<PAGE>
As filed with the Securities and Exchange Commission on February 7, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE
PERIOD ENDED SEPTEMBER 30, 1995
----------------------
HENG FAI CHINA INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 0-7619 93-063633
(State or other jurisdiction (Commission (IRS Employer
of incorporation or organization) File Number) Identification Number)
650 West Georgia Street, Suite 588, P.O. Box 11586
Vancouver, B.C. CANADA V6B 4N8
(604) 685-8318
(Address and telephone number of Registrant's principal executive offices)
----------------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
As of January 31, 1996, there were 10,899,542 shares of common stock of Heng Fai
China Industries, Inc. outstanding.
<PAGE>
<TABLE>
<CAPTION>
HENG FAI CHINA INDUSTRIES, INC.
FORM 10-Q
FOR THE
QUARTER ENDED SEPTEMBER 30, 1995
INDEX
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements......................................................... 1
Condensed Consolidated Balance Sheets as at
September 30, 1995 and December 31, 1994..................................... 2
Condensed Consolidated Statements of Operations for the nine
and three months ended September 30, 1995 and 1994........................... 3
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1995 and 1994..................................... 4
Notes to Condensed Consolidated Financial Statements......................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 14
Item 2. Changes in Securities........................................................ 14
Item 3. Defaults Upon Senior Securities.............................................. 14
Item 4. Submission of Matters to a Vote of Securityholders........................... 14
Item 5. Other Information............................................................ 14
Item 6. Exhibits and Reports on Form 8-K............................................. 14
Signature Page.............................................................................. Last Page
</TABLE>
i
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statements of Heng Fai China
Industries, Inc. (the "Company") are provided herewith:
(a) Condensed Consolidated Balance Sheets as at September
30, 1995 and December 31, 1994;
(b) Condensed consolidated Statements of Operations for
each of the nine months ended September 30, 1995 and
September 30, 1994 and each of the three months ended
September 30, 1995 and September 30, 1994;
(c) Condensed Consolidated Statements of Cash Flows for
each of the nine months ended September 30, 1995 and
September 30, 1994; and
(d) Notes to the Condensed Consolidated Financial
Statements.
1
<PAGE>
<TABLE>
<CAPTION>
HENG FAI CHINA INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(United States Dollars)
Notes As at As at
----- ----- -----
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash 49,016 $191,731
Trading securities 4 502,847
Accounts receivable 25,130 2,231
Prepaid and other current assets 134,613 2,024
Inventories 2 90,978 --
--------- ----------
802,584 195,986
FIXED ASSETS, net 5 1,003,772 933,710
DEFERRED EXPENDITURE 6 1,087,425 --
--------- ----------
$2,893,781 $1,129,696
========== ==========
CURRENT LIABILITIES
Accounts payable 96,691 $20,545
Margin loan payable 8 253,891 --
Interest payable 30,912 19,733
Security deposits payable 10,402 11,071
Other payable 203,651 --
Unearned rent -- 12,053
Due to related parties 16,687 32,617
Current portion of mortgage 15,382 14,785
--------- ----------
627,616 110,804
LONG-TERM LIABILITIES
Mortgages payable 995,453 971,611
Deferred exchange gains -- 50,153
1,623,069 1,132,568
--------- ----------
DEFICIENCY IN ASSETS
Preferred stock, $10 par value,
500,000 shares authorized,
none issued -- --
Share capital, $.01 par value,
30,000,000 shares authorized,
10,819,542 and 10,384,542
shares issued and outstanding 7 108,195 103,845
Contributed surplus 2,596,422 193,296
Deficit (1,433,905) (300,013)
--------- ----------
1,270,712 (2,872)
--------- ----------
$2,893,781 $1,129,696
========== ==========
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements.
2
<PAGE>
<TABLE>
<CAPTION>
HENG FAI CHINA INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(United States Dollars)
Nine Nine Three Three
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
Notes 1995 1994 1995 1994
--------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues
Rental income 270,332 $333,171 $98,836 $171,459
Sales of cement 148,141 -- 92,921 --
Investment income 6,793 4,781 1,503 2,325
Foreign exchange
gain (loss) (34,002) -- (41,492) --
-------- ------- ------- -------
391,264 337,952 151,768 173,784
-------- ------- ------- -------
Expenses
Cost of cement sales 127,281 -- 77,919 --
Amortization and
depreciation 44,570 30,000 20,959 11,812
Legal and
professional
expenses 54,287 11,926 12,706 11,754
Consulting fees 6 1,004,175 -- 726,250 --
Interest expenses 73,814 92,096 27,784 47,718
Land lease 61,078 82,500 20,983 42,645
Real estate
management
fees 12,253 15,900 3,269 8,291
Adjustments of
trading securities
to fair value 4 7,805 -- 7,805 --
Other administrative
expenses 139,893 142,704 54,145 92,803
-------- ------- ------- -------
1,525,156 375,126 951,820 215,023
-------- ------- ------- -------
Net income (loss) (1,133,892) $(37,174) $(800,052) $(41,239)
=========== ========= ========== =========
Net income (loss) per
common share $(.11) $(.13) $(.08) $(.14)
====== ====== ====== ======
Weighted average common
shares outstanding 10,766,428 289,193 10,445,207 289,193
========== ======= ========== =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
HENG FAI CHINA INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(United States Dollars)
Nine Nine
Months Months
Ended Ended
September 30, September 30,
Notes 1995 1994
-------- ------------------- ------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net (loss) (1,133,892) $(37,174)
Adjustments to reconcile loss to net cash
used for operating activities:
Depreciation and amortization 44,570 30,000
Consulting fees paid in common stock 6 1,004,175 --
Changes in working capital components:
Trading securities (502,847)
Accounts receivable (22,737) 78,740
Prepaid (132,589) --
Inventories (90,978) --
Accounts payable 76,146 --
Interest payable 11,179 --
Security deposits payable (669) --
Other payable 203,651 --
--
Exchange adjustments 18,693 --
--------- -------
Net cash used in (generated from) operating activities (525,298) 71,566
--------- -------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets (130,939) --
--------- -------
Net cash used in investing activities (130,939) --
--------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Issue of shares 300,000 161,220
Margin loan payable 253,891 --
Repayment of mortgage (24,439) (15,932)
Advances (repayment) of related
party advances (15,930) (69,983)
--------- -------
Net cash provided by financing activities 513,522 75,305
--------- -------
Net increase (decrease) in cash and cash equivalents (142,715) 146,871
Cash and cash equivalents:
Beginning of the period 191,731 7,954
--------- -------
End of the period 49,016 154,825
========= =======
ANALYSIS OF THE BALANCES OF CASH AND
CASH EQUIVALENTS
Bank Balances and Cash 49,016 154,825
------ -------
49,016 $145,825
====== ========
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements.
4
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(United States Dollars)
1. BASIS OF PRESENTATION
In June 1994, Heng Fai China Industries, Inc., then known as
Alpine International Corporation ("Alpine") entered into a business
combination with Vancouver Hong Kong Properties, Ltd. ("Vancouver Hong
Kong"), which owns and operates a residential rental property in North
Vancouver, British Columbia. The business combination resulted in the
shareholders of Vancouver Hong Kong being issued 10,357,700 shares of
Alpine's common stock and 10,357,700 common stock purchase warrants. As
a part of the business combination, a company related to Vancouver Hong
Kong agreed to subscribe for 1,500,000 shares of Alpine's common stock
and 1,500,000 common stock purchase warrants for an aggregate of
US$120,000 in cash. The business combination was accounted for as a
reverse acquisition whereby the purchase method of accounting has been
used with Vancouver Hong Kong being the accounting parent. Accordingly,
results of operations for periods prior to the reverse acquisition are
those of Vancouver Hong Kong, and the results of Alpine's operations
are included only from the date of such reverse acquisition. Subsequent
to the business combination, the name of the legal parent Alpine was
changed to Heng Fai China Industries, Inc. (hereinafter referred to as
"HFCI" as the context may require).
The condensed consolidated financial statements include the
accounts of HFCI and its wholly-owned subsidiaries (collectively, the
"Company"). The condensed consolidated financial statements included
herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. The condensed consolidated financial statements and the
notes thereto should be read in conjunction with the consolidated
financial statements included in the Company's Annual Report on Form
10-K for the year ended December 31, 1994.
In the opinion of the management of the Company, the
accompanying unaudited condensed consolidated financial statements
contain all necessary adjustments to present fairly the financial
position, the results of operations and cash flows for the periods
reported. All adjustments are a normal recurring nature.
The results of operations for the nine months periods are not
necessarily indicative of the results to be expected for the full year.
5
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(United States Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES
Inventories - Inventories relating to the Company's cement
operations are stated at the lower of cost (determined on the first-in,
first-out method) or market. Inventories at September 30, 1995
represent cement raw materials.
Trading securities - Equity securities purchased principally
for the purpose of resale are classified as trading securities and are
measured at fair value, with unrealized gains and losses included in
earnings. Fair values are determined based on quoted prices.
Translation of foreign currency - The Company's functional
currency is the Canadian dollars (C$). Consolidated financial
statements are stated in United States dollars (US$) which is the
reporting currency of the Company. Assets, liabilities, revenues and
expenses denominated in other currencies are translated into Canadian
dollars at current exchange rates. Gains and losses arising from
foreign currency transactions are included in income. The translation
of the C$ amounts into US$ amounts, for the purposes of reporting in
US$, is, with respect to assets and liabilities, based on the exchange
rate in effect at the date of the balance sheet (C$1.3507 to US$1.00 at
September 30, 1995) and, with respect to revenues and expenses, based
on the average exchange rate during the period (C$1.3500 to US$1.00 for
the nine months ended September 30, 1995). Changes in the exchange rate
between the C$ and the US$ have not had a significant effect on
financial condition or the results of operations.
3. ACQUISITIONS
On January 9, 1995, HFCI acquired from the chairman of its
board of directors 100% of the common stock of Heng Fai China and Asia
Industries, Limited ("Asia") in exchange for nominal consideration.
Asia's only assets, owned by its wholly-owned subsidiaries, Heng Fai
China Industries Limited ("China") and Heng Fai Light Products Limited
("Light"), were options to acquire operating or lease interests in
three cement manufacturing operations located in the People's Republic
of China ("PRC"), as follows:
A. Light, through its newly formed subsidiary, Cangzhou
Citizen Cement Product Co., Ltd. ("Citizen") may
acquire the use, for a period of five years
commencing January 1, 1995, of a production line at
the Hebei Cangzhou City Chemical Corporation Factory
(the "Cangzhou Factory"). Citizen may exercise its
option to lease the existing facilities for five
years at a nominal rental, by expending RMB$1.2
million (US$144,000) on the expansion and
modernization of the Cangzhou Factory plant.
6
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(United States Dollars)
B. China has the option to acquire an interest in a
joint venture, the Cangzhou Jiuhe Cement Co., Ltd.
("Jiuhe"), which would acquire the use of the
existing facilities of the Qingxian Cement Factory
for 30 years. In exchange for contributing RMB$17
million (US$2,043,000) for the expansion and
modernization of the existing factory, China would be
entitled to 100% of the profits of the joint venture
until it recovers its contribution, and thereafter
70% of the profits of the joint venture. The control
of Jiuhe would be shared by China and the PRC
government, which would contribute a 30 year lease on
the existing facilities for its interest. The assets
of the joint venture would revert to the PRC
government at the termination of the joint venture.
C. China has the option to acquire an interest in a
joint venture, the Hebei Iron Lion Cement Co., Ltd.
("Hebei"), which would acquire the use of the
existing facilities of the Hebei Cangzhou Area
Construction Materials Factory for 30 years. In
exchange for contributing RMB$70 million
(US$8,190,000) for the expansion and modernization of
the existing factory, China would be entitled to 100%
of the profits of the joint venture until it recovers
its contribution, and thereafter 52% of the profits
of the joint venture. The control of Hebei would be
shared by China and the PRC government, which would
contribute a 30 year lease on the existing facilities
for its interest. The assets of the joint venture
would revert to the PRC government at the termination
of the joint venture.
China and Light acquired the foregoing options for
nominal consideration and, as a result, no financial statement
recognition is accorded to the unexercised options.
On April 17, 1995, China exercised its option to
acquire, through Citizen, the use for five years of a
production line at the Cangzhou Factory. Through September 30,
1995, the Company had expended approximately RMB$1,090,000 on
the expansion and modernization of the factory. As at
September 30, 1995, the Company had not, through its
wholly-owned subsidiaries, exercised its option to acquire
interests in Jiuhe and Hebei and such options had expired.
7
<PAGE>
<TABLE>
<CAPTION>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(United States Dollars)
4. TRADING SECURITIES
September 30, 1995
--------------------------------------
Cost Fair Value
<S> <C> <C>
7,492,000 shares of common stock issued by Keng
Fong Sin Kee Construction and Investment Company
Limited, listed in the Stock Exchange of Hong Kong $481,774 $467,032
774,000 shares of common stock issued by Shun Cheong
Holdings Company Limited, listed in the Stock Exchange of
Hong Kong 28,878 35,815
------ ------
$510,652 $502,847
======= =======
</TABLE>
The Company had acquired the trading securities for cash
financed partially by the Company's internal resources and partially by
a margin loan (See Note 8).
In July, 1995, the Company acquired 7,100,000 warrants of Keng
Fong Sin Kee Construction and Investment Company Limited ("Keng Fong")
in the stock market. These Warrants were converted into 7,100,000
common stock of Keng Fong and the Company acquired additional common
stock of Keng Fong during the third quarter of fiscal 1995 making the
total number of common stock held in hand to be 7,492,000 as at
September 30, 1995. The shareholding represents 3.0 per cent of the
total outstanding common stock of Keng Fong.
In July, 1995, the Company acquired the common stock of Shun
Cheong Holdings Limited ("Shun Cheong") in the stock market. As at
September 30, 1995, the Company held 774,000 common stock of Shun
Cheong which represents 0.3 per cent of the total outstanding common
stock of Shun Cheong.
The common stock of Keng Fong and Shun Cheong are not subject
to any contractual or statutory resale restrictions and any portion of
these stock can be reasonably expected to qualify for sale within one
year. The trading securities are measured at fair value, with
unrealized gains and losses included in earnings.
8
<PAGE>
<TABLE>
<CAPTION>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(United States Dollars)
5. PROPERTY AND EQUIPMENT
September 30, 1995
---------------------------------------------------------------
Accumulated
Depreciation
and Net Book
Cost Amortization Value
------------------- ------------------- ------------------
<S> <C> <C> <C>
Residential Rental Property
Building $748,669 $286,224 $462,445
Leasehold improvement 601,932 184,997 416,935
Cement factory leasehold improvements 130,939 6,547 124,392
---------- -------- ---------
$1,481,540 $477,768 $1,003,772
========== ======== ==========
December 31, 1994
---------------------------------------------------------------
Accumulated
Depreciation
and Net Book
Cost Amortization Value
------------------- ------------------- ------------------
Building $748,669 $257,654 $491,015
Leasehold improvement 601,932 159,237 442,695
---------- -------- ---------
$1,350,601 $416,891 $933,710
========== ======== ========
</TABLE>
6. DEFERRED EXPENDITURE
In June 1995, HFCI entered into a consulting agreement with
previously unaffiliated parties pursuant to which it receives various
investor relations and financial advisory services. The consulting
agreement has a term of 12 months, subject to earlier termination
thereof or renewal for subsequent periods. Pursuant to the terms of the
agreement, the Company: (a) in June 1995, issued to the consultant an
aggregate of 260,000 shares of its common stock and (b) is obligated to
issue to the consultant 20,000 shares of its common stock each month
during the term of the agreement.
The value attributable to the 260,000 shares issued to the
consultant pursuant to the consulting agreement, $1,510,600, has been
capitalized and is being amortized over the 12 month term of the
consulting agreement. The value attributable to the shares of common
stock being issued on a monthly basis is being charged to expenses as
such shares of common stock are issued.
9
<PAGE>
<TABLE>
<CAPTION>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(United States Dollars)
7. SHARE CAPITAL
The changes in share capital during the nine months ended
September 30, 1995 were as follows:
Common Shares
----------------------------------------------
Number of Contributed
Shares Amount Surplus
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Balance, December 31, 1994 10,384,542 $103,845 $193,296
Private Placement 75,000 750 299,250
Consulting Agreement (Note 5) 360,000 3,600 2,103,876
---------- -------- ----------
Balance, September 30, 1995 10,819,542 $108,195 $2,596,422
========== ======== ==========
</TABLE>
As of September 30, 1995, there were outstanding warrants
exercisable to purchase 296,443 shares of common stock, at an exercise
price of $3.20 per share through September 2, 1999.
8. MARGIN LOAN PAYABLE
The margin loan payable is to a third party and is
collateralized by the Company's trading securities with a carrying
value of US$502,847. The loan is repayable on demand and bears interest
at 12.5 per cent. per annum.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Background
Heng Fai China Industries, Inc. (the "Company") was originally
organized on March 24, 1958 as Time Saver Markets, Inc. pursuant to the laws of
the State of California. On October 29, 1973, Alpine International Corporation,
a private Oregon corporation merged with and into Time Saver Markets, Inc.
Subsequent thereto, Time Saver Markets, Inc. changed its name to Alpine
International Corporation. In August 1994, Alpine International Corporation
changed its name to Alpine Merger Corporation ("Alpine-California") after having
entered into a merger agreement with a Delaware corporation named Alpine
International Corporation ("Alpine-Delaware") which was formed for the purpose
of facilitating the reincorporation of Alpine-California in the State of
Delaware through a merger with and into Alpine-Delaware. Subsequently, in
November 1994, Alpine-Delaware changed its name to Heng Fai China Industries,
Inc. Alpine-California and Alpine-Delaware may be collectively referred to
hereinafter as "Alpine".
Alpine conducted no significant operations between April 1992, when it
emerged from reorganization under Chapter 11 of Title II of the U.S. Bankruptcy
Code, and June 1994, when it acquired Vancouver Hong Kong Properties Limited
("Vancouver Hong Kong") which owns an apartment building in North Vancouver,
British Columbia. In connection therewith, Alpine obtained equity financing of
US$120,000 in exchange for the issuance of 1,500,000 shares of its common stock
and 1,500,000 common stock purchase warrants exercisable through September 2,
1999. See Note 1 of the Notes to the condensed Consolidated Financial Statements
included elsewhere herein.
Throughout the remainder of fiscal 1994, the Company's operations were
limited to the operation of the real estate acquired through the Company's
acquisition of Vancouver Hong Kong. In January 1995, the Company acquired its
wholly-owned subsidiary, Heng Fai China & Asia Industries Limited ("Asia"), a
company incorporated in Hong Kong, along with Asia's two wholly-owned
subsidiaries, Heng Fai China Industries Limited ("China") and Heng Fai Light
Products Limited ("Light"). China and Light were incorporated in Hong Kong and
the Peoples' Republic of China ("PRC"), respectively. China and Light (through
its wholly-owned subsidiary, Cangzhou Citizen Cement Product Co., Ltd., referred
to hereinafter as "Citizen") have the rights to acquire direct or joint venture
operating lease interests for three cement factories in the Hebei province of
the PRC: (i) the Hebei Cangzhou City Chemical Corporation Factory (the "Cangzhou
Factory"); (ii) the Qingxian Cement Factory (the "Qingxian Factory"); and (iii)
the Hebei Cangzhou Area Construction Materials Factory (the "Hebei Factory").
See Note 3 of the Notes to the Condensed Consolidated Financial Statements
included elsewhere herein.
On April 17, 1995, Light (through Citizen) exercised its option to
lease the Cangzhou Factory. The Company is currently making the expansion and
modernization expenditures required to exercise pursuant to the terms of the
agreement governing the lease option. The Cangzhou Factory had suspended its
operations during April and June 1995 to prepare the lease of the production
line. Operations were resumed in late June 1995 and expansion and modernization
work had been undergone. As at September 30, 1995, the Company, had not through
its wholly-owned subsidiaries, exercised its option to acquire interests in
Jiuhe and Hebei and such options had expired.
11
<PAGE>
Results of Operations
The Company generates revenue through the leasing of the apartment
building in North Vancouver, British Columbia and the sale of cement products.
In the nine month period ended September 30, 1995, approximately 63.57% of the
Company's total revenue was derived from the leasing of the apartment building
while 35.60% was contributed by the sale of cement products.
There were no significant changes in the revenues and expenses
attributable to the operation of Vancouver Hong Kong's real estate between the
third quarter of fiscal 1995 and the comparable periods of fiscal 1994.
Revenues and expenses for Citizen's cement operations represent
operations from April 17, 1995. As previously discussed, Citizen's facilities
were undergoing expansion and modernization, and the operations during the third
quarter of fiscal 1995 were started to increase.
Legal and professional fees, and other administrative expenses,
increased significantly during the third quarter of fiscal 1995. The increased
expenses resulted from personnel added during 1995 to establish a Hong Kong
office to support the Company's activities in the PRC. Continued increases in
the Company's investigation and acquisition of business opportunities in the PRC
are expected, and will result in additional increases in legal, professional and
administrative expenses.
In June 1995, the Company entered into a consulting agreement pursuant
to which it receives investor relations and financial advisory services. As a
result, the Company recorded consulting expenses of US$1,004,175 during the
third quarter of fiscal 1995. See Note 6 of the Notes to the Condensed
Consolidated Financial Statements included elsewhere herein.
In July 1995, the Company, through its wholly owned subsidiary
incorporated in Hong Kong, started to purchase equity securities listed in the
Stock Exchange of Hong Kong Limited and held principally for the purpose of
selling. The purchase of the trading securities were financed partially from the
cash generated from the placement of the Company's shares in June 1995 and
partially from the margin loan. During the third quarter of fiscal 1995, the
income generated from the securities investments were US$3,262. However, as at
September 30, 1995, the fair value of these trading securities are different
from their historical costs. Adjustments for the net unrealized losses of
US$7,805 had been included in the third quarters' Statement of Operations.
12
<PAGE>
Liquidity and Capital Resources
To date, the Company has financed its operations primarily through
private placements of its common stock, short term borrowings and cash flow from
operations. As at September 30, 1995, the Company had cash of US$49,016 together
with margin loan payable and other payable amounting to total US$554,233.
The Company had net cash outflow of approximately US$525,298 from
operating activities during the third quarter of fiscal 1995 as compared to net
cash inflow of US$71,566 during the third quarter of fiscal 1994. The outflow
was mainly attributable to the purchase of trading securities in the third
quarter. The Company financed the net loss, and capital additions, through the
private placement of shares of its common stock for cash proceeds of $300,000.
The proceeds from that private placement are also being used to fund the
expenditures incurred by Citizen in connection with the expansion and
modernization of the Cangzhou Factory described above.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any pending or ongoing
litigation.
Item 2. Changes in Securities
There have been no changes in the securities of the Company
required to be disclosed pursuant to this item.
Item 3. Defaults upon Senior Securities
There has been no material default with respect to any
indebtedness of the Company required to be disclosed to be
disclosed pursuant to this item.
Item 4. Submission of Matters to a Vote of Securityholders
There have been no matters submitted to a vote of
securityholders during the nine months ended September 30,
1995.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None.
(b) Reports on Form 8-K: None.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HENG FAI CHINA INDUSTRIES, INC.
Dated: By: /s/ Robert H. Trapp
------------------------------
Robert H. Trapp
Secretary and Treasurer
