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FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1998.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 1-8334
ASIA RESOURCES HOLDINGS LTD
(Exact name of Registrant as specified in its charter)
Delaware 75-1071589
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(State or other jurisdiction of (I.R.S. Employer
incorporation of organization Identification No.)
52/F Bank of China Tower
1 Garden Road
Hong Kong
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (852) 2514-0300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------------
Common Stock, $0.01 par value
Check whether the Registrant (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 report)
and (2) has been subject to such filing requirements for the past 90 days.
yes [x] no [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]
Revenues for the year ended December 31, 1998 were $6,548,000. The aggregate
market value of the common stock of the Registrant held by non-affiliates of the
Registrant on April 9, 1999 was $814,173. The aggregate market value was
computed by reference to the average bid and asked prices for the Common Stock
on April 9, 1999. Solely for the purposes of this response, executive officers
and directors are considered the affiliates of the Company at that date.
As of April 9, 1999, 597,132 common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I.
ITEM 1 - DESCRIPTION OF BUSINESS
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BUSINESS DEVELOPMENT
A. General
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In September, 1996, Asia Resources Holdings Limited, previously known as Regal
International, Inc. (the "Registrant" or the "Company"), which term shall
include, when the context so requires, its subsidiaries, completed a series of
transactions which resulted in the Registrant's acquisition of a new business
and disposition of its existing business assets and liabilities. The information
set herein discloses information required by Form 10-KSB with respect to
business of the Registrant after the sale of the existing business in 1996 and
acquisition of the new assets.
B. Formation and Development of Registrant
---------------------------------------
On May 10, 1982 the Registrant became a separately publicly held corporation as
a result of a spin-off from Texas International Company. Shareholders of Texas
International Company were issued one share of the Registrant's common stock for
each two shares of Texas International's Common Stock.
The Company changed its state of incorporation to Delaware in March 1982 through
a merger with a wholly-owned subsidiary organized for that purpose. The
surviving Company's authorized capital stock consisted of 20,000,000 shares of
common, par value $.10 per share ("Common Stock") and 10,000,000 shares per
preferred stock, par value $.10 per share, ("Preferred Stock"). At the November
17, 1987 Annual Meeting, shareholders voted to increase the authorized number of
shares of Common Stock to 75,000,000. At the May 25, 1993 Annual Meeting, the
shareholders voted to change the par value of Common Stock from $.10 per share
to $.01 per share and to increase the authorized number of shares of Common
Stock to 150,000,000.
In 1987 the Company acquired all of the issued and outstanding common stock of
Bell Petroleum Services, Inc. ("Bell"), an oilfield products and services
company.
On December 7, 1994 the New York Stock Exchange ("NYSE") suspended trading of
the Company's Common Stock pending delisting as the Company did not meet the
NYSE's criteria for continued listing. The Company decided not to contest the
delisting and the Common Stock was removed from listing and registration on the
NYSE effective February 9, 1995. The Company's Common Stock began trading on the
NASD Electronic Bulletin Board in August, 1995.
On October 27, 1998, the stockholders of the Registrant held a Special Meeting
at which the stockholders approved (1) the ratification of the acquisition of
Westronix Limited by the Company; (2) the increase the authorized number of
shares of common stock up to 1,100,000,000 shares, of par value $0.01 per share;
(3) a 138-for-1 reverse split of the Company's Common Stock; (4) the adoption of
the restated and amended Bylaws of the Company; (5) the change of the Company's
name from "Regal International, Inc." to "Asia Resources Holdings Limited"; and
(6) the 1997 Incentive Stock Option Plan.
The Registrant effected a 1-for-138 reverse stock split of its Common Stock on
February 19, 1999 which resulted in approximately 597,132 shares outstanding.
The Registrant filed the Amendment to its Certificate of Incorporation changing
its name and increasing its capital stock to 1,100,000,000 on February 8, 1999.
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C. Background of Recent Transactions
---------------------------------
On February 8, 1996, The Registrant acquired all the issued and outstanding
shares of Capital Stock of Acewin Profits Limited, a British Virgin Islands
corporation ("Acewin"), from China Strategic Holdings Limited, a Hong Kong
company ("CSH") listed on The Stock Exchange of Hong Kong Limited. Acewin's sole
asset is all the issued and outstanding shares of China Machine (Holdings)
Limited, a Hong Kong company ("CMHL"). CMHL's sole asset is a 55% joint venture
equity interest in Wuxi CSI Vibration Isolator Co., Ltd , a Sino-foreign joint
venture incorporated in the People's Republic of China ("China") and established
in September 1993.
The consideration paid by the Registrant for the Acewin Stock was $13.5 million.
Said purchase price was paid by the Registrant's delivery of its Convertible
Note (the "Convertible Note") to Horler Holdings Limited ("Horler"), a wholly
owned subsidiary of CSH in BVI, bearing interest at the rate of nine percent
(9%) per annum after an initial six (6) month interest-free period. Interest on
the Convertible Note was payable on an annual basis, with all principal being
due and payable on January 31, 1999. The principal and any unpaid interest owing
on the Convertible Note were convertible into shares of the Common Stock, $0.01
par value, of the Registrant ("Common Stock") at a conversion price of $0.0302
per share. The Convertible Note was secured by a Pledge Agreement granting CSH a
security interest in the Acewin Stock. The Convertible Note was fully repaid
upon the sale of Acewin Stock in 1996, as described below.
Immediately following the acquisition of the Acewin Stock and as a condition
thereto, the Registrant sold and transferred the existing operating assets and
real property of the Registrant to a newly formed corporation, Regal (New)
International, Inc. ("New Regal") in exchange for New Regal's assumption of all
liabilities of the Registrant, other than the Convertible Note, and $2.5
million, all in accordance with the terms and conditions of a certain Asset
Purchase Agreement, dated as of February 8, 1996, by and between the Registrant
and New Regal.
The $2.5 million purchase price was paid as follows: $800,000 in cash and the
balance by delivery of two (2) Promissory Notes, one in the principal amount of
$900,000 (the "$900,000 Note") and the second in the principal amount of
$800,000 (the "$800,000 Note"). The $900,000 Note bears interest at 9% per annum
and is payable in sixty (60) equal monthly installments of principal and
interest. The $800,000 Note bears no interest and is due and payable in one
installment on February 1, 2001. New Regal's obligations under the $900,000 Note
and the $800,000 Note are secured by a pledge of all of the issued and
outstanding shares of capital stock of New Regal. All the issued and outstanding
shares of New Regal were owned by Harlequin Investment Holdings Limited
("Harlequin"). Harlequin was at the time of this transaction the beneficial
owner of approximately fifty-five percent (55%) of then currently outstanding
shares of the Registrant's Common Stock. Subsequent to this transaction,
Harlequin reduced its beneficial ownership of the Registrant to less than one
percent.
Pursuant to a Deed of Variation dated July 27, 1998 among the Company, New Regal
and Harlequin, Harlequin agreed and undertook to assume all the obligations and
liabilities of New Regal under the $800,000 Note in consideration of the
Company's agreement to release New Regal from all obligation relating to the
$800,000 Note. All other terms of the $800,000 remain unchanged.
During 1998, New Regal re-negotiated the terms of the $900,000 Note with the
Company and a revised payment schedule was reached. Under the revised payment
schedule, the payment of several monthly installments by New Regal in 1998 and
1999 was suspended and the outstanding principal balance was revised to be
settled by sixty equal monthly installments commencing March 1999. The $900,000
Note continues to bear interest at 9% per annum during the period of payment
suspension in 1998 and 1999 and thereafter. See Item 11 - "Security Ownership of
Certain Beneficial Owners" and Item 12 - "Certain Relationships and Related
Transactions."
In connection with the above-described transactions, Janak Desai, Nils Ollquist
and Garish Sharma resigned as directors of the Registrant, and Oei Hong Leong,
the Chairman of CSH, Chung Cho Yee Mico, and Ma Wai Man Catherine were elected
to fill the vacancies created by such resignations.
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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 the
Company from a major shareholder of the Company for $1,223,000, thus becoming
its major shareholder.
On September 11, 1996, the Registrant disposed of all the issued and outstanding
shares of Acewin 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 (the "Agreement") entered
into on September 11, 1996. Acewin's sole asset was a 100% equity interest in,
China Machine Holdings Limited, a Hong Kong company, which owned 55% joint
venture interest in Wuxi CSI Vibration Isolator Co., Ltd. ("Wuxi"), a
Sino-foreign joint venture established in September, 1993.
The consideration paid by the Purchaser consisted of $13,950,000 (the "Purchase
Price"). The major portion of the proceeds were then used to repay the
$13,500,000 Convertible Note payable to Horler , which was issued by the
Registrant in connection with the acquisition of Wuxi in February of 1996.
The Board of Directors of the Registrant determined that disposal of Wuxi was in
the best interest of the Registrant and was advantageous to the Registrant's
plans to concentrate the resources of the Registrant in infrastructure projects
in China in connection with the Registrant's acquisition of Westronix.
On September 10, 1996, the Registrant acquired all the issued and outstanding
shares of Westronix Limited, a British Virgin Islands corporation ("Westronix"),
from CSH pursuant to the terms of an Acquisition Agreement entered into on
September 10, 1996. Westronix's sole asset is a 100% equity interest in China
Construction Holdings Limited, a Hong Kong company ("China Construction") which
owns 51% joint venture interest in Hangzhou Zhongche Huantong Development Co.,
Ltd. ("HZHD"), a Sino-foreign joint venture established in Hangzhou, Zhejiang
Province, the People's Republic of China ("China") on June 23, 1993. The
consideration paid by the Registrant is a $30 million Convertible Note bearing
interest at the rate of nine percent (9%) per annum after an initial six (6)
month interest-free period (the "$30 million Note").
The interest on $30 million Note is payable only on an annual basis, with all
principal being due and payable on September 10, 1999. The principal and any
unpaid interest due on the Note are convertible into shares of Common Stock,
$0.01 par value, of the Registrant ("Common Stock") at a conversion price of
$0.0302 per share. On February 19, 1999, the conversion price was adjusted to
US$4.1676 per share after the Company effected a 1-for-138 reverse stock split
of common stock. The consideration for the acquisition of Westronix was deemed
fair pursuant to the fairness report issued by the independent third party
engaged by the Registrant. CSH from whom the Registrant acquired HZHD, is an
affiliate of the Registrant and the major shareholder of the Registrant's common
stock. Three directors of the Registrant are also the directors of CSH.
On April 14, 1998, Horler agreed to reduce the interest rate of the $30 million
Note from 9% to 5% per annum for the year ended December 31, 1997. Horler agreed
that after December 31, 1998, no principal repayment of the $30 million Note
would be demanded until the Company is financially capable of doing so. The $30
million Note continues to bear interest at 9% per annum from January 1, 1998.
Pursuant to a supplementary shareholders' agreement (the"Guaranteed Distribution
Agreement") dated May 18, 1998 between China Construction and the Chinese joint
venture partner of Hangzhou Huantong (the "Chinese Partner"), the Chinese
Partner agreed to pay China Construction a fixed annual income of Rmb15,300,000
(the "Guaranteed Distribution") from January 1, 1998 through the expiration of
the joint venture period of Hangzhou Huantong. Any surplus income generated from
the Hangzhou Huantong in excess of the amount of the guaranteed Distribution
would belong to the Chinese Partner and any shortfall would be made up by the
Chinese Partner. In addition, as part of the Guaranteed Distribution Agreement,
an amount of Rmb178,500,000 would be paid to China Construction upon the
expiration of the joint venture period of Hangzhou Huantong and the assets of
the joint venture would be surrendered to the Chinese Partner at no further
consideration. This Guaranteed Distribution Agreement is subject to approvals by
the authorities which originally approved the set up of the joint venture.
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To date, the approvals from the relevant government authorities have not been
obtained despite efforts by the management of the joint venture and the
Registrant. The Board of Directors of the Registrant is of the view that the
necessary approvals may not be obtained and the agreement cannot effectuated
without such approvals. Accordingly, the Registrant has continued to consolidate
Hangzhou Toll Road for the year ended December 31, 1998 and has not affected the
Guaranteed Distribution Agreement in the account.
As of December 31, 1998, the Company had the following subsidiaries:
Westronix Limited ("WL") - a holding company incorporated in the British Virgin
Islands.
China Construction Holdings Limited ("CCHL") - a company incorporated in Hong
Kong and formally known as China Construction International Group Limited.
Hangzhou Zhongche Huantong Development Co., Ltd. ("HZHD"), a Sino-foreign equity
joint venture located in Hangzhou, Zhejiang Province, China.
The Company holds a 100% interest in WL. WL holds a 100% interest in CCHL which
in turn holds a 51% interest in HZHD.
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ASIA RESOURCES HOLDINGS LIMITED
ORGANIZATION CHART
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| Asia Resources Holdings Ltd |
| (Delaware) |
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| 100%
|
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| Westronix Limited |
| (BVI) |
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| 100%
|
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| China Construction |
| Holdings Limited |
| (Hong Kong) |
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|
| 51%
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| Hangzhou Zhongche |
| Huantong Development Co. |
| Ltd. (PRC) |
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DESCRIPTION OF REGISTRANT'S BUSINESS
On September 10, 1996 the Registrant acquired, as its sole asset, all the issued
and outstanding capital stock of Westronix Limited, a company which owns all the
outstanding capital stock of China Construction Holdings Limited ("CCHL"). CCHL
is a holder of a 51% interest in Hangzhou Zhongche Huantong Development Co.,
Ltd. ("HZHD"). HZHD is the only operating subsidiary of the Registrant. HZHD
established on June 23, 1993, is a Sino-foreign joint venture in China between
CCHL and its Chinese partner, Hangzhou City Transportation Development Company.
HZHD has been established to develop the construction project called "Hangzhou
Ring Road". The Hangzhou Ring Road is 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.
Infrastructure projects, like Hangzhou Ring Road, became a priority to the
government of China in recent years. According to directives of the 10-year
program (1991 - 2000) of the government of China, one of its key national goals
is to build more basic industry and infrastructure projects during the 1990s.
Preference is given to the construction of the principal national trunk
highways. In addition, highway construction in coastal regions is prioritized.
The Hangzhou Ring Road was approved as a priority project by the Hangzhou
Municipal Planning Committee in 1992. HZHD has registered capital of RMB200
million and total investment of RMB600 million. China party contributed RMB98
million by injecting the existing Class 2 toll road, and CCHL contributed RMB102
million in cash. The principal asset of HZHD is its 100% interest in the
Hangzhou Ring Road, a three-section toll road surrounding the city of Hangzhou.
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The toll road is 38.2 km long and its comprises of:
- - -13.2 km of existing Class 2 wide single carriageway 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 (6km of four-lane wide single carriageway 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 was completed in December, 1996 and West section (Liuxai
to Lingjiaqiao, 11.3 km), 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 1996 and
obtained approval from the government to collect tolls. The section from Liuxai
to Lingjiaqiao was completed in December, 1997 and also obtained approval from
the government to collect tolls commencing in June 1998.
The Company is currently in a process of installing an electronic surveillance
systems along with utilizing computerized toll collection systems in toll
plazas.
Overview of Transportation Infrastructure in China
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History
The earliest highway appeared in China at the beginning of this century. Up to
the founding of China in 1949, the country had merely 75,000 kilometers of
highways, most of them cobblestone roads. During the second half of the century,
however, highway construction in China experienced rapid development. By the end
of 1995, total highway mileage had reached 1.14 million kilometers. So far,
highways have extended to all countries throughout the country, and 98 percent
of China's townships and 80 percent of villages have bus service.
China's highway construction after 1949 can be divided into three periods.
The first period was between 1949 and 1957, when emphasis was put on filling in
the main arteries of the country. The second period, 1958-1980, experienced a
rapid popularization of highways throughout the country. During this period
highway mileage increased from 254,600 kilometers to 888,000 kilometers, and 90
percent of all counties and townships were made accessible by roads.
In the third period, which started in 1981, China is seeking the popularization
of highways with improvements in road quality. Priority is now given to the
latter. With high grade highways and expressways being built in the remotest
areas, highway construction in China entered a period of rapid development.
Recent Developments
Since the implementation of "reform and opening", along with the transition from
a planned economy to a "socialist market economy", traffic between different
cities and between urban and rural areas in China has increased. This has
resulted in a sharp increase in demand for medium- and short- distance
small-scale freight transport, a large increase in passenger flow and a steep
rise in highway traffic. Many highways have actual volumes of four to five times
more than their designed capacity. Traffic has become an outstanding bottleneck
hindering economic development.
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To meet the need of rapid economic development, China's communication bureaus
have shifted emphasis onto the economically developed regions where there are
urgent traffic problems, constructing and renovating roads radiating from
economic centers and coastal areas to neighboring and hinterland areas. At the
same time, in line with the increase in traffic, highways connecting energy
bases, harbors and large and medium-sized cities, tributary roads to railways,
arteries connecting economic zones and important townships, and tourist highways
and roads for poor areas, are to be built or renovated. In addition, a certain
number of expressways will be constructed according to necessity and
possibility.
The construction of the Shenyang-Dalian Expressway in 1987, the first of its
kind in China, has ushered in a new era. So far, more than 20 expressways,
totaling 2,100 kilometers, have been built through China. Completed and opened
on September 1, 1990, it has greatly shortened the time and distance between the
two largest cities in north-eastern China, producing considerable economic
benefit. The Shenyang-Dalian Expressway, the first of its kind in China, has
greatly promoted and accelerated highway and expressway construction throughout
the country, especially in the economically developed areas. So far China has a
total of 33 major highways, including those still under construction.
Highways in China are no longer the cart roads of the old. They have become
fully facilitated, with smooth surfaces and clear and neat traffic markings.
Sichuan Province, which had very poor transportation, now has a complete
communications network. The expressway connecting Chengdu and Chongqing has
reduced the time between the two cities to a little over three hours.
Compared with the sharp increase in transportation volume, however, highway
construction still lags. To solve this problem, the Chinese government has
mapped out a long-term plan for enhancing the country's communication network.
The plan covers the construction of highways, waterway transportation and
relevant safety systems. According to the key projects for highway construction
in the plan, starting in 1990, a highway network of 12 national arteries
totaling 35,000 kilometers has started to be constructed between Beijing and the
provincial capitals, major cities, important communication hubs and key ports
throughout the country to form a nationwide passageway for rapid transportation.
The 12 arteries that make up the national highway network will include five
north-south highways from Tongjiang to Sanya, Beijing to Fuzhou, Erenhot to
Hekou and Chongqing to Zhanjiang, and seven east-west arteries from Suifenhe to
Manzhouli, Dandong to Lhasa, Qingdao to Yinchuan, Lianyungang to Korgas,
Shanghai to Chengdu, Shanghai to Ruili and Hengyang to Kunming. These highway
arteries will link up more than 200 cities, covering a population of 600
million. They will be able to shoulder more than 20 percent of the country's
total traffic.
These highway arteries will be composed mainly of expressways and grade-1 and
grade-2 special roads, well-equipped with complete safety, telecommunications
and administration systems. Many new technologies, with micro-electronic
technologies at the core, will be applied to these highways. With the help of
these instruments, all the necessary information on the way, including the
traffic situation, accidents, road surface conditions and weather, will be fed
back in time to a computer system in the traffic control center. The
information, after being processed, will then be transmitted back and displayed
on the information panels erected along the roads.
Raw Materials
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The raw materials utilized by the Company in construction of the Hangzhou Ring
Road consist mainly of cement, gravel and steel rebar. The third and final
section of the Hangzhou Ring Road is being built by a general construction firm
hired by the Company. The general contractor is responsible for procuring all
raw materials necessary for completion of the project, and has not experienced
shortages of any raw materials.
In general, the cement industry in China is competitive and supply shortages are
rare. Since there is a lack of obvious product differentiation, manufacturers
compete based primarily on price and timely delivery. Currently, there are
approximately 7,700 cement plants in China, of which 67 are state-owned
6
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enterprises and are capable of producing high grade cement. The average annual
output of these plants is approximately 660,000 tons. The production cost of
cement in China varies with regions, ranging from RMB150 to RMB250 per ton. Fuel
and electricity account for 40% of the total production cost, while labor
accounts for only about 5% of the total production cost. Since 1993, the
government has relaxed state control of cement prices and allowed cement prices
to fluctuate according to market condition determined by demand and supply. The
uneven distribution of resources and differences in the pace of economic
development in different regions of China, creates the movement of cement
prices. In the southeast coastal provinces and the Yangtze river valley, the
average price is comparatively higher than the national level.
Since 1978 the Chinese steel industry has grown rapidly. At the end of 1992
there were 1,744 iron and steel enterprises in China (including mining
companies) and 3.8 million iron and steel workers as compared with 1,322
companies and 2.4 million workers in 1980. From 1980 through 1992, steel
production increased at a compound annual growth rate of 6.7% with growth of
13.9% in 1992 and 16.2% in 1993. In 1994, with total steel production of 91.5
million tons, China became the world's second largest steel producer behind
Japan.
The rate of growth in steel production in China also increased. This accelerated
growth is primarily due to the fact that, under China's new economic policies,
demand for steel as a raw material for various industries and to build and
rebuild China's infrastructure has increased substantially. Furthermore, with
changes in the pricing system, profitability has improved and production
capacity has increased accordingly.
Since 1980, steel-making technology in China has experienced significant
improvements. Measures have been taken to modernize steel enterprises by merging
and expanding existing facilities and improving and upgrading technologies.
Although in the past few years the steel industry has grown rapidly with an
annual average increase in production of around 16%, domestic supply is still
far from meeting demand. Therefore China must continue to import a certain
amount of steel from foreign sources. During periods when importation is
permitted the steel products producers in China generally experience decreased
sales, as currently the Chinese steel industry cannot compete with producers of
imported steel products with respect to price and, in some cases, quality.
Management and Employees
- ------------------------
The Board of Directors of HZHD consists of seven members; three directors
appointed by China partner and four directors appointed by the Hong Kong
partner, CCHL. The General Manager, who reports directly to the Board of
Directors of HZHD, is responsible for the day-to-day operations of the joint
venture. HZHD employs approximately 140 employees on a full time basis.
Competition
- -----------
The Company's potential depends on its ability to identify and implement
attractive transportation infrastructure development opportunities in China and
to negotiate successfully to enter into joint ventures to develop or operate
such projects. In this regard, the Company faces competition from infrastructure
development businesses currently operating in China, and in addition from
foreign investors who may wish to invest in infrastructure projects, thereby
competing with the Company.
With respect to transportation infrastructure projects such as toll roads, there
is no assurance that alternate routes which avoid toll charges or a charge lower
toll will not be built.
In late 1995, the Hangzhou section of the Shanghai-Hangzhou Expressway was
opened. The Company expects, based on the report from its traffic consultant,
that this would cause diversion of traffic from the Hangzhou Ring Road and would
reduce the flow through the southern toll plaza of the Hangzhou Ring Road by
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approximately 30%. On the other hand, the opening of the north-western and
western sections of the Hangzhou Ring Road would provide new traffic sources.
Furthermore, the Hangzhou Ring Road will also be used by local traffic and as
the city of Hangzhou develops, this component of traffic is expected to grow. In
addition, on the opening of the north-western and western sections of the
Hangzhou Ring Road, heavy vehicles will be discouraged from proceeding on the
road going through the city, and thus diversion to the Hangzhou Ring Road can be
expected to be high, since about half of the vehicles will be affected by the
restrictions on entering Hangzhou.
The Company is also facing competition from the Hangzhou section of the Shanghai
- - - Ningbo Expressway, which was opened in 1996. The diversion of traffic from
the Hangzhou Ring Road resulted in reduction of traffic volume from 5.2 million
vehicles in 1996 to 4.3 million vehicles in 1997.
The traffic volume was increased from 4.3 million vehicles in 1997 to 5.37
million vehicles in 1998. The increase in traffic volume was mainly due to the
final phases of the toll road were completed and in operation in 1998.
The Company believes that, despite competition, the need of China for further
transportation infrastructure projects will continue to provide opportunities
for the Company to participate in that will yield a satisfactory return.
Research and Development
- ------------------------
The Company did not engage in any research and development activities with
respect to its infrastructure project in fiscal 1998.
Distributions From HZHD
- -----------------------
Applicable Chinese laws and regulations require that, before a Sino- foreign
equity joint venture enterprise (such as each Operating Subsidiary) distributes
profits to investors, it must: (1) satisfy all tax liabilities; (2) provide for
losses in previous years; and (3) make allocations, in proportions determined at
the sole discretion of the Board of Directors, to a general reserve fund, an
enterprise expansion fund and a staff welfare and employee bonus fund. As of
December 31, 1998, Hangzhou Toll Road had no available retained earnings for
distribution.
Operating In China
- ------------------
ECONOMIC POLICIES. General economic conditions in China could have a significant
impact on the Company's Hangzhou Ring Road project. The economy of China differs
in certain material respects from that of the United States, including its
structure, levels of development, capital reinvestment, growth rate, government
involvement, resource allocation, rate of inflation and balance of payments
position. Although the majority of China's productive assets are still owned by
the state, the adoption of economic reform policies since 1978 has resulted in
its gradual reduction in the role of state economic plans, allocation of
resources, pricing and management of such assets. The economic reform policies
have increased emphasis on the utilization of market forces and rapid growth of
the Chinese economy. The success of the Company's infrastructure project depends
in part on the continued economic growth of China.
INFLATION. The general inflation rate in China was approximately 6.3%, 0.8% and
- -2.6% per annum in 1996, 1997 and 1998 respectively. Accordingly, the Chinese
government has taken steps to control inflation by means of credit restrictions
and an increase in interest rates which, in turn, may lead to a slow down of the
Chinese economy. In recent years, the Chinese economy has experienced periods of
rapid economic growth as well as high rates of inflation, which in turn, has
resulted in the adoption by the Chinese government from time to time of various
corrective measures designated to regulate growth and contain inflation. Since
1993, the Chinese government has implemented an economic program to control
inflation which has resulted in the tightening of credit available to Chinese
state-owned enterprises.
8
<PAGE>
FOREIGN CURRENCY EXCHANGE. Prior to January 1, 1994, all foreign exchange
transactions involving Renminbi ("Rmb") in China had to take place either
through authorized financial institutions at the official exchange rate set by
the State Administration of Exchange Control ("SAEC"), the department of the
government of China responsible for foreign exchange administration or at local
swap centers at exchange rates largely determined by supply and demand. However,
transactions effected through swap centers still required the prior approval of
the SAEC.
On January 1, 1994, the government of China implemented a controlled floating
exchange rate system based on market supply and demand and established a managed
foreign exchange system. In place of the official rate and swap center rate, the
People's Bank of China ("PBOC") now publishes a daily exchange rate (the "PBOC
Exchange Rate") for Renminbi based on the previous day's dealings. The financial
institutions authorized to deal in foreign currency may enter into foreign
exchange transactions at exchange rates within a set range above or below the
PBOC Exchange Rate, according to market conditions. In furtherance of these
currency reforms, the China Foreign Exchange Trading Center ("CFETC") was
formally established in Shanghai and came into operation in April 1994. The
establishment of CFETC was originally intended to coincide with the phasing out
of the swap centers.
Currently, foreign investment enterprises ("FIE") in China (including
Sino-foreign equity and cooperative joint ventures) are required to apply to the
local bureau of the SAEC for "foreign exchange registration certificates for
foreign investment enterprises". With such foreign exchange registration
certificates (which are annually reviewed by the local bureau of the SAEC) or
with the foreign exchange sales notice from the local bureau of the SAEC, FIEs
may enter into foreign exchange transactions at the swap center, or in the
future, through the unified market when all swap centers are connected to CFETC.
On January 29, 1996, the State Council promulgated the regulations of China
Regarding Foreign Exchange Control (the "Regulations") which came into effect on
April 1, 1996. Pursuant to the Regulations, conversion of RMB into foreign
exchange for the use of recurring items, including the distribution of dividends
and profits to foreign investors of joint ventures, is permissible. FIEs are
permitted to remit its foreign exchange from its foreign exchange bank account
in China on the basis of the relevant joint venture contracts, the board
resolution declaring the distribution of payment of the dividend, etc.
Conversion of RMB into foreign exchange for capital items, such as direct
investment, loans, security investment are still under control.
The exchange rate between the Renminbi and the U.S. Dollar as quoted by the Bank
of China ranged between Rmb 8.30 and Rmb 8.28 to $1.00 in 1998.
LEGAL SYSTEM. Since 1979, many laws and regulations dealing with economic
matters in general and foreign investment in particular have been promulgated in
China. The Chinese Constitution, adopted in 1989, authorizes foreign investment,
and guarantees the "lawful rights and interests" of foreign investors in China.
The trend of legislation over the past twelve years has significantly enhanced
the protection afforded foreign investment and allowed for more active control
by foreign parties of foreign investment enterprises in China.
There can be no assurance, however, that the current trend and economic
legislation toward promoting market reforms and experimentation will not be
slowed, curtailed or reversed, especially in the event of a change in
leadership, social or political disruption, or unforeseen circumstances
affecting China's political, economic or social life.
Despite some progress in developing a legal system, China does not have a
comprehensive system of laws. The interpretation of Chinese laws may be subject
to policy changes reflecting domestic political factors. Enforcement of existing
laws may be uncertain and sporadic, and implementation and interpretation may be
inconsistent. The Chinese judiciary is relatively inexperienced in enforcing the
laws or terms of contracts, leading to a higher than usual degree of uncertainty
in the outcome of litigation. Even where adequate laws exist in China, it may be
impossible to obtain swift and equitable law enforcement, or to obtain
enforcement of a judgment by a court of another jurisdiction. As the Chinese
legal system develops, the promulgation of new laws, changes to existing laws
and the preemption of local regulations by national laws may adversely affect
foreign investors, such as the Registrant.
9
<PAGE>
HZHD's activities in China may be subject, in some cases, to administrative
review and approval by various national, provincial and municipal authorities of
the Chinese government. While China has promulgated an administrative procedural
law permitting redress to the courts with respect to certain administrative
actions, this law appears to be largely untested in its context.
Legal Structure of HZHD
- -----------------------
Hangzhou Zhongche Huantong Development Company, Ltd. was organized under Chinese
law as a Sino-foreign equity joint venture enterprise, which is a distinct legal
entity with limited liability. Such entities are governed by the Law of China on
Joint Ventures Using Chinese and Foreign Investments and implementing
regulations related thereto (the "Equity Joint Venture Law"). The parties to an
equity joint venture have rights in the returns of the joint venture in
proportion to the joint venture interests that they hold. The operations of
equity joint ventures are subject to an extensive body of law governing such
matters as formation, registration, capital contribution, capital distributions,
accounting, taxation, foreign exchange, labor and liquidation. The transfer or
increase of an interest in a Sino-foreign equity joint venture enterprise
requires agreement among the parties to the venture and is effective upon the
approval of relevant government agencies.
Taxation
- --------
A Sino-foreign equity joint venture with a term of 10 years or more and engaged
in infrastructure is exempt from state income tax for the first two years after
it attains profitability, and for three years thereafter it is eligible for a
50% reduction in the state income tax. HZHD will be fully exempted 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.
Governance, Operations And Dissolution
- --------------------------------------
Governance, operations and dissolution of a Sino-foreign equity joint venture
enterprise are governed by the Equity Joint Venture Law and by the parties'
joint venture contract and the joint venture's articles of association. Pursuant
to the joint venture contracts and articles of association of HZHD, it has a
30-year term and is governed by a Board of Directors consisting of seven members
appointed for 4-year terms. CCHL appoints four directors, including the
chairman, to HZHD, while the Chinese joint venture partner appoints the
remaining three directors, including the Vice Chairman.
The Board of Directors of HZHD exercises authority by majority vote over major
corporate decisions, including the appointment of officers, strategic planning,
budgeting, employee compensation and welfare and distribution of after-tax
profits. Management of HZHD is conducted by a management committee headed by a
General Manager and one or two Deputy General Managers, who act on behalf of
HZHD pursuant to the direction and guidance of its Board of Directors.
Pursuant to relevant Chinese Law, certain major actions of HZHD require
unanimous approval by all the directors present at the meeting called to decide
upon the following actions: amendments to it's contract and articles of
association; increases in, or assignment of, the registered capital of the joint
venture; a merger of the joint venture with another entity; or dissolution of
the enterprise.
HZHD is subject to the Sino-foreign Equity Joint Venture Enterprise Labor
Management Regulations. In compliance with these regulations, the management may
hire and discharge employees and make other determinations with respect to
wages, welfare, insurance and discipline of its employees.
10
<PAGE>
Pursuant to the Equity Joint Venture Law, Sino-foreign equity joint venture
enterprises may be terminated in certain limited circumstances, including the
inability of the enterprise to conduct its business owing to a breach by one of
its parties, insolvency, force majeure, or confiscation of the enterprise's
assets by the government. Upon termination, the Board of Directors establishes a
liquidating committee to dissolve the enterprise, which dissolution is subject
to government review and approval.
Resort to Chinese courts to enforce a joint venture contract or to resolve
disputes between the parties over the terms of the contracts is permissible. In
practice, however, disputes between the parties are often resolved by
negotiation. The Company believes that it has a good working relationship with
its joint venture partner and that it will be able to reach agreements with it
on business policies and decisions for HZHD.
Government Regulations
- ----------------------
Any increase in toll rates proposed by HZHD is subject to approval by the
Hangzhou Municipal Government and City of Hangzhou Transportation Department.
There are no assurances that such proposals will be approved by these government
authorities. If such proposals are denied, toll revenues of HZHD will be
reduced.
The government of Zhejiang Province approved a toll increase of 100% for the
Hangzhou Ring Road, excluding the last part of the toll road completed in
December 1997, effective from March 1, 1997. No change in toll rates was noted
in 1998.
Compliance with Environmental Laws
- ----------------------------------
HZHD is not aware of any Chinese government environmental regulations which
would have an adverse impact on the Company's operations.
ITEM 2 - DESCRIPTION OF PROPERTIES
- ----------------------------------
As of December 31, 1998, the Company had no office or facility for U.S.
operations. The Company shares the office space at 52/F, Bank of China Tower, 1
Garden Road, Hong Kong and administrative support, with China Strategic Holdings
Limited, a major shareholder of the Company ("CSH"). In fiscal 1998, the Company
was charged $155,000 by CSH as a management fee for the use of the office space
and staff support.
All land in the PRC is owned by the government. According to the PRC law, land
may be leased (under land use rights) for certain periods of time to businesses.
Therefore, the fact that the Hangzhou Toll Road does not have title but only a
land use right is the norm in the PRC for businesses. While Chinese law
expressly protects the status and rights of Sino-foreign joint venture
enterprises, including their right to use land during the term of their
respective joint venture contracts, the state reserves the right, in extreme and
exceptional circumstances, to terminate the joint venture and provide
compensation therefor. In such an event, a joint venture's right to use land
would terminate and all facilities would revert to the state in exchange for
just compensation. Although management sees little risk in not having title to
the land use rights, no assurances can be given that such land use rights may be
not be terminated by the government.
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
Neither the Registrant nor its subsidiaries are a party to any material pending
legal proceedings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The Company held a Special Meeting of its stockholders on October 27, 1998, at
which the following corporate actions were approved by the stockholders.
11
<PAGE>
1. Ratification of the acquisition of Westronix Limited by the Company. -
approved by 84.60% of the votes.
2. Amendment to the Company's Certificate of Incorporation to increase the
authorized number of shares of Common Stock up to 1,100,000,000 shares, of
par value $0.01 per share. - approved by 82.60% of the votes.
3. Amendment the Company's Certificate of Incorporation (i) Article Fourth
(D)(7), to provide that the Company may remove directors or adopt, repeal
or amend bylaws by a meeting of the shareholders or a written consent by
shareholders holding a majority of the voting shares; (ii) Article Fifth to
provide that the number of directors shall not be less than three, and to
remove the classification of the board of directors; (iii) Article Sixth to
provide that the affirmative vote of the majority of voting shares is
sufficient for the amendment or adoption of bylaws; (iv) Article Seventh to
remove the requirement of 80% shareholders' vote for certain transactions
and to provide that the affirmative vote of the majority of voting shares
is sufficient to approve those certain transactions listed in Article
Seventh; and Article Tenth to remove the requirement of 80% shareholders'
vote to amend Article Fourth, Paragraph D(7) and (8), Article Fifth, Sixth,
Seventh and Tenth, and to provide that the affirmative vote of the majority
of voting shares is sufficient to approve amendments to those provisions of
the Company's Certificate of Incorporation. - approved by 82.90% of the
votes.
4. A 138 to 1 reverse split of the Company's Common Stock. - approved by
83.60% of the votes.
5. Adoption of the restated and amended Bylaws of the Company. - approved by
83.20% of the votes.
6. Change of the Company's name to "Asia Resources Holdings Limited". approved
by 85.20% of the votes.
7. Adoption of the 1997 Incentive Stock Option Plan. - approved by 76.50% of
the votes.
PART II.
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- -----------------------------------------------------------------
The Registrant's Common Stock was listed on the New York Exchange ("NYSE")
(symbol : RGL) until December 7, 1994, at which time the NYSE suspended trading
since the Registrant did not meet the continued listing requirements. On
February 9, 1995, the Common Stock was removed from registration and listing on
the NYSE. The Registrant's Common Stock began trading on the NASD Electronic
Bulletin Board since August 1995. On February 8, 1999, the Company's name had
been changed to Asia Resources Holdings Limited (symbol : ASIA). The following
table sets forth the high and low prices of the Common Stock as reported in the
consolidated transaction reporting system during the periods indicated :
Quarter Ended High Low*
- ------------- ---- ----
March 31, 1997 0.01 0.01
June 30, 1997 0.01 0.01
September 30, 1997 0.01 0.01
December 31, 1997 0.05 0.01
March 31, 1998 0.03 0.01
June 30, 1998 0.03 0.01
September 30, 1998 0.02 0.01
December 31, 1998 0.02 0.01
* The low price reflects the average of the bid and asked prices.
As of April 12, 1999, there were approximately 875 beneficial holders of record
of the shares of the Registrant's Common Stock.
Dividend Policy
- ---------------
It is the current policy of the Board to retain earnings, if any, to provide
funds for the Company's operations. The payment of dividends is at the
discretion of the Board, and dividends may be paid only out of current earnings
and profits or retained earnings.
12
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
- -----------------------------------------------------------------------
SELECTED FINANCIAL DATA
- -----------------------
The following table presents the selected financial information of the
Registrant as of and for the years ended December 31, 1996, 1997 and 1998
assuming that the Registrant had owned the shares of Westronix Limited in 1995.
The information was extracted from the audited consolidated financial statements
of Asia Resources Holdings Ltd and subsidiaries prepared under US GAAP.
Summary of Financial Results - 1996, 1997 & 1998
<TABLE>
<CAPTION>
Income Statement 1996 1997 1998
- ---------------- ---- ---- ----
(Amount in thousands)
RMB USD RMB USD RMB USD
--- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Toll revenue 38,463 4,640 45,100 5,447 54,217 6,548
Income/(loss) from continuing
operations 9,681 1,168 (11,237) (1,357) (43,358) (5,236)
Net income/(loss) 11,876 1,433 (11,237) (1,357) (43,358) (5,236)
</TABLE>
Balance Sheet 1997 1998
- ------------- ---- ----
(Amount in thousands) RMB USD RMB USD
--- --- --- ---
Current assets 21,610 2,610 19,957 2,410
Total assets 794,536 95,958 769,664 92,955
Current liabilities 66,820 8,070 75,179 9,080
Long-term bank loans 342,799 41,400 344,526 41,609
Shareholders' equity (93,535) (11,296) (136,893) (16,533)
- --------------------
(a) The U.S. dollar conversion translation amount have been translated using the
unified exchange rate quoted by the Bank of China on December 31,1996, 1997 and
1998 of $1.00 =Rmb 8.29, $1.00 = Rmb 8.28 and $1.00 = Rmb 8.28 respectively. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States Dollars at those rate on December 31, 1996, 1997
and 1998 or at any other certain rate.
Overview
- --------
The year 1996 marked a substantial change in the business of the Company. In an
effort to benefit from the growing Chinese economy, management decided to
dispose of the oil exploration equipment supply operation and acquire the
Hangzhou toll road in September of 1996. The Company had thereby redirected its
focus from the US industrial product market to the infrastructure project
investment in China.
As of December 31, 1998, the Company had the following subsidiaries
Westronix Limited ("WL") - A holding company incorporated in the British Virgin
Islands.
13
<PAGE>
China Construction Holdings Limited ("CCHL") - a company incorporated in Hong
Kong, formally known as China Construction International Group Limited.
Hangzhou Zhongche Huantong Development Co., Ltd. (the "Operating Subsidiary" or
"Hangzhou Toll Road"), a Sino-foreign equity joint venture located in Hangzhou,
Zhejiang province.
Results of Operation - 1998 compared to 1997
- --------------------------------------------
Summary Financial Information
- -----------------------------
<TABLE>
<CAPTION>
(Rmb in thousands) 1997 1998 % change from prior year
--------- --------- ------------------------
<S> <C> <C> <C>
Toll revenue 45,100 54,217 20.2%
General and administrative expenses 32,951 45,547 38.2%
Interest income 1,036 806 (22.2%)
Interest expenses 23,735 72,137 203.9%
Exchange gain/(loss) (16) 1,134 718.8%
Net income/(loss) (11,237) (43,359) 285.9%
</TABLE>
Toll Revenue
- ------------
Toll revenue increased by 20.21% to Rmb54.2 million in 1998 from Rmb45.1 million
in 1997. This was primarily attributable to an increase in traffic volume by
24.9% from 4.3 million vehicles in 1997 to 5.37 million vehicles in 1998. The
increase in traffic volume was mainly due to the final phases of the toll road
were completed and in operation in 1998.
General and Administrative Expenses
- -----------------------------------
As compared with last year, general and administrative expenses increased by
38.23% to Rmb45,547,000 from Rmb32,951,000 for the year ended December 31, 1998.
This is due to the fact that additional depreciation was provided in the
Operating Subsidiary as the final phases of the toll road were completed and in
operation.
Interest income
- ---------------
Interest income was mainly derived from bank deposits.
Interest expenses
- -----------------
As compared with last period , interest expense went up 203.9% to Rmb72.1
million . This is due to the fact that additional interest expense was incurred
by the US$30 million convertible note as the interest rate of the note was
increased from 5% in 1997 to 9% in 1998. Also, as far as the Operating
Subsidiary concerned, the interest expense increased significantly as interest
expenses on bank loans and loan from Chinese joint venture partner to finance
construction of the final phases of the toll road could no longer be capitalized
for the year ended December 31, 1998.
Exchange Gain/(Loss)
- --------------------
Exchange gain/(loss) represents the favourable/(unfavourable) exchange
difference arising from remeasurement of reporting currencies of the different
companies within the Company into Renminbi, which is the Company functional
currency.
14
<PAGE>
Net Income/(Loss)
- ----------------
Net loss of the Company increased by 285.9% to a net loss of Rmb43,358,000 from
a net loss of Rmb11,237,000 for the year ended December 31, 1998. This was a
direct result of increase in general and administrative expenses and interest
expenses as mentioned above.
Liquidity and Capital Resources
- -------------------------------
For the year ended December 31, 1998, net cash used in operating activities and
investing activities were approximately Rmb57.4 million and Rmb4.1 million
respectively. Net cash provided by financing activities amounted to Rmb59.4
million, resulting in a net decrease in cash and cash equivalents of
approximately Rmb2.1 million for the year ended December 31, 1998.
Hongshou Toll Road guaranteed bank borrowings of CSH, a related company, in the
amounts of Rmb 56 million and Rmb 93 million as of December 31, 1997 and
December 31, 1998, respectively.
CSH undertook to provide continuing financial support to the Company to the
extent of CSH's proportionate interest until December 31, 1999.
Effects of Inflation
- --------------------
The general inflation rate in terms of the Retail Price Index in China was
approximately 6.3%, 0.8% and 2.6% for 1996, 1997 and 1998 respectively.
Management believes that inflation has not had significant impact on the
Operating Subsidiary.
Contingency
- -----------
Hangzhou Toll Road has obtained an approval from the local government to offset
the toll profit collected from the first and second phases of the toll road
against the construction-in-progress balances under PRC GAAP until the Projects
were completed in 1998. Thus, the tax holiday has been deferred until the
Projects are completed. As such, Hangzhou Toll Road reported zero net profits in
its statutory financial statements starting from the commencement of operations
in 1993 to 1997. The Company and Hanzhou Toll Road plans to record the net
profits offset against the Projects during 1993 to 1997 as income in its
financial statements prepared in accordance with PRC GAAP in the first two years
after commencement of the tax holiday. However, this treatment 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 and
Rmb5.3 million for the years ended December 31, 1996 and 1997 respectively may
arise. In the opinion of the directors, it is not probable that such a liability
will arise. Hangzhou Toll Road reported losses in its statutory accounts for the
year ended December 31, 1998 and accordingly, the tax holiday will not commence
until its first profit making year.
THE YEAR 2000 ISSUE
The Company recognizes that the Year 2000 issue exists because many computer
systems and application currently use two-digit date fields to designate a year.
As the century date occurs, date sensitive computers will recognize the year
2000 at 1900 or not at all. The inability to recognize or properly treat the
year 2000 may cause computers to process financial and operational information
incorrectly.
To ensure that the Company`s computer system is able to cope with the Year 2000
issue, the management has assessed carefully the risks and uncertainties
involved with this problem. Technical support from service provider and experts
has been obtained and upgrading of our accounting software has been completed.
According to the service provider, the upgraded version has been extensively
tested for Year 2000 compliance as part of its rigorous testing procedures
carries out before a product is released.
Unless unforeseeable situations appear, the Year 2000 issue will not pose any
significant operational problems to the Company and the Company believes no
significant expenses will be incurred for the Year 2000 compliance.
<PAGE>
Results of Operation - 1997 compared to 1996
- --------------------------------------------
Summary Financial Information
- -----------------------------
<TABLE>
<CAPTION>
(Rmb in thousands) 1996 1997 % change from prior year
--------- -------- ------------------------
<S> <C> <C> <C>
Toll revenue 38,463 45,100 17.3%
General and administrative expenses 15,419 32,951 113.7%
Interest income 796 1,036 30.2%
Interest expenses 1,023 23,735 2,220.1%
Exchange gain/(loss) 350 (16) (104.6%)
Net income/(loss) 11,876 (11,237) (194.6%)
</TABLE>
15
<PAGE>
Toll Revenue
- ------------
Toll revenue increased 17.3% to Rmb 45.1 million in 1997 from Rmb 38.46 million
in 1996. This was primarily attributable to an average increase of toll fees by
approximately 41%, partially offset by a decrease in traffic flows. Competition
from the Hangzhou section of the Shanghai - Ningbao Expressway, which was opened
in 1997, resulted in reduction of traffic volume from 5.2 million vehicles in
1996 to 4.3 million vehicles in 1997. The management believes the impact of the
Shanghai-Ningbo Expressway on traffic flow has already been reflected in 1996
and 1997 and that further decrease in traffic volume is unlikely. The final
phase of the toll road had been completed at the end of 1997 and should start to
generate revenues in the first half of 1998.
General and Administrative Expenses
- -----------------------------------
As compared with last year, general and administrative expenses went up 113.7%
to Rmb 33 million. This is due to the fact that additional depreciation of Rmb
14.77 million was provided in the Operating Subsidiary as the second phase of
the toll road had been completed and used.
Interest income
- ---------------
Interest income arose mainly from the US$900,000 note receivable and bank
deposits.
Interest expenses
- -----------------
As compared with last year, interest expenses went up 2220% to Rmb 23.7 million.
This is due to the fact that additional interest expenses were incurred by the
US$ 30 million convertible note. Also, with respect to the Operating Subsidiary,
the interest expenses were increased significantly as the bank loans were
increased from Rmb 237.5 million in 1996 to Rmb 362.7 million in 1997 and
interest expense on bank loans to finance construction of the second phase of
the Toll Road could no longer be capitalized in 1997 as operation of the second
phase commenced in the first quarter of fiscal 1997.
Exchange Gain/(Loss)
- --------------------
Exchange gain/(loss) represents the favourable/(unfavourable) exchange
difference arising from remeasurement of reporting currencies of the different
companies within the Group into Renminbi, which is the Group's functional
currency.
The exchange rates for Renminbi against U.S. Dollars were 8.32, 8.29 and 8.28
for 1995, 1996 and 1997 respectively, representing an appreciation of Renminbi
by 0.4% and 0.12% in 1996 and 1997 respectively, when comparing the exchange
rate at the end of the year with the position at the beginning of the year. As a
consequence, exchange gain/(loss) aroused.
Net Income/(Loss)
- -----------------
Net income fell 194.6% to net loss Rmb (11.2) million in 1997 from Rmb 11.9
million in 1996. This was attributable to the combined effect of the significant
increase in depreciation expenses and interest expenses.
16
<PAGE>
Liquidity and Capital Resources
- -------------------------------
In 1997, net cash used by operating activities and investing activities was
approximately Rmb 11.9 million and Rmb 157.3 million respectively. Net cash
provided by financing activities amounted to Rmb 167.6 million, resulting in a
net decrease in cash and cash equivalents of Rmb 1.6 million.
During the year, the Company incurred capital expenditures of Rmb 158.8 million
which was financed through bank borrowings and loans from the Chinese joint
venture partner amounting to Rmb 125 million and Rmb 31 million respectively.
CSH undertook to provide continuing financial support to the Company to the
extent of CSH's proportionate interest until December 31, 1998. The joint
venture has been able to independently ( and without CSH's involvement) procure
financing for the construction of the Toll Road and has not required any
additional funds from CSH. CSH provided guaranty for $5 million loans to the
joint venture, however, CSH did not provide any other direct contributions.
Effects of Inflation
- --------------------
The general inflation rate in terms of the Retail Price Index in China was
approximately 14.8%,6.3% and 0.8% for 1995, 1996 and 1997 respectively.
Management believes that inflation has not had significant impact on the
Operating Subsidiary.
Results of Operation - 1996 compared to 1995
- --------------------------------------------
Summary Financial Information
- -----------------------------
<TABLE>
<CAPTION>
(Rmb in thousands) 1995 1996 % change from prior year
--------- --------- ------------------------
<S> <C> <C> <C>
Toll revenue 37,206 38,463 3.4%
General and administrative expenses 10,516 15,646 48.8%
Exchange gain 1,101 350 (68.2%)
Net income 14,939 11,876 (20.5%)
</TABLE>
Toll Revenue
- ------------
Toll revenue increased 3.4% to Rmb 38.5 million in 1996 from Rmb 37.2 million in
1995. This was primarily attributable to an average increase of toll fees by
approximately 50%, partially offset by a decrease in traffic flows. Competition
from the Hangzhou section of the Shanghai - Ningbao Expressway, which was opened
this year, resulted in reduction of traffic volume from 6.1 million vehicles in
1995 to 5.2 million vehicles in 1996. The management believes the impact has
already been reflected in 1996. Further decrease of vehicle flows is unlikely.
Management is also optimistic about the future revenue generation ability of
Hangzhou Toll Road as the second phase of the toll road had been completed and
started to collect toll revenue from March, 1997. The toll rates for the second
phase is about double the toll rates for the first phase. In addition, the third
and final phase of the toll road was completed in December, 1997 and should
start to generate revenues in the 1998 fiscal year after obtaining the approval
from the PRC authorities.
<PAGE>
General and Administrative Expenses
- -----------------------------------
As compared with last year, general and administrative expenses went up 48.8% to
Rmb 15.6 million. This is due to the fact that additional professional fees were
incurred in 1996 and additional interest expenses incurred by the US$ 13.5
million convertible note in excess of the interest income generated from the
US$900,000 note receivable. Also, a management fee of approximately US$155,000
has been charged by China Strategic Holdings Limited for the year. As far as the
Operating Subsidiary is concerned, general and administrative expenses as a
percentage of toll revenue remained flat and has remained around 28% for the
past two years.
17
<PAGE>
Exchange Gain
- -------------
Exchange gain represents the favorable exchange difference arising from
remeasurement of reporting currencies of the different companies within the
Group into Renminbi, which is the Group's functional currency. Upon year end
revaluation of the amount payable to CSH, which were in terms of foreign
currency, exchange gains were recorded in the past three years due to continual
strengthening of Renminbi.
The exchange rates for Renminbi against U.S. Dollars were 8.44, 8.32 and 8.29 of
1994, 1995 and 1996 respectively, representing an appreciation of Renminbi by
1.4% and 0.4% in 1995 and 1996 respectively, when comparing the exchange rate at
the end of the year with the position at the beginning of the year. As a
consequence, exchange gain dropped substantially from Rmb 1.1 million of a year
earlier to Rmb 0.35 million this year.
Net Income
- ----------
Net income fell 20.5% to Rmb 11.9 million in 1996 from Rmb 14.9 million in 1995.
This was attributable to the combined effect of increased general and
administrative expenses, a decrease in exchange gain and a loss from
discontinued operations.
Loss from discontinued operations represents the operating loss of Regal Bell
and Rubber up to the date of disposal, which amounted to approximately
Rmb972,000. Net income in 1996 included a net gain on disposal of investment of
approximately Rmb3,730,000.
Liquidity and Capital Resources
- -------------------------------
In 1996, net cash provided by operating activities and financing activities was
approximately Rmb 3.1 million and Rmb 171.3 million respectively. Net cash used
in investing activities amounted to Rmb 175.1 million, resulting in a net
decrease in cash and cash equivalents of Rmb 0.7 million.
For the past three years, the Company had been able to generate sufficient cash
for its working capital needs. Net cash provided by operating activities dropped
substantially from Rmb 48.9 million in 1995 to Rmb 3.1 million in 1996
principally due to the combination of increases in other receivables by
approximately Rmb 13.4 million and a decrease in accounts payable by Rmb 11.4
million in 1996. The major contributor to the increase in other receivables was
the notes receivable arising from the disposal of Regal Bell and Rubber to New
Regal.
During the year, the Company incurred capital expenditures of Rmb 216.9 million,
which was financed through bank borrowings and loans from the Chinese joint
venture partner amounting to Rmb 140.0 million and Rmb 30.8 million
respectively.
As of December 31 1996, the Operating Subsidiary had outstanding capital
commitments for construction contracts of approximately Rmb 91.8 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 which are expected
to be completed by the end of fiscal year 1997. Hangzhou Toll Road will collect
toll revenue from all three phases of the toll road. Given its sound credit
history and good banking relationships, management believes that the Operating
Subsidiary will have access to adequate borrowing facilities to meet its cash
requirements in the foreseeable future.
18
<PAGE>
In general, there are no restrictions with respect to the Company and its
Operating Subsidiary to incur additional debts for financing capital
expenditures. However, the Operating Subsidiary being a PRC entity is required
to seek approval from the State Administration of Foreign Exchange, if it is to
accept loans or incur debts in US dollars or other foreign currencies. The
Company does not foresee any major limitations in this requirement. There are no
restrictions on the Company's further pledge of its assets.
At the end of 1996, there were cash and cash equivalents total to US$2,587,000
which comprised of approximately US$1.1 million at the corporate level and
US$1.5 million at the Operating Subsidiary level.
Effects of Inflation
- --------------------
The general inflation rate in terms of the Retail Price Index in China was
approximately 21.7%, 14.8%, and 6.3% for 1994, 1995 and 1996 respectively.
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 it has been able to pass on such cost
increments to toll road users by increasing toll rates.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
<PAGE>
ASIA RESOURCES HOLDINGS LIMITED AND SUBSIDIARIES
==================================================
(FORMERLY KNOWN AS REGAL INTERNATIONAL, INC. AND SUBSIDIARIES)
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
AS OF DECEMBER 31, 1997 AND 1998
--------------------------------
TOGETHER WITH AUDITORS' REPORTS
-------------------------------
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ASIA RESOURCES HOLDINGS LIMITED:
We have audited the accompanying consolidated balance sheets of Asia Resources
Holdings Limited (formerly known as Regal International, Inc.) and its
subsidiaries as of December 31, 1997 and 1998, and the related consolidated
statements of operations, cash flows and changes in shareholders' equity
(deficit) for the years ended December 31, 1996, 1997 and 1998, 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 audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Asia Resources
Holdings Limited and its subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for the years ended December
31, 1996, 1997 and 1998, in conformity with generally accepted accounting
principles in the United States of America.
Hong Kong,
April 15, 1999.
- 1 -
<PAGE>
ASIA RESOURCES HOLDINGS LIMITED AND SUBSIDIARIES
------------------------------------------------
(formerly known as Regal International, Inc. and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
----------------------------------------------------
(Amounts in thousands, except number of shares and earnings (loss) per common
share)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------------------
1996 1997 1998
-------------- -------------- --------------------------------
Rmb Rmb RMB US$
<S> <C> <C> <C> <C>
Toll revenue 38,463 45,100 54,217 6,548
General and administrative expenses (15,419) (32,951) (45,547) (5,501)
Interest income 796 1,036 806 97
Interest expense (1,023) (23,735) (72,137) (8,712)
Exchange gains (losses), net 350 (16) 1,134 138
-------------- -------------- -------------- --------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND MINORITY INTERESTS 23,167 (10,566) (61,527) (7,430)
Provision for income taxes - - - -
-------------- -------------- -------------- --------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE MINORITY
INTERESTS 23,167 (10,566) (61,527) (7,430)
Minority interests (13,486) (671) 18,169 2,194
-------------- -------------- -------------- --------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 9,681 (11,237) (43,358) (5,236)
Net gain on disposal of investment 3,730 - - -
Loss from discontinued operations (1,535) - - -
-------------- -------------- -------------- --------------
NET INCOME (LOSS) 11,876 (11,237) (43,358) (5,236)
============== ============== ============== ==============
Basic earnings (loss) per common share:
- from continuing operations 16.21 (18.82) (72.61) (8.77)
- from discontinued operations 3.68 - - -
-------------- -------------- -------------- --------------
19.89 (18.82) (72.61) (8.77)
============== ============== ============== ==============
<PAGE>
Diluted earnings (loss) per common share:
- from continuing operations 1.22 (18.82) (72.61) (8.77)
- from discontinued operations 0.28 - - -
-------------- -------------- -------------- --------------
1.50 (18.82) (72.61) (8.77)
============== ============== ============== ==============
Weighted average number of common shares
outstanding 597,132 597,132 597,132 597,132
============== ============== ============== ==============
</TABLE>
Translation of amounts from Renminbi (Rmb) into United States Dollars (US$) for
the convenience of the reader has been made at the unified rate of exchange
quoted by the People's Bank of China on December 31, 1998 of US$1.00 = Rmb8.28.
No representation is made that the Renminbi amounts could have been, or could
be, converted into United States Dollars at that rate on December 31, 1998 or at
any other certain rate.
- 2 -
<PAGE>
ASIA RESOURCES HOLDINGS LIMITED AND SUBSIDIARIES
------------------------------------------------
(formerly known as Regal International, Inc. and Subsidiaries)
CONSOLIDATED BALANCE SHEETS AS OF
---------------------------------
DECEMBER 31, 1997 AND 1998
--------------------------
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
1997 1998
-------------- --------------------------------
ASSETS Rmb RMB US$
- ------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 19,875 17,769 2,146
Prepayments 1,286 921 111
Other receivables and other current assets 449 587 71
Due from a related company - 680 82
-------------- -------------- --------------
TOTAL CURRENT ASSETS 21,610 19,957 2,410
Notes receivable 11,742 11,373 1,374
Prepayments for construction-in-progress 830 - -
Property, plant and equipment, net 760,354 738,334 89,171
-------------- -------------- --------------
TOTAL ASSETS 794,536 769,664 92,955
============== ============== ==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
- -------------------------------------
CURRENT LIABILITIES
Long-term bank loans - current portion 20,000 50,000 6,039
Accounts payable 24,223 18,288 2,209
Accrued expenses and other payables 22,414 6,594 796
Due to a related company 38 10 1
Taxes other than income 145 287 35
-------------- -------------- --------------
TOTAL CURRENT LIABILITIES 66,820 75,179 9,080
Long-term bank loans 342,799 344,526 41,609
Convertible note payable 249,600 248,451 30,006
Due to Chinese joint venture partner 72,376 80,156 9,681
Due to immediate holding company 10,038 32,401 3,913
Due to ultimate holding company 3,600 1,175 142
-------------- -------------- --------------
TOTAL LIABILITIES 745,233 781,888 94,431
-------------- -------------- --------------
MINORITY INTERESTS 142,838 124,669 15,057
CONTINGENCY (NOTE 16)
SHAREHOLDERS' DEFICIT
Preferred stock, par value US$0.1 each;
10,000,000 shares authorized
Common stock, par value US$0.01 each; 7,971,014
shares authorized; 597,132 shares outstanding 6,806 6,806 822
Additional paid-in capital 15,773 15,773 1,905
Accumulated deficit (116,114) (159,472) (19,260)
-------------- -------------- --------------
TOTAL SHAREHOLDERS' DEFICIT (93,535) (136,893) (16,533)
-------------- -------------- --------------
<PAGE>
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT 794,536 769,664 92,955
============== ============== ==============
</TABLE>
Translation of amounts from Renminbi (Rmb) into United States Dollars (US$) for
the convenience of the reader has been made at the unified rate of exchange
quoted by the People's Bank of China on December 31, 1998 of US$1.00 = Rmb8.28.
No representation is made that the Renminbi amounts could have been, or could
be, converted into United States Dollars at that rate on December 31, 1998 or at
any other certain rate.
- 3 -
<PAGE>
ASIA RESOURCES HOLDINGS LIMITED AND SUBSIDIARIES
------------------------------------------------
(formerly known as Regal International, Inc. and Subsidiaries)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
----------------------------------------------------
(Amounts in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------------------
1996 1997 1998
-------------- -------------- --------------------------------
Rmb Rmb RMB US$
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Income (loss) from continuing operations 9,681 (11,237) (43,358) (5,236)
Net gain on disposal of investment 3,730 - - -
Loss from discontinued operations (1,535) - - -
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Minority interests 13,486 671 (18,169) (2,194)
Depreciation and amortization 4,117 18,885 27,328 3,300
Unrealized exchange gain on convertible
note payable - - (1,149) (139)
(Increase) Decrease in assets:
Prepayments (18) (817) 365 44
Other receivables and other current assets (170) 22 (138) (17)
Due from a related company - - (680) (82)
Increase (Decrease) in liabilities:
Accounts payable (11,428) 14,456 (5,935) (717)
Accrued expenses and other payables (1,570) (33,911) (15,820) (1,911)
Due to a related company (1,500) 38 (28) (3)
Taxes other than income 7 31 142 17
-------------- -------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 14,800 (11,862) (57,442) (6,938)
-------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) Decrease in notes receivable (13,227) 1,485 369 45
Prepayments for construction-in-progress 19,846 - - -
Acquisition of property, plant and
equipment (216,912) (158,768) (4,478) (541)
Changes in net assets of discontinued
operations 21,949 - - -
-------------- -------------- -------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (188,344) (157,283) (4,109) (496)
-------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of bank loans 140,000 188,299 129,516 15,642
Repayment of bank loans - (63,000) (97,789) (11,810)
Increase in due to Chinese joint venture
partner 30,818 31,058 7,780 940
Increase in due to immediate holding
company - 10,038 22,363 2,701
Increase (Decrease) in due to ultimate
holding company 1,997 1,182 (2,425) (293)
-------------- -------------- -------------- --------------
<PAGE>
NET CASH PROVIDED BY FINANCING ACTIVITIES 172,815 167,577 59,445 7,180
-------------- -------------- -------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (729) (1,568) (2,106) (254)
Cash and cash equivalents, at beginning of
year 22,172 21,443 19,875 2,400
-------------- -------------- -------------- --------------
Cash and cash equivalents, at end of year 21,443 19,875 17,769 2,146
============== ============== ============== ==============
</TABLE>
Translation of amounts from Renminbi (Rmb) into United States Dollars (US$) for
the convenience of the reader has been made at the unified rate of exchange
quoted by the People's Bank of China on December 31, 1998 of US$1.00 = Rmb8.28.
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, 1998 or at
any other certain rate.
- 4 -
<PAGE>
ASIA RESOURCES HOLDINGS LIMITED AND SUBSIDIARIES
------------------------------------------------
(formerly known as Regal International, Inc. and Subsidiaries)
CONSOLIDATED STATEMENTS OF CHANGES IN
-------------------------------------
SHAREHOLDERS' DEFICIT
---------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
----------------------------------------------------
(Amounts in thousands, except number of shares)
<TABLE>
<CAPTION>
Shares of Additional
Common Common Paid-in Accumulated
Stock Stock Capital Deficit Total
-------------- -------------- -------------- -------------- --------------
Number Rmb Rmb Rmb Rmb
<S> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1995 597,132 6,806 (80,646) (116,753) (190,593)
Contributed by China
Strategic Holdings
Limited (see Notes 2
and 15) - - 96,419 - 96,419
Net income/Total
comprehensive income - - - 11,876 11,876
-------------- -------------- -------------- -------------- --------------
BALANCE AT
DECEMBER 31, 1996 597,132 6,806 15,773 (104,877) (82,298)
Net loss/Total
comprehensive loss - - - (11,237) (11,237)
-------------- -------------- -------------- -------------- --------------
BALANCE AT
DECEMBER 31, 1997 597,132 6,806 15,773 (116,114) (93,535)
Net loss/Total
comprehensive loss - - - (43,358) (43,358)
-------------- -------------- -------------- -------------- --------------
BALANCE AT
DECEMBER 31, 1998 597,132 6,806 15,773 (159,472) (136,893)
============== ============== ============== ============== ==============
</TABLE>
- 5 -
<PAGE>
<PAGE>
ASIA RESOURCES HOLDINGS LIMITED AND SUBSIDIARIES
------------------------------------------------
(formerly known as Regal International, Inc. 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
- ----------------------------------------------
Asia Resources Holdings Limited ("Asia Resources" or the "Company"), formerly
known as Regal International Inc., was incorporated in the State of Delaware,
the United States of America and is listed on the National Association of
Securities Dealers Automated Quotations ("NASDAQ") with an authorized share
capital of US$2,500 representing 150,000,000 shares of common stock US$0.01 each
and 10,000,000 shares of preferred stock of US$0.1 each. Pursuant to a
resolution passed by the shareholders of the Company dated October 27, 1998, the
Company changed its name from Regal International, Inc. to Asia Resources
Holdings Limited with effect from February 8, 1999.
On February 8, 1999, the authorized share capital of the Company was also
increased from US$2,500 to US$12,000 by the creation of 950,000,000 shares of
common stock with a par value of US$0.01 each. On February 19, 1999, the Company
effected a 1-for-138 reverse stock split for common stock and the then
authorized 1,100,000,000 shares of common stock were converted into 7,971,014
authorized shares of common stock with a redenomination of the par value at
US$0.01 each.
Pursuant to an Acquisition Agreement dated February 8, 1996 between Asia
Resources, Acewin Profits Limited ("AP"), 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, Asia Resources
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 Asia Resources to Horler Holdings Limited
("Horler"), a British Virgin Islands company and a wholly-owned subsidiary of
CSH, bearing interest at 9% per annum after an initial 6-month interest-free
period. AP was also a wholly-owned subsidiary of CSH before the transfer and
AP'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 (the "PRC"), held through an intermediate Hong Kong company, China
Machine (Holdings) Limited.
- 6 -
<PAGE>
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (CONT'D)
- ----------------------------------------------
Pursuant to another Asset Purchase Agreement ("the Agreement") dated February 8,
1996 between Asia Resources and Regal (New) International, Inc. ("New Regal"),
the Company sold and transferred the operating assets and real property of Asia
Resources existing as of January 31, 1996 to New Regal in exchange for US$2.5
million and New Regal's assumption of all liabilities incurred, accrued or
arising from the operations of Asia Resources prior to the closing date of this
transaction, other than the Convertible Note A.
Pursuant to the Agreement, the US$2.5 million portion of the purchase price was
paid US$800 in cash and the balance by delivery of two promissory notes with a
total principal amount of US$1,700 (see also Note 6). The realized loss in
connection with this transaction amounted to approximately US$69 and was
included as part of "Loss from discontinued operations" in the Company's
consolidated statement of operations for the year ended December 31, 1996.
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 Asia
Resources from a major shareholder of the Company thus becoming its major and
controlling shareholder.
In connection with an Acquisition Agreement dated September 10, 1996 between
Asia Resources and Westronix Limited ("WL"), another wholly owned subsidiary of
CSH, Asia Resources 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 Asia Resources to Horler
bearing interest at 9% per annum after an initial 6-month interest-free period
and due and payable on September 10, 1999. The Convertible Note B is secured by
all assets of WL and its subsidiaries. The principal and any unpaid interest
owing on the Convertible Note B can be converted into shares of the Common Stock
of Asia Resources ("Common Stock") at a conversion price of US$4.1676 per share.
On conversion, CSH would indirectly hold approximately 96.1% of the outstanding
stock of the Company. WL's sole asset is a 51% equity interest in Hangzhou
Zhongce Huantong Development Co. Ltd., a Sino-foreign equity joint venture
incorporated in the PRC, held through an intermediate Hong Kong company, China
Construction Holdings Limited.
Pursuant to a Purchase Agreement dated September 11, 1996 between Asia
Resources, an unrelated company incorporated in the Netherlands and CSH, Asia
Resources 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 principal of the
Convertible Note A of US$13.5 million on September 13, 1996. The realized gain
of US$450 on the disposal of AP was included as part of "Net gain on disposal of
investment " in the Company's consolidated statement of operations for the year
ended December 31, 1996.
During 1997, Horler agreed to reduce the interest rate of the Convertible Note B
from 9% to 5% per annum for the year ended December 31, 1997. Subsequent to
1998, Horler agreed that no principal repayment of the Convertible Note B would
be demanded until the Company is financially capable of doing so. However, the
Convertible Note B continues to bear interest at 9% per annum.
- 7 -
<PAGE>
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (CONT'D)
- ----------------------------------------------
The Board of Directors considers Horler and CSH, respectively, to be the
immediate and ultimate holding company of the Company.
As of December 31, 1998, the Company had the following subsidiaries (together
with the Company, collectively referred to as the "Group"):
Westronix Limited ("WL") - a holding company incorporated in the British Virgin
Islands.
China Construction Holdings Limited ("CCHL") - a company incorporated in Hong
Kong, formerly known as China Construction International Group Limited.
Hangzhou Zhongche Huantong Development Co., Ltd. ("Hangzhou Toll Road") - a
Sino-foreign equity joint venture located in Hangzhou, Zhejiang Province, the
PRC.
The Company holds a 100% interest in WL. WL holds a 100% interest in CCHL which
in turn holds a 51% interest in Hangzhou Toll Road.
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 PRC. The total cash consideration paid by CCHL for its interest in Hangzhou
Toll Road amounted to Rmb102,000. Tolls collected from the first phase of the
toll road, which was injected by Hangzhou City Transportation Development
Company, the Chinese joint venture partner, as its share of the registered
capital in the joint venture, as well as cash injected by CCHL, were utilized to
finance the construction of the second and third phases of the toll road (the
"Projects"). The Projects were completed by the end of 1997 and Hangzhou Toll
Road commenced to collect tolls from all three phases in 1998.
Key provisions of the joint venture agreement of Hangzhou Toll Road include:
o the joint venture period is 30 years from the date of formation;
o the profit and loss sharing ratio is the same as the percentage of equity
interest; and
o the Board of Directors consists of 7 members : 4 designated by CCHL and 3
designated by Hangzhou City Transportation Development Company.
The acquisition of Hangzhou Toll Road by CCHL was accounted for by the purchase
method of accounting. The tangible assets were valued at their estimated fair
values. The results of Hangzhou Toll Road are included in the consolidated
statements of operations from the date of formation of the joint venture, June
23, 1993. No revenue was generated from the toll road before the formation of
the joint venture.
- 8 -
<PAGE>
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (CONT'D)
- ----------------------------------------------
Pursuant to a supplemental shareholders' agreement (the "Guaranteed Distribution
Agreement") dated May 18, 1998 between CCHL and the Chinese joint venture
partner of Hangzhou Toll Road (the "Chinese Partner"), the Chinese Partner
agreed to pay CCHL a fixed annual distribution of Rmb15,300 (the "Guaranteed
Distribution") from January 1, 1998 through the expiration of the joint venture
period of Hangzhou Toll Road. Any surplus income generated from Hangzhou Toll
Road in excess of the amount of the Guaranteed Distribution would belong to the
Chinese Partner and any shortfall would be made up by the Chinese Partner. In
addition, as part of the Guaranteed Distribution Agreement, an amount of
Rmb178,500 would be paid to CCHL upon the expiration of the joint venture period
of Hangzhou Toll Road and the assets of the joint venture would be surrendered
to the Chinese Partner at no further consideration. This Guaranteed Distribution
Agreement is subject to approvals by the authorities which originally approved
the set up of the joint venture.
To date, the approvals from the relevant government authorities have not been
obtained despite efforts by the management of the joint venture and the Company.
The Board of Directors of the Company are currently of the view that the
necessary approvals may not be obtained and the agreement cannot be effectuated
without such approvals. Accordingly, the Company has continued to consolidate
Hangzhou Toll Road for the year ended December 31, 1998 and has not reflected
the Guaranteed Distribution Agreement in the accounts.
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 Hangzhou Toll Road 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; or the expropriation or
nationalization of private enterprises.
- 9 -
<PAGE>
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (CONT'D)
- ----------------------------------------------
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, 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 Hangzhou
Toll Road and the Company.
More recently, it has been exposed to the economic crisis in Asia. The central
government has from time to time adopted various measures designed to stabilize
the economy, regulate growth and control inflation. All such economic events and
measures could adversely affect the Group's results of operations and expansion
plans.
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.
Hangzhou Toll Road conducts substantially all of its business in the PRC, and
its financial performance and condition are measured in terms of Renminbi.
Hangzhou Toll Road's source of income, toll revenue, is denominated in Renminbi.
Revenue 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 Hangzhou Toll Road to the Company. The
Company currently is not able to hedge its Renminbi - United States Dollar
exchange rate exposure in the PRC because neither the banks in the PRC nor any
other financial institutions authorized to engage in foreign exchange
transactions offer forward exchange contracts.
- 10 -
<PAGE>
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (CONT'D)
- ----------------------------------------------
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 Hangzhou Toll Road is subject to approval
by the Hangzhou Municipal Government and Hangzhou City Transportation
Department. However, there is no assurance that proposed increases will be
approved by these government authorities. If such proposals are denied, profit
margins of Hangzhou Toll Road could be reduced.
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 Hangzhou Toll Road, 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
Hangzhou Toll Road to U.S. GAAP included the following:
o Provision of depreciation on roads and bridges.
o Recognition of toll profit on the accrual basis and upon the commencement
of operations as toll profit has been deferred until the commencement of
operations of the entire toll road under PRC GAAP.
Under PRC GAAP, toll revenue was recognized on receipt basis but the toll
operating profit (representing toll revenue less all operating expenses) was
offset against construction-in-progress up to December 31, 1997, as agreed with
the local government, until the commencement of operation of the entire toll
road in 1998. Under U.S. GAAP, toll revenue was also recognized on the receipt
basis. However, the toll operating profit is recorded in the statements of
operations of Hangzhou Toll Road in the respective years. This is different from
the accounting treatment under PRC GAAP.
- 11 -
<PAGE>
2. BASIS OF PRESENTATION (CONT'D)
- ------------------------------
The transfer of CSH's equity interests in CCHL to WL and the transfer of CSH's
equity interests in WL to Asia Resources 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 CCHL to WL and in WL to Asia
Resources as if they had occurred on the date of formation of Hangzhou Toll
Road, June 23, 1993. The acquisition of Hangzhou Toll Road was financed by
advances from CSH. In 1996, the advances payable to CSH in relation to the above
acquisition were capitalized and treated as an increase in additional paid-in
capital. Due to the specific requirements of U.S. GAAP for transfers of assets
between entities under common control, the difference of Rmb147,600 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. This,
together with the annual profits and losses, has resulted in the Company
recording total shareholders' deficit of Rmb82,298, Rmb93,535 and Rmb136,893 as
of December 31, 1996, 1997 and 1998 respectively.
Asia Resources's acquisition of CSH's interests in AP and its subsequent
disposal have been accounted for using the purchase method of accounting. The
results of operations of AP and its subsidiaries have not been consolidated into
the financial statements for the year ended December 31, 1996 given the
temporary nature of the holding.
Loss from the historical operations of Asia Resources for the years ended
December 31, 1996, which included loss from oilfield, marine rubber, custom
molded and safety devices, has been reclassified as "Loss from discontinued
operations" in the consolidated statements of operations as a result of the
disposal of the related net assets to New Regal in 1996.
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 of Hangzhou Toll Road represents the gross receipts at the
toll stations, net of business tax calculated at 5% (1996 and 1997 :
3%) of the gross toll receipts.
- 12 -
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- ---------------------------------------------------
c. CASH AND CASH EQUIVALENTS
-------------------------
Cash and cash equivalents include cash on hand and demand deposits with
banks with an original maturity of three months or less. Cash and cash
equivalents included United States Dollar deposits of US$1,200
(Rmb9,937) and US$556 (Rmb4,602) as of December 31, 1997 and 1998
respectively.
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
land use rights, roads and bridges which have no residual value) of the
cost of the assets. Depreciation of fixed assets commences when
commercial operations related to the fixed assets begin. The estimated
useful lives are as follows:
Land use rights 30 years
Roads and bridges 30 years
Buildings 20 years
Machinery and equipment 5 years
Motor vehicles 5 years
Furniture, fixtures and office equipment 5 years
Safety equipment 8 years
Construction-in-progress ("CIP" see also Note 4) represents new roads
and bridges under construction and/or 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 by Hangzhou Toll
Road amounted to Rmb35,613 for the year ended December 31, 1997 (1998
Nil).
Hangzhou Toll Road retains the ownership interest in the roads and
bridges constructed during the joint venture period of 30 years from
the date of formation. Upon expiration of the joint venture period, in
accordance with the joint venture agreement, the roads and bridges
owned by Hangzhou Toll Road will be surrendered to the Chinese joint
venture partner at no consideration.
- 13 -
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- ---------------------------------------------------
e. IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
Statement of Financial Accounting Standard ("U.S. FAS") No. 121
requires entities to perform separate calculations for assets to be
held and used to determine whether recognition of an impairment loss is
required, and if so, to measure the impairment. If the sum of expected
future cash flows, undiscounted and without interest charges, is less
than an asset's carrying value, an impairment loss is recognized; if
the sum of the expected future cash flows is greater than an asset's
carrying value, an impairment loss cannot be recognized. Measurement of
an impairment loss is based on the fair value of the asset. U.S. FAS
No. 121 also generally requires long-lived assets and certain
identifiable intangibles to be disposed of to be reported at the lower
of the carrying value or fair value less cost to sell. Based on an
assessment by the Company of the potential impact of U.S. FAS No. 121,
there was no impairment loss as of December 31, 1997 and 1998.
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 Hangzhou Toll Road has been provided as the earnings of the
subsidiaries have been reinvested and, in the opinion of management,
will continue to be reinvested indefinitely.
WL was incorporated under the laws of the British Virgin Islands, and
under current British Virgin Islands laws, WL is not subject to tax on
income or on capital gains.
The Company and its subsidiaries (except WL and Hangzhou Toll Road)
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. As of
December 31, 1996, 1997 and 1998, the Company and its subsidiaries did
not have any assessable profits and accordingly, no provision for Hong
Kong profits tax was made.
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 more than 10 years and is engaged in
infrastructure construction, Hangzhou Toll Road will be fully exempted
from the Chinese state 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").
- 14 -
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- ---------------------------------------------------
f. TAXATION: INCOME TAXES (CONT'D)
----------------------
If Hangzhou Toll Road had not been in the tax holiday period, it would
have recorded additional income tax expense of Rmb10,176, Rmb10,696 and
net income (loss) of the Company would have been reduced (increased) by
Rmb5,190 and Rmb5,455 for the years ended December 31, 1996 and 1997
respectively (see also Note 16). No income tax provision was required
for the year ended December 31, 1998 as Hanghzou Toll Road did not have
any assessable income.
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
----------------------
Hangzhou Toll Road is subject to business tax, which is the principal
direct tax on the toll revenue generated. The business tax rate
applicable to Hangzhou Toll Road is 3%, 3% and 5% for the years ended
December 31, 1996, 1997 and 1998 respectively.
h. FOREIGN CURRENCY TRANSLATION
----------------------------
The functional currency of the Group and the Company is Renminbi.
Hangzhou Toll Road maintains its books and records in Renminbi. Foreign
currency transactions are translated into Renminbi at the applicable
rates of exchange quoted by the People's Bank of China ("the unified
rates of exchange") 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
prevailing at the balance sheet dates. The resulting exchange
differences are included in the determination of income (loss) of
Hangzhou Toll Road.
- 15 -
<PAGE>
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- ---------------------------------------------------
h. FOREIGN CURRENCY TRANSLATION (CONT'D)
----------------------------
The Company maintains its books and records in United States Dollars.
For consolidation purposes, its financial statements are remeasured
into Renminbi to produce the same result as if the Company's books and
records had been initially recorded in Renminbi. Monetary assets and
liabilities denominated in foreign currencies are remeasured into
Renminbi at the applicable unified rates of exchange prevailing at the
dates of the transactions. Monetary assets and liabilities denominated
in foreign currencies are remeasured into Renminbi using the applicable
unified rates of exchange 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 the United States
Dollars. For financial reporting purposes, the United States Dollars
capital injection amounts have been translated into Renminbi at the
unified rate of exchange as quoted by the People's Bank of China as of
December 31, 1995.
i. DEDICATED CAPITAL
-----------------
In accordance with the relevant laws and regulations for Sino-foreign
equity joint venture enterprises, Hangzhou Toll Road 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 Hangzhou Toll Road will determine on an
annual basis the amount of the annual appropriations to dedicated
capital. For the period from January 1, 1996 to December 31, 1998,
Hangzhou Toll Road did not report any profits in the statutory
financial statements, and accordingly, no appropriation to dedicated
capital has been made.
j. 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.
- 16 -
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- ---------------------------------------------------
k. EARNINGS PER COMMON SHARE
-------------------------
The calculation of basic earnings per common share is based on the
weighted average number of common shares outstanding during the years
ended December 31, 1996, 1997 and 1998 and adjusted retroactively for a
1-for-138 reverse stock split (see Notes 1 and 11). The calculation of
diluted earnings per common share is based on the common shares
outstanding during the years ended December 31, 1996, 1997 and 1998,
adjusted retroactively for the 1-for-138 reverse stock split effected
subsequent to 1998, the assumed conversion of the Company's US$30
million convertible Note B as mentioned in Note 1 and the exercise of
the stock options as mentioned in Note 12.
The number of shares used in the computation was as follows:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 7 1 9 9 8
-------------- -------------- --------------
<S> <C> <C> <C>
Basic EPS computation 597,132 597,132 597,132
Diluted EPS computation 7,945,520 597,132 597,132
</TABLE>
l. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The Company values its financial instruments as required by U.S. FAS
No. 107, "Disclosures about Fair Value of Financial Instruments". The
estimated fair value amounts have been determined by the Company, using
available market information and appropriate valuation methodologies.
The estimates presented herein are not necessarily indicative of
amounts that the Company could realize in a current market exchange.
The carrying amounts of cash and cash equivalents, and convertible note
payable are reasonable estimates of their fair values. The interest
rate on the Company's convertible note payable approximates that which
would have been available at December 31, 1998 for debt of similar
remaining maturity.
The estimated fair values of notes receivable were Rmb10,218 and
Rmb10,317 as of December 31, 1997 and 1998 respectively, representing
the net present values computed based on estimated current market rates
for similar instruments. The carrying values of these notes receivable
were Rmb11,742 and Rmb11,373 as of December 31, 1997 and 1998
respectively.
- 17 -
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- ---------------------------------------------------
m. COMPREHENSIVE INCOME
--------------------
In 1998, the Company adopted U.S. FAS No. 130, "Reporting Comprehensive
Income" which requires the components of comprehensive income to be
disclosed in the financial statements. Comprehensive income consists of
net income and other gains and losses affecting shareholders' equity
that, under generally accepted accounting principles, are excluded from
net income. For the Company, comprehensive income only represents its
net income and the adoption of U.S. FAS No. 130 did not have a material
effect on the Company's primary financial statements.
n. SEGMENT INFORMATION
-------------------
In 1998, the Company adopted U.S. FAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which requires
certain information to be reported about operating segments on a basis
consistent with the Company's internal organization structure. The
adoption of U.S. FAS No. 131 did not have a material effect on the
Company's primary financial statements, but did affect the disclosure
of segment information contained in Note 14.
4. PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
<TABLE>
<CAPTION>
December 31, DECEMBER 31,
1997 1998
-------------- --------------
Rmb RMB
<S> <C> <C>
Land use rights 10,541 10,541
Roads and bridges 753,736 754,084
Buildings 2,033 4,391
Machinery and equipment 3,998 4,187
Motor vehicles 3,328 3,811
Furniture, fixtures and office equipment 59 106
Safety equipment 14,129 14,129
Construction-in-progress 4,520 6,403
Less: Accumulated depreciation and amortization (31,990) (59,318)
-------------- --------------
Net book value 760,354 738,334
============== ==============
</TABLE>
- 18 -
<PAGE>
5. LONG-TERM BANK LOANS
- -----------------------------
Long-term bank loans, all of which are unsecured, bear average interest rates of
approximately 14.25% and 9.19% as of December 31, 1997 and 1998 respectively and
are repayable as follows: <TABLE> <CAPTION>
December 31, DECEMBER 31,
1997 1998
-------------- --------------
Rmb RMB
<S> <C> <C>
1998 20,000 -
1999 104,500 50,000
2000 100,000 120,500
2001 82,936 134,658
2002 49,863 49,868
2003 5,500 39,500
-------------- --------------
Total 362,799 394,526
============== ==============
</TABLE>
Long-term bank loans included United States Dollar loans of US$1,000 (Rmb8,289)
and USD3,560 (Rmb29,526) as of December 31, 1997 and 1998 respectively. Loans
amounting to Rmb347,799 and Rmb394,526 as of December 31, 1997 and 1998
respectively are guaranteed by CSH or related companies.
6. NOTES RECEIVABLE
- -------------------------
As mentioned in Note 1, the Company sold and transferred its operating assets
and real property as of January 31, 1996 to New Regal. As part of the
consideration of the sale, the Company received two promissory notes from New
Regal, one in the principal amount of US$900 (the "US$900 Note") and another 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 February 1, 2001. Both promissory notes are secured by all
the outstanding shares of New Regal registered in the name of Harlequin
Investment Holdings Limited ("Harlequin"), the immediate holding company of New
Regal.
Pursuant to a Deed of Variation dated July 27, 1998 among the Company, New Regal
and Harlequin, Harlequin agreed and undertook to assume all the obligations and
liabilities of New Regal under the US$800 Note in consideration of the Company's
agreement to release New Regal from all obligations relating to the US$800 Note.
All other terms of the US$800 Note remains unchanged.
During 1998, New Regal re-negotiated the terms of the US$900 Note with the
Company and a revised payment schedule was reached. Under the revised payment
schedule, the payment of several monthly installments by New Regal in 1998 and
1999 were suspended and the payment of the outstanding principal balance of
US$573 was to be settled by sixty equal monthly installments commencing March
1999. The US$900 Note continues to bear interest at 9% per annum during the
period of payment suspension in 1998 and 1999 and thereafter.
- 19 -
<PAGE>
6. NOTES RECEIVABLE (CONT'D)
- -------------------------
The Company belives that no provision is required for the two notes.
7. DISTRIBUTION OF PROFITS
- --------------------------------
Dividends from Hangzhou Toll Road 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, 1998, Hangzhou
Toll Road had no available retained earnings for distribution according to its
statutory financial statements.
8. PROVISION FOR INCOME TAXES
- -----------------------------------
The reconciliation of the effective income tax rate based on income (loss) from
continuing operations before income taxes and minority interests stated in the
consolidated statements of operations to the statutory income tax rates in Hong
Kong, the British Virgin Islands, the PRC and the U.S. is as follows:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 7 1 9 9 8
-------------- -------------- --------------
Rmb Rmb RMB
(NOTE a)
<S> <C> <C> <C>
Weighted average statutory tax rate 33.0% 33.0% 33.0%
Effect of tax holiday (33.0%) (33.0%) -
Effect of valuation allowance - - (33.0%)
-------------- -------------- --------------
Effective tax rate - - -
============== ============== ==============
</TABLE>
Note a: The Company and its subsidiaries did not have any assessable income
for 1998.
Provision for income taxes consists of:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 7 1 9 9 8
-------------- -------------- --------------
Rmb Rmb RMB
<S> <C> <C> <C>
Current - - -
Deferred 2,082 6,683 6,696
Establishment of a valuation allowance
(2,082) (6,683) (6,696)
-------------- -------------- --------------
- - -
============== ============== ==============
</TABLE>
- 20 -
<PAGE>
8. PROVISION FOR INCOME TAXES (CONT'D)
- -----------------------------------
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 Group to generate income in future years. No net provision or
benefit for deferred income taxes was recognized in 1996, 1997 and 1998.
9. RELATED PARTY TRANSACTIONS AND ARRANGEMENTS
- ----------------------------------------------------
Hangzhou Toll Road guaranteed bank borrowings of a related company of CSH in the
amounts of Rmb56 million and Rmb93 million as of December 31, 1997 and 1998,
respectively.
The Company paid management fees of US$155 (Rmb1,283) each year to CSH during
1996, 1997 and 1998 for administrative services rendered on behalf of the
Company by CSH.
Amounts due to immediate holding company represented interest payable on the
Convertible Note B as mentioned in Note 1.
Amounts due to ultimate holding company are unsecured and non-interest bearing.
CSH has committed 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,
1999.
10. DUE TO CHINESE JOINT VENTURE PARTNER
- ---------------------------------------------
Balances due to the Chinese joint venture partner as of December 31, 1997 and
1998 represented amounts borrowed from the Chinese joint venture partner to
finance the construction of the Projects of Hangzhou Toll Road.
These amounts are unsecured and bear interest at 13.18% per annum.
11. COMMON AND PREFERRED STOCK
- -----------------------------------
Pursuant to a resolution passed by the shareholders of the Company dated October
27, 1998, the authorized share capital of the Company was increased from
US$2,500 to US$12,000 on February 8, 1999 by the creation of 950,000,000 shares
of common stock with a par value of US$0.01 each. On February 19, 1999, the
Company effected a 1-for-138 reverse stock split for the common stock and the
then authorized 1,100,000,000 shares of common stock were converted into
7,971,014 shares of common stock with a redenomination of par value at US$0.01
each.
- 21 -
<PAGE>
11. COMMON AND PREFERRED STOCK (CONT'D)
- -----------------------------------
As a result of the 1-for-138 reverse stock split, the then outstanding
81,806,198 shares of common stock with a par value of US$0.01 each have become
597,132 shares of common stock with a par value of US$0.01 each. In this
connection, an amount of approximately US$812 (equivalent to approximately
Rmb6,757) was transferred from outstanding common stock to additional paid-in
capital. All references in the accompanying consolidated financial statements to
number of shares and per share amount of common stock have been adjusted
retroactively for this 1-for-138 reverse stock split.
12. STOCK OPTIONS
- ----------------------
The following table summarizes the movement of share options of the Company
which are ten-year stock options issued in 1989 in connection with an
arrangement for additional financing and extension of debt.
COMMON STOCK OPTIONS
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 8
-------------- --------------
<S> <C> <C>
Shares under option at beginning of year 150,000 150,000
Expired - -
-------------- --------------
Shares under option at end of year 150,000 150,000
============== ==============
Average exercise price of outstanding options US$ 21.528 US$ 21.528
============== ==============
Exercisable at end of year 150,000 150,000
============== ==============
</TABLE>
13. RETIREMENT PLAN
- ------------------------
As stipulated by the regulations of the Chinese government, all of the Chinese
staff of Hangzhou Toll Road 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 liabilities to these retired staff.
Hangzhou Toll Road is only required to make specified contributions to the
state-sponsored retirement plan calculated at 23% of the basic salary of the
staff. The expenses included in the financial statements of Hangzhou Toll Road
related to these arrangements were Rmb99, Rmb191 and Rmb370 for the years ended
December 31, 1996, 1997 and 1998 respectively.
- 22 -
<PAGE>
14. SEGMENT INFORMATION
- ----------------------------
The Group operates solely, through its Operating Subsidiary, in the toll road
construction and management business in Hangzhou, Zhejiang Province, the PRC.
Accordingly, it has only one reportable segment. All intercompany transactions
have been eliminated in the following segment information disclosures. Corporate
identifiable assets include primarily cash and cash equivalents and notes
receivable (see Note 6).
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 7
-------------------------------------------- --------------------------------------------
Operating Operating
Subsidiary Corporate TOTAL Subsidiary Corporate TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Toll revenue 38,463 - 38,463 45,100 - 45,100
Depreciation and amortization (4,117) - (4,117) (18,885) - (18,885)
Interest expense (13) (1,010) (1,023) (14,176) (9,559) (23,735)
Income (Loss) from continuing
operations before minority
interests 27,522 (4,355) 23,167 1,369 (11,935) (10,566)
Identifiable assets 633,419 23,492 656,911 772,851 21,685 794,536
Capital expenditures 216,912 - 216,912 158,768 - 158,768
</TABLE>
(CONTINUED)
<TABLE>
<CAPTION>
1 9 9 8
--------------------------------------------
Operating
Subsidiary Corporate TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Toll revenue 54,217 - 54,217
Depreciation and amortization (27,327) - (27,328)
Interest expense (49,583) (22,554) (72,137)
Income (Loss) from continuing
operations before minority
interests (37,080) (24,447) (61,527)
Identifiable assets 753,688 15,976 769,664
Capital expenditures 4,478 - 4,478
</TABLE>
<PAGE>
15. OTHER SUPPLEMENTAL INFORMATION
- ---------------------------------------
a. The following items are included in the consolidated statements of
operations:
<TABLE>
<CAPTION>
December 31, December 31, DECEMBER 31,
1996 1997 1998
-------------- -------------- --------------
Rmb Rmb RMB
<S> <C> <C> <C>
Business tax 1,211 1,424 2,911
</TABLE>
b. Non-cash financing activity:
<TABLE>
<CAPTION>
December 31, December 31, DECEMBER 31,
1996 1997 1998
-------------- -------------- --------------
Rmb Rmb RMB
<S> <C> <C> <C>
Capitalization of advances
payable to CSH as
additional paid-in capital
(see also Note 2) 96,419 - -
</TABLE>
- 23 -
<PAGE>
16. CONTINGENCY
- --------------------
Hangzhou Toll Road has obtained an approval from the local government to offset
the toll profit collected from the first and second phases of the toll road
against the construction-in-progress balances under PRC GAAP until the Projects
were completed in 1998. Thus, the tax holiday has been deferred until the
Projects are completed. As such, Hangzhou Toll Road reported zero net profits in
its statutory financial statements starting from the commencement of operations
in 1993 to 1997. The Company and Hanzhou Toll Road plans to record the net
profits offset against the Projects during 1993 to 1997 as income in its
financial statements prepared in accordance with PRC GAAP in the first two years
after commencement of the tax holiday. However, this treatment 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 and
Rmb5.3 million for the years ended December 31, 1996 and 1997 respectively may
arise. In the opinion of the directors, it is not probable that such a liability
will arise. Hangzhou Toll Road reported losses in its statutory accounts for the
year ended December 31, 1998 and accordingly, the tax holiday will not commence
until its first profit making year.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
- --------------------------------------------------------
Not applicable.
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
- ----------------------------------------------------------------------
Listed below are the names, ages and positions as of April 9, 1999 of the
executive officers and directors of the Company. The Company's executive
officers are appointed by the Board of Directors to serve in their respective
capacities until their successors are duly appointed by the Directors and
qualified to serve. The Board of Directors of the Company shall consist of not
less than three and shall be such maximum number of persons may be determined by
affirmative vote of a majority of the entire Board of Directors or by action of
the stockholders. At present, the Company's Board of Directors consists of five
directors.
<PAGE>
Name Age Position & Office
- ---- --- -----------------
Oei Hong Leong 51 Director, Chairman
Chung Cho Yee, Mico 38 Director, President
Ma Wai Man, Catherine 33 Director, Secretary
Lien Kait Long 51 Director, Chief Financial Officer
Richard N Gray 52 Director
Mr. Oei was elected a director on February 19, 1996 and serves as Chairman of
the Board of Directors. Mr. Oei Hong Leong is a prominent businessman in China,
Hong Kong, Singapore and Indonesia. He was educated in Beijing and has gained
extensive knowledge and experience of business operations in China. He has been
the Chairman and Chief Executive Officer of publicly traded companies in Hong
Kong, Indonesia, Malaysia and Singapore. He is currently Chairman and Chief
Executive Officer of China Strategic Holdings Limited ("CSH"), a substantial
shareholder of the Company, and the Chairman of China Tire Holdings Limited
("CTHL") and MRI Holdings Limited ("MRI"), companies listed on the Stock
Exchange of Hong Kong (the "SEHK"), the New York Stock Exchange and the
Australia Stock Exchange respectively. Mr. Oei is also Co-Chairman and Chief
Executive Officer of Star Telecom International Holding Limited ("Star") and a
director of Tricom Holdings Limited ("Tricom"), both are companies listed on the
SEHK.
Mr. Chung Cho Yee, Mico, was elected a director on February 19, 1996. Mr. Chung
is a solicitor by profession and has extensive experience in the finance
industry. Mr. Chung is a director of CSH, Tricom, Star, all listed on the SEHK.
He is also a director and a Senior Vice President of CTHL, and a director of MRI
and Chairman of Bolton International (Group) Limited ("Bolton").
Ms. Ma Wai Man, Catherine, was elected a director on February 19, 1996. Ms. Ma
is a chartered secretary and has over 11 years of working experience in the
company secretarial profession. Ms. Ma is a director of CSH, Allan International
Holdings Limited and a director of Tricom, all of which are companies listed on
the SEHK. She is also a director of MRI and the Secretary of CTHL, Bolton and
Star.
Mr. Richard Gray, Director, is a practicing Chartered Accountant and Business
Consultant with offices in Guernsey and London as well as associated offices
around the world. Mr. Gray is a Fellow of the Institute of Chartered Accounts in
England and Wales, a Fellow of the British Institute of Directors and a graduate
of the Advanced Management Program of the Harvard Business School.
Mr. Lien Kait Long, was elected as a director on November 24, 1998. He is the
member of Singapore CPA and Australia CPA and has extensive experience in the
commercial and finance industries. He is a director of CSH and Star.
ITEM 10 - EXECUTIVE COMPENSATION
- --------------------------------
No executive received compensation during 1998.
Stock Options
- -------------
No stock options or stock appreciation rights were granted to any directors or
officers of the Company during 1998.
Directors Fees
- --------------
Directors are reimbursed for travel and other expenses relating to Board and
committee meetings. Mr. Gray received $10,000 in fiscal 1998 for serving as a
director of the Company
19
<PAGE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The following table shows, as of April 9, 1999, all shares of Common Stock, held
beneficially, directly or indirectly, by (i) each Director, (ii) each owner who
is known by the Company to own beneficially more than 5% of either class of
stock and (iii) all directors and officers as a group.
Number of Shares of
Common Stock Percentage
Name Beneficially Owned of Class
- --------------------------------------------------------------------------------
China Strategic Holdings Ltd.(1)
52nd Floor, Bank of China Tower
1 Garden Road, Hong Kong 7,491,867 96.10%
Harlequin Investment
Holdings Ltd.(2)(3)
Creque Building, Tortola,
British Virgin Islands 32,262 0.41%
Richard N Gray(2)(3)
Director
Noble House, Queens Road
St. Peter Fort, Guernsey
Channel Islands 32,262 0.41%
Oei Hong Leong(1)
Chairman
52nd Floor, Bank of China Tower
1 Garden Road, Hong Kong 7,491,867 96.10%
Chung Cho Yee, Mico(1)
President and Director
52nd Floor, Bank of China Tower
1 Garden Road, Hong Kong 0 0%
Ma Wai Man, Catherine(1)
Secretary and Director
52nd Floor, Bank of China Tower
1 Garden Road, Hong Kong 0 0%
Lien Kait Long (1)
Chief Financial Officer and Director
52nd Floor, Bank of China Tower
1 Garden Road, Hong Kong 0 0%
All Directors and Officers as
a Group (5 persons) 7,524,129 96.52%
As used in this table, "beneficial ownership" means the sole or shared power to
vote, or to direct the voting of, a security, or the sole or shared investment
power with respect to a security (i.e., the power to dispose of, or to direct
the disposition of a security).
(1) China Strategic Holdings Limited has indirect voting and investment power
with respect to 7,198,388 shares issuable upon the conversion of a $30,000,000
Convertible Note held by Horler Holdings Limited, P.O. Box 71, Craigmuer
Chamber, Road Town, Tortola, British Virgin Islands, a wholly owned subsidiary
of China Strategic Holdings Limited.
20
<PAGE>
(2) Harlequin Investment Holdings Limited has sole voting and investment power
with respect to the shares of common stock. The beneficial ownership set forth
herein does not include 57,972 shares of common stock which can be acquired upon
an exercise of a Stock Purchase Option granted by China Strategic Holdings
Limited to Harlequin Investment Holdings Limited.
(3) Harlequin Investment Holdings Limited is a wholly owned subsidiary of GHL
(Senior) Pension Fund, Noble House, Queens Road, St. Peter Port, Guernsey,
Channel Islands. Mr. Gray disclaims beneficial ownership of the shares of common
stock.
As of April 9, 1999 there were approximately 875 beneficial holders of record.
The percentage of beneficial ownership is based upon 597,132 shares of common
stock outstanding as of April 9, 1999 and 7,198,388 shares of common stock
issuable upon conversion of the of the $30,000,000 Convertible Note held by
Horler Holdings Limited.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Acquisition of Wuxi, CSI
- ------------------------
On February 19, 1996, Asia Resources Holdings Ltd (the "Registrant") acquired
all the issued and outstanding shares of Acewin Profits Limited, or the
"Company" British Virgin Islands corporation ("Acewin"), from China Strategic
Holdings Limited, a Hong Kong Company ("CSH"). Acewin's sole asset is a 55%
joint venture interest in Wuxi CSI Vibration Isolator Co., Ltd. ("Wuxi CSI"), a
Sino-foreign joint venture. Registrant paid $13.5 million for the shares of
Acewin capital stock. Such purchase price was paid by delivery of a $13.5
million Convertible Note bearing interest at the rate of nine percent (9%) per
annum (the "Convertible Note").
The Convertible Note is payable interest only on an annual basis, with all
principal being due and payable on January 31, 1999. The principal and any
unpaid interest owing on the convertible Note are convertible into shares of the
Registrant Common Stock at a conversion price of $0.0302 per share. The purchase
price was approved by the Board of Directors of the Registrant based upon Wuxi
CSI having an after-tax profit of not less than $3.0 million so that the
purchase price paid by the Company for the Wuxi CSI interest would not exceed
eight (8) times Wuxi CSI's 1995 after-tax earnings. The Convertible Note is
secured by a Pledge Agreement granting CSH a security interest in the shares of
Acewin capital stock. In connection with above-described transactions, Janak
Desai, Nils Ollquist and Girish Sharma resigned as directors of Regal, and Oei
Hong Leong, the Chairman of CSH, Chung Cho Yee, Mico and Ma Wai Man, Catherine
were elected to fill the vacancies created by such resignations. As a result of
this transaction, CSH became a principal stockholder of the Company. Oei Hong
Leong, Chairman of the Board, Chung Cho Yee, Mico and Ma Wai Man, Catherine, are
also directors and officers of CSH.
Sale of Assets
- --------------
Immediately following the acquisition of the shares of Acewin capital stock and
as a condition thereto, the Registrant sold and transferred all its existing
operating assets and real property of the Registrant to a newly formed
corporation, Regal (NEW) International, Inc. ("New Regal") in exchange for $2.5
million and New Regal's assumption of all outstanding liabilities of the
Registrant, other than the Convertible Note. The $2.5 million portion of the
purchase price was paid as follows: $800,000 in cash and the balance by delivery
to the Registrant of two (2) promissory notes, one in the principal amount of
$900,000 (the "$900,000 Note") and the second in the principal amount of
$800,000 (the "$800,000 Note"). The $900,000 Note bears interest at 9% per annum
and is payable in sixty (60) equal monthly installments of principal and
interest. The $800,000 Note bears no interest and is due and payable in one
installment on January 31, 2001. New Regal's obligations under the $900,000 Note
and the $800,000 Note are secured by a pledge to the Registrant of all the
issued and outstanding shares of capital stock of New Regal.
21
<PAGE>
Harlequin Investment Holdings, Limited, a principal stockholder of the Company
("Harlequin"), owns all the outstanding capital stock of New Regal. Harlequin is
a wholly owned subsidiary of GHL (Senior) Pension Fund. Mr. Gray, the Chairman
of the Board of the Company.
Deed of Variation
- -----------------
A deed of variation dated 27th July 1998 entered into between the Registrant and
Harlequin and New Regal whereby all parties agreed that in consideration of the
Company's agreement to release New Regal from the $800,000 Note, Harlequin
agreed and undertook to assume all the obligations and liabilities of New Regal
under the $800,000 Note and Harlequin would execute and deliver to the Company
the promissory note (the "Harlequin Promissory Note"). The Harlequin Promissory
Note should be secured by Harlequin Investment's shares of capital stock of New
Regal.
During 1998, New Regal re-negotiated the terms of the $900,000 Note with the
Company and a revised payment schedule was reached. Under the revised payment
schedule, the payment of several monthly installments by New Regal in 1998 and
1999 were suspended and the outstanding principal balance was revised to be
settled by sixty equal monthly installments commencing March 1999. The $900,000
Note continues to bear interest at 9% per annum during the period of payment
suspension in 1998 and 1999 and thereafter.
Sale of Harlequin Stock
- -----------------------
In April 1996, Horler Holdings Limited ("Horler"), a wholly owned subsidiary of
CSH, acquired 40,500,000 shares of outstanding Common Stock of the Company from
Harlequin in exchange for $1,223,000. The purchase price was paid as follows :
(i) $209,328 in cash, (ii) $211,672 by cancellation of a certain promissory
note, dated August 8, 1994, from Harlequin to CSH and (iii) $800,000 by
cancellation of another promissory note from Harlequin to CSH.
Acquisition of Hangzhou Huantong
- --------------------------------
On September 10, 1996, the Registrant has consummated a transaction whereby the
Registrant acquired all the issued and outstanding shares of Westronix Limited,
a British Virgin Islands corporation ("Westronix"), from CSH 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 Holdings
Limited, a Hong Kong Limited ("China Construction") which owns 51% joint venture
interest in Hangzhou Zhongche Huantong Development Co., Ltd. ("Hangzhou
Huantong"), a Sino-foreign joint venture established in Hangzhou, Zhejiang
Province, China on June 23, 1993. The consideration paid by the registrant is a
$30 million Convertible Note bearing interest at the rate of nine percent (9%)
per annum after an initial six (6) month interest-free period (the "Note").
The Note is payable interest only on an annual basis, with all principal being
due and payable on September 10, 1999. The principal and any unpaid interest due
on the Note are convertible into shares of Common Stock, $0.01 par value, of the
Registrant ("Common stock") at a conversion price of $0.0302 per share. On
February 19, 1999, the conversion price was adjusted to US$4.1676 per share
after the Company effected a 1-for-138 reverse stock split of common stock. The
Note is secured by all assets of Westronix and its related subsidiaries.
During 1997, Horler agreed to reduce the interest rate of the Note from 9% to 5%
per annum for the year ended December 31, 1997. Horler agreed after December 31,
1998 that no principal repayment of the Note would be demanded until the Company
is financially capable of doing so. The Note continues to bear interest at 9%
per annum from January 1, 1998.
22
<PAGE>
Hangzhou Huantong is a joint venture between China Construction (51%) and
Hangzhou City Transportation Development Corporation (49%). CSH from whom the
Registrant acquired Hangzhou Huantong, is an affiliate of the Registrant and the
major shareholder of the Registrant's common stock. Three directors of the
Registrant are also the directors of CSH.
The Company shares the office space and administrative support, with CSH, a
major shareholder of the Company. In fiscal 1997 and 1998, respectively, the
Company was charged $155,000 by CSH as a management fee for the use of the
office space and staff support.
Hongzhou Toll Road guaranteed bank borrowings of a related company of CSH in the
amount of Rmb 56 million and Rmb 93 million as of December 31, 1997 and 1998,
respectively.
Pursuant to a supplementary shareholders' agreement (the"Guaranteed Distribution
Agreement") dated May 18, 1998 between China Construction and the Chinese joint
venture partner of Hangzhou Huantong (the "Chinese Partner"), the Chinese
Partner agreed to pay China Construction a fixed annual income of Rmb15,300,000
(the "Guaranteed Distribution") from January 1, 1998 through the expiration of
the joint venture period of Hangzhou Huantong. Any surplus income generated from
the Hangzhou Huantong in excess of the amount of the guaranteed Distribution
would belong to the Chinese Partner and any shortfall would be made up by the
Chinese Partner. In addition, as part of the Guaranteed Distribution Agreement,
an amount of Rmb178,500,000 would be paid to China Construction upon the
expiration of the joint venture period of Hangzhou Huantong and the assets of
the joint venture would be surrendered to the Chinese Partner at no further
consideration. This Guaranteed Distribution Agreement is subject to approvals by
the authorities which originally approved the set up of the joint venture.
To date, the approvals from the relevant government authorities have not been
obtained despite efforts by the management of the joint venture and the
Registrant. The Board of Directors of the Registrant is of the view that the
necessary approvals may not be obtained and the agreement cannot effectuated
without such approvals. Accordingly, the Registrant has continued to consolidate
Hangzhou Toll Road for the year ended December 31, 1998 and has not affected the
Guaranteed Distribution Agreement in the account.
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) EXHIBITS
Exhibit 21 - Subsidiaries of the Registrant
(b) REPORTS ON FORM 8-K
Reports on Form 8-K are filed on May 18, 1998 and March 8, 1999.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.
ASIA RESOURCES HOLDINGS LIMITED
By: /s/Chung Cho Yee, Mico Date: April 15, 1999
------------------------------- -------------------
Chung Cho Yee, Mico
President
By: /s/ Lien Kait Long Date: April 15, 1999
------------------------------- --------------------
Lien Kait Long
Chief Financial Officer
Pursuant to the Securities Exchange Act of 1934, this report has been signed by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
By: /s/ Oei Hong Leong Date: April 15, 1999
--------------------------------- --------------------
Oei Hong Leong
Chairman of the Board of Directors
By: /s/Chung Cho Yee, Mico Date: April 15, 1999
------------------------------- --------------------
Chung Cho Yee, Mico
Director
By: /s/ Ma Wai Man, Catherine Date: April 15, 1999
------------------------------- --------------------
Ma Wai Man, Catherine
Director
By: /s/ Richard N. Gray Date: April 15, 1999
------------------------------- --------------------
Richard N Gray
Director
By: /s/ Lien Kait Long Date: April 15, 1999
------------------------------- --------------------
Lien Kait Long
Director
24
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Prior to September 10, 1996
Acewin Profits Limited, a British Virgin Islands corporation
China Machine Holdings Limited, a Hong Kong corporation
Wuxi CSI Vibration Isolator Co., Ltd. (55%), a Sino-foreign joint venture
After September 10, 1996
Westronix Limited, a British Virgin Islands corporation
China Construction Holdings Limited, a Hong Kong corporation
Hangzhou Zhongche Huatong Development Co., Ltd. (51%), a Sino-foreign joint
venture
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