SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from__________to__________.
Commission File No. 33-3276-D
CHINA CONTINENTAL, INC.
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(Exact name of registrant as specified in its charter)
Nevada 87-0431063
- ---------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1808-1802 Evening Newspaper Mansion, 358 Nanjing Road, Tianjin P.R.C.
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(Address of principal executive offices)
(86)22-2750-1812
-------------------------
(Issuer's telephone number)
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
As of March 31, 2003, 280,070,000 shares of Common Stock of the issuer
were outstanding.
CHINA CONTINENTAL, INC.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 2003 and
December 31, 2002 3
Unaudited Consolidated Statements of Income - For the
three months ended March 31, 2003 and 2002 4
Unaudited Consolidated Statements of Cash Flows-
For the three months ended March 31, 2003 and 2002 5
Notes to Consolidated Financial Statements 6
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Signatures 9
Certifications 10
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CHINA CONTINENTAL, INC.
CONSOLIDATED BALANCE SHEETS
(Stated in '000 United States Dollars)
March 31, Dec 31,
2003 2002
(unaudited) (audited)
----------- ----------
ASSETS
Current Assets
Cash and deposits 19,770 13,883
Accounts receivable, net of provision 994 6,796
---------- ----------
Total Current Assets 20,764 20,679
---------- ----------
Fixed Assets 2,113 2,240
Land improvements 10,695 10,821
Land use rights 147,118 148,848
---------- ----------
Total Assets 180,690 182,588
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Payable and accruals 644 592
Due to related companies 567 568
Amounts due to directors 591 589
---------- ----------
Total current liabilities 1,802 1,749
---------- ----------
Long-term liabilities 0 0
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Total Liabilities 1,802 1,749
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Stockholders' Equity
Common Stock, par value US$.001
per share 1,000,000,000 shares authorized
335,070,000 issued and outstanding for
both periods 336 336
Additional paid-in capital 70,130 70,130
Treasury stock (55) (55)
Retained earnings 108,477 110,428
---------- ----------
Total Stockholders' Equity 178,888 180,839
---------- ----------
Total Liabilities and Stockholders' Equity 180,690 182,588
========== ==========
The accompanying notes are an integral part of
these financial statements.
3
CHINA CONTINENTAL, INC.
CONSOLIDATED STATEMENTS OF INCOME (Stated in '000 United
States Dollars except per share data)
Three Months Ended March 31,
2003 2002
----------------------------
Revenues
Sales of goats 0 2,349
Cost of sales 0 (602)
----------- -----------
Gross Profit 0 1,747
Depreciation and amortization (1,928) (1,802)
Selling and administrative expenses (51) (43)
Financial income/(expenses), net 28 0
----------- -----------
Income/(Loss) before income taxes (1,951) (98)
Income taxes 0 0
----------- -----------
Net income/(Loss) (1,951) (98)
=========== ===========
Earnings/(Loss) per share 0 0
=========== ===========
Weighted average common and equivalent
shares outstanding 280,070,000 257,894,000
=========== ===========
The accompanying notes are an integral part of
these financial statements.
4
CHINA CONTINENTAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in '000 United States Dollars)
Three Months Ended March, 31
2003 2002
-----------------------
Cash Flow From Operating Activities:
Net Income/(Loss) (1,951) (98)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 1,928 1,802
Changes in Non-Cash Working Capital 5,961 (4,349)
--------- --------
Net Cash Provided by (Used in) Operating Activities 5,938 (2,645)
Net Cash Provided by Investing Activities 0 0
Net Cash Provided by (Used in) Financing Activities 0 0
--------- --------
Net Increase in Cash 5,938 (2,645)
Cash, Beginning of Period 13,832 11,331
--------- --------
Cash, End of Period 19,770 8,686
========= ========
The accompanying notes are an integral part of
these financial statements.
5
CHINA CONTINENTAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Basis of Presentation
The unaudited condensed consolidated financial statements of China Continental,
Inc. have been prepared in accordance with generally accepted accounting
principles for interim financial information and pursuant to the requirements
for reporting on Form 10-Q. Accordingly, they do not include all the information
and footnotes required by generally accepted accounting principles for complete
financial statements. However, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
Results shown for interim periods are not necessarily indicative of the results
to be obtained for a full fiscal year. These interim financial statements should
be read in conjunction with the audited financial statements and notes thereto
included in the Company Form 10-K for the fiscal year ended December 31, 2002.
Note 2 -- Foreign Currency Conversion
The Company financial information is presented in US dollars. Reminbi dollars
have been converted into US dollars at the exchange rate of 8.3 to 1.
Note 3 -Restrictions on the Use of Cash
All of the Company's cash is restricted for uses in the PRC.
6
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.
Results of Operation
Comparison of the Three Months Ended March 31, 2002 to the Three Months Ended
March 31, 2003.
Revenues
Revenues decreased by $2,349,000 or 100% to -0- for the three
months ended March 31, 2003 from $2,349,000 for the corresponding period of the
prior year. The decrease resulted because 3,000 embryo transplanted boer goats
were sold in the first quarter of 2002 producing revenue of approximately
$2,349,000 and no such activities were carried out in 2003. In considering the
seasonality of the Company's business, management believes that nearly all of
the Company's income will continue to be earned in the third and the fourth
quarters.
Cost of Sales
Cost of sales decreased by $602,000 or 100% to -0- for the three months
ended March 31, 2003 from $602,000 for the corresponding period of the
prior year. Cost of sales for the three months ended March 31,2002 represents
the cost of the purchase of goats and embryos and the direct costs of embryos
transplanting. The decrease in cost of sales resulted from the absence of sales
for the three months ended March 31, 2003.
Depreciation and Amortization
Depreciation and amortization represents amortization and depreciation
of the land use right of the East-Wu-Zhu-Mu-Qin Banner Green Demonstration Farm
over a period of twenty-five years and the depreciation of fixed assets and land
improvements. The depreciation and amortization expense for the three months
ended March 31, 2003 increased by $126,000 or 7% to 1,928,000 from $1,802,000
for the corresponding period of the prior year. The increase resulted because
land improvements of approximately $11,199,000 made in 2002 are being
depreciated over the remaining life of the lease.
Selling and Administrative Expenses
Selling and administrative expenses increased by $8,000 or 18% to
$51,000 for the three months ended March 31, 2003 from $43,000 for the
corresponding period of the prior year. The selling and administrative expenses
are stable as compared with the corresponding period of the prior year.
Income Taxes
No income taxes have been provided for either period as management
believes that there is minimal income tax exposure under the applicable tax
rules.
Net Loss
7
As a result of the foregoing, the company had incurred a loss of
$1,951,000 for the three months ended March 31, 2003 compared to a loss of
$98,000 for the corresponding period of the prior year.
Liquidity and Capital Resources
At March 31, 2003, the Company had working capital of $18,962,000
including a cash balance of $19,770,000. This compares to working capital of
$27,090,000 and a cash balance of $8,686,000 at March 31, 2002.
Net cash provided by operating activities increased to $5,938,000 for
the three months ended March 31, 2003 from cash used in operating activities of
$2,645,000 for the corresponding period of the prior year. The increase is due
to changes in the current accounts and additional amortization and depreciation
which was partially offset by an increased net operating loss.
The Company had no investing activities for either the three months
ended March 31, 2003 or March 31, 2002.
The Company had no financing activities for either the three months
ended March 31, 2003 and the corresponding period of the prior year.
The Company business has historically not been capital-intensive. In
most years, internally generated funds were sufficient to fund the Company
operations and finance its growth. Because cash generated from earnings and
available lines of credit have historically provided sufficient liquidity to
meet ordinary capital requirements, the Company believes that it has sufficient
capital to execute its business plan for the next twelve months. However, all of
the Company's cash is restricted to uses in the PRC. Therefore, the Company will
have to seek other sources of financing to pay its non-PRC obligations.
Item 3. Quantitive and Qualitative Disclosures About Market Risk
The Company has no market risk sensitive instruments.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Our chief
executive officer and our chief financial officer, after evaluating the
effectiveness of the Company's "disclosure controls and procedures" (as defined
in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a
date (the "Evaluation Date") within 90 days before the filing date of this
quarterly report, have concluded that as of the Evaluation Date, our disclosure
controls and procedures were adequate and designed to ensure that material
information relating to us and our consolidated subsidiaries would be made known
to them by others within those entities.
(b) Changes in internal controls. There were no significant changes in
our internal controls or to our knowledge, in other factors that could
significantly affect our disclosure controls and procedures subsequent to the
Evaluation Date.
8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
None
Signature
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
CHINA CONTINENTAL, INC.
/s/ Jia Ji SHANG
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May 12, 2003 Jia Ji SHANG
Chairman and Chief Executive Officer
May 12, 2003 /s/ Jian Sheng Wei
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Jian Sheng Wei
Secretary / Treasurer an Chief Financial Officer
9
CERTIFICATIONS
I, Jia Ji Shang, certify that:
1. I have reviewed this quarterly report on Form 10-Q of China Continental,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: May 12, 2003
By:/s/ Jia Ji Shang
----------------------
Jia Ji Shang
Chief Executive Officer
10
I, Jian Sheng Wei, certify that:
1. I have reviewed this quarterly report on Form 10-Q of China Continental,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: May 12, 2003
By: /s/ Jian Sheng Wei
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Jian Sheng Wei
Chief Financial Officer