SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file number 000-28358
____________________
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITY EXCHANGE
ACT OF 1934
For the transition period from
_____________ to ______________
CHINA CONTAINER HOLDINGS LIMITED
(Exact Name of Registrant as Specified in Its Charter)
NEVADA 11-2243727
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
61, EAST GARDEN ROAD, YANGZHOU, JIANGSU, CHINA 225003
(Address of principal executive offices)
Registrant's Telephone Number, Including area code, (212) 629-7378
Indicate by check mark whether the registrant: (1) has filed all
reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes ________ No _________
Indicate the number of shares outstanding of each of the issue's class
of common stock, as of the latest practical date.
Common stock $0.001 par value; 25,000,273 shares outstanding at June
30, 1996.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(Amounts in thousands, except for per share data)
Three months ended June 30 Six months ended June 30
(Unaudited) (Unaudited)
---------------------------- --------------------------
1996 1995 1996 1995
US$ US$ US$ US$
NET SALES 42,124 29,786 66,317 48,569
COST OF SALES ( 35,774) ( 26,619) ( 55,529) ( 41,808)
SELLING AND ADMINISTRATIVE EXPENSES ( 930) ( 1,227) ( 2,151) ( 2,115)
FINANCIAL EXPENSES, NET ( 858) ( 428) ( 1,332) ( 1,162)
OTHER INCOME/(EXPENSES), NET (5) 416 11 358
REORGANIZATION EXPENSES - ( 2,055) - ( 2,055)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 4,557 (127) 7,316 1,787
INCOME TAXES ( 315) ( 160) ( 561) ( 390)
-------- -------- -------- --------
4,242 (287) 6,755 1,397
SHARE OF NET INCOME/(LOSSES) OF ASSOCIATED 43 ( 320) ( 15) ( 353)
COMPANIES -------- -------- -------- --------
INCOME BEFORE MINORITY INTERESTS 4,285 (607) 6,740 1,044
MINORITY INTERESTS ( 1,600) ( 290) ( 2,367) ( 620)
-------- -------- -------- --------
NET INCOME/(LOSS) 2,685 ( 897) 4,373 424
======== ======== ======== ========
NET INCOME/(LOSS) PER COMMON SHARE 0.11 ( 0.04) 0.17 0.02
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 25,000 25,000 25,000 25,000
OUTSTANDING ======== ======== ======== ========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND JUNE 30, 1996
(Amounts in thousands)
June 30 December 31
(unaudited) (audited)
Note (Note 1)
------------------- -------------------
1996 1995
US$ US$
ASSETS
CURRENT ASSETS
Cash and cash equivalents 991 7,431
Accounts receivable 31,258 7,642
Deposits and other receivables 5,750 9,996
Inventories 4 31,452 21,605
Deferred income taxes 84 84
Amount due from associated companies 903 1,234
Amount due from related companies 6,047 3,757
------ ------
TOTAL CURRENT ASSETS 76,485 51,749
INTANGIBLE ASSETS 1,639 499
FIXED ASSETS 14,819 6,335
CONSTRUCTION IN PROGRESS 10,139 5,325
INTERESTS IN ASSOCIATED COMPANIES 2,869 5,826
AMOUNTS DUE FROM RELATED COMPANIES 300 670
OTHER ASSETS 310 901
------ ------
TOTAL ASSETS 06,561 71,305
====== ======
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND JUNE 30, 1996
(Amounts in thousands)
June 30 December 31
(audited) (audited)
(Note 1)
------------------- -------------------
1996 1995
US$ US$
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Bank loans and overdrafts 70,831 48,175
Accounts payable 4,612 3,705
Accrued liabilities and other payables 2,907 1,803
Income taxes payable 311 274
Deferred income taxes 103 0
Amount due to a related company - 2,630
Amount due to associated companies 3,315 -
------ ------
82,079 56,587
TOTAL CURRENT LIABILITIES
MINORITY INTERESTS 8,370 3,060
------ ------
90,449 59,647
TOTAL LIABILITIES ------ ------
SHAREHOLDERS' EQUITY
Paid-up capital - shares of 100,000,000 common 25 25
stock of US$0.001 each and 5,000,000 preferred stock of US$0.01
each authorized; shares 25,000,273 common stock of US$0.001
each outstanding
Additional paid-in capital 4,683 4,683
Reserves 5,879 5,879
Retained earnings 5,525 1,181
Currency translation adjustments - ( 110)
------ ------
TOTAL SHAREHOLDERS' EQUITY 16,112 11,658
------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 06,561 71,305
====== ======
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
-4-
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(Amounts in thousands)
Six month ended
June 30
(unaudited)
-----------------------------------
1996 1995
US$ US$
Net cash used in operating activities (20,665) ( 2,351)
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of fixed assets (1,206) -
Increase in construction in progress ( 7,225) ( 1,475)
------
Advances to related companies - ( 2,996)
-------
------- -------
Net cash used in investing activities (8,431) ( 4,471)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Dividends paid - ( 3,579)
Repayments of bank loans and overdrafts - ( 3,948)
Proceeds from bank loans and overdrafts 22,656 16,561
------- -------
Net cash provided by financing activities 22,656 9,034
------- -------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
( 6,440) 2,212
Cash and cash equivalents, at beginning of period 7,431 1,607
------- -------
Cash and cash equivalents, at end of period 991 3,819
======= =======
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
-5-
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Amounts in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instruction to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
Management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1996. The unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and footnotes thereto included in the Company's audited
financial statement for the year ended December 31, 1995.
The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
2. PURCHASE OF YANGZHOU TONGLEE REEFER CONTAINERS COMPANY LIMITED
On January 1, 1996, China Container's 80% subsidiary, TYC increased its
shareholding in Yangzhou Tonglee Reefer Containers Company Limited
("Tonglee") from 50% to 51% for US$80. Due to the acquisition of control
by TYC, the results of Tonglee were consolidated into China Container since
January 1, 1996.
No pro forma unaudited results of operations for the six months ended June
30, 1995, assuming consummation of the purchase as of January 1, 1995 was
shown because Tonglee had not yet commenced its operation as at June 30,
1995.
Tonglee is a Sino-foreign equity joint venture company governed by the
Income Tax Law of the People's Republic of China concerning Foreign
Investment Enterprises and various local income tax laws (the "Income Tax
Laws").
-6-
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Amounts in thousands)
In the Yangzhou District, where Tonglee is located, the basic rate of
income tax applicable to Tonglee exclusive of the local income tax is 24%.
Tonglee's local income tax liability of 3% is exempted by the local tax
authorities. Pursuant to the Income Tax Laws, Tonglee was further exempted
from income taxes for a period of two years commencing from the first
profitable year (1996) and is entitled to a 50% tax exemption for the
following three years.
3. INCOME TAX
A reconciliation of the effective income tax rates (excluding the
reorganization expenses) with the statutory income tax in the PRC is as
follows:
Three months ended Six months ended
June 30 June 30
(unaudited) (unaudited)
----------- -----------
1996 1995 1996 1995
---- ---- ---- ----
Statutory PRC tax rate 24.0% 24.0% 24.0% 24.0%
Tax holiday (17.0%) (12.0%) (16.3%) (12.0%)
Other Items (0.1%) (3.7%) 0% (1.8%)
----- ----- ----- -----
(6.9%) 8.3% 7.7% 10.2%
===== ===== ===== =====
4. INVENTORIES
Inventories comprise:
June 30 December 31
(unaudited) (audited)
--------- ---------
1996 1995
US$ US$
--------- ---------
23,904 16,828
Raw materials
Finished goods 7,548 4,777
----- -----
31,452 21,605
====== ======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a Nevada corporation whose principal activity is the
management of the business of its indirectly held operating subsidiaries, which
manufacture international standard commercial freight containers in the People's
Republic of China.
The statements in this section relate to the operations and conditions of
the Company and its consolidated subsidiaries.
RESULTS OF OPERATIONS
Second Quarter of 1996 Compared With Second Quarter of 1995
1. Sales increased by 41.3% from US$29.8 million in the three months
ended June 30, 1995 to US$42.1 million in the three months ended June 30, 1996,
and sales quantity increased by 41.5% from 10,255 TEU in 1995 to 14,508 TEU in
1996. This was primarily due to the consolidation of the results of the
Company's subsidiary which manufactures refrigerated containers ("Reefer")
following the Company's acquisition of control of Reefer as at January 1, 1996.
2. The gross profit margin increased from 10.7% on net sales in the
second quarter of 1995 to 15.0% in the second quarter of 1996 primarily because
of the consolidation of the results of Reefer.
3. Selling and administrative expenses decreased by 25% from US$1.2
million in the second quarter of 1995 to US$900,000 in the second quarter of
1996, in spite of the consolidation of the results of Reefer, primarily because
of a US$400,000 adjustment relating to 1995 selling and administrative expenses.
4. Financial expenses increased by 125% from US$400,000 in the second
quarter of 1995 to US$900,000 in the second quarter of 1996, primarily due to
the consolidation of the results of Reefer, which contributed to the 46.9%
increase in loan balances .from US$48.2 million as at December 31, 1995 to
US$70.8 million as at June 30, 1996.
Six Months Ended June 30, 1996 Compared With Six Months Ended June 30, 1995
1. Sales increased by 36.4% from US$48.6 million in the six months
ended June 30, 1995 to US$66.3 million in the six months ended June 30, 1996,
and sales quantity increased by 33.0% from 17,214 TEU in 1995 to 22,891 TEU in
1996. This was primarily due to the consolidation of the results of Reefer.
2. The gross profit margin increased from 14.0% on net sales in 1995
to 16.3% in 1996 primarily because of the consolidation of the results of
Reefer.
FINANCIAL CONDITION
1. Accounts Receivable increased by 311.8% from US$7.6 million as at
December 31, 1995 to US$31.3 million as at June 30, 1996, primarily due to (i)
the consolidation of the results of Reefer, and (ii) the delivery of a large
order at the end of the quarter, subject to normal payment terms.
2. Inventories increased by 45.8% from US$21.6 million as at December
31, 1995 to US$31.5 million as at June 30, 1996, primarily due to an increase in
raw materials in anticipation of third quarter orders.
3. Accounts Payable increased by 24.3% from US$3.7 million as at
December 31, 1995 to US$4.6 million as at June 30, 1996, primarily due to the
consolidation of the results of Reefer.
4. Accrued Liabilities and other payables increased by 61.1% from
US$1.8 million as at December 31, 1995 to US$2.9 million as at June 30, 1996,
primarily as a result of the consolidation of the results of Reefer.
5. Cash and cash equivalents decreased by 86.5% from US$7.4 million
as at December 31, 1995 to US$1.0 million as at June 30, 1996, primarily due to
payments made to suppliers.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i) Articles of Incorporation of Registrant, filed August 8,
1995 and Articles of Amendment thereto filed April 16, 1986 and May
15, 1995, incorporated by reference to the Registrant's Form 10 and
Amendment No. 1 thereto.
3(ii) By-laws of Registrant, incorporated by reference to the
Registrant's Form 10 and Amendment No. 1 thereto.
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
CHINA CONTAINER HOLDINGS LIMITED
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
3(i) Articles of Incorporation of Registrant,
filed August 8, 1995 and Articles of
Amendment thereto filed April 16, 1986
and May 15, 1995, incorporated by
reference to the Registrant's Form 10
and Amendment No. 1 thereto.
3(ii) By-laws of Registrant, incorporated by
reference to the Registrant's Form 10
and Amendment No. 1 thereto.
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHINA CONTAINER HOLDINGS LIMITED
Date: November 7, 1997 By: /s/ Ma Tieyi
Ma Tieyi
Secretary and Treasurer
CHINA CONTAINER HOLDINGS LIMITED
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ---------- ----------- -------
3(i) Articles of Incorporation of
Registrant, filed August 8, 1995
and Articles of Amendment thereto filed
April 16, 1986 and May 15, 1995,
incorporated by reference to the
Registrant's Form 10 and Amendment
No. 1 thereto.
3(ii) By-laws of Registrant, incorporated by
reference to the registrant's Form 10
and Amendment No. 1 thereto.
27 Financial Data Schedule