,144 2,898 ======== ======== ======= Non-cash transaction: Financing of lease arrangements 3,844 4,182 502 ======== ======== =======
The accompanying notes form an integral part of these consolidated financial statements. 7 SUNBASE ASIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) FOR THE PERIODS ENDED MARCH 31, 1995 AND MARCH 31, 1996 (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 in exchange for 10,261,000 shares of common stock. 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. On December 29, 1995, the Company entered into a reorganization agreement with Southwest Products Company ("Southwest") and the shareholders of Southwest for the acquisition of 100% of the issued common stock of Southwest. In connection with the merger, the Company issued an aggregate of 6,800 shares of Series B convertible preferred stock ("Series B stock") to the then shareholders of Southwest or their designates. At the option of the Series B stockholders, the stock may be redeemed at US$500 per Series B share by the Company from the proceeds of the next permanent equity offering, the net proceeds of which will be designated for such redemption. Any shares not so redeemed will automatically be converted into common stock shares at the rate of 100 common stock shares per Series B stock. If the aforesaid public offering or the redemption are not effected within two years from date of issue of the Series B stock, the stock will automatically be converted into common stock at the rate of 100 common stock shares per Series B stock. As preferred shares, the shares carry 100 votes per share and are entitled to the same dividend as the common shareholders on the 8 SUNBASE ASIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)(Continued) FOR THE PERIODS ENDED MARCH 31, 1995 AND MARCH 31, 1996 (Amounts in thousands, except number of shares and per share data) basis as if the preferred shares had been converted to common stock shares at the conversion rate as noted above. Southwest is a manufacturer of spherical bearings and supplies its products to the aerospace, commercial aviation and other industries around the world. Its major customers are in the United States. Southwest also has an interest in a Shanghai Joint Venture. As a result of a lack of information available with respect to the financial condition of the Shanghai Joint Venture, management of the Company was unable to determine the fair value of the 28% equity interest in the Shanghai Joint Venture owned by Southwest. Accordingly, the Company did not allocate any portion of the Southwest purchase consideration to the investment in the Shanghai Joint Venture at the date of acquisition. The Company is attempting to obtain additional information, and to the extent that such additional information is obtained during 1996, the Company may subsequently determine to allocate a portion of the purchase consideration to the investment in the Shanghai Joint Venture, with a commensurate reduction of goodwill. Such reallocation, if it occurs, would not have a material effect on the consolidated results of operations or financial position of the Company. 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 necessary to present fairly the financial position at March 31, 1996, the results of operations for the three months ended March 31, 1995 and 1996, and the changes in cash flows for the three months ended March 31, 1995 and 1996. These adjustments are of a normal recurring nature. The consolidated balance sheet as of December 31, 1995 is derived from the Company's audited financial statements. 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, 1995 as filed with the Securities and Exchange Commission. 9 SUNBASE ASIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)(Continued) FOR THE PERIODS ENDED MARCH 31, 1995 AND MARCH 31, 1996 (Amounts in thousands, except number of shares and per share data) As the results of operations of Southwest were not material in relation to the Company's consolidated results of operations, proforma information is not presented. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 1996. 3. FOREIGN CURRENCY EXCHANGE The Company's reporting currency is Renminbi. The financial statements of Southwest are converted into Renminbi prior to consolidation. For financial reporting purposes, transaction 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 March 31, 1996 of US$1.00 = RMB 8.33. No representation is made that the RMB amounts would have been, or would be converted into US$ at the rate on March 31, 1996 or at any other time. 4. INVENTORIES Inventories comprise:
(Unaudited) December 31, March 31, 1995 1996 RMB RMB Raw materials 105,132 99,887 Work-in-progress 104,697 99,430 Finished goods 271,477 272,751 ------- -------- 481,306 472,068 Less: Allowance for obsolescence (4,309) (11,080) ------- -------- Inventories, net 476,997 460,988 ======= ========
10 SUNBASE ASIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)(Continued) FOR THE PERIODS ENDED MARCH 31, 1995 AND MARCH 31, 1996 (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 carrying value of the net assets of China Bearing represents all of the consolidated net assets of the Company before taking into account the carrying value of the Note, the consolidated net assets of Southwest of RMB 16,144 and the goodwill arising on the acquisition of Southwest of RMB 12,144. The Note is denominated in United States dollars, is repayable in full in United States dollars on December 31, 1996 and bears interest at 8% per annum. 6. EARNINGS PER SHARE/NUMBER OF SHARES OUTSTANDING At December 29, 1995, the Company issued new shares in consideration for the acquisition of its interest in Southwest. The earnings per common share for the period ended March 31, 1995 is calculated using the common stock and common stock equivalents, after assuming that all convertible preferred stock except those issued in connection with the acquisition of Southwest, have been converted into common stock, as if these shares had been outstanding throughout all the periods presented. The earnings per common share for the period ended March 31, 1996 have been calculated using the weighted average number of shares of common stock and common stock equivalents outstanding, after assuming that all shares of convertible preferred stock have been converted into common stock. 11 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 seven types of bearings: deep groove ball bearings, self-aligning bearings, cylindrical roller bearings, angular contact ball bearings, tapered roller bearings, thrust bearings and linear-motion ball bearings, with a focus on medium and large sized bearings which have a relatively higher profit margin. During the first quarter of 1996, there were twenty-two bearing products in production which were sold. Those new bearing products are mainly small and medium sized deep groove ball bearings and angular contact ball bearings which are used for electrical appliances and machine-tools applications, respectively. Effective December 29, 1995, the Company acquired Southwest Products Company ("Southwest") which is a small but strategically-positioned, engineering-intensive company that produces precision spherical bearings for US, European and Asian aerospace and high tech commercial applications and the US military. Southwest established a joint venture company in Shanghai, China (the "Shanghai Joint Venture") that is expected to begin production in the second half of 1996 of a line of precision-grade, high-profit-margin spherical bearings primarily for distribution to international aircraft original equipment manufacturers ("OEMs") that have major "offset" commitments to purchase made-in- China parts. The acquisition of Southwest has been treated as a business combination and is accounted for under the purchase method of accounting. However, since the acquisition was deemed to have been consummated on December 29, 1995, the results of Southwest have been consolidated into the Company's consolidated results of operations from January 1, 1996. No proforma results of Southwest is presented for the period ended March 31, 1995 as the effect on comparison is not material. After acquiring Southwest, management of the Company has developed a Strategic Plan to foster future growth. The Strategic Plan has three main objectives: 1. To increase export sales of Harbin Bearing's products in the US by selling its products through Southwest's distribution network, and by changing its export product mix to meet the demands of the international marketplace. 2. To transfer US manufacturing and product development expertise and technology from Southwest to Harbin Bearing Company Limited to increase production, efficiency and product quality. 12 3. To achieve rapid growth of the Shanghai Joint Venture by targeting customers with "offset" commitments to purchase made-in-China parts. Unless specifically stated, all amounts in this Management's Discussion and Analysis are in thousands (RMB '000). RESULTS OF OPERATION
Quarter Quarter ended ended March 31, March 31, 1996 1995 RMB RMB -------- -------- Sales 216,080 198,854 Cost of Sales (132,889) (122,096) -------- -------- Gross Profit 83,191 76,758 Gross Profit percentage 38.5% 38.6% Selling Expenses (6,206) (5,103) General and Administrative expenses (22,017) (19,316) Interest Expenses (13,970) (16,049) -------- -------- Income Before Income Taxes 40,998 36,290 Provision for Income Taxes (6,645) (5,611) -------- -------- Income Before Minority Interests 34,353 30,679 Minority Interests (18,288) (15,441) -------- -------- Net Income 16,065 15,238 ======== ========
Sales - ----- Sales (including RMB 8,918 from Southwest) increased by RMB 17,226 or 9% in the quarter ended March 31, 1996 as compared with the quarter ended March 31, 1995. The slight increase in sales by Harbin Bearing was mainly due to the increase in demand from industries in China such as electrical appliances and machine-tools applications. 13 Gross Profit - ------------ Cost of sales (including RMB 6,934 from Southwest) increased from RMB 122,096 in the first quarter of 1995 to RMB 132,889 in the first quarter of 1996. The cost of sales for Harbin Bearing for the quarter ended March 31, 1996 and 1995 was calculated by reference to average gross profit ratios of 39.2% and 38.6% respectively. The cost of sales for Harbin Bearing for the quarters ended March 31, 1996 was calculated by reference to average gross profit ratios of 43.3% for 1995 and after adjusting for certain appropriate adjustments. The cost of sales for Southwest for the quarter ended March 31, 1996 was calculated on actual cost basis. The net result was that gross profit increased by 8.4% or RMB 6,433 in the first quarter of 1996 as compared to the first quarter of 1995. The increase in gross profit was attributable to increased sales. Selling Expenses - ---------------- Selling expenses (including RMB 1,006 from Southwest) increased by RMB 1,103 or 21.6% in the first quarter of 1996 as compared to the first quarter of 1995. The increase was in line with the increase in sales this quarter. Selling expenses as a percentage of revenue increased from 2.6% in the first quarter of 1995 to 2.9% in the first quarter. General and Administrative Expenses - ----------------------------------- General and Administrative Expenses (including RMB 2,019 from Southwest) increased by 14% or RMB 2,701 in the first quarter of 1996 as compared to the first quarter of 1995. General and Administrative Expenses as a percentage of revenue increased from 9.7% in 1995 to 10.2% in 1996. The increase in General and Administrative Expenses was mainly attributable to: a. Additional general and administrative costs incurred by Southwest of RMB 2,019. b. An increase in management fee of RMB 908 payable to Harbin Bearing Holdings Company as a result of a 10% inflation adjustment. c. An increase in depreciation charges and insurance premiums paid, of RMB 1,753. d. A decrease in compensation expenses of RMB 2,068 related to the voluntary early retirement program. 14 Interest Expense - ---------------- Interest Expense (including RMB 648 from Southwest) decreased by 13% or RMB 2,079 in the first quarter of 1996 as compared to the first quarter of 1995. The decrease was attributed to 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) but was also offset by an increase in interest on bank loan due to a 1.3% increase in the interest rate on higher amounts of short-term bank loans effective July 1, 1995. LIQUIDITY AND CAPITAL RESOURCES Operating Activities - -------------------- The Company generated cash from operating activities of RMB 3,284 in the first quarter of 1995 as compared to RMB 34,405 used in operating activities in the first quarter of 1995. The increase in cash generated by operations was mainly due to net improvement in cash settlements from accounts receivable (including notes receivable) and to a decrease in cash payment to suppliers. The Company continues to strengthen the enforcement of credit controls and the acceleration of the cash collection. As of March 31, 1996, the Company's working capital was RMB 282,440 as compared to RMB 306,288 at December 31, 1995 and RMB 276,084 at March 31, 1995. The Company's current ratio was 1.32:1 as of March 31, 1996 as compared to 1.42:1 at December 31, 1995 and 1.42:1 at March 31, 1995. Investing Activities - -------------------- The Company had outstanding capital expenditure commitments of RMB 46,027 at December 31, 1995. These capital commitments are expected to be funded during 1996. Total capital expenditure for the three months ended March 31, 1996 amounted to RMB 20,476 and consisted mainly of construction of new plants, buildings and on renovating of existing facilities and equipment. These were financed by funds generated internally and by short- and long-term bank loans (see below). Financing Activities - -------------------- The Company relies on both long- and short-term bank loans from Chinese banks to support its operating and capital requirement. Short-term bank loans have terms ranging from three months to six months, and are reviewed on a revolving basis. During the three months ended March 31, 1996, new short-term bank loans drawn down (after deducting 15 repayment of previous loans) totalled RMB 94,051 as compared to RMB 15,089 in 1995. The increase in short-term bank loans was mainly due to increase in short-term portion of long-term bank loan by RMB 49,447 and repayment of other loans of RMB 33,810. Long-term bank loans are utilized to fund capital expansion projects. During the first quarter of 1996, long-term bank loans decreased by RMB 50,275 as compared to RMB 343 in the first quarter of 1995. The decrease in long-term bank loans was due to the increase in short-term portion of long-term bank loans as noted above. 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 cash, bank balances and 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 three months ended March 31, 1996 but it is expected that the Chinese government will make substantial efforts to curb inflation over the near term. During the first quarter ended March 31, 1996, inflation growth rate had slowed down marginally. The Company constantly monitors the effects of inflation. In general, the Company is able to raise its product price to shift a portion of the inflated costs to the customers. The price of the major raw material used by the Company (bearing steel) remained fairly stable during 1995 and 1996. The major impact of inflation on cost was from labor cost due to increases in employees' wages. However, improved operational efficiency managed to offset the effect of inflation. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 27 Financial Data Schedule (b) Reports on Form 8-K: None 16 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. ------------------ (Registrant) Date: May 20, 1996 By:/s/ William McKay --------------------------------------- William McKay, Chief Executive Officer, President and duly authorized officer Date: May 20, 1996 By:/s/ (Roger) Li Yuen Fai ----------------------------------------- (Roger) Li Yuen Fai, Vice President and Chief Financial Officer 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1995 JAN-01-1996 MAR-31-1996 2,898 0 47,667 0 55,341 140,345 67,082 0 211,075 106,439 0 0 8,742 12 41,612 211,075 25,940 25,940 15,953 3,388 0 0 1,677 4,922 798 4,124 0 0 0 1,928 0 .12
-----END PRIVACY-ENHANCED MESSAGE-----