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 September 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 be 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
--- ---
As of September 30, 1995, the Company had 11,700,063 shares of common stock
issued and outstanding.
SUNBASE ASIA, INC. AND SUBSIDIARIES
-----------------------------------
INDEX
Page
----
PART I: Financial Information
ITEM 1 -- Financial statements 3
ITEM 2 -- Management's discussion and
analysis of financial condition
and results of operations 9
PART II: Other Information
Signatures 16
2
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
--------------------
SUNBASE ASIA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 1994
AND SEPTEMBER 30, 1995
(Amounts in thousands, except number
of shares and per share data)
(Unaudited) (Unaudited)
12/31/94 12/31/94 9/30/95 9/30/95
Notes RMB US $ RMB US$
--------- -------- ---------- ----------
ASSETS
Current assets
Cash and bank balances 65,646 7,890 61,767 7,424
Accounts receivable, net 298,210 35,843 551,604 66,299
Notes receivable -- -- 35,133 4,223
Inventories, net 4 361,455 43,444 267,467 32,147
Other receivables 35,636 4,283 72,179 8,675
Due from related companies 133,047 15,991 100,918 12,129
--------- -------- ---------- ----------
Total current assets 893,994 107,451 1,089,068 130,897
Fixed assets 481,295 57,848 504,381 60,623
Deferred asset 35,729 4,294 21,581 2,594
Long term investments 6,999 841 4,369 525
--------- -------- ---------- ----------
Total assets 1,418,017 170,434 1,619,399 194,639
========= ======== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short term bank loans 227,078 27,293 241,397 29,014
Accounts payable 151,853 18,252 113,005 13,582
Notes payable -- -- 14,620 1,757
Other payables 44,761 5,380 79,369 9,540
Short term obligations under capital
leases 15,873 1,908 16,909 2,032
Other loans 33,810 4,064 33,810 4,064
Income tax payable 9,342 1,123 23,702 2,849
Taxes other than income 20,970 2,520 47,887 5,756
Due to related companies 130,635 15,701 130,778 15,719
Due to shareholders 11,682 1,404 12,146 1,460
--------- -------- ---------- ----------
Total current liabilities 646,004 77,645 713,623 85,773
Long term bank loans 68,424 8,224 96,949 11,652
Long term obligations under capital
leases 124,982 15,022 112,167 13,482
Secured promissory note 5 42,250 5,078 42,250 5,078
Minority interests 288,175 34,636 347,343 41,748
--------- -------- ---------- ----------
1,169,835 140,605 1,312,332 157,733
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 5,352 44,533 5,352
Contributed surplus 151,942 18,262 151,942 18,262
Reserves 13,011 1,564 12,939 1,555
Retained earnings 38,597 4,639 97,554 11,725
--------- -------- ---------- ----------
Total shareholders' equity 248,182 29,829 307,067 36,906
--------- -------- ---------- ----------
Total liabilities and shareholders'
equity 1,418,017 170,434 1,619,399 194,639
========= ======== ========== ==========
The accompanying notes form an integral part of these consolidated condensed
financial statements.
3
SUNBASE ASIA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
FOR THE PERIODS ENDED JUNE 30, 1994 AND JUNE 30, 1995
(Amounts in thousands, except number of shares and per share data)
Nine Nine Nine Three Three Three
months months months months months months
ended ended ended ended ended ended
9/30/94 9/30/95 9/30/95 9/30/94 9/30/95 9/30/95
Notes RMB RMB US $ RMB RMB US$
---------- ---------- ---------- ----------- ---------- ----------
Net sales 589,360 651,070 78,254 198,321 216,237 25,990
Cost of sales (361,631) (397,584) (47,787) (117,163) (131,901) (15,853)
---------- ---------- ---------- ----------- ---------- ----------
Gross profit 227,729 253,486 30,467 81,158 84,336 10,137
Selling, general and
administrative expenses (74,252) (77,804) (9,351) (31,831) (26,759) (3,216)
Interest expense, net (34,491) (36,060) (4,334) (11,323) (12,471) (1,499)
---------- ---------- ---------- ----------- ---------- ----------
Income before income taxes 118,986 139,622 16,782 38,004 45,106 5,422
Provision for income taxes:
- Current (19,422) (21,497) (2,584) (6,921) (6,999) (841)
- Deferred - - - - - -
---------- ---------- ---------- ----------- ---------- ----------
Income before minority
interests 99,564 118,125 14,198 31,083 38,107 4,581
Minority interests (49,564) (59,168) (7,112) (15,158) (19,261) (2,315)
---------- ---------- ---------- ----------- ---------- ----------
Net income 50,000 58,957 7,086 15,925 18,846 2,266
========== ========== ========== =========== ========== ==========
Earnings per common share 6 3.27 3.85 0.46 1.04 1.23 0.15
========== ========== ========== =========== ========== ==========
Number of shares outstanding 6 15,300,063 15,300,063 15,300,063 15,300,063 15,300,063 15,300,063
========== ========== ========== =========== ========== ==========
The accompanying notes form an integral part of these consolidated condensed
financial statements.
4
SUNBASE ASIA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND SEPTEMBER 30, 1995
(Amounts in thousands, except number of shares and per share data)
Nine Nine Nine
Months Months Months
ended ended ended
9/30/94 9/30/95 9/30/95
RMB RMB US$
-------- -------- -------
Cash flows from operating activities:
Net Income 50,000 58,957 7,086
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Minority interests 49,564 59,168 7,112
Depreciation 33,422 33,376 4,011
Loss on disposal of fixed assets -- 969 116
Others 1,422 400 48
(Increase) decrease in assets:
Accounts receivable (344,257) (253,394) (30,456)
Notes receivable -- (35,133) (4,223)
Inventories (4,517) 93,988 11,297
Other receivables 7,201 (36,543) (4,392)
Due from related companies (64,414) 32,129 3,862
Deferred tax 2,500 -- --
Increase (decrease) in liabilities:
Accounts payable 22,263 (38,848) (4,669)
Notes payable -- 14,620 1,757
Other payables 27,032 34,608 4,160
Income tax payable 21,191 14,360 1,726
Taxes other than income 41,019 40,593 4,879
Due to related companies 14,706 (11,636) (1,399)
Due to shareholders 8,005 464 56
-------- -------- -------
Net cash provided by (used in)
operating activities (134,863) 8,078 971
-------- -------- -------
Cash flows from investing activities:
Proceeds from disposal of fixed assets -- 274 33
Disposal of long term investment 263 2,630 316
Addition to fixed assets (63,333) (57,705) (6,936)
-------- -------- -------
Net cash used in investing activities (63,070) (54,801) (6,587)
-------- -------- -------
Cash flows from financing activities:
Proceeds from short term bank loans 404,723 393,691 47,319
Repayment of short term bank loans (360,344) (379,372) (45,597)
Redemption of debentures (10,000) -- --
Proceeds from long term bank loans 49,929 28,525 3,428
-------- -------- -------
Net cash provided by financing activities 84,308 42,844 5,150
-------- -------- -------
Net decrease in cash and cash equivalents (113,625) (3,879) (466)
Cash and cash equivalents, at beginning of period 166,615 65,646 7,890
-------- -------- -------
Cash and cash equivalents, at end of period 52,990 61,767 7,424
======== ======== =======
Non-cash transaction:
Financing of lease arrangements 10,827 11,779 1,416
======== ======== =======
The accompanying notes form an integral part of these consolidated condensed
financial statements.
5
SUNBASE ASIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIODS ENDED SEPTEMBER 30, 1994 AND 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 in
exchange for the issuance of 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.
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 September 30, 1995, the results of
operations for the three months and nine months ended September 30, 1994 and
1995, and the changes in cash flows for the nine months ended September 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
6
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.
The results of operations for the three months and nine months ended
September 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$) for the convenience of the reader has been made at the exchange
rate quoted by the People's Bank of China on September 30, 1995 of US$ 1.00 =
RMB 8.32. No representation is made that the RMB amounts would have been, or
would be converted into US$ at the rate on September 30, 1995 or at any other
time.
4. INVENTORIES
Inventories are comprised of:
(Unaudited)
December 31, September 30,
1994 1995
RMB RMB
------------- --------------
Raw materials 122,684 98,399
Work-in-progress 87,839 107,684
Finished goods 169,948 79,518
------- -------
380,471 285,601
Less: Allowance for
obsolescence (19,016) (18,134)
------- -------
Inventories, net 361,455 267,467
======= =======
5. SECURED PROMISSORY NOTE
The promissory note (the "Note") was issued to Asean Capital Limited
effective December 30, 1994 in connection with the Share Exchange Agreement
and is secured by a continuing security interest in all of the
7
Company's title and interest in the outstanding capital stock of China
Bearing, its wholly-owned subsidiary. 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 September 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 September 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 a rate of 100,000
shares of common stock for one share of Series A Convertible Preferred Stock.
8
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 United States.
The Company produces six types of bearings: deep groove ball bearings, self-
aligning bearings, cylindrical roller bearings, angular contact ball bearings,
tapered roller bearings and thrust bearings, with a focus on medium and large
sized bearings which have a relatively higher profit margin. During the third
quarter of 1995, seven new bearing products were introduced. In total, eighteen
new bearing products were introduced during the nine months ended September
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.
The Company raised the selling price of all bearing products effective July
1, 1995 by an average of 3-5% in order to cover increasing costs, as compared to
July 1, 1994 sales price increases of 5-8%.
Unless specifically stated, all amounts in this Management's Discussion and
Analysis are in thousands (RMB '000).
9
RESULTS OF OPERATION
I. THIRD QUARTER COMPARISON
Quarter Quarter
ended ended
September 30, September 30,
1995 1994
RMB RMB
------------- -------------
Sales 216,237 198,321
Cost of sales (131,901) (117,163)
-------- --------
Gross Profit 84,336 81,158
Gross Profit percentage 39.0% 40.9%
Selling, General and
Administrative expenses (26,759) ( 31,831)
Interest Expense (12,471) ( 11,323)
-------- --------
Income Before Income Taxes
and Minority Interests 45,106 38,004
======== ========
Sales
- -----
Sales increased by RMB 17,916 or 9.0% in the quarter ended September 30, 1995 as
compared to the quarter ended September 30, 1994. The increase in sales was
mainly due to an increase in selling prices of 3 to 5%, effective July 1, 1995
and the Company's efforts to change its sales mix to higher margin medium and
large sized ball bearings which commenced in the third quarter of 1994.
Gross Profit
- ------------
Cost of sales increased from RMB 117,163 in the third quarter of 1994 to RMB
131,901 in the third quarter of 1995. The net result was that gross profit
increased by 3.9% or RMB 3,178 in the third quarter of 1995 as compared to the
third quarter of 1994. The increase in gross profit was attributable to
increased selling prices and the change in sales mix as mentioned above.
However, gross profit as a percentage of revenue decreased from 40.9% in the
third quarter of 1994 to 39.0% in the third quarter of 1995. The decrease in
gross margins was primarily a result of an increase in the cost of sales, which
increased at a relatively constant rate, and which exceeded the aggregate effect
of the annual increases in selling prices.
10
Selling, General and Administrative Expenses
- --------------------------------------------
Total Selling, General and Administrative Expenses were RMB 26,759 or 12.4% of
net revenue in the third quarter of 1995 as compared to RMB 31,831 or 16.1% of
net revenue in the third quarter of 1994.
Selling Expenses decreased by RMB 780 or 18% in the third quarter of 1995 as
compared to the third quarter of 1994. The decrease was mainly due to the
increase in transportation costs recovered from customers which was partially
offset by additional royalty expenses resulting from the increase in sales.
Selling expenses as a percentage of revenue decreased from 2.2% in 1994 to 1.6%
in 1995.
General and Administrative Expenses increased by 16.8% or RMB 3,058 in the third
quarter of 1995 as compared to the third quarter of 1994. General and
Administrative Expenses as a percentage of revenue increased from 9.8% in 1994
to 10.4% 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 second quarter and third quarter of 1995.
Other expenses decreased by RMB 7,350 in the third quarter of 1995 as compared
to the third quarter of 1994. The decrease was mainly due to the decrease in
compensation expense related to the voluntary early retirement program
(established after July 1994) and nonrecurring expenses which were incurred for
the first anniversary ceremony of Harbin Bearing in 1994. No such expenses were
incurred in the third quarter of 1995. The objective of the early retirement
program is to streamline the organizational structure and improve the
operational efficiency of Harbin Bearing. Under this program, a worker is
entitled 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 under this program for 1995 will not exceed RMB 7,000.
Interest Expense
- ----------------
Interest Expense, net of capitalized interest, increased by RMB 1,148 or 10.1%
in the third quarter of 1995 as compared to the third quarter of 1994. The
increase was primarily attributable to interest expense related to a US$ 5,000
promissory note issued on December 30, 1994, with interest payable at 8% per
annum, and to an increase in short-term bank loans.
11
II. NINE MONTHS PERIOD COMPARISON
Nine months Nine months
ended ended
September 30, September 30,
1995 1994
RMB RMB
-------------- --------------
Sales 651,070 589,360
Cost of sales (397,584) (361,631)
-------- --------
Gross Profit 253,486 227,729
Gross Profit percentage 38.9% 38.6%
Selling, General and
Administrative expenses ( 77,804) ( 74,252)
Interest Expense ( 36,060) ( 34,491)
-------- --------
Income Before Income Taxes and
Minority Interests 139,622 118,986
======== ========
Sales
- -----
Sales increased by RMB 61,710 or 10.5% in the nine months ended September 30,
1995 as compared to the nine months ended September 30, 1994. The increase in
sales was the result of an increase in demand for bearings in China,
particularly in the automotive and machine-tools market, an increase in selling
prices and the Company's efforts to change its sales mix to higher margin medium
and large sized ball bearings which commenced in the third quarter of 1994.
Gross Profit
- ------------
Cost of sales increased from RMB 361,631 in the nine months ended September 30,
1994 to RMB 397,584 in the nine months ended September 30, 1995. The net result
was that gross profit increased by RMB 25,757 or 11.3% in 1995 as compared to
1994. Gross profit as a percentage of revenue increased from 38.6% in 1994 to
38.9% in 1995. The slight increase in the gross profit percentage reflects the
effect of the change in sales mix to higher-margin products.
Selling, General and Administrative Expenses
- --------------------------------------------
Total Selling, General and Administrative Expenses were RMB 77,804 or 12.0% of
net revenue in the nine months ended
12
September 30, 1995 as compared to RMB 74,252 or 12.6% of net revenue in the nine
months ended September 30, 1994.
Selling Expenses increased by RMB 676 or 6.8% in the nine months ended September
30, 1995 as compared to the nine months ended September 30, 1994. The increase
was mainly due to additional royalty expenses as a result of increased sales.
Selling expenses as a percentage of revenue decreased slightly from 1.7% in 1994
to 1.6% in 1995.
General and Administrative Expenses increased by RMB 3,830 or 6.8% in the nine
months ended September 30, 1995 as compared to the nine months ended September
30, 1994. The increase was mainly attributable to an increase in staff wages
and welfare costs.
Other expenses decreased by RMB 954 or 11.5% in the nine months ended September
30, 1995 as compared to the nine months ended September 30, 1994. The decrease
was mainly due to the decrease in compensation expense related to the voluntary
early retirement program.
The decrease in other expenses in 1995 as compared to 1994 was offset by a loss
of RMB 969 on disposal of fixed assets. During the nine months ended September
30, 1994, there was a gain on disposal of fixed assets of RMB 1,087.
Interest Expense
- ----------------
Interest Expense, net of capitalized interest, increased by RMB 1,569 or 4.5% in
the nine months ended September 30, 1995 as compared to the nine months ended
September 30, 1994. The increase was primarily attributable to interest expense
related to a US$ 5,000 promissory note issued on December 30, 1994, with
interest payable at 8% per annum, and to an increase in short-term bank loans,
which was partially offset by a reduction in interest expense related to capital
leases of RMB 953 and by a currency exchange gain of RMB 571 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
The Company generated cash from operating activities of RMB 8,078 in the nine
months ended September 30, 1995 as compared to RMB 134,863 used in operating
activities in the nine months ended September 30, 1994. The increase in cash
generated from operating activities was mainly due to a reduction in the growth
of accounts receivable (including
13
notes receivable) and a reduction in inventories as a result of improvement in
cash settlements from customers and improved inventory control. The increase in
cash generated from operating activities was also effected by an increase in
other receivables and net balances due from related companies, and was partially
offset by an increase in cash payments to suppliers (denoted by decreases in
accounts payable and notes payable). The Company continues to strengthen the
enforcement of credit controls and the acceleration of cash collections.
As of September 30, 1995, the Company's working capital had increased to RMB
375,445 as compared to RMB 247,990 at December 31, 1994 and RMB 328,537 at
September 30, 1994. The Company's current ratio was 1.53:1 as of September 30,
1995 as compared to 1.38:1 at December 31, 1994 and 1.66:1 at September 30,
1994.
INVESTING ACTIVITIES
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 34,000 at September 30, 1995. These capital commitments are expected to
be funded through December 1995.
Total capital expenditures for the nine months ended September 30, 1995 were RMB
57,705 and were mainly for construction of new plant, buildings and renovating
existing facilities and equipment. They were financed primarily by internally
generated funds and short-term and long-term bank loans (see below).
FINANCING ACTIVITIES
The Company relies on both short-term and long-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 reviewed on a
revolving basis. During the nine months ended September 30, 1995, new short-
term bank loans (after deducting repayment of previous loans) totalled RMB
14,319. The increase in short-term bank loans in 1995 was utilized to fund
capital expansion projects.
Long-term bank loans are utilized to fund capital expansion projects. During
the nine months ended September 30, 1995, new long-term bank loans totalled RMB
28,525, whereas during the nine months ended September 30, 1994, new long-term
bank
14
loans totalled RMB 49,929. The decrease in long-term bank loans in 1995 compared
to 1994 was mainly due to higher utilization of long-term bank loans in funding
the requirements of capital projects in 1994 as compared to 1995.
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 and bank balances and bank
borrowings, will provide sufficient cash flow to finance internal growth,
capital projects 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 nine months ended September 30, 1995 but it is
expected that the Chinese government will make substantial efforts to curb
inflation over the near term. During the third quarter ended September 30,
1995, the inflation growth rate has begun to slow down.
The Company carefully monitors effects of inflation on its performance. In
general, the Company is able to raise its selling prices 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 1994 and 1995. The
only major impact of inflation on cost was on labor costs as wages of the
employees have risen. However, the improved operational efficiency, as
reflected by the increased gross profit ratio during the nine months ended
September 30, 1995, offset the effects of inflation. Due to the establishment
of a higher scale of production and better control on its production cost
structure, management believes that an increased inflation rate would have a
favorable impact on the market position of the Company, as smaller manufacturers
would have more difficulties in dealing with the same effect of inflation.
PART II. OTHER INFORMATION
Items 1 through 6 are not applicable.
15
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: November 17, 1995 BY /s/ Gunter Gao
_______________________________
Gunter Gao
Chairman of the Board, President
and duly authorized officer
Date: November 17, 1995 BY /s/ Roger Li
________________________________
Roger Li
Director and Chief Financial
Officer
16