<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A-2
[X] QUARTERLY REPORT PURSUANT SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.
[ ] TRANSITION REPORT PURSUANT SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-8334
REGAL INTERNATIONAL, INC.
(Exact name of small business as specified in its charter)
Delaware 75-1071589
-------- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
17/F, Printing House,
No.6 Duddell Street,
Central, Hong Kong.
(Address of principal executive offices)
(852) 2844-2988
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable dated: October 31, 1996, 81,806,198 shares.
Transitional Small Business Disclosure Format (check one) : Yes ___ No_X_
<PAGE>
TABLE OF CONTENTS
PAGE
----
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Condensed Statements of Income (unaudited)
for the three and nine months ended September 30, 1996
and September 30, 1995 1
Consolidated Condensed Balance Sheets (unaudited) at
September 30, 1996 and December 31, 1995 2
Consolidated Condensed Statements of Cash Flows
(unaudited) for the nine months ended September 30,
1996 and September 30, 1995 3
Notes to Consolidated Condensed Financial Statements 4-18
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 25
ITEM 2 - CHANGES IN SECURITIES 25
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 25
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF 25
SECURITY HOLDERS
ITEM 5 - OTHER INFORMATION 25
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 25
<PAGE>
<TABLE>
REGAL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Amounts in thousands, except number of shares and per
share data )
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
------------------------------------- ------------------------------------
1996 1996 1995 1996 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
US$ Rmb Rmb US$ Rmb Rmb
<S> <C> <C> <C> <C> <C> <C>
Toll revenue 3,379 28,046 27,908 1,161 9,636 8,273
General and
administrative expenses (1,192) (9,890) (7,942) (542) (4,502) (2,777)
Exchange gain 45 375 1,032 16 134 (367)
----------- ----------- ----------- ----------- ----------- -----------
Income from continuing
operations before
income taxes and
minority interest 2,232 18,531 20,998 635 5,268 5,129
Provision for income taxes - - - - - -
----------- ----------- ----------- ----------- ----------- -----------
Income from continuing
operations before
minority interest 2,232 18,531 20,998 635 5,268 5,129
Minority interests (1,185) (9,839) (9,791) (394) (3,273) (2,696)
----------- ----------- ----------- ----------- ----------- -----------
Income from continuing
operations 1,047 8,692 11,207 241 1,995 2,433
Net gain on disposal
of investment 450 3,743 - 451 3,743 -
Loss from discontinued
operations (186) (1,545) (695) (48) (397) (745)
----------- ----------- ----------- ----------- ----------- -----------
Net income 1,311 10,890 10,512 644 5,341 1,688
=========== =========== =========== =========== =========== ===========
Earnings per common
share (Primary):
- from continuing
operations 0.02 0.15 0.14 0.01 0.07 0.03
- from discontinued
operations (0.00) (0.02) (0.01) (0.00) (0.00) (0.01)
----------- ----------- ----------- ----------- ----------- -----------
0.02 0.13 0.13 0.01 0.07 0.02
=========== =========== =========== =========== =========== ===========
Earnings per common
share (Fully diluted):
- from continuing
operations 0.00 0.01 0.01 0.00 0.01 0.00
- from discontinued
operations (0.00) (0.00) (0.00) 0.00 (0.00) (0.00)
----------- ----------- ----------- ----------- ----------- -----------
0.00 0.01 0.01 0.00 0.01 0.00
=========== =========== =========== =========== =========== ===========
Weighted average common
shares outstanding 81,806,198 81,806,198 81,806,198 81,806,198 81,806,198 81,806,198
=========== =========== =========== =========== =========== ===========
</TABLE>
Translations 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 September 30, 1996 of US$1.00 = Rmb8.30. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States Dollars at that rate on September 30, 1996
or at any other certain rate.
The accompanying notes are an integral part of these consolidated statements of
income.
1
<PAGE>
REGAL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (Amounts in thousands,
except number of shares and per share data)
September September December
30, 1996 30, 1996 31, 1995
----------- ----------- -----------
US$ Rmb Rmb
ASSETS
- ------
Current assets
Cash and cash equivalents 3,320 27,554 22,172
Prepayments and deferred expenses 281 2,333 452
Other receivables and other
current assets 1,485 12,329 300
Net assets of discontinued
operations - - 21,949
----------- ----------- -----------
Total current assets 5,086 42,216 44,873
----------- ----------- -----------
Prepayments for construction-
in-progress 1,891 15,697 29,789
Property, plant and equipment, net 57,214 474,881 350,861
----------- ----------- -----------
Total assets 64,191 532,794 425,523
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS EQUITY
- -----------------------------------
Current liabilities
Short-term bank loans 3,614 30,000 -
Long-term bank loans - current
portion 6,988 58,000 -
Accounts payable 466 3,856 21,195
Accrued expenses and other payables 678 5,631 10,193
Taxes other than income 14 118 107
Due to related companies - - 1,500
----------- ----------- -----------
Total current liabilities 11,760 97,605 32,995
----------- ----------- -----------
Long-term loans 11,988 99,500 97,500
Convertible note payable 30,072 249,600 249,600
Due to Chinese joint venture partner 3,614 30,000 10,500
Due to China Strategic Holdings Ltd. 103 853 96,840
Minority interests 16,689 138,520 128,681
Shareholders' equity:
Common stock 820 6,806 6,806
Additional paid-in capital 1,900 15,773 (80,646)
Accumulated deficit (12,755) (105,863) (116,753)
----------- ----------- -----------
Total shareholders' equity (10,035) (83,284) (190,593)
----------- ----------- -----------
Total liabilities and
shareholders' equity 64,191 532,794 425,523
=========== =========== ===========
Translations 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 September 30, 1996 of US$1.00 = Rmb8.30. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States Dollars at that rate on September 30, 1996 or at
any other certain rate.
The accompanying notes are an integral part of these consolidated balance
sheet.
2
<PAGE>
<TABLE>
REGAL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Amounts in thousands)
<CAPTION>
Nine Months
Ended September 30,
----------------------------------------
1996 1996 1995
----------- ----------- -----------
US$ RMB RMB
<C> <C> <C> <C>
Cash flows from operating activities:
Net Income
Income from continuing operations 1,497 12,435 11,207
Loss from discontinued operations (186) (1,545) (695)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operations:
Minority interests 1,185 9,839 9,791
Depreciation and amortization 380 3,152 3,402
(Increase)Decrease in assets:
Prepayments and deferred expenses (227) (1,882) (1,495)
Other receivables and other current assets (1,448) (12,028) (202)
Increase (Decrease) in liabilities:
Accounts payable (2,089) (17,339) 6,183
Accrued expenses and other payables (549) (4,562) (679)
Taxes other than income 1 11 (17)
----------- ----------- -----------
Net cash (used in) provided by operating activities (1,436) (11,919) 27,495
----------- ----------- -----------
Cash flows from investing activities
Prepayments for construction-in-progress 1,698 14,092 (5,909)
Acquisition of property, plant and equipment (15,322) (127,172) (81,197)
Change in net assets of discontinued operations 2,645 21,949 1,008
----------- ----------- -----------
Net cash used in (provided by) investing activities (10,979) (91,131) (86,098)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds of bank loans 10,843 90,000 44,000
Repayment of bank loans - - (8,000)
Due to related companies (181) (1,500) (2,500)
Due to Chinese joint venture partner 2,350 19,500 5,500
Due to China Strategic Holdings Limited 52 432 (1,342)
----------- ----------- -----------
Net cash provided by (used in) financing activities 13,064 108,432 37,658
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 649 5,382 (20,945)
Cash and cash equivalents, at beginning of period 2,671 22,172 71,015
----------- ----------- -----------
Cash and cash equivalents, at end of period 3,320 27,554 50,070
=========== =========== ===========
</TABLE>
Translations 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 September 30, 1996 of US$1.00 = Rmb8.30. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States Dollars at that rate on September 30, 1996 or at
any other certain rate.
The accompanying notes are an integral part of these consolidated statements
of cash flows.
3
<PAGE>
REGAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Regal International, Inc. ("Regal" or the "Company") was incorporated in the
State of Delaware, the United States of America and is listed on the National
Association of Securities Dealers ("NASD") over-the-counter market with an
authorized share capital of US$1.5 million or 150 million shares of US$0.01 par
value per share.
Pursuant to an acquisition agreement dated February 8, 1996 between Regal,
Acewin Profits Limited ("Acewin"), a British Virgin Islands corporation and
China Strategic Holdings Limited ("CSH"), a company incorporated in Hong Kong
and listed on the Stock Exchange of Hong Kong Limited, Regal acquired all the
issued and outstanding shares of Acewin 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 Horler Holdings Limited ("Horler"), a Hong
Kong company and a wholly-owned subsidiary of CSH, bearing interest at 9% per
annum after an initial 6-month interest-free period. Acewin was a wholly-owned
subsidiary of CSH before the transfer and Acewin's sole asset was a 55% equity
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.
On February 15, 1996, CSH appointed three directors to fill vacancies on the
Board of Directors created by the resignation of three out of the five directors
of Regal effective on the consummation of the transaction whereby Regal acquired
all of the outstanding share capital of Acewin. On March 8, 1996, Horler
purchased 40,500,000 shares of common stock representing 49.51% of the then
issued and outstanding share capital of Regal from a major shareholder of the
Company thus becoming its major and controlling shareholder.
Pursuant to a purchase agreement dated September 11, 1996 between Regal, an
unrelated company incorporated in the Netherlands and CSH, Regal sold all the
issued and outstanding shares of Acewin 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 of US$450,000 on the disposal
of Acewin has been included as "Net gain on disposal of investment" in the
Company's consolidated statements of income for the period ended September 30,
1996.
4
<PAGE>
Pursuant to another asset purchase agreement (the "Agreement") dated February 8,
1996 between Regal and Regal (New) International, Inc. ("New Regal"), the
Company sold and transferred the operating assets and real property of Regal
existing as at January 31, 1996 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$800,000 in cash and the balance by delivery of two
promissory notes, one in the principal amount of US$900,000 (the "US$900,000
Note") and the second in the principal amount of US$800,000 (the "US$800,000
Note"). The US$900,000 Note bears interest at 9% per annum and is payable in
sixty equal monthly installments of principal and interest. The US$800,000 Note
bears no interest and is due and payable in one installment on January 31, 2001.
The realized loss in connection with this transaction amounted to approximately
Rmb573,000 (US$69,000) and has been included as part of "Loss from discontinued
operations" in the Company's consolidated statements of income for the period
ended September 30, 1996.
Pursuant to an Acquisition Agreement dated September 10, 1996 between Regal,
Westronix Limited ("Westronix"), a wholly owned subsidiary of CSH, and CSH,
Regal acquired all the issued and outstanding shares of Westronix at a
consideration of US$30 million satisfied through the issuance of a US$30 million
Convertible Note (the "Convertible Note B") by Regal to Horler bearing interest
at 9% per annum after an initial 6-month interest-free period. The terms of the
Convertible Note B provide for the conversion of the principal and any unpaid
interest on the Convertible Note B into shares of the Common Stock of Regal
("Common Stock") at a conversion price of US$0.0302 per share. The principal of
Convertible Note B is due and payable in full in cash three (3) years from the
date of issue. CSH has the right to call for an early redemption by giving 14
days notice to Regal. The principal and any unpaid interest owing on Convertible
Note B can be converted into shares of the common stock of Regal, in whole or in
any parts, at any time from the date of issuance. Upon conversion, CSH would
hold approximately 96.16% of the outstanding shares of the Company. Westronix's
sole asset is a 51% equity 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.
The amount of consideration paid for Westronix was based upon a recommendation
from an independent corporate and investment advisor (the "Advisor") which the
Company engaged for the purpose of obtaining the fairness opinion with respect
to its acquisition of Westronix. Such fairness opinion was based on the
Advisor's independent assessment of an internal appraisal report provided by
China Strategic Holdings Limited, which determined the valuation of Westronix by
applying the discounted cash flow model to the projected cash flow of the
Hangzhou Toll Road over the remaining life of the joint venture.
5
<PAGE>
As of September 30, 1996, the Company had the following subsidiaries:
Westronix Limited ("Westronix") - a holding company incorporated in the British
Virgin Island.
China Construction International Group Limited ("CCIG") - a company incorporated
in Hong Kong.
Hangzhou Zhongche Huantong Development Co., Ltd. (the "Operating Subsidiary" or
"Hangzhou toll road"), a Sino-foreign equity joint venture located in Hangzhou,
Zhejiang Province, the People's Republic of China "the PRC".
The Company holds a 100% interest in Westronix, which was incorporated on July
3, 1996 with an authorized share capital of 50,000 shares with a par value of
US$1 each. The one Westronix share issued at par value to CSH was subsequently
transferred to Regal pursuant to a shareholder's resolution dated September 10,
1996. Westronix holds a 100% interest in CCIG which in turn holds a 51% interest
in Hangzhou toll road. Westronix's interest in CCIG and 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 operations 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 million. 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 would 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 tolls from all
three phases of the toll road after the CIP Projects are completed.
Any increase in toll rates proposed by the Operating Subsidiary is subject to
approval by the Hangzhou Municipal Government, Hangzhou City Transportation
Department and the Zhejiang Provincial Government. However, there is no
assurance that any proposal for increase will be approved by these government
authorities. If such proposals are denied, profit margins of the Operating
Subsidiary could be affected.
6
<PAGE>
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 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.
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 :
- - Provision of depreciation on roads and bridges.
- - Recognition of toll revenue on the accrual basis and upon the
commencement of operations.
The recognition of toll profit on the accrual basis and upon the commencement of
operations has been deferred until the commencement of the entire toll road
operation under PRC GAAP. The toll revenues for the section from Jichang Road to
Xiangfuqiao have been recognized on the accrual basis. The toll revenue for the
section from Xiangfuqiao to Lingjiaqiao has been deferred until the commencement
of operation for the entire section of the toll road.
7
<PAGE>
The transfer of CSH's equity interests in CCIG to Westronix and the transfer of
CSH's equity interests in Westronix to Regal were accounted for as
reorganizations of companies under common control similar to a pooling of
interests. The accompanying consolidated financial statements of the Company
have been restated to present the transfers of CSH's interests in CCIG to
Westronix and in Westronix to Regal as if they had occurred on the date of
formation of the Operating Subsidiary, June 23, 1993. The acquisition of the
Operating Subsidiary was financed by advances from CSH. In 1996, the advances
payable to CSH in relation to the above acquisition was capitalized and treated
as an increase in additional paid-in capital. In addition, due to the specific
requirements of the U.S. GAAP for transfers of assets between entities under
common control, the difference of Rmb147.6 million between the historical cost
of the investment of CSH in Hangzhou toll road and the Company's acquisition
cost was treated as a deemed dividend paid to CSH in 1993.
Regal's acquisition of CSH's interests in Acewin and its subsequent disposal
have been accounted for using the equity method of accounting. The results of
operations of Acewin and its subsidiaries have not been consolidated into the
financial statements for the period ended September 30, 1996 given the temporary
nature of the holding.
Income from the historical operations of Regal for the period ended
September 30, 1995 and 1996, which included income from oilfield, marine rubber,
custom-molded and safety services, has been reclassified as "Loss from
discontinued operations" in the consolidated statements of income as a result of
the disposal of the related net assets to New Regal in 1996. Accordingly, net
assets related to the discontinued operations of Regal as of December 31, 1995
have also been reclassified as "Net assets of discontinued operations" in the
accompanying financial statements.
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 and controlled subsidiaries. All material inter
company balances and transactions have been eliminated on consolidation.
8
<PAGE>
b. Toll Revenue
-------------
Toll revenue represents the gross receipts at the toll stations, net of business
tax calculated at 3% of the gross toll receipts.
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 three months or less. Cash and
cash equivalents included United States Dollar deposits of US$1,078,000
(Rmb8,967,000) and US$64,000 (Rmb531,000) as of December 31,1995 and September
30, 1996 respectively. Deposits of US$700,000 (Rmb5,824,000) 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 fixed 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.
The Operating Subsidiary retains the ownership interest in the road and bridges
constructed during the joint venture period of 30 years from the date of the
formation. Upon expiration of the joint venture period, in accordance with the
joint venture agreement, the road and bridges owned by the Operating Subsidiary
will be surrendered to the Chinese JV partner.
9
<PAGE>
e. Foreign Currency Translation
----------------------------
The functional currency of the group and the Company is Renminbi.
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 is denominated in and its reporting currency is
the United States Dollars. For financial reporting purposes, the United States
Dollars capital injection amounts have been translated into Renminbi at the
unified exchange rate as of December 31, 1995.
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.
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.
10
<PAGE>
The official exchange rates, unified exchange rates and Shanghai swap center
rates as of December 31, 1994 and 1995 and September 30, 1996 were as follows:
1994 1995 1996
---- ---- ----
Rmb equivalents of US$1
Official exchange rate N/A N/A N/A
Unified exchange rate 8.44 8.32 8.30
Shanghai swap center rate 8.44 8.32 8.30
f. Taxation : Income Taxes
-----------------------
No provision for withholding or U.S. federal income taxes or tax benefits on the
undistributed earnings of the subsidiaries and/or losses of the Operating
Subsidiary has been provided as the earnings of the subsidiaries have been
reinvested and, in the opinion of management, will continue to be reinvested
indefinitely.
Westronix was incorporated under the laws of the British Virgin Islands, and
under current British Virgin Islands laws, Westronix 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 their 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 have 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").
11
<PAGE>
If the Operating Subsidiary had not been in the tax holiday period, the Company
would have recorded additional income tax expense of Rmb7,503,000 (US$904,000)
and Rmb7,393,000 (US$891,000) and net income of the Company would have been
reduced by Rmb 3,826,000 (US$461,000) and Rmb3,770,000 (US$454,000) for the nine
months ended September 30, 1995 and 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.
g. Taxation : Business Tax
-----------------------
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 ("CICT"). Under these new tax regulations, the
Operating Subsidiary is subject to a 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%.
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 the dedicated capital. For the period
from January 1, 1994 to September 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.
12
<PAGE>
i. Use of estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
j. Earnings per common share
-------------------------
The calculation of primary earnings per common share is based on the weighted
average number of common shares outstanding during the nine months ended
September 30, 1995 and 1996.
The number of shares used in the computation was as follows:
1995 1996
------------- -------------
Primary EPS computation 81,806,198 81,806,198
Fully diluted EPS computation 1,076,293,694 1,076,293,694
13
<PAGE>
4. PROPERTY, PLANT AND EQUIPMENT
September 30, December 31,
1996 1995
-------------- -------------
US$'000 Rmb '000 US$'000 Rmb '000
Road and bridges 13,191 109,485 13,135 109,020
Buildings 18 148 18 148
Machinery and equipment 458 3,804 57 475
Motor vehicles 371 3,084 255 2,121
Furniture, fixtures and office
equipment 4 38 4 38
Construction-in-progress 44,518 369,497 29,801 247,346
Less : Accumulated depreciation (1,346) (11,175) (998) (8,287)
-------- -------- -------- --------
Net book value 57,214 474,881 42,272 350,861
======== ======== ======== ========
5. LONG-TERM BANK LOANS
Long-term bank loans, all of which are unsecured, bear average interest rates of
approximately 14.87% as of December 31, 1995 and 14.60% as of September 30, 1996
and are repayable as follows:
Year September 30, December 31,
1996 1995
---------------------- ----------------------
US$ '000 Rmb '000 US$ '000 Rmb '000
1997 6,988 58,000 6,988 58,000
1998 3,012 25,000 2,410 20,000
1999 6,567 54,500 2,349 19,500
2000 1,807 15,000 - -
2001 602 5,000 - -
--------- --------- --------- ---------
18,976 157,500 11,747 97,500
========= ========= ========= =========
All the long-term bank loans are denominated in Renminbi. Loans amounting to
Rmb19.5 million (US$2.3 million) as of December 31,1995 and Rmb109.5 million
(US$13.2 million) as of September 30,1996 respectively are guaranteed by a
related company.
14
<PAGE>
6. DUE TO CHINESE JOINT VENTURE PARTNER
The amount due to Chinese joint venture partner as at December 31, 1995 and
September 30, 1996 represents money borrowed from the Chinese joint venture
partner to finance the CIP Projects. These amounts are unsecured, bear interest
at commercial rate and have no fixed repayment date.
7. RECONCILIATION ON THE MINORITY INTEREST BALANCE FOR THE PERIOD ENDED
SEPTEMBER 30, 1996
US$'000 Rmb '000
Income from continuing operations before
minority interest 2,682 22,274
Less: Gain / Income not attributable to
minority interest
Gain in disposal of subsidiaries 186 1,546
Gain in foreign exchange 45 375
Income from Regal Int'l (Holdings Co.) 35 290
Income from Westronix (wholly-owned subsidiary) (1) (7)
Income from CCIG (wholly-owned subsidiary) (1) (9)
-------- ----------
264 2,195
-------- ----------
Income from Hangzhou Toll Road 2,418 20,079
49% Minority Interest 1,185 9,839
15
<PAGE>
8. SUPPLEMENTAL DISCLOSURE - ACQUISITION AND DISPOSAL OF INVESTMENTS
AND OPERATIONS
Acquisition of Investment Assets
- --------------------------------
In February 1996, the Company acquired Acewin Profits companies for a
consideration of US$13.5 million. There were no outlay of cash as the vendor has
taken back a convertible note of the same amount. Such convertible note has been
repaid in full amount upon complete disposition of Acewin Profits in September
1996. This acquisition had no effect onto the shareholders' equity since no new
capital shares were issued.
In September 1996, the Company acquired the Westronix companies form the same
vendor for a consideration of US$30 million. Again, there were no outlay of cash
as the vendor took back a convertible note of the same amount. The acquisition
also had no effect onto the shareholders' equity.
Disposal of Acewin US$'000 Rmb '000
- ------------------
Cash Proceeds from disposition 13,950 115,790
Less: Net book value / Cost of investment (13,500) (112,047)
---------- ---------
Net gain reported (in Consolidated Statements
of Income) 450 3,743
========== =========
The Company generated a net gain of Rmb3,743,000 (US$450,000) from the
disposition of its investments in Acewin. The majority of the gross proceeds of
US$13.95 million has been used to repay the outstanding note payable of US$13.5
million owing to China Strategic Holdings Limited. This resulted with a net cash
proceeds of approximately US$450,000 equivalent to the net gain as per above
computation. This gain also provided an increment of US$450,000 to the
shareholders' equity.
16
<PAGE>
Disposal of the oil field / marine / rubber mold operations
- -----------------------------------------------------------
US$'000 Rmb '000
Cash proceeds from disposition 2,500 20,750
Less: Net assets value disposed (2,521) (20,925)
Related professional fees (48) (398)
--------- --------
Net loss reported ( in Consolidated Statements of (69) (573)
========= ========
Income grouped under "Loss from discontinued operation")
In this disposition, the Company generated a net loss of Rmb573,000 (US$69,000)
and an immediate cashflow of US$800,000 since the proceeds comprised of a cash
consideration of US$800,000, a US$800,000 interest free note due on January 31,
2001 and a US$900,000 note bearing interest at 9% amortized over sixty equal
monthly installments. This loss had an effect of reducing US$69,000 from the
shareholders' equity.
9. PROVISION FOR INCOME TAXES
The reconciliation of the effective income tax based on income before provision
for income taxes and minority interests stated in the consolidated statements of
income to the statutory income tax rate in Hong Kong, the British Virgin
Islands, the PRC and the U.S. is as follows :
1994 1995 1996
------- ------- -------
Weighted average statutory tax rate 34.8% 31.6% 35.5%
Effect of tax holiday (34.8%) (31.6%) (35.5%)
------- ------- -------
Effective tax rate - - -
======= ======= =======
Provision for income taxes consist of:
1994 1995 1996
-------- -------- ---------
Rmb '000 Rmb '000 Rmb '000
Current - - -
Deferred - - 1,562
Adjustment of valuation allowance - - (1,562)
-------- -------- ---------
- - -
======== ======== =========
17
<PAGE>
The valuation allowance refers to the portion of the deferred tax assets that
are not currently realizable. The realization of these benefits depends upon the
ability of the Company to generate income in future years. No provision or
benefit for deferred income taxes was recognized in the years of 1994 and 1995,
and the nine months ending September 30, 1996.
10. DISTRIBUTION OF PROFITS
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 September 30,1996, the
Operating Subsidiary had no available retained earnings for distribution.
In the opinion of management, any undistributed earnings and/or losses of the
Operating Subsidiary have been reinvested and will continue to be reinvested
indefinitely.
11. STOCK OPTIONS
The following tables summarize the movement of share options of the Company.
During 1987 and 1988, the Company issued five-year Common Stock options in
conjunction with its financing activities to various promissory note holders and
other selected creditors. During 1989, the Company issued five and ten-year
stock options in an additional financing and extension of debt.
COMMON STOCK OPTIONS
1996 1995
-------- --------
Shares under option as at January 1 150,000 150,000
Issued - -
Expired - -
-------- --------
Shares under option as at September 30 150,000 150,000
======== ========
Average exercise price of outstanding options $ 0.156 $ 0.156
======== ========
Exercisable at end of period 150,000 150,000
======== ========
In December 1991 the Board of Directors approved the issuance of Common Stock
options to members of the Board of Directors. The options were to expire in five
years and be issued at 110% of market value on the date of grant.
18
<PAGE>
COMMON STOCK OPTIONS
1996 1995
---------- ----------
Option as at January 1 1,000,000 1,000,000
Issued - -
Expired - -
---------- ----------
Shares under option as at September 30 1,000,000 1,000,000
========== ==========
Average exercise price of outstanding options $ 0.14 $ 0.14
========== ==========
Exercisable at end of period 1,000,000 1,000,000
========== ==========
12. 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% of the basic salary of
the staff. The expense reported in the consolidated financial statements related
to these arrangements was approximately Rmb52,000 (US$6,000) and Rmb64,000
(US$8,000) for the nine months ended September 30, 1995 and 1996 respectively.
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 into income of the
statutory financial statements of the Operating Subsidiary during 1998 and/or
1999 fiscal years (i.e. the first two exemption years of the tax holiday). The
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, 1996 and Rmb8.7 million as of
September 30, 1996 may arise. In the opinion of management, it is not probable
that a liability will arise.
19
<PAGE>
14. RELATED PARTY TRANSACTIONS AND ARRANGEMENTS
The Operating Subsidiary guaranteed bank borrowings of a related company of CSH
in an amount of Rmb10 million (US$1.2 million) and Rmb51.5 million (US$6.2
million) as of December 31,1995 and September 30,1996 respectively.
CSH has undertaken to provide continuing financial support to the Company to the
extent of CSH's interest in the Company for a period ending on December 31,
1997.
15. COMMITMENTS
As of December 31, 1995 and September 30, 1996, the Operating Subsidiary had
outstanding capital commitments for construction contracts related to its CIP
projects amounting to approximately Rmb228.3 million (US$27.5 million) and
Rmb68.8 million (US$8.3 million) respectively.
20
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
OVERVIEW OF RECENT TRANSACTIONS :
On September 10, 1996, the Company acquired all the issued and outstanding
shares of Westronix Limited, a British Virgin Islands corporation from China
Strategic Holdings Limited ("CSH"), a Hong Kong company pursuant to the terms of
the acquisition agreement entered into on September 10, 1996. Westronix's sole
asset is a 100% equity interest in China Construction International Group
Limited ("CCIG"), a Hong Kong company which in turn owns a 51% joint venture
interest in Hangzhou Zhongche Huantong Development Co., Ltd, a Sino-foreign
joint venture established in Hangzhou Zhejiang Province, the People's Republic
of China ("China") on June 23, 1993.
The amount of consideration being US$30 million (Rmb249 million) paid for
Westronix was based upon a recommendation from an independent corporate and
investment advisor (the "Advisor") which the Company engaged for the purpose of
obtaining the fairness opinion with respect to its acquisition of Westronix.
Such recommendation was based on the Advisor's independent assessment of an
internal appraisal report provided by China Strategic Holdings Limited, which
determined the valuation of Westronix by applying the discounted cash flow model
to the projected cash flow of the Hangzhou toll road over the remaining life of
the joint venture.
On September 11, 1996, the Company disposed of all the issued and outstanding
shares of Acewin Profits Limited ("Acewin"), a British Virgin Islands
corporation , to BTR China Holdings B.V., a Netherlands company (the
"Purchaser") pursuant to the terms of the agreement relating to the sale and
purchase of the entire issued share capital of Acewin entered into on September
11, 1996. The Company's interest in Acewin was acquired from CSH on February 8,
1996.
The Board of Directors of the Company determined that disposal of Acewin was in
the best interest of the Company and was advantageous to the Registrant's plans
to concentrate the resources of the Company in infrastructure projects in China
in connection with the Company's recent acquisition.
As of September 30, 1996, the Company had the following subsidiaries:
Westronix Limited ("Westronix") - a holding company incorporated in the British
Virgin Islands.
21
<PAGE>
China Construction International Limited ("CCIG") - a company incorporated in
Hong Kong.
Hangzhou Zhongche Huantong Development Co., Ltd. (the "Operating Subsidiary"
or "Hangzhou toll road"), a Sino-foreign equity joint venture located in
Hangzhou, Zhejiang Province, China.
The Company holds a 100% interest in Westronix. Westronix holds a 100% interest
in CCIG which in turn holds a 51% interest in Hangzhou toll road.
BUSINESS
The Operating Subsidiary was established for the construction of a ring road
which was designed to direct the congested traffic outside the city of Hangzhou.
The city of Hangzhou, which covers an area of approximately 16,000 square
kilometers and has a population of approximately 5.6 million, is the capital of
Zhejiang Province in China. The city is located about 150 kilometers from
Shanghai and has experienced rapid growth in its light manufacturing industry in
recent years, most notably in electronic instruments, refined chemicals,
machinery and electrical appliances.
When the toll road is fully completed, it will be 38.2 km long and comprise of:
- - 13.2 km of existing Class 2 wide single carriage way linking Jichang (Airport)
Road to Xiangfuqiao. The traffic capacity is estimated at about 20,000 vehicles
per day (two way flow).
- - 25.0 km of Class 1 construction (6km of four-lane wide single carriage way
with slow lanes and 19km of dual two-lanes with hard shoulders for emergency)
including 21 bridges and three grade-separated junctions. The implementation of
this section of the toll road consists of two phases: Northwest section
(Xiangfuqiao to Liuxai, 13.7 km) which is expected to be completed at end of
1996 and West section (Liuxai to Lingjiaqiao, 11.3 km), which was completed
in December, 1997. This section encompasses extensive bridge works including:
river crossing bridges
bridges for road interchanges
underpasses and underground crossings for pedestrians and vehicles
The section of the road from Jichang Road to Xiangfuqiao is now in operation and
has been generating revenues from toll collection from the toll plazas
at Xiangfuqiao. The section from Xiangfuqiao to Liuxai was completed in
December, 1996 and became operative in 1997. The section from Liuxai to
Lingjiaqiao was completed in December, 1997. Upon full completion and after
receiving the approval from the PRC authorities, toll plazas are expected to
operate at Xiangfuqiao (already in operation), Liuxai and Lingjiaqiao. The toll
plazas are currently utilizing electronic surveillance systems along with
computerized toll collection systems.
22
<PAGE>
RESULTS OF OPERATION
SUMMARY OF FINANCIAL INFORMATION Nine months ended
- ----------------------------------- -----------------
September 30,
-----------------
1996 1996 1996 1995
----- ---- ---- ----
USD '000 Rmb '000 USD '000 Rmb '000
Toll revenue 3,379 28,046 3,362 27,908
General and administrative expenses 1,192 9,890 957 7,942
Exchange gain 45 375 124 1,032
Gain on disposal of investment 450 3,743 - -
Net income 1,311 10,890 1,267 10,512
TOLL REVENUE
Toll revenue increased marginally by Rmb138,000 (US$17,000) or 0.5% in the nine
months to September 30, 1996 as compared with the corresponding period in 1995.
Traffic volume was adversely affected by the opening of the Hangzhou section of
the Shanghai - Ningbo Expressway, which led to a certain degree of diversion of
traffic. However the adverse effect was fully offset by an average increase in
toll fees by approximately 50% in 1996. Management believes that further
decrease in vehicle flows is unlikely and is optimistic about the future revenue
generation ability of Hangzhou toll road as the second phase of the toll road
became operative in 1997. In addition, the third and final phase of
the toll road was completed by in December 1997 and is expected to generate
revenue in early 1998.
GENERAL AND ADMINISTRATIVE EXPENSES
As compared with the same period in 1995, general and administrative expenses
for the nine months ended September 30, 1996 went up 24.5% from Rmb9.9 million
(US$1.2 million) to Rmb 7.9 million (US$1.0 million). This was primarily
attributable to additional professional fees incurred and the interest payable
on the US$ 13.5 million convertible note in excess of the interest income
generated from the US$ 900,000 note receivable. As far as the Operating
Subsidiary is concerned, general and administrative expenses as a percentage of
toll revenue was kept at around 28% for the two periods under discussion.
23
<PAGE>
EXCHANGE GAIN
Exchange gain represents the favorable exchange difference arising from
remeasurement of various reporting currencies of the different companies within
the Group into Renminbi, which is the Group's functional currency. Upon period
end revaluation of the amount payable to CSH, which was in terms of foreign
currency, exchange gains were recorded in the past three years due to continual
strengthening of Renminbi. However slow down in appreciation of Renminbi during
the first nine months of 1996 had sent exchange gain down to Rmb375,000
(US$45,000) from Rmb1,032,000 (US$124,000) of the corresponding period in 1995.
NET GAIN ON DISPOSAL OF INVESTMENT
The gain represents the profit on disposal of investment in Acewin. As mentioned
above, Acewin was acquired in February 1996 at a cost of US$13.5 million
(Rmb112.1 million) and disposed of in September 1996 at a cash price of US$13.95
million (Rmb115.8 million) to an unrelated Netherlands company.
LOSS FROM DISCONTINUED OPERATION
This loss represents two sources of loss from the discontinued operation of the
oil field / marine / rubber mold businesses. A net loss of Rmb573,000
(US$69,000) was arised from the accounting of the actual disposition. An
operating loss of Rmb971,000 (US$117,000) was attributed to the operation of
such disposed businesses. The two losses have resulted with the loss of
Rmb1,546,000 (US$186,000) as reported.
NET INCOME
Net income for the nine months ended September 30, 1996 increased slightly by
3.6% to Rmb10.9 million (US$1.3 million) from Rmb10.5 million (US$1.3 million)
of the same period in 1995. This was attributable to the combined effect of
increase in general and administrative expenses and loss from discontinued
operations and decrease in exchange gain, compensated by the gain on disposal of
investment.
Loss from discontinued operations represents the operating loss of Regal Bell
and Rubber which were spun-off during the period.
24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1996, net cash used in operating
activities and investing activities was approximately Rmb11.9 million (US$1.4
million) and Rmb91.1 million (US$11.0 million) respectively. Net cash provided
by financing activities amounted to Rmb108.4 million (US$13.1 million),
resulting in a net decrease in cash and cash equivalents of approximately Rmb5.4
million (US$0.7 million) for the nine months ended September 30, 1996.
The net cash outflow position in operating activities resulted mainly from
increase in other receivable by approximately Rmb12.0 million (US$1.5 million)
accompanied with decrease in accounts payable by approximately Rmb17.3 million
(US$2.1 million) during the nine months ended September 30, 1996. Increase in
other receivables was primarily due to receipt of two receivable notes, totaling
Rmb14.1 million (US$1.7 million), issued by New Regal in relation to the
disposal of Regal Bell and Rubber.
During the nine months ended September 30, 1996, the Company incurred capital
expenditures of approximately Rmb113.1 million (US$13.6 million) which were
financed principally through bank borrowings of Rmb90.0 million (US$10.8
million) and loans from the Chinese joint venture partner of Rmb19.5 million
(US$2.3 million).
The Operating Subsidiary has been able to raise funds from banks for financing
the construction of the second and third phases of the toll road
(the "CIP Projects"). Construction of the second phase was completed in
December, 1996 and the third phase was completed in December, 1997. The Company
anticipates that in 1998 the Operating Subsidiary will generate substantial toll
revenue from all three phases of the toll road. The Company expects that its
cash flows from operations, combined with cash and cash equivalents, bank lines
of credit and other external sources of financing, are adequate to finance the
Company's operating and debt services requirements for the foreseeable future.
EFFECTS OF INFLATION
In recent years, the Chinese economy has experienced periods of rapid growth and
high rates of inflation, which have, from time to time, led to the adoption by
the PRC government of various corrective measures designed to regulate growth
and control inflation.
The general inflation rate in terms of the Retail Price Index in China was
approximately 13.2%, 21.7% and 14.8% for 1993, 1994 and 1995 respectively. The
Chinese government has implemented and maintained an economic program designed
to control inflation, which has resulted in tightening of working capital
available to Chinese business enterprises. The success of the Company depends in
substantial part on the continued growth and development of the Chinese economy.
Management believes that inflation has not had significant impact on the
Operating Subsidiary. Inflation has resulted in upward pressure on wages and
salaries for employees and other operating expenses at the Operating Subsidiary.
However, management does not expect inflation to have a material effect on
profit margins and income, since the Operating Subsidiary has been very
effective in controlling costs.
25
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
NONE
ITEM 2 - CHANGES IN SECURITIES
SEE ATTACHED
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
NONE
ITEM 5 - OTHER INFORMATION
NONE
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
NONE
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGAL INTERNATIONAL INC.
(Registrant)
2/22/98 /s/ Mico Chung
Date: ___________________ __________________________
Mico Chung, President
2/22/98 /s/ Jack Law
Date: ___________________ __________________________
Jack Law
, Chief Financial Officer
27
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<PERIOD-END> SEP-30-1996
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<RECEIVABLES> 1485
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