<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999.
[ ] TRANSITION REPORT PURSUANT SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-8334
ASIA RESOURCES HOLDINGS LIMITED
(Exact name of small business as specified in its charter)
Delaware 75-1071589
--------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
52/F, Bank of China Tower,
No.1 Garden Road,
Central, Hong Kong.
(Address of principal executive offices)
(852) 2844-2988
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No _____
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable dated : April 30, 1999, 597,132 shares.
Transitional Small Business Disclosure Format (check one) :
Yes _____ No X
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
----
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Statements of Operations
for the three months ended March 31, 1999
and 1998 (Unaudited) 1
Consolidated Balance Sheets at March 31, 1999 (Unaudited) and December
31,1998 2 Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 (Unaudited) 3
Notes to Consolidated Financial Statements 4 - 17
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION 18- 20
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 21
ITEM 2 - CHANGE IN SECURITIES 21
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 21
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 21
ITEM 5 - OTHER INFORMATION 21
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 21
<PAGE>
ASIA RESOURCES HOLDINGS LIMITED AND SUBSIDIARIES
------------------------------------------------
(formerly known as Regal International, Inc. and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (Amounts in
thousands, except number of shares and per share data)
March March March
31, 1999 31, 1999 31, 1998
------------ ----------- -----------
US$ Rmb Rmb
Toll revenue 1,636 13,546 10,673
General and administrative expenses (1,102) (9,126) (10,551)
Interest income 7 61 11
Interest expense (1,891) (15,658) (15,769)
Exchange gain/(loss) 0 3 (17)
------------ ----------- -----------
LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST (1,350) (11,174) (15,653)
Provision for income taxes - - -
------------ ----------- -----------
LOSS BEFORE MINORITY INTEREST (1,350) (11,174) (15,653)
Minority interests 270 2,238 4,972
------------ ----------- -----------
NET LOSS (1,080) (8,936) (10,681)
============ =========== ===========
Loss per common share (Basic): (1.81) (14.96) (17.89)
============ =========== ===========
Weighted average common
shares outstanding 597,132 597,132 597,132
============ =========== ===========
Translations of amounts from Renminbi (Rmb) into United States Dollars (US$) for
the convenience of the reader has been made at the unified exchange rate quoted
by the People's Bank of China on March 31, 1999 of US$1.00 = Rmb8.28. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States Dollars at that rate on March 31, 1999 or at any
other certain rate.
The accompanying notes are an integral part of these consolidated statements of
income.
1
<PAGE>
ASIA RESOURCES HOLDINGS LIMITED AND SUBSIDIARIES
------------------------------------------------
(formerly known as Regal International, Inc. and Subsidiaries)
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF MARCH 31, 1999 (UNAUDITED) AND
AS OF DECEMBER 31, 1998 (AUDITED)
(Amounts in thousands)
March March December
31, 1999 31, 1999 31, 1998
------------ ----------- -----------
US$ Rmb Rmb
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents 1,189 9,842 17,769
Prepayments 104 859 921
Other receivables and other
current assets 236 1,961 587
Due from a related company 0 0 680
------------ ----------- -----------
TOTAL CURRENT ASSETS 1,529 12,662 19,957
Notes receivable 1,376 11,391 11,373
Property, plant and equipment, net 88,438 732,266 738,334
------------ ----------- -----------
TOTAL ASSETS 91,343 756,319 769,664
============ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT
LIABILITIES
Long-term bank loans - current
portion 3,623 30,000 50,000
Accounts payable 1,417 11,734 18,288
Accrued expenses and other payables 1,110 9,184 6,594
Due to a related company 1 10 10
Taxes other than income 29 239 287
------------ ----------- -----------
TOTAL CURRENT LIABILITIES 6,180 51,167 75,179
Long-term bank loans 44,012 364,419 344,526
Convertible note payable 30,000 248,397 248,451
Due to Chinese joint venture partner 9,966 82,516 80,156
Due to immediate holding company 3,912 32,394 32,401
Due to ultimate holding company 99 823 1,175
------------ ----------- -----------
TOTAL LIABILITIES 94,169 779716 781,888
------------ ----------- -----------
Minority interests 14,786 122,431 124,669
SHAREHOLDERS' DEFICIT:
Common stock 6 50 6,806
Additional paid-in capital 2,721 22,529 15,773
Accumulated deficit (20,339) (168,407) (159,472)
------------ ----------- -----------
Total shareholders' deficit (17,612) (145,828) (136,893)
------------ ----------- -----------
Total liabilities and shareholders'
deficit 91,343 756,319 769,664
============ =========== ===========
Translations of amounts from Renminbi (Rmb) into United States Dollars (US$) for
the convenience of the reader has been made at the unified exchange rate quoted
by the People's Bank of China on March 31, 1999 of US$1.00 = Rmb8.28. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States Dollars at that rate on March 31, 1999 or at any
other certain rate.
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE>
<TABLE>
ASIA RESOURCES HOLDINGS LIMITED AND SUBSIDIARIES
------------------------------------------------
(formerly known as Regal International, Inc. and Subsidiaries)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Amounts in thousands)
<CAPTION>
1999 1999 1998
-------------- --------------- --------------
US$ Rmb Rmb
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss (1,079) (8,936) (10,681)
Adjustments to reconcile net loss to
net cash used in operations:
Minority interests (270) (2,238) (4,972)
Depreciation and amortization 835 6,914 8,176
Decrease in assets:
Prepayments 7 62 119
Other receivables and other current assets (168) (1,392) 351
Due from a related company 82 680 0
Decrease in liabilities:
Accounts payable (792) (6,554) (10,405)
Accrued expenses and other payables 305 2,529 (579)
Due to a related company (43) (352) 0
Taxes other than income (6) (48) (29)
-------------- --------------- --------------
Net cash used in operating activities (1,127) (9,335) (18,020)
-------------- --------------- --------------
Cash flows used in from investing activities
Acquisition of property, plant and equipment (102) (846) (452)
-------------- --------------- --------------
Cash flows from financing activities:
(Repayment) Proceeds of long term bank loans (13) (107) 5,500
Due to related companies 0 0 14
Due to Chinese joint venture partner 285 2,361 3,715
Due to Ultimate holding company 0 0 5,512
-------------- --------------- --------------
Net cash provided by financing activities 272 2,254 14,741
-------------- --------------- --------------
Net decrease in cash and cash equivalents (957) (7,927) (3,731)
Cash and cash equivalents, at beginning of period 2,146 17,769 19,875
-------------- --------------- --------------
Cash and cash equivalents, at end of period 1,189 9,842 16,144
============== =============== ==============
</TABLE>
Translations of amounts from Renminbi (Rmb) into United States Dollars (US$) for
the convenience of the reader has been made at the unified exchange rate quoted
by the People's Bank of China on March 31, 1999 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 March 31, 1999 or at any
other certain rate.
The accompanying notes are an integral part of these consolidated statements of
cash flows.
3
<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 ("NASD") Over-the-Counter "Bulletin
Board" with an authorized share capital of US$2,500 representing
150,000,000 shares of common stock of 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 19, 1999, the Company effected a 1-for-138 reverse stock split
of its common stock and increased the authorized capital to 1,100,000,000
shares of common stock, par value at US$0.01 per share. The 1-for-1:38
reverse stock split and the amendment to the Company's Certificate of
Incorporation to increase its authorized common stock was approved by the
Company's shareholders at the special meeting held on October 27, 1998.
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
corporation 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.
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).
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.
4
<PAGE>
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 (the conersion price has been adjusted to reflect 1-for-138 share
split). On conversion, CSH would indirectly hold approximately 96.10% 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.
During 1998, 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.
As of March 31, 1999, 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.
5
<PAGE>
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.
<PAGE>
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.
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.
6
<PAGE>
2. BASIS OF PRESENTATION
---------------------
The accompanying consolidated financial statements were prepared in
accordance with generally accepted accounting principles in the United
States of America ("U.S. GAAP"). This basis of accounting differs from
that used in the statutory financial statements of 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").
7
<PAGE>
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.
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 Rmb136,893 and Rmb
146,994 as of December 31, 1998 and March 31, 1999 respectively.
8
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Consolidation
----------------------
The consolidated financial statements include the financial
statements of the Company and its majority owned and controlled
subsidiaries. All material intercompany balances and transactions
have been eliminated on consolidation.
b. Toll Revenue
------------
Toll revenue represents the gross receipts at the toll stations, net
of business tax calculated at 5% of the gross toll receipts.
c. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash on hand and demand deposits
with banks an original maturity of three months or less. Cash and
cash equivalents included United States Dollar deposits of US$556
(Rmb4,602) and US$454 (Rmb3,759) as of December 31, 1998 and March
31, 1999 respectively.
9
<PAGE>
d. Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation of property, plant and equipment is
computed using the straight line method over the assets' estimated
useful lives, taking into account the estimated residual value of 10%
(except for roads and bridges which have no residual value) of the
cost of fixed assets. The estimated useful lives are as follows:
Land use rights 30 years
Roads and bridges 30 years
Buildings 20 years
Machinery and equipment 5 years
Motor vehicle 5 years
Furniture, fixtures and office equipment 5 years
Safety equipment 8 years
Construction in progress ("CIP" see 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. No interest was capitalized
for the year ended December 31, 1998 and period ended March 31, 1999.
Hangzhou Toll Road retains the ownership interest in the road 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 the Hangzhou Toll Road will be surrendered to the Chinese
joint venture partner at no consideration.
10
<PAGE>
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, 1998 and March 31, 1999.
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, 1998, and March 31, 1999, 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").
No income tax provision was required for the year ended December 31,
1998 and for the three months ended March 31, 1999 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.
11
<PAGE>
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 5% for the years ended December
31, 1998, and the three months ended March 31, 1999.
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.
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 March
31, 1999, Hangzhou Toll Road did not report any profits in the
statutory financial statements, and accordingly, no appropriation to
dedicated capital has been made.
12
<PAGE>
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.
k. Loss per Common Share
---------------------
The calculation of basic loss per common share is based on the
weighted average number of common shares outstanding during the three
month ended March 31, 1998, and 1999 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 three month ended March 31, 1998 and 1999,
adjusted retroactively for the 1-for-138 reverse stock split effected
on February 19, 1999, 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:
1 9 9 8 1 9 9 9
----------- -----------
Basic EPS computation 597,132 597,132
Diluted EPS computation 597,132 597,132
l. Fair Value of Financial Instruments
-----------------------------------
The Company values its financial instruments as required by U.S. SAS
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, notes receivables
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 and March 31, 1999 for debt of similar remaining maturity.
The estimated fair values of notes receivable were Rmb10,317 and
Rmb10,549 as of December 31, 1998 and March 31, 1999 respectively,
representing the net present values computed based on estimated
current market rates for similar instruments. The carrying values of
these notes receivable were Rmb11,373 and Rmb11,391 as of December
31, 1998 and March 31, 1999 respectively.
13
<PAGE>
m. Comprehensive Income
---------------------
In 1998, the Company adopted U.S. SAS 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. SAS 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. SAS 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. SAS 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
-----------------------------
March 31, December 31,
1999 1998
------------- -------------
Rmb'000 Rmb'000
Land use rights 10,541 10,541
Road and bridges 754,084 754,084
Buildings 4,391 4,391
Machinery and equipment 4,187 4,187
Motor vehicles 3,811 3,811
Furniture, fixtures and office equipment 106 106
Safety equipment 14,129 14,129
Construction-in-progress 7,249 6,403
Less : Accumulated depreciation (66,232) (59,318)
------------- -------------
Net book value 732,266 738,334
============= =============
14
<PAGE>
5. LONG-TERM BANK LOANS
--------------------
Long-term bank loans, all of which are unsecured, bear average interest
rates of approximately 9.19% as of December 31, 1998 and 8.46% as of March
31, 1999 and are repayable as follows:
March 31, December 31,
1999 1998
------------- -------------
Rmb'000 Rmb'000
1999 30,000 50,000
2000 120,500 120,500
2001 134,658 134,658
2002 49,761 49,868
2003 39,500 39,500
------------- -------------
394,419 394,526
============= =============
15
<PAGE>
5. LONG-TERM BANK LOANS (Cont'd)
-----------------------------
Long-term bank loans included United States Dollar loans of US$3,560
(Rmb29,526) and US$3,560 (Rmb29,526) as of December 31, 1998 and March 31,
1999 respectively. Loans amounting to Rmb394,526 as of December 31,1998
and Rmb394,419 as of March 31, 1999 respectively are guaranteed by a
related company.
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 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.
The Company believes that no provision is required for the two notes.
7. DISTRIBUTION OF PROFITS
-----------------------
Dividends from the Operating Subsidiary will be declared based on the
profits as reported in the statutory financial statements. Such profits
will be different from the amounts reported under U.S. GAAP. As of
December 31, 1998 and March 31, 1999, the Hangzhou Toll Road had no
available retained earnings for distribution according to its statutory
financial statements.
16
<PAGE>
8. PROVISION FOR INCOME TAXES
--------------------------
The reconciliation of the effective income tax rate based on loss 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:
1999 1998
------------- -------------
Weighted average statutory tax rate 33.0% 33.0%
Establishment of a valuation allowance (33.0%) (33.0%)
------------- -------------
Effective tax rate - -
============= =============
Provision for income taxes consists of:
1999 1998
------------- -------------
Rmb Rmb
Current - -
Deferred 368 6,696
Adjustment of valuation allowance (368) (6,696)
------------- -------------
- -
============= =============
The valuation allowance refers to the portion of the deferred tax assets
that are not "more likely than not" going to be realized. The realization
of these benefits depends upon the ability of the Group to generate income
in future years. No provision or benefit for deferred income taxes was
recognized in December 31, 1998 and March 31, 1999.
9. RELATED PARTY TRANSACTIONS AND ARRANGEMENTS
-------------------------------------------
Hangzhou Toll Road guaranteed bank borrowings of a related company of CSH
in an amount of Rmb93 million as of December 31, 1998 and March 31, 1999.
The Company paid management fees of US$155 (Rmb1,283) and US$38.8 (Rmb321)
to CSH during 1998 and three months ended March 31, 1999 for
administrative services rendered to the Company by CSH.
Amounts due to immediate holding company represented interest payable on
Convertible Note B 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 1999.
10. DUE TO CHINESE JOINT VENTURE PARTNER
------------------------------------
Balances due to the Chinese joint venture partner as at December 31, 1998
and March 31, 1999 represented money borrowed from the Chinese joint
venture partner to finance the construction of the Projects of Hangzhou
Toll Road. These amounts are unsecured, bear interest at 13.18% per annum.
<PAGE>
11. COMMON AND PREFERRED STOCK
--------------------------
Pursuant to resolutions passed by the shareholders of the Company dated
October 27, 1998, the Company effected on February 19, 1999, a 1-for-138
reverse stock split for the common stock and increased its authorized
capital stock to 1,100,000,000 shares of common stock, par value US$0.01
per share by amending its Certificate of Incorporation which was filed
with the State of Delaware on February 8, 1999.
As a result of the 1-for-138 reverse stock split, the then outstanding
81,764,456 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.
17
<PAGE>
12. STOCK OPTIONS
-------------
The following tables summarize the movement of share options of the
Company which are ten-year stocks issued in 1989 in connection with an
arrangement for additional financing and extension of debt.
COMMON STOCK OPTIONS
1999 1998
------------- -------------
Shares under option as at January 1, 150,000 150,000
Expired - -
------------- -------------
Shares under option as at March 31, 150,000 150,000
============= =============
Average exercise price of outstanding US$21.528 US$21.528
options ============= =============
Exercisable at end of period 150,000 150,000
============= =============
13. RETIREMENT PLANS
----------------
As stipulated by the regulations of the Chinese government, all of the
local 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 liability to
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 expense included in the financial
statements of Hangzhou Toll Road related to these arrangements was Rmb49
and Rmb236 for the three months ended March 31, 1998 and 1999
respectively.
14. SEGMENT INFORMATION
-------------------
The Group operates soley, 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>
March 31, March 31,
1 9 9 8 1 9 9 9
----------------------------------------------------------------------------------------------
Hangzhou Hangzhou
Toll Road Corporate Total Toll Road Corporate Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Toll revenue 10,673 - 10,673 13,546 - 13,546
Depreciation and amortization (8,176) - (8,176) (6,914) - (6,914)
Interest expense (10,258) (5,511) (15,769) (10,146) (5,512) (15,658)
Loss before minority
Interest (10,148) (5,506) (15,654) (4,569) (6,604) (11,173)
Identifiable assets 760,899 21,711 782,610 741,167 15,152 756,319
Capital expenditures 452 - 452 846 - 846
</TABLE>
18
<PAGE>
15. OTHER SUPPLEMENTAL INFORMATION
------------------------------
The following items are included in the consolidated statements of operations:
1999 1998
------------- -------------
Rmb Rmb
Business tax 330 728
19
<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
Hangzhou Toll Road plan 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. 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 three months ended March 31, 1999
and accordingly, the tax holiday will not commence until its first profit
making year.
20
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview:
As of March 31, 1999, 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.
21
<PAGE>
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.
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/period ended
December 31, 1998 and March 31, 1999 and has not reflected the Guaranteed
Distribution Agreement in the accounts.
RESULTS OF OPERATION:
SUMMARY FINANCIAL INFORMATION
-----------------------------
Three months
ended March 31,
1999 1998
------------- -------------
Rmb'000 Rmb'000
Toll revenue 13,546 10,673
General and administrative expenses 9,125 10,551
Interest income 61 11
Interest expense 15,658 15,769
Exchange gain/(loss) 3 (17)
Net loss (8,936) (10,681)
TOLL REVENUE
Toll revenue increased by 26.9% or Rmb2,873,000 in the three months ended
March 31, 1999 as compared with the same period in last year. This was
primarily attributable to an increase in traffic volume by 20.1% from
1,149,000 vehicles for the first three months ended of 1998 to 1,380,000
vehicles for the first three months of 1999.
22
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
During the three months ended March 31, 1999, general and administrative
expenses decreased by 13.5% to Rmb9,125,000 from Rmb10,551,000 for the
three months ended March 31, 1999 as compared to the same period in 1998.
This is due to the fact that tighter cost control in the toll operation is
implemented.
INTEREST INCOME
- ---------------
Interest income was mainly derived from bank deposits.
INTEREST EXPENSE
As compared with last period, interest expense decreased by 0.7% to
Rmb15,658,000. No significant change in finance structure of the Group
during the three month ended March 31, 1999.
NET LOSS
During the three months ended March 31, 1999, net loss of the Company
decreased slightly by 16.3% to a net loss of Rmb8,936,000 from a net loss
of Rmb10,681,000 for the three months ended March 31, 1998. This was a
direct result of the opening of the second and third phases of the toll
road in early and mid 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1999, net cash used in operating
activities and investing activities was approximately Rmb 9.335 million
and Rmb 0.846 million respectively. Net cash provided by financing
activities amounted to Rmb 2.254 million, resulting in a net decrease in
cash and cash equivalents of approximately Rmb 7.927 million for the three
months ended March 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 would not have significant impact on
the Group.
23
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
NONE
ITEM 2 - CHANGES IN SECURITIES
NONE
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
NONE
ITEM 5 - OTHER INFORMATION
NONE
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Filed Form 8-K/A on March 10, 1999.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ASIA RESOURCES HOLDINGS LIMITED
(Registrant)
Date: /s/ Mico Chung
------------------- -------------------------------------------
Mico Chung, President
Date: /s/ Lien Kait Long
------------------- -------------------------------------------
Lien Kait Long, Chief Financial Officer
25
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1189
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1529
<PP&E> 88438
<DEPRECIATION> 0
<TOTAL-ASSETS> 91343
<CURRENT-LIABILITIES> 6180
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> (17618)
<TOTAL-LIABILITY-AND-EQUITY> 91343
<SALES> 1636
<TOTAL-REVENUES> 1636
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1102
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1891
<INCOME-PRETAX> (1350)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1350)
<DISCONTINUED> 0
<EXTRAORDINARY> 270
<CHANGES> 0
<NET-INCOME> (1080)
<EPS-BASIC> (1.81)
<EPS-DILUTED> (1.81)
</TABLE>
