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 September 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: 837,823 shares of common stock,
$0.001 par value, as of November 14, 2001.
CONVENTIONS
Unless otherwise specified, all references in this report to "U.S.
Dollars," "Dollars," "US$," 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 September 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 September 30, 2001, which was
approximately US$1.00 = HK$7.80. The Renminbi is not freely convertible into
foreign currencies and the quotation of exchange rates does not imply
convertibility of Renminbi into U.S. Dollars or other currencies. All foreign
exchange transactions take place either through the Bank of China or other banks
authorized to buy and sell foreign currencies at the exchange rates quoted by
the People's Bank of China. No representation is made that the Renminbi or U.S.
Dollar amounts referred to herein could have been or could be converted into
U.S. Dollars or Renminbi, as the case may be, at the PBOC Rate or at all.
References to "Billion Luck" are to Billion Luck Company Ltd., a
British Virgin Islands company, which is a wholly-owned subsidiary of the
Company.
References to "Company" are to China Resources Development, Inc., and
include, unless the context requires otherwise, the operations of its
subsidiaries (all as hereinafter defined).
References to "Farming Bureau" are to the Hainan Agricultural
Reclamation General Company, a division of the Ministry of Agriculture, the PRC
government agency responsible for matters relating to agriculture.
References to "Hainan" are to Hainan Province of the PRC.
References to "HARC" are to Hainan Zhongwei Agricultural Resources
Company Limited, a company organized in the PRC, whose capital is owned 95% by
Billion Luck and 5% by the Company.
References to the "PRC" or "China" include all territory claimed by or
under the control of the Central Government, except Hong Kong, Macau, and
Taiwan.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Amounts in thousands, except share and per share data)
Three Months Ended September 30, Nine Months Ended September 30,
2001 2000 2001 2001 2000 2001
-------- -------- -------- --------- -------- --------
RMB RMB US$ RMB RMB US$
NET SALES 2,750 1,445 332 8,777 3,876 1,060
COST OF SALES (2,483) (1,135) (300) (7,831) (3,146) (946)
-------- -------- -------- --------- -------- --------
GROSS PROFIT 267 310 32 946 730 114
DEPRECIATION (249) (234) (30) (654) (785) (79)
AMORTIZATION (2,342) (1,337) (283) (6,493) (1,337) (784)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (4,007) (4,408) (484) (12,128) (12,491) (1,465)
FINANCIAL INCOME/
(EXPENSES), NET 308 (3,088) 37 856 619 103
OTHER INCOME/(EXPENSES), NET (1,003) (136) (121) 9,874 10,392 1,193
-------- -------- -------- --------- -------- --------
LOSS FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES (7,026) (8,893) (849) (7,599) (2,872) (918)
INCOME TAXES -- (79) -- (1,262) (1,849) (152)
-------- -------- -------- --------- -------- --------
LOSS FROM CONTINUING
OPERATIONS BEFORE
MINORITY INTERESTS (7,026) (8,972) (849) (8,861) (4,721) (1,070)
MINORITY INTERESTS -- 191 -- 1,198 (3,704) 145
-------- -------- -------- --------- -------- --------
LOSS FROM CONTINUING
OPERATIONS (7,026) (8,781) (849) (7,663) (8,425) (925)
DISCONTINUED OPERATIONS
Loss on continuing operations of
discontinued timber segment -- (32) -- (24) (435) (3)
-------- -------- -------- --------- -------- --------
NET LOSS (7,026) (8,813) (849) (7,687) (8,860) (928)
======== ======== ======== ======== ======== ========
BASIC AND DILUTED LOSS
PER SHARE
Continuing operations (8.39) (10.86) (1.01) (9.15) (12.66) (1.11)
Discontinued operations -- (0.04) -- (0.03) (0.66) --
-------- -------- -------- --------- -------- --------
NET LOSS PER SHARE
- BASIC AND DILUTED (8.39) (10.90) (1.01) (9.18) (13.32) (1.11)
======== ======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 837,797 808,516 837,797 837,797 665,296 837,797
======== ======== ======== ======== ======== ========
See notes to condensed consolidated financial statements.
3
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
(Amounts in thousands, except share and per share data)
September 30, December 31, September 30,
2001 2000 2001
RMB RMB US$
Notes (Unaudited) (Note) (Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 13,173 37,546 1,591
Marketable securities 3 3,239 62,384 391
Inventories - finished goods 597 598 72
Other receivables, deposits and prepayments 10,494 10,585 1,268
Short term loans receivable 4 20,140 -- 2,432
Amount due from Farming Bureau -- 13,509 -
Amounts due from related companies 636 636 77
Income taxes recoverable 175 225 21
Net assets of discontinued operations 2 -- 2,388 --
---------- ---------- ----------
TOTAL CURRENT ASSETS 48,454 127,871 5,852
PROPERTY AND EQUIPMENT 5 6,917 9,044 835
PROPERTY, PLANT AND EQUIPMENT OF
DISCONTINUED OPERATIONS 2 -- 4,260 --
INVESTMENTS 109,615 184,374 13,239
INTANGIBLE ASSETS 20,262 7,860 2,447
---------- ---------- ----------
TOTAL ASSETS 185,248 333,409 22,373
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 262 269 31
Other payables and accrued liabilities 6 9,430 16,477 1,139
Margin loan payable 7 -- 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 23,228 48,237 2,805
MINORITY INTERESTS -- 115,480 --
---------- ---------- ----------
TOTAL LIABILITIES AND MINORITY INTERESTS 23,228 163,717 2,805
---------- ---------- ----------
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$0.001 par value:
Authorized - 320,000 shares in 2001 and 2000
Issued and outstanding - 320,000 shares
in 2001 and 2000 3 3 -
Additional paid-in capital 169,052 169,052 20,417
Reserves 28,028 28,028 3,385
Accumulated deficits (35,103) (27,416) (4,239)
Accumulated other comprehensive income 33 18 4
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY 162,020 169,692 19,568
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 185,248 333,409 22,373
========== ========== ==========
Note: The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
4
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(Amounts in thousands)
Accumulated
Series B Additional other
Common preferred paid-in Accumulated comprehensive
stock stock capital Reserves deficits income Total
RMB RMB RMB RMB RMB RMB RMB
Balance at January
1, 2001 7 3 169,052 28,028 (27,416) 18 169,692
Net loss -- -- -- -- (7,687) -- (7,687)
Currency translation
adjustments -- -- -- -- -- 15 15
--------
Comprehensive loss (7,672)
--------
-------- ------ -------- ------- -------- ---------- --------
Balance at September
30, 2001 7 3 169,052 28,028 (35,103) 33 162,020
====== ====== ======== ======= ========= ========== ========
See notes to condensed consolidated financial statements.
5
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Amounts in thousands)
Nine months ended September 30,
-----------------------------------------
2001 2000 2001
------- ------- -------
RMB RMB US$
Net cash provided by/(used in) operating activities (29,957) 46,898 (3,618)
INVESTING ACTIVITIES
Purchases of property and equipment (123) (2,739) (15)
Proceeds from disposal of investments 59,145 928 7,143
Proceeds from disposal of property and equipment -- 1,547 --
Acquisition of additional interest in a subsidiary (36,478) -- (4,405)
Advances of short term loans to third parties (20,140) -- (2,433)
------- ------- -------
Net cash provided by/(used in) investing activities 2,404 (264) 290
------- ------- -------
FINANCING ACTIVITIES
Advance of short term loan from a third party 3,180 -- 384
Reduction in minority interests -- (3,075) --
------- ------- -------
Net cash provided by/(used in) financing activities 3,180 (3,075) 384)
------- ------- -------
Net cash provided by/(used in) continuing operations (24,373) 43,559 (2,944)
Net cash used in discontinued operations -- (115) --
------- ------- -------
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS (24,373) 43,444 (2,944)
Cash and cash equivalents, at beginning of period 37,546 38,138 4,535
------- ------- -------
Cash and cash equivalents, at end of period 13,173 81,582 1,591
======= ======= =======
See notes to condensed consolidated financial statements.
6
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 nine months
period ended September 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") comprised of
cash, amount due from Farming Bureau and the Company's interest in
certain assets described below. Following the acquisition, HARC became
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 ceased timber processing operations
following 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 nine months ended
September 30, 2000 and 2001, respectively. Loss from discontinued
operations of timber processing operations of RMB750 (US$91) and RMB41
(US$5) for the nine months ended September 30, 2000 and 2001,
respectively, is reported without set-off of any income tax expenses.
7
The net assets of the timber processing operations were as follows:
December 31,
2000
RMB
Current assets 3,043
Current liabilities (655)
----------
Net current assets of discontinued operations 2,388
Property, plant and equipment of discontinued
operations 4,260
----------
Net assets of discontinued operations 6,648
==========
The allocation of purchase price of the 39% equity interest in HARC
reflected in the September 30, 2001 condensed consolidated balance
sheet is tentative pending completion of valuations of the assets and
liabilities acquired. The allocation may change upon completion of
these valuations.
3. MARKETABLE SECURITIES
September 30, December 31,
2001 2000
RMB RMB
Trading securities listed on the Hong Kong
Stock Exchange
At cost 3,748 78,798
Less: unrealized losses (2,614) (16,414)
---------- ----------
Fair value 1,134 62,384
---------- ----------
Trading securities listed on the United States
Stock Exchange
At cost 2,480 -
Less: unrealized losses (375) -
---------- ----------
Fair value 2,105 -
---------- ----------
3,239 62,384
========== ==========
4. SHORT TERM LOANS RECEIVABLE
During 2001, the Company advanced short term loans to three
unaffiliated third parties of RMB5,300, RMB8,480 and RMB6,360 at annual
interest rates of 8%, 12% and Hong Kong prime lending rate (6% at
September 30, 2001) plus 2%, respectively. These loans receivable are
due at various dates through January 2, 2002.
8
5. PROPERTY AND EQUIPMENT, NET
September 30, December 31,
2001 2000
RMB RMB
At cost:
Buildings and leasehold improvements 3,274 4,843
Machinery, equipment and motor vehicles 4,732 6,336
---------- ----------
8,006 11,179
Accumulated depreciation: (1,089) (2,135)
---------- ----------
Net book value 6,917 9,044
========== ==========
6. OTHER PAYABLES AND ACCRUED LIABILITIES
September 30, December 31,
2001 2000
RMB RMB
Other payables 6,457 10,607
Accrued liabilities 2,973 2,688
Call options written, at fair value
(premium received RMB3,182) - 3,182
---------- ----------
9,430 16,477
========== ==========
During 2001, the Company repaid a RMB6,890 advance from an unaffiliated
third party and obtained a new advance from another unaffiliated third
party in the amount of RMB3,180. The RMB3,180 advance is due upon
demand and bears interest at an annual interest rate of Hong Kong prime
lending rate (6% at September 30, 2001) plus 2%.
7. 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.
9
8. SEGMENT FINANCIAL INFORMATION
Three months ended Nine months ended
September 30, September 30,
2001 2000 2001 2000
-------- -------- -------- --------
RMB RMB RMB RMB
Net sales to external customers:
Supermarket operations, net sales to
unaffiliated customers 1,860 1,445 4,702 3,876
Natural rubber, net sales to
unaffiliated customers 890 -- 4,075 --
-------- -------- -------- --------
Consolidated net sales from
continuing operations 2,750 1,445 8,777 3,876
======== ======== ======== ========
Segment profit/(loss):
Supermarket operations 121 71 335 18
Natural rubber (681) -- (1,699) --
-------- -------- -------- --------
Total segment income/(loss) (560) 71 (1,364) 18
Reconciling items:
Corporate expenses (5,744) (5,709) (16,539) (13,828)
Gain/(loss) on trading of marketable
securities (1,030) (168) 6,268 10,318
Premium earned on written call options -- -- 3,180 --
Interest income 379 227 1,156 4,800
Interest expense (71) -- (300) --
Exchange losses, net -- (3,314) -- (4,180)
-------- -------- -------- --------
Consolidated loss from continuing
operations before income taxes (7,026) (8,893) (7,599) (2,872)
======== ======== ======== ========
September 30, December 31,
2001 2000
RMB RMB
Segment assets:
Supermarket operations 6,763 6,416
Natural rubber 5,723 62,812
-------- --------
Total segment assets 12,486 69,228
Reconciling items:
Corporate assets 63,147 79,807
Investments 109,615 184,374
-------- --------
Total consolidated assets 185,248 333,409
======== ========
The natural rubber segment's assets decreased by more than RMB57,089
at September 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
acquired by the Company 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.
10
9. 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.
10. COMPREHENSIVE LOSS
Three months ended Nine months ended
September 30, September 30,
2001 2000 2001 2000
RMB RMB RMB RMB
Total comprehensive loss (7,026) (8,813) (7,672) (8,849)
====== ====== ====== ======
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 nine months ended September 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 September 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 September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2001 2000 2001 2000
RMB RMB RMB RMB
Net sales:
Supermarket operations 1,860 1,445 4,702 3,876
Natural rubber 890 -- 4,075 --
------ ------ ------ ------
2,750 1,445 8,777 3,876
------ ------ ------ ------
Gross profit 267 310 946 730
Gross profit margin (%) 9.71 21.45 10.78 18.83
Loss from continuing operations
before income taxes (7,026) (8,893) (7,599) (2,872)
Income taxes -- (79) (1,262) (1,849)
------ ------ ------ ------
Loss from continuing operations
before minority interests (7,026) (8,972) (8,861) (4,721)
Minority interests -- 191 1,198 (3,704)
------ ------ ------ ------
Loss from continuing operations (7,026) (8,781) (7,663) (8,425)
Discontinued operations
Loss on continuing operations of
discontinued timber segment -- (32) (24) (435)
------ ------ ------ ------
Net loss (7,026) (8,813) (7,687) (8,860)
====== ====== ====== ======
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 21.3% from
RMB3.9 million (US$468,000) for the nine months ended September 30, 2000 to
RMB4.7 million (US$568,000) for the nine months ended September 30, 2001. For
the nine months ended September 30, 2001, supermarket operations had gross
profit and gross profit margin of RMB1,121,000 (US$135,000) and 23.8%,
respectively. For the nine months ended September 30, 2000, supermarket
operations had gross profit and gross profit margin of RMB730,000 (US$88,000)
and 18.8%, respectively.
Net sales from supermarket operations increased by 28.7% from RMB1.4
million (US$174,000) for the third quarter of 2000 to RMB1.9 million
(US$225,000) for the third quarter of 2001. For the third quarter of 2001,
supermarket operations had gross profit and gross profit margin of RMB446,000
(US$54,000) and 24.0%, respectively. For the third quarter of 2000, supermarket
operations had gross profit and gross profit margin of RMB310,000 (US$37,000)
and 21.5%, 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, depending
on market conditions. The Company had sales of RMB4.1 million (US$495,000) and
RMB890,000 (US$107,000) for the nine months and three months ended September 30,
2001, respectively, with gross loss of RMB175,000 (US$21,000) and RMB179,000
(US$22,000) for the nine months and three months ended September 30, 2001,
respectively. As a result of a decline in the natural rubber market in the
second half of 2001, the Company sold all of its rubber inventories in the third
quarter of 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The selling, general and administrative expenses for the nine months
ended September 30, 2001 decreased by RMB363,000 (US$44,000) or 2.9% compared to
that for the nine months ended September 30, 2000. The decrease resulted from a
bad debt recovery in the amount of RMB629,000 (US$76,000) in the nine months
ended September 30, 2001. The decrease is offset by increases in legal,
professional and travel expenses incurred in relation to the exploration of
investment opportunities during 2001.
Selling, general and administrative expenses for the third quarter of
2001 decreased by 9.1% to RMB4.0 million (US$484,000) from RMB4.4 million
(US$532,000) for the third quarter of 2000. The decrease was mainly due to a
bad debt recovery of RMB332,000 (US$40,000) in the third quarter of 2001.
AMORTIZATION
Expenses for the three months and nine months ended September 30, 2000
represented amortization of website technology, acquired on June 30, 2000, which
is being recorded on the straight-line basis over two years. Expenses for the
three months and nine months ended September 30, 2001 represented amortization
of the website technology 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 nine months ended September 30, 2000 was
RMB619,000 (US$75,000), which was comprised of interest income of RMB4.8 million
(US$580,000) and exchange loss of RMB4.2 million (US$507,000). Net financial
income for the nine months ended September 30, 2001 was RMB856,000 (US$103,000),
which was comprised of interest income of RMB1.2 million (US$145,000) and
interest expenses of RMB300,000 (US$36,000). 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 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 expenses for the third quarter of 2000 was RMB3.1 million
(US$374,000), which was comprised of interest income of RMB227,000 (US$27,000)
and exchange loss of RMB3.3 million (US$398,000). Net financial income for the
third quarter of 2001 was RMB308,000 (US$37,000). The increase in financial
income was mainly attributable to the interest received in the third quarter of
2001 on RMB20 million (US$2.4 million) short-term loans to three unaffiliated
third parties.
OTHER INCOME/(EXPENSES), NET
Other income for the nine months ended September 30, 2000 represented a
net gain on trading of marketable securities. Other income for the nine months
ended September 30, 2001 represented a net gain on trading of marketable
securities of RMB6.3 million (US$760,000) and a premium earned on written call
options of RMB3.2 million (US$386,000).
Other expenses for the third quarter of 2000 and 2001 represented a net
loss on trading of marketable securities.
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 RMB25.2
million (US$3.0 million) as of September 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 (US$4.3 million) cash and foregoing approximately RMB14 million (US$1.7
million) due from the Farming Bureau as partial consideration for the minority
interest of HARC. Net cash used by operating activities for the nine months
ended September 30, 2001 was approximately RMB29.9 million (US$3.6 million), as
compared to net cash provided by operating activities of RMB46.9 million (US$5.7
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 nine months ended September 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, and net of
loans made to third parties. Net cash provided by financing activities for the
nine months ended September 30, 2001 was attributable to the RMB3 million
(US$0.4 million) advance of short term loan from a third party.
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
September 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.
14
As at September 30, 2001, the Company had short-term investments in
marketable securities in the Hong Kong and United States stock markets with a
total market value of RMB3,239,000 (US$391,000). 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.
FINANCIAL POSITION
Marketable Securities
Marketable securities decreased by 95% from December 31, 2000 to September 30,
2001 due to the sale of part of the securities in 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 2001.
Other Payables and Accrued Liabilities
In 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 of RMB6.9 million (US$832,000) and had
a short term loan payable of RMB3.0 million (US$362,000) in 2001.
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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 September 30, 2001, the Company filed
no Current Reports on Form 8-K.
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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.
November 19, 2001 By:/s/ Ching Lung Po
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Ching Lung Po, Chairman
By:/s/ Tam Cheuk Ho
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Tam Cheuk Ho, Chief Financial Officer