SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File No. 1-12293
NATURAL WAY TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 87-0394313
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(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification Number)
One World Trade Centre, Suite 7865, New York, New York 10048
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(Address of principal executive offices)
(212) 938-0574
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(Issuer's telephone number)
Room 3105, 31/F, Universal Trade Centre
3-5 A Arbuthnot Road, Central, Hong Kong
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(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 X No
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As of October 31, 1996, 8,200,000 shares of Common Stock of the issuer
were outstanding.
NATURAL WAY TECHNOLOGIES, INC.
INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996 and
December 31, 1995................................................ 3
Consolidated Statements of Operations - For the
three and nine month periods ended
September 30, 1996 and 1995...................................... 5
Consolidated Statements of Cash Flows - For the
nine month periods ended September 30, 1996 and 1995............. 6
Notes to Consolidated Financial Statements....................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 9
PART II - OTHER INFORMATION...........................................11
SIGNATURES..............................................................12
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATURAL WAY TECHNOLOGIES, INC. and SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(Amounts expressed in United States $'000)
September 30, 1996 December 31, 1995
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ASSETS
Current assets:
Cash $ 2,968 $ 374
Deposits 1,400 -
Accounts receivable, net 9,486 6,528
Prepayments 206 425
Inventories, net 767 862
Amount due from related company 1,248 1,052
Amount due from companies related
to joint venture partners 1,795 -
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Total current assets 17,870 9,241
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Deferred value added tax recoverable 143 162
Property, plant and equipment, net 2,163 2,182
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Total assets $20,176 $11,585
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See accompanying notes to condensed consolidated financial statements.
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NATURAL WAY TECHNOLOGIES, INC.
Consolidated Balance Sheets (Unaudited)
(Amounts expressed in United States $'000)
(Continued)
September 30, 1996 December 31, 1995
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LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 137 $ 4
Accounts payable & accruals 3,597 3,807
Loans from related company 31 -
Loan from director 46 -
Taxes payable 2,061 1,640
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Total current liabilities 5,872 5,451
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Payable to joint venture partners 4,304 46
Minority interests 2,567 -
Shareholders' equity :
Common stock, par value $0.001; authorized
50,000,000 shares, outstanding 1,200,000
shares at September 30, 1996 and 1,000,000
shares at December 31, 1995 1 1
subscribed - 7,000,000 shares at
September 30, 1996 7 -
Preferred stock, Series A convertible and
redeemable, par value $0.001; authorized
15,000 shares, outstanding 5,600 shares at
September 30, 1996 - -
Preferred stock, Series B convertible and
redeemable, par value $0.001; authorized
100,000 shares, outstanding 100,000
shares at September 30, 1996 - -
Additional paid-in capital 5,601 -
Subscription monies receivable - -
Retained earnings 1,639 6,087
Dedicated capital 179 -
Cumulative translation adjustments 6 -
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Total shareholders' equity 7,433 6,088
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Total liabilities and shareholders'
equity $ 20,176 $ 11,585
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See accompanying notes to condensed consolidated financial statements.
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NATURAL WAY TECHNOLOGIES, INC. and SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
(Amounts expressed in United States $'000)
Three Months Ended Nine Months Ended
September 30, September 30,
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1996 1995 1996 1995
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Net sales $ 2,788 $ 2,070 $ 8,255 $ 7,761
Cost of goods sold 586 537 1,734 2,012
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Gross profit 2,202 1,533 6,521 5,749
Selling, general and
administrative expenses (1,437) 874 (3,862) (3,278)
Other income, net 17 6 17 15
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Income before taxes 782 663 2,676 2,486
Provision for income taxes 31 24 91 90
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Income before minority interest 751 639 2,585 2,396
Minority interest 225 173 767 647
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Net income $ 526 $ 466 $ 1,818 $ 1,749
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Net income per common share $ .06 $ .06 $ .22 $ .21
========== =========== ========= ==========
Weighted average number of
shares outstanding 8,200,000 8,200,000 8,200,000 8,200,000
========== =========== ========= ==========
See accompanying notes to condensed consolidated financial statements.
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NATURAL WAY TECHNOLOGIES, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Amounts expressed in United States $'000)
Nine Months Ended September 30,
1996 1995
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Cash flows from operating activities:
Net Income 1,818 1,749
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation of property, plant and equipment 19 19
Minority interest 767 647
(Increase) Decrease in operating assets
Deposit paid (1,400) -
Accounts receivable (2,958) (910)
Inventories 95 72
Prepayments 219 51
Amount due from companies related to joint
venture partners (1,795) -
Amount due from a related company (196) (92)
Deferred value added tax recoverable - 30
Increase (Decrease) in operating liabilities
Accounts payable and accruals (210) (412)
Amount due to a director 46 -
Amount due to a related company 31 9
Taxes payable 421 141
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Net cash provided by (used in) operating
activities (3,143) 1,304
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Cash flows from investing activities:
Acquisition of property, plant and equipment - (1,359)
Proceeds from the disposal of property,
plant and equipment - 3
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Net cash provided by (used in)
investing activities - (1,356)
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Cash flows from financing activities:
Increase in short-term borrowing 137 -
Proceeds from issuance of preferred stock
- Series A 5,600 -
Repayment of short-term borrowings - (149)
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Net cash provided by (used in) financing
activities 5,737 (149)
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Net increase (decrease) in cash 2,594 (201)
Cash as of beginning of period 374 642
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Cash as of end of period $ 2,968 $ 441
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See accompanying notes to condensed consolidated financial statements.
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NATURAL WAY TECHNOLOGIES, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1996 (Unaudited)
1. INTERIM FINANCIAL PRESENTATION
The interim financial statements are prepared pursuant to the requirements
for reporting on Form 10-QSB. The December 31, 1995 balance sheet data was
derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles. The
interim financial statements and notes thereto should be read in
conjunction with the financial statements and notes included in the
Company's Form 10-KSB dated December 31, 1995. In the opinion of
management, the interim financial statements reflect all adjustments of a
normal recurring nature necessary for a fair presentation of the results
for the interim periods presented.
2. CURRENCY PRESENTATION AND FOREIGN CURRENCY TRANSLATION
The Company's financial information is presented in U. S. dollars. The
translation of the financial statements of foreign subsidiaries into United
States dollars is performed for balance sheet accounts using closing
exchange rates in effect at the balance sheet date and for revenue and
expense accounts using an average exchange rate during each reporting
period. The gains or losses resulting from translation are included in
shareholders' equity separately as cumulative translation adjustments.
3. BUSINESS AND ORGANIZATION
Effective July 1, 1996, the Company acquired all of the issued and
outstanding stock of China Medical Development, Co., Ltd. ("CMDC"), in
exchange for 7,000,000 shares of common stock. CMDC is the owner of 70%
interest in Dunhua Huakung Pharmaceutical Co., Ltd., a sino-foreign joint
venture engaged in the manufacture and distribution of Chinese herbal
medicine in The People's Republic of China ("PRC"). Since the acquisition
was accounted for as a pooling of interests, the Company's financial
statements for periods prior to July 1, 1996 have been restated to include
the consolidated results of CMDC.
4. SHAREHOLDERS' EQUITY
As consideration for the acquisition of CMDC, the Company issued 7,000,000
shares of common stock and 100,000 shares of Series B preferred stock and
agreed to fund CMDC with a minimum of $4,200,000.
Common Stock
During the nine months ended September 30, 1996, the Company issued 200,000
common shares for consulting services in connection with the CMDC
acquisition.
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Series A Convertible Preferred Stock
During the nine months ended September 30, 1996, the Company issued 5,600
shares of Series A convertible preferred stock for $5,600,000. These
shares have no voting rights, a liquidation preference of $1,000 per share
and are convertible into common stock at anytime on or before December 31,
1997 at the lesser of the market price of the common stock or $1,000 per
share.
Series B Preferred Shares
As part of the acquisition of CMDC, the Company issued 100,000 shares of
Series A preferred stock. As a class, these shares are entitled to thirty
percent voting control of the Company in all matters voted on by the
shareholders.
5. EARNINGS PER SHARE
Earnings per share is calculated for each period and the shares outstanding
have been adjusted to give retroactive effect to the acquisition of CMDC.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Net sales for the nine months ended September 30, 1996, increased
$494,000, or 6.4%, to $8.3 million from $7.8 million for the nine months ended
September 30, 1995. The increase in net sales was attributable to increased
sales of GMN, a medication used in the treatment of coronary heart disease.
Cost of goods sold for the nine months ended September 30, 1996, decreased
$278,000, or 13.8%, to $1.7 million from $2.0 million for the nine months ended
September 30, 1995. The decrease in cost of goods sold was attributable to
decreasing prices for raw materials as well as the lower productivity costs of
GMN.
Selling, general and administration expenses for the nine months ended
September 30, 1996, increased $584,000, or 17.8%, to $3.9 million from $3.3
million for the nine months ended September 30, 1995. The increase in selling
general and administration expenses was attributable to costs associated with
promoting the new corporate image and start-up costs of the Beijing Research
and Development Center.
Other income for the nine months ended September 30, 1996, increased
$2,000, or 13.3%, to $17,000 from $15,000 for the nine months ended September
30, 1995. The increase in other income was attributable to additional interest
income on funds received from the sale of convertible preferred stock.
Minority interest represents the allocable share of income or loss
attributable to the 30% share of Dun Hua Huakung Pharmaceutical Co., Ltd. not
owned by the Company during the nine months of 1996.
Net income for the nine months ended September 30, 1996, decreased
$578,000, or 24.1%, to $1.8 million from $2.4 million for the nine months ended
September 30, 1995.
MATERIAL CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had working capital of $12.0 million
and cash balances of $3.0 million as compared to working capital of $3.8
million and cash balances of $374,000 at December 31, 1995. The improvement in
working capital was attributable to a combination of (i) cash flows from
profitable operations and (ii) the receipt of $5.6 million of net proceeds from
the sale of Series A convertible preferred stock.
As of September 30, 1996, the Company's only long-term obligation
consisted of $4.3 million payable to a joint venture partner relating to the
acquisition of additional operating assets from the joint venture partner.
During the first nine months of 1996, the Company issued 5,000 shares of
Series A convertible preferred stock raising $5,600,000, all of which remains
outstanding and convertible into common stock. The preferred shares are each
convertible into 1,000 shares of common stock at anytime prior to December 31,
1997, have a liquidation preference of $1,000 per share, have no general voting
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rights and are redeemable by the Company at anytime after December 31, 1997, at
$1,000 per share. Subsequent to September 30, 1996, 400 additional shares of
Series A convertible preferred stock were issued for $400,000. In addition,
the Company issued 200,000 shares of common stock for consulting services
rendered in connection with the acquisition of China Medical Development Co.,
Ltd.
Management believe that with its available equity and financing sources
and its existing capital, the Company has sufficient capital resources to fund
its current operations for the foreseeable future.
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Conditional Acquisition Agreement between Natural Way
Technologies, Inc. and China Food and Beverage Industrial
Company Limited.
3.1 Amended and Restated Articles of Incorporation.
3.2 Amended Bylaws.
3.3 Certificate of Designation - Series A Convertible Preferred
Stock.
3.4 Certificate of Designation - Series B Preferred Stock.
3.5 Certificate of Designation - Series C Convertible Preferred
Stock.
(b) Reports on Form 8-K
1. Form 8-K dated June 30, 1996, reporting on Items 1 and 2 the
acquisition of China Medical Development Co. and the resulting
change in control of the Company; Item 4, the change of
certifying accountant; and Item 5, the change of the Company's
name and sale of Series A Preferred Stock.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
(REGISTRANT) NATURAL WAY TECHNOLOGIES, INC.
BY (SIGNATURE) /s/ Yiu Yat Hung
(NAME AND TITLE) Yiu Yat Hung, Chairman and
Chief Executive Officer
(DATE) November 26, 1996
BY (SIGNATURE) /s/ Yao Yi Le
(NAME AND TITLE) Yao Yi Le, Treasurer and
Chief Financial Officer
(DATE) November 26, 1996
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