<PAGE>
--------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------------
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K FOR REPORT DATED
SEPTEMBER 10, 1996 AND SEPTEMBER 11, 1996
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
--------------------------------------------
REGAL INTERNATIONAL, INC.
---------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
-----------------------------------------------
(State or other jurisdiction of incorporation)
1-8334 75-1071589
- ------------------ ---------------
(Commission File Number) (IRS Employer Identification No.)
52/F Bank of China Tower, 1 Garden Road, Hong Kong
- --------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 011-852-2514-0300
<PAGE>
The Registrant has previously filed its Current Reports on Form 8-K, dated
September 10, 1996 and September 11, 1996, respectively, without certain
financial information required by Item 7 of such Forms 8-K. The Registrant
hereby amends the Current Reports on Form 8-K to file such financial
information. Item 7, subparagraphs (a) and (b) of the Reports dated
September 10, 1996 and September 11, 1996, are hereby amended to read
as follows:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
- ------------------------------------------------------------------------------
(a) The Consolidated Financial Statements of Westronix Limited and
Subsidiaries as of December 31, 1994 and 1995.
Westronix Limited and its Subsidiaries.
Report of Arthur Andersen, Independent Public Accountants.
Consolidated Statements of Income for the period from June 23, 1993 to
December 31, 1993 and for the years ended December 31, 1994 and 1995
(audited) and for the six months ended June 30, 1995 and 1996 (unaudited).
Consolidated Balance Sheets as of December 31, 1994, 1995 (audited) and as
of June 30, 1996 (unaudited)
Consolidated Statements of Cash Flows for the period from June 23, 1993 to
December 31, 1993 and for the years ended December 31, 1994 and 1995
(audited) and for the six months ended June 30, 1995 and 1996 (unaudited).
Consolidated Statement of Changes in Shareholders' Equity for the period
from June 23, 1993 to December 31, 1993 and for the years ended December
31, 1994 and 1995 (audited) and for the six months ended June 30, 1996
(unaudited).
Notes to Consolidated Financial Statements.
(b) The Unaudited Pro Forma Consolidated Financial Statements of Regal
International, Inc. as of December 31, 1995 and June 30, 1996.
Introduction to Unaudited Pro Forma Consolidated Financial Statements
Unaudited Pro Forma Consolidated Statement of Income for the year ended
December 31, 1995 and June 30, 1996.
2
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1995 and
June 30, 1996.
Notes to Unaudited Pro Forma Consolidated Financial Statements.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December 2, 1996 REGAL INTERNATIONAL, INC.
By:
-----------------------
Chung Cho Yee, Mico
President
4
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December 2, 1996 REGAL INTERNATIONAL, INC.
By: /s/ Chung Cho Yee, Mico
-----------------------
Chung Cho Yee, Mico
President
5
<PAGE>
WESTRONIX LIMITED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------
AS OF DECEMBER 31, 1994 AND 1995
-------------------------------
TOGETHER WITH AUDITORS'REPORTS
-------------------------------
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Westronix Limited:
We have audited the accompanying consolidated balance sheets of Westronix
Limited (incorporated in the British Virgin Islands) and its subsidiaries
as of December 31, 1994 and 1995, and the related consolidated statements
of income, cash flows and changes in shareholders' equity for the period
from June 23, 1993 to December 31, 1993 and the years ended December 31,
1994 and 1995, expressed in Chinese Renminbi. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the 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 financial statements referred above
present fairly, in all material respects, the financial position of
Westronix Limited and its subsidiaries as of December 31, 1994 and 1995,
and the results of their operations and their cash flows for the period
from June 23, 1993 to December 31, 1993 and the years ended December 31,
1994 and 1995 in conformity with generally accepted accounting principles
in the United States of America.
Hong Kong,
November 5, 1996.
1
<PAGE>
<TABLE>
WESTRONIX LIMITED AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE PERIOD FROM JUNE 23, 1993 TO DECEMBER 31, 1993 AND
----------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 (AUDITED) AND
------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30,1995 AND 1996 (UNAUDITED)
----------------------------------------------------------
(Amounts in thousands)
<CAPTION>
Period from
June 23,1993
to Year ended December 31, Period ended June 30,
December 31,
------------- ---------------------------- ----------------------------
1993 1994 1995 1995 1995 1996 1996
------------- -------- -------- -------- -------- -------- --------
Rmb Rmb Rmb US$ Rmb Rmb US$
(unaudited)(unaudited)(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Toll revenue 10,462 37,614 37,206 4,472 19,635 18,410 2,213
General and administrative
expenses (2,687) (9,615) (10,517) (1,264) (5,165) (5,020) (603)
Exchange gain 378 3,494 1,417 170 1,417 37 4
------------- -------- -------- -------- --------- --------- -------
Income before income
taxes and minority
interests 8,153 31,493 28,106 3,378 15,887 13,427 1,614
Provision for income taxes - - - - - - -
------------- -------- -------- -------- -------- -------- --------
Income before minority
interests 8,153 31,493 28,106 3,378 15,887 13,427 1,614
Minority interests (3,817) (13,776) (13,087) (1,573) (7,095) (6,566) (789)
------------- -------- -------- -------- -------- --------- --------
Net income 4,336 17,717 15,019 1,805 8,792 6,861 825
============= ======== ======== ======== ======== ========= =========
</TABLE>
Translation of amounts from Renminbi (Rmb) into United States Dollars (US$)
for the convenience of the reader has been made at the unified exchange
rate quoted by the Bank of China on June 30, 1996 of US$1.00 = Rmb8.32. No
representation is made that the Renminbi amounts could have been, or could
be, converted into United States Dollars at that rate on December 31, 1995
and June 30, 1996 or at any other certain rate.
The accompanying notes are an integral part of these consolidated
statements of income.
2
<PAGE>
<TABLE>
WESTRONIX LIMITED AND SUBSIDIARIES
----------------------------------
CONSOLIDATED BALANCE SHEETS AS OF
----------------------------------
DECEMBER 31, 1994, 1995 (AUDITED) AND
-------------------------------------
AS OF JUNE 30, 1996 (UNAUDITED)
-------------------------------
(Amounts in thousands, except number of shares and share data)
<CAPTION>
December 31, June 30,
--------------------------------------------------------------
1994 1995 1995 1996 1996
---------- ---------- ---------- ---------- ----------
Rmb Rmb US$ Rmb US$
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
Current assets
Cash and cash equivalents 71,015 22,172 2,665 7,613 915
Prepayments and deferred expenses 598 452 54 1,258 151
Other receivables and
other current assets 60 300 36 247 30
---------- ---------- ---------- ---------- ----------
Total current assets 71,673 22,924 2,755 9,118 1,096
---------- ---------- ---------- ---------- ----------
Prepayments for
construction-in-progress 28,807 29,789 3,580 17,894 2,151
Property, plant and equipment, net 179,883 350,861 42,171 422,352 50,763
---------- ---------- ---------- ---------- ----------
Total assets 280,363 403,574 48,506 449,364 54,010
========== ========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
- -----------------------------
Current liabilities
Short-term bank loans 8,000 - - 10,000 1,202
Accounts payable 840 21,195 2,547 16,879 2,029
Accrued expenses and
other payables 4,832 10,191 1,225 3,909 468
Taxes other than income 115 107 13 101 12
Due to related companies 2,500 1,300 180 - -
---------- ---------- ---------- ---------- ----------
Total current liabilities 16,287 32,993 3,965 30,889 3,711
---------- ---------- ---------- ---------- ----------
Long-term bank loans 28,000 97,500 11,719 127,500 15,325
Due to Chinese joint
venture partner - 10,500 1,262 15,000 1,803
Due to China Strategic
Holdings Limited 98,441 96,940 11,639 96,806 11,635
Minority interests 115,594 128,691 15,466 135,248 16,256
Commitments and contingency (Notes 6 & 13)
Shareholders' equity:
Common stock, par value
US$1 each; 50,000
shares authorized;
1 share outstanding 1 1 1 1 1
Retained earnings 22,040 37,059 4,454 43,920 5,279
---------- ---------- ---------- ---------- ----------
Total shareholders' equity 22,041 37,060 4,455 43,921 5,280
---------- ---------- ---------- ---------- ----------
Total liabilities and
shareholders' equity 280,363 403,574 48,506 449,364 54,010
========== ========== ========== ========== ==========
</TABLE>
Translation of amounts from Renminbi (Rmb) into United States Dollars (US$)
for the convenience of the reader has been made at the unified exchange
rate quoted by the Bank of China on June 30, 1996 of US$1.00 = Rmb8.32. No
representation is made that the Renminbi amounts could have been, or could
be, converted into United States Dollars at that rate on December 31, 1995
and June 30, 1996 or at any other certain rate.
The accompanying notes are an integral part of these consolidated
balance sheets.
3
<PAGE>
<TABLE>
WESTRONIX LIMITED AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------
FOR THE PERIOD FROM JUNE 23, 1993 TO DECEMBER 31, 1993 AND
----------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 (AUDITED) AND
------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
-----------------------------------------------------------
(Amounts in thousands)
<CAPTION>
Period from
June 23,1993
to
December 3l, Year ended December 31, Period ended June 30,
----------- ------------------------------ ------------------------------
1993 1994 1995 1995 1995 1996 1996
----------- ---------- ---------- ---------- ---------- ---------- ----------
Rmb Rmb Rmb US$ Rmb Rmb US$
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income 4,336 17,717 15,019 1,805 8,792 6,861 825
Adjustments to reconcile
net income to net cash
provided by operating
activites:
Minority interests 3,817 13,776 13,087 1,573 7,095 6,566 789
Depreciation and
amortization 963 3,847 4,173 502 2,160 2,102 253
Loss on disposal of
fixed assets - - 19 2 - - -
(Increase) decrease in
assets:
Prepayments and
deferred expenses (581) (42) 91 11 (90) (843) (101)
Other receivables and
other current assets (1,816) 1,755 (239) (29) (208) 53 6
Increase (decrease:) in
liabilities:
Accounts payable - 840 20,355 2,447 3,536 (4,316) (519)
Accrued expenses and
other payables 205 1,649 (3,526) (424) 787 (8,874) (1,067)
Taxes other than
income 98 17 (9) (1) (23) (5) (1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net cash provided by
operating activities 7,022 39,559 48,970 5,886 22,049 1,544 185
----------- ---------- ---------- ---------- ---------- ---------- ----------
Cash flows from investing
activities:
Prepayments for
construction-in-
progress (567) (28,240) (982) (118) (6,302) 11,895 1,430
----------- ----------- ---------- --------- ---------- ---------- ----------
Acquisition of property,
plant and equipment (39,569) (41,681) (166,230) (19,980) (43,550) (70,964) (8,530)
----------- ----------- ---------- --------- ---------- ---------- ----------
Net cash used in investing
activities (40,136) (69,921) (167,212) (20,098) (49,852) (59,069) (7,100)
----------- ----------- ---------- --------- ---------- ---------- ----------
</TABLE>
4
<PAGE>
<TABLE>
WESTRONIX LIMITED AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE PERIOD FROM JUNE 23, 1993 TO DECEMBER 31, 1993 AND
----------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 (AUDITED) AND
-------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
------------------------------------------------------------
(Amounts in thousands)
<CAPTION>
Period from
June 23, 1996
to Year ended December 31, Period ended June 30,
December 31,
---------------------------------------------------------------------------------------
1993 1994 1995 1995 1995 1996 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
Rmb Rmb Rmb US$ Rmb Rmb US$
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from financing
activities:
Proceeds of bank loans 10,000 35,500 114,945 13,816 9,000 40,000 4,808
Repayment of bank loans - (9,500) (33,445) (6,424) (8,000) - -
Due to related companies - 2,500 (1,000) (120) (2,500) (1,500) (180)
Due to Chinese joint
venture partner 23,748 (23,748) 10,500 1,262 5,500 4,500 541
Due to China Strategic
Holdings Limited (373) 68,252 (1,601) (192) (1,414) (34) (4)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net cash provided by
financing activities 33,375 73,004 69,399 8,342 2,586 42,966 5,165
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
cash and cash equivalents 261 42,642 (48,843) (5,870) (25,217) (14,559) (1,750)
Cash and cash equivalents, at
beginning of period/year 28,112 28,373 71,015 8,535 71,015 22,172 2,665
---------- ---------- ---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, at
end of period/year 28,373 71,015 22,172 2,665 45,798 7,613 915
========== ========== ========== ========== ========== ========== ==========
</TABLE>
Translation of amounts from Renminbi (Rmb) into United States Dollars
(US$) for the convenience of the reader has been made at the unified
exchange rate quoted by the Bank of China on June 30, 1996 of US$1.00 =
Rmb8.32. No representation is made that the Renminbi amounts could have
been, or could be, converted into United States Dollars at that rate on
December 31, 1995 and June 30, 1996 or at any other certain rate.
The accompanying notes are an integral part of these consolidated
statements of cash flows.
5
<PAGE>
WESTRONIX LIMITED AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
FOR THE PERIOD FROM JUNE 23, 1993 TO DECEMBER 31, 1993 AND
----------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 (AUDITED) AND
-------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
-----------------------------------------------------------
(Amounts in thousands, except number of shares)
Shares of
Common Common Retained
Stock Stock Earnings Total
-------- -------- -------- --------
Number Rmb Rmb Rmb
Balance at June 23, 1993 1 1 (13) (12)
Net income - - 4,336 4,336
-------- -------- -------- --------
Balance at December 31, 1993 1 1 4,323 4,324
-------- -------- -------- --------
Net income - - 17,717 17,717
-------- -------- -------- --------
Balance at December 31, 1994 1 1 22,040 22,041
-------- -------- -------- --------
Net income - - 15,019 15,019
-------- -------- -------- --------
Balance at December 31, 1995 1 1 37,059 37,060
Net income (unaudited) - - 6,861 6,861
-------- -------- -------- --------
Balance at June 30,1996
(unaudited) 1 1 43,920 43,921
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated
statements of changes in shareholders equity.
6
<PAGE>
WESTRONIX LIMITED AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Amounts in thousands, except number of shares,
per share data and unless otherwise stated)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
- --------------------------------------------
Westronix Limited ("the Company") was incorporated in the British Virgin
Islands on July 3, 1996 with an authorized share capital of 50,000 common
shares with a par value of US$1 each. One share was issued at par value
to China Strategic Holdings Limited ("CSH") (formerly known as China
Strategic Investment Limited), a company incorporated in Hong Kong whose
shares are listed on the Stock Exchange of Hong Kong.
The Company is a holding company established to hold a 100% interest in
China Construction International Group Limited ("CCIG" - formally known as
China Construction International Limited and Cassia Taste Limited), a
company incorporated in Hong Kong. CCIG, in turn, holds a 51% interest in
Hangzhou Zhongche Huantong Development Co., Ltd. (the "Operating
Subsidiary" or "Hangzhou toll road"). The Company's interest in Hangzhou
toll road was transferred from CSH pursuant to a shareholders' resolution
dated August 28, 1996.
Hangzhou toll road is a Sino-foreign equity joint venture enterprise
established on June 23, 1993, which formally began business operation in
September 1993 in the City of Hangzhou, Zhejiang Province in the People's
Republic of China (the "PRC"). The total cash consideration paid by CCIG
for its interest in Hangzhou toll road amounted to Rmb102,000 at the date
of acquisition. Tolls collected from the existing portion of the toll
road ("the first phase"), which was injected by the Chinese joint venture
partner, Hangzhou City Transportation Development Company, and cash
injected by CSH will be used to finance the construction of second and
third phases of the toll road (the "CIP Projects") which are expected to
be completed by the end of fiscal year 1997. Hangzhou toll road will
collect toll from all three phases of the toll road after the CIP Projects
are completed.
Key provisions of the joint venture agreement of Hangzhou toll road
include:
the joint venture period is 30 years from the date of formation;
the profit and loss sharing ratio is the same as the percentage of
equity interest; and
the Board of Directors consists of 7 members: 4 designated by CCIG and 3
designated by Hangzhou City Transportation Development Company, the
Chinese joint venture partner of Hangzhou toll road.
7
<PAGE>
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Cont'd)
- -------------------------------------------------
The acquisition of the Operating Subsidiary by CCIG was accounted for by
the purchase method of accounting. The tangible assets were valued at
their estimated fair value. The results of the Operating Subsidiary are
included in the consolidated statements of income from the effective date
of the joint venture, June 23, 1993. No revenue was generated from the
toll road before the formation of the joint venture.
The transfer of CSH's interest in CCIG to the Company was accounted for as
a reorganization of companies under common control and similar to a pooling
of interests. The accompanying consolidated financial statements of the
Company have been restated to present the transfer of CSH's interest in
CCIG to the Company as if it had occurred on June 23, 1993.
Hangzhou toll road operates in the PRC and accordingly is subject to
special considerations and significant risks not typically associated with
investments in equity securities of United States and Western European
companies. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange.
These are described further in the following paragraphs:
Political Environment
The value of the Company's interests in the Operating Subsidiary may be
adversely affected by changes in policies by the Chinese government
including, among others: changes in laws, regulations or the interpretation
thereof; confiscatory taxation; restrictions on foreign currency
conversion, imports or sources of suppliers; or the expropriation or
nationalization of private enterprises.
Economic Environment
The economy of the PRC differs significantly from the economies of the
United States and Western Europe in such respects as structure, level of
development, gross national product, growth rate, capital reinvestment,
resource allocation, self-sufficiency, rate of inflation and balance of
payments position, among others. Only recently has the Chinese government
encouraged substantial private economic activities.
The Chinese economy has experienced significant growth in the past five
years, but such growth has been uneven among various sectors of the
economy and geographic regions. Actions by the Chinese central government
to control inflation have significantly restrained economic expansion
recently. Similar actions by the central government of the PRC in the
future could have a significant adverse effect on economic conditions in
the PRC and the economic prospects for the Operating Subsidiary and the
Company.
8
<PAGE>
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Cont'd)
- ---------------------------------------------------
Foreign Currency Exchange
The Chinese central government imposes control over its foreign currency
reserves through control over imports and through direct regulation of the
conversion of its national currency into foreign currencies. As a result,
the Renminbi is not freely convertible into foreign currencies.
The Operating Subsidiary conducts substantially all of its business in the
PRC, and its financial performance and condition are measured in terms of
Renminbi. The Operating Subsidiary's source of income, toll revenue, is
denominated in Renminbi. Revenues and profits have to be converted to
United States Dollars or Hong Kong Dollars to pay dividends to the
Company. Should the Renminbi devalue against the United States Dollar,
such devaluation would have a material adverse effect on the Company's
profits measured in foreign currency and reduce the foreign currency that
could be repatriated by the Operating Subsidiary to the Company. The
Company currently is not able to hedge its Renminbi - United States
Dollars exchange rate exposure in the PRC because neither the banks in the
PRC nor any other financial institution authorized to engage in foreign
exchange transactions offer forward exchange contracts.
Legal System
Since 1979, many laws and regulations dealing with economic matters in
general and foreign investment in particular have been enacted in the PRC.
However, the PRC still does not have a comprehensive system of laws and
enforcement of existing laws may be uncertain and sporadic.
Toll Revenue
Any increase in toll rates proposed by the Operating Subsidiary is subject
to approval by the Hangzhou Municipal Government and Hangzhou City
Transportation Department. However, there are no assurances that such
proposal will be approved by these government authorities. If such
approvals proposals are denied, profit margins of the operating subsidiary
will be reduced.
9
<PAGE>
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements were prepared in
accordance with generally accepted accounting principles in the United
States of America ("U.S. GAAP"). This basis of accounting differs from
that used in the statutory financial statements of the Operating
Subsidiary, which were prepared in accordance with the accounting
principles and the relevant financial regulations applicable to joint
venture enterprises as established by the Ministry of Finance of China
("PRC GAAP").
The principal adjustments made to conform the statutory financial
statements of the Operating Subsidiary to U.S. GAAP included the following:
Restatement of monetary assets and liabilites denominated in foreign
currencies to reflect the exchange rates prevailing at the balance
sheet dates; and
Recognition of toll revenue on the accrual basis and upon the
commencement of operations.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------
a. Basis of Consolidation
----------------------
The consolidated financial statements include the financial statements of
the Company and its majority-owned subsidiaries. All material intercompany
balances and transactions have been eliminated on consolidation.
b. Toll revenue
------------
Toll revenue represents the gross receipts at the toll stations, net of
business tax calculated at 3.0% of the gross toll receipts.
10
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- --------------------------------------------------------
c. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash on hand, demand deposits with banks
and liquid investments with an original maturity of one year or less. Cash
and cash equivalents included United States Dollar deposits of US$8,280
(Rmb69,733), US$1,078 (Rmb8,967) and US$128 (Rmbl,071) (unaudited) as of
December 31, 1993, 1994, 1995 and June 30, 1996 respectively. Deposits of
US$700 (Rmb5,824) as of December 31, 1995 were used to guarantee bank loans
of a related company.
d. Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation of property, plant and equipment is computed
using the straight line method over the assets' estimated useful lives,
taking into account the estimated residual value of 10% (except for roads
and bridges which have no residual value) of the cost of the assets. The
estimated useful lives are as follows:
Roads and bridges 30 years
Buildings 20 years
Machinery and equipment 5 years
Motor vehicles 5 years
Furniture, fixtures and office equipment 5 years
Construction-in-progress ("CIP" see Note 4) represents new roads and
bridges under construction and plant and machinery pending installation.
This includes the costs of construction, the costs of plant and machinery
and interest charges (net of interest income), arising from borrowings used
to finance these assets during the period of construction or installation.
Interest capitalized amounted to Rmb1,752, Rmb6,778, Rmb2,566 (unaudited)
and Rmb9,148 (unaudited) respectively for the period ended December 31,
1993 and for the years/periods ended December 31, 1994, 1995 and June 30,
1996 respectively.
11
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- --------------------------------------------------------
e. Taxation: Income Taxes
----------------------
The Company was incorporated under the laws of the British Virgin Islands,
and under current British Virgin Islands law, the Company is not subject to
tax on income or on capital gains.
The Company and its subsidiaries provide for Hong Kong profits tax on the
basis of its income for financial reporting purposes, adjusted for income
and expense items which are not assessable or deductible for profits tax
purposes. The Company and its subsidiaries has had no profits assessable
for Hong Kong profits tax purposes.
Hangzhou toll road is subject to Chinese income taxes at the applicable tax
rate for Sino-foreign equity joint venture enterprises (currently 33%) on
the taxable income as reported in its statutory accounts adjusted in
accordance with the relevant income tax laws. Since it has a joint
venture term of not less than 10 years and is engaged in infrastructure
construction, Hangzhou toll road will be fully exempt from Chinese state
unified income tax of 30% as well as the local income tax of 3% for two
years starting from the first profit-making year followed by a 50%
reduction of the Chinese state unified income tax for the next three years
("tax holiday").
If the Operating Subsidiary had not been in the tax holiday period, the
Company would have recorded additional income tax expense of Rmb3,236,
Rmb10,000, Rmb9,901, Rmb5,322 (unaudited) and Rmb4,966 (unaudited) and net
income of the Company would have been reduced by Rmb1,651, Rmb,5,100,
Rmb5,050, Rmb2,714 and Rmb2,533 (unaudited) for the period/years ended
December 31, 1993, 1994, 1995 and for the six months ended June 30, 1996
respectively (See Note 13).
The Company provides for deferred income taxes using the liability method,
by which deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities. The tax consequences of those differences are classified as
current or non-current based upon the classification of the related assets
or liabilities in the financial statements.
12
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- --------------------------------------------------------
f. Taxation: Business Tax
----------------------
Prior to December 31, 1993, the Operating Subsidiary was subject to
Consolidated Industrial and Commercial Tax ("CICT") at a rate of 3.03% on
the gross toll revenue.
In December 1993, the Chinese government promulgated several major new tax
regulations which came into effect on January 1, 1994. These new tax
regulations replaced a number of former tax laws and regulations including
the Consolidated Industrial and Commercial Tax. Under these new tax
regulations, the Operating Subsidiary is subject to business tax which
replaced the CICT and is now the principal direct tax on the toll revenue
generated. The business tax rate applicable to the Operating Subsidiary is
3.0%.
g. Foreign Currency Translation
----------------------------
The Operating Subsidiary maintains its books and records in Renminbi.
Foreign currency transactions are translated into Renminbi at the
applicable unified rates of exchange or the applicable rates of exchange
quoted by the applicable foreign exchange adjustment center ("swap
center"), prevailing at the dates of the transactions. Monetary assets and
liabilities denominated in foreign currencies are translated into Renminbi
using the applicable unified rates of exchange or the applicable swap
center rates prevailing at the balance sheet dates. The resulting exchange
differences are included in the determination of income.
The Company's registered capital and reporting currency are denominated in
United States Dollars. For financial reporting purposes, the United States
Dollars capital injection amounts have been translated into Renminbi at the
swap centre rates prevailing at the capital injection date.
The Renminbi is not freely convertible into foreign currencies. All
foreign exchange transactions involving Renminbi must take place either
through the Bank of China or other institutions authorized to buy and sell
foreign currencies or at a swap center. Before January 1, 1994, the
exchange rates used for transactions through the Bank of China and other
authorized institutions were set by the government (the "official exchange
rate") from time to time whereas the exchange rates available at the swap
centers (the "swap center rates") were determined largely by supply and
demand. The Chinese government announced the unification of the two-tier
exchange rate systems in December 1993 effective January 1, 1994. The
unification brought the official exchange rate of the Renminbi in line with
the swap center rate. The unification did not have a major impact on the
consolidated financial statements of the Company under U.S. GAAP.
13
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTINC POLICIES (Cont'd)
- --------------------------------------------------------
g. Foreign Currency Translation (Cont'd)
--------------------------------------
Sino-foreign equity joint venture enterprises can enter into exchange
transactions at swap centers. Payment for imported materials and
remittance of earnings outside of the PRC are subject to the availability
of foreign currency which is dependent on the foreign currency denominated
earnings of the entity or must be arranged through a swap center or
designated foreign exchange banks. Approval for exchange at the swap
center is granted to joint venture enterprises for valid reasons such as
the purchase of imported materials and remittance of earnings.
The official exchange rates, unified exchange rates and Shanghai swap
center rates as of December 31, 1993, December 31, 1994 and December 31,
1995 were as follows:
December 31,
----------------------------------------
1993 1994 1995
------------ ------------ ------------
Rmb equivalents of US$1
Official exchange rate 5.80 N/A N/A
Unified exchange rate N/A 8.44 8.32
Shanghai swap center rate 8.70 8.44 8.32
h. Dedicated Capital
-----------------
In accordance with the relevant laws and regulations for Sino-foreign
equity joint venture enterprises, the Operating Subsidiary maintains
discretionary dedicated capital, which includes a general reserve fund, an
enterprise expansion fund and a staff welfare and incentive bonus fund.
The Board of Directors of the Operating Subsidiary will determine on an
annual basis the amount of the annual appropriations to dedicated capital.
For the period from June 23, 1993 to June 30, 1996, the Operating
Subsidiary did not report any profits in the statutory financial
statements, and accordingly, no appropriation to dedicated capital has been
made.
14
<PAGE>
4. PROPERTY, PLANT AND EQUIPMENT
- -----------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
------------------------------------
1994 1995 1996
---------- ---------- ----------
Rmb Rmb Rmb
(unaudited)
<S> <C> <C> <C>
Roads and bridges 108,372 109,020 112,216
Buildings 146 148 148
Machinery and equipment 370 475 529
Motor vehicles 2,121 2,121 2,162
Furniture, fixtures and office equipment 36 38 38
Construction-in-progress 73,365 247,346 317,435
Less: Accumulated depreciation (4,527) (8,287) (10,176)
---------- ---------- ----------
Net book value 179,883 350,861 422,352
========== ========== ==========
</TABLE>
5. LONG-TERM BANK LOANS
- ---------------------------
Long-term bank loans, all of which were unsecured, bear average interest
rates of approximately 14.87% as of December 31, 1995, December 31, 1994 -
13.86%, and June 30, 1996 - 14.54% (unaudited) and are repayable as
follows:
December 31, June 30,
1995 1996
------------- ------------
Rmb Rmb
(Unaudited)
1997 58,000 58,000
1998 20,000 25,000
1999 19,500 39,500
2001 - 5,000
------------- ------------
Total 97,500 127,500
============= ============
All the long-term bank loans are denominated in Renminbi. Loans amounting
to Rmb19,500 and Rmb49,500 (unaudited) as of December 31, 1995 and June
30, 1996 respectively, are guaranteed by a related company.
6. COMMITMENTS
- ------------------
As of December 31, 1995, the Operating Subsidiary had outstanding capital
commitments for construction contracts contracted for its CIP projects
amounting to approximately Rmb228,270.
15
<PAGE>
7. DISTRIBUTION OF PROFIT
- ----------------------------
Dividends from the Operating Subsidiary will be declared based on the
profits as reported in the statutory financial statements. Such profits
will be different from the amounts reported under U.S. GAAP. As of
December 31, 1995, and June 30, 1996 (unaudited), the Operating Subsidiary
had no available retained earnings for distribution.
8. RELATED PARTY TRANSACTIONS AND ARRANGEMENTS
- -------------------------------------------------
The Operating Subsidiary guaranteed bank borrowings of a related
company of CSH of Rmbl0,000, and Rmb5l,000 (unaudited), as of December
31, 1995 and June 30,1996 respectively.
9. DUE TO CHINESE JOINT VENTURE PARTNER
- ------------------------------------------
The amounts due to Chinese joint venture partner as at December 31, 1993
represented the excess of the book value of the net assets contributed
by the Chinese joint venture partner upon the formation of the
Operating Subsidiary over its share of the registered capital of the
joint venture enterprise. This was repaid in 1994. Balances due to
the Chinese joint venture as at December 31, 1995 and June 30, 1996
(unaudited) represented amounts borrowed from the Chinese joint venture
partner to finance the CIP Projects.
These amounts are unsecured, non-interest bearing and have no fixed
repayment date.
10. RETIREMENT PLANS
- -----------------------
As stipulated by the regulations of the Chinese government, all of the
Chinese staff of the Operating Subsidiary are entitled to an annual pension
on retirement, which is equal to their basic salaries at their retirement
dates. The Chinese government is responsible for the pension liability to
retired staff. The Operating Subsidiary is only required to make specified
contributions to the state-sponsored retirement plan calculated at 23% (for
1994, 1995 and 1996) of the basic salary of the staff. The expenses
reported in the consolidated financial statements related to these
arrangements were Rmb34, Rmb64, Rmb32 (unaudited) and Rmb30 (unaudited) for
the years/periods ended December 31, 1994 and 1995 and six months ended
June 30, 1995, 1996 respectively.
16
<PAGE>
11. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
- ---------------------------------------------------------
Period from June Six months
23, 1993 to ended
December 3l, Year ended December 31, June 30,
----------------------- -----------
1993 1994 1995 1996
----------- --------- ----------- -----------
Rmb Rmb Rmb Rmb
(Unaudited)
Non-cash investing and
financing activities:
Paid-in capital from the
Chinese joint
venture partner
contributed through
the injection of
fixed assets 98,000 - - -
12. OTHER SUPPLEMENTAL INFORMATION
- -------------------------------------
The following items are included in the consolidated statements of income:
Period from June Six months
23, 1993 to ended
December 3l, Year ended December 31, June 30,
------------------------- ------------
1993 1994 1995 1996
------------- ----------- ----------- ------------
Rmb Rmb Rmb Rmb
(Unaudited)
Foreign exchange gain 378 3,494 1,417 37
Business tax 327 1,163 1,171 579
17
<PAGE>
13. CONTINGENCY
- ------------------
The Operating Subsidiary has obtained an approval from the local government
to offset the toll revenue collected from the first phase of the toll road
against the construction-in-progress balances until the CIP Projects are
completed by the end of 1997. Thus, the tax holiday has been deferred
until the CIP Projects are completed. As such, the Operating Subsidiary
reported zero net profits in its statutory financial statements starting
from the commencement of operations in 1993 and will continue to do so
until the CIP Projects are completed at the end of 1997. The Company plans
to record the net profits offset in the construction-in-progress account
during 1993 to 1997 in the statutory income statements of the 1998 and 1999
fiscal years (i.e. the first two tax exemption years of the tax holiday).
This plan is subject to the approval of the local tax bureau. Should such
approval not be obtained from the local tax bureau, a tax liability
amounting to approximately Rmb5 million as of December 31, 1995 may arise.
In the opinion of management, it is not probable that a liability will
arise.
14. SUBSEQUENT EVENTS
- ------------------------
Pursuant to an acquisition agreement dated September 10, 1996 between Regal
International, Inc., ("Regal"), a Delaware Corporation whose shares are
listed on the National Association of Securities Dealers Automated
Quotations ("NASDAQ"), the Company and China Strategic Holdings Limited
("CSH"), Regal acquired all the issued and outstanding shares of the
Company for a consideration of US$30 million (Rmb250 million) to be
satisfied through the issuance of a US$30 million Convertible Note (the
"Convertible Note") by Regal to CSH bearing interest at 9% per annum after
an initial 6-month interest-free period. The principal and any unpaid
interest owing on the Convertible Note can be converted into shares of
Common Stock, US$0.01 par value, of Regal ("Common Stock") at a conversion
price of US$0.0302 per share. The Convertible Note, if exercised by CSH,
would give CSH a controlling interest of more than 90% in Regal. This
Convertible Note is secured by a pledge of Regal's interest in the shares
of the Company in favour of CSH.
Pursuant to an agreement signed between CSH and the Company dated September
1, 1996, the payable balance of Rmb96,806 (unaudited) due to CSH as of June
30, 1996 will be contributed by CSH into the Company as additional paid-in
capital.
19
<PAGE>
REGAL INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------
AS OF DECEMBER 31, 1995 AND JUNE 30,1996
-----------------------------------------
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA
------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS OF
------------------------------------
REGAL INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------
The unaudited pro forma consolidated financial statements as of and for the
six months ended June 30, 1996 and as of and for the year ended December 31,
1995 have been prepared to give effect to:
(i) the sale and transfer of certain operating assets and real property by
Regal International, Inc. ("Regal") to Regal (New) International, Inc.
("New Regal"), pursuant to an Asset Purchase Agreement dated February
8,1996;
(ii) the acquisition by Regal International, Inc. ("Regal") of China
Strategic Holdings Limited's ("CSH") entire interests in Westronix
Limited and its subsidiaries, pursuant to an Acquisition Agreement
dated September 10, 1996.
The unaudited pro forma consolidated financial statements are based upon the
historical consolidated financial statements of Regal International, Inc. as
of and for the six months ended June 30, 1996 and as of and for the year
ended December 31, 1995 after giving effect to the pro forma adjustments
described in the notes thereto as if the events described in (i) and (ii)
above had occurred on January 1, 1995.
The unaudited pro forma consolidated financial statements do not purport to
represent what the financial positions and results of operations of Regal
would actually have been if the events described above had in fact occurred
on January 1, 1995, or to project the financial position and results of
operations of Regal for any future date or period.
The unaudited pro forma consolidated financial statements should be read in
conjunction with the consolidated financial statements of Regal
International, Inc., and Westronix Limited and its subsidiaries, including
the notes thereto.
1
<PAGE>
<TABLE>
REGAL INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------
(Amounts expressed in thousands)
<CAPTION>
Historical As adjusted Historical
----------- ------------- ------------
Notes to
unaudited
pro forma
Regal Regal Westronix consolidated
International, International, Limited and financial
Inc. Inc. Subsidiaries statements
------------ ------------ ----------- ----------
Rmb Rmb Rmb
(Note 2) (Notes 1 & 2)
<S> <C> <C> <C>
Sales/Revenue 63,157 - 37,206
------------ ------------ -----------
Cost of goods sold 41,783 - -
Selling and
administrative
expenses 22,131 - 10,517
Interest expenses, net 2,729 - -
Other (income), net (3,719) - -
Exchange gain - - (1,417)
------------ ------------- -----------
Total costs and
expenses 62,924 - 9,100
------------ ------------- -----------
Income from
continuing
operations before
income tax 233 - 28,106
Provision for income
tax - - -
------------ ------------ -----------
Income from
continuing
operations 233 - 28,106
Income from
discontinued
operations - 233 -
------------- ------------ ----------
Income before
minority interests 233 233 28,106
Minority interests - - (13,087)
------------- ------------ ----------
Net income 233 233 15,019
============= ============ ==========
<CAPTION>
Unaudited Pro
forma
consolidated
statement of
Pro forma income of Regal
adjustments International, US$
Inc.
------------- ------------ ----------
Rmb Rmb
<S> <C> <C>
Sales/Revenue 37,206 4,472
------------ ----------
Cost of goods sold - -
Selling and
administrative
expenses 10,517 1,264
Interest expenses, net - -
Other (income), net - -
Exchange gain (1,417) (170)
------------- ----------
Total costs and
expenses 9,100 1,094
------------- ----------
Income from
continuing
operations before
income tax 28,106 3,378
Provision for income
tax - -
------------- ----------
Income from
continuing
operations 28,106 3,378
Income from
discontinued
operations 233 28
------------- ----------
Income before
minority interests 28,339 3,406
Minority interests (13,087) (1,573)
------------- ----------
Net income 15,252 1,833
============= ==========
</TABLE>
Translation of amounts from Renminbi (Rmb) into United States Dollars (US$)
for the convenience of the reader has been made at the unified exchange rate
quoted by the Bank of China on June 30, 1996 of US$1.00 = Rmb8.32. No
representation is made that the Renminbi amounts could have been, or could
be, converted into United States Dollars at that rate on December 31, 1995
and June 30, 1996 or at any other certain rate.
The accompanying notes are an integral part of this unaudited pro forma
consolidated statement of income.
2
<PAGE>
<TABLE>
REGAL INTERNATIONAL INC. AND SUBSIDIARIES
-------------------------------------------
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
---------------------------------------------
AS OF DECEMBER 31, 1995
-----------------------
(Amounts expressed in thousands)
<CAPTION>
Historical As adjusted Historical
----------- ------------- ------------
Regal Regal Westronix
International, International, Limited and
Inc. Inc. Subsidiaries
------------ ------------ -----------
Rmb Rmb Rmb
(Note 2) (Notes 1 & 2)
<S> <C> <C> <C>
ASSETS
- ------
Current Assets
Cash and cash equivalents 92 6,656 22,172
Restricted cash 158 - -
Note receivable - 1,240 -
Accounts receivable, net 13,171 - -
Inventories 20,467 - -
Prepayments and deferred expenses 1,822 - 452
Other receivables and other
current assets - - 300
------------ ------------ -----------
Total current assets 35,710 7,896 22,924
------------ ------------ -----------
Prepayments for
construction-in-progress - - 29,789
Property, plant and equipment, net 15,275 - 350,861
Long-term investment 133 249,600 -
Note receivable - 12,904 -
------------ ------------ -----------
Total assets 51,118 270,400 403,574
============ ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Long-term loans - current portion 7,197 - -
Accounts payable 6,257 - 21,195
Accrued expenses and other payables 4,950 - 10,191
Taxes other than income - - 107
Due to related companies - - 1,500
------------ ------------ -----------
Total current liabilities 18,404 - 32,993
------------ ------------ -----------
<CAPTION>
Notes to Unaudited Pro
unaudited forma
pro forma consolidated
consolidated balance sheet of
financial Pro forma Regal
statements adjustments International,
Inc. US$
------------- ------------ ---------- -----------
Rmb Rmb
(Note 3)
<S> <C> <C> <C> <C>
ASSETS
- ------
Current Assets
Cash and cash equivalents 28,828 3,465
Restricted cash - -
Note receivable 1,240 149
Accounts receivable, net - -
Inventories - -
Prepayments and deferred expenses 452 54
Other receivables and other
current assets 300 36
------------ -----------
Total current assets 30,820 3,704
------------ -----------
Prepayments for
construction-in-progress 29,789 3,580
Property, plant and equipment, net 350,861 42,171
Long-term investment (c) (249,600) - -
Note receivable 12,904 1,551
------------ -----------
Total assets 424,374 51,006
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Long-term loans - current portion - -
Accounts payable 21,195 2,547
Accrued expenses and other payables 10,191 1,225
Taxes other than income 107 13
Due to related companies 1,500 180
------------ -----------
Total current liabilities 32,993 3,965
------------ -----------
</TABLE>
3
<PAGE>
<TABLE>
REGAL INTERNATIONAL INC. AND SUBSIDIARIES
-------------------------------------------
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
---------------------------------------------
AS OF DECEMBER 31, 1995
-----------------------
(Amounts expressed in thousands)
<CAPTION>
Historical As adjusted Historical
----------- ------------- ------------
Regal Regal Westronix
International, International, Limited and
Inc. Inc. Subsidiaries
------------ ------------ -----------
Rmb Rmb Rmb
(Note 2) (Notes 1 & 2)
<S> <C> <C> <C>
Convertible Note Payable - 249,600 -
Long-term loans 3,952 - 97,500
Loans from related parties 6,814 - -
Due to Chinese joint
venture partner - - 10,500
Due to China Strategic
Holdings Limited - - 96,840
Minority interests - - 128,681
Shareholders' equity:
Common stock 6,806 6,806 1
Additional paid-in capital 168,954 167,806 -
(Accumulated deficits)
Retained earnings (153,812) (153,812) 37,059
------------ -------------- -----------
Total shareholders' equity 21,948 20,800 37,060
------------ -------------- -----------
Total liabilities and
shareholders' equity 51,118 270,400 403,574
============ ============== ===========
<CAPTION>
Unaudited Pro
Notes to forma
unaudited pro consolidated
forma balance sheet of
consolidated Pro forma Regal
financial adjustments International,
statements Inc. US$
------------- ------------ ------------ -----------
Rmb Rmb
(Note 3)
<S> <C> <C> <C> <C>
Convertible Note Payable (b) (249,600) - -
Long-term loans 97,500 11,719
Loans from related parties - -
Due to Chinese joint
venture partner 10,500 1,262
Due to China Strategic
Holdings Limited (a) (96,840) - -
Minority interests 128,681 15,466
Shareholders' equity:
Common stock (b) 82,651 89,457 10,752
(c) (1)
Additional paid-in capital (b) 166,949 181,996 21,875
(a) 96,840
(c) (249,599)
(Accumulated deficits)
Retained earnings (116,753) (14,033)
------------ -----------
Total shareholders' equity 154,700 18,594
----------- -----------
Total liabilities and
shareholders' equity 424,374 51,006
=========== ===========
</TABLE>
Translation of amounts from Renminbi (Rmb) into United States Dollars (US$)
for the convenience of the reader has been made at the unified exchange rate
quoted by the Bank of China on June 30, 1996 of US$1.00 = Rmb8.32. No
representation is made that the Renminbi amounts could have been, or could
be, converted into United States Dollars at that rate on December 31, 1995
and June 30, 1996 or at any other certain rate.
The accompanying notes are an integral part of this unaudited consolidated
balance sheet.
<PAGE>
<TABLE>
REGAL INTERNATIONAL, INC. AND SUBSIDIARIES
-------------------------------------------
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
----------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------
(Amounts expressed in thousands)
<CAPTION>
Historical and
adjusted Historical
--------------- ---------------
Notes to Unaudited Pro
unaudited forma
pro forma income of Regal
Regal Westronix consolidated statement of
International, Limited and financial Pro forma income of Regal
Inc. Subsidiaries statements adjustments International, US$
Inc.
------------- ------------- ------------ ----------- -------------- ------------
$0'000 $'000 Rmb Rmb
Rmb Rmb
(Note 2)
<S> <S> <C> <C> <C>
Sales/Revenue - 18,410 18,410 2,213
------------- ------------- -------------- ------------
Selling and
administrative
expenses - 5,020 5,020 603
Interest (income),
net (266) - (266) (32)
Other expenses, net 632 - 632 76
Exchange gain - (37) (37) (4)
-------------- ------------- -------------- ------------
Total costs and
expenses 366 4,983 5,349 643
-------------- ------------- -------------- ------------
Income/(loss) from
continuing
operations before
income tax (366) 13,427 13,061 1,570
Provision for income
tax - - - -
-------------- -------------- -------------- ------------
Income/(loss) from
continuing
operations (366) 13,427 13,061 1,570
Income from
discontinued
operations - - - -
-------------- -------------- -------------- ------------
Income/(loss) before
minority interests (366) 13,427 13,061 1,570
Minority interests - (6,566) (6,566) (789)
-------------- -------------- -------------- ------------
Net income/(loss) (366) 6,861 6,495 781
============== ============== ============== ============
</TABLE>
Translation of amounts from Renminbi (Rmb) into United States Dollars (US$)
for the convenience of the reader has been made at the unified exchange rate
quoted by the Bank of China on June 30, 1996 of US$1.00=Rmb8.32. No
representation is made that the Renminbi amounts could have been, or could
be, converted into United States Dollars at that rate on December 31, 1995
and June 30, 1996 or at any other certain rate.
The accompanying notes are an integral part of this unaudited pro forma
consolidated statement of income.
5
<PAGE>
<TABLE>
REGAL INTERNATIONAL, INC. AND SUBSIDIARIES
-------------------------------------------
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
----------------------------------------------
AS OF JUNE 30, 1996
--------------------
<CAPTION>
Historical and
adjusted Historical
--------------- ---------------
Notes to Unaudited Pro
unaudited forma
pro forma consolidated
Regal Westronix consolidated balance sheet of
International, Limited and financial Pro forma Regal
Inc. Subsidiaries statements adjustments International, US$
Inc.
------------- ------------- ------------ ----------- -------------- ------------
$0'000 $'000 Rmb Rmb
Rmb Rmb
(Notes 1 & 2) (Note 3)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
Current assets
Cash and cash
equivalents 7,326 7,613 14,939 1,796
Note receivable 1,280 - 1,280 154
Prepayments and
deferred
expenses 478 1,258 1,736 209
Other receivables
and other
current assets - 247 247 30
------------- ------------- -------------- ------------
Total current assets 9,084 9,118 18,202 2,189
------------- ------------- -------------- ------------
Prepayments for
construction-in-
progress - 17,894 17,894 2,151
Property, plant and
equipment, net - 422,352 422,352 50,763
Long-term
investment 361,920 - (c) (249,600) 122,320 13,500
Note receivable 12,464 - 12,464 1,497
------------- ------------- -------------- ------------
Total assets 383,468 449,364 583,232 70,100
============= ============= ============== ============
LIABILIES AND
SHAREHOLDERS'
EQUITY
- ----------------
Current liabilities
Short-term bank
loans - 10,000 10,000 1,202
Accounts payable - 16,879 16,879 2,029
Accrued expenses
and other
payables 265 3,909 4,174 502
Taxes other than
income - 101 101 12
------------- ------------- -------------- ------------
Total current
liabilities 265 30,889 31,154 3,745
------------- ------------- -------------- ------------
</TABLE>
6
<PAGE>
<TABLE>
REGAL INTERNATIONAL, INC. AND SUBSIDIARIES
-------------------------------------------
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
----------------------------------------------
AS OF JUNE 30, 1996
--------------------
<CAPTION>
Historical and
adjusted Historical
--------------- ---------------
Notes to Unaudited Pro
unaudited forma
pro forma consolidated
Regal Westronix consolidated balance sheet of
International, Limited and financial Pro forma Regal
Inc. Subsidiaries statements adjustments International, US$
Inc.
------------- ------------- ------------ ----------- -------------- ------------
$0'000 $'000 Rmb Rmb
Rmb Rmb
(Notes 1 & 2) (Note 3)
<S> <C> <C> <C> <C> <C> <C>
Convertible Note
Payable 361,920 - (b) (249,600) 112,320 13,500
Long-term loans - 127,500 127,500 15,324
Due to Chinese joint
venture partner - 15,000 15,000 1,803
Due to China
Strategic Holdings
Limited 849 96,806 (a) (96,806) 849 102
Minority interests - 135,248 135,248 16,256
Shareholders' equity:
Common stock 6,806 1 (b) 82,651 89,457 10,752
(c) (1)
Additional paid-in
capital 167,806 - (b) 166,949 181,962 21,870
(a) 96,806
(c) (249,599)
(Accumulated
deficits) Retained
earnings (154,178) 43,920 (110,258) (13,252)
------------- ------------- -------------- ------------
Total shareholders'
equity 20,434 43,921 161,161 19,370
------------- ------------- -------------- ------------
Total liabilities and
shareholders'
equity 383,468 449,364 583,232 70,100
============= ============= ============== ============
</TABLE>
Translation of amounts from Renminbi (Rmb) into United States Dollars (US$)
for the convenience of the reader has been made at the unified exchange rate
quoted by the Bank of China on June 30, 1996 of US$1.00=Rmb8.32. No
representation is made that the Renminbi amounts could have been, or could
be, converted into United States Dollars at that rate on December 31, 1995
and June 30, 1996 or at any other certain rate.
The accompanying notes are an integral part of this unaudited consolidated
balance sheet.
7
<PAGE>
REGAL INTERNATIONAL INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO UNAUDITED PRO FORMA
----------------------------
CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------
(Amounts in thousands, except number of shares,
per share data and unless otherwise stated)
1. ADJUSTMENTS TO REGAL INTERNATIONAL, INC.'S HISTORICAL
FINANCIAL STATEMENTS
- ----------------------------------------------------------
Pursuant to an Acquisition Agreement dated February 8, 1996 between Regal
International, Inc. ("Regal"), Acewin Profits Limited ("AP"), a British
Virgin Islands corporation and China Strategic Holdings Limited ("CSH"), a
Hong Kong company, Regal acquired all the issued and outstanding shares of AP
at a consideration of US$13.5 million satisfied through the issuance of a
US$13.5 million Convertible Note (the "Convertible Note A") by Regal to CSH
bearing interest at 9% per annum after an initial 6-month interest-free
period. Acewin's sole asset is a 55% joint venture interest in Wuxi CSI
Vibration Isolator Co. Ltd., a Sino-foreign equity joint venture incorporated
in the People's Republic of China, held through an intermediate Hong Kong
company, China Machine (Holdings) Limited.
Pursuant to a Purchase Agreement dated September 11, 1996 between Regal
International, Inc. ("Regal"), BTR China Holdings B.V. ("BTR"), a company
incorporated in the Netherlands, and China Strategic Holdings Limited
("CSH"), a Hong Kong company, Regal sold all the issued and outstanding
shares of AP at a consideration of US$13.95 million. The proceeds were then
used to repay the Convertible Note A principal of US$13.5 million, on
September 13, 1996. The realized gain was US$450. As of June 30, 1996, the
Company's interest in AP was reflected as an investment.
Pursuant to another Asset Purchase Agreement ("the agreement") dated February
8, 1996 between Regal International, Inc. ("Regal") and Regal (New)
International, Inc. ("New Regal"), Regal sold and transferred the existing
operating assets and real property of Regal to New Regal in exchange for
US$2.5 million and New Regal's assumption of all liabilities of Regal, other
than the Convertible Note A. Pursuant to the agreement, the US$2.5 million
portion of the purchase price was paid as follows: US$800 in cash and the
balance by delivery of two promissory notes, one in the principal amount of
US$900 (the "US$900 Note") and the second in the principal amount of US$800
(the "US$800 Note"). The US$900 Note bears interest at 9% per annum and is
payable in sixty equal monthly installments of principal and interest. The
US$800 Note bears no interest and is due and payable in one installment on
January 31, 2001.
8
<PAGE>
1. ADJUSTMENTS TO REGAL INTERNATIONAL, INC.'S HISTORICAL
FINANCIAL STATEMENTS (Cont'd)
- -----------------------------------------------------------
Pursuant to an Acquisition Agreement dated September 10, 1996 between Regal
International, Inc. ("Regal"), Westronix Limited ("WL"), a British Virgin
Islands corporation and China Strategic Holdings Limited ("CSH"), a Hong Kong
company, Regal acquired all the issued and outstanding shares of WL at a
consideration of US$30 million to be satisfied through the issuance of a
US$30 million Convertible Note (the "Convertible Note B") by Regal to CSH
bearing interest at 9% per annum after an initial 6-month interest-free
period. The principal and any unpaid interest owing on the Convertible Note
B can be converted into shares of the Common Stock, US$0.01 par value, of
Regal ("Common Stock") at a conversion price of US$0.0302 per share. WL's
sole asset is a 51% joint venture interest in Hangzhou Zhongche Huantong
Development Co. Ltd., a Sino-foreign equity joint venture incorporated in the
People's Republic of China, held through an intermediate Hong Kong company,
China Construction International Group Limited.
Adjustments have been made to reflect the financial positions of Regal as if
the net operating assets had been sold and transferred to new Regal as of
December 31, 1995 and the acquisition of the interests in WL had occurred as
of January 1, 1995. Income from historical continuing operations of Regal
for the year ended December 31, 1995 has been reclassified as "Income from
discontinued operations" as a result of the disposal of the net operating
assets to New Regal.
The transfer of CSH's equity interest in WL to Regal has been accounted for
as a purchase in the accompanying unaudited pro forma consolidated financial
statements.
2. FOREIGN CURRENCY TRANSLATION
- ---------------------------------
The financial statements of Regal are translated into Renminbi using the
closing rate method, whereby the balance sheet items are translated into
Renminbi using the exchange rate prevailing at year end. Profit and loss
items are translated at the average rate for the year.
9
<PAGE>
3. DESCRIPTION OF PRO FORMA ADJUSTMENTS
- -----------------------------------------
a) To reflect the contribution by CSH to additional paid-in capital of WL,
originally recorded as a payable to CSH, pursuant to an agreement signed
between CSH and WL dated September 1, 1996.
b) To adjust the share capital and additional paid-in capital as if the
Convertible Note B of Regal had been exercised by CSH as of December 31,
1995.
c) To eliminate the investment in WL on consolidation. The difference
between CSH's historical cost of investment in WL and the acquisition cost to
Regal has been treated as a reduction of additional paid-in capital as the
transfer is considered a transfer of assets between entities under common
control.
4. INCOME TAXES
- -----------------
No provision for United States federal income taxes or tax benefits on the
undistributed earnings and/or losses of the PRC Operating Subsidiary has been
provided as the earnings have been reinvested and, in the opinion of
management, will continue to be reinvested indefinitely.
10
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