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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
(Exact name of Company as specified in its charter)
HUAYANG INTERNATIONAL HOLDINGS, INC.
NEVADA 58-1667944
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
386 Qing Nian Avenue
Shenyang, China 10003
(Address of principal executive offices) (zip code)
011 (86)(24) 2318-0688
(Issuer's telephone number, including area code)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
NONE NONE
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.02
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(Title of Class)
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Huayang International Holdings, Inc. (the "Company", "We", or
"Registrant"), formerly known as Power Capital Corp. ("PCC"), is a
real-estate development company engaged in the development of a 162,000
square meter hotel and business property in the People's Republic of China.
The Company's current activities include the development and construction of
a hotel, apartment and office complex in Shenyang, China.
STRUCTURE OF THE COMPANY
We conduct our business through our 95% owned subsidiary Shenyang
Haitong House Properties Development, Ltd ("Haitong"), and the following joint
ventures in which the Company holds a 20% stake: Changyang International Hotel
Co., Ltd. ("Hotel"), Changhua (Shenyang) Business Co., Ltd. ("Business Center")
and Changyuan (Shenyang) Car Park Co., Ltd. ("Garage") (collectively referred to
as the "Hotel Group").
HISTORY
We were a publicly listed company, incorporated under the laws of the
state of Nevada, trading on the OTC Bulletin Board.
On December 29, 1995, PCC signed an acquisition agreement, as amended
on January 5, 1996, with the Huayang International Trust (the "Trust"), whereby
the Trust sold its 95%, 20%, 20% and 20% investments in Haitong, Hotel, Business
Center and Garage, respectively, to PCC in exchange for 6,000,000 shares of
common stock of PCC. On January 5, 1996, 6,000,000 shares were transferred to
the Trust. At the date of acquisition, PCC changed its name to Huayang
International Holdings, Inc.
BUSINESS
We are engaged in real estate development. As of now, we are primarily
engaged in developing the Huayang International Mansion ("Commercial Towers").
Upon completion, the Mansion will be a mixed-use complex with a total
construction area of 162,000 square meters. The Commercial Tower is located in
Shenyang, a major Chinese city with a population of nearly seven million,
offering residential, hotel, office, recreation, shopping and conference
facilities.
The building consists of two towers and two podiums. Haitong owns Tower
A and Podium A, while Hotel Group owns Tower B and Podium B of the building.
Tower A is a 22 story construction with 330 office units, 220
business apartments, and 66 penthouse apartments, totaling approximately
56,000 square meters. Assuming all the units in Tower A are sold, then we
estimate that it will provide at least US$40 million in gross revenues.
Podium A is a six story and two underground level construction totaling
approximately 27,000 square meters, with 21,418 square meters of commercial
space for lease and parking space for up to 95 cars. As of December 31, 1999,
332 units of Tower A totaling approximately 28,000 square meters (69% of the
total area available for sale) have been sold, generating approximately
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US$21.6 million in gross revenues, and 71 Tower A units totaling
approximately 5,800 square meters (36% of available space) have been leased,
generating US$0.68 million in annual gross revenues.
Tower B and Podium B of the building totaling approximately 80,000
square meters will be operated by Sheraton Overseas Management Corporation and
Hotel Group together as Sheraton Shenyang Lido Hotel. When completed, the
five-star hotel will have 533 rooms/suites and 90 luxury apartments. Assuming an
occupancy rate of 70%, and a standard room rate of US$140, the hotel will
generate US$46.65 million each year in gross revenues, including revenues
derived from room charges, restaurants and bars, recreation facilities, business
facilities and car park. The service facilities in the hotel will serve the
entire building.
There can be no assurance, however, that such an occupancy and room
rate will be attained.
The Commercial Tower is conveniently located in the City's Special
Economic Zone for new and hi-tech enterprises, and is only approximately 15
minutes away from the city's international airport and approximately 10 minutes
away from the city's main railway station. Qingnian Avenue, a major traffic
thoroughfare for the city leads to the building. Wulihe Stadium, the city's
newest and most advanced stadium is located just on the northern side of the
building. Regent Park, on the western side of the building, is a luxury
residential area under development. JW Marriott Hotel and China Northern
Airline's main office face the building's south side. To the east, across
Qingnian Avenue is Riverside Garden, considered the most luxurious residential
development in northeastern China. Some major entertainment facilities, such as
Summer Place (a water park), the Science and Technology Museum and an aquarium
are also located nearby.
The total cost for the project is budgeted at US$170 million, of which
it is expected that US$70 million will fund the development of Tower A and
Podium A, and US$100 million will pay the costs of developing the Sheraton
Hotel.
The project is scheduled to be completed by August 2000. Construction
on Tower A was completed in December 1999. The Hotel is scheduled to open in
September 2000.
MARKET AND COMPETITION
Shenyang is the capital city of Liaoning Province. It is a major
Chinese city with a population of nearly 7 million. It was ranked by the State
Statistical Bureau as the fifth largest city in China in terms of economic
strength, after Shanghai, Beijing, Tianjin and Guangzhou. Shenyang is one of the
most important heavy industrial centers of China. Shenyang is also the most
important traffic hub for northeastern China. It connects Beijing with major
cities such as Dalian, Harbin, Dandong, and Changchun as well as Russia,
Mongolia and North Korea.
In the process of China's economic reform, Shenyang has put great
effort into developing projects with high economic growth potential and has
significantly improved its infrastructure to ensure that its economy will
continue to grow. The city has given priority to the automobile manufacturing,
service, and high technology sectors and has been quite successful in attracting
investments in these sectors. For example, large automakers such as Toyota,
General Motors and Ford all have established joint ventures in the city.
The economic development has led to a higher level of demand for office
space, retail space, business apartments and hotels, especially for high-end
properties with good locations and quality
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services. We quickly responded to market demands and initiated the Huayang
International Mansion project, which will provide office space, luxury
residential units, retail space, entertainment functions, convention and
exhibition functions as well as a five star-hotel.
We are in direct competition with a number of real estate development
and property management companies that also provide office space to businesses
in Shenyang. Some of these companies may have more resources than we do, or are
able to offer similar services at a better price than we are. The Sheraton hotel
will compete directly with other business hotels in Shenyang, such as the JW
Marriott and Traders Hotel operated by Shangri-la.
JOINT VENTURES
In order to enhance the efficiency of the operation of the Commercial
Towers, we entered into several joint ventures to operate various aspects of the
Commercial Towers.
HOTEL: Hotel is developing a 55,000 square meter, 623 room luxury
business hotel in Tower B of the Commercial Towers. We are a 20% stakeholder in
the Hotel project. The Hotel will be managed by Sheraton Hotels, a subsidiary of
Starwood Hotels & Resorts Trust.
As of December 31, 1999 the total construction costs of Tower B and
Podium B totaled approximately US$99.7 million, of which approximately US$41
million had been paid with the balance to be paid by the principal shareholder,
Yick Ho, Ltd., a wholly owned subsidiary of Cheung Kong (Holdings) Limited, a
Hong Kong based corporation listed in Hong Kong Stock Exchange. The Company must
provide additional financing of US$2,500,000. The Hotel Group is expected to
generate annual revenues of $46.65 million based on a 70% annual occupancy rate.
This is based on projected revenues of $30.19 million from room tariffs, and
US$16.46 million from other services including the Business Center and Garage.
BUSINESS CENTER: Business Center owns and operates a 19,000 square
meter business center occupying the five story podium of Tower B. The Business
Center will operate business and conference facilities as well as entertainment
facilities. We are a 20% stakeholder in the Business Center project. The Company
expects the Business Center to generate annual revenues of $16.25 million.
GARAGE: Garage owns and operates a 6,000 square meter parking facility
in support of the Hotel and Business Center. The facility occupies two basement
levels of Tower B. We are a 20% stakeholder in the Garage project. Based on a
70% annual occupancy rate of the hotel, the parking facilities are expected to
generate annual revenues of $211,000.
PROJECT FUNDING
Our projects were financed through a combination of debt financing in
the form of mortgage notes, capital contributions by Mr. Gao Wanjun, one of our
officers, directors and controlling shareholders, and shareholder loans made to
us by Mr. Gao.
PROJECT STATUS
Tower A has been completed. There are 330 office units, 220 business
apartment units and 66 penthouse apartment units in Tower A, totaling
approximately 56,000 square meters. Of the total available space, approximately
40,000 square meters are designated for sale and approximately 16,000
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square meters are intended to be leased properties. As of December 31, 1999,
approximately 28,000 square meters of floor space had been sold and
approximately 5,800 square meters of floor space had been leased.
Podium A has almost been completed and we expect it to begin full
operation by the end of July 2000. Agriculture Bank of China has leased 1,000
square meters of the ground floor area. In addition, the "Spring of Paris," a
luxury shopping mall, has signed a letter of intent to lease 12,000 square
meters.
The construction of Hotel is almost finished as well. The Hotel plans
to open in September 2000.
GOVERNMENT REGULATION
Our projects are subject to various laws and governmental
regulations, such as zoning regulations, relating to our business operations and
project developments. We must obtain and keep current various licenses, permits
and regulatory approvals for its development projects. We believe that we are in
compliance with all laws, rules and regulations applicable to its projects and
that such laws, rules and regulations do not currently have a material impact on
our operations. Due to the increasing levels of development in the areas of
China where we currently operate, it is possible that new laws, rules and/or
regulations may be adopted that could affect our projects or proposed projects.
The enactment of such laws, rules or regulations in the future could have a
negative impact on our project growth or profitability, which could decrease our
projected revenues or increase our costs of doing business.
EMPLOYEES
As of March 31, 2000, the Company had 20 employees, all of which are
salaried. No employee group is covered under a collective bargaining agreement.
We believe our relationship with our employees is good.
CAUTIONARY STATEMENTS
RISKS ASSOCIATED WITH THE COMPANY
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH TO BASE AN INVESTMENT IN THE
COMPANY.
Although we merged into PCC in December 1995, we did not initiate
operations until October 1997. As a result, we have a limited operating history
upon which an evaluation of our business and prospects. Our prospects must be
considered in light of risks, expenses, delays, problems and difficulties
frequently encountered by early stage companies.
OUR REAL ESTATE DEVELOPMENTS MAY NOT ACHIEVE THE MARKET ACCEPTANCE REQUIRED FOR
US TO GENERATE PROFITS.
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We have not yet completed construction of our first project, the
Huayang International Mansion. Construction on the Commercial Towers is
scheduled to be completed in August 2000. There can be no assurance that we will
be successful in our business operations or that we will achieve sufficient
levels of market acceptance for our property development projects and joint
ventures. Our business may be subject to any or all of the problems, expenses,
delays and risks inherent in the establishment of a new business enterprise
including limited capital resources, possible delays in construction and/or
development of its properties, possible cost overruns due to price and cost
increases in raw materials and the manufacturing processes, uncertain market
acceptance and the absence of an operating history. Therefore, there can be no
assurance that our business or joint ventures will be able to achieve or
maintain profitable operations. Further, there can be no assurance that we will
not encounter unforeseen difficulties that may deplete our capital resources
more rapidly than anticipated.
WE MAY EXPERIENCE FLUCTUATIONS IN OUR QUARTERLY RESULTS.
Our operating results have varied significantly from quarter to quarter
in the past and may continue to vary significantly from quarter to quarter in
the future due to a variety of factors. Many of these factors are out of our
control. These factors include:
o Fluctuations in the real estate market where we operate;
o Seasonality of the hotel industry;
o Unexpected delays in construction of our real estate developments;
o New office and hotel developments in the same market in which we
operate;
o A decline in tourism or business in the market in which we operate;
and
o Increases in expenses, whether related to sales and marketing,
new construction, maintenance or repair costs, or administration.
We will continue to determine our investment and expense levels based
on our expected future revenues, which may not grow at historical rates in
future periods, if at all. A significant portion of our expenses is not variable
in the short term and cannot be quickly reduced to respond to decreases in
revenues. Therefore, if our revenues are below expectations, our operating
results and net income are likely to be adversely affected. In addition, we may
reduce our prices or accelerate our development activities in response to
competitive pressures or to pursue new market opportunities. Any one of these
activities may further limit our ability to adjust spending in response to
revenue fluctuations.
WE MAY BE UNABLE TO OBTAIN THE FUNDING NECESSARY TO EXPAND OUR BUSINESS.
We expect that we will require additional financing in order to expand
our business. We cannot assure you that we will successfully negotiate or obtain
additional financing, or that we will be able to obtain financing on terms
favorable or acceptable to us. We do not have any commitments for additional
financing. Our ability to obtain additional capital depends on market
conditions, economic conditions, and other factors beyond our control. If we do
not obtain adequate financing, or such financing is not available on acceptable
terms, our ability to finance our expansion, enhance our properties, develop new
properties or respond to competitive pressures would be significantly limited.
Our failure to secure necessary financing could have a material adverse effect
on our business, prospects, financial condition, and results of operations.
WE HAVE A LARGE DEBT COMPARED TO OUR CAPITAL.
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As of the date hereof, we have consolidated indebtedness that is
substantial in relation to our stockholders equity. As of December 31, 1999, we
had a total debt of $17,295,725. Our debt poses substantial risks to holders of
Common Stock, including the risks that (i) a substantial portion of the
Company's cash flow from operations will be dedicated to the payment of interest
on such indebtedness, (ii) our debt may impede our ability to obtain financing
in the future for working capital, capital expenditures and general corporate
purposes and (iii) our debt financial position may make us more vulnerable to
economic downturns and may limit our ability to withstand competitive pressures.
If we are unable to generate sufficient cash flow from operations in the future
to service our indebtedness and to meet our other commitments, we will be
required to adopt one or more alternatives, such as refinancing or restructuring
its indebtedness, selling material assets or operations, or seeking to raise
additional debt or equity capital. There can be no assurance that any of these
actions could be effected on satisfactory terms, that they would enable the
Company to continue to satisfy its capital requirements or that they would be
permitted by the terms of existing or future debt agreements.
All of our debt is secured by the Commercial Towers. As of December 31,
1999, our lenders held an aggregate of $17,295,725 of liens against the Mansion
as security for bank loans of the same amount. If we are unable to meet the
terms of our bank loans, resulting in a default under such bank loans, the
lenders may elect to declare all amounts outstanding under the loans to be
immediately due and payable and foreclose on the Commercial Towers, which would
have a material adverse effect on us.
WE DEPEND ON KEY MEMBERS OF OUR MANAGEMENT.
Our business is highly dependent upon the continued contributions of
our executive officers and other key employees. In particular, our future
success is dependent upon the personal efforts of Mr. Gao Wanjun, our Chairman,
President and Chief Executive Officer, Ms. Wang YuFai, our Secretary and
Director, and Ms. Wang XioaLuan, our Chief Financial Officer and Director. We do
not have employment agreements with our executive officers or key personnel, nor
do we have key man life insurance policies for such individuals. The loss of the
services of our executive officers or other key personnel could delay our
ability to fully implement our operating strategy, which could have a material
adverse effect on our business operating results and financial condition.
RISKS OF DOING BUSINESS IN THE PEOPLE'S REPUBLIC OF CHINA
WE MAY LOSE THE BENEFITS PROVIDED BY SPECIAL ECONOMIC ZONES.
As part of its economic reform, the PRC has designated certain areas,
including Shenyang where our offices and property development projects are
located, as Special Economic Zones ("SEZs"). Foreign investment enterprises in
these areas generally benefit from greater economic autonomy and more favorable
tax treatment in the PRC. Accordingly, changes in the policies or laws governing
SEZs could have a material adverse effect on our business, financial condition
and results of operations.
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WE ARE SUBJECT TO VARIOUS POLITICAL AND LEGAL UNCERTAINTIES AS A RESULT OF DOING
BUSINESS IN THE PRC.
All of our development projects are located in the PRC and, as a
result, our operations and assets are subject to significant political,
economic, legal and other uncertainties. The economy of the PRC differs from the
economics of most countries belonging to the Organization for Economic
Co-operation and Development (the "OECD") in such respects as structure,
government involvement, level of development, growth rate, capital reinvestment,
allocation of resources, rate of inflation and balance of payments position.
China's economy is managed in part through a series of five-year economic and
social development plans (each a "Five-Year Plan") formulated by the State
Council and approved by the National People's Congress. Each Five-Year Plan sets
overall agricultural, industrial, financial and other economic and social
development targets. In implementing each Five-Year Plan, the State Planning
Commission, a commission directly under the State Council, establishes annual
production and development targets, formulates and supervises the implementation
of annual plans designed to achieve those targets and approves major economic
projects. Although the majority of productive assets in the PRC are still owned
by the Chinese Government, in the past several years the Chinese Government has
implemented economic reform measures that emphasize decentralization, the
utilization of market forces in the development of the PRC economy and the
encouragement of private economic activity. Such economic reform measures may be
inconsistent or ineffectual and we may not be able to capitalize on all such
reforms. Further, there can be no assurance that the Chinese Government will
continue to pursue such policies, that such policies will be successful if
pursued, that such policies will not be significantly altered from time to time
or that business operations in the PRC would not become subject to the risk of
nationalization, which could result in the total loss of investments in that
country.
ALTHOUGH THE PRC IS IN THE PROCESS OF ONGOING ECONOMIC REFORM, WE CAN NOT
PREDICT WITH CERTAINTY THE FUTURE SUCCESS OR CONTINUATION OF SUCH REFORMS.
Since 1978, the Chinese Government has been reforming its economic
systems. Many of the reforms are unprecedented or experimental and are expected
to be refined and improved. Other political, economic and social factors, such
as political changes, changes in the rates of economic growth, unemployment or
inflation, or in the disparities in per capita wealth between regions within
China, could also lead to further readjustment of the reform measures. This
refining and readjustment process may not always have a positive effect on our
operations. There can be no assurance that the reforms to China's economic
system will continue or that we will not be adversely affected by changes in the
PRC's political, economic and social conditions and by changes in policies of
the Chinese Government, such as changes in laws and regulations (or the
interpretation thereof), measures which may be introduced to control inflation,
changes in the rate or method of taxation, imposition of additional restrictions
on currency conversion and remittance abroad and reduction in tariff protection
and other import restrictions. Our operating results may also be significantly
affected by the inadequate development of an infrastructure and the potential
unavailability of adequate power and water supplies, transportation,
satisfactory roads and communications and raw materials and parts.
The Chinese economy has experienced significant growth in recent years,
but such growth has been uneven among various geographical regions and among
various sectors of the economy. The Chinese Government has implemented various
policies from time to time, such as during 1989 to 1991 and again commencing in
1993, to restrain the rate of such economic growth and control inflation and
otherwise regulate economic expansion. Although we might benefit from these
types of policies, more severe measures or other actions by the Chinese
Government could decrease demand for the Company's products or otherwise
significantly adversely affect our earnings.
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THE PRC HAS AN UNCERTAIN AND EVOLVING LEGAL SYSTEM.
The legal system of the PRC relating to foreign investments is both new
and continually evolving, and currently there can be no certainty as to the
application of its laws and regulations in particular instances. Enforcement of
existing laws or agreements may be sporadic and implementation or interpretation
of laws inconsistent.
ENTRY INTO THE WORLD TRADE ORGANIZATION BY THE PRC COULD RESULT IN INCREASED
COMPETITION IN THE MARKET IN WHICH WE OPERATE.
The United States House of Representatives has in favor of entry for
the PRC into the World Trade Organization (the "WTO"), the successor to the
General Agreement on Tariffs and Trade. The Senate is anticipated to vote on the
matter in late July. If the PRC joins the WTO, it will be required to reduce
some of its import tariffs and other trade restrictions over time and, as a
result, our business could be adversely effected as a result of increased
competition.
DUE TO GOVERNMENT CONTROL OVER CURRENCY CONVERSION, OUR REVENUES MAY NOT BE
FREELY CONVERTIBLE INTO FOREIGN CURRENCIES.
We receive almost all of our revenues in Renminbi which is not freely
convertible into foreign exchange. However, we require foreign currency to meet
foreign currency obligations, such as for future purchases of certain equipment
and raw materials. The PRC government imposes control over its foreign currency
reserves in part through direct regulation of the conversion of Renminbi into
foreign exchange and through restrictions on foreign imports. Effective January
1, 1994, pursuant to the Notice of the People's Bank of China Concerning Further
Reform of the Foreign Currency Control System (the "PBOC Notice"), the
conversion of Renminbi into Hong Kong and United States Dollars must be based on
rates set by the PBOC, which rates are set daily based on the previous day's PRC
interbank foreign exchange market rate with reference to current exchange rates
on the world financial markets (the "PBOC Rate"). Effective as of December 1,
1996, Renminbi has become fully convertible for all current account
transactions. Foreign exchange which is required for current account
transactions can be bought freely at authorized Chinese banks so long as the
procedural requirements prescribed by law are met. Payment of dividends to
foreign investors holding equity interests in Chinese companies, including
Foreign Investment Enterprises, is considered a current account transaction. At
the same time, Chinese companies are also required to sell their foreign
exchange earnings to authorized Chinese banks. Purchase of foreign exchange for
capital account transactions still requires prior approval of the State
Administration for Foreign Exchange. During the last five years, the value of
the Renminbi generally has experienced volatility in the exchange rate of
Renminbi to United States Dollars, and there was a significant devaluation in
the exchange rate of January 1, 1994 in connection with the abolition of the
official exchange rate and implementation of the new unitary rate exchange
system. Although the Renminbi/United States Dollar exchange rate has been
relatively stable since January 1, 1994, there can be no assurance that the
exchange rate will not again become volatile or that the Renminbi will not
devalue further against the United States Dollar. Exchange rate fluctuations may
adversely affect our financial performance because of its foreign currency
denominated liabilities and may materially adversely affect the value,
translated or converted as applicable into United States Dollars, of our net
fixed assets, our earnings and our declared dividends. We currently do not
engage in any hedging activities in order to minimize the effect of exchange
rate risks.
RISKS ASSOCIATED WITH HOLDING OUR SECURITIES
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THERE IS A LACK OF LIQUIDITY IN THE MARKET FOR OUR COMMON STOCK.
Our Common Stock currently does not trade on an exchange. Although we
will apply to trade our stock on the OTC Bulletin Board or NASDAQ Small Cap
Market, there can be no assurance that an active public market for our Common
Stock will be created and sustained. Accordingly, investors may not be able to
sell their Common Stock should they desire to do so, or may be able to sell only
at lower than desired prices. While no prediction can be made as to the effect,
if any, that future sales of shares of our Common Stock, or the availability of
additional shares for future sales, will have on the market price of the Common
Stock prevailing from time to time, sales of substantial amounts of Common Stock
or the perception that such sales could occur, would likely adversely affect the
market price for the Common Stock.
YOU WILL BE UNABLE TO EXERCISE ANY CONTROL OVER THE COMPANY BECAUSE A SINGLE
STOCKHOLDER CONTROLS 80% OF THE VOTING CONTROL OF THE COMPANY.
Mr. Gao Wanjun, one of our officers and a director, is the principal
stockholder of Huayang International Trust. Huayang International Trust
beneficially owns 80% of our outstanding common stock and controls approximately
80% of all stockholder votes primarily as a result of its ownership of 6,000,000
shares of our common stock. Accordingly, Mr. Gao, as Managing Member of Huayang
International Trust, is in a position to elect all of the members to our board
of directors and to direct stockholder approval upon all issues to be voted upon
by our stockholders.
SINCE WE DO NOT INTEND TO DECLARE DIVIDENDS IN THE FORESEEABLE FUTURE, THE
RETURN ON YOUR INVESTMENT WILL DEPEND UPON APPRECIATION OF THE MARKET PRICE OF
YOUR SHARES.
We have never paid any dividends on our common stock. Our board of
directors does not intend to declare any dividends in the foreseeable future,
but intends to retain all earnings, if any, for use in our business operations.
As a result, the return on your investment in our common stock will depend upon
appreciation of the market price of the common stock. The holders of common
stock are entitled to receive dividends when, as and if declared by the board of
directors, out of funds legally available for dividend payments. The payment of
dividends, if any, in the future is within the discretion of our board of
directors and will depend upon our earnings, capital requirements and financial
condition, and other relevant factors.
WE MAY ISSUE BLANK CHECK PREFERRED STOCK, WHICH COULD SUBSTANTIALLY DEPRESS THE
VALUE OF YOUR STOCK.
Our Articles of Incorporation and By-laws authorizes the issuance of
"blank check" Preferred Stock with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue
Preferred Stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the relative voting power or other rights of the
holders of our Common Stock. The issuance of Preferred Stock may be used, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company and could prevent stockholders from receiving a
premium for their shares in the event of a third party tender offer or change of
control transaction. There can be no assurance that we will not issue shares of
Preferred Stock in the future. If we issue Preferred Stock, the issuance may
dilute our existing Common Stock.
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The issuance of any shares of Preferred Stock having rights superior to
those of the Common Stock may result in a decrease in the value or market price
of the Common Stock. Holders of Preferred Stock may have the right to receive
dividends, certain preferences in liquidation and conversion rights. The
issuance of Preferred Stock could, under certain circumstances, have the effect
of delaying, deferring or preventing a change in control of the Company without
further vote or action by the stockholders and may adversely affect the voting
and other rights of the holders of Common Stock.
OUR OFFICERS AND DIRECTORS ARE GRANTED LIMITED LIABILITY FOR THEIR ACTIONS BY
OUR ARTICLES OF INCORPORATION AND BY-LAWS.
Our Articles of Incorporation and By-laws contain provisions
limiting the liability of our directors for monetary damages to the fullest
extent permissible under Nevada law. This is intended to eliminate the personal
liability of a director for monetary damages in an action brought by or in the
right of the Company for breach of a director's duties to the Company or our
stockholders except in certain limited circumstances. In addition, the Articles
of Incorporation and By-laws contains provisions requiring us to indemnify our
directors, officers, employees and agents against expenses, judgments (including
derivative actions), fines and amounts paid in settlement. This indemnification
is limited to actions taken in good faith in the reasonable belief that the
conduct was lawful and in or not opposed to our best interests. The Articles of
Incorporation and By-laws provide for the indemnification of directors and
officers in connection with civil, criminal, administrative or investigative
proceedings when acting in their capacities as our agents. The foregoing
provisions may reduce the likelihood of derivative litigation against directors
and officers and may discourage or deter stockholders or management from suing
directors or officers for breaches of their duties to us, even though such an
action, if successful, might otherwise benefit us and our stockholders.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
Future sales of shares of Common Stock by existing stockholders under
Rule 144 ("Rule 144") of the Securities Act of 1933, as amended (the "Securities
Act"), could materially adversely affect the market price of our Common Stock. A
material reduction in the market price of our Common Stock could materially
impair our future ability to raise capital through an offering of equity
securities. A substantial number of shares of Common Stock are available for
sale under Rule 144 in the public market or will become available for sale in
the near future.
OUR COMMON STOCK MAY BE SUBJECT TO PENNY STOCK REGULATIONS.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. Commission regulations generally
define a penny stock to be an equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. As we do not currently
satisfy the requirements to comply with any exception, the regulations require
the delivery, prior to certain transactions involving our Common Stock, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith. Transactions that meet the requirements of Regulation D under the
Securities Act or transactions with an issuer not involving a public offering
pursuant to Section 4(2) of the Securities Act are exempt from the disclosure
schedule delivery requirements.
Since we are subject to the penny stock regulations cited above,
trading in our securities is covered by Rule 15g-9 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") for non-NASDAQ
and non-national securities exchange listed securities. Under such
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rule, broker/dealers who recommend such securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale.
If market makers are unable to make a market in our securities, the
market liquidity for our securities could be adversely affected. In such event,
the absence of liquidity of our Common Stock could limit the ability of
broker/dealers to sell our securities and thus the ability of holders of our
securities to sell their securities in the secondary market.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The following discussion of the financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and related notes thereto. The following discussion contains certain
forward-looking statements that involve risk and uncertainties. Our actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, risks
and uncertainties related to the need for additional funds, the rapid growth of
the operations and our ability to operate profitably after the initial growth
period is completed. We undertake no obligation to publicly release the results
of any revisions to those forward-looking statements that may be made to reflect
any future events or circumstances.
RESULTS OF OPERATIONS (IN U.S. DOLLARS)
FISCAL QUARTERS ENDED MARCH 31, 2000 AND MARCH 31, 1999
Revenues for fiscal quarter ended March 31, 2000 were $1,474,388,
decreased 24.5% from $1,953,522 over the fiscal quarter ended March 31, 1999.
This decrease was primarily attributable to a 33.7% decrease in revenue from
real estate sales, offset in part by a 15.6% increase in real estate rental
income. For the quarter ended March 31, 2000, revenues from real estate sales
decreased to $1,012,496 from $1,526,245, while revenues from real estate rental
increased to $298,092 from $257,853 over the same period of 1999. These changes
reflect the fact that we are close to completing the sale of our real estate
property held for sale, and real estate rental income and other operating income
will gradually become our major revenue source. We expect further decline in
total revenues as our major revenue source shifts from property sales to rental
income. As of March 31, 2000, remaining real estate property held for sale and
net real estate rental property were $6,289,941 and $31,743,980, respectively,
compared with $9,263,984 and $35,504,112 a year ago. Interest income decreased
3.3% to $163,800 in the quarter ended March 31, 2000 from $169,424 in the
quarter ended March 31, 1999.
Total costs and expenses were $1,025,005 in the fiscal quarter ended
March 31, 2000, down from $1,332,842 in the quarter ended March 31, 1999, a
decrease of 23.1%. For the quarter ended March 31, 2000, cost of real estate
sold dropped 41.3% to $662,718 from $1,129,800, real estate operating expenses
dropped 28.0% to $20,890 from $29,004, and depreciation expense dropped 26.3% to
$65,684 from $89,158 over the same period in 1999. Other operating expenses for
the quarter ended March 31, 2000 increased 29.6% from $84,879 of the same period
of 1999 to $110,000, due to increased legal and professional fees. Interest
expense for the quarter ended March 31, 2000 increased to $165,713 from none for
the same period of 1999, during which interest expense was capitalized.
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Net income before taxes for the quarter ended March 31, 2000 was
$449,383, down 27.6% from $620,680 over the same period of 1999. Net income
dropped to $255,691 from $344,713 of same quarter of 1999, a 25.8% decrease.
Earnings per share were $0.03, a 25.8% drop from $0.05 of same quarter a year
ago. These declines were due to the mixed effect of decreased real estate
property sales and increased real estate rental income.
FISCAL YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
Revenues for the fiscal year ended December 31, 1999 were $6,822,018,
down from revenues of $16,115,067 in the fiscal year ended December 31, 1998, a
decline of 57.7%. Revenues from real estate sales declined by $10,518,689 to
$5,400,356 in Fiscal Year 1999 from $15, 919,045 in fiscal year 1998, a decline
of 66.1%. The change was caused by the fact that most of the real estate units
available for sale were sold during fiscal year 1998. This decline was partially
offset by a $628,506 increase in revenues from real estate rental income to
$824,528 in fiscal year 1999 from $196,022 in fiscal year 1998, an increase of
320.6% caused by an increase in the amount of space available for leasing.
Interest income in fiscal year 1999 increased to $597,134 from none in fiscal
year 1998. We expect further decline in total revenues as the company's major
revenue source shifts from property sales to rental income.
Total costs and expenses for the fiscal year ended 1999 were $5,097,835
down from costs and expenses of $13,187,654 for fiscal year 1998, a decline of
61.3%. This decline was primarily attributable to the 66.1% decline in real
estate sales in fiscal year 1999 as compared to fiscal year 1998, offset in part
by an increase in depreciation expenses and interest expenses.
Costs of sales of real estate declined $8,682,835 to $3,680,697 in
fiscal year 1999 from $12,363,532 in fiscal year 1998, a decline of 70.2%. Real
estate operating expenses declined $247,460 to $247,281 in fiscal year 1999 from
$494,741 in fiscal year 1998. These decreases were primarily attributable to the
66.1% decline in real estate sales in fiscal year 1999 as compared to fiscal
year 1998. Depreciation costs increased $189,891 to $330,354 for fiscal year
1999 up from $140,463 in fiscal year 1998, an increase of 135.2%. Interest
expense was $804,751 in fiscal year 1999, compared to none in 1998. These
increases were due to the commencement of our real estate sales and leasing
activities in fiscal year 1998. Other operating expenses declined $154,166 to
$34,752 in fiscal year 1999 as compared to $188,918 in 1998, a decrease of
81.6%.
Our reported net income before taxes of $1,724,183 in fiscal year 1999
as compared to net income before taxes of $2,927,413 in fiscal year 1998, a
decrease of 41.1%. Our net income for fiscal year 1999 was $1,251,617 as
compared to $1,772,703, a decrease of 29.4%. Earnings per share were $0.17 per
share in fiscal year 1999 as compared to $0.24 in 1998, a decrease of 29.4%.
These declines are primarily attributable to the fact that most of the real
estate units available for sale were sold during fiscal year 1998 and our major
income source is shifting from property sales to rental income. These declines
were partially offset by an increase in real estate rental income.
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FISCAL YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
Revenues for the fiscal year ended December 31, 1998 were $16,115,067
as compared to no revenues in the fiscal year ended December 31, 1997. Revenue
from real estate sales increased to $15,919,045 in Fiscal Year 1998 from none in
fiscal year 1997. We also experienced an increase in real estate rental revenues
of $196,022 in fiscal year 1998, as compared to none in fiscal year 1997. These
increases are all attributable to the sales and leasing of our properties in
fiscal year 1998.
Total costs and expenses for the fiscal year ended 1998 were
$13,187,654, up from none for fiscal year 1997. Among them, costs of sales
increased to $12,363,532 in fiscal year 1998 from none in fiscal year 1997 and
real estate operating expense increased to $494,741 in fiscal year 1998 from
none in fiscal year 1997. Depreciation expenses increased to $140,463 in fiscal
year 1998 from none in fiscal year 1997. Other operating expenses increased to
$188,918 in fiscal year 1998 from none in fiscal year 1997. These increases were
due to the commencement of our real estate sales and leasing activities in
fiscal year 1998.
We reported net income before taxes of $2,927,413 in fiscal year 1998
as compared to none in fiscal year 1997. Our net income for fiscal year 1998 was
$1,772,703 and none in fiscal year 1997 as we had not yet begun sales and lease
of our real estate properties.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity consists of cash, receivables, real estate held for
development and sale and receipts from rental activities. It is expected that
future cash needs will be financed by a combination of cash flows from rental
and leasing operations, future advances under bank loans, and if needed, other
alternative financing arrangements, which may be available to us.
We do not have any material commitments for capital expenditures for
the year ending December 31, 2000.
Our projection of future cash requirements is affected by numerous
factors, including but not limited to, changes in customer receipts, consumer
industry trends, operating cost fluctuations, and unplanned capital spending.
We have retired $4,086,343 of bank debt in 1999 through cash flows from
operations and additional advances of $1,747,479 from related companies. As a
result of future cash payments required to retire bank loans and debts owed to
its related companies, management believes that it will be necessary to secure
additional financing to sustain our operations and to fund our anticipated
growth.
As of the date hereof, we have consolidated indebtedness that is
substantial in relation to our stockholders equity. As of December 31, 1999, we
had total debt of $17,295,725. Our debt poses substantial risks to holders of
our Common Stock, including the risks that (i) a substantial portion of our cash
flow from operations will be dedicated to the payment of interest on such
indebtedness, (ii) our debt may impede our ability to obtain financing in the
future for working capital, capital expenditures and general corporate purposes
and (iii) our debt position may leave us more vulnerable to economic downturns
and may limit our ability to withstand competitive pressures. If we are unable
to generate sufficient cash flow from operations in the future to service our
indebtedness and to meet our other
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commitments, we will be required to adopt one or more alternatives, such as
refinancing or restructuring its indebtedness, selling material assets or
operations, or seeking to raise additional debt or equity capital. There can be
no assurance that any of these actions could be effected on satisfactory terms,
that they would enable us to continue to satisfy our capital requirements or
that they would be permitted by the terms of existing or future debt agreements.
All of our debt is secured by the Commercial Towers. As of December 31,
1999, our lenders held an aggregate of $17,295,725 of liens against the
Commercial Towers as security for bank loans of the same amount. If we are
unable to meet the terms of our bank loans, resulting in a default under such
bank loans, the lenders may elect to declare all amounts outstanding under the
loans to be immediately due and payable and foreclose on the Commercial Towers,
which would have a material adverse effect on us.
EFFECT OF FLUCTUATIONS IN FOREIGN EXCHANGE RATES
We operate in the People's Republic of China, maintain our financial
control center in Shenyang, PRC, and record most of our operating activities in
Renminbi ("RMB"), the Chinese currency. The exchange rate between RMB and US
Dollars has been relatively stable for the last few years. We do not believe
that fluctuations in the foreign exchange rates will have a material effect on
our financial statements. The RMB exchange rates, however, are fixed by the
government of the PRC, and a change in the exchange rate by the PRC could have a
material adverse effect on our financial statements. See "Risk Factors."
ITEM 3. DESCRIPTION OF PROPERTY
Our headquarters consists of a 1,818 square meter leased facility in
Podium A of the Commercial Towers, located at No. 386 Qingnian Street, Heping
District, Shenyang, China 110003. We own the building in which the office is
located.
We have engaged in the development of real estate properties in the
Heping District of Shenyang, China, specifically the Huayang International
Mansion. The real estate projects in which we hold an interest consist of the
following:
o Haitong;
o Hotel;
o Business Center; and
o Garage.
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HAITONG
We own 95% of Haitong. The Haitong project consists of a 26,912 square
meter Podium and a 56,409 square meter Tower, divided into office and
residential units. The Tower was completed in December 1999, and the Podium is
scheduled to be completed by the end of July 2000. The total cost of developing
Haitong is approximately US$70 million. These costs were paid through a
combination of bank loans and mortgages, guranteed by Haitong and secured by its
assets, and capital contributions and loans from shareholders. We currently have
bank loans totaling US$17,295,725 outstanding which are secured by a mortgage on
the property. The annual interest rates on these bank loans range from 6.44% to
7.62%.
HOTEL, BUSINESS CENTER AND GARAGE (COLLECTIVELY REFERRED TO AS THE "HOTEL
GROUP")
We own 20% of Hotel. Hotel is building a 50,000 square meter, 623 room
luxury business hotel in Tower B of the Commercial Towers. The Hotel will be
managed by Sheraton, a subsidiary of Starwood, as the Sheraton Shenyang Lido
Hotel. Construction on the Hotel is scheduled to be completed by the end of
August 2000. The total construction costs of the Hotel are approximately US$99.7
million, including the costs of developing the Business Center and Garage. The
Hotel is expected to generate US$30.19 million per year based on a 70% occupancy
rate. The Garage is expected to generate US$211,000 per annum. Business Center
owns a 20,000 square meter business center in the five story podium attached to
the Hotel, which we expect to generate US$16.249 million in annual revenues. We
own 20% of both Garage and Business Center.
We are engaged in real estate development. As of now, we are primarily
engaged in developing the Huayang International Mansion ("Commercial Towers").
Upon completion, the Mansion will be a mixed-use complex with a total
construction area of 162,000 square meters. The Commercial Tower is located in
Shenyang, a major Chinese city with a population of nearly seven million,
offering residential, hotel, office, recreation, shopping and conference
facilities.
The building consists of two towers and two podiums. Haitong owns Tower
A and Podium A, while Hotel Group owns Tower B and Podium B of the building.
Tower A is a 28 story construction with 330 office units, 220 business
apartments, and 66 penthouse apartments, totaling approximately 56,000 square
meters. Assuming all the units in Tower A are sold, then we estimate that it
will provide at least US$40 million in gross revenues. Podium A is a five story
construction totaling approximately 27,000 square meters, with 21,285 square
meters of commercial space for lease. As of December 31, 1999, 332 units of
Tower A totaling approximately 28,000 square meters (69% of the total area
available for sale) have been sold, generating approximately US$21.6 million in
gross revenues, and 71 Tower A units totaling approximately 5,800 square meters
(36% of available space) have been leased, generating US$0.68 million in annual
gross revenues.
Tower B and Podium B of the building totaling approximately 80,000
square meters will be operated by Sheraton Overseas Management Corporation and
Hotel Group together as Sheraton Shenyang Lido Hotel. When completed, the
five-star hotel will have 533 rooms/suites and 90 luxury apartments. Assuming an
occupancy rate of 70%, and a standard room rate of US$140, the Hotel Group will
generate US$46.65 million each year in gross revenues, including revenues
derived from room
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charges, restaurants and bars, recreation facilities, business facilities and
car park. The service facilities in the hotel will serve the entire building.
There can be no assurance, however, that such an occupancy and room
rate will be attained.
The Commercial Tower is conveniently located in the City's Special
Economic Zone for new and hi-tech enterprises, and is only approximately15
minutes away from the city's international airport and approximately 10 minutes
away from the city's main railway station. Qingnian Avenue, a major traffic
thoroughfare for the city leads to the building. Wulihe Stadium, the city's
newest and most advanced stadium is located just on the northern side of the
building. Regent Park, on the western side of the building, is a luxury
residential area under development. JW Marriott Hotel and China Northern
Airline's main office face the building's south side. To the east, across
Qingnian Avenue is Riverside Garden, considered the most luxurious residential
development in northeastern China. Some major entertainment facilities, such as
Summer Place (a water park), the Science and Technology Museum and an aquarium
are also located nearby.
The total cost for the project is budgeted at US$170 million, of which
it is expected that US$70 million will fund the development of Tower A and
Podium A, and US$100 million will pay the costs of developing the Sheraton
Hotel.
The project is scheduled to be completed by August 2000. Construction
on Tower A was completed in December 1999. The Hotel is scheduled to open in
September 2000.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 31, 2000 certain information
regarding the ownership of our voting securities by each stockholder known to
our management to be 1) the beneficial owner of more than 5% of our outstanding
Common Stock, 2) each of our directors and nominees, and 3) all named executive
officers and directors as a group. Except as otherwise noted, we believe that
the beneficial owners of the common stock listed below, based on information
provided by such owners, have sole investment and voting power with respect to
such shares.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICAL OWNER (1) COMMON STOCK
--------------------------------------- -------------------------
NUMBER PERCENTAGE
--------- ----------
<S> <C> <C>
Gao Wanjun 6,000,000 (2) 80.0%
Wang XiaoLuan 6,000,000 (2) 80.0%
Wang YuFei 0 0.0%
Wang TieJun 0 0.0%
Wang XiaoYang 0 0.0%
Lu Yan Cheng 0 0.0%
Huayang International Trust 6,000,000 (2) 80.0%
All Officers and Directors as a Group 6,000,000 (2) 80.0%
</TABLE>
(1) Except as otherwise noted, the address of each beneficial owner is
Shenyang Haitong House Properties Development, Ltd., No.386 Qingnian Street,
Heping District, Shenyang, China 110003.
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(2) Includes 6,000,000 shares held by the Huayang International Trust, of
which Mr. Gao WanJun is the trustee. Mr. Gao WanJun, his wife Ms. Wang XiaoLuan
and their childeren are the beneficiaries of the trust.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth our directors and executive officers,
appointed to serve until their removal or resignation.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mr. Gao WanJun 45 Chairman of the Board of Directors and President
Ms. Wang YuFei 30 Secretary and Director
Ms. Wang XiaoLuan 47 Director and Chief Financial Officer
Mr. Wang TieJun 24 Director
Ms. Wang XiaoYang 45 Director
Ms. Lu Yan Cheng 45 Director
------------
</TABLE>
Each of our directors holds office until the next annual meeting of the
stockholders, or until his successor is elected and qualified. The Company's
by-laws provide for not less than one director. The by-laws permit the Board of
Directors to fill any vacancy on the Board. Officers serve at the discretion of
the Board of Directors.
OUR DIRECTORS AND EXECUTIVE OFFICERS
MR. GAO WANJUN, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Mr. Gao has served as our Chairman of the Board of Directors, President
and CEO since December 1995. In April 1992, Mr. Gao founded Haitong and has been
serving as the General Manager since then. In April 1993 Mr. Gao founded Huayang
Industry and Commerce (Shenyang) Group ("Huayang Group"), an international group
of real estate companies with operations in China, Hong Kong and the United
States. He has been serving as Chairman of Huayang Group since April 1993.
MS. WANG YUFEI, SECRETARY AND DIRECTOR
Ms. Wang has joined us in December 1995 and has been serving as
Secretary and Director of the Company. Prior to working for the Company, Ms.
Wang was Secretary of Huayang Industry and Commerce (Shenyang) Group Co., Ltd.,
a real estate development company operating in Shenyang, China, from April 1994
through December 1995. Ms. Wang graduated from Liaoning University.
MS. WANG XIAOLUAN, VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND DIRECTOR
Ms. Wang has been serving as our Vice President, CFO and Director since
December 1995. She joined Haitong in April 1992 and served as Financial General
Manager from April 1992 to December 1999 and became chairman of Haitong in
December 1999. In October 1997 she founded Huayang Property Management Co., Ltd.
and has been serving as Chairman. She was educated at Northeastern Finance
University. She is Mr. Gao's wife.
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MS. WANG XIAOYANG, DIRECTOR
Ms. Wang joined us in December 1995 and currently serves as manager of
international department. She was educated in Dalian Financial College. Before
joining the company, she was a senior manger for international trade of Dalian
Friendship Group, where she worked from April 1983 to October 1995.
MR. WANG TIEJUN, DIRECTOR
Mr. Wang joined us in December 1995 and has been our assistant
financial manager. Before joining us he was a student in Shenyang Financial
College.
MS. LU YANCHENG, DIRECTOR Ms. Lu joined us in December 1995 as a
financial manager and has been one of our directors since December 1998 to the
present. From October 1982 to June 1995 she worked in Shenyang Educational
Bureau where she was an executive in charge of the financial department.
ITEM 6. EXECUTIVE COMPENSATION
Currently, none of the officers or directors are being remunerated for
their services to for us.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 30, 1997, Haitong entered into a management contract with
Huayang Real Estate Management (Shenyang) Co., Ltd. ("HREM"), of which Ms. Wan
XiaoLuan (Mr. Gao's wife and a Director of the Company) is Chairman and the
controlling shareholder, appointing HREM as the property management company for
properties in Tower A. In China, property management fees are regulated and
approved by the government. The contract did not specify amount of management
fees, but required HREM to obtain government approval for such fees. Currently,
the fee is $1.645 per square meter, which includes elevator maintenance and
heating charges. Terms of the agreement were made on an arms-length basis.
On September 28, 1997, we entered into a Purchase Agreement ("Supply
Agreement") with Huayang International Investment, Ltd. ("HIIL"). Liao Ning Hua
Shang Certified Public Accountants ("LNHS"), an independent public accounting
firm in the People's Republic of China, has inspected the physical condition of
the supplies and appraised the value of supplies purchased under the Supply
Agreement. According to the Appraiser Report by LNHS, the total value of the
supplies we purchased under the Supply Agreement was approximately $14.5 million
and was in line with the amount on our books. To date, we have not paid for any
of the supplies we have purchased under the Supply Agreement. Under the Supply
Agreement, we are not incurring any interest expenses for up to three years
after the receipt of the invoices for supplies. We have the choice to pay the
purchase price for the supplies in cash or in Common Stock. HIIL entered into
this agreement to support our operations. HIIL is 50% owned by Gao Wan Jun who
is also our majority shareholder with an approximate 80% ownership interest.
Mr. Gao Wonjun's brother, Mr. Gao Wanfeug, also owns 50% of HIIL.
CONTROLLING SHAREHOLDER
Huayang International Trust (the "Trust"), a business domiciled on the
Isle of Man, beneficially owns 80% of the outstanding common stock of the
Company. The trust is controlled by Mr. Gao
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WanJun, the Chairman, President and CEO of the Company, as Trustee. Mr. Gao, his
wife Ms. Wang XiaoLuan, and their children are the beneficiaries of the trust.
Ms. Wang is our CFO and is one of our directors.
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ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 50,000,000
shares of common stock, $0.02 par value per share. On December 31, 1999 there
were issued and outstanding 7,500,807 shares of common stock.
COMMON STOCK
The holders of our Common Stock:
o are entitled to one vote per share on all matters to be voted on by
stockholders generally, including the election of directors;
o do not have cumulative voting rights;
o do not have preemptive, subscription or conversion rights and there
are no redemption or sinking fund provisions or rights applicable
thereto;
o are entitled to dividends and other distributions as may be declared
from time to time by the board of directors out of any funds legally
available for that purpose; and,
o will, upon the liquidation, dissolution or winding up, share ratably
in the distribution of all of our assets remaining available for
distribution after satisfaction of all of our liabilities and the
payment of the liquidation preference of any outstanding preferred
stock, if such stock is at any time authorized, issued and
outstanding.
All of our shares of common stock now outstanding are fully paid and
non-assessable. Reference is made to our Articles of Incorporation, By-Laws and
the applicable statutes of the State of Nevada for a more complete description
of the rights and liabilities of the holders of the our Common Stock.
ANTI-TAKEOVER EFFECTS OF OUR ARTICLES OF INCORPORATION AND BY-LAWS
Some provisions of our Articles of Incorporation and By-Laws may be
deemed to have an anti-takeover effect and may delay, defer or prevent a tender
offer or takeover attempt that a stockholder might consider in its best
interest, including those attempts that might result in a premium over the
market price for the shares held by our stockholders. These provisions include:
o Authorized But Unissued Shares. The authorized but unissued shares of
common stock are available for future issuance without stockholder
approval. These additional shares may be utilized for a variety of
corporate purposes including future public offerings to raise
additional capital, corporate acquisitions and employee benefit plans.
The existence of authorized but unissued and unreserved common stock
could render more difficult or discourage an attempt to gain control of
us by means of a proxy contest, tender offer, merger or otherwise.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's common stock is
Jersey Stock Transfer Company.
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PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
MARKET INFORMATION
Our stock was delisted from the OTC Bulletin Board on December 15,
1999. There is currently no established public trading market for our Common
Stock. Prior to its delisting, our Common Stock consistently traded at $0.25 per
share. We currently have no outstanding options or warrants to purchase , or
securities convertible into, the common stock of the Company. All of the
Company's outstanding shares of common stock, however, are subject to sale
pursuant to Rule 144.
DIVIDENDS
We have not paid dividends and do not anticipate paying dividends in
the foreseeable future. The board of directors intends to retain earnings, if
any, to finance our growth. Accordingly, any payment of dividends by us in the
future will depend upon the need for working capital and our financial
conditions of at that time.
ITEM 2. LEGAL PROCEEDINGS
We are not a party to, nor are any of our respective properties the
subject of, any material pending legal or arbitration proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
We have not changed accountants in the last three fiscal years, and
there is no disagreement with its accountants concerning accounting and
financial disclosure.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
None.
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ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS
LIMITATION ON DIRECTOR'S LIABILITY
In accordance with Section 78.037 of the Nevada General Corporation Law
("NGCL"), the Articles of Incorporation and By-laws provide that our directors
shall not be personally liable to us or our stockholders for monetary damages
for breach of duty as a director except (i) for any breach of the director's
duty of loyalty to us and our stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct, or knowing violation of law;
(iii) for unlawful payments of dividends and unlawful stock repurchases and
redemptions; or (iv) for any transaction from which the director derived an
improper personal benefit. This provision does not eliminate a director's
fiduciary duties; it merely eliminates the possibility of damage awards against
a director personally which may be occasioned by certain unintentional breaches
(including situations that may involve grossly negligent business decisions) by
the director of those duties. The provision has no effect on the availability of
equitable remedies, such as injunctive relief or rescission, which might be
necessitated by a director's breach of his or her fiduciary duties. However,
equitable remedies may not be available as a practical matter where transactions
(such as merger transactions) have already been consummated. The inclusion of
this provision in the Articles of Incorporation and By-laws may have the effect
of reducing the likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefited us and our stockholders.
INDEMNIFICATION
Our Articles of Incorporation and By-laws provide that we shall
indemnify our officers, directors, employees and agents to the fullest extent
permitted by the NGCL. Section 78.037 of the NGCL provides that we may indemnify
any person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than a "derivative" action by
or in the right of ours) by reason of the fact that such person is or was our
director, officer, employee or agent, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement in connection with such
action, suit or proceeding if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to our best interests,
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe was unlawful. A similar standard of care is applicable in the case of
derivative actions, except that no indemnification shall be made where the
person is adjudged to be liable to us, unless and only to the extent that the
Supreme Court of the State of Nevada or the court in which such action was
brought determines that such person is fairly and reasonably entitled to such
indemnity and such expenses.
23
<PAGE>
PART F/S
Our balance sheets as of December 31, 1999 and 1998 and the relevant
statements of operations, changes in stockholders' equity and cash flows for the
period there ended have been audited by Moore Stephens Frazer and Torbet, LLP,
independent certified public accountants, and have been prepared in accordance
with generally accepted accounting principles and pursuant to Regulation S-B as
promulgated by the Securities and Exchange Commission and are included as
follows:
INDEX
CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED: QUARTERS ENDED MARCH 31,
2000 AND MARCH 31, 1999; AUDITED: YEARS ENDED DECEMBER 31, 1999 DECEMBER 31,
1998 AND DECEMBER 31, 1997
Independent Auditor's Report
Balance Sheets
Statements of Operations
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
24
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1997
F-1
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report F-3
Consolidated Balance Sheet as of December 31, 1997 Exhibit A F-4
Consolidated Statement of Changes in Shareholders'
Equity for the year ended December 31, 1997 Exhibit B F-5
Consolidated Statement of Cash Flows for the year
ended December 31, 1997 Exhibit C F-6
Notes to the financial statements F-7 - F-15
</TABLE>
F-2
<PAGE>
[LETTERHEAD]
The Board of Directors
Huayang International Holdings, Inc.
and Subsidiary
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheet of Huayang
International Holdings, Inc. and subsidiary as of December 31, 1997, and the
related consolidated statements of changes in shareholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated balance sheet, and
statements of changes in shareholders' equity and cash flows are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated balance sheet, and statements of
changes in shareholders' equity and cash flows referred to above present fairly,
in all material respects, the financial position of Huayang International
Holdings, Inc. and subsidiary as of December 31, 1997, and the change in
shareholders' equity and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/ Moore Stephens Frazer and Torbet, LLP
Certified Public Accountants
Walnut, California
December 13, 1999
F-3
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY EXHIBIT A
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
ASSETS:
Cash $ 64,843
Real estate held for development and sale 50,633,836
Investment in Hotel Group 7,223,453
Property and equipment, net of accumulated depreciation of $281,946 299,238
--------------
Total assets $ 58,221,370
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Due to related companies $ 15,222,607
Accounts payable and accrued liabilities 18,027,304
Bank loans 15,767,670
--------------
Total liabilities 49,017,581
--------------
MINORITY INTEREST 98,807
--------------
SHAREHOLDERS' EQUITY:
Common Stock, $0.02 par value, authorized 50,000,000 shares,
7,500,807 shares issued and outstanding 150,016
Paid-in capital 8,954,892
Accumulated other comprehensive income 32,906
Retained earnings, Exhibit C (32,832)
--------------
Total shareholders' equity 9,104,982
--------------
Total liabilities and shareholders' equity $ 58,221,370
==============
</TABLE>
The accompanying notes are intergral part of this statement.
F-4
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY EXHIBIT B
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Accumulated other
Number Common Paid-in Retained comprehensive
of shares stock capital earnings income Totals
------------- -------------- --------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, beginning of year 7,500,807 $ 150,016 $6,986,936 $ (32,832) $ 16,678 $ 7,120,798
Additions to paid in capital 1,967,956 1,967,956
Foreign currency
translation adjustments 16,228 16,228
------------- -------------- ------------- ------------- ------------- --------------
BALANCE, end of year 7,500,807 $ 150,016 $8,954,892 $ (32,832) $ 32,906 $ 9,104,982
============= ============== ============= ============= ============= ==============
</TABLE>
The accompanying notes are intergral part of this statement.
F-5
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY EXHIBIT C
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ --
Adjustments to reconcile net income to net cash used in
operating activities:
Effect of foreign currency translation adjustments 16,228
Real estate development costs (16,323,502)
Decrease in account payable and accrued liabilities 5,427,247
---------------
Net cash used in operating activities (10,880,027)
---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Hotel Group (1,979,735)
Purchase of property and equipment (58,994)
---------------
Net cash used by investing activities (2,038,729)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term bank loans 4,707,922
Advances from related companies 5,985,528
Contributed capital 1,967,956
---------------
Net cash provided by financing activities 12,661,406
---------------
Net decrease in cash (257,350)
CASH, beginning of year 322,193
---------------
CASH, end of year $ 64,843
===============
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid (net of interest capitalized of $3,554,748) $ 0
===============
Income taxes paid $ 0
===============
</TABLE>
The accompanying notes are intergral part of this statement.
F-6
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. THE REPORTING ENTITY
The financial statements of Huayang International Holdings,
Inc. and Subsidiary (HIHI) reflect the activities and financial
transactions of its subsidiary Shenyang Haitong House Properties
Development Ltd. (HAITONG). HIHI has a 95% ownership interest in
HAITONG. HIHI also has a less than majority ownership interest in three
other companies, Changyang International Hotel (Shenyang) Co. Ltd.
(HOTEL), Changyuan (Shenyang) Park Ltd. (GARAGE) and Changhua
(Shenyang) Business Co. Ltd. (BUSINESS CENTER) collectively referred to
as HOTEL GROUP. See note 2 for further explanation as to the formation
of the Company.
HIHI is incorporated under the laws of the State of Nevada in
the United States. HAITONG, HOTEL, GARAGE and BUSINESS CENTER are
incorporated under the laws of the People's Republic of China (PRC).
b. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of HIHI include its
subsidiary HAITONG. All significant inter-company accounts and
transactions have been eliminated in the consolidation. HIHI accounts
for its investment in HOTEL GROUP under the equity method.
c. NATURE OF OPERATIONS AND CONCENTRATION OF RISK
HAITONG is in the business of developing a mixed-use
(commercial and residential) building in Shenyang City Nanhu Scientific
and Technological Development Zone, Liaoning province, People's
Republic of China. Next to this building is a hotel complex under
development by HOTEL. Both buildings are on top of a podium and a
garage, which are under development by HAITONG, BUSINESS CENTER and
GARAGE.
The real estate market and hospitality industries in PRC are
affected by various economic and political factors that are beyond the
control of HIHI. The ultimate sales of development properties of
HAITONG, in the opinion of management, will exceed the costs incurred
plus the costs to complete the development.
F-7
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d. REAL ESTATE HELD FOR DEVELOPMENT AND SALE
Real estate held for development and sale is stated at the
lower of cost or net realizable value. Expenditures for land
development are capitalized and are allocated to development projects
by the specific identification method. Costs are allocated to specific
units based on the ratio of the unit sales price to the estimated total
project sales price times the total project costs.
e. PROPERTY AND EQUIPMENT
Land use rights, building, furniture, fixtures, equipment and
automobiles are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets,
which range from 5 to 50 years.
The cost and related accumulated depreciation of assets sold
or otherwise retired are eliminated from the accounts and any gain or
loss is included in the statement of income. The cost of maintenance
and repairs is charged to income as incurred, whereas significant
renewals and betterments are capitalized. Depreciation expense for the
year ended December 31, 1997 amounted to $119,837 which has been
capitalized as part of the development costs.
HIHI acquired land use rights from The People's Republic of
China for a period of fifty years. The cost of the rights have been
capitalized to the real estate development projects and once the
constructed assets are ready for their intended use, the land use
rights are amortized over the remaining useful life.
Long-term assets of the Company are reviewed annually as to
whether their carrying value has become impaired, pursuant to the
guidelines established in Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of" (SFAS 121). The Company considers
assets to be impaired if the carrying value exceeds the future
projected cash flows from related operations. The Company also
re-evaluates the periods of amortization to determine whether
subsequent events and circumstances warrant revised estimates of useful
lives. As of December 31, 1997, the Company expects these assets to be
fully recoverable.
f. CASH AND CONCENTRATION OF RISKS
For purposes of the statement of cash flows, HIHI considers
all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
F-8
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
f. CASH AND CONCENTRATION OF RISKS (CONTINUED)
Cash includes cash on hand and demand deposits in accounts
maintained with state-owned banks within the People's Republic of
China. All cash in state-owned banks are not covered by insurance. HIHI
has not experienced any losses in such accounts and believes it is not
exposed to any significant risks on cash in bank deposit accounts.
Uninsured balances were approximately $64,669 as of December 31, 1997.
g. FAIR VALUE OF FINANCIAL INSTRUMENTS
HIHI's financial instruments include cash and cash
equivalents, accounts payable and bank loans. Management has estimated
that the carrying amount approximates fair value.
h. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial position of HIHI's companies are determined
using United States dollars as the functional currency. Assets and
liabilities of HIHI's companies are translated at the prevailing
exchange rate in effect at the balance sheet date. Translation
adjustments arising from the use of different exchange rates from
period to period are included in the cumulative translation adjustment
account in stockholders' equity.
i. CAPITALIZED INTEREST
HIHI follows the policy of capitalizing interest as a
component of building construction costs. Total interest costs incurred
for the year ended December 31, 1997 amounted to $3,554,748, which was
entirely capitalized as building construction costs.
j. INCOME TAXES
HIHI adopted Statement of Financial Accountant Standards No.
109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires the
recognition of deferred income tax liabilities and assets for the
expected future tax consequences of temporary differences between
income tax basis and financial reporting basis of assets and
liabilities. Provision for income taxes consist of taxes currently due
plus deferred taxes.
The operations of HAITONG and HOTEL are subject to the income
tax law of People's Republic of China but not subject to the U.S.
income tax except for repatriated dividends. HIHI has tax benefits from
the net operating loss carried
F-9
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
j. INCOME TAXES (CONTINUED)
forward from its delisted shell Power Capital Corporation expiring
through year 2009. The utilization of the loss to offset future income
is limited by law; it is more likely than not that such deferred tax
benefit will not be realized and therefore an valuation allowance of an
equivalent amount is recorded to offset with the deferred tax asset.
The income tax effect of the temporary differences as of December 31,
1998 consisted of the following:
<TABLE>
<S> <C>
Deferred tax asset resulting from deductible
temporary differences for utilization
of net operating loss carryforwards for
income tax purposes $ 115,000
========
Valuation allowance resulting from the potential
non-utilization of net operating loss carry-
forwards for income tax purposes $ (115,000)
========
</TABLE>
No provision for deferred taxes has been made, as there are no
temporary differences at this time.
k. USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Management
believes that the estimates utilized in preparing its financial
statements are reasonable and prudent. Actual results could differ from
these estimates.
2. SHAREHOLDERS' EQUITY
HIHI has the following common shares as of December 31, 1997:
Authorized 50,000,000
Issued and outstanding 7,500,807
Par value $0.02
HIHI was formerly known as Power Capital Corporation (PCC)
which its stock was traded on the Over The Counter (OTC) securities
market under NASDAQ. PCC has been dormant for some years and has been
delisted. However, immediately prior to the acquisition and the
issuance of common shares as described below, PCC has issued and
outstanding common shares of 100,807 shares to various shareholders.
F-10
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SHAREHOLDERS' EQUITY (CONTINUED)
On December 29, 1995, PCC signed an Acquisition Agreement
(Agreement) as amended on January 5, 1996, with Huayang International
Trust (TRUST), a business domiciled in the Isle of Man, whereas the
TRUST would transfer its 95%, 20%, 20% and 20% investments in HAITONG,
HOTEL, GARAGE and BUSINESS CENTER, respectively, to PCC in exchange for
6,000,000 shares of common stock of PCC. HIHI recorded this acquisition
under the purchase method of accounting for a total purchase price of
approximately $17,500,000. On January 5, 1996, 6,000,000 shares were
issued to TRUST. At the date of acquisition, PCC changed its name to
HIHI.
The transfer of ownership in the above entities must be
approved by the government in the People's Republic of China. The
transfers were formally approved in March 1998. The 1997 financial
statements however have reflected the ownership of the investments as
discussed above as taking place at January 5,1996 in accordance with
the Acquisition Agreement.
On January 5, 1996, HIHI issued 1,400,000 shares of common
stock of PCC to certain entities and individuals in exchange for their
consulting services at a value of $28,000.
HHI is also authorized to issue preferred stock with a par
value of $.02. The Board of Directors is authorized to establish the
series, fix and determine the rights, preferences and limitations of
the preferred stock. As of December 31, 1997, there was no preferred
stock issued and outstanding.
3. REAL ESTATE
Real estate consists of the following:
Real estate held for development and sale $ 50,638,116
==========
The real estate is located in Shenyang, the People's Republic
of China. Certain of these properties have been pledged to secure bank
loans granted to HAITONG as more fully described in note 6.
4. INVESTMENT IN HOTEL GROUP
Investment in HOTEL GROUP consists of the following (see note
2 for further discussion of the ownership):
F-11
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVESTMENT IN HOTEL GROUP (CONTINUED)
Share of net assets $ 7,223,453
=========
<TABLE>
<CAPTION>
Place of Ownership Principal
Name incorporation Interest activity
---- ------------- -------- --------
<S> <C> <C> <C>
Changyang International The People's 20% Hotel
Hotel (Shenyang) Co. Ltd. Republic of China operation
(Hotel)
</TABLE>
<TABLE>
<CAPTION>
Place of Ownership Principal
Name incorporation Interest activity
---- ------------- -------- --------
<S> <C> <C> <C>
Changhua (Shenyang) The People's 20% Business
Business Co. Ltd. Republic of China center,
(Business Center) commercial
and
retail
Changyuan (Shenyang) The People's 20% Car parking
Park Co. Ltd. (Garage) Republic of China
</TABLE>
Shown below is summarized financial information relative to
the investments:
<TABLE>
<CAPTION>
BUSINESS
HOTEL CENTER GARAGE
Balance Sheet: ----- -------- ------
<S> <C> <C> <C>
Assets $28,562,357 $20,816,684 $18,248,125
Liabilities 16,532,791 8,794,392 6,182,721
---------- ---------- -------------
Equity 12,029,566 12,022,292 12,065,404
Other Shareholders'
Equity 9,623,653 9,617,834 9,652,322
--------- --------- ---------
HIHI, equity $ 2,405,913 $ 2,404,458 $ 2,413,082
========= ========= =========
</TABLE>
5. DUE FROM/TO RELATED COMPANIES
These amounts represent advances from the related companies to
pay for expenditures. The amounts due from/to related companies are
unsecured, interest-free and there are no fixed terms for repayment.
6. BANK LOANS
The bank loans bear interest ranging from 8.42% to 13.32%
annually and are secured by real estate (see note 3) under development
of HAITONG and a corporate guarantee given by a related company.
F-12
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. BANK LOANS (CONTINUED)
Bank loans consist of the following:
<TABLE>
<S> <C>
Loan from China Construction Bank, due
August 30, 1997, quarterly interest only
payments at 9.50% per annum, guaranteed by a
related company, paid off in 1998 $ 362,336
Loan from China Construction Bank due May
15, 1998, quarterly interest only payments
at 8.42% per annum, unsecured 120,779
Loan from China Construction Bank, due May
20, 1998, quarterly interest only payments
at 8.42% per annum, secured by properties
and guaranteed by a related company 1,207,787
Loan from China Construction Bank, due June
29, 1999, quarterly interest only payments
at 10.30% per annum, secured by properties,
and guaranteed by a related company 1,811,682
Loan from China Construction Bank, due May
19, 1998, interest only payments at 8.42%
per annum, guaranteed by a related company 108,700
Loan from China Construction Bank, due
February 12, 1999, interest only payments at
8.42% per annum, guarantee by a related
company 229,480
Loan from China Construction Bank, due April
15, 1998, interest only payments at 11.09
per annum, guaranteed by a related company 1,811,682
Loan from China Construction Bank, due April
30, 1998, quarterly interest only payments
at 9.50% per annum, guaranteed by a related
company 966,230
Loan from China Construction Bank, due
August 30, 1998, quarterly interest only
payments at 9.50% per annum, guaranteed by a
related company 543,504
Loan from China Merchant Bank, due December
27, 1997, interest only payments at 11.09%
per annum, secured by bills of exchange,
paid off in 1998 271,752
</TABLE>
F-13
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. BANK LOANS (CONTINUED)
<TABLE>
<S> <C>
Loan from China Merchant Bank, due November
23, 1998, interest only payments at 11.09%
per annum, secured by properties 3,502,585
Loan from China Construction Bank, due
December 20, 1998, quarterly interest only
payments at 11.69% per annum, secured by
properties 1,207,787
Loan from China Industrial Bank, due August
1, 1998, quarterly interest only payments at
13.32% per annum, secured by properties 3,623,366
-----------
Total $15,767,670
===========
</TABLE>
Principal repayment requirements of all bank loans based on
existing terms at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING PRINCIPAL
DECEMBER 31 REPAYMENT
----------- ---------
<S> <C>
1998 $ 13,955,988
1999 1,811,682
Thereafter -
</TABLE>
Total interest expense for the year ended December 31, 1997
amounted to $3,554,748.
7. SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131). SFAS No.
131 requires the Company to disclose information used by management to
evaluate its individual business segments. As the Company currently is
engaged in only one business segment, no additional disclosures are
required. The Company's net investment in and the operating results of
its various real estate activities may be derived directly from the
accompanying consolidated financial statements.
8. YEAR 2000
HIHI recognizes the potential implications of the Year 2000
(Y2K) issue on systems that may contain date-related transactions,
data, embedded chips, etc. HIHI is presently on manual system and is in
the process of renovating or
F-14
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. YEAR 2000 (CONTINUED)
replacing, as necessary, the computer applications and business
processes to provide for continued services in the new millennium. HIHI
is also assessing the preparedness of external entities that interface
with HIHI. There can be no assurance that there will not be a material
adverse effect on HIHI if its actions and/or those related third
parties fail to address all significant issues in a timely manner.
The costs of HIHI's Y2K compliance efforts are expensed as
incurred and are being funded with cash flows from operations. At this
time, the costs of these efforts are not expected to have a material
effect to HIHI's financial position or the results of their operations
in any given period.
F-15
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1999 AND 1998
F-16
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1999 AND 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-18
Consolidated Balance Sheets as of December 31, 1999
and 1998 Exhibit A F-19
Consolidated Statements of Income and Comprehensive
Income for the years ended December 31, 1999 and
1998 Exhibit B F-20
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1999 and
1998 Exhibit C F-21
Consolidated Statements of Cash Flows for the years
ended December 31, 1999 and 1998 Exhibit D F-22
Notes to the financial statements F-23-F-34
</TABLE>
F-17
<PAGE>
[LETTERHEAD]
The Board of Directors
Huayang International Holdings, Inc.
and Subsidiary
Independent Auditor's Report
-------------------------------
We have audited the accompanying consolidated balance sheets of Huayang
International Holdings, Inc. and subsidiary as of December 31, 1999 and 1998,
and the related consolidated statements of income and comprehensive income,
changes in shareholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Huayang
International Holdings, Inc. and subsidiary as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/Moore Stephen Frazer and Torbet, LLP
-------------------------------------
Certified Public Accountants
Walnut, California
March 28, 2000
F-18
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY EXHIBIT A
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
----------- -----------
<S> <C> <C>
ASSETS:
Real estate rental property, net of accumulated
depreciation of $444,836 in 1999 and $176,057 in 1998 $31,736,735 $33,841,095
Real estate held for development and sale 6,951,519 10,394,987
Cash 133,909 612,612
Due from related companies 5,162,353 6,723,273
Investment in affiliates 15,614,775 15,615,298
Property and equipment, net of accumulated
depreciation of $492,501 in 1999 and $391,382 in 1998 153,979 230,383
Other assests 162,223 69,516
----------- -----------
Total assets $59,915,493 $67,487,164
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits on real estate sales $ -- $ 3,332,050
Accounts payable and accrued liabilities 3,538,660 6,655,435
Bank loans 17,295,725 21,382,068
Due to related companies 15,030,737 14,844,178
Income taxes payable 1,369,092 1,026,705
Deferred interest income 188,423 --
----------- -----------
Total liabilities 37,422,637 47,240,436
----------- -----------
MINORITY INTEREST 1,023,801 977,031
----------- -----------
SHAREHOLDERS' EQUITY, Exhibit C:
Common Stock, $0.02 par value, authorized 50,000,000
shares, 7,500,807 shares issued and outstanding 150,016 150,016
Paid-in capital 18,296,291 17,346,291
Accumulated other comprehensive income 31,260 33,519
Retained earnings 2,991,488 1,739,871
----------- -----------
Total shareholders' equity 21,469,055 19,269,697
----------- -----------
Total liabilities and shareholders' equity $59,915,493 $67,487,164
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-19
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY EXHIBIT B
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
REVENUES:
Real estate sales $ 5,400,356 $ 15,919,045
Real estate rental income 842,528 196,022
Interest income 597,134 -
------------- -------------
Total revenues 6,822,018 16,115,067
------------- -------------
COSTS AND EXPENSES:
Cost of real estate sold 3,680,697 12,363,532
Real estate operating expenses 247,281 494,741
Depreciation 330,354 140,463
Interest expense 804,751 -
Other operating expenses 34,752 188,918
------------- -------------
Total costs and expenses 5,097,835 13,187,654
------------- -------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 1,724,183 2,927,413
PROVISION FOR INCOME TAXES 425,725 1,051,467
------------- -------------
INCOME BEFORE MINORITY INTEREST 1,298,458 1,875,946
MINORITY INTEREST (46,841) (103,243)
------------- -------------
NET INCOME 1,251,617 1,772,703
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments (2,259) 613
------------- -------------
COMPREHENSIVE INCOME $ 1,249,358 $ 1,773,316
------------- -------------
------------- -------------
NET INCOME PER SHARE (basic) $ 0.17 $ 0.24
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-20
<PAGE>
EXHIBIT C
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
<TABLE>
<CAPTION>
Accumulated
other
Number Common Paid-in Retained comprehen-
of shares stock capital earnings sive income Totals
----------- ------------ -------------- --------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1998 7,500,807 $ 150,016 $ 8,954,892 $ (32,832) $ 32,906 $ 9,104,982
Net income, Exhibit B 1,772,703 1,772,703
Additions to paid in capital 8,391,399 8,391,399
Foreign currency translation adjustments 613 613
----------- ------------ -------------- --------------- ----------- --------------
BALANCE, December 31, 1998 7,500,807 150,016 17,346,291 1,739,871 33,519 19,269,697
Net income, Exhibit B 1,251,617 1,251,617
Additions to paid in capital 950,000 950,000
Foreign currency translation adjustments (2,259) (2,259)
----------- ------------ -------------- --------------- ----------- --------------
BALANCE, December 31, 1999 7,500,807 $ 150,016 $ 18,296,291 $ 2,991,488 $ 31,260 $ 21,469,055
=========== ============ ============== =============== =========== ==============
</TABLE>
The accompanying notes are an integral part of this statement.
F-21
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY EXHIBIT D
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,251,617 $1,772,703
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sales of real estate (1,719,659) (3,555,513)
Net cash proceeds from sales of real estate 5,400,356 15,919,945
Real estate development costs 1,596,181 (6,881,010)
Depreciation 372,037 285,477
(Increase) decrease in other assets (92,707) 688,057
Decrease in accounts payable and accrued liabilities (3,116,775) (11,371,871)
(Decrease) increase in deposits on real estate sales (3,332,050) 3,332,050
Increase in deferred interest income 188,423 --
(Decrease) increase in comprehensive income (2,259) 613
Increase in income taxes payable 342,387 1,026,706
---------- ----------
Net cash provided by operating activities 887,551 1,197,157
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in affiliates 523 (8,391,400)
Purchase of property and equipment (24,683) (40,606)
---------- ----------
Net cash used in investing activities (24,160) (8,432,006)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments to) proceeds from short term bank loans (4,086,343) 5,614,698
Advances from (repayments to) related companies 1,747,479 (7,101,702)
Contributed capital 950,000 8,391,398
Increase in minority interest 46,770 878,224
---------- ----------
Net cash (used in) provided by investing activities (1,342,094) 7,782,618
---------- ----------
NET (DECREASE) INCREASE IN CASH (478,703) 547,769
CASH, beginning of year 612,612 64,843
---------- ----------
CASH, end of year $ 133,909 $ 612,612
========== ==========
SUPPLEMETARY CASH FLOW INFORMATION:
Interest paid (net of interest capitalized of $666,627
in 1999 and $1,963,401 in 1998) 970,322 --
========== ==========
Income taxes paid $ -- $ --
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement
F-22
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. THE REPORTING ENTITY
The financial statements of Huayang International Holdings,
Inc. and Subsidiary (HIHI) reflect the activities and financial
transactions of its subsidiary Shenyang Haitong House Properties
Development Ltd. (HAITONG). HIHI has a 95% ownership interest in
HAITONG. HIHI also has a less than majority ownership interest in three
other companies, Changyang International Hotel (Shenyang) Co. Ltd.
(HOTEL), Changyuan (Shenyang) Park Ltd. (GARAGE) and Changhua
(Shenyang) Business Co. Ltd. (BUSINESS CENTER) collectively referred to
as HOTEL GROUP.
HIHI is incorporated under the laws of the State of Nevada in
the United States. HAITONG, HOTEL, GARAGE and BUSINESS CENTER are
incorporated under the laws of the People's Republic of China (PRC).
b. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of HIHI include its
subsidiary HAITONG. All significant inter-company accounts and
transactions have been eliminated in the consolidation. HIHI accounts
for its investment in HOTEL GROUP under the equity method.
c. NATURE OF OPERATIONS AND CONCENTRATION OF RISK
HAITONG is in the business of developing a mixed-use
(commercial and residential) building in Shenyang City Nanhu Scientific
and Technological Development Zone, Liaoning province, People's
Republic of China. Next to this building is a hotel complex under
development by HOTEL. Both buildings are on top of a podium and a
garage, which are under development by HAITONG, BUSINESS CENTER and
GARAGE.
The real estate market and hospitality industries in the PRC
are affected by various economic and political factors that are beyond
the control of HIHI. The ultimate sales of development properties of
HAITONG, in the opinion of management, will exceed the costs incurred
plus the costs to complete the development.
d. REAL ESTATE HELD FOR DEVELOPMENT AND SALE
Real estate held for development and sale is stated at the
lower of cost or net realizable value. Expenditures for land
development are capitalized and are allocated to development projects
by the specific identification method. Costs are allocated to specific
units based on the ratio of the unit sales price to the estimated total
project sales price times the total project costs.
F-23
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e. REAL ESTATE RENTAL PROPERTY
Real estate rental property is stated at cost. Depreciation
and amortization of real estate rental property is being provided on a
straight-line method over the estimated useful lives of 40 to 50 years
and amounted to $270,918 and $176,319 for the years ending December 31,
1999 and 1998, respectively.
f. PROPERTY AND EQUIPMENT
Land use rights, building, furniture, fixtures, equipment and
automobiles are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets,
which range from 5 to 50 years.
The cost and related accumulated depreciation of assets sold
or otherwise retired are eliminated from the accounts and any gain or
loss is included in the statement of income. The cost of maintenance
and repairs is charged to income as incurred, whereas significant
renewals and betterments are capitalized. Depreciation expense for the
years ended December 31, 1999 and 1998 amounted to $101,119 and
$109,158, respectively.
HIHI acquired land use rights from The People's Republic of
China for a period of fifty years. The cost of the rights have been
capitalized to the real estate development projects and once the
constructed assets are ready for their intended use, the land use
rights are amortized over the remaining useful life.
Long-term assets of the Company are reviewed annually as to
whether their carrying value has become impaired, pursuant to the
guidelines established in Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of" (SFAS 121). The Company considers
assets to be impaired if the carrying value exceeds the future
projected cash flows from related operations. The Company also
re-evaluates the periods of amortization to determine whether
subsequent events and circumstances warrant revised estimates of useful
lives. As of December 31, 1999, the Company expects these assets to be
fully recoverable.
g. CASH AND CONCENTRATION OF RISKS
For purposes of the statement of cash flows, HIHI considers
all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
F-24
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
g. CASH AND CONCENTRATION OF RISKS (CONTINUED)
Cash includes cash on hand and demand deposits in accounts
maintained with state-owned banks within the People's Republic of
China. All cash in state-owned banks are not covered by insurance. HIHI
has not experienced any losses in such accounts and believes it is not
exposed to any significant risks on cash in bank deposit accounts.
Uninsured balances were approximately $78,528 and $611,055 as of
December 31, 1999 and 1998, respectively.
h. FAIR VALUE OF FINANCIAL INSTRUMENTS
HIHI's financial instruments include cash and cash
equivalents, accounts payable and bank loans. Management has estimated
that the carrying amount approximates fair value.
i. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial position and results of operations of HIHI's
companies are determined using United States dollars as the functional
currency. Assets and liabilities of HIHI's companies are translated at
the prevailing exchange rate in effect at the balance sheet date.
Revenues and expenses are translated at an average of exchange rate in
effect during the year. Translation adjustments arising from the use of
different exchange rates from period to period are included in the
cumulative translation adjustment account in stockholders' equity.
Gains and losses on foreign exchange transactions are included in
statement of income except for the transactions attributable to the
development of the project, which are included in the development
costs.
j. REVENUE RECOGNITION
Real estate sales are reported in accordance with the
provisions of Statement of Financial Accounting Standards No. 66.
Profit from the sales of development properties, less 5% business tax,
is recognized by the full accrual method when the sale is consummated.
A sale is not considered consummated until (a) the parties are bound by
the terms of a contract, (b) all consideration has been exchanged, (c)
any permanent financing of which the seller is responsible has been
arranged (d) all conditions precedent to closing have been performed
(e) the seller does not have substantial continuing involvement with
the property, and (f) the usual risks and rewards of ownership have
been transferred to the buyer. Sales transactions not meeting all the
conditions of the full accrual method are accounted for using the
deposit method of accounting. Under the deposit method, all costs are
capitalized as incurred, and payments received from the buyer are
recorded as a deposit liability.
F-25
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
j. REVENUE RECOGNITION (CONTINUED)
Real estate rental income, less 5% business tax, is recognized
on the straight-line basis over the terms of the tenancy agreements.
k. EARNINGS PER SHARE
HIHI adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" (SFAS 128). SFAS 128 requires the
presentation of earnings per share (EPS) as Basic EPS and Diluted EPS.
There are no differences at December 31, 1999 and 1998.
l. CAPITALIZED INTEREST
HIHI follows the policy of capitalizing interest as a
component of building construction costs. Total interest expense
incurred for the years ended December 31, 1999 and 1998 amounted to
$804,751 and $1,963,401, respectively. Total interest expense
capitalized as part of the construction costs for the years ended
December 31, 1999 and 1998 amounted to $666,627 and $1,963,401,
respectively.
m. INCOME TAXES
HIHI adopted Statement of Financial Accountant Standards No.
109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires the
recognition of deferred income tax liabilities and assets for the
expected future tax consequences of temporary differences between
income tax basis and financial reporting basis of assets and
liabilities. Provision for income taxes consist of taxes currently due
plus deferred taxes.
The operations of HAITONG and HOTEL are subject to the income
tax laws of the People's Republic of China but not subject to the U.S.
income tax except for repatriated dividends.
Under the Sino-U.S. bilateral tax treaty, the Chinese
government is allowed to withhold tax on interest from HOTEL to HIHI
with a maximum withholding rate not to exceed 10.00%. A credit is then
allowed for income tax paid to China by a resident or citizen of the
United States. A provision of $105,000 has been included in the
provision for Chinese Income Taxes for the year ending December 31,
1999 with a corresponding credit of $105,000 used to offset current
income tax provision for the United States.
F-26
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
m. INCOME TAXES (CONTINUED)
HIHI had tax benefits from the net operating loss carried
forwards that expired through the year 2013. The utilization of the
loss to offset future income is limited by law; in prior years
management believed that more than likely that such deferred tax
benefit would not be realized and therefore a valuation allowance of an
equivalent amount was recorded to offset the deferred tax asset. The
income tax effect of the temporary differences as of December 31, 1998
consisted of the following:
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Deferred tax asset resulting from deductible
temporary differences for
utilization of net operating loss
carry forwards for income tax
purposes $ 362,000
========
Valuation allowance resulting from the
potential non-utilization of net
operating loss carry forwards for
income tax purposes $(362,000)
========
</TABLE>
However during the current year the Company has generated
sufficient income to utilize the net operating loss carryovers and the
foreign tax credit that is available. The provision for United States
Income Taxes has been made at the prevailing rates as prescribed by the
Internal Revenue Code. No provision for deferred taxes has been
provided, as there are no temporary differences as of December 31,
1999.
Provision for China Income Tax has been made at the prevailing
rate of taxation of 33% on the estimated assessable profit for the
period after utilization of losses brought forward from previous year.
Provision for China Real Estate Tax has been made at the prevailing
rate of taxation of 12% on the rental income for the period. The
provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Provision for United States Income Tax $117,000 $ - 0 -
Provision for China Income Tax 204,575 1,026,706
Provision for China Real Estate Tax 104,150 24,761
------- ------
Total $425,725 $1,051,467
======= =========
</TABLE>
F-27
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
n. USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Management
believes that the estimates utilized in preparing its financial
statements are reasonable and prudent. Actual results could differ from
these estimates.
O. NEW AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standards Board (SFAS) has issued
SFAS No. 133, "Accounting for Derivative and Hedging Activities." This
new accounting standard does not have any impact on the Company's
financial statements.
P. RECLASSIFICATIONS
Certain amounts in the 1998 financial statements have been
reclassified to conform to the 1999 presentation. These
reclassifications have no effect on net income or shareholders' equity.
2. SHAREHOLDERS' EQUITY
HIHI has the following common shares as of December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Authorized 50,000,000 50,000,000
Issued and outstanding 7,500,807 7,500,807
Par value $0.02 $0.02
</TABLE>
HIHI was formerly known as Power Capital Corporation (PCC)
which its stock was traded on the Over The Counter (OTC) securities
market under NASDAQ. PCC has been dormant for some years and has been
delisted. However, immediately prior to the acquisition and the
issuance of common shares as described below, PCC has issued and
outstanding common shares of 100,807 shares to various shareholders.
On December 29, 1995, PCC signed an Acquisition Agreement
(Agreement) as amended on January 5, 1996, with Huayang International
Trust (TRUST), a business domiciled in the Isle of Man, whereas the
TRUST would sell its 95%, 20%, 20% and 20% investments in HAITONG,
HOTEL, GARAGE and BUSINESS CENTER, respectively, to PCC in exchange for
6,000,000 shares of
F-28
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SHAREHOLDERS' EQUITY, CONTINUED
common stock of PCC. HIHI recorded this acquisition under the purchase
method of accounting for a total purchase price of approximately
$17,500,000. On January 5, 1996, 6,000,000 shares were issued to TRUST.
At the date of acquisition, PCC changed its name to HIHI.
On January 5, 1996, HIHI issued 1,400,000 shares of common
stock of PCC to certain entities and individuals in exchange for their
consulting services at a value of $28,000.
HHI is also authorized to issue preferred stock with a par
value of $.02. The Board of Directors is authorized to establish the
series, fix and determine the rights, preferences and limitations of
the preferred stock. As of December 31, 1999 and 1998, there were no
preferred stocks issued and outstanding, respectively.
3. REAL ESTATE
As of December 31, 1999 and 1998, real estate consists of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Real estate rental property, net $31,736,735 $33,841,095
Real estate held for development and sale
6,951,519 10,394,987
--------- ----------
Total $38,688,254 $44,236,082
========== ==========
</TABLE>
The real estate is located in Shenyang, the People's Republic
of China. Certain of these properties have been pledged to secure bank
loans granted to HAITONG as more fully described in note 6.
4. INVESTMENT IN AFFILIATES
Investment in which the Company owns a 20% interest are
accounted for using the equity method. These investments collectively
referred to as HOTEL GROUP consists of the following as of December 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Share of net assets $ 7,223,375 $ 7,223,898
Advances made 8,391,400 8,391,400
--------- ---------
Total $15,614,775 $15,615,298
========== ==========
</TABLE>
F-29
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVESTMENT IN AFFILIATES (CONTINUED)
<TABLE>
<CAPTION>
Place of Ownership Principal
Name incorporation Interest activity
---- ----------------- --------- ---------
<S> <C> <C> <C>
Changyang International The People's 20% Hotel
Hotel (Shenyang) Co. Ltd. Republic of China operation
(Hotel)
Changhua (Shenyang) The People's 20% Business
Business Co. Ltd. Republic of China center,
(Business Center) commercial and
retail
Changyuan (Shenyang) The People's 20% Car parking
Park Co. Ltd. Republic of China
(Garage)
</TABLE>
Shown below is summarized financial information relative to
the investments at December 31, 1999 and 1998:
DECEMBER 31, 1999
<TABLE>
<CAPTION>
BUSINESS
HOTEL CENTER GARAGE
----- -------- ---------
<S> <C> <C> <C>
Balance Sheet:
Assets $52,857,416 $30,703,805 $20,969,801
Liabilities 40,786,508 18,671,388 8,901,216
---------- ---------- ---------
Equity 12,070,908 12,032,417 12,068,585
Other Shareholders'
Equity
9,665,130 9,627,930 9,655,475
--------- --------- ---------
HIHI, equity $ 2,405,778 $ 2,404,487 $ 2,413,110
=========== =========== ===========
</TABLE>
DECEMBER 31, 1998
<TABLE>
<CAPTION>
BUSINESS
HOTEL CENTER GARAGE
----- -------- ---------
<S> <C> <C> <C>
Balance Sheet:
Assets $44,380,490 $25,787,693 $18,749,055
Liabilities 32,349,906 13,764,385 6,682,631
---------- ---------- ---------
Equity 12,030,584 12,023,308 12,066,424
Other Shareholders'
Equity
9,624,467 9,618,729 9,653,222
--------- --------- ---------
HIHI, equity $ 2,406,117 $ 2,404,579 $ 2,413,202
=========== =========== ===========
</TABLE>
F-30
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVESTMENT IN AFFILIATES (CONTINUED)
As of December 31, 1999, interest income has been accrued on
advances made to the Hotel Group; interest receivable amounted to
$1,046,796 as compared to $340,304 in 1998. Interest is being accrued
at the annual rate of 9.00% and is payable once the Hotel opens for
operations. In 1998, HIHI fully reserved the $340,304 as the Hotel was
still under construction and the date of the Hotel opening was still
uncertain. As of December 31, 1999, the Hotel is scheduled to be opened
by June, 2000. Management evaluates their reserve throughout the year
and management believes the interest receivable will be collectable
within the next year. In 1999 interest has been recognized as income
and the 1998 reserve has been reduced to $100,000 as of December 31,
1999.
In accordance with Accounting Principles Board Opinion No. 18,
"The Equity Method of Accounting for Investments in Common Stock", 20%
of the interest income earned on these advances has been deferred until
paid. Total deferred interest income, net of applicable Chinese taxes,
amounted to $188,423 as of December 31, 1999.
5. DUE FROM/TO RELATED COMPANIES
HIHI is conducting business with a related company in which
HIHI's president and majority shareholder has a direct and indirect
ownership interest. The related company purchases building materials
for various projects. In addition, the company has been handling
property rental and sales activities for HAITONG. As of December 31,
1999 and 1998, the amount due from the related company amounted to
$5,517,840 and $1,366,447, respectively.
HIHI has entered into an agreement in 1997 with a related
company to advance funds in the form of purchased materials. The
agreement states that HIHI can postpone principal payments for three
years. If no principal payments have been made starting September,
2000, the related company has the option to convert the debt up to the
principal amount of the debt to stock in HIHI. As of December 31, 1999
and 1998 the total amount of debt under this agreement amounted to
$14,787,763.
HAITONG has entered into an agreement with a property
management company owned by HIHI's majority shareholder to manage and
maintain one of the buildings, podiums and garages (see note 1c).
6. BANK LOANS
The bank loans bear interest ranging from 6.44% to 9.51%
annually and are secured by real estate (see note 3) owned by HAITONG
and a corporate guarantee given by a related company.
F-31
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. BANK LOANS (CONTINUED)
As of December 31, 1999 and 1998, bank loans consist of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Loan from China Construction Bank, due
November 24, 2000, quarterly
interest only payments at 7.03% per
annum, secured by properties and
guaranteed by HAITONG $4,927,834 $5,000,664
Loanfrom China Construction Bank due
December 28, 2000, quarterly
interest only payments at 7.62% per
annum, secured by properties and
guaranteed by HAITONG 1,811,704 1,811,835
Loan from China Construction Bank, due
December 8, 2000, quarterly
interest only payments at 6.44% per
annum, secured by properties and
guaranteed by HAITONG 205,326 219,835
Loan from China Merchant Bank, due October
15, 2000, quarterly interest only
payments at 6.44% per annum,
secured by properties, and
guaranteed by HAITONG 2,294,825 $2,294,990
Loan from China Merchant Bank, due April 23,
2000, interest only payments at
6.53% per annum, secured by
properties, and guaranteed by
HAITONG 809,222 845,522
Loan from China Agricultural Bank, due
September 9, 2000, interest only
payments At 9.51% per annum,
secured by properties, and
corporate guarantee o f a related
company - 1,207,890
Loan from China Agricultural Bank, due
December 21, 1999, interest only
payments at 9.51% per annum,
secured by properties, and
corporate guarantee of a related
company - 1,811,835
</TABLE>
F-32
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. BANK LOANS (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Loan from China Industrial Bank, due
September 3, 2000, quarterly
interest only payments at 6.93% per
annum, secured by properties, and
guaranteed by HAITONG 3,623,407 3,623,670
Loan from China Construction Bank, due
December 6, 2000, quarterly
interest only payments at 7.11% per
annum, secured by properties, and
guaranteed by HAITONG 3,623,407 3,623,670
Loan from China Construction Bank, due April
30, 1999, interest only payments at
6.93% per annum, secured by bills
of exchange and corporate guarantee
of a related company - 362,370
Loan from China Merchant Bank, due January
14, 1999, interest only payments at
7.23% per annum, secured by bills
of exchange and corporate guarantee
of a related company - 579,787
---------- ----------
Total $17,295,725 $21,382,068
========== ==========
</TABLE>
Principal repayment requirements of all bank loans based on
existing terms at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING PRINCIPAL
DECEMBER 31 REPAYMENT
----------- ---------
<S> <C>
2000 $ 17,295,725
Thereafter -
</TABLE>
Total interest expense for the years ended December 31, 1999
and 1998 including related company debts amounted to $2,135,650 and
$1,963,401, respectively.
F-33
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131). SFAS No.
131 requires the Company to disclose information used by management to
evaluate its individual business segments. As the Company currently is
engaged in only one business segment, no additional disclosures are
required. The Company's net investment in and the operating results of
its various real estate activities may be derived directly from the
accompanying consolidated financial statements.
8. YEAR 2000
HIHI recognizes the potential implications of the Year 2000
(Y2K) issue on systems that may contain date-related transactions,
data, embedded chips, etc. HIHI is presently on manual system and is in
the process of renovating or replacing, as necessary, the computer
applications and business processes to provide for continued services
in the new millennium. HIHI is also assessing the preparedness of
external entities that interface with HIHI. There can be no assurance
that there will not be a material adverse effect on HIHI if its actions
and/or those related third parties fail to address all significant
issues in a timely manner.
The costs of HIHI's Y2K compliance efforts are expensed as
incurred and are being funded with cash flows from operations. At this
time, the costs of these efforts are not expected to have a material
effect to HIHI's financial position or the results of their operations
in any given period.
9. RENTAL INCOME
The Company receives rental income from leasing retail, office
and residential building space under operating leases. Future minimum
rentals, under non-cancelable operating leases to be received over the
next five years net of 5% business tax as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
----------- ------
<S> <C>
2000 $ 928,853
2001 239,054
2002 51,407
2003 16,102
2004 8,606
</TABLE>
F-34
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
MARCH 31, 2000 AND 1999
F-35
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Accountants' Review Report F-37
Consolidated Balance Sheets as of March 31, 2000
and 1999 Exhibit A F-38
Consolidated Statements of Income and Comprehensive
Income for the three months ended March 31, 2000 and
1999 Exhibit B F-39
Consolidated Statements of Changes in Shareholders'
Equity for the three months ended March 31, 2000 and
1999 Exhibit C F-40
Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 and 1999 Exhibit D F-41
Notes to consolidated financial statements F-42-F-53
</TABLE>
F-36
<PAGE>
[LETTERHEAD]
The Board of Directors
Huayang International Holdings, Inc.
and Subsidiary
Independent Accountant's Report
-------------------------------
We have reviewed the consolidated balance sheets of Huayang
International Holdings, Inc. and subsidiary as of March 31, 2000 and 1999
and the related consolidated statements of income and comprehensive income,
changes in shareholders' equity and cash flows for the three months then
ended. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the aforementioned financial statements for them to be in
conformity with generally accepted accounting principles.
/s/Moore Stephen Frazer and Torbet, LLP
-------------------------------------
Certified Public Accountants
Walnut, California
May 30, 2000
F-37
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY EXHIBIT A
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
ASSETS
2000 1999
----------- -----------
<S> <C> <C>
ASSETS:
Real estate rental property, net of accumulated
depreciation of $514,622 in 2000 and $243,716 in 1999 $31,743,980 $33,504,112
Real estate held for development and sale 6,289,941 9,263,984
Cash 255,771 11,763
Due from related companies 1,011,242 204,749
Investment in affiliates 15,615,385 15,615,124
Property and equipment, net of accumulated
depreciation of $499,367 in 2000 and $464,424 in 1999 157,170 162,240
Other assests 172,909 100,823
----------- -----------
Total assets $55,216,398 $60,862,795
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued liabilities 3,323,634 15,105,056
Bank loans 17,298,560 20,688,406
Due to related companies 10,086,997 2,225,457
Income taxes payable 1,517,422 1,259,424
Defferred interest income 255,278 31,793
----------- -----------
Total liabilities 32,451,891 39,310,136
----------- -----------
MINORITY INTEREST 1,035,878 986,245
----------- -----------
SHAREHOLDERS' EQUITY, Exhibit C:
Common Stock, $0.02 par value, authorized 50,000,000
shares, 7,500,807 shares issued and outstanding 150,016 150,016
Paid-in capital 18,296,291 17,346,291
Accumulated other comprehensive income 35,143 35,523
Retained earnings 3,247,179 2,084,584
----------- -----------
Total shareholders' equity 21,728,629 20,566,414
----------- -----------
Total liabilities and shareholders' equity $55,216,398 $60,862,795
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-38
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY EXHIBIT B
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
REVENUES:
Real estate sales $1,012,496 $1,526,245
Real estate rental income 298,092 257,853
Interest income 163,800 169,424
---------- ----------
Total revenues 1,474,388 1,953,522
---------- ----------
COSTS AND EXPENSES:
Cost of real estate sold 662,718 1,129,800
Real estate operating expenses 20,890 29,005
Depreciation 65,684 89,158
Interest expense 165,713 --
Other operating expenses 110,000 84,879
---------- ----------
Total costs and expenses 1,025,005 1,332,842
---------- ----------
INCOME BEFORE INCOME TAXES AND MINORITY INEREST 449,383 620,680
PROVISION FOR INCOME TAXES 181,701 261,895
---------- ----------
INCOME BEFORE MINORITY INTEREST 267,682 358,785
MINORITY INTEREST (11,991) (14,072)
---------- ----------
NET INCOME 255,691 344,713
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments 3,883 2,004
---------- ----------
COMPREHENSIVE INCOME $ 259,574 $ 346,717
========== ==========
NET INCOME PER SHARE (basic) $ 0.03 $ 0.05
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-39
<PAGE>
EXHIBIT C
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
----------------------------------------------
<TABLE>
<CAPTION>
Accumulated
other
Number Common Paid-in Retained comprehen-
of shares stock capital earnings sive income Totals
----------- ------------ -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 2000 7,500,807 $ 150,016 $ 18,296,291 $ 2,991,488 $ 31,206 $ 21,469,055
Net income, Exhibit B 255,691 255,691
Foreign currency translation adjustments 3,883 3,883
----------- ------------ -------------- -------------- ------------ --------------
BALANCE, March 31, 2000 7,500,807 $ 150,016 $ 18,296,291 $ 3,247,179 $ 35,143 $ 21,728,629
=========== ============ ============== ============== ============= ==============
BALANCE, January 1, 1999 7,500,807 $ 150,016 $ 17,346,291 $ 1,739,871 $ 33,519 $ 19,269,697
Net income, Exhibit B 344,713 344,713
Additions to paid in capital 950,000 950,000
Foreign currency translation adjustments 2,004 2,004
----------- ------------ -------------- -------------- ------------- --------------
BALANCE, March 31, 1999 7,500,807 $ 150,016 $ 18,296,291 $ 2,084,584 $ 35,523 $ 20,566,414
=========== ============ ============== ============== ============= ==============
</TABLE>
The accompanying notes are an integral part of this statement.
F-40
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY EXHIBIT D
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 255,691 $ 344,713
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sales of real estate (349,778) (396,445)
Net cash proceeds from sales of real estate 1,012,496 1,526,245
Real estate development costs (67,471) (1,729,127)
Depreciation 65,684 140,744
Increase in other assets (10,686) (31,307)
(Decrease) increase in accounts payable and accrued liabilities (215,027) 8,449,621
Decrease in deposits on real estate sales -- (3,332,050)
Increase in deferred interest income 36,855 31,793
Increase in comprehensive income 3,883 2,004
Increase in income taxes payable 148,330 232,719
---------- ----------
Net cash provided by operating activities 879,977 5,238,910
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in affiliates (261) (174)
Purchase of equipment (10,138) (4,940)
---------- ----------
Net cash used in investing activities (10,399) (5,114)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments to) short term bank loans 2,835 (693,662)
Repayments to related companies (792,628) (6,100,197)
Contributed capital -- 950,000
Increase in minority interest 12,077 9,214
---------- ----------
Net cash used in investing activities (777,716) (5,834,645)
---------- ----------
NET INCREASE (DECREASE) IN CASH 91,862 (600,849)
CASH, beginning of the period 133,909 612,612
---------- ----------
CASH, end of the period $ 225,771 $ 11,763
========== ==========
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid (net of interest capitalized of $136,727 and $217,900
for the three months ended March 31, 2000, and 1999, respectively) 174,044 282,755
========== ==========
Income taxes paid $ -- $ --
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-41
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. THE REPORTING ENTITY
The financial statements of Huayang International Holdings,
Inc. and Subsidiary (HIHI) reflect the activities and financial
transactions of its subsidiary Shenyang Haitong House Properties
Development Ltd. (HAITONG). HIHI has a 95% ownership interest in
HAITONG. HIHI also has a less than majority ownership interest in three
other companies, Changyang International Hotel (Shenyang) Co. Ltd.
(HOTEL), Changyuan (Shenyang) Park Ltd. (GARAGE) and Changhua
(Shenyang) Business Co. Ltd. (BUSINESS CENTER) collectively referred to
as HOTEL GROUP.
HIHI is incorporated under the laws of the State of Nevada in
the United States. HAITONG, HOTEL, GARAGE and BUSINESS CENTER are
incorporated under the laws of the People's Republic of China (PRC).
b. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of HIHI include its
subsidiary HAITONG. All significant inter-company accounts and
transactions have been eliminated in the consolidation. HIHI accounts
for its investment in HOTEL GROUP under the equity method.
c. NATURE OF OPERATIONS AND CONCENTRATION OF RISK
HAITONG is in the business of developing a mixed-use
(commercial and residential) building in Shenyang City Nanhu Scientific
and Technological Development Zone, Liaoning province, People's
Republic of China. Next to this building is a hotel complex under
development by HOTEL. Both buildings are on top of a podium and a
garage, which are under development by HAITONG, BUSINESS CENTER and
GARAGE.
The real estate market and hospitality industries in the PRC
are affected by various economic and political factors that are beyond
the control of HIHI. The ultimate sales of development properties of
HAITONG, in the opinion of management, will exceed the costs incurred
plus the costs to complete the development.
d. REAL ESTATE HELD FOR DEVELOPMENT AND SALE
Real estate held for development and sale is stated at the
lower of cost or net realizable value. Expenditures for land
development are capitalized and are allocated to development projects
by the specific identification method. Costs are allocated to specific
units based on the ratio of the unit sales price to the estimated total
project sales price times the total project costs.
F-42
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e. REAL ESTATE RENTAL PROPERTY
Real estate rental property is stated at cost. Depreciation
and amortization of real estate rental property is being provided on a
straight-line method over the estimated useful lives of 40 to 50 years
and amounted to $58,818 and $58,818 for the three months ending March
31, 2000 and 1999, respectively.
f. PROPERTY AND EQUIPMENT
Land use rights, building, furniture, fixtures, equipment and
automobiles are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets,
which range from 5 to 50 years.
The cost and related accumulated depreciation of assets sold
or otherwise retired are eliminated from the accounts and any gain or
loss is included in the statement of income. The cost of maintenance
and repairs is charged to income as incurred, whereas significant
renewals and betterments are capitalized. Depreciation expense for the
three months ended March 31, 2000 and 1999 amounted to $6,865 and
$30,345, respectively.
HIHI acquired land use rights from The People's Republic of
China for a period of fifty years. The costs of the rights have been
capitalized to the real estate development projects and once the
constructed assets are ready for their intended use, the land use
rights are amortized over the remaining useful life.
Long-term assets of the Company are reviewed annually as to
whether their carrying value has become impaired, pursuant to the
guidelines established in Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of" (SFAS 121). The Company considers
assets to be impaired if the carrying value exceeds the future
projected cash flows from related operations. The Company also
re-evaluates the periods of amortization to determine whether
subsequent events and circumstances warrant revised estimates of useful
lives. As of March 31, 2000, the Company expects these assets to be
fully recoverable.
g. CASH AND CONCENTRATION OF RISKS
For purposes of the statement of cash flows, HIHI considers
all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
F-43
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
g. CASH AND CONCENTRATION OF RISKS (CONTINUED)
Cash includes cash on hand and demand deposits in accounts
maintained with state-owned banks within the People's Republic of
China. All cash in state-owned banks are not covered by insurance. HIHI
has not experienced any losses in such accounts and believes it is not
exposed to any significant risks on cash in bank deposit accounts.
Uninsured balances were approximately $200,100 and $2,770 as of March
31, 2000 and 1999, respectively.
h. FAIR VALUE OF FINANCIAL INSTRUMENTS
HIHI's financial instruments include cash and cash
equivalents, accounts payable and bank loans. Management has estimated
that the carrying amount approximates fair value.
i. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial position and results of operations of HIHI's
companies are determined using United States dollars as the functional
currency. Assets and liabilities of HIHI's companies are translated at
the prevailing exchange rate in effect at the balance sheet date.
Revenues and expenses are translated at an average of exchange rate in
effect during the period. Translation adjustments arising from the use
of different exchange rates from period to period are included in the
cumulative translation adjustment account in stockholders' equity.
Gains and losses on foreign exchange transactions are included in
statement of income except for the transactions attributable to the
development of the project, which are included in the development
costs.
j. REVENUE RECOGNITION
Real estate sales are reported in accordance with the
provisions of Statement of Financial Accounting Standards No. 66.
Profit from the sales of development properties, less 5% business tax,
is recognized by the full accrual method when the sale is consummated.
A sale is not considered consummated until (a) the parties are bound by
the terms of a contract, (b) all consideration has been exchanged, (c)
any permanent financing of which the seller is responsible has been
arranged (d) all conditions precedent to closing have been performed
(e) the seller does not have substantial continuing involvement with
the property, and (f) the usual risks and rewards of ownership have
been transferred to the buyer. Sales transactions not meeting all the
conditions of the full accrual method are accounted for using the
deposit method of accounting. Under the deposit method, all costs are
capitalized as incurred, and payments received from the buyer are
recorded as a deposit liability.
F-44
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
j. REVENUE RECOGNITION (CONTINUED)
Real estate rental income, less 5% business tax, is recognized
on the straight-line basis over the terms of the tenancy agreements.
k. EARNINGS PER SHARE
HIHI adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" (SFAS 128). SFAS 128 requires the
presentation of earnings per share (EPS) as Basic EPS and Diluted EPS.
There are no differences at March 31, 2000 and 1999.
l. CAPITALIZED INTEREST
HIHI follows the policy of capitalizing interest as a
component of building construction costs. Total interest expense
incurred for the three months ended March 31, 2000 and 1999 amounted to
$302,675 and $398,402, respectively. Total interest expense capitalized
as part of the construction costs for the three months ended March 31,
2000 and 1999 amounted to $136,727 and $217,900, respectively.
m. INCOME TAXES
HIHI adopted Statement of Financial Accountant Standards No.
109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires the
recognition of deferred income tax liabilities and assets for the
expected future tax consequences of temporary differences between
income tax basis and financial reporting basis of assets and
liabilities. Provision for income taxes consist of taxes currently due
plus deferred taxes.
The operations of HAITONG and HOTEL are subject to the income
tax laws of the People's Republic of China but not subject to the U.S.
income tax except for repatriated dividends.
Under the Sino-U.S. bilateral tax treaty, the Chinese
government is allowed to withhold tax on interest from HOTEL to HIHI
with a maximum withholding rate not to exceed 10.00%. A credit is then
allowed for income tax paid to China by a resident or citizen of the
United States. A provision of $20,475 has been included in the
provision for Chinese Income Taxes for the period ending March 31, 2000
and 1999 with a corresponding credit of $20,475 used to offset the
current income tax provision for the United States.
F-45
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
m. INCOME TAXES (CONTINUED)
HIHI had tax benefits from net operating loss carried forwards
that expired through the year 2013 in the amount of $362,000. In the year ended
December 31, 1999 the entire net operating loss carried forwards were used to
offset a portion of the 1999 income tax provision. Accordingly the United States
tax provision for the three months ended March 31, 1999 reflects the utilization
of the net operating loss and the foreign tax credit. The provision for United
States Income Taxes has been made at the prevailing rates as prescribed by the
Internal Revenue Code. No provision for deferred taxes has been provided, as
there are no temporary differences as of March 31, 2000 and 1999.
Provision for China Income Tax has been made at the prevailing
rate of taxation of 33% on the estimated assessable profit for the period after
utilization of losses brought forward from previous year. Provision for China
Real Estate Tax has been made at the prevailing rate of taxation of 12% on the
rental income for the period. The provision for income taxes consisted of the
following:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Provision for United States Income Tax $ 9,550 $ 43,217
Provision for China Income Tax 134,497 186,107
Provision for China Real Estate Tax 37,654 32,571
-------- ------
Total $ 181,701 $ 261,895
======= =======
</TABLE>
n. USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Management
believes that the estimates utilized in preparing its financial
statements are reasonable and prudent. Actual results could differ from
these estimates.
O. NEW AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standards Board (SFAS) has issued
SFAS No. 133, "Accounting for Derivative and Hedging Activities." This
new accounting standard does not have any impact on the Company's
financial statements.
F-46
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SHAREHOLDERS' EQUITY
HIHI has the following common shares as of March 31, 2000 and
1999:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Authorized 50,000,000 50,000,000
Issued and outstanding 7,500,807 7,500,807
Par value $0.02 $0.02
</TABLE>
HIHI was formerly known as Power Capital Corporation (PCC)
which its stock was traded on the Over The Counter (OTC) securities
market under NASDAQ. PCC has been dormant for some years and has been
delisted. However, immediately prior to the acquisition and the
issuance of common shares as described below, PCC has issued and
outstanding common shares of 100,807 shares to various shareholders.
On December 29, 1995, PCC signed an Acquisition Agreement
(Agreement) as amended on January 5, 1996, with Huayang International
Trust (TRUST), a business domiciled in the Isle of Man, whereas the
TRUST would sell its 95%, 20%, 20% and 20% investments in HAITONG,
HOTEL, GARAGE and BUSINESS CENTER, respectively, to PCC in exchange for
6,000,000 shares of common stock of PCC. HIHI recorded this acquisition
under the purchase method of accounting for a total purchase price of
approximately $17,500,000. On January 5, 1996, 6,000,000 shares were
issued to TRUST. At the date of acquisition, PCC changed its name to
HIHI.
On January 5, 1996, HIHI issued 1,400,000 shares of common
stock of PCC to certain entities and individuals in exchange for their
consulting services at a value of $28,000.
HHI is also authorized to issue preferred stock with a par
value of $.02. The Board of Directors is authorized to establish the
series, fix and determine the rights, preferences and limitations of
the preferred stock. As of March 31, 2000 and 1999, there were no
preferred stocks issued and outstanding, respectively.
3. REAL ESTATE
As of March 31, 2000 and 1999, real estate consists of the
following:
<TABLE>
<CAPTION>
2000 1999
---------- ---------
<S> <C> <C>
Real estate rental property, net $31,743,980 $35,504,112
Real estate held for development and sale 6,289,941 9,263,984
---------- ---------
Total $38,033,921 $44,768,096
========== ==========
</TABLE>
F-47
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. REAL ESTATE (CONTINUED)
The real estate is located in Shenyang, the People's Republic
of China. Certain of these properties have been pledged to secure bank
loans granted to HAITONG as more fully described in note 6.
4. INVESTMENT IN AFFILIATES
Investments in which the Company owns a 20% interest are
accounted for using the equity method. These investments collectively
referred to as HOTEL GROUP consists of the following as of March 31:
<TABLE>
<CAPTION>
2000 1999
---------- ---------
<S> <C> <C>
Share of net assets $7,223,985 $7,223,724
Advances made 8,391,400 8,391,400
--------- ---------
Total $15,615,385 $15,615,124
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Place of Ownership Principal
Name incorporation Interest activity
---- ------------------- --------- ------------
<S> <C> <C> <C>
Changyang International The People's 20% Hotel
Hotel (Shenyang) Co. Ltd. Republic of China operation
(Hotel)
Changhua (Shenyang) The People's 20% Business
Business Co. Ltd. Republic of China center,
(Business Center) commercial and
retail
Changhua (Shenyang) The People's 20% Business
Business Co. Ltd. Republic of China center,
(Business Center) commercial and
retail
Changyuan (Shenyang) The People's 20% Car parking
Park Co. Ltd. Republic of China
(Garage)
</TABLE>
F-48
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVESTMENT IN AFFILIATES (CONTINUED)
Shown below is summarized financial information relative to
the investments at March 31, 2000 and 1999:
MARCH 31, 2000
<TABLE>
<CAPTION>
BUSINESS
HOTEL CENTER GARAGE
---------- ---------- ---------
<S> <C> <C> <C>
Balance Sheet:
Assets $55,983,874 $30,708,631 $21,348,460
Liabilities 43,911,782 18,675,197 9,278,855
---------- ---------- ---------
Equity 12,072,092 12,033,434 12,069,605
Other Shareholders'
Equity 9,665,946 9,628,826 9,656,374
--------- --------- ---------
HIHI, equity $ 2,406,146 $ 2,404,608 $ 2,413,231
=========== =========== ===========
</TABLE>
MARCH 31, 1999
<TABLE>
<CAPTION>
BUSINESS
HOTEL CENTER GARAGE
---------- ---------- ---------
<S> <C> <C> <C>
Balance Sheet:
Assets $54,984,993 $25,787,044 $18,748,287
Liabilities 42,914,651 13,755,354 6,680,431
---------- ---------- ---------
Equity 12,070,342 12,031,690 12,067,856
Other Shareholders'
Equity 9,664,283 9,627,169 9,654,712
--------- --------- ---------
HIHI, equity $ 2,406,059 $ 2,404,521 $ 2,413,144
=========== =========== ===========
</TABLE>
As of March 31, 2000 and 1999, interest income has been accrued on
advances made to the Hotel Group; interest receivable amounted to
$1,251,545 and $545,053, respectively. Interest is being accrued at the
annual rate of 9.00% and is payable once the Hotel opens for
operations. In 1998, HIHI fully reserved balance of $340,304 as the
Hotel was still under construction and the date of the Hotel opening
was still uncertain. As of March 31, 2000, the Hotel is scheduled to be
opened by June, 2000. Management evaluates their reserve throughout the
year and management believes the interest receivable will be
collectable within the next year. As of March 31, 2000 and 1999, the
reserve amounted to $100,000
F-49
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVESTMENT IN AFFILIATES (CONTINUED)
In accordance with Accounting Principles Board Opinion No. 18,
"The Equity Method of Accounting for Investments in Common Stock", 20%
of the interest income earned on these advances has been deferred until
paid. Total deferred interest income, net of applicable Chinese taxes,
amounted to $225,278 and $31,793 as of March 31, 2000 and 1999,
respectively.
5. DUE FROM/TO RELATED COMPANIES
HIHI is conducting business with a related company in which
HIHI's president and majority shareholder has a direct and indirect
ownership interest. The related company purchases building materials
for various projects. In addition, the company has been handling
property rental and sales activities for HAITONG. As of March 31, 2000
and 1999, the amount due from the related company amounted to
$1,011,242 and $204,749, respectively.
HIHI has entered into an agreement in 1997 with a related
company to advance funds in the form of purchased materials. The
agreement states that HIHI can postpone principal payments for three
years. If no principal payments have been made starting September 2000,
the related company has the option to convert the debt up to the
principal amount of the debt to stock in HIHI. As of March 31, 2000 and
1999, the total amount of debt under this agreement amounted to
$14,787,763.
HAITONG has entered into an agreement with a property
management company owned by HIHI's majority shareholder to manage and
maintain one of the buildings, podiums and garages (see note 1c).
6. BANK LOANS
The bank loans bear interest ranging from 6.44% to 9.51%
annually and are secured by real estate (see note 3) owned by HAITONG
and a corporate guarantee given by a related company.
As of March 31, 2000 and 1999, bank loans consist of the
following:
F-50
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. BANK LOANS (CONTINUED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Loan from China Construction Bank, due
November 24, 2000, quarterly
interest only payments at 7.03% per
annum, secured by properties and
guaranteed by HAITONG $4,928,640 $4,928,250
Loan from China Construction Bank due
December 28, 2000, quarterly
interest only payments at 7.62% per
annum, secured by properties and
guaranteed by HAITONG 1,812,000 1,811,835
Loan from China Construction Bank, due
December 8, 2000, quarterly
interest only payments at 6.44% per
annum, secured by properties and
guaranteed by HAITONG 205,360 205,344
Loan from China Merchant Bank, due October
15, 2000, quarterly interest only
payments at 6.44% per annum,
secured by properties, and
guaranteed by HAITONG 2,295,200 $2,294,990
Loan from China Merchant Bank, due April 23,
2000, interest only payments at
6.53% per annum, secured by
properties, and guaranteed by
HAITONG 809,360 821,364
Loan from China Agricultural Bank, due
September 9, 2000, interest only
payments At 9.51% per annum,
secured by properties, and
corporate guarantee of a related
company - 1,207,890
Loan from China Agricultural Bank, due
December 21, 1999, interest only
payments at 9.51% per annum,
secured by properties, and
corporate guarantee of a related
company - 1,811,835
</TABLE>
F-51
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. BANK LOANS (CONTINUED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Loan from China Industrial Bank, due
September 3, 2000, quarterly
interest only payments at 6.93% per
annum, secured by properties, and
guaranteed by HAITONG 3,624,000 3,622,264
Loan from China Construction Bank, due
December 6, 2000, quarterly
interest only payments at 7.11% per
annum, secured by properties, and
guaranteed by HAITONG 3,624,000 3,622,264
Loanfrom China Construction Bank, due April
30, 1999, interest only payments at
6.93% per annum, secured by bills
of exchange and corporate guarantee
of a related company - 362,370
---------- ----------
Total $17,298,560 $20,688,406
========== ==========
</TABLE>
Principal repayment requirements of all bank loans based on
existing terms at December 31, 2000 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING PRINCIPAL
DECEMBER 31 REPAYMENT
----------- ---------
<S> <C>
2000 $ 17,298,560
Thereafter -
</TABLE>
Total interest expense for the three months ended March 31,
2000 and 1999 including related company debts amounted to $302,675 and
$398,402, respectively.
7. SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131). SFAS No.
131 requires the Company to disclose information used by management to
evaluate its individual business segments. As the Company currently is
engaged in only one business
F-52
<PAGE>
HUAYANG INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. SEGMENT REPORTING (CONTINUED)
segment, no additional disclosures are required. The Company's net
investment in and the operating results of its various real estate
activities may be derived directly from the accompanying consolidated
financial statements.
8. YEAR 2000
HIHI recognizes the potential implications of the Year 2000
(Y2K) issue on systems that may contain date-related transactions,
data, embedded chips, etc. HIHI is presently on manual system and is in
the process of renovating or replacing, as necessary, the computer
applications and business processes to provide for continued services
in the new millennium. HIHI is also assessing the preparedness of
external entities that interface with HIHI. There can be no assurance
that there will not be a material adverse effect on HIHI if its actions
and/or those related third parties fail to address all significant
issues in a timely manner.
The costs of HIHI's Y2K compliance efforts are expensed as
incurred and are being funded with cash flows from operations. At this
time, the costs of these efforts are not expected to have a material
effect to HIHI's financial position or the results of their operations
in any given period.
9. RENTAL INCOME
The Company receives rental income from leasing retail, office
and residential building space under operating leases. Future minimum
rentals, under non-cancelable operating leases to be received over the
next five years net of 5% business tax as of December 31, 2000 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
----------- ------
<S> <C>
2000 $ 928,853
2001 239,054
2002 51,407
2003 16,102
2004 8,606
</TABLE>
F-53
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
(10) Materials Contracts
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
<S> <C>
(99)(1) Management Contract between Shenyang Haitong House Properties
Development Ltd. and Huayang Real Estate Management (Shenyang)
Co. Ltd.
(99)(2) Huayang International Building Office Lease Agreement
(99)(3) Labour Contract
(99)(4) Comprehensive Policy of Property Insurance Policy No. 00001714
(99)(5) Loan Contract of RMB of the Construction Bank of China between
Shenyang Haitong House Properties Development Co. Ltd. and the
Construction Bank of China, the Construction Subbranch
(99)(6) China Construction Bank (Loan) Mortgage Contract between
Shenyang Haitong House Properties Development Co. Ltd. and
City Construction Subbranch of China Construction Bank
(99)(7) Loan Contract between Merchant's Bank Shenyang Branch and
Shenyang Haitong House Properties Development Co. Ltd.
(99)(8) Loan Contract of RMB of the Construction Bank of China
between Shenyang Haitong House Properties Development Co.
Ltd. and the Construction Bank of China, Zhongsan Branch
(99)(9) China Construction Bank (Loan) Mortgage Contact between
Shenyang Haitong House Properties Development Co. Ltd. and
Zhongshan Subbranch of China Construction Bank
</TABLE>
------------------
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
DATE: July 2, 2000 Huayang International Holdings, Inc.
By: /s/ Gao WanJun
--------------
Name: Gao WanJun
Title: President
Pursuant to the requirements of the Section 12 of the Securities and
Exchange Act of 1934, as amended, this registration statement has been signed
below by the following persons in the capacities indicated on the 2nd day of
July, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Gao WanJun Chairman of the Board of Directors,
-------------------- Chief Executive Officer and President
Name: Gao WanJun
/s/ Wang YuFei
-------------------- Secretary and Director
Name: Wang YuFei
/s/ Wang XiaoLuan Vice President, Chief Financial
-------------------- Officer and Director
Name: Wang XiaoLuan
</TABLE>
26
