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 quarter period ended June 30, 2001
-------------
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to _____________
CHINA RESOURCES DEVELOPMENT, INC.
(Exact Name of registrant as Specified in Charter)
Nevada 0-26046 87-02623643
(State or other Jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
Room 2105, West Tower, Shun Tak Centre,
200 Connaught Road C., Sheung Wan, Hong Kong
Telephone: 011-852-2810-7205
(Address and telephone number of
principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 837,797 shares of common stock,
$0.001 par value, as of August 14, 2001.
CONVENTIONS
Unless otherwise specified, all references in this report to "U.S.
Dollars," "Dollars," "US$," or "$" are to United States dollars; all references
to "Hong Kong Dollars" or "HK$" are to Hong Kong dollars; and all references to
"Renminbi" or "RMB" or "Yuan" are to Renminbi Yuan, which is the lawful currency
of the People's Republic of China ("China" or "PRC"). The Company and Billion
Luck maintain their accounts in U.S. Dollars and Hong Kong Dollars,
respectively. HARC and its subsidiaries maintain their accounts in Renminbi. The
financial statements of the Company and its subsidiaries are prepared in
Renminbi. Translations of amounts from Renminbi to U.S. Dollars and from Hong
Kong Dollars to U.S. Dollars are for the convenience of the reader. Unless
otherwise indicated, any translations from Renminbi to U.S. Dollars or from U.S.
Dollars to Renminbi have been made at the single rate of exchange as quoted by
the People's Bank of China (the "PBOC Rate") on June 30, 2001, which was
approximately U.S.$1.00 = Rmb8.28. Translations from Hong Kong Dollars to U.S.
Dollars have been made at the single rate of exchange as quoted by the Hongkong
and Shanghai Banking Corporation Limited on June 30, 2001, which was
approximately US$1.00 = HK$7.80. The Renminbi is not freely convertible into
foreign currencies and the quotation of exchange rates does not imply
convertibility of Renminbi into U.S. Dollars or other currencies. All foreign
exchange transactions take place either through the Bank of China or other banks
authorized to buy and sell foreign currencies at the exchange rates quoted by
the People's Bank of China. No representation is made that the Renminbi or U.S.
Dollar amounts referred to herein could have been or could be converted into
U.S. Dollars or Renminbi, as the case may be, at the PBOC Rate or at all.
References to "Billion Luck" are to Billion Luck Company Ltd., a
British Virgin Islands company, which is a wholly-owned subsidiary of the
Company.
References to "Company" are to China Resources Development, Inc., and
include, unless the context requires otherwise, the operations of its
subsidiaries (all as hereinafter defined).
References to "Farming Bureau" are to the Hainan Agricultural
Reclamation General Company, a division of the Ministry of Agriculture, the PRC
government agency responsible for matters relating to agriculture.
References to "Hainan" are to Hainan Province of the PRC.
References to "HARC" are to Hainan Zhongwei Agricultural Resources
Company Limited, a company organized in the PRC, whose capital is owned 95% by
Billion Luck and 5% by the Company.
References to the "PRC" or "China" include all territory claimed by or
under the control of the Central Government, except Hong Kong, Macau, and
Taiwan.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Amounts in thousands, except share and per share data)
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------- --------------------------------------
2001 2000 2001 2001 2000 2001
-------- -------- -------- -------- -------- --------
RMB RMB US$ RMB RMB US$
NET SALES 1,499 1,280 181 6,027 2,431 728
COST OF SALES (1,149) (1,056) (139) (5,348) (2,011) (646)
-------- -------- -------- -------- -------- --------
GROSS PROFIT 350 224 42 679 420 82
DEPRECIATION (232) (351) (28) (405) (551) (49)
AMORTIZATION (2,813) -- (340) (4,151) -- (501)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (4,173) (3,712) (504) (8,121) (8,083) (983)
FINANCIAL INCOME, NET 618 3,668 75 548 3,707 66
OTHER INCOME/(EXPENSES), NET 330 (2,483) 40 10,877 10,528 1,314
-------- -------- -------- -------- -------- --------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES (5,920) (2,654) (715) (573) 6,021 (71)
INCOME TAXES -- 187 -- (1,262) (1,770) (153)
-------- -------- -------- -------- -------- --------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS
BEFORE MINORITY INTERESTS (5,920) (2,467) (715) (1,835) 4,251 (224)
MINORITY INTERESTS 145 591 18 1,198 (3,895) 147
-------- -------- -------- -------- -------- --------
INCOME/(LOSS) FROM
CONTINUTING OPERATIONS (5,775) (1,876) (697) (637) 356 (77)
DISCONTINUED OPERATIONS
Loss on continuing operations of
discontinued timber segment -- (308) -- (24) (403) (3)
-------- -------- -------- -------- -------- --------
NET LOSS (5,775) (2,184) (697) (661) (47) (80)
======== ======== ======== ======== ======== ========
BASIC AND DILUTED EARNINGS/
(LOSS) PER SHARE
Continuing operations (6.89) (3.16) (0.83) (0.76) 0.60 (0.09)
Discontinued operations -- (0.52) -- (0.03) (0.68) --
-------- -------- -------- -------- -------- --------
Net loss per share
- basic and diluted (6.89) (3.68) (0.83) (0.79) (0.08) (0.09)
======== ======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 837,797 592,900 837,797 837,797 592,900 837,797
======== ======== ======== ======== ======== ========
See notes to condensed consolidated financial statements.
3
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
(Amounts in thousands, except share and per share data)
June 30, December 31, June 30,
2001 2000 2001
RMB RMB US$
Notes (Unaudited) (Note) (Unaudited)
----- ----------- ------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 34,846 37,546 4,208
Marketable securities 3 959 62,384 116
Inventories - finished goods 1,617 598 195
Other receivables, deposits and prepayments 10,884 10,585 1,315
Amount due from Farming Bureau -- 13,509 --
Amounts due from related companies 636 636 77
Income taxes recoverable 309 225 37
Net assets of discontinued operations 2 -- 2,388 --
------- ------- -------
TOTAL CURRENT ASSETS 49,251 127,871 5,948
PROPERTY AND EQUIPMENT 4 7,078 9,044 855
PROPERTY, PLANT AND EQUIPMENT OF
DISCONTINUED OPERATIONS 2 -- 4,260 --
INVESTMENTS 109,615 184,374 13,238
INTANGIBLE ASSETS 22,604 7,860 2,730
------- ------- -------
TOTAL ASSETS 188,548 333,409 22,771
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 234 269 28
Other payables and accrued liabilities 5 5,732 16,477 692
Margin loan payable 6 -- 18,572 --
Due to investment adviser 12,253 12,253 1,480
Amount due to Farming Bureau 617 -- 75
Amounts due to related companies 666 666 80
------- ------- -------
TOTAL CURRENT LIABILITIES 19,502 48,237 2,355
MINORITY INTERESTS -- 115,480 --
------- ------- -------
TOTAL LIABILITIES AND MINORITY INTERESTS 19,502 163,717 2,355
------- ------- -------
SHAREHOLDERS' EQUITY Common stock, US$0.001 par value:
Authorized - 200,000,000 shares in 2001 and 2000
Issued and outstanding - 837,797 shares in 2001
and 2000 7 7 1
Preferred stock, authorized -
10,000,000 shares in 2001 and 2000
Series B preferred stock, US$0.001 par value:
Authorized - 320,000 shares in 2001 and 2000
Issued and outstanding - 320,000 shares
in 2001 and 2000 3 3 --
Additional paid-in capital 169,052 169,052 20,417
Reserves 28,028 28,028 3,385
Accumulated deficits (28,077) (27,416) (3,391)
Accumulated other comprehensive income 33 18 4
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY 169,046 169,692 20,416
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 188,548 333,409 22,771
======= ======= =======
Note: The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
4
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(Amounts in thousands)
Accumulated
Series B Additional other
Common preferred paid-in Accumulated comprehensive
stock stock capital Reserves deficits income Total
RMB RMB RMB RMB RMB RMB RMB
-------- -------- -------- -------- -------- -------- --------
Balance at January
1, 2001 7 3 169,052 28,028 (27,416) 18 169,692
Net loss -- -- -- -- (661) -- (661)
Currency translation
Adjustments -- -- -- -- -- 15 15
--------
Comprehensive loss -- -- -- -- -- -- (646)
--------
-------- -------- -------- -------- -------- -------- --------
Balance at June 30,
2001 7 3 169,052 28,028 (28,077) 33 169,046
======== ======== ======== ======== ======== ======== ========
See notes to condensed consolidated financial statements.
6
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Amounts in thousands)
Six months ended June 30,
-------------------------
2001 2000 2001
-------- -------- --------
RMB RMB US$
Net cash provided by/(used in) operating activities (27,612) 71,533 (3,336)
INVESTING ACTIVITIES
Purchases of property and equipment (36) (1,084) (4)
Proceeds from disposal of investments 61,425 928 7,419
Proceeds from disposal of property and equipment -- 1,547 --
Acquisition of additional interest in a subsidiary (36,478) -- (4,406)
-------- -------- --------
Net cash provided by investing activities 24,911 1,391 3,009
-------- -------- --------
FINANCING ACTIVITY
Reduction in minority interests -- (1,373) --
-------- -------- --------
Net cash provided by/(used in) continuing operations (2,701) 71,551 (327)
Net cash provided by discontinued operations -- 74 --
-------- -------- --------
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS (2,701) 71,625 (327)
Cash and cash equivalents, at beginning of period 37,547 38,138 4,535
-------- -------- --------
Cash and cash equivalents, at end of period 34,846 109,763 4,208
======== ======== ========
See notes to condensed consolidated financial statements.
7
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) (Amounts in thousands,
except per share data)
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 instructions
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 months and six months
period ended June 30, 2001, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2001.
The balance sheet at December 31, 2000 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. 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 year ended
December 31, 2000.
2. ACQUISITION AND DISPOSITION OF ASSETS
On April 30, 2001, the Company's wholly-owned subsidiary, Billion Luck,
through its nominees, acquired a 39% equity interest in its 61%-owned
subsidiary, HARC, from the Farming Bureau, for a total consideration of
RMB129,405 (US$15,629) (the "Purchase Consideration"). Following the
acquisition, HARC has become an indirect wholly-owned subsidiary of the
Company. Concurrent with the acquisition, HARC entered into several
agreements with the Farming Bureau to dispose of certain assets,
including 24,877,008 shares of Hainan Sundiro Motorcycle Co. Ltd., a
13% equity interest in Xilian Timber Mill and a 58% equity interest in
Hainan Weilin Timber Limited Liability Company ("Hainan Weilin"),
valued in the aggregate at RMB78,800 (US$9,517). The Company has ceased
the timber processing operations following the disposition of its 58%
interest in Hainan Weilin.
Net sales of the timber processing operations included in discontinued
operations totaled RMB1,282 (US$155) and nil for the six months ended
June 30, 2000 and 2001, respectively. Loss from discontinued operations
of timber processing operations of RMB695 (US$84) and RMB41 (US$5) for
the six months ended June 30, 2000 and 2001, respectively, is reported
without set-off of any income tax expenses.
8
The net assets of the timber processing operations were as follows:
December 31,
2000
RMB
Current assets 3,043
Property and equipment, net 4,260
Current liabilities (655)
---------
Net assets of discontinued operations 6,648
=========
The allocation of purchase price of the 39% equity interest in HARC
reflected in the June 30, 2001 condensed consolidated balance sheet is
tentative pending the completion of the valuations of the certain
assets and liabilities acquired. The allocation may change with the
completion of these valuations.
3. MARKETABLE SECURITIES
June 30, December 31,
2001 2000
RMB RMB
Trading securities listed on the Hong Kong
Stock Exchange
At cost 2,846 78,798
Less: unrealized loss (1,887) (16,414)
-------- ---------
Fair value 959 62,384
======== =========
4. PROPERTY AND EQUIPMENT, NET
June 30, December 31,
2001 2000
RMB RMB
At cost:
Buildings and leasehold improvements 3,274 4,843
Machinery, equipment and motor vehicles 4,644 6,336
-------- ---------
7,918 11,179
Accumulated depreciation: (840) (2,135)
-------- ---------
Net book value 7,078 9,044
======== =========
9
5. OTHER PAYABLES AND ACCRUED LIABILITIES
June 30, December 31,
2001 2000
RMB RMB
Other payables 2,958 10,607
Accrued liabilities 2,774 2,688
Call options written, at fair value
(premium received RMB3,182) - 3,182
-------- ---------
5,732 16,477
======== =========
6. MARGIN LOAN PAYABLE
The Company had a margin loan payable balance of RMB18,572 as of
December 31, 2000 which was used to purchase marketable securities
listed on the Hong Kong Stock Exchange. The margin loan was repaid as
the securities were sold in the first quarter of 2001.
7. SEGMENT FINANCIAL INFORMATION
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
RMB RMB RMB RMB
------- ------- ------- -------
Net sales to external customers:
Supermarket operations, net sales to
unaffiliated customers 1,499 1,280 2,842 2,431
Natural rubber, net sales to
unaffiliated customers -- -- 3,185 --
------- ------- ------- -------
Consolidated net sales from
continuing operations 1,499 1,280 6,027 2,431
======= ======= ======= =======
Segment profit/(loss):
Supermarket operations 125 (13) 214 (53)
Natural rubber (517) -- (1,018) --
------- ------- ------- -------
Total segment loss (392) (13) (804) (53)
Reconciling items:
Corporate expenses (6,236) (3,831) (10,795) (8,119)
Gain/(loss) on trading of marketable
securities 90 (2,497) 7,298 10,486
Premium earned on written call options -- -- 3,180 --
Interest income 618 4,553 777 4,573
Interest expense -- -- (229) --
Exchange losses, net -- (866) -- (866)
------- ------- ------- -------
Consolidated income/(loss) from
continuing operations before income taxes (5,920) (2,654) (573) 6,021
======= ======= ======= =======
10
June 30, December 31,
2001 2000
RMB RMB
Segment assets:
Supermarket operations 6,592 6,416
Natural rubber 7,690 62,812
---------- ----------
Total segment assets 14,282 69,228
Reconciling items:
Corporate assets 64,651 79,807
Investments 109,615 184,374
---------- ----------
Total consolidated assets 188,548 333,409
========== ==========
The natural rubber segment's assets decreased by more than RMB55
million at June 30, 2001 as compared to the amount at December 31, 2000
because the natural rubber segment exchanged certain of its assets as
part of the consideration for the additional 39% interest in HARC in
the second quarter of 2001 (see Note 2).
The processed timber segment which was reported in the Company's annual
report on Form 10-K for the year ended December 31, 2000 was
discontinued in the second quarter of 2001, as a result of the disposal
of Hainan Weilin as detailed in Note 2.
8. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and
other intangible assets beginning in the first quarter of 2002.
Application of the nonamortization provisions of the Statement is
expected to result in an increase in net income of RMB3.4 million
(RMB4.10 per share) per year. During 2002, the Company will perform the
first of the required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002 and has not yet determined what
the effect of these tests will have on the earnings and financial
position of the Company.
9. COMPREHENSIVE LOSS
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
RMB RMB RMB RMB
Total comprehensive loss (5,776) (2,182) (646) (28)
====== ====== ====== ======
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table shows the selected unaudited condensed consolidated
income statement data of the Company and its subsidiaries for the three months
and six months ended June 30, 2001 and 2000. The data should be read in
conjunction with the unaudited Condensed Consolidated Financial Statements of
the Company and related notes thereto.
The discussions below are presented in the Company's primary operating
currency, which is the Renminbi Yuan ("RMB"). For information purposes only, the
amounts may be translated into U.S. dollars at an exchange rate of $1.00 =
RMB8.28, which represents the approximate single rate of exchange as quoted by
the People's Bank of China on June 30, 2001. No representation is made that RMB
amounts could have been, or could be, converted into U.S. dollars at that rate
or any other rate.
(Amounts in thousands) Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
RMB RMB RMB RMB
Net sales:
Supermarket operations 1,499 1,280 2,842 2,431
Natural rubber - - 3,185 --
---------- ---------- ---------- ----------
1,499 1,280 6,027 2,431
---------- ---------- ---------- ----------
Gross profit 350 224 679 420
Gross profit margin (%) 23.35 17.50 11.27 17.28
Income/(loss) from continuing
operations before income taxes (5,920) (2,654) (573) 6,021
Income taxes - 187 (1,262) (1,770)
---------- ---------- ---------- ----------
Income/(loss) from continuing
operations before minority (5,920) (2,467) (1,835) 4,251
interests
Minority interests 145 591 1,198 (3,895)
---------- ---------- ---------- ----------
Income/(loss) from continuing
operations (5,775) (1,876) (637) 356
Discontinued operations
Loss on continuing operations of
discontinued timber segment -- (308) (24) (403)
---------- ---------- ---------- ----------
Net loss (5,775) (2,184) (661) (47)
========== ========== ========== ==========
NET SALES AND GROSS PROFIT
Supermarket operations were established by the Company in the fourth
quarter of 1999. Net sales from supermarket operations increased by 16.9% from
RMB2.4 million (US$294,000) for the first half of 2000 to RMB2.8 million
(US$343,000) for the first half of 2001. For the first half of 2001, supermarket
operations had gross profit and gross profit margin of RMB675,000 (US$82,000)
and 23.8%, respectively. For the first half of 2000, supermarket operations had
gross profit and gross profit margin of RMB420,000 (US$51,000) and 17.3%,
respectively.
Net sales from supermarket operations increased by 17.1% from RMB1.3
million (US$155,000) for the second quarter of 2000 to RMB1.5 million
(US$181,000) for the second quarter of 2001. For the second quarter of 2001,
supermarket operations had gross profit and gross profit margin of RMB350,000
(US$42,000) and 23.4%, respectively. For the second quarter of 2000, supermarket
operations had gross profit and gross profit margin of RMB224,000 (US$27,000)
and 17.5%, respectively. The increase in net sales and gross profit margin were
due to increased sales volume resulting from the successful marketing efforts of
the Company and its ability to source less expensive and better quality products
from suppliers.
12
Notwithstanding the cessation of natural rubber operations in early
2000, the Company engages in trading of natural rubber occasionally when a
profit is anticipated. During the first quarter of 2001, the Company had sales
of RMB3.2 million (US$385,000), gross profit of RMB4,000 (US$483) and gross
profit margin of 0.1%. The natural rubber market remained relatively stable in
2000 and 2001 and management anticipates that natural rubber prices will
continue to remain stable for the foreseeable future. Therefore, the Company has
decided to trade natural rubber again in the first quarter of 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The selling, general and administrative expenses for the first half of
2001 is comparable to that for the first half of 2000. The increase in legal and
professional fees and traveling expenses in relation to the exploring of
investment opportunities for the first half of 2001 was offset by a bad debt
recovery of RMB297,000 (US$36,000) in the first half of 2001 and the decrease in
professional and registration expenses for establishing new subsidiaries for its
supermarket and timber operations in the first quarter of 2000.
Selling, general and administrative expenses for the second quarter of
2001 increased by 12.4% to RMB4.2 million (US$504,000) from RMB3.7 million
(US$448,000) for the first half of 2000. The increase was mainly due to the
increase in legal and professional fees and traveling expenses in relation to
the exploring of investment opportunities, net of bad debt recovery of
RMB297,000 (US$36,000).
AMORTIZATION
Expenses for the first half of 2001 represented amortization of
acquired website technology on June 30, 2000 on the straight-line basis over two
years and amortization of goodwill arising from the acquisition of the 39%
equity interest in HARC from the Farming Bureau on April 30, 2001 on the
straight-line basis over five years.
FINANCIAL INCOME, NET
Net financial income for the first half of 2000 was RMB3.7 million
(US$448,000), which was comprised of interest income of RMB4.6 million
(US$556,000) and exchange loss of RMB866,000 (US$105,000). Net financial income
for the first half of 2001 was RMB548,000 (US$66,000), which was comprised of
interest income of RMB777,000 (US$94,000) and interest expenses of RMB229,000
(US$28,000). The decrease in financial income was mainly attributable to the
interest received in the second quarter of 2000 on a RMB45.0 million (US$5.4
million) short-term loan to an unaffiliated third party, which amounted to
RMB4.2 million (US$507,000). The exchange loss incurred in the first half of
2000 arose from the conversion of RMB to Hong Kong dollars. The financial
expenses incurred in the first half of 2001 arose from a margin loan which was
repaid in the first quarter of 2001.
Net financial income for the second quarter of 2000 was RMB3.7 million
(US$447,000), which was comprised of financial income of RMB4.5 million
(US$543,000) and exchange loss of RMB866,000 (US$105,000). Financial income for
the second quarter of 2001 was RMB618,000 (US$75,000). The decrease in financial
income was mainly attributable to the interest received in the second quarter of
2000 on a RMB45 million (US$5.4 million) short-term loan to an unaffiliated
third party, which amounted to RMB4.2 million (US$507,000).
OTHER INCOME/(EXPENSES), NET
Other income for the first half of 2000 represented a net gain on
trading of marketable securities. Other income for the first half of 2001
represented a net gain on trading of marketable securities of RMB7.3 million
(US$882,000) and a premium earned on written call options of RMB3.2 million
(US$386,000)
Other expenses for the second quarter of 2000 represented a net loss on
trading of marketable securities. Other income for the second quarter of 2001
represented a net gain on trading of marketable securities of RMB90,000
(US$11,000).
13
INCOME TAXES
It is management's intention to reinvest all the income attributable to
the Company earned by its operations outside the US. Accordingly, no US federal
and state income taxes have been provided in these consolidated financial
statements.
Income taxes consist of PRC federal income tax computed at 15% on
assessable income for foreign investment enterprises operating in Hainan.
DISCONTINUED OPERATIONS
Discontinued operations represent the operating loss from the operations of the
discontinued processed timber business resulting from the exchange of the
Company's 58% interest in Hainan Weilin Timber Limited Liability Company as
partial consideration for the minority interest of HARC.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs are to fund inventories, trade
receivables and operating expenses, and to expand business operations. The
Company has financed its working capital requirements primarily through
internally generated cash.
The Company had a working capital surplus of approximately RMB29.7
million (US$3.6 million) as of June 30, 2001, compared to that of approximately
RMB79.6 million (US$9.6 million) as of December 31, 2000. The decrease was
mainly attributable to the Company paying approximately RMB36 million cash and
foregoing approximately RMB14 million amount due from the Farming Bureau as
partial consideration for the minority interest of HARC. Net cash used by
operating activities for the six months ended June 30, 2001 was approximately
RMB27.6 million (US$3.3 million), as compared to net cash provided by operating
activities of RMB71.5 million (US$8.6 million) for the corresponding period in
2000. Net cash inflows/outflows from the Company's operating activities are
attributable to the Company's net loss and changes in operating assets and
liabilities. Net cash provided by investing activities for the six months ended
June 30, 2001 was mainly attributable to the cash proceeds from the disposal of
marketable securities, net of the cash consideration paid for the minority
interest of HARC as stated above.
Except as disclosed above, there has been no other significant change
in financial condition and liquidity since the fiscal year ended December 31,
2000. The Company believes that internally generated funds will be sufficient to
satisfy its anticipated working capital needs for at least the next twelve
months.
MARKET RISK AND RISK MANAGEMENT POLICIES
All of the Company's sales and purchases are made domestically and are
denominated in RMB. Accordingly, the Company and its subsidiaries do not have
material market risk with respect to currency fluctuation. As the reporting
currency of the Company's consolidated financial statements is also RMB, there
is no significant translation difference arising on consolidation. However, the
Company may suffer exchange loss when it converts RMB to other currencies, such
as Hong Kong Dollar or United States Dollar.
The Company's interest income is most sensitive to changes in the
general level of RMB interest rates. In this regard, changes in RMB interest
rates affect the interest earned on the Company's cash equivalents. As at June
30, 2001, the Company's cash equivalents are mainly RMB, Hong Kong Dollar and
United States Dollar deposits with financial institutions, bearing market
interest rates without fixed term.
As at June 30, 2001, the Company had short-term investments in
marketable securities in the Hong Kong stock market with a total market value of
RMB959,000 (US$116,000). These investments expose the Company to market risks
that may cause the future value of these investments to be lower than the
original cost of such investments.
14
FINANCIAL POSITION
Marketable Securities
---------------------
Marketable securities decreased by 98% from December 31, 2000 to June 30, 2001
due to the sale of part of the securities in the first quarter of 2001.
Margin Loan Payable
-------------------
The margin loan payable at December 31, 2000 was used to purchase marketable
securities. The margin loan was repaid when the securities were sold in the
first quarter of 2001.
Other Payables and Accrued Liabilities
--------------------------------------
In the first half of 2001, the Company recognized the call option premium of
RMB3.2 million (US$384,000) included in other payables and accrued liabilities.
Also, the Company repaid a short term loan payable in the amount of RMB6.9
million (US$832,000) in the first half of 2001.
15
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) None.
(b) During the three months ended June 30, 2001, the Company filed
(i) one current report on Form 8-K on May 17, 2001, that
reported under Item 2, the acquisition of the 39% equity
interest in HARC by Billion Luck, through its nominees, from
the Farming Bureau for total consideration of Rmb129,405,000
(US$15,629,000) and the Company's disposition of certain
assets to the Farming Bureau, including 24,877,008 shares of
Hainan Sundiro Motorcycle Co. Ltd., a 13% equity interest in
Xilian Timber Mill and a 58% equity interest in Hainan Weilin,
for total consideration of RMB78,800,000 (US$9,517,000), and
(ii) Amendment No.1 to such Current Report on June 5, 2001,
including financial statements required by Regulation S-X.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHINA RESOURCES DEVELOPMENT, INC.
August 20, 2001 By:/s/ Ching Lung Po
----------------------------------
Ching Lung Po, Chairman
By:/s/ Tam Cheuk Ho
-----------------------------------
Tam Cheuk Ho, Chief Financial Officer
17