Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARIERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ART OF 1934
For the quarterly period ended June 30, 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.
--------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 87-0431063
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Suite 04-06, 28/F, Block A, Innotec Tower, 235 Nanjing Road,
Heping District, Tianjin, 300100, People's Republic of China
--------------------------------------------------
(Address of principal executive offices)
(86) 22-2750-1812
-------------------------
(Issuer's telephone number)
1801-1802 Evening Newspaper Mansion, 358 Nanjing Road, Tianjin P.R.C.
-----------------------------------------------------------------------
Former Address
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 __
As of August 15, 2003, 280,700,000 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 - June 30, 2003 and
December 31, 2002..............................................3
Consolidated Statements of Income - For the
three months and six months ended June 30, 2003 and 2002.......5
Consolidated Statements of cash Flows -
For the six months ended June 30, 2003 and 2002................6
Notes to Consolidated Financial Statements.....................8
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operations............................9
PART II - OTHER INFORMATION
Signatures....................................................13
Certifications................................................14
CHINA CONTINENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2003 AND DECEMBER 31, 2002
(UNITED STATES DOLLARS)
June 30 December 31
2003 2002
(Unaudited) (Audited)
------------- ----------
ASSETS
CURRENT ASSETS
Cash and bank balances $ 19,679,589 $13,883,246
Trade receivables 994,326 6,796,200
Other asset 73,349 -
----------- -----------
TOTAL CURRENT ASSETS 20,747,264 20,679,446
FIXED ASSETS 2,093,731 2,239,805
LAND LEASE RIGHTS, net of
accumulated amortization of $19,602,442 at
June 30, 2003 and $16,143,468 at December 31,2002 145,388,942 148,847,916
LAND IMPROVEMENTS, net of amortization of $633,051
at June 30, 2003 and $381,393 at December 31, 2002 10,569,650 10,821,308
----------- -----------
TOTAL ASSETS $ 178,799,587 $182,588,475
=========== ===========
3
CHINA CONTINENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, 2003 AND DECEMBER 31, 2002
(UNITED STATES DOLLARS)
June 30 December 31
2003 2002
(Unaudited) (Audited)
----------- -----------
CURRENT LIABILITIES
Account payable to related company $ 542,629 $ 542,485
Amounts due to directors 590,665 589,308
Amounts due to related parties 25,806 25,806
Accounts payable and accrued liabilities 656,746 591,725
--------- ---------
TOTAL CURRENT LIABILITIES 1,815,846 1,749,324
--------- ---------
TOTAL LIABILITIES 1,815,846 1,749,324
========= =========
STOCKHOLDERS' EQUITY
Common stock, par value $0.001 per share:
1,000,000,000 shares authorized:
335,070,000 issued, 280,070,000 outstanding
as of June 30, 2003
and December 31, 2002 335,764 335,764
Additional paid-in capital 70,130,305 70,130,305
Treasury stock (55,000) (55,000)
Retained earnings 106,572,672 110,428,082
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 176,983,741 180,839,151
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 178,799,587 $182,588,475
============= ============
4
CHINA CONTINENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNITED STATES DOLLARS)
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ---------- ----------- ----------
SALES $ - $ 1,012,000 $ - $ 3,361,000
COST OF SALES - 40,000 642,000
---------- ---------- --------- ----------
GROSS PROFIT - 972,000 - 2,719,000
DEPRECIATION AND AMORTIZATION 1,928,353 1,930,000 3,856,706 3,732,000
SELLING AND ADMINISTRATIVE
EXPENSES 13,016 80,000 63,571 123,000
FINANCIAL INCOME (36,829) - (64,867) -
LAND IMPROVEMENT COSTS - 3,727,000 - 3,727,000
----------- ---------- -------- ----------
(1,904,540) (4,765,000) (3,855,410) (4,863,000)
IMPAIRMENT LOSS ON WATER
SOURCES (25,558,000) (25,558,000)
NET INCOME (LOSS) $(1,904,540) (30,323,000) ($3,855,410) $ (30,421,000)
=========== =========== ========= ==========
INCOME PER COMMON SHARE
BASIC AND DILUTED
EARNINGS (LOSS) PER SHARE (0.007) (0.019) 0.014 (0.019)
EXCLUDING IMPAIRMENT LOSS
$(0.01) $ (0.02) $ 0.01 $ (0.02)
======== ======== ======== =========
AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic and diluted 280,070,000 257,200,000 280,070,000 257,200,000
=========== =========== =========== ===========
(1) Excludes 55,000,000 shares in treasury
5
CHINA CONTINENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNITED STATES DOLLARS)
June 30,
2003 2002
(Unaudited) (Unaudited)
----------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (3,855,410) $ (30,421,000)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,856,706 3,720,000
Impairment loss 25,558,000
(Increase) decrease in assets:
Accounts receivable 5,801,874 3,556,000
Other asset (73,349) -
Prepayments and deposits (747,000)
Prepaid expense - 2,594,000
Due from related company - 1,716,000
Increase (decrease) in liabilities:
Accounts payable to related company 144 24,000
Amounts due to related parties 1,357 1,000
Accounts payable and accrued liabilities 65,021 123,000
--------- ---------
Net cash provided by operating activities 5,796,343 6,124,000
--------- ---------
6
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNITED STATES DOLLARS)
June 30
2003 2002
(Unaudited) (Unaudited)
---------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Land improvement - (11,187,000)
Deposit for improvement - 1,349,000
---------- -------------
Net cash used in investing activities - (9,838,000)
---------- -------------
NET INCREASE IN
CASH AND BANK BALANCES 5,796,343 (3,714,000)
Cash and bank balances, at beginning
of period 13,883,246 11,331,000
----------- ------------
Cash and bank balances, at end of period $19,679,589 $ 7,617,000
=========== ============
SUPPLEMENTARY CASH FLOWS DISCLOSURES
Interest and taxes
Interest paid - -
Taxes paid - -
Non cash items
7
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 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 to US dollars at the exchange rate of 8.3 to 1.
Note 3 - Restriction On The Use Of Cash
The Company's cash is reserved for uses in the PRC.
8
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 June 30, 2003 to the Three Months Ended
June 30, 2002.
Revenues
The Company had no revenue for the three months ended June 30, 2003. For
the three months ended June 30, 2002, the Company had revenue of $1,012,000 from
the sale of forage grass. Because of the seasonality of the Company's business,
management believes that the majority of the Company's revenues will be earned
in the third and the fourth quarters of the calendar year.
Cost of Sales
Because there were no revenues for the three months ended June 30, 2003
there was no cost of goods sold. For the three months ended June 30, 2002, the
Company incurred cost of sales of $40,000 which represented certain salaries and
the cost of planting the grass.
Depreciation and Amortization
Depreciation and amortization expense decreased by $1,647 or .009%
$1,928,353 for the three months ended June 30, 2003 from $1,930,000 for the
corresponding period of the prior year. Depreciation and amortization expense
represents amortization and depreciation of the land use right of East
Wu-Zhu-Mu-Qin Banner Green Demonstration Farm and improvements thereto over a
period of twenty-five years and was virtually unchanged from the prior year.
Selling and Administrative Expenses
Selling and administrative expenses decreased by $66,984 or 83.7% to
$13,016 for the three months ended June, 2003 from $80,000 for the corresponding
period of the prior year. The decrease is attributable to the shuttering of the
administrative office in Hong Kong.
Financial Income
The company earned $36,829 in interest income during the three months
ended June 30, 2003 from the investment of their excess cash. The company had no
financial income for the three months ended June 30, 2002.
Land improvement costs
The land improvement costs of approximately $3,727,000 incurred during the
three months ended June 30, 2002 represents the costs to survey, fertilize, for
chemical analysis and watering in the cultivating of 40,000 mu (approximately
2,667 hectares or 6667 acres) for general agricultural use and to maintain its
productive condition. There were no land improvements made during the three
months ended June 30, 2003.
Income Taxes
No income tax have been provided as management believes that there is
minimal income tax exposure under the applicable tax rules.
Impairment loss
The impairment loss incurred during the three months ended June 30,
2002 represents the diminution in value of water resources. Because this
resource has not been developed, because of the cost to develop this resource,
and because of the cost of transportation, this property has been written down.
However, should an efficient form of transporting this water be developed, the
Company will reassess this resource. There was no impairment loss for the three
months ended June 30, 2003.
9
Net Income (Loss)
As a result of the foregoing, the Net Loss decreased by $28,418,460 or
93.7% to a loss of $1,904,540 for the three months ended June 30, 2003 from a
net loss of 30,323,000 for the corresponding period of the prior year. The
decrease is principally attributable to the absence in the current year of an
impairment loss, reduced capital expenditures and reduced selling and
administrative expenses.
10
Comparison of the Six Months Ended June 30, 2003 to the Six Months Ended June
30, 2002
Revenues
The Company had no revenue for the six months ended June 30, 2003. For the
six months ended June 30, 2002 the Company had revenue of $3,361,000. Revenue
for six months ended June 30, 2002 represents sales of forage grasses. However,
because of the seasonality of the Company's business, management believes that
the majority of the Company's revenues will be earned in the third and the
fourth quarters for the calendar years.
Cost of Sales
Cost of sales represents certain salaries and the cost of planting forage
grass. There was no cost of sale for the six months ended June 30, 2003 as the
Company had no revenues. Cost of sales totaled $642,000 for the three months
ended June 30, 2002.
Depreciation and Amortization
Depreciation and amortization increased by $124,706 or 3.3% to $3,856,706
for the six months ended June 30, 2003 from $3,732,000 for the corresponding
period of the prior year. Depreciation and amortization represents amortization
and depreciation of the land use right of East Wu-Zhu-Mu-Qin Banner Green
Demonstration Farm over a period of twenty-five years. The increase in
depreciation and amortization resulted from the land improvement costs (not all
of which had been completed by June 30, 2002) incurred during 2002 of
approximately $11,187,000 which is being depreciated over the remaining life of
the lease.
Selling and Administrative Expenses
Selling and administrative expenses decreased by $59,429 or 48.3% to
$63,571 for the six months ended June, 2003 from $123,000 for the corresponding
period of the prior year. The decrease is mainly attributable to the shuttering
of the administrative office in Hong Kong.
Financial Income
The company earned $64,867 in interest income during the six months
ended June 30, 2003 from the investment of their excess cash. The company had no
financial income for the six months ended June 30, 2002.
Land improvement costs
The land improvement costs of approximately $3,727,000 represent the cost
to survey, fertilize, for chemical analysis and watering in cultivating 40,000
mu (approximately 2,667 hectares or 6,675 acres) for general agricultural use
and to maintain its productive condition. There were no land improvement costs
for the six months ended June 30, 2003.
Income Taxes
No income tax have been provided as management believes that there is
minimal income tax exposure under the applicable tax rules.
Impairment loss
The impairment loss represents the diminution in value of the Company's
water resources. Because this resource has not been developed, because of the
cost to develop this resource, and because of the cost of transportation, this
property has been written down. However, should an efficient form of
transportation be developed, the Company will reassess this resource. There was
no impairment loss for the six-month ended June 30, 2003.
11
Net Loss
As a result of the foregoing, the net loss decreased by $26,565,590 or
87.3% to a loss of $3,855,410 for the six months ended June 30, 2003 from a loss
of $30,421,000 for the corresponding period of the prior year. The decrease is
principally attributable to the absence in the current year of an impairment
loss the absence of land improvement costs, and reduced selling and
administration expense from the shuttering of the Hong Kong administrative
office.
Liquidity and Capital Resources
At June 30, 2003, the company had working capital of $18,931,418 and cash
of $19,679,589. This compares with a cash balance of $13,883,246 and working
capital of $18,930,122 at December 31, 2002.
Net cash provided by operating activities decreased to $5,796,343 for the
six months ended June 30, 2003 from $6,124,000 for the corresponding period of
the prior year. This decrease resulted from a reduced net operating loss which
was partially offset by a decrease in non-cash charges, principally the
impairment charge, and net changes in the current accounts.
There was no cash used in investing activities during the six months ended
June 30, 2003. Cash used in investing activities for the six months ended June
30, 2002 totalled $9,838,000 which consisted of land improvements of $11,187,000
less the deposit of $1,349,000.
For both the six months ended June 30, 2003, and 2002 the Company had no
financing activities.
In most years, internally generated funds and available bank facilities
were sufficient to fund the Company operations and financial its growth. While
the Company has sufficient capital to execute its business plan for the next
twelve months, there is no guaranty that the Company will not have to access the
capital markets to fully develop its agricultural property and implement its
long term business plan. The Company is actively seeking additional business to
acquire to reduce the seasonality of the Company's business and enhance its
overall profitability.
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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
None
12
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.
September 11, 2003
/s/ Jia Ji Shang
---------------------------------------
Jia Ji Shang
Chairman and Chief Executives Officer
/s/ Jian Sheng Wei
September 11, 2003, ---------------------------------------
Jian Sheng Wei
Chief Financial Officer and Secretary
13
CERTIFICATIONS
I, Jia Ji Shang, certify that:
1. I have reviewed this Form 10-Q of China Continental, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the small business issuer as of, and for, the periods presented in
this report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f))** for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;**
(c) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the small
business issuer's most recent fiscal quarter (the small business issuer's fourth
fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: September 11, 2003 /s/ Jia Ji Shang
-----------------------
Jia Ji Shang
Chairman and Chief Executives Officer
14
CERTIFICATIONS
I, Jian Sheng Wei, certify that:
1. I have reviewed this Form 10-Q of China Continental, Inc.;
4. Based on my knowledge, this 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 report;
5. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the small business issuer as of, and for, the periods presented in
this report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f))** for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;**
(c) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the small
business issuer's most recent fiscal quarter (the small business issuer's fourth
fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: September 11, 2003 /s/ Jian Sheng Wei
-----------------------
Jian Sheng Wei
Chief Financial Officer and Secretary