1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........................ to .....................
Commission file number 0-12825
JENSON INTERNATIONAL, INC.
(Exact name of small business issuer as
specified in its charter)
Nevada 84-0916272
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Room 1008-9 Shun Tak Centre, West Tower,
168-200 Connaught Road, Central, Hong Kong
(Address of principal executive offices)
(852) 2548-0781
(Issuer's telephone number)
Best Medical Treatment Group, Inc.
45110 Club Drive, Suite B, Indian Wells, California
October 31
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for 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[X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of May 31, 1999: 2,763,843
Transitional Small Business Disclosure Format: Yes[ ] No[X]
2
JENSON INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) -
June 30, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations (Unaudited) -
Three and Six Months Ended June 30, 1998
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 1998
Notes to Condensed Consolidated Financial Statements
(Unaudited) -
Three and Six Months Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
3
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
JENSON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, 1998 AND DECEMBER 31, 1997
AS AT AS AT AS AT AS AT
JUNE 30,1998 DECEMBER 31,1997 JUNE 30,1998 DECEMBER 31, 1997
------------ ---------------- ------------ -----------------
RMB RMB US$ US$
Current assets :
Cash and cash equivalents 879,844 816,557 106,005 98,380
Accounts receivable 13,454,520 15,430,374 1,621,027 1,859,081
Inventories 739,564 779,198 89,104 93,879
Prepayments, deposits and other receivables 613,253 410,570 73,886 49,466
----------- ----------- ---------- ----------
Total current assets 15,687,181 17,436,699 1,890,022 2,100,806
Property, plant and equipment 32,218,404 34,134,339 3,881,735 4,112,571
----------- ----------- ---------- ----------
47,905,585 51,571,038 5,771,757 6,213,377
=========== =========== ========== ==========
Current liabilities :
Short term bank borrowings 25,560,349 24,964,050 3,079,560 3,007,717
Accounts payable 2,674,702 3,369,771 322,253 405,997
Accrued hotel management fees 3,269,047 3,345,359 393,861 403,055
Statutory provision for staff welfare and benefits 9,958,195 9,376,307 1,199,783 1,129,675
Interest payable 3,496,961 2,600,106 421,321 313,266
Other creditors 1,801,946 1,431,002 217,102 172,410
Amount due to principal shareholder 0 4,754,530 0 572,835
Income tax payable 616,000 513,000 74,217 61,807
Accruals 7,209,957 5,737,834 868,670 691,305
----------- ----------- ---------- ----------
Total current liabilities 54,587,157 56,091,959 6,576,767 6,758,067
----------- ----------- ---------- ----------
Shareholders' advances and shareholders' equity :
Advances from the principle shareholder 70,000,000 70,000,000 8,433,735 8,433,735
----------- ----------- ---------- ----------
Common stock par value US$ 0.001;
authorised 50,000,000 shares; issued
2,623,843 and 2,763,843 at March 31, 1998 and
December 31, 1997, respectively 22,933 21,771 2,763 2,623
Additional paid-in capital (6,972) (180,110) (840) (21,700)
Accumulated deficit (76,697,533) (74,362,582) (9,240,668) (8,959,348)
----------- ----------- ---------- ----------
Total deficiency of shareholders' equity (76,681,572) (74,520,921) (9,238,745) (8,978,425)
----------- ----------- ---------- ----------
Total shareholders' advances and shareholders' equity (6,681,572) (4,520,921) (805,010) (544,690)
----------- ----------- ---------- ----------
Total liabilities and shareholders' equity 47,905,585 51,571,038 5,771,757 6,213,377
=========== =========== ========= ==========
See accompanying notes to the Condensed Consolidated Financial Statements
4
JENSON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 1998
6 MONTHS 6 MONTHS 3 MONTHS 3 MONTHS
ENDED ENDED ENDED ENDED
JUNE 30,1998 JUNE 30,1998 JUNE 30,1998 JUNE 30,1998
------------ ------------ ------------ ------------
RMB US$ RMB US$
Revenues :
Hotel operations :
Rooms 3,950,764 475,996 2,230,187 268,697
Food and beverage 2,424,346 292,090 1,371,976 165,298
Other operating departments 457,938 55,173 224,643 27,065
Sales tax (340,935) (41,077) (190,787) (22,986)
----------- ---------- ----------- ----------
6,492,113 782,182 3,636,019 438,074
Consultancy services 3,100,000 373,494 1,550,000 186,747
Others 22,862 2,754 10,261 1,236
Sales tax for consultancy services (78,000) (9,398) (39,000) (4,699)
----------- ---------- ----------- ----------
Total revenue 9,536,975 1,149,032 5,157,280 621,358
----------- ---------- ----------- ----------
Operating expenses :
Hotel operations by departments :
Rooms 738,638 88,993 402,457 48,489
Food and beverage 1,643,138 197,968 874,810 105,399
Other operating departments 159,449 19,211 82,857 9,983
Consultancy services :
Consultancy fee to principal shareholder 62,000 7,470 31,000 3,735
Other operating expenses :
Administrative and general 1,891,337 227,872 859,960 103,610
Consultancy fee paid to the consultant 174,300 21,000 0 0
Depreciation and amortization 2,128,678 256,467 1,058,474 127,527
Electricity, gas and water 978,647 117,909 432,414 52,098
Repairs and maintenance 20,841 2,510 (8,997) (1,084)
Salaries and allowances 1,268,315 152,809 623,642 75,139
Provision for staff welfare and benefits 384,212 46,291 234,951 28,307
Legal and professional fees 1,433,571 172,719 716,329 86,305
Management fee to a related company 192,600 23,205 96,300 11,602
----------- ---------- ----------- ----------
Total operating expenses 11,075,726 1,334,424 5,404,197 651,110
----------- ---------- ----------- ----------
Net operating loss (1,538,751) (185,392) (246,917) (29,752)
Interest expenses (693,200) (83,518) (354,200) (42,675)
----------- ---------- ----------- ----------
Loss before income taxes (2,231,951) (268,910) (601,117) (72,427)
Income taxes (103,000) (12,410) (51,000) (6,145)
----------- ---------- ----------- ----------
Net loss for the period (2,334,951) (281,320) (652,117) (78,572)
=========== ========== =========== ==========
Loss per share
Basic (2.60) (0.32) (0.74) (0.09)
=========== ========== =========== ==========
Weighted average number of share of common stock
Basic 877,821 877,821) 877,821 877,821
=========== ========== =========== ==========
See accompanying notes to the Condensed Consolidated Financial Statements
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JENSON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
6 MONTHS 6 MONTHS
ENDED ENDED
JUNE 30,1998 JUNE 30,1998
------------ ------------
RMB US$
Cash flows from operating activities :
Net loss (2,334,951) (281,319)
Adjustments to reconcile net loss to
net cash used in operating activities :
Depreciation and amortisation 2,128,678 256,467
Consulting fees 174,300 21,000
Written back for doubtful accounts (6,375) (768)
Changes in working capital components :
Accounts receivable 1,982,229 238,823
Inventories 39,634 4,775
Prepayments, deposits and other receivables (202,683) (24,420)
Amount due to the principal shareholder (4,754,530) (572,835)
Amount due from the subsidiary 0
Accounts payable (695,069) (83,743)
Other creditors and accruals 294,632 35,498
Statutory provisions for staff welfare and benefits 581,888 70,107
Interest payable 896,855 108,055
Other payable 0 0
Income tax payable 103,000 12,410
Accrued expenses 1,472,123 177,364
---------- --------
Net cash used in operating activities (320,269) (38,586)
---------- --------
Cash flow from investing activities
Purchase of fixed assets (224,473) (27,045)
Proceeds from the disposal of fixed assets 11,730 1,413
---------- --------
(212,743) (25,632)
---------- --------
Cash flow from financing activities
New bank borrowings 596,299 71,843
Net increase in cash and cash equivalent 63,287 7,625
Cash and cash equivalents
Beginning of the period 816,557 98,380
---------- --------
End of the period 879,844 106,005
---------- --------
See accompanying notes to the Condensed Consolidated Financial Statements
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JENSON INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 1998
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION - Jenson International, Inc. (the "Company", which term shall
include, when the context so requires, its subsidiaries), formerly known as Best
Medical Treatment Group Inc., Gaensel GoldMines, Inc., World Technologies &
Trading Company, and Chatham Energy Corporation, was incorporated in the State
of Nevada, the United States of America on September 13, 1981.
The Company had no operations from 1984, until early 1997. On March 31, 1997,
the Company acquired all of the capital stock of Lifeline Medical Information
Systems, Inc. ("Lifeline"). In connection with this transaction, the Company
issued an aggregate of 800,000 share of common stock, $ 0.001 par value per
share ("Common Stock").
On March 12, 1998, the Company entered into a Share Exchange Agreement
("Agreement") with C.M. Cheng (the "Shareholder"). Pursuant to the Exchange
Agreement, the Company acquired from the Shareholder all of the outstanding
shares of Wonderwide Consultants Limited (BVI) ("Wonderwide") in exchange for
the issuance to the Shareholder of 2,230,000 shares of Common Stock of which
334,500 shares of the Shareholder are under escrow. The closing date of the
transactions was March 16, 1998.
Section 2.04 of the Exchange Agreement provided that in the event that
Wonderwide's consolidated net income, as audited under United States generally
accepted accounting principles ("U.S. GAAP"), was less than $2.5 million for the
year ended December 31, 1997, then the Shareholder would cancel that number of
shares of Common Stock to that level that would have existed had Winderwide's
1997 earnings met the minimum level stated above (before adjustment for any
splits or new issuances post closing). Wonderwide's consolidated net income, as
audited under U.S. GAAP for the fiscal year ended December 31, 1997, was
$793,736. In accordance with Section 2.04 of the Agreement, an aggregate of
1,886,022 shares of Common Stock issued pursuant to the Agreement were
automatically cancelled effective as of May 18, 1999 ( which is the date of
completion of the independent audit of Wonderwide's financial statements for the
fiscal year ended December 31, 1997).
Subsequent to the closing date of the Agreement, the Shareholder agreed to
transfer to Wonderwide all of the issued and outstanding capital stock of Jenson
International Travel Services Limited ("Jenson Travel") in exchange for the
issuance to the shareholder by the Company of 1,275,673 shares of Common Stock.
The Shareholder also has agreed to contribute to the Company the sum of RMB
36,535,000, represented the approximate net income of the group tour business
now conducted by Jenson Travel for the years ended December 31, 1995, 1996, 1997
and 1998. In addition, the Shareholder has provided certain operating advances
to the Company from time to time, in the aggregate amount of RMB70,000,000 with
respect to such advances, the Company and the Shareholder Have agreed that (i)
RMB36,535,000 shall be applied to offset in full the obligation of the
Shareholder to contribute to the Company an amount equal to the approximate net
income of the group tour business now conducted by Jenson Travel for the years
ended December 31, 1995, 1996 , 1997 and 1998, and (ii) in exchange for the
remaining amount of such advances of RMB 33,465,000, the Company shall issue to
the Shareholder an aggregate of 501,484 shares of Common Stock. The foregoing
transactions are described in an Investment Agreement dated as of May 18, 1999,
entered into and between the Company and the Shareholder.
FOREIGN CURRENCY TRANSLATION
In preparing the consolidated financial statements, the financial statements of
the Company are measured using Renminbi ("RMB") as the functional currency.
The Company's share capital is denominated in United States Dollars ("US$") and
the reporting currency is the RMB. For financial reporting purposes, the US$
share capital amounts have been translated into RMB at the applicable rates
prevailing on the transactions dates.
All translation of amounts from RMB into US$ is for the convenience of the
reader only and has been made at the swap center rate of US$1.00 = RMB8.3 as
quoted by the People's Bank of China ("PBOC") on June 30, 1998. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States dollars at that rate or at any other rate.
7
NOTE 2. COMMENTS
The accompanying condensed consolidated 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 June 30, 1998, the results
of operations for the three and six months ended June 30, 1998 and cash flows
for the six months ended June 30, 1998. These adjustments are of a normal
recurring nature. The consolidated balance sheet as of December 31, 1997 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 notes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1998, as filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affects the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The results of operations for the three and six months ended June 30, 1998 are
not necessary indicative of the results of operations to be expected for the
full fiscal year ending December 31, 1998.
NOTE 3. (LOSS) EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which requires
the presentation of basic and diluted earnings per share. Basic earnings per
share are calculated by dividing net income by the weighted average number of
common shares outstanding during the period. Diluted earnings per share are
calculated by dividing net income by the basic shares and all dilutive
securities (stock options and warrants), but does not include the impact of
contingently issuable securities or potential common shares which would be
antidilutive.
For the three and six months ended June 30, 1998, net income per common share is
based on the weighted average number of shares of the Common Stock issued and
outstanding during each respective period. The weighted average number of common
stock outstanding for the periods presented are calculated after taking effect
of the cancellation of 1,886,022 shares issued to the Shareholder.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Consolidated Results of Operations:
Three months ended June 30, 1998
SALES:
For the three months ended June 30, 1998, net sales were RMB 5,157,280,
of which RMB 3,636,019 (70.5%) was from the hotel operation and RMB
1,521,261 (29.5%) was from the consulting services.
For the three months ended June 30, 1998, net sales of the hotel
operation of which RMB2,230,167 (61.3%) was from room income,
RMB1,371,976 (37.7%) was from food and beverage income, and RMB33,856
(1.0%) was from other income.
OPERATING EXPENSES:
For the three months ended June 30, 1998, operating expenses were
RMB5,404,197 or 104.8% of net sales, consisting of direct operating
expenses of RMB1,391,124 or 27.0% of net sales and other operating
expenses of RMB 4,013,073 or 77.8% of net sales.
Other operating expenses for the three months ended June 30, 1998
mainly comprised of depreciation and amortization amounting to RMB
1,058,474 or 20.5% of net sales, legal and professional fees amounted
to RMB 716,329 or 13.9% of net sales, salaries and staff welfare
provisions amounted to RMB858,593 or 16.6% of net sales, utilities
amounted to RMB 432,414 or 8.4% of net sales, general and
administrative expenses amounted to RMB947,263 or 18.4% of net sales.
The legal and professional fees incurred during the period mainly
represented audit fees, legal counsel fees and professional expenses
incurred for the reverse acquisition of Best Medical Treatment Group,
Inc. in 1998.
INTEREST INCOME AND INTEREST EXPENSES:
For the three months ended June 30, 1998, interest expense was
RMB354,200 and no material interest income was noted during the period.
INCOME TAXES:
For the three months ended June 30, 1998, one of the Company's BVI
subsidiaries operating in the PRC was subject to PRC income tax and RMB
51,000 tax provision was made during the period.
Save as disclosed above, no other subsidiaries within the Company has
assessable income during the three months ended June 30, 1998.
NET (LOSS) / INCOME BEFORE INCOME TAXES:
Net loss for the three months ended June 30, 1998 was RMB 652,117 and
such loss was partly contributed by the non-recurring professional
expenses and consulting fee paid in respect of the reverse acquisition
of Best Medical Treatment Group, Inc. during 1998. These expenses
incurred during the period amounted to approximately RMB 500,000.
Six months ended June 30, 1998
SALES:
For the six months ended June 30, 1998, net sales were RMB9,536,975, of
which RMB 6,492,113 (68.1%) was from the hotel operation and RMB
3,044,862 (31.9%) was from the consulting services.
For the six months ended June 30, 1998, net sales of the hotel
operation of which RMB3,950,764 (41.4%) was room income, RMB2,424,346
(25.4%) was food and beverage income, and RMB117,003 (1.3%) was other
income.
OPERATING EXPENSES:
For the six months ended June 30, 1998, operating expenses were
RMB11,075,726 or 116.1% of net sales, consisting of direct operating
expenses of RMB2,603,225 or 27.3% of net sales and other operating
expenses of RMB 8,472,501 or 88.8% of net sales.
Other operating expenses for the six months ended June 30, 1998 mainly
comprised of depreciation and amortization amounted to RMB 2,128,678 or
22.3% of net sales, legal and professional fees amounted to RMB
1,433,571 or 15.0% of net sales, salaries and staff welfare provisions
amounted to RMB1,652,527 or 17.3% of net sales, utilities amounted to
RMB978,647 or 10.3% of net sales, general and administrative expenses
amounted to RMB2,279,078 or 23.9% of net sales.
The legal and professional fees incurred during the period mainly
represented audit fees, legal counsel fees and professional expenses
incurred for the reversed acquisition of Best Medical Treatment Group,
Inc. in 1998.
INTEREST INCOME AND INTEREST EXPENSES:
For the six months ended June 30, 1998, interest expense was RMB693,200
and no material interest income was noted during the period.
INCOME TAXES:
For the six months ended June 30, 1998, one of the Company's BVI
subsidiaries operating in the PRC was subject to PRC income tax and RMB
103,000 tax provision was made during the period.
Save as disclosed above, no other subsidiaries within the Company has
assessable income during the six months ended June 30, 1998.
NET (LOSS) / INCOME BEFORE INCOME TAXES:
Net loss for the six months ended June 30, 1998 was RMB 2,334,951 and
such loss was partly contributed by the non-recurring professional
expenses and consulting fee paid in respect of the reverse acquisition
of Best Medical Treatment Group, Inc during 1998. These expenses
incurred during the period amounted to approximately RMB 1,200,000.
CONSOLIDATED FINANCIAL RESOURCES - JUNE 30, 1998
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1998, the Company's operations
acquired cash resources of RMB320,269. The major components of the cash
required by operations during the period were the decrease of RMB
4,754,530 in the amount due to the principal shareholder and the
increase of RMB 1,472,123 and RMB896,855 in accrued expenses and
interest payable, respectively. 212,743 were used in investing
activities for the purchase of property, plant and equipment. New bank
borrowing amounted to RMB 596,299 during the period.
8
Six months ended June 30, 1998
SALES:
For the six months ended June 30, 1998, net sales were RMB9,536,975, of
which RMB 6,492,113 (68.1%) was from the hotel operation and RMB
3,044,862 (31.9%) was from the consulting services.
For the six months ended June 30, 1998, net sales of the hotel
operation of which RMB3,950,764 (41.4%) was room income, RMB2,424,346
(25.4%) was food and beverage income, and RMB117,003 (1.3%) was other
income.
OPERATING EXPENSES:
For the six months ended June 30, 1998, operating expenses were
RMB11,075,726 or 116.1% of net sales, consisting of direct operating
expenses of RMB2,603,225 or 27.3% of net sales and other operating
expenses of RMB 8,472,501 or 88.8% of net sales.
Other operating expenses for the six months ended June 30, 1998 mainly
comprised of depreciation and amortization amounted to RMB 2,128,678 or
22.3% of net sales, legal and professional fees amounted to RMB
1,433,571 or 15.0% of net sales, salaries and staff welfare provisions
amounted to RMB1,652,527 or 17.3% of net sales, utilities amounted to
RMB978,647 or 10.3% of net sales, general and administrative expenses
amounted to RMB2,279,078 or 23.9% of net sales.
The legal and professional fees incurred during the period mainly
represented audit fees, legal counsel fees and professional expenses
incurred for the reversed acquisition of Best Medical Treatment Group,
Inc. in 1998.
INTEREST INCOME AND INTEREST EXPENSES:
For the six months ended June 30, 1998, interest expense was RMB693,200
and no material interest income was noted during the period.
INCOME TAXES:
For the six months ended June 30, 1998, one of the Company's BVI
subsidiaries operating in the PRC was subject to PRC income tax and RMB
103,000 tax provision was made during the period.
Save as disclosed above, no other subsidiaries within the Company has
assessable income during the six months ended June 30, 1998.
NET (LOSS) / INCOME BEFORE INCOME TAXES:
Net loss for the six months ended June 30, 1998 was RMB 2,334,951 and
such loss was partly contributed by the non-recurring professional
expenses and consulting fee paid in respect of the reverse acquisition
of Best Medical Treatment Group, Inc during 1998. These expenses
incurred during the period amounted to approximately RMB 1,200,000.
CONSOLIDATED FINANCIAL RESOURCES - JUNE 30, 1998
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1998, the Company's operations
acquired cash resources of RMB320,269. The major components of the cash
required by operations during the period were the decrease of RMB
4,754,530 in the amount due to the principal shareholder and the
increase of RMB 1,472,123 and RMB896,855 in accrued expenses and
interest payable, respectively. 212,743 were used in investing
activities for the purchase of property, plant and equipment. New bank
borrowing amounted to RMB 596,299 during the period.
9
The Company's cash balance increased by RMB 63,287 to RMB879,844 at
June 30, 1998, as compared to RMB 816,557 at December 31, 1997. The
Company's net working capital deficit increased by RMB244,716 to RMB
38,899,976 at June 30, 1998, as compared to RMB38,655,260 at December
31, 1997. As a result, the Company's current ratio decreased to 0.29 to
1 at March 31, 1998, as compared to 0.31 to 1 at December 31, 1997.
The Company is currently operating at a loss and has net working
capital deficit. The Company's ability to continue as a going concern
is dependent on the continued financial support of its principal
shareholder, who has provided a letter of financial support to the
Company.
FOREIGN CURRENCY EXCHANGE AND INFLATION
The People's Republic of China ("PRC") government imposes control over
its foreign currency reserves in part through direct regulation of the
conversion of Renminbi into foreign exchange and through restrictions on foreign
trade. The conversion of Renminbi into United States Dollars and other foreign
currencies is based on the rate set by the People's Bank of China ("PBOC"),
which is set based on the previous day's PRC interbank foreign exchange market
rate and with reference to current exchange rates on the world financial
markets.
Foreign investment enterprises may generally remit out of the PRC
profits or dividends derived from a source within the PRC, subject to the
availability of foreign currency. Except for such profits or dividends,
remittance out of the PRC by foreign investors of any other amount (including
proceeds from a disposition of an investment in the PRC) is subject to the
approval of the State Administration of Foreign Exchange and the availability of
foreign currency (at the central government of provincial level). In addition,
if there is a deterioration in the PRC's balance of payments or for other
reasons, the PRC may impose restrictions on foreign currency remittances abroad.
No assurance can be given that the Company's PRC subsidiaries will be able or
permitted to remit out of the PRC amounts due to the Company.
In the most recent decade, the Chinese economy has experienced rapid
economic growth as well as relatively high rates of inflation, which in turn
resulted in the periodic adoption by the Chinese government of various
corrective measures designed to regulate growth and contain inflation. Since
1993, the Chinese government has implemented an economic program designed to
control inflation, which has resulted in the tightening of working capital to
Chinese business enterprises. The recent Asian financial crisis has resulted in
a general reduction in domestic production and sales, and a general tightening
of credit. The success of the Company depends in substantial part upon the
continued growth and development of the Chinese economy.
Foreign operations are subject to certain risks inherent in conducting
business abroad, including price and currency exchange controls, influctations
in the relative value of currencies. The Company conducts virtually all of its
business in China and, accordingly, the sale of its products and services is
settled primarily in RMB. As a result, devaluation of the RMB against the United
States Dollar ("USD") would adversely affect the Company's financial performance
when measured in USD. Although prior to 1994, the RMB experienced significant
devaluation against the USD, the RMB has remained fairly stable since then. In
addition, the RMB is not freely convertible into foreign currencies, and the
ability to convert the RMB is subject to the availability of currencies.
Effective December 1, 1998, the foreign exchange transactions involving the RMB
must take place through authorized banks or financial institutions in China at
the prevailing exchange rates quoted by the PBC.
The continuing Asian financial crisis has inhibited the growth and
general level of activity of the Chinese economy, thus reducing consumer demand
in China, which has had a negative impact on the Company's results of
operations, financial condition and cash flows. In addition, as a result of the
Asian financial crisis, China has tightened its foreign exchange controls.
Although the central government of China has repeatedly indicated that it does
not intend to devalue its currency in the near future, devaluation still remains
a possibility. Should the central government of China decide to devalue its
currency, the Company does not believe that such an action would have a
detrimental effect on the Company's operations, since the Company conducts
virtually all of its business in China, and the sale of its products and
services is settled in RMB.
YEAR 2000 ISSUE
The Year 2000 Issue results in the fact that certain computer programs
have been written using two digits rather than four digits to designate the
applicable year. Computer programs that have sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. Based on a
recent internal assessment, the Company does not believe that the cost to modify
its existing software and/or convert to new software will be significant.
Due to the number of distributors and suppliers that the Company
conducts business with on a continuing basis, and their varying levels of
sophistication with respect to utilization of computer systems, the Company is
currently unable to determine if such parties have fully addressed the Year 2000
Issue as it relates to their respective operating systems. However, the Company
does not believe that a Year 2000 system failure by any of such parties will, in
the aggregate, have a material adverse effect on the Company's consolidated
results of operations, financial position or cash flow.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In August 1988, Qin Dynasty, a subsidiary of the Company, signed a loan
agreement (the "Loan Agreement") with a company in the PRC (the "Plaintiff") to
provide a loan in the amount of US$ 2,000,000 to Qin Dynasty. Under the Loan
Agreement, the loan accrued interest at the 6-month LIBOR rate plus 0.8% per
annum and was repayable 24 months after the first draw down date in four equal
half-yearly installments of US$500,000. The loan was secured by a RMB10,000,000
deposit (approximately equivalent to the loan amount on the draw down date)
provided by C.M. Cheng on behalf of Qin Dynasty to the Plaintiff and accrued
interest at a fixed annual interest rate of 7.2%. The Plaintiff was required to
refund the deposit to C.M. Cheng in four equal half-yearly installments of
RMB2,500,000 on the maturity dates of the four half-yearly principal
installments of US$500,000 on April 3, 1991 and September 3, 1992. However, Qin
Dynasty did not repay any portion of the loan and the Plaintiff did not request
settlement during the period because the Company contends there was a verbal
agreement (the "Verbal Agreement") between the parties whereby the parties
agreed that the quarterly principal payment of US$500,000 would be set off
against RMB2,500,000 of the deposit in case of default in repayment.
The Plaintiff made its first demand for the settlement under the Loan
Agreement in March 1994. Qin Dynasty refused to pay in view of the existence of
the Verbal Agreement.
The Plaintiff then filed a lawsuit against Qin Dynasty and in May,
1996, PRC court determined that the first three installments of the loan
repayment with an aggregate value of US $1.5 million should be set-off against
RMB7.5 million of C.M. Cheng's deposit and that Qin Dynasty should repay the
fourth loan installment of US$500,000 to the Plaintiff in return for a refund of
the remaining RMB2,500,000 deposit to Cheng Chao Ming. All related interest
expenses and penalty interest for the delay of repayment in respect of the
US$500,000 loan principal and RMB2,500,000 deposit to be computed and settled in
accordance with the Loan Agreement. The Company's directors believe that the
ultimate resolution of this matter will not have any material impact on the
Company's financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Description Method of Filing
-------- ----------- ----------------
(27) Financial Data Schedule Filed herewith
(b) Current Reports on Form 8-K
None
10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
JENSON INTERNATIONAL, INC.
Registrant
Date: June 2, 1999 /s/ C.M. Cheng
----------------------- ------------------------------
C.M. Cheng
Chairman (Chief Executive Officer)
/s/ C.M. Chow
------------------------------
C.M. Chow
(Chief Financial Officer)
11
EXHIBIT INDEX
Exhibit 27 Financial Data Schedule