SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
[ X ] ANNUAL REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-7619
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HENG FAI CHINA INDUSTRIES, INC.
(Name of issuer in its charter)
DELAWARE 93-063633
(State Or Other Jurisdiction (IRS Employer
Of Incorporation) Identification No.)
650 West Georgia Street, Suite 1600, P.O. Box 11586, Vancouver,
British Columbia, CANADA V6B 4N8
(604) 685-8318
(Address and telephone number of principal executive offices)
----------------------
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Stock, $.01 par value per share.
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past twelve 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K 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-K or any
amendment to this Form 10-K [ ]
The Registrant's revenues for the fiscal year ended December 31, 1996 totalled
$2,051,366.00
As of April 7, 1997 the aggregate market value of the voting stock held by
non-affiliates of the Registrant (assuming for this purpose that only directors
and officers of the Registrant are affiliates of the Registrant), based on the
average of the closing bid and asked prices of $.765 on that date, was
approximately $5,898,434.
As of April 7, 1997 the Registrant had outstanding 13,686,814 shares of Common
Stock and 379,520 shares of Preferred Stock.
Documents incorporated by reference: Other than certain exhibits here to which
have been specifically incorporated by reference herein in Item 14 under Part
IV hereof, no other documents are incorporated by reference.
Transitional Small Business Disclosure Format: YES [ ] NO [X]
<PAGE>
INDEX TO FORM 10-K
OF
HENG FAI CHINA INDUSTRIES, INC.
Page
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PART I
Item 1. Business
General - The Company ............................................ 1
The Business ..................................................... 2
The Container Industry ........................................... 2
Container Customers .............................................. 3
The Cement Industry .............................................. 3
Cement Customers, ................................................ 4
Real Estate ...................................................... 4
Employees ........................................................ 6
Government Regulation ............................................ 6
Item 2. Description of Property .......................................... 7
Item 3. Legal Proceedings ................................................ 7
Item 4. Submission of Matters to a Vote of Security Holders .............. 7
Part II
Item 5. Market for Common Equity and Related Stockholder Matters ......... 8
Item 6. Selected Financial Data .......................................... 8
Item 7. Management's Discussion and Analysis of Financial ................ 9
Condition and Results of Operations
Item 8. Financial Statements ............................................. 15
Item 9. Changes in and Disagreements with Accountants on ................. 16
Accounting and Financial Disclosures
Part III
Item 10. Directors and Executive Officers of the Registrant
Management Biographies ........................................... 17
Indemnification of Directors and Officers ........................ 18
Committees of the Board of Directors ............................. 18
Compliance with Section 16(a) of the Exchange Act of 1934 ........ 18
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Page
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Item 11. Executive Compensation
Summary Compensation Table ....................................... 19
Stock Option Plans ............................................... 19
Option/SAR Grants in Last Fiscal Year ............................ 19
Aggregate Option/SAR Exercises in Last Fiscal Year ............... 19
And Fiscal Year-End Option/SAR Values
Employment Agreements ............................................ 19
Remuneration of Directors ........................................ 19
Item 12. Security Ownership of Certain Beneficial Owners and Management ... 20
Item 13. Certain Relationships and Related Transactions ................... 21
Item 14. Exhibits and Reports on Form 8-K ................................. 21
(a) Exhibits
(b) Reports on Form 8-K
<PAGE>
Part I
Item 1. Business
General - The Company
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 and issued 258,943 shares of its common stock (the "Common Stock")
and 258,943 common stock purchased warrants, which are exercisable through
September 2, 1999 at an exercise price of US$3.20 per share (the "Warrants"). In
addition, concurrent therewith, the Company also issued 37,500 shares of Common
Stock and 37,500 Common Stock Purchase Warrants. The foregoing share and per
share numbers reflect the effects of a one-for-four and a one-for-ten reverse
stock split undertaken by the Company subsequent to the acquisition of Vancouver
Hong Kong. See Note 1 of the Notes to the Consolidated Financial Statements
included elsewhere herein.
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 wholly-owned subsidiary, Heng Fai China Industries Limited
("China"). China was incorporated in Hong Kong and obtained the rights to
acquire direct or joint venture operating lease interests for three cement
factories in the Hebei province of the Peoples' Republic of China (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").
In April 1995, Min You Cement Company Limited was established (formerly Cangzhou
Citizen Cement Product Co. Ltd. and referred to hereinafter as "Min You").and
exercised its option to lease a production line at the Cangzhou Factory. From
April through June 1995, Min You suspended its operations at the Cangzhou
Factory to facilitate the Company's expansion and modernisation of such factory
as required pursuant to the provisions of the agreement governing the Company's
exercise of its options. Operations at the factory resumed at the end of June
1995 upon completion of the expansion and modernization of such factory. Neither
the Company nor its subsidiaries exercised the options to acquire the interest
in the Qingxian Factory or the Hebei Factory, which options expired unexercised.
On September 4, 1996, through a wholly-owned subsidiary, the Company acquired a
70% interest in Wuhan Monkey King Container Co., Ltd. ("Wuhan Container") in
exchange for 727,272 shares of the Company's restricted Common Stock. Wuhan
Container is a PRC state company engaged in the design, manufacture, lease and
repair of standard and non-standard containers and related steel structure
products. See Note 3 of the Notes to the Consolidated Financial Statements
included elsewhere herein.
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The Business
The Company's business consists primarily of the operation of container
manufacturing by Wuhan Container, of cement production by Min You and of
apartment rental by Vancouver Hong Kong. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 7 below.
The Container Industry
The use of containers for sea freight play a important role in international
trade by facilitating the movement of goods. Sea freight is the main mode of
transporting goods because of its low cost compared with air transport. In
addition, the size and weight of cargoes, which can be carried by aircraft, are
less than those of cargoes which can be carried by ship. Less valuable and
non-seasonal merchandise, bulky and heavy cargoes, and goods, which do not
require urgent delivery, are usually transported by sea using containers.
The use of containers for shipping became popular during the 1970's because of
their reduced costs, damage and pilferage of goods. Containerization also
facilitates the unloading and reloading of cargoes between different modes of
transport, thereby saving valuable time which would otherwise be spent in
re-packing.
The freight forwarding industry is affected by world's economic growth and the
world's volume of international trade. In a forecast published by the
International Monetary Fund in May 1995, the world economy was forecasted to
expand by 3.8 percent in 1995 and 4.2 percent in 1996, with the economic growth
of Asia (excluding Japan) forecasted to be 7.6 percent in 1995 and 7.3 percent
in 1996. The forecast also predicted that world trade volume would grow at a
rate of 8.0 percent in 1995 and of 6.8 percent in 1996. With continued strong
growth of external trade, the demand for freight forwarding services are
expected to continue to be positive, this will without doubt increase the demand
for containers.
In the PRC, there are currently approximately 40 container manufacturers and the
annual aggregate production capacity for 1996 is approximately 340,000
twenty-foot equivalent units ("TEUs"). Most of the manufacturers are
small-to-medium size plants, located in the coastal regions of the PRC. The
major manufactures of containers in the PRC are as follows:
(1) China International Marine Containers (Group) Limited, a PRC state-owned
company whose production capacity is approximately 160,000 TEUs;
(2) Yangzhou Tongyun Container Company Limited, a sino-foreign joint venture
whose production capacity is approximately 40,000 TEUs;
(3) Hyundai Container Manufacturing Company Limited, a Korean conglomerate
whose production capacity is approximately 40,000 TEUs. Its production
plants are located throughout the PRC, such as in Shanghai, Guangdong
Province and Tsingtao; and
(4) Jindo Container Company Limited, another Korean conglomerate whose
production capacity is approximately 50,000 TEUs. It also operates
production plants in the coastal regions of the PRC.
The container-manufacturing industry in the PRC is very competitive, especially
for the production of TEUs. The Company estimates that there are currently over
40 manufacturers in the PRC who compete directly or indirectly with Wuhan
Container. In the PRC there are no specific barriers which prevent entry into
the container manufacturing industry.
Since the establishment of Wuhan Container, a significant amount of capital
investments have been made into the plant to modernize the mechanical processing
line, the wielding line and the painting line, to double its annual production
capacity to 20,000 TEUs.
2
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Container Customers
The main products of Wuhan Container are International Standard Organization ICC
Type 20' x 8' x 8'6" dry cargo steel container and non-standard containers
according to each customers' specifications. The management at Wuhan Container
continues to broaden their customer base and are currently soliciting well
established container customers for orders. Customer orders signed in 1996 are
as follows:
60 TEUs from B&C SAS International whose registered office is in Italy;
100 TEUs from CKS Asia Management whose registered office is in Singapore;
and 5,000 TEUs from China Railway Container Transportation Center.
In 1997, Wuhan Container signed another contract with CKS Asia Management for an
order of 122 TEUs and currently Wuhan Container is negotiating with B&C SAS
International for an additional 150 TEUs. Potential orders from customers in
Singapore, Britain, and other countries are currently being initiated by Wuhan
Container.
It is expected that the world demand for containers will continue to increase in
1997, as the world economy continues to grow. The local government of the City
of Wuhan City has been promoting the city's accessibility to the world. As a
result, it is believed that Wuhan Container shall continue to have opportunities
to develop in 1997 and the years ahead.
The Cement Industry
The cement industry in the PRC consists of over 7,000 small, medium and large
cement plants. Most of the cement plants in the PRC are small, use relatively
old technology, have an average production scale of less than 50,000 tons per
year and supply a customer market located within close proximity. Historically,
the cement industry in the PRC developed around the concept of cement plants
utilizing vertical kiln technology imported from Eastern Europe and the former
Soviet Union. The manufacturing of cement involves the following: (i) the
quarrying of raw materials; (ii) the crushing, grinding and blending of these
raw materials into either a powder (the "dry process") or a mud-like mixture of
slurry (the "wet process"); (iii) the burning of raw material mix in kilns to
produce pellets called "clinker"; and (iv) the grinding of the clicker with
gypsum and other products, such as slag from steel mills, to produce cement. The
"burning" phase is the key phase of production and is primarily responsible for
the quality of the cement. The "burning" phase consumes most of the fuels used
in the production of cement, while the "grinding" of the raw materials and
production of "clinker" consumes most of the electricity used in the production
of cement. The type of production process, "wet process" or "dry process",
determines the type and design characteristics of the kiln. Vertical kiln is an
older technology that utilizes the "dry process" of cement production. When
technology transfers from Eastern Europe and the former Soviet Union were
restricted in the late 1980's, the PRC was forced to develop its own technology.
The PRC continued to utilise vertical kilns, largely due to their: (i) lower
investment costs; (ii) simplicity of design, shorter construction time and
production goals; and (iii) relatively less sophisticated technological
requirements. As the cement industry in the PRC matures and demand for higher
grade cement increases, the Company believes that there will be a greater shift
to rotary kiln technology because vertical kilns are not expected to be able to
satisfy significantly increased demand.
Rotary kiln technology is able to use the "wet process", "dry process" or
combination for the production of cement. Rotary kilns can be built to any
desired capacity and are capable to replace multiple vertical kilns with a
single production line. It is uncertain how long it will be before vertical
kilns are replaced by more technologically modern kilns, such as rotary kilns.
Factors which limit the shift to rotary kiln technology include the difficulty
in obtaining the necessary capital to acquire rotary kiln technology and
equipment, and
3
<PAGE>
the poor infrastructure in the PRC which inhibits the ability to distribute the
volume of products necessary to justify the higher investment. The Company
believes that vertical kilns will most likely continue to be used in the PRC for
the foreseeable future.
Cement in the PRC is categorized on the basis of its compressive strength so
that, for example, #425 cement has a minimum strength of 425kg/cm2. The common
grades of cement include #325, #425, #525 and #625. In the PRC, #325 is commonly
used for basic construction with long fixation periods and minimal weight
requirements, such as plastering; #425 is commonly used for buildings of up to
20 to 30 stories (depending on each building's specifications); bridges and city
roads; #525 is commonly used for infrastructure projects, such as airports,
railways and highways and for buildings requiring stronger cement that #425; and
#625 is commonly used for specialized purposes such as providing support for
certain structures such as power plants and where extremely quick fixation times
are necessary. The term "higher grades of cement" generally refer to grades for
#425 cement of above.
Vertical kiln technology is employed by Min You and only cement #325 is produced
there.
Cement Customers
All cement production by Min You at the Cangzhou Factory is #325 cement,
accounting for 100% of the cement sales in 1996. Products are primarily sold to
over 5 distributors (approximately 59% of the cement sales in 1996). The balance
of sales are made directly to end-users, such as farmers or small-size
developers located in the Hebei Province, PRC. In 1996, Zhongjie Materials
Company, Limited was the largest customer of Min You, representing approximately
19% of the total cement sales. However, the amount of sales to each customer may
vary from quarter to quarter depending upon the customer's particular
construction activities or, in case of distributors, those of its customers. Min
You has resisted entering into fixed price sales contracts due to its
expectation that cement prices will continue to escalate for as long as demand
exceeds supply.
Real Estate
The apartment building operated by the Company is located within the Central
Lonsdale area of the City of North Vancouver, British Columbia. Developments in
the immediate area consist primarily of low to medium density residential units,
with commercial development focused along Lonsdale Avenue to the west and the
more prominent cross streets such as 13th Street and 15th Street. Lions Gate
Hospital, a principal medical facility, is located just north of the apartment
building at the intersection of East 13th Street and St. George Avenue.
The Central Lonsdale corridor serves as the primary commercial centre for the
city and the surrounding areas of North Vancouver. Residential development in
the surrounding areas consist of variety of 3-story rental and strata tiled
apartments, plus lower density townhouse developments. The area also has signs
of higher density development spotted throughout the area. Thus, the apartment
building is located within a desirable and stable multiple residential oriented
neighbourhood, located in close proximity to local retail, recreational and
public amenities.
The following information has been extracted from the Canada Housing
Corporation's ("CMHC") Vancouver CMA Rental Market Report.
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VACANCY RATES
Region 10/95 10/96
- ------ ----- -----
City of North 0.2% 0.1%
Vancouver
District of North 0.5% 0.2%
Vancouver
Metro Vancouver 0.8% 1.1%
APARTMENT RENTAL RATES
City of North Vancouver 10/95 10/96
- ----------------------- ----- -----
Bachelor CDN$552 CDN$553
One Bedroom CDN$650 CDN$677
Two Bedroom CDN$779 CDN$812
The apartment building improvements in North Vancouver consist of a three-story
wood frame rental apartment building constructed in the late 1960's. The
building has a below grade basement containing the mechanical rooms, various
storage rooms, workshops and recreational areas.
The apartment building has a total of 60 suites consisting of one bachelor
suite, 38 one bedroom suites and 21 two bedrooms suites. Twelve of the two
bedrooms suites, located on the corners of the building offer wood burning
fireplaces. The suites are generally larger than average and on the whole, have
been well maintained. General finishing details include hardwood floors or
wall-to-wall carpeting with vinyl flooring in the kitchens and bathrooms,
adequate cabinet/counter space in the kitchens with two appliances, partly tiled
shower surrounds in the bathroom and covered balconies or patios.
Paved open parking for 60 vehicles is provided at the rear of the apartment
building. Access/egress is available by a paved rear service lane off St.
Andrews Avenue.
Overall, the property provides well maintained rental accommodations, consistent
with the quality of other projects located within the general area. The roof was
replaced in 1992. Since then, there has been no major upgrading, but day to day
maintenance as required.
5
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Rental Rates On Apartment Building
The current monthly rents* are as follows:
SUITE TYPE MONTHLY RENT
- ---------- ------------
Bachelor CDN$580
One Bedroom CDN$600 - $680
Two Bedroom CDN$745 - $800
- ----------
* Rent includes heat, hot water, parking and cablevision
By way of comparison, average apartment rents in the City of North Vancouver and
surrounding District of North Vancouver were as follows, based on CMHC Rental
Market Survey:
CMHC Rental Market Survey
October 1996 Bachelor 1Bdrm 2Bdrm
- ------------ -------- ----- -----
City of North Vancouver CDN$553 CDN$677 CDN$812
District of North Vancouver CDN$625 CDN707 CDN$915
The above survey would tend to support the conclusion that the monthly rents
within the subject are reasonably in line with market rents, taking into account
the size and condition of the units plus the inclusions in the month rent.
Employees
The Company currently employs approximately 500 persons, 4 of whom are in
management, 2 of whom oversee operation of the apartment building in North
Vancouver, British Columbia and the other 2 monitor the operations in the PRC.
Out of 500 persons, 140 were employed full time at Min You (29 of such employees
are in management) and 350 were employed full time at Wuhan Container (58 of
such employees are in technical department). Pursuant to the articles of
association governing the activities of Min You and Wuhan Container, the
employees at such factories have established a trade union to protect the rights
of the employees. The Company believes that its relationship with its employees
at Min You and Wuhan Container are good and that establishment of the trade
union facilitates the fulfilment of the economic goals of Min You and Wuhan
Container and provides effective assistance in resolution through mediation of
disputes between those employees in management of Min You and Wuhan Container
and the other employees at the factories.
Government Regulation
The Company is not aware of any government regulations in the United States
which materially adversely affects its business or operations in the United
States. The Company's participation in operation of Min You and Wuhan Container
are subject to significant governmental regulation in the PRC and the Company
believes it is in compliance with such regulations to the extent the same are
applicable to the Company.
6
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Item 2. Description of Property
The apartment building which the Company operates in Vancouver is composed of 60
individual residential units in a three story frame building situated at the
corner of East 12th Street and St. Andrews Avenue in North Vancouver, British
Columbia, Canada. The apartment building consists of approximately 57,340 square
feet and is situated on approximately 1,109 acres of land. The apartment
building is owned by the Company, subject to first and second mortgages. The
land underlying the apartment building is leased pursuant to a lease which
terminates on May 31, 2032, subject to earlier termination in certain
circumstances. The annual lease cost for the land is fixed at CDN$110,000
(US$80,321) until the year 2010, after which time it will be renegotiated for
the remaining term. See Note 18 of the Notes to the Consolidated Financial
Statements included elsewhere herein.
Item 3. Legal Proceedings
The Company is not a party to any pending or ongoing litigation.
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 1996, no matters were placed before the
stockholders of the Company for consideration.
7
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Stock is quoted on NASDAQ OTC Electronic Bulletin Board
(the Bulletin Board"). The following table sets forth, for the periods
indicated, the reported high and low bid and asked price quotations for the
Common Stock for the periods such securities have been reported on the Bulletin
Board. Such quotations reflect inter-dealer prices, but do not include retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
Common Stock
------------
Bid($) Asked ($)
------ ---------
Period of Quotation High Low High Low
------------------- ---- --- ---- ---
Fiscal 1995: First Quarter 5 4 7 5
- -----------
Second Quarter 8 4 8-3/4 5
Third Quarter 9-1/4 8 10 8-3/4
Fourth Quarter 9-1/2 5-1/4 10 5-7/8
Fiscal 1996: First Quarter 6-1/4 5-1/4 7 5-1/2
- -----------
Second Quarter 7-1/2 1-1/2 8 2
Third Quarter 2-1/2 1 2-3/4 1-1/4
Fourth Quarter 1-3/8 17/32 1-1/2 5/8
The Company's Common Stock commenced quotation on the Bulletin Board in March
1994. Prior thereto, the Common Stock was quoted in the so-called "Pink Sheets"
issued by the National Quotation Bureau. Information relating to that period of
time that the Company's Common Stock has been quoted on the Bulletin Board, was
received from NASDAQ Market Research. Information relating to the prior period
was provided by the National Quotation Bureau.
As of April 7, 1997, there were approximately 1,447 holders of record of the
Common Stock based upon information furnished by OTR/Oxford Transfer & Registrar
Securities Agent, the transfer agent for the Common Stock. The Company believes,
based upon security positions listings, that there are more than 2,570
beneficial owners of the Common Stock. The closing bid and asked prices of the
Common Stock as reported on the NASDAQ OTC Electronic Bulletin Board on April 7,
1997 were: US$.718 and US$.812 per share of Common Stock, respectively. As of
April 7, 1997, there were 13,686,814 shares of Common Stock outstanding and
379,520 shares of non-trading Preferred Stock.
The Company has never paid and does not anticipate paying any cash dividends on
its Common Stock in the foreseeable future. The Company intends to retain all
earnings for use in the Company's business operations and in the expansion of
its business.
Item 6. Selected Financial Data
Financial statements of the Company for the two years ended December 31, 1996
have all been audited by Deloitte Touche Tohmatsu International, independent
certified public accountants, whose report is included in this document. As the
Company acquired the container manufacturing business in the PRC only in
September
8
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1996, no historic comparative financial data was selected for discussion.
Management's Discussion and Analysis of Financial Condition and Results of
Operations are based on the operational results of each of the subsidiaries.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Introduction
In June 1994, Company, then known as Alpine International Corporation entered
into a business combination with Vancouver Hong Kong Properties Limited, 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 Common Stock and 10,357,700 Warrants
of Alpine. As a part of the business combination a company related to Vancouver
Hong Kong agreed to subscribe for 1,500,000 shares of Common Stock and 1,500,000
Warrants for an aggregate of US$120,000 in cash. The foregoing share numbers do
not reflect the Company's subsequent one-for-four reverse stock split and
one-for-ten reverse stock split. The business combination was accounted for as a
reverse acquisition whereby the purchase method of accounting was 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.
During 1996 and 1995 the Company made two acquisitions. The acquisitions were
accounted for as a purchase and their operating results are included in the
consolidated statements of income from their respective dates of acquisition.
On September 4, 1996, the Company through a wholly-owned subsidiary acquired a
70% interest in Wuhan Container Co., Ltd. in exchange for 727,272 shares of the
Company's restricted common stock. Wuhan Container is a joint venture
incorporated in the PRC which was formed to engage in the design, manufacture,
lease and repair of standard and non-standard containers and related steel
structure products.
The acquisition of Wuhan Container in the PRC was accounted for under the
purchase method of accounting. Under this method, the purchase price is
allocated to the fair value of the net assets acquired and any excess is
considered to be goodwill. No goodwill arose on this acquisition.
On January 9, 1995, the Company acquired from Fai H. Chan, an officer, director
and stockholder of the Company, 100% of the common stock of Heng Fai China &
Asia Industries, Limited ("Heng Fai Asia") in exchange for nominal
consideration. Heng Fai Asia through its wholly-owned subsidiaries had various
options to acquire interests in various lease interests or operating joint
ventures in the PRC, but otherwise had no material assets and liabilities or
operations at the time of acquisition.
Heng Fai Asia, through its wholly-owned subsidiary formed in January 1995
exercised its option to enter into a lease, 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"). The subsidiary was
entitled to lease the production line for five years for a rental of Rmb1.2
million (US$144,288) payable through expenditures to renovate and modernize the
Cangzhou Factory. The expenditures were made in 1995 and the resulting prepaid
rental is being amortized over the five year term of the leases. Amortization
was US$28,683 in 1996 and US$28,750 in 1995. At the initiation of the Cangzhou
Factory lease, the lessor provided certain raw materials and finished goods
totaling US$91,415, payment of which is due, without interest, at the expiration
of the lease in December 1999. Heng Fai Asia's other options lapsed in 1995.
9
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Results of Operations
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
With a commitment to total manufacturing excellence, the Company undertook a
series of initiatives during the year, designed to provide long term cost
effective productions to meet anticipated growth in customer demand in 1997 and
beyond. These included the modernization of the production line of both Min You
and Wuhan Container. The directors considered the costs associated with this
upgrade to be fully justified by providing a more flexible pricing structure
giving rise to an increase in orders for the coming years.
Consolidated sales increased substantially by 223.8% in 1996 to US$2,051,366
from US$633,574 in 1995, reflecting the contribution in sales from Wuhan
Container as well as the rise in the sales of cement by Min You.
General corporate expenses increased by US$68,452 from US$1,833,233 in 1995 to
US$1,901,685 in 1996, a rise of only 3.7%. Despite the Company had carried out
acquisition during 1996, the general corporate exercises for the Company and its
subsidiaries have been closely kept under control.
Other operating and administrative expenses, included in the general corporate
expenses, increased to US$297,245 in 1996, up 70.3% from US$174,527 in 1995;
however this represents an decrease as a percentage of turnover to 14.5% in 1996
compared to 27.6% in 1995. Net interest expenses increased to US$184,485 in 1996
from US$101,248 in 1995. The rise in interest expenses in 1996 was attributed to
the interest expenses bore by Wuhan Container.
Minority interests increased to US$3,583,399 in 1996 and such an increase is
primarily due to the minority shareholders of Wuhan Container.
Provision for income taxes of the Company was nil for 1996 compared to US$16,947
for 1995 which is the provision for Canadian taxes in 1995 only. Under current
PRC regulations, one of the Company's subsidiaries in the PRC receive a full
exemption from enterprise income tax for two years starting from their first
profitable year, followed by 50% reduction in income taxes for the next three
profitable years. In 1996, the subsidiaries had not reported any operating
profits.
The Company's net loss increased by 16.0% to US$2,288,328 in 1996 from
US$1,972,726 in 1995, making the net loss per share to be US$0.20 in 1996 from
US$0.19 in 1995.
Though the Company had experienced the operating loss in 1996, its total assets
had soared up to slightly over US$10 million as at December 31, 1996 (US$0.89
per share of common stock) while that was only US$1.7 million as at December 31,
1995 (US$0.16 per share of common stock).
Year Ended December 31, 1995 Compared to Year Ended 31, 1994
The Company's operations during 1994 was comprised solely of the operation of
the North Vanocuver, British Columbia, property while in the second half of
1995, the Company has acquired the cement operations. Henceforth, the revenues
for the year ended December 31, 1995 increased to US$633,574 from US$333,319 for
the year ended December 31, 1994, principally the result of the revenues derived
in the second half of 1995 from the Company's cement operation.
The Company's net loss for 1995 was US$1,972,726, a change of US$2,000,041
compared to net income of US$27,315 for 1994. The increase in the net loss was
due to (i) the operating loss for the cement segment;
10
<PAGE>
and (ii) higher general corporate expenses.
The operating profit for the Company's North Vancouver, British property
decreased by US$14,511 due to increased operating costs while the Company's
cement operations incurred an operating loss of US$75,107 in 1995.
During 1995 the Company purchased shares of the common stock of three companies
traded on Hong Kong Stock Exchange. These securities are classified as available
for sale and, accordingly, the decline in their market value has been charged
directly to stockholders' equity as a separate component thereof.
General corporate expenses increased in 1995 by US$1,814,594 as the results of
consulting fees of US$1,620,433, and a US$110,751 increase in legal,
professional and audit fees. The consulting fees relate to an agreement the
Company entered into in June 1995 for investor relations and financial advisory
services. Legal and professional fees increased in 1995 for expenses related to
the Company's commencement of new business activities through investments in the
PRC.
Liquidity and Capital Resources
In 1996, net cash provided by financing activities was US$2,333,764 and net cash
used in operating activities and investing activities were US$1,845,079 and
US$373,427 respectively and resulted in a net increase in cash and cash
equivalents of US$115,258.
The Company primarily used the operating cash flows to fund its capital
expenditures and working capital requirements. For fiscal 1996, the Company's
working capital requirements have not fluctuated significantly. From December
31, 1996 to December 31, 1995, net accounts receivable increased from US$29,307
to US$980,172, short-term borrowings increased from US$60,120 to US$2,403,026,
and long-term mortgage payable (including current portion) decreased from
US$992,433 to US$973,663. Total borrowings as of December 31, 1996 amounted to
US$3,376,689, representing an increase of 220.8% over total borrowings of
US$1,052,553 as of December 31, 1995. In addition, cash and cash equivalents
increased from US$55,001 at December 31, 1995 to US$170,259 at December 31,
1996.
As discussed in Note 2 of the Notes to the Consolidated Financial Statements,
the Company's operating losses and net asset deficiency raise substantial doubts
concerning the Company's ability to continue as a going concern. However, the
Company's principal shareholder has agreed to continue to provide the Company
with necessary financial support.
Exchange Rate Risk
At present, the Company's sales and purchases are denominated in US dollars,
Hong Kong dollars and Renminbi ("Rmb"). In view of the exchange rate pegged
between Hong Kong dollars and US dollars, the Company is not subject to any
direct exposure from the fluctuation of US dollars.
Rmb is currently not freely convertible. Prior to January 1, 1994, all foreign
exchange transactions involving Rmb in the PRC were placed through the People's
bank of China or authorised financial institutions at the official exchange rate
set by the State Administration of Exchange Control (the "SAEC"). In addition,
Rmb could also be converted at swap centres established by the SAEC open to PRC
enterprises and foreign investment enterprises, subject to the SAEC approval of
each foreign currency transaction, at exchange rate influenced by the actual
demand and supply of foreign currency in the PRC. The exchange rate quoted by
the SAEC generally differs from the exchange rate quoted by the swap centres.
11
<PAGE>
On January 1, 1994, the PRC government unified the two-tier system by adopting a
unified floating exchange rate system largely based on market supply and demand.
In place of the official rate and swap rate, the People's Bank of China now
publishes a daily exchange rate (the "PBOC Exchange Rate"). Banks and other
financial institutions authorised to deal in foreign currency may enter into
foreign exchange transactions at exchange rates within an authorised range above
or below the PBOC Exchange Rate according to the market conditions. While the
new system has removed the two-tier exchange rate system, Rmb is still not a
freely convertible currency.
Full convertibility of the Rmb was expected to be possible by the year 2000.
However, recent improvements in the PRC's foreign exchange reserves have
accelerated the PRC government's plan to make the Rmb fully convertible.
As a matter of policy, the Company sources supply of raw materials from PRC
domestic producers whenever possible. The management believes that the policy
allows the Company to utilise the Rmb received from its customers and minimise
the Company's exposure to Rmb exchange risks. The Company therefore does not
anticipate any exchange rate fluctuation which would have an adverse effect on
the financial performance and assets value of the Company when measured in terms
of U.S. Dollars.
The Company is not involved in any hedging activities in foreign currencies.
Inflation
The general inflation rate in China was approximately 13%, 24% and 15% per annum
in 1993, 1994 and 1995, respectively. Accordingly, the PRC Government has taken
steps to control inflation by means of credit restrictions, increase in interest
rates and open market operations, which in turn, lead to a slowdown of the
Chinese economy. As a result of the PRC inflation, the austerity measures
implemented by the PRC Government have continued to affect the operations of Min
You and Wuhan Container. Although there is a sign of easing in such austerity
measures, both turnover and profit margin of Min You and Wuhan Container are
still severely affected.
The Operating Subsidiaries
Vancouver Hong Kong Properties Limited - Summary Financial Information
Fiscal 1996 Fiscal 1995 Fiscal 1994
Revenues $ 336,644 $ 347,034 $ 327,381
Income from operations 85,883 110,608 125,119
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenue decreased by 3% to US$336,644 in 1996 from US$347,034 in 1995. The
decrease was principally attributable to a decrease of the occupancy rate during
1996.
Operating income dropped by 22.4% to US$85,883 in 1996 compared to US$110,608 in
1995, and also decreased as a percentage of revenue to 25.5% in 1996 compared to
31.9% in 1995. The decrease was primarily due to the extent of the increase in
rentals is less than the extent of the increase in the operating and
administrative expenses during 1996.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
12
<PAGE>
Income increased by 6% to US$110,608 in 1995 from US$327,381; however, the
operating income has been dropped by 11.6% which mainly due to the increase in
the operating costs.
Min You Cement Company Limited - Summary Financial Information
Fiscal 1996 Fiscal 1995
Revenues $ 540,191 $ 278,622
Loss from operations 62,487 75,107
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues for Min You increased by 93.9% to US$540,191 in 1996 from US$278,622 in
1995. Min You only started its production in the second half of 1995 and when it
operated at its full capacity, the volume produced almost doubled those of 1995.
The operating loss decreased by 17% to US$62,487 in 1996 from US$75,107 in 1995
and also a percentage of revenues to 11.6% in 1996 compared to 27% in 1995. The
austerity measures mentioned above had severely undermined the profitability of
the cement operation.
The cement operation only commenced in the second half of 1995.
Wuhan Container Company Limited
The Company's operation of container manufacturing incurred an operating loss of
US$241,208 in fiscal 1996, is as follows:
Sales $ 1,082,317
Cost of Sales (1,009,105)
Other (314,420)
-----------
$ (241,208)
===========
For the months of September through December 1996, Wuhan Container operated less
than its full capacity. As a result, the sales and gross profit margin of the
container manufacturing operations in 1996 were lower than the level management
believes can be achieved under normal operating conditions. In addition, the
cost of sales have increased due to an overall increase in raw material costs.
Summary financial information has not been provided for securities investment as
its operations is insignificant compared to the above.
Significant Uncertainties
The Company, by choosing to concentrate many of its resources in the PRC, may be
subject to substantial regulatory hurdles and governmental and economic
uncertainties. By doing business in the PRC through joint ventures with local
Chinese partners this risk is reduced; however, there is no assurance that the
Company will be successful in financing and carrying through these projects into
profitability.
The Company's investments are principally carried out in Rmb, Canadian dollars
and Hong Kong dollars. At present, the Company's currency receipts for the
manufacturing segments are in Rmb while the currency receipts for rental
operations and securities investments are in Canadian dollars and Hong Kong
dollars respectively. With the increase in the manufacturing operation of the
Company in the PRC, the currency
13
<PAGE>
receipts in Rmb will to some extent be increased.
Since the late 1980's, the PRC economy has moved from a centrally planned
economy to a "socialist market-oriented economy" subject to a series of economic
reforms and economic plans adopted by the PRC government. Although it is
expected that the PRC government will continue to follow the model of a
socialist market-oriented economy more closely, there is no assurance that the
PRC government will continue to pursue its economic reforms and that its current
policies will remain relatively consistent with such reforms, particularly in
the event of any change in the political leadership of, or the political,
military, economic or social conditions in, the PRC.
The policies adopted by the PRC government to regulate matters such as currency
conversion, taxation and restrictions on the import and distribution of foreign
goods can have significant effects on the economic environment in the PRC and
consequently on enterprises with business interests in the PRC.
The Company's production facilities are located in the PRC. The PRC has been the
Company's largest market and sales to the PRC accounted for approximately 82.2%
of the Company's turnover for the year ended December 31, 1996. There is no
assurance that the Company will not be adversely affected by any change in
governmental policies or any unfavourable change in the political, military,
economic or social conditions; the laws or regulations; or the rates or basis of
taxation in the PRC.
14
<PAGE>
Item 8. Financial Statements
The following financial statements are filed at the end of this report,
beginning on page F-1:
HENG FAI CHINA INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
CONTENT PAGE(S)
- ------- -------
REPORT OF INDEPENDENT AUDITORS ................................... F - 1
CONSOLIDATED BALANCE SHEETS ...................................... F - 2
CONSOLIDATED STATEMENTS OF INCOME ................................ F - 4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY (DEFICIT) ............................................... F - 5
CONSOLIDATED STATEMENTS OF CASH FLOWS ............................ F - 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ................... F - 7
15
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
There have been no changes in or disagreements with accountants on accounting,
financial disclosure or other matters, which would require disclosure herein.
16
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The names and ages of all directors and executive officers of the Company are as
follows:
Name Age Position with the Company
Fai H. Chan 52 President, Chief Executive Officer and Director
Ronald M.T. Lau 27 Director
Robert H. Trapp 41 Secretary, Treasure and Director
Management Biographies
Fai H. Chan has been the president and a director of the Company since June 1994
and has served as the Company's Chief Executive Officer since June 1995. From
June 1993 onwards, Mr. Chan has been a director of Inter-Asia Equities, Inc., a
Canadian company and since September 1992, Mr. Chan has also been an executive
director and director of Heng Fung Holdings Co., Ltd., a public company in Hong
Kong which is listed on the Hong Kong Stock Exchange. Since March 1988, Mr. Chan
has been chairman of the board of directors of American Pacific Bank, a bank in
Oregon, and between April 1991 and April 1993, he was the chief executive
officer of such bank.
Ronald M.T. Lau has been a director of the Company since July 1995. Since June
1995, Mr. Lau has been the financial controller of Heng Fung Holdings Co., Ltd.,
a public company in Hong Kong which is listed on the Hong Kong Stock Exchange.
Prior thereto, from August 1991 until October 1994, Mr. Lau worked as an auditor
at Deloitte Touche Tohmatsu in Hong Kong. He had been the vice president of Hua
Jian International Finance Company Limited (a member of China Huaneng Group)
until June 1995.
Robert H. Trapp has been the secretary and treasurer and a director of the
Company sine June 1994. Since May 1995, Mr. Trapp has been a director of Heng
Fung Holding Co., Ltd., a public company in Hong Kong, which is listed on the
Hong Kong Stock Exchange. Since April 1994, Mr. Trapp has been the secretary of
the Company. Since February 1995, Mr. Trapp has been a director of Inter-Asia
Equities, Inc. a Canadian company.
Since July 1991, he has also been the Canadian operational manager of Pacific
Concord Holding (Canada) Ltd., responsible for management, marketing, and
financial reporting operations of such company to Pacific Concord Holding Ltd.
of Hong Kong. Between March and June 1991, Mr. Trapp was a securities trainee at
Pacific International Securities in Vancouver, B.C., Canada. Between September
1985 and June 1989, Mr. Trapp served as an executive officer and a director of
Inter-Asia Equities, Inc.
All officers of the Company are elected to serve in such capacities until the
next annual meeting of the Board of Directors of the Company and until their
successors are duly elected and qualified.
The Board of Directors met twice during the fiscal year ended December 31, 1996.
No incumbent director attended fewer than all of the meetings held by the Board
of Directors.
17
<PAGE>
There are no material proceedings to which any director, officer or affiliate of
the Company, any owner of record or beneficially of more than 5% of any class of
voting securities of the Company, or any associate of any such director,
officer, affiliate of the Company or security holder is a party adverse to the
Company or any of its subsidiaries.
Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law empowers a corporation to
indemnify its directors and officers and to purchase insurance with respect to
liability arising out of their capacity or status as directors and officers
provided that this provision shall not eliminate of limit the liability of a
director: (i) for any breach of the director's duty of loyalty to the
corporation or its shareholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii)
arising under Section 174 of the Delaware General Corporation Law; or (iv) for
any transaction from which the director derived an improper personal benefit.
The Delaware General Corporation Law provides further that the indemnification
permitted thereunder shall not be deemed exclusive of any other rights to which
the directors and officers may be entitled under the corporation's by-laws, any
agreement, vote of shareholders or otherwise. The Company's Certificate of
Incorporation eliminates the personal liability of directors to fullest extent
permitted by Section 102(b)(7) of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to indemnify the officers
and directors of the Company for any claim arising against such persons in their
official capacities if such person acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in Securities Act and is therefore unenforceable.
Committees of the Board of Directors
The Board of Directors has not established any committees.
Compliance with Section 16(a) of the Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership of equity securities of the
Company with the Securities and Exchange Commission (the "Commission") and
NASDAQ. Officers, directors and greater-than-ten percent stockholders are
required by regulation to furnish the Company with copies of all Section 16(a)
forms that they file.
Based solely upon a review of Form 3, Forms 4, and Forms 5 furnished to the
Company pursuant to Rule 16a-3 under the Exchange Act, it is the Company's
belief that, other than that as set forth below, any such forms required to be
filed pursuant to Section 16(a) of the Exchange Act were timely filed, as
necessary, by the officers, directors and security holders required to file the
same.
18
<PAGE>
Item 11. Executive Compensation
Summary Compensation Table
During the year ended December 31, 1996 Heng Fai Management, Inc., a wholly
owned subsidiary of the Company, paid $500,000 in consulting and management fees
to Tight Hold Investment Limited, a company wholly owned by Fai H. Chan, the
Company's chief executive officer. No other officers or directors of the Company
earned in excess of $100,000 during the year ended December 31, 1996.
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation ------------------------------------
----------------------
Awards Payouts
------ -------
Name Restricted
and Other Annual Stock All
Principal Salary Bonus Compensation Awards Options/ LTIP Other
Position Year ($) ($) ($) ($) SARs (#) Payout (#) Compensation(s)
- --------- ------ ------ ----- ------------ ------ -------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fai H. Chan '96 500,000(1) -- -- -- -- -- --
President '95 -- -- -- -- -- -- --
& CEO '94 -- -- -- -- -- -- --
</TABLE>
(1) Represents fees paid to Tight Hold Investment Ltd. a company wholly owned
by Mr. Chan
Stock Option Plans
The Company currently has no stock option plans.
Option/SAR Grants in Last Fiscal Year
There were no options granted during the fiscal year ended December 31, 1996 as
set forth below.
Aggregate Option/SAR Exercises in Last Fiscal Year And Fiscal Year-End
Options/SAR Values
No options were exercised during the fiscal year ended December 31, 1995 as set
forth below and there exist no unexercised options as of the end of the fiscal
year ended December 31, 1996.
Employment Agreements
Heng Fai Management, Inc., a wholly owned subsidiary of the Company, entered
into a consultation and management agreement with Tight Hold Investment Limited,
a company wholly owned by Fai H. Chan, President and Chief Executive Officer of
the Company. The term of this agreement is for ten years having commenced
November 1st, 1996 and ending October 31, 2006. The remuneration the Company
shall pay for services rendered pursuant to this agreement is as follows: (i)
the sum of $500,000 per year for the duration of employment, a rate of
$41,666.67 per month over 12 equal payments; and (ii) upon the Company meeting
Nasdaq National Markets System requirements of having $4,000,000 in net tangible
assets, and obtaining the other requirements which allow the Company's stock to
be marginable on NASDAQ and having declared at least a minimum $0.10 per share
earning and $0.05 dividend to common shareholders, the fee shall increase to
US$1,000,000 per year for the duration of employment, a rate of $83,333.00 per
month.
Remuneration of Directors
Directors do not receive compensation for attendance at meetings of the Board of
Directors. All directors are entitled to reimbursement of reasonable travel and
lodging expenses related to attending meetings of the Board of Directors.
19
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of April 7, 1997, certain information with
respect to stock ownership of: (i) all persons known by the Company to be
beneficial owners of five percent or more of its outstanding Common Stock: (ii)
each of the Company's directors and executive officers; and (iii) all directors
and executive officers as a group (3 persons). Unless otherwise indicated, the
beneficial owners have sole voting and investment power over the shares of
Common Stock listed below.
% of Outstanding
Shares
Name and Address Number of Shares of Common Stock
of Beneficial Owner (1) Beneficially Owned (1) Beneficially Owned (1)
- ------------------------------- ---------------------- ----------------------
Fai H. Chan
Unit B, 13/Floor
Lippo Leighton Tower
103-109 Leighton Road
Causeway Bay
Hong Kong 3,892,886 (2) 28.4%
Keow Y. Chan
Unit B, 13/Floor
Lippo, Leighton Tower
103-109 Leighton Road
Causeway Bay
Hong Kong 2,180,000 (3) 15.9%
Ebly Profit Limited
7 Temasek Boulevard
#43-03 Suntec City Tower 1
Singapore, 038987 2,000,000 14.6%
Ronald M.T. Lau
Room 204, Block West
Upper Wong Tai
Sin Estate, Kowloon 100,000 .7%
Robert H. Trapp
2103-1651 Harwood Street
Vancouver, B.C.
Canada V6G 1Y2 100,000 .7%
All Executive Officers &
Directors as a Group
(3 Persons) (4) 6,272,886 45.8%
(1) Unless otherwise noted, the Company believes that all of such shares are
owned of record by each individual named as beneficial owner and that such
individual has sole voting and dispositive power with respect to the shares
of Common Stock owned by each of them. Such person's percentage ownership
is determined by assuming that the options or convertible securities that
are held by such person which are exercisable within 60 days from April 7,
1997 have been exercised or converted, as the case may be.
(2) Includes 3,300,000 shares owned of record directly by the noted
stockholder. Also includes 37,500 shares of Common Stock and 37,500 shares
of Common Stock underlying Warrants owned of record by Inter-Asia Equities,
Inc. ("Inter-Asia") and 258,943 shares of Common Stock and 258,943 shares
Common Stock underlying Warrants owned by the Excess Pension
20
<PAGE>
Fund, Inc. (the "Fund"). The noted stockholder is an officer, director and
stockholder of Inter-Asia and a beneficial owner of the Fund. The
stockholder's wife is the President and Director of Inter-Asia and a
beneficial owner of the Fund. Excludes the 2,180,000 shares owned of record
by the wife of the noted stockholder. See Footnote (3) below.
(3) Excludes 3,300,000 shares owned of record by the husband of the noted
stockholder, 258,943 shares of Common Stock and 258,943 Warrants owned by
the Fund and the 37,500 shares of Common Stock and 37,500 Warrants owned by
Inter-Asia. See Footnote (2) above.
(4) In the event that the noted stockholder was deemed to beneficially own all
of the shares owned of record by the spouse of the noted stockholder, such
stockholder would be deemed to beneficially own 6,272,886 shares or
approximately 45.8% of the outstanding Common Stock of the Company.
There are no agreements or other arrangements or understandings known to the
Company concerning the voting of the Common Stock of the Company or otherwise
concerning control of the Company which are not disclosed herein. There are no
pre-emptive rights applicable to the Company's securities.
Item 13. Certain Relationships and Related Transactions
The Company maintains deposits in accounts at American Pacific Bank. Fai H. Chan
(an officer, director and stockholder of the Company) is an officer and/or
director of such bank. See Note 12 of the Notes to the Consolidated Financial
Statements.
The Company owns 7,492,000 shares of common stock of Heng Fung Holdings Company
Limited. Messrs. Chan ,Trapp, and Lau (officers, directors and/or stockholders
of the Company) are officers, directors and /or stockholders of such company.
See Note 12 of the Notes to the Consolidate Financial Statements included
elsewhere herein.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8K
(a)(1)(2) Financial Statements and Schedules - See index to financial
statements and financial statement schedule on page 15 of this
Annual Report.
(a)(3) Exhibits marked with an (*) are filed herewith. Other exhibits,
incorporated by reference, were previously filed with the Securities
and Exchange Commission ("SEC") as indicated.
Exhibit No. Description
*3.1(a) Certificate of Incorporation of Registrant, as amended.
*3.1(b) Agreement and Plan of Merger, as amended.
*3.2 By-laws of Registrant, as amended.
*4.1 Specimen certificate representing Registrant's Common Stock.
10.1 Wuhan Container Acquisition Agreement incorporated by reference to
Exhibit 2 of the Registrant's Current Report on Form 8-K filed with
the SEC on September 20, 1996, as amended.
10.2 Consulting Agreement between Registrant and Thomas E. Waite
incorporated by reference to Exhibit 4.1 of the Registrant's Form
S-8 filed with the SEC on March 20, 1997.
*10.3 Consulting and Management Agreement between Heng Fai Management,
Inc. and Tight Hold Investment Limited dated November 4, 1996.
*21 Subsidiaries of the Registrant.
*27 Financial Data Schedule.
(b) The Company has not filed any reports on Form 8K during the last
quarter of the period covered by this Report.
21
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorised, on April 16, 1997
HENG FAI CHINA INDUSTRIES, INC.
By: /s/ Fai H. Chan
----------------------------------
Fai H. Chan
In accordance with Exchange Act, this report has been signed by the
following persons on behalf of the Registrant, in the capacities and on the
dates indicated
Signature Title Date
- --------- ----- ----
/s/ Fai H. Chan President, CEO & Director April 16, 1997
- ----------------------
Fai H. Chan
/s/ Robert H. Trapp Secretary, Treasurer & Director April 16, 1997
- ----------------------
Robert H. Trapp
/s/ Ronald M.T. Lau Director April 16, 1997
- ----------------------
Ronald M.T. Lau
22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
HENG FAI CHINA INDUSTRIES, INC.
We have audited the accompanying consolidated balance sheets of Heng Fai China
Industries, Inc. (the Company) and its subsidiaries as of December 31, 1996 and
1995 and the related consolidated statements of income, shareholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Heng Fai China Industries, Inc. and
its subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 1996 in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's recurring losses from operations and minimal
net tangible assets raise doubt its ability to continue as a going concern. The
financial support from a principal shareholder is described in Note 2.
Hong Kong
April 14, 1997
F-1
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(United States Dollars)
ASSETS
As of December 31,
------------------------
1996 1995
----------- -----------
Current assets:
Cash and cash equivalents .......................... $ 170,259 $ 55,001
Available-for-sale securities (note 5) ............. 682,331 480,835
Accounts receivable, trade, less allowance
for doubtful accounts of $70,258 in 1996
and $0 in 1995 .................................. 980,172 29,307
Inventories (note 6) ............................... 4,403,682 154,370
Prepaid and other current assets ................... 151,722 19,726
Amounts receivable from related parties (note 12) .. 136,439 11,639
Value added taxes recoverable ...................... 611,790 --
----------- -----------
Total current assets ............................ 7,136,395 750,878
Property, plant and equipment, net (note 7) .......... 3,402,238 857,548
Prepaid rental (note 3) .............................. 86,747 115,430
----------- -----------
Total assets ..................................... $10,625,380 $ 1,723,856
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings (note 9) ..................... $ 2,403,026 $ 60,120
Mortgage loan payable - current portion (note 13) .. 108,069 17,325
Accounts payable ................................... 837,596 165,652
Bills payable (note 10) ............................ 722,892 --
Margin loans payable (note 11) ..................... 489,193 274,420
Interest payable ................................... 40,212 32,983
Other accrued expenses ............................. 360,749 116,718
Security deposits payable .......................... 11,992 10,095
Amounts payable to related parties (note 12) ....... 1,110,544 22,005
----------- -----------
Total current liabilities ....................... 6,084,273 699,318
----------- -----------
Long-term liabilities:
Mortgage loans payable (note 13) ................... 865,594 975,108
Long-term payable (note 3) ......................... 88,744 91,415
----------- -----------
Total long-term liabilities ..................... 954,338 1,066,523
=========== ===========
F-2
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(United States Dollars)
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
As of December 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Minority interests .......................................... 3,583,399 --
------------ ------------
Commitments and contingencies (note 18)
Shareholders' equity (deficit):
Preferred stock, $10 par value, 500,000 shares authorized,
unissued ............................................... -- --
Common stock, $.01 par value, 30,000,000 shares authorized;
issued and outstanding 1996: 11,986,814 shares and 1995:
10,859,542 shares ...................................... 119,868 108,595
Contributed surplus ....................................... 4,701,023 2,812,546
Unrealized loss on available-for-sale securities (note 5) . (78,825) (43,941)
Cumulative exchange adjustments ........................... 6,968 6,968
Accumulated deficit ....................................... (4,510,914) (2,222,586)
------------ ------------
238,120 661,582
Common stock issued for consulting services to be received
(note 8) ................................................. (234,750) (703,567)
------------ ------------
Total shareholders' equity (deficit) ...................... 3,370 (41,985)
------------ ------------
Total liabilities and shareholders' equity (deficit) ...... $ 10,625,380 $ 1,723,856
============ ============
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
F-3
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(United States Dollars)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Rental income ............................. $ 336,644 $ 347,034 $ 327,381
Sales of cement ........................... 540,191 278,622 --
Sales of containers ....................... 1,082,317 -- --
Interest .................................. 1,490 4,187 3,235
Investment income ......................... 56,552 3,731 2,703
Others .................................... 34,172 -- --
------------ ------------ ------------
Total revenues .......................... 2,051,366 633,574 333,319
------------ ------------ ------------
Expenses:
Cost of sales of cement ................... 469,495 235,711 --
Cost of sales of containers ............... 1,009,105 -- --
Allowance for doubtful accounts ........... 70,258 48,420 --
Machinery lease rental (note 3) ........... 28,683 28,570 --
Depreciation .............................. 42,800 43,573 46,442
Legal and professional fees ............... 82,831 133,101 22,350
Consulting fees (note 8) .................. 1,368,567 1,620,433 --
Consulting fees paid to a related company
(note 12) ............................... 500,000 -- --
Interest on long-term debt ................ 85,990 89,650 --
Interest on short-term debt ............... 99,985 15,785 79,165
Utilities ................................. 48,924 41,871 43,995
Foreign exchange loss (gain) .............. 17,094 12,025 (50,153)
Land lease ................................ 80,321 80,321 80,533
Plant lease rental ........................ 22,809 -- --
Real estate management fees ............... 14,020 15,845 12,373
Salaries .................................. 107,716 11,185 --
Travelling ................................ 70,950 38,336 --
Other operating and administrative expenses 297,245 174,527 71,299
------------ ------------ ------------
Total expenses .......................... 4,416,793 2,589,353 306,004
------------ ------------ ------------
Net (loss) income before income taxes ....... (2,365,427) (1,955,779) 27,315
------------ ------------ ------------
Provision for income taxes (note 15) ........ -- 16,947 --
------------ ------------ ------------
Net (loss) income before minority interest .. (2,365,427) (1,972,726) 27,315
Minority interest ........................... 77,099 -- --
------------ ------------ ------------
Net (loss) income ........................... $ (2,288,328) $ (1,972,726) $ 27,315
============ ============ ============
Net (loss) income per share ................. $ (.20) $ (.19) $ .02
============ ============ ============
Weighted average number of shares of common
stock outstanding ......................... 11,223,288 10,624,064 1,108,037
============ ============ ============
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
F-4
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(United States Dollars)
<TABLE>
<CAPTION>
Unrealized Common stock
Common loss on issued for
stock available Cumulative consulting
Number of Contributed Accumulated for sale exchange services to
shares Amount surplus deficit securities adjustments be received Total
---------- -------- ---------- ----------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At December 31, 1993.... 3,335,820 $167,000 $1,435,000 $(1,602,000) $ -- $ -- $ -- $ --
Elimination of deficit
and net assets at date
of acquisition........ -- -- (1,602,000) 1,602,000 -- -- -- --
---------- -------- ---------- ----------- -------- ------ --------- ----------
3,335,820 167,000 (167,000) -- -- -- -- --
Issued to effect the
acquisition of
Vancouver Hong
Kong (Note 1)......... 10,357,700 517,885 (440,744) (277,175) -- -- -- (200,034)
Issued for cash
(Note 1).............. 1,500,000 75,000 45,000 -- -- -- -- 120,000
---------- -------- ---------- ----------- -------- ------ --------- ----------
15,193,520 759,885 (562,744) (277,175) -- -- -- (80,034)
Reverse stock split
(Note 14a)............ (11,395,140) (569,757) 569,757 -- -- -- -- --
---------- -------- ---------- ----------- -------- ------ --------- ----------
3,798,380 190,128 7,013 (277,175) -- -- -- (80,034)
Reverse stock split
(Note 14b)............ (3,413,838) (186,283) 186,283 -- -- -- -- --
---------- -------- ---------- ----------- -------- ------ --------- ----------
384,542 3,845 193,296 (277,175) -- -- -- (80,034)
Private placement
(Note 14c)............ 10,000,000 100,000 -- -- -- -- -- 100,000
---------- -------- ---------- ----------- -------- ------ --------- ----------
10,384,542 103,845 193,296 (277,175) -- -- -- 19,966
Net income.............. -- -- -- 27,315 -- -- -- 27,315
---------- -------- ---------- ----------- -------- ------ --------- ----------
At December 31, 1994.... 10,384,542 103,845 193,296 (249,860) -- -- -- 47,281
Issued to effect a
consulting agreement
(notes 14d) (note 8a). 400,000 4,000 2,320,000 -- -- -- (2,324,000) --
Amortization of
consulting fees....... -- -- -- -- -- -- 1,620,433 1,620,433
---------- -------- ---------- ----------- -------- ------ --------- ----------
10,784,542 107,845 2,513,296 (249,860) -- -- (703,567) 1,667,714
Private placement
(Note 14e)............ 75,000 750 299,250 -- -- -- -- 300,000
---------- -------- ---------- ----------- -------- ------ --------- ----------
10,895,542 108,595 2,812,546 (249,860) -- -- (703,567) 1,967,714
Foreign exchange
translation
adjustments........... -- -- -- -- -- 6,968 -- 6,968
Net loss................ -- -- -- (1,972,726) -- -- -- (1,972,726)
---------- -------- ---------- ----------- -------- ------ --------- ----------
10,859,542 108,595 2,812,546 (2,222,586) -- 6,968 (703,567) 1,956
Unrealized loss on
securities available
for-sale.............. -- -- -- -- (43,941) -- -- (43,941)
---------- -------- ---------- ----------- -------- ------ --------- ----------
At December 31, 1995.... 10,859,542 108,595 2,812,546 (2,222,586) (43,941) 6,968 (703,567) (41,985)
Issued to affect
consulting agreements
(note 14f)(note 8b)... 400,000 4,000 895,750 -- -- -- (899,750) --
Amortization of
consulting fee........ -- -- -- -- -- -- 1,368,567 1,368,567
Issued for acquisition of
a subsidiary (note 14g) 727,272 7,273 992,727 -- -- -- -- 1,000,000
---------- -------- ---------- ----------- -------- ------ --------- ----------
11,986,814 119,868 4,701,023 (2,222,586) (43,941) 6,968 (234,750) 2,326,582
Net loss................ -- -- -- (2,288,328) -- -- -- (2,288,328)
---------- -------- ---------- ----------- -------- ------ --------- ----------
11,986,814 119,868 4,701,023 (4,510,914) (43,941) -- (234,750) 38,254
Unrealized loss on
securities available for
sale.................. -- -- -- -- (34,884) -- -- (34,884)
---------- -------- ---------- ----------- -------- ------ --------- ----------
At December 31, 1996.... 11,986,814 $119,868 $4,701,023 $(4,510,914) $(78,825) $6,968 $(234,750) $ 3,370
========== ======== ========== =========== ======== ====== ========= ==========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
F-5
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(United States Dollars)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flow from operating activities
Net (loss) income .................................... $(2,288,328) $(1,972,726) $ 27,315
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Minority interest ............................... (77,099) -- --
Depreciation and amortization ................... 194,939 43,573 46,442
Consulting fees ................................. 1,868,567 1,620,433 --
Allowance for doubtful accounts ................. 70,258 -- --
Provision for stock obsolescence ................ 52,322 -- --
Changes in working capital components:
Accounts receivable ........................... (1,021,123) (27,024) (2,002)
Inventories ................................... (1,935,180) (62,955) --
Prepaid and other current assets .............. 4,851 (17,654) (166)
Amounts receivable from related parties ....... (124,800) (11,639) --
Value added taxes recoverable ................. (611,790) -- --
Accounts payable .............................. 576,792 164,646 (13,510)
Bills payable ................................. 722,892 -- --
Interest payable .............................. 7,229 12,490 4,902
Other accrued expenses ........................ 197,553 116,327 --
Security deposits payable ..................... 1,897 (1,208) (538)
Unearned rent ................................. -- (12,053) 12,053
Amounts payable to related parties ............ 487,258 (10,383) (32,617)
Exchange difference ........................... -- -- (60,717)
Prepaid rental ................................ 28,683 (115,430) --
----------- ----------- -----------
Net cash used in operating activities ................ (1,845,079) (273,603) (18,838)
----------- ----------- -----------
Cash flow from investing activities:
Purchase of available for sale securities ............ (264,688) (480,835) --
Proceeds from sale of available for sale securities .. 28,308 -- --
Purchase of property, plant and equipment ............ (158,987) -- --
Cash acquired on purchase of subsidiary (note 4) ..... 21,940 -- --
----------- ----------- -----------
Net cash used in investing activities ................ (373,427) (480,835) --
----------- ----------- -----------
Cash flow from financing activities:
Common stock issued for cash ......................... -- 300,000 220,000
Increase in margin loan payable ...................... 243,081 274,420 --
Repayment of margin loan ............................. (28,308) -- --
Increase in short-term borrowings .................... 1,092,930 60,120 --
Repayment of mortgage loans .......................... (18,770) (16,832) (15,449)
Repayment of long-term payable ....................... (2,671) -- --
Advance from a minority shareholder .................. 1,047,502 -- --
----------- ----------- -----------
Net cash provided by financing activities ............ 2,333,764 617,708 204,551
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ... 115,258 (136,730) 185,713
Cash and cash equivalents:
Beginning of the period .............................. 55,001 191,731 6,018
----------- ----------- -----------
End of the period .................................... $ 170,259 $ 55,001 $ 191,731
----------- ----------- -----------
Cash paid during the year for:
Interest ............................................. $ 184,078 $ 89,650 $ 84,399
Non-cash financing activities:
Issuance of common stock for consulting services ..... $ 1,368,567 $ 2,324,000 --
Inventories (note 3) ................................. -- $ 91,415 --
=========== =========== ===========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
F-6
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars)
1. ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS
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 Limited ("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 common stock (the
"Common Stock") and 10,357,700 common stock purchase warrants (the
"Warrants") of Alpine. As a part of the business combination a company
related to Vancouver Hong Kong agreed to subscribe for 1,500,000 shares of
common stock and 1,500,000 common stock purchase warrants for an aggregate
of $120,000 in cash. The foregoing share numbers do not reflect the
Company's subsequent one-for-four reverse stock split and a one-for-ten
reverse stock split. The business combination was accounted for as a
reverse acquisition whereby the purchase method of accounting was 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. (the "Company").
At December 31, 1996, the Company and its subsidiaries' principal
activities are the operation of a rental property in North Vancouver,
British Columbia in Canada, and the production of cement and containers in
the People's Republic of China (the "PRC"). As a result, changes in the
economic environment in which these operations exist, including changes in
the cost or availability of labor or materials, could have a material
impact on the Company. See Note 16 for information on the geographic
location of the Company's accounts.
At December 31, 1996, details of the subsidiary companies are as follows:
<TABLE>
<CAPTION>
Percentage of
equity interest
Place of attributable to Principal
Name of subsidiary incorporation the Company activities
------------------ ------------- ----------- ----------
<S> <C>
Heng Fai China & Asia Industries Hong Kong 100% Investment holding
Limited
Heng Fai China Industries Limited Hong Kong 100% Investment holding
Worldwide Containers Limited Hong Kong 100% Investment holding
Cangzhou Min You Cement Co., Ltd. PRC 100% Cement manufacturing
and trading
Wuhan Monkey King Container PRC 70% Container
Co., Ltd. manufacturing and
trading
Vancouver Hong Kong Properties Canada 100% Property investment
Ltd. and management
America & China Business Development Canada 100% Inactive
Inc.
Heng Fai Management Inc. British Virgin 100% Provision of
Islands management services
</TABLE>
The Company holds certain investments in marketable equity securities,
which are carried at fair value. Future changes in the market value of
these securities could materially affect the Company's financial position.
F-7
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars)
2. CONTINUING OPERATIONS
These consolidated financial statements have been prepared on the going
concern basis of accounting which assumes the Company will realize its
assets and discharge its liabilities in the normal course of business. The
Company is currently operating at a loss and has minimal net tangible
assets. Should the Company be unable to continue as a going concern it may
be required to realize its assets and settle its liabilities at amounts
substantially different from the current carrying values.
The Company's ability to continue as a going concern is dependent on
continued financial support from its principal shareholder, Fai H. Chan who
has signed a letter of financial support to the Company.
3. ACQUISITIONS
During 1996 and 1995 the Company made two acquisitions. The acquisitions
were accounted for as a purchase and their operating results are included
in the consolidated statements of income from their respective dates of
acquisition.
On September 4, 1996, through a wholly-owned subsidiary, the Company
acquired a 70% interest in Wuhan Monkey King Container Co., Ltd. ("Wuhan")
in exchange for 727,272 shares of the Company's restricted common stock. No
goodwill arose on the acquisition. Wuhan is a joint venture incorporated in
the PRC which was formed to engage in the design, manufacture, lease and
repair of standard and non-standard containers and related steel structure
products.
The following summary, prepared on a pro forma basis, presents the
consolidated results of operations of the Company as if Wuhan had been
acquired as of the beginning of the fiscal years presented.
Year ended Year ended
December 31, 1996 December 31, 1995
----------------- -----------------
Net revenues $2,154,644 $1,113,103
Net loss $2,467,619 $2,168,331
Net loss per share $0.22 $0.20
The above pro forma financial information is presented for informational
purposes and is not necessarily indicative of the operating results that
would have occurred had the acquisition been consummated as of the
beginning of the years presented.
F-8
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars)
3. ACQUISITIONS - continued
On January 9, 1995, the Company acquired from Fai H. Chan, an officer,
director and stockholder of the Company, 100% of the common stock of Heng
Fai China & Asia Industries, Limited ("Heng Fai Asia") in exchange for
nominal consideration. Heng Fai Asia through its wholly-owned subsidiaries
had various options to acquire interests in various lease interests or
operating joint ventures in the PRC, but otherwise had no material assets
and liabilities or operations at the time of acquisition.
Heng Fai Asia, through its wholly-owned subsidiary formed in January 1995
exercised its option to enter into a lease, 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"). The subsidiary was
entitled to lease the production line for five years for a rental of RMB1.2
million ($144,288) payable through expenditures to renovate and modernize
the Cangzhou Factory. The expenditures were made in 1995 and the resulting
prepaid rental is being amortized over the five year term of the leases.
Amortization was $28,683 in 1996 and $28,750 in 1995. At the initiation of
the Cangzhou Factory lease, the lessor provided certain raw materials and
finished goods totalling $91,415, payment of which is due, without
interest, at the expiration of the lease in December 1999. Heng Fai Asia's
other options lapsed in 1995.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States. The following sets forth the significant accounting principles
utilized in the preparation of the consolidated financial statements:
Principles of consolidation - The consolidated financial statements of Heng
Fai China Industries, Inc. include the assets, liabilities, revenues and
expenses of the Company and all its subsidiaries. All material intercompany
transactions and balances have been eliminated.
Cash flows - The Company's cash and cash equivalents include cash on hand
and short-term bank deposits, with original maturities of three months or
less .
The following supplemental schedule summarizes the fair value of assets
acquired, cash paid net of cash acquired, common stock issued and the
liabilities assumed in conjunction with the acquisition of equity interests
in subsidiaries in 1996 and 1995:
As of December 31,
---------------------------
1996 1995
----------- ----------
Fair value of non-cash assets acquired $5,083,943 -
Cash acquired 21,940 -
Common stock issued (1,000,000) -
----------- ----------
Liabilities assumed $ 4,105,883 -
=========== ==========
Inventories - Inventories are stated at the lower of cost determined by the
weighted average method or market. Work-in-progress and finished goods
consist of raw materials, direct labor and overhead associated with the
manufacturing process.
F-9
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Investment securities - The Company has classified the marketable equity
securities it holds as available-for-sale. Accordingly, pursuant to
Statement of Financial Accounting Standard No. 115 the securities are
measured at fair value, with unrealized gains and losses, net of applicable
taxes, reported as a separate component of equity.
Properties, plant and equipment - Properties, plant and equipment are
stated at cost. Depreciation and amortization is based on the respective
estimated useful lives as calculated on the following bases:
Building in Canada 5% declining balance
Buildings in the PRC 5% straight line method
Leasehold improvements Amortized over the term of the lease
which expires on May 31, 2032 using the
straight line method
Plant and machinery 10% straight line method
Furniture and equipment 10% to 20% straight line method
Motor vehicles 20% straight line method
No depreciation is provided for construction in progress.
Foreign currency translation - Financial statements of international
subsidiaries are translated into U.S. dollars using the exchange rate at
each balance sheet date for assets and liabilities and a weighted average
exchange rate for each period for revenue and expenses. Where the local
currency is the functional currency, translation adjustments are recorded
as a separate component of shareholders' equity. Where the U.S. dollar is
the functional currency, the financial statements of international
subsidiaries are translated at historical rates and translation adjustments
are recorded in income.
Revenue recognition - Sales of cement and containers are recognized when
merchandise is shipped and title has passed to the customer. Rental income
is recognized on a straight-line basis over the periods of the leases.
Income taxes - Certain items are treated differently for financial
reporting purposes than for income tax purposes. Pursuant to the provision
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", deferred tax is provided, under the liability method, for
the resulting temporary differences between the financial reporting and tax
bases of assets and liabilities, using the tax rates expected to be in
effect when the related temporary difference reverse.
Earnings per share - Earnings per share are based on the weighted average
number of common stock outstanding during the year.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and the disclosures of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
these estimates.
Reclassifications - Certain prior year amounts have been reclassified to
conform to the current year's presentation.
F-10
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars)
5. AVAILABLE-FOR-SALE SECURITIES
The cost and approximate market value of investment securities were as
follows:
As of December 31,
-------------------------
1996 1995
--------- ---------
Corporate equity securities:
Cost $ 761,156 $ 524,776
Less: Gross unrealized losses (78,825) (43,941)
--------- ---------
Estimated fair value $ 682,331 $ 480,835
========= =========
Carrying value $ 682,331 $ 480,835
========= =========
All investment securities are pledged to secure the Company's margin loan
payable (See Note 11).
Included in the above securities are 7,492,000 shares at December 31, 1996
and 1995 representing 1.9 percent (1995: 2.7 percent) of the outstanding
common stock of Heng Fung Holdings Company Limited, ("Heng Fung") at
December 31, 1996. These securities were acquired in 1995 at a cost of
$484,778 and had a carrying value of $426,342 at December 31, 1996 and
$445,722 at December 31, 1995. Fai H. Chan and Robert H. Trapp, directors
of Heng Fung, are also officers, directors and/or shareholders of the
Company.
The investment securities held by the Company are not subject to any
contractual or statutory resale restrictions and any portion of these
securities can be reasonably expected to qualify for sale within one year.
6. INVENTORIES
Inventories by major categories are summarized as follows:
As of December 31,
---------------------------
1996 1995
---------- ----------
Raw materials and supplies $3,176,209 $ 67,253
Work-in-progress 1,070,066 67,591
Finished goods 157,407 19,526
---------- ----------
$4,403,682 $ 154,370
========== ==========
F-11
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars)
7. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
As of December 31,
--------------------------
1996 1995
----------- -----------
Buildings ............................. $ 2,316,819 $ 722,538
Leasehold improvements ................ 548,333 548,333
Plant and machinery ................... 1,276,853 --
Furniture and equipment ............... 50,024 --
Motor vehicles ........................ 55,816 --
Construction in progress .............. 1,231 --
----------- -----------
Total ................................. 4,249,076 1,270,871
Less: Accumulated depreciation
and amortization .................... (846,838) (413,323)
----------- -----------
$ 3,402,238 $ 857,548
=========== ===========
8. DEFERRED EXPENDITURE
(a) In June 1995, the Company entered into a consulting agreement with an
unaffiliated party 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 common stock and (b) is obligated to
issue to the consultant 20,000 shares of common stock each month
during the term of the agreement.
The unamortized portion of the amount recorded for the 260,000 shares
of common stock initially issued brought forward from 1995 of $703,567
was fully amortized in 1996 and recognized as consulting fees.
During 1996, 100,000 shares of common stock were issued to the
consultant pursuant to the terms of the agreement in (b) above. The
value attributable to the 100,000 shares of common stock issued of
$581,000 was charged to the statement of income in 1996 and recognized
as consulting fees.
F-12
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars)
8. DEFERRED EXPENDITURE - continued
(b) In September 1996, the Company entered into a consulting agreement
with another unaffiliated party 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 issued an aggregate of 300,000 shares of
common stock to the consultant in September 1996. The value
attributable to the 300,000 shares of common stock issued was $319,500
which has been capitalized and is being amortized over the 12 months
term of the consulting agreement. The unamortized portion of the
amount recorded for the 300,000 shares of common stock issued is
presented as a reduction of shareholders' equity.
9. SHORT-TERM BORROWINGS
As of December 31,
-------------------------
1996 1995
---------- ----------
Short-term borrowings consist of:
Unsecured bank overdraft ............... $ 2,977 $ 60,120
Unsecured bank borrowings .............. 2,400,049 --
---------- ----------
$2,403,026 $ 60,120
========== ==========
The weighted average interest rate as of December 31, 1996 and 1995 was
13.21% and 14.42% per annum, respectively.
10. BILLS PAYABLE
Bills payable represents accounts payable in form of bills of exchange
whose acceptances and settlements are handled by banks.
11. MARGIN LOAN PAYABLE
The margin loan payable is collateralized by the Company's investment
securities with a carrying value of $682,331. The loan is repayable on
demand and bears interest at Hong Kong best lending rate (8.50% at December
31, 1996) plus 3.5 percent per annum.
F-13
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars)
12. RELATED PARTY TRANSACTIONS
At the balance sheet date the Company had the following balances with
related parties, which are interest-free, repayable on demand and unsecured
unless otherwise stated:
As of December 31,
------------------------
1996 1995
---------- ----------
Amounts receivable from:
A director ............................. $ 12,409 $ --
Parties related to certain directors ... 124,030 11,639
---------- ----------
$ 136,439 $ 11,639
---------- ----------
Amounts payable to:
Certain directors ...................... $ 688,987 $ 22,005
Parties related to certain directors ... 421,557 --
---------- ----------
$1,110,544 $ 22,005
========== ==========
In addition at December 31, 1996 and 1995, the second mortgage of $87,623
and related interest payable of $3,522 are payable to the Silverstein
Foundation, Inc., a Panama company, in which Fai H. Chan's children have
beneficial ownership interests. The related interest expense was $8,947 in
1996, $11,066 in 1995 and $9,463 in 1994.
In addition to the above, in 1996, a consulting fee of $500,000 was paid to
a company in which Fai H. Chan has a beneficial ownership interest.
13. MORTGAGE LOANS PAYABLE
As of December 31,
----------------------
1996 1995
--------- ---------
First mortgage, principal due monthly through
June 15, 1998 with fixed interest at 8.75% ... $ 886,040 $ 904,810
Second mortgage, principal due September 1, 1997
with interest at Canadian prime (4.75% as at
December 31, 1996) plus 4% ................... 87,623 87,623
--------- ---------
973,663 992,433
Less: Current portion .......................... (108,069) (17,325)
--------- ---------
$ 865,594 $ 975,108
========= =========
The mortgage loans are denominated in Canadian dollars. The maturities of
the mortgage loans as at December 31, 1996 are as follows:
1997 $108,069
1998 865,594
--------
$973,663
========
The Company has pledged property and premises with a net book value of
$783,565 at December 31, 1996 to secure the mortgage loans.
F-14
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars)
14. CAPITAL STOCK
During the three years ended December 31, 1996 there were several changes
of the Company's capital as set out below:
In 1994,
a) the Company changed its state of incorporation through a merger of the
Company with and into its wholly-owned Delaware subsidiary. A reverse
stock split of four old shares for one new share effected the merger.
b) the Company effected a reverse stock split of ten old shares for one
new share.
c) the Company issued 10,000,000 shares of common stock at $0.01 per
share pursuant to a private placement for proceeds of $100,000.
In 1995,
d) the Company issued 400,000 shares of common stock at $5.81 per share
pursuant to a consulting agreement. (see Note 8).
e) the Company issued 75,000 shares of common stock at $4 per share
pursuant to private placements for proceeds of $300,000.
In 1996,
f) the Company issued 100,000 and 300,000 shares of common stock at $5.81
and $1.0625 pursuant to consulting agreements (See Note 8).
g) the Company issued 727,272 shares of common stock at $1.375 to acquire
a 70% interest in a subsidiary (See Note 3).
As of December 31, 1996, there were outstanding warrants to purchase an
aggregate of 296,443 shares of common stock, at an exercise price of $3.20
per share through September 2, 1999. No warrants were issued or exercised
during 1996.
F-15
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars)
15. INCOME TAXES
No provision for income taxes for 1994 and 1996, as the Company and its
subsidiaries made losses in those years. The 1995 provision for income
taxes consists of Canadian taxes for 1995.
Under current PRC regulations, the Company's subsidiaries receive a full
exemption from enterprise income tax for two years starting from the first
profitable year, followed by 50% reduction in income taxes for the next
three profitable years. At December 31, 1996 the subsidiaries had not
reported any operating profits.
At December 31, 1996 certain of its subsidiaries had operating tax loss
carry forwards for income tax purposes which may be applied to reduce
future taxable income of the same company. At December 31, 1996 there were
tax losses carry forward in Hong Kong of approximately $107,000 with no
expiration date.
The Company has established a valuation allowance for the entire amount of
these losses. There were no other material timing differences.
F-16
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars)
16. SEGMENT INFORMATION
The following is a summary of information regarding the Company's
operations by principal activities for each of the three years ended
December 31, 1996:
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------------------
Rental Investment
income Cement Containers income Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .................... $ 336,644 $ 540,191 $ 1,082,317 $ 92,214 $ 2,051,366
Income (loss) from operations 85,883 (62,487) (241,208) (59,955) (277,767)
General corporate expenses .. -- -- -- -- (1,901,685)
Interest expense ............ -- -- -- -- (185,975)
------------
Loss before income taxes .... -- -- -- -- $ (2,365,427)
============
Identifiable assets ......... 787,920 395,955 8,560,939 710,307 $ 10,455,121
Corporate assets ............ -- -- -- -- 170,259
------------
$ 10,625,380
============
<CAPTION>
1995
---------------------------------------------------------------------------
Rental Investment
income Cement Containers income Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .................... $ 347,034 $ 278,622 $ -- $ 7,918 $ 633,574
Income (loss) from operations 110,608 (75,107) -- (52,612) (17,111)
General corporate expenses .. -- -- -- -- (1,833,233)
Interest expense ............ -- -- -- -- (105,435)
------------
Loss before income taxes .... -- -- -- -- $ (1,955,779)
============
Identifiable assets ......... 877,265 299,107 -- 492,483 $ 1,668,855
Corporate assets ............ -- -- -- -- 55,001
------------
$ 1,723,856
============
<CAPTION>
1994
---------------------------------------------------------------------------
Rental Investment
income Cement Containers income Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .................... $ 327,381 $ -- $ -- $ 5,938 $ 333,319
Income from operations ...... 125,119 -- -- -- 125,119
General corporate expenses .. -- -- -- -- (18,639)
Interest expense ............ -- -- -- -- (79,165)
------------
Loss before income taxes .... -- -- -- -- $ 27,315
============
Identifiable assets ......... 939,734 -- -- -- $ 939,734
Corporate assets ............ -- -- -- -- 189,962
------------
$ 1,129,696
============
</TABLE>
F-17
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars)
16. SEGMENT INFORMATION (Continued)
The following is a summary of information regarding the Company's
operations by geographical area for each of the three years ended December
31, 1996:
1996 1995 1994
------------ ------------ ------------
Revenues
North America ....... $ 342,112 $ 349,698 $ 333,319
PRC ................. 1,685,642 279,251 --
Hong Kong ........... 23,612 4,625 --
------------ ------------ ------------
$ 2,051,366 $ 633,574 $ 333,319
============ ============ ============
Operating income (loss)
North America ....... $ 91,351 $ 104,640 $ 125,119
PRC ................. (240,561) (74,480) --
Hong Kong ........... (128,557) (47,271) --
------------ ------------ ------------
(277,767) (17,111) 125,119
============ ============ ============
Identifiable assets
North America ....... $ 787,920 $ 877,265 $ 939,734
PRC ................. 8,956,894 299,107 --
Hong Kong ........... 710,307 492,483 --
Corporate assets ...... 170,259 55,001 189,962
------------ ------------ ------------
$ 10,625,380 $ 1,723,856 $ 1,129,696
============ ============ ============
F-18
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars)
17. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of the SFAS No. 107
"Disclosure 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. However, considerable
judgment is necessarily required in interpreting market data to develop
estimates of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts that the Company could realize in
a current market exchange.
The carrying amounts of cash and cash equivalents, short-term borrowings,
current portion of mortgage loans payable and margin loan payable, are a
reasonable estimate of their fair value due to the short maturity of the
instruments. The fair value for the available for sale securities are based
primarily on quoted market prices and such securities are carried at fair
value.
The fair value for the long-term portion of mortgage loans payable and
long-term payable were estimated based on the current rates available to
the Company for debt of the same remaining maturities. At December 31, 1996
mortgage loans payable and long-term payable with book values of $865,594
and $88,744 had fair values of approximately $731,907 and $61,162
respectively.
18. COMMITMENTS AND CONTINGENCIES
At December 31, 1996, the Company had capital commitments of $8,675 to
acquire plant and machinery.
The Company had contingent liability of approximately RMB739,000 ($89,000)
at December 31, 1996 for the delay in the completion of a sales order for
containers. The negotiation between the Company and the customer to revise
the contract terms and extend the completion date of contract is in
progress. The Company does not believe the ultimate resolution of the
matters will have any material effect on the Company's financial position.
The Company leases land in North Vancouver, British Columbia on which the
Company's rental property is located. The annual rent of CDN$110,000
($80,321) is fixed until May 31, 2010. The Company has the option to extend
the lease to May 31, 2032 at a rent to be negotiated. The Company also
leases certain manufacturing equipment under operating leases for its
cement operation for a period of five years commencing January 1, 1995. All
amounts due under this lease were prepaid.
The Company also leases a plant in Wuhan, for the production of containers
at an annual rent of RMB380,000 ($45,618). The operating lease commenced
from June 1, 1996 and expires in 2016 and the annual rental is subject to
review every three years.
Total rental expense charged to operations was $131,813 in 1996, $108,891
in 1995 and $80,533 in 1994.
F-19
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars)
18. COMMITMENTS AND CONTINGENCIES - continued
At December 31, 1996, the minimum future rental commitments under
non-cancellable leases payable over the remaining lives of the leases are:
1997................................... $ 125,939
1998................................... 125,939
1990................................... 125,939
2000................................... 125,939
2001................................... 125,939
2002 through 2016...................... 1,380,552
-----------
$ 2,010,247
===========
19. SUBSEQUENT EVENTS
The following transactions took place subsequent to December 31, 1996:
(a) On January 13, 1997, a consulting agreement engaged Tom Kosta for
public affairs and related financial services was approved by the
Board of Directors. In consideration for such services, the Company
issued options to acquire 50,000 shares of the Company's common stock,
25,000 exercisable at $1.00 per common share and 25,000 exercisable at
$1.25 per common share.
(b) On January 24, 1997, a private placement to the following parties has
been approved by the Board of Directors:
Number of shares Issue price Consideration
---------------- ----------- -------------
Fai H. Chan 1,300,000 $0.6 $780,000
Y.K. Chan 200,000 0.6 120,000
M.T. Lau 100,000 0.6 60,000
Robert H. Trapp 100,000 0.6 60,000
Except for Y.K. Chan, who is the wife of Fai H. Chan, all the above
parties are directors of the Company.
(c) On March 19, 1997, the Company entered into a conditional agreement
(the "Agreement") through a newly formed, wholly-owned Hong Kong
incorporated subsidiary, (the "Subsidiary") with an unaffiliated party
in PRC, (the "PRC Party") to establish a joint venture, (the "JV"), in
Zhangjiagang Free Trade Zone, PRC.
The principal business of the JV is property development and
distribution of commercial buildings. In accordance to the Agreement,
the Company will issue 379,520 non-trading preferred stock with a par
value of $10.00 each to the PRC Party for consideration of a 70%
interest in the JV to be acquired by the Subsidiary.
- --------------------------------------------------------------------------------
F-20
EXHIBIT 3.1(a)
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:00 PM 11/04/1994
944212705-2387425
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ALPINE INTERNATIONAL CORPORATION
It is hereby certified that:
1. The name of the Corporation (hereinafter called the "Corporation") is
Alpine International Corporation.
2. The Certificate of Incorporation of the Corporation is hereby amended
by striking out Articles First and Fourth thereof and by substituting
in lieu of said articles the following new articles:
"FIRST: The name of the Corporation is Heng Fai China
Industries, Inc. and its duration shall be
perpetual."
"FOURTH: This Corporation is authorized to issue two classes
of shares of stock to be designated, respectively,
common and preferred stock. The total number of
shares of common stock shall be 30,000,000, and the
par value of each share of said common stock shall be
$.01. The total number of shares of preferred stock
which the corporation is authorized to issue is
500,000, the par value of each share of said
preferred stock shall be $10.00. The preferred shares
may be issued from time to time in one or more
series. The Board of Directors is hereby authorized,
by filing a certificate (a "Preferred Stock
Designation") pursuant to the Delaware General
Corporation Law, to fix or alter from time to time
the designation, powers, preferences and rights of
the shares of each such series and the
qualifications, limitations or restrictions of any
wholly unissued series of Preferred Stock, and to
establish from time to time the number of shares
constituting any such series or any of them, and to
increase or decrease the number of shares of any
series subsequent to the issuance of shares of that
series, but not below the number of
1
<PAGE>
shares of such series then outstanding. In case the
number of shares of any series shall be decreased in
accordance with the foregoing sentence, the shares
constituting such decrease shall resume the status
that they had prior to the adoption of the resolution
originally fixing the number of shares of such
series.
3. The amendments of the Certificate of Corporation herein
certified have been duly adopted in accordance with the
provisions of Section 242 of the general corporation law of
the state of Delaware.
Signed on November 3, 1994.
/s/ Robert Trapp
----------------------------------
Robert Trapp, Treasurer
ATTEST:
/s/ Robert Trapp
- -------------------------
Robert Trapp, Secretary
2
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:30 pm 03/18/1994
944044477-2387425
CERTIFICATE OF INCORPORATION
OF
ALPINE INTERNATIONAL CORPORATION
The undersigned, a natural person, for the purpose of organizing a
corporation to conduct the business and promote the purposes hereinafter stated,
under the provisions and subject to the requirements of the laws of the State of
Delaware hereby certifies that:
FIRST: The name of the Corporation is Alpine International Corporation (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is The Prentice-Hall Corporation System, Inc., 32 Loockerman
Square, Suite L-100 Dover, Kent County, Delaware 19901. The name of
its registered agent at such address is The Prentice-Hall Corporation
System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of Delaware, as amended from time to time.
FOURTH: Section 1. This corporation is authorized to issue two classes of
stock designated respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the corporation is authorized to
issue thirty million five hundred thousand (30,500,000) shares,
consisting of thirty million (30,000,000) shares of Common Stock,
each having a par value of $.05, and five hundred thousand (500,000)
shares of Preferred Stock, each having a par value of $10.00.
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a
certificate (a "Preferred Stock Designation") pursuant to the
Delaware General Corporation Law, to fix or alter from time to time
the designation, power, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions of
any wholly unissued series of Preferred Stock, and to establish from
time to time the number of shares constituting any such series or any
of them; and to increase or decrease the number of shares of any
series subsequent to the issuance of shares of that series, but not
below the number of shares of such series then outstanding. In case
the number of shares of any series shall be decreased in accordance
with the
<PAGE>
foregoing sentence, the shares constituting such decrease shall
resume the status that they had prior to the adoption of the
resolution originally fixing he number of shares of such series.
FIFTH: The name and the mailing address of the incorporation is as follows:
Name: Mailing Address:
----- ----------------
Steven Wasserman 950 Third Avenue
c/o Bernstein & NY, NY 10022
Wasserman
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Elections of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and
before voting begins or unless the By-laws of the Corporation shall
so provide.
EIGHTH: Section 1. The number of directors that constitute the whole Board of
Directors of the Corporation shall be designated in the manner as
provided in the By-laws of the Corporation.
Section 2. At each annual meeting of stockholders, directors of the
Corporation shall be elected to hold office until the expiration of
the term for which they are elected and until their successors have
been duly elected and qualified, except that if any such election
is not so held, such election shall take place at a stockholders'
meeting called and held in accordance with the Delaware General
Corporation Law.
Section 3. Vacancies occurring on the Board of Directors for any
reason may be filled by vote of a majority of the remaining members
of the Board of Directors, although less than a quorum, at any
meeting of the Board of Directors. A person so elected by the Board
of Directors to fill a vacancy shall hold office until the next
succeeding annual meeting of stockholders of the Corporation and
until his or her successor has been duly elected and qualified.
<PAGE>
NINTH: In furtherance and not in limitation of the powers conferred by
statute, except as otherwise may be provided in the By-laws of the
Corporation, the Board of Directors is expressly authorized to make,
alter, amend or repeal the By-laws of the Corporation. Such authority
does not divest the stockholders of the power, or limit their power,
to make, alter, amend or repeal the By-laws of the Corporation.
TENTH: To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as it may hereafter be amended, no director
of the Corporation shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as
a director.
Neither any amendment nor repeal of this Article, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with
this Article, shall eliminate or reduce the effect of this Article in
respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article, would accrue or arise, before such
amendment, repeal or adopting of an inconsistent provision.
ELEVENTH: At the election of directors of the Corporation, each holder of stock
of any class or series shall be entitled to one vote for each share
held. No stockholder will be permitted to cumulate votes at any
election of directors.
TWELFTH: Meetings of Stockholders may be held within or without the State of
Delaware, as the By-laws may provide. The books of the Corporation
may be kept (subject to any provision contained in the statutes)
outside the State of Delaware at such place or places a may be
designated from time to time by the Board of Directors or in the
By-laws of the Corporation.
THIRTEENTH:Stockholders of the Corporation may take action by written consent
in lieu of a meeting.
FOURTEENTH:The Corporation reserves the right to amend, alter, change or repeal
any provision contained is this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights
conferred upon stockholders herein are granted subject to this
reservation.
<PAGE>
IN WITNESS WHEREOF, this Certificate of Incorporation has been signed under
the seal of the Corporation on this 17 day of March, 1994.
By: /s/ Steven Wasserman
------------------------------
[Seal]
EXHIBIT 3.1(b)
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 02:00 PM 10/21/1994
944201355 - 2387425
CERTIFICATE OF CORRECTION OF
AGREEMENT AND PLAN OF MERGER
OF
ALPINE INTERNATIONAL CORPORATION,
A DELAWARE CORPORATION
AND
ALPINE INTERNATIONAL CORPORATION,
A CALIFORNIA CORPORATION
It is hereby certified that:
1. The name of the corporation (hereunder called "Corporation") is Alpine
International Corporation.
2. The Agreement and Plan of Merger of Alpine International Corporation, a
Delaware Corporation and Alpine International Corporation, a California
corporation, which was filed by the Secretary of State of Delaware on September
28, 1994 (the "Merger Agreement"), hereby corrected.
3. The inaccuracy to be corrected in the Merger Agreement is that the name
"Alpine International Corporation, a California corporation" appearing in the
first paragraph of the Merger Agreement and signature block thereof shall be
deleted and in lieu thereof the name "Alpine Merger Corporation, a California
Corporation" shall be inserted.
Signed on October 18, 1994
Alpine International Corporation,
a Delaware corporation
/s/ [ILLEGIBLE]
--------------------------------------------
Alpine Merger Corporation,
a California corporation
/s/ [ILLEGIBLE]
--------------------------------------------
WITNESSED BY:
/s/ Sandy Y.K. Tang
- --------------------------
SANDY Y.K. TANG
NOTARY PUBLIC
HONG KONG
Rm #301 International Building
3/F-141 Des Xouer Rol.
Central, Hong Kong
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 02:00 PM 09/28/1994
944184201 - 2387425
AGREEMENT AND PLAN OF MERGER
OF ALPINE INTERNATIONAL CORPORATION,
A DELAWARE CORPORATION
AND
ALPINE INTERNATIONAL CORPORATION,
A CALIFORNIA CORPORATION
THE AGREEMENT AND PLAN OF MERGER, dated as of June 30, 1994 (this
"Agreement"), is between ALPINE INTERNATIONAL CORPORATION, a Delaware
corporation ("AIC Delaware") and ALPINE INTERNATIONAL CORPORATION, a California
Corporation ("Company") which corporations sometimes are referred to herein as
the "Constituent Corporations."
RECITALS
A. AIC Delaware is a corporation duly organized and existing under the laws
of the State of Delaware and has an authorized capital of 30,500,000 shares,
30,000,000 of which are designated "Common Stock", $.05 par value and 500,000 of
which are designated "Preferred Stock", $10.00 par value per share. As of June
30, 1994, 100 shares of Common Stock were issued and outstanding, all of which
were held by Company.
B. The Company is a corporation duly organized and existing under the laws
of the State of California and has an authorized capital of 30,500,000 shares,
30,000,000 of which are designated "Common Stock", $.05 par value and 500,000 of
which are designated "Preferred Stock", $10.00 par value per share. As of June
1, 1994, 3,335,830 shares of Common Stock and no shares of Preferred Stock were
outstanding.
C. The Board of Directors of Company has determined that, for the purpose
of effecting the reincorporation of Company in the State of Delaware, it is
advisable and in the best interests of Company and its shareholders that Company
merge with and into AIC Delaware upon the terms and conditions herein provided.
D. The respective Boards of Directors of AIC Delaware and Company have
approved this Agreement and have directed that this Agreement be submitted to a
vote of their respective stockholders and executed by the undersigned officers.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, AIC Delaware and Company hereby agree, subject to the terms and
conditions hereinafter set forth, as follows:
I.
Merger
1.1 Merger. In accordance with the provisions of this
<PAGE>
Agreement, the Delaware General Corporation Law and the California General
Corporation Law, Company shall be merged with and into AIC Delaware (the
"Merger"), the separate existence of Company shall cease and AIC Delaware shall
be, and is herein sometimes referred to as, the "Surviving Corporation," and the
name of the Surviving Corporation shall be "Alpine International Corporation."
1.2 Filing and Effectiveness. The Merger shall become effective when the
following actions have been completed:
(a) This Agreement has been adopted and approved by the stockholders
of each Constituent Corporation in accordance with the requirements of the
Delaware General Corporation Law and the California General Corporation Law;
(b) All of the conditions precedent to the consummation of the Merger
specified in this Agreement have been satisfied or duly waived by the party
entitled to satisfaction thereof;
(c) An executed Certificate of Merger or an executed counterpart of
this Agreement meeting the requirements of the Delaware General Corporation Law
has been filed with the Secretary of State of the State of Delaware; and
(d) An executed Certificate of Merger or an executed counterpart of
this Agreement meeting the requirements of the California General Corporation
Law has been filed With the Secretary of State of the State of California.
The date and time when the Merger shall become effective, as
aforesaid, is herein called the "Effective Date of the Merger."
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
separate existence of Company shall cease and AIC Delaware, as the Surviving
Corporation, (i) shall continue to possess all of its assets, rights, powers and
property as constituted immediately before the Effective Date of the Merger,
(ii) shall succeed, without other transfer, to a11 of the assets, rights, powers
and property of Company in the manner more fully set forth in Section 259 of the
Delaware General Corporation Law {iv) shall continue to be subject to all of its
debts, liabilities and obligations as constituted immediately before the
Effective Date of the Merger and (v) shall succeed, without other transfer, to
all of the debts, liabilities and obligations of Company in the same manner as
if AIC Delaware had itself incurred them, all as more fully provided under the
applicable provisions of the Delaware General Corporation Law and the California
General Corporation Law.
II.
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation AIC
Delaware as in effect immediately before the Effective Date of the Merger shall
continue in full force and
<PAGE>
effect as the Certificate of Incorporation of the Surviving Corporation until
duly amended in accordance with the provisions thereof and applicable law.
2.2 By-laws. The By-laws of AIC Delaware as in effect immediately before
the Effective Date of the Merger shall continue in full force and effect as the
By-law of the Surviving Corporation until duly amended in accordance with the
provision thereof and applicable law.
2.3 Directors and Officers. Directors and Officers of Company immediately
before the Effective Date of the Merger shall be the directors and officers of
the Surviving Corporation until their successors have been duly elected and
qualified or until as otherwise provided by law, the Certificate of
Incorporation of the Surviving Corporation or the By-laws of the Surviving
Corporation.
III.
MANNER OF CONVERSION OF STOCK
3.1 Company Common Shares. Upon the Effective Date of the Merger, each four
shares of Company Common Stock, $.05 par value, issued and outstanding
immediately before the Effective Date of the Merger shall by virtue of the
Merger and without any action by the Constituent Corporations, by the holder of
such shares or by any other person be converted into and exchanged for one fully
paid and nonassessable share of Common Stock, $.05 par value, of the Surviving
Corporation.
3.2 Company Warrants. Upon the Effective Date of the Merger, a11 of the
outstanding Warrants, which prior to that time represented warrants of the
Company shall be deemed for a11 purposes to evidence ownership of and to
represent Warrants of AIC Delaware and shall be so registered on the books and
records of the Surviving Corporation or its transfer agent.
3.3 AIC Delaware Common Stock. Upon the Effective Date of the Merger, each
share of Common Stock, $.05 par value, of AIC Delaware issued and outstanding
immediately before the Effective Date of the Merger shall, by virtue of the
Merger and without any action by AIC Delaware, by the holder of such shares or
by any other person be canceled and returned to the status of authorized but
unissued shares.
3.4 Exchange of Certificates. After the Effective Date of the Merger, each
holder of an outstanding certificate representing shares of Company Common Stock
shall surrender the same for cancellation to OTR/California, 1130 S.W. Morrison,
Suite 250, Portland, Oregon 97208, as exchange agent (the "Exchange Agent"), and
each such holder shall be entitled to receive in exchange therefore a
certificate or certificates representing the number of shares of the Surviving
Corporation Common Stock into which the surrendered shares were converted as
herein provided. Until so surrendered, each outstanding certificate theretofore
representing
<PAGE>
shares of Company Common Stock shall be deemed for all purposes to represent the
number of shares of the Surviving Corporation's a Common Stock into which ouch
shares of Company Common Stock were converted in the Merger. To the extent a
stockholder holds a number of shares not evenly divisible by four, the Company
will round up such amount to the next full share.
Each certificate representing Common Stock of the Surviving Corporation so
issued in the Merger shall bear the same legends, if any, with respect to
restrictions on transferability as the certificates of Company so converted and
given in exchange therefore unless otherwise determined by the Board of
Directors of the Surviving Corporation in compliance with applicable laws.
If any certificate for shares of AIC Delaware stock is to be issued in a
name other than that in which the certificate surrendered in exchange therefor
is registered, it shall be a condition of issuance thereof that the certificate
so surrendered shall be properly endorsed and otherwise in proper form for
transfer, that such transfer otherwise be proper and that the person requesting
such transfer pay to the Exchange Agent any transfer or other taxes payable by
reason of issuance of such new certificate in the name other than that of the
registered holder of the certificate surrendered or establish to the
satisfaction of AIC Delaware that such tax has been paid or is not payable.
IV.
GENERAL
4.1 Covenants of AIC Delaware. AIC Delaware covenants and agrees that it
will, on or before the Effective Date of the Merger:
(a) File all documents with the California Franchise Tax Board necessary
for the assumption by AIC Delaware of all of the franchise tax liabilities of
Company.
(b) Take such other actions as may be required by the California General
Corporation Law.
4.2 Further Assurances. From time to time, as and when required by AIC
Delaware or by its successors or assigns, there shall be executed and delivered
on behalf of Company such deeds and other instruments, and there shall be taken
or caused to be taken by it such further and other actions as shall be
appropriate or necessary in order to vest or prefect in or conform of record or
otherwise by AIC Delaware the title to and possession of all the property,
interest, assets, rights privileges, immunities, powers, franchises and
authority of Company and otherwise to carry out the purpose of this Agreement,
and the officers and directors of AIC Delaware are fully authorized in the name
and on behalf of Company or otherwise to take a11 such actions and to execute
and deliver all such deeds and other instruments.
4.3 Abandonment. At any time before the Effective Date of
<PAGE>
the Merger, this Agreement may be terminated and the Merger may be abandoned for
any reason whatsoever by the Board of Directors of either Company or AIC
Delaware, or of both, notwithstanding the approval of this Agreement by the
shareholders of Company or by the sole stockholder of AIC Delaware, or by both.
4.4 Amendment. At any time before or after approval by the shareholders of
the Company, this Agreement may be amended in any manner (except that, after the
approval of the Agreement by the shareholders of Company the principal terms may
not be amended, without the further approval of shareholders of the Company) as
may be determined in the judgment of the respective boards of directors of the
Constituent Corporations to be necessary, desirable or expedient, in order to
clarify the intention of the parties hereto or to effect or facilitate the
purpose or intent of this Agreement.
4.5 Registered Office. The registered office of the Surviving Corporation
in the State of Delaware located at 32 Loockerman Square, Suite 100, Dover,
Delaware 19904, and The Prentice-Hall Corporation System, Inc. is the registered
agent of the Surviving Corporation at such address.
4.6 Agreement. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 1200 S.W. Main
Street Building, Portland Oregon 97205, and, upon request and without cost,
copies thereof will be furnished to any stockholder of either Constituent
Corporation.
4.7 Governing Law. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the Merger provisions of the
California General Corporation Law.
4.8 Counterparts. In order to facilitate this filing and recording of this
Agreement, the same may be executed in any number of counterparts, each of which
is deemed to be an original and all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, this Agreement having first been approved by
resolutions of the Boards of Directors of AIC Delaware and Company is hereby
executed on behalf of each of such two
<PAGE>
corporations and attested by their respective officers thereunto duly
authorized.
ALPINE INTERNATIONAL CORPORATION
a Delaware corporation
By: /s/ [ILLEGIBLE]
------------------------------------
ATTEST:
/s/ Robert Trapp
- --------------------------------
ALPINE INTERNATIONAL CORPORATION
a California corporation
By: /s/ [ILLEGIBLE]
------------------------------------
ATTEST:
/s/ Robert Trapp
- --------------------------------
<PAGE>
CERTIFICATE OF SECRETARY OF
ALPINE INTERNATIONAL CORPORATION
The undersigned, being the Secretary of Alpine International Corporation, does
hereby certify that the foregoing Plan and Agreement of Merger was submitted to
the stockholders entitled to vote of said corporation at a special meeting
thereof for the purpose of acting on the Plan and Agreement of Merger.
The holders of all of the outstanding stock of said corporation dispensed
with a meeting and vote of stockholders, and all of the stockholders entitled to
vote consented in writing, pursuant to the provisions of Section 228 of the
General Corporation Law of the State of Delaware, to the adoption of the
foregoing Plan and Agreement of Merger.
Dated: September 27, 1994
/s/ Robert Trapp
--------------------------------
Secretary of Alpine
International Corporation
EXHIBIT 3.2
<PAGE>
BYLAWS
OF
HENG FAI CHINA INDUSTRIES, INC.
(a Delaware corporation)
----------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in the
corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one class
of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed and the Board of Directors may require the owner
of the lost, stolen, or destroyed certificate, or his legal representative, to
give the corporation a bond sufficient to indemnify the corporation against any
claim that may be made against it on account of the alleged loss, theft, or
destruction of any such certificate or the issuance of any such new certificate
or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the General
Corporation Law, the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any
<PAGE>
uncertificated shares, the corporation shall send to the registered owner
thereof any written notice prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. ln order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to consent
to corporate action in writing without a
<PAGE>
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which date shall not be more than ten days after
the date upon which the resolution fixing the record date is adopted by the
Board of Directors. If no record date has been fixed by the Board of Directors,
the record date for determining the stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by the General Corporation Law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and prior
action by the Board of Directors is required by the General Corporation Law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action. In
order that the corporation may determine the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, except as any provision of law
may otherwise
<PAGE>
7 STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time fixed,
from time to time, by the directors, provided, that the first annual meeting
shall be held on a date within thirteen months after the organization of the
corporation, and each successive annual meeting shall be held on a date within
thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be held at such place,
within or without the State of Delaware, as the directors may, from time to
time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by the directors
or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or to another place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
<PAGE>
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided over
by one of the following officers in the order of seniority and if present and
acting - the Chairman of the Board, if any, the Vice-Chairman of the Board, if
any, the President, a Vice-President, or, if none of the foregoing is in office
and present and acting, by a chairman to be chosen by the stockholders. The
Secretary of the corporation, or in his absence, an Assistant Secretary, shall
act as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the Chairman of the meeting shall appoint a secretary of
the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another person or
persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need not,
appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before
<PAGE>
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspectors at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots, or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question, or matter determined by him or them and execute a
certificate of any fact found by him or them. Except as otherwise required by
subsection (e) of Section 231 of the General Corporation Law, the provisions of
that Section shall not apply to the corporation.
- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holder thereof to one vote.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. Any other action shall be authorized by a majority of the
votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the General
Corporation Law to be taken at any annual or special meeting of stockholders, or
any action which may be taken at any annual or special meeting of stockholders,
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vole thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Action taken pursuant to this paragraph shall be subject to the provisions of
Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the corporation
shall be managed by or under the direction of the Board of Directors of the
corporation. The
<PAGE>
Board of Directors shall have the authority to fix the compensation of the
members thereof. The use of the phrase "whole board" herein refers to the total
number of directors which the corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of persons. Thereafter the number
of directors constituting the whole board shall be at least one. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the
directors, or, if the number is not fixed, the number shall be . The number
of directors may be increased or decreased by action of the stockholders or of
the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
<PAGE>
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix, except
that the first meeting of a newly elected Board shall be held as soon after its
election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the State
of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the time
and place have been fixed. Special meetings may be called by or at the direction
of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, of
the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for
regular meetings for which the time and place have been fixed. Written, oral, or
any other mode of notice of the time and place shall be given for special
meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- OUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
<PAGE>
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if present
and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the
Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the General
Corporation Law, any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a Secretary,
a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of
Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive
Vice-President, one or more other Vice-Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers with such
titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board, if any, need be a director. Any number of offices may be held by the
same person, as the directors may determine.
<PAGE>
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform such
duties in the management and operation of the corporation as shall be prescribed
in the resolutions of the Board of Directors designating and choosing such
officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject to
change by the Board of Directors.
SPECIMEN
RESTRICTED STOCK (see reverse for definitions)
================================================================================
[Logo of Heng Fai China Industries, Inc.]
H ______ *** RESTRICTED ***
- ------------ ------------
NUMBER SHARES
H ______ ** ______ **
- ------------ ------------
HENG FAI CHINA INDUSTRIES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
CUSIP 425502 10 1
THIS CERTIFIES that ________________________________
is the owner of _______________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
=============== HENG FAI CHINA INDUSTRIES, INC. ===============
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated: _______________
[Corporate Seal of Heng Fai China Industries, Inc.]
/s/ Robert H. Trapp /s/ Fai H. Chan
SECRETARY & TREASURER PRESIDENT
================================================================================
Registered and Countersigned
OXFORD TRANSFER & REGISTRAR
317 SW Alder St., Suite 1120, Portland, OR 97204
/s/ [Illegible]
CONSULTING & MANAGEMENT AGREEMENT
This agreement is made as of the 1st day of November, 1996
Between
HENG FAI MANAGEMENT INC., a company to be incorporated under the laws of
the British Virgin Islands, having its registered office at Unit B, 13th
Floor, Lippo Leighton Tower, 103-109 Leighton Road, Causeway Bay, Hong
Kong.
(hereinafter called the "Employer")
OF THE FIRST PART
AND:
Tight Hold Investment Limited, Consultant, a company incorporated under the
laws of the British Virgin Islands, having its registered office at Unit B,
13th Floor, Lippo Leighton Tower, 103-109 Leighton Road, Causeway Bay, Hong
Kong.
(hereinafter called "Tight")
OF THE SECOND PART
WHEREAS:
A. Tight has been providing managerial, consulting and other like services for
the Employer since January 1, 1996 as an independent contractor and not as
an employee and has received no remuneration for such services;
B. The parties wish to enter into this Agreement setting out the terms and
conditions pursuant to which Tight will be employed by the Employer
effective November 1, 1996;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and
of the covenants and agreements herein contained the parties hereto covenant and
agree as follows:
1. EMPLOYMENT
1.01 The Employer hereby employs Tight to act as a Consultant to provide
managerial and consulting services to Heng Fai China Industries Inc. and such
other services as the Employer and the Tight agree upon.
<PAGE>
1.02 Tight shall act in the best interests of the Employer and shall devote time
and attention to the business of the Employer as may be necessary for the
discharge of his duties hereunder.
2. TERM
2.01 Subject as hereinafter provided, the term of this Agreement shall be ten
(10) years commencing November 1st, 1996 and ending on October 31, 2006
(hereinafter called the "Term"). Both parties agree to commence negotiations
respecting the renewal of this Agreement not later than 3 months before the
expiration of the Term and to undertake yearly reviews of the remuneration in
paragraph 3.01 herein.
3. REMUNERATION AND EXPENSES
3.01 The Employer shall pay to Tight for services rendered by him hereunder:
(i) the sum of US$500,000.00 per year for the duration of employment, a
rate of US$41,666.67 per month over 12 equal payments, payable on the
last working/banking day of the month, or
(ii) upon Heng Fai China Industries Inc. meeting NMS requirements of having
US$4,000,000 in net tangible assets, obtaining the other requirements
which allow the stock to be marginable on the NASDAQ and having
declared at least a minimum US$0.10 per share earning and US$0.05
dividend to common shareholders, the fee shall increase to
US$1,000,000.00 per year for the duration of employment, a rate of
US$83,3333.00 per month over 12 equal payments, payable on the last
working/banking day of the month.
3.02 The expenses for which the Tight is entitled to be reimbursed pursuant to
this Agreement shall be under Employee guidelines, include, but shall not be
limited to, travel, lodging, meals, entertainment, dues, and other out of pocket
expenses.
3.03 In consideration for the Tight's performance of managerial and consulting
services during the period commencing on January 1, 1996 and ending on October
31, 1996, the Employer shall pay Tight the sum of US$416,666.70.
4. TERMINATION
4.01 This Agreement may be terminated with or without cause in the following
manner:
(i) by the Employer upon the giving of not less than 6 month's notice to
the Tight, or 1 months pay in lieu of notice; and
(ii) by Tight upon giving not less than 3 month's notice to the Employer.
<PAGE>
5. NOTICE
5.01 Any notice required to be given under this Agreement shall be in writing
and may be delivered personally, telecopied, or mailed from a post office by
prepaid, registered post addressed to the recipient party at the addresses
hereinbefore set out or at such other address of which notice has been given.
Any notice shall be deemed to have been received on the date of delivery if
personally delivered or telecopied, or if mailed, then on the third business day
following the date of mailing.
5.02 The Employer's business address and fax will be deemed for the purpose of
Notice as:
Heng Fai Management Inc.
Unit B, 13th Floor, Lippo Leighton Tower,
103-109 Leighton Road
Causeway Bay, Hong Kong,
Telephone: (852) 2523 6573, Fax: (852) 2915 0724
6. ARBITRATION AND MITIGATION
6.01 Arbitration: All matters and differences in relation to this Agreement
shall be referred to the arbitration of a single arbitrator if the parties agree
on one and otherwise to three 3 arbitrators, one to be appointed by each party
and a third to be chosen by the first two arbitrators named. The award and
determination of such arbitrator or arbitrators shall be final and binding upon
the parties to this Agreement. The provisions of the Hong Kong arbitration act
shall govern any such arbitration proceedings and the provisions of this case
shall be deemed to be a submission to arbitration within the provisions of the
said arbitration act. The cost of any such arbitration proceedings shall be
borne equally by the parties hereto, except that each party shall pay for their
own legal counsel.
6.02 Mitigation: Tight shall not be required to mitigate any amounts from any
payments provided for in this Agreement by seeking other management or
employment contracts or otherwise on behalf of the Employer, and no such
contracts or compensation or benefits payable in connection therewith shall
reduce any amounts or benefits to which the Tight would otherwise be entitled
under the terms of this Agreement.
7. ENTIRE AGREEMENT
7.01 This Agreement embodies the entire Agreement between the parties concerning
the matters set out herein and each party acknowledges that no representations,
inducements promises or agreements, orally or otherwise, which are not embodied
herein have been made by either party or by anyone acting on behalf of either
party. Any modification of this Agreement will be effective only if it is in
writing and executed by both parties.
<PAGE>
8. MISCELLANEOUS
8.01 Except as hereinafter provided, this Agreement may not be assigned by Tight
without the prior written consent of the Employer provided that Tight may
provide the employment services described herein through a corporation all the
voting shares of which are owned by the Tight, and to that extent may assign his
rights and obligations hereunder to such corporations.
8.02 The titles of headings to the respective paragraphs of this Agreement shall
be regarded as having been used for reference and convenience only.
8.03 All references to dollar amounts herein shall be in US funds.
8.04 This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators, successors
and permitted assigns.
8.05 This Agreement shall be governed by and interpreted in accordance with the
laws of Hong Kong.
8.06 Time shall be of essence in this Agreement.
8.07 If any provision of this Agreement is held by a Court of competent
jurisdiction to be invalid, void or unenforceable, then the remaining provisions
hereof shall nevertheless continue in full force and effect without being
impaired or invalidated in any way.
8.08 This Agreement's liability shall be limited to only Heng Fai Management
Inc. and any liability shall not be extended to include any associated company,
related company, subsidiary company, (as a group hereunder called the
"Companies"), director, and officer of these Companies or of Heng Fai Management
Inc.
WITNESS WHEREOF the parties hereto have executed this Agreement as of the day
and year first above written.
THE COMMON SEAL OF
HENG FAI MANAGEMENT INC.
was hereto affixed in the )
presence of: )
)
LAU MAN TAK )
- -------------------------- ) c/s
)
/s/ Lau Man Tak )
- -------------------------- )
<PAGE>
THE COMMON SEAL OF
TIGHT HOLD INVESTMENT LIMITED
was hereto affixed in the )
presence of: )
)
NG HIN CHAU ) /s/ [ILLEGIBLE]
- -------------------------- ) c/s
)
/s/ [ILLEGIBLE] )
- -------------------------- )
EXHIBIT 21
<PAGE>
<TABLE>
<CAPTION>
SUBSIDIARIES OF REGISTRANT
Place of Percentage of Principal
Name of Subsidiary Incorporation Interest Activities
- ------------------ ------------- ---------- ----------
<S> <C> <C> <C>
Heng Fai China & Asia Hong Kong 100% Investment holding
Industries Limited
Heng Fai China Hong Kong 100% Investment holding
Industries Limited
Worldwide Containers Hong Kong 100% Investment holding
Limited
Cangzhou Min You PRC 100% Cement manufacturing
Cement Co., Ltd. and trading
Wuhan Monkey King PRC 70% Container manufacturing
Container Corp., Ltd. and trading
Vancouver Hong Kong Canada 100% Property investment
Properties Ltd. and management
America & China Business Canada 100% Inactive
Development Inc.
Heng Fai Management, Inc. British Virgin 100% Provision of management
Islands services
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 170,259
<SECURITIES> 682,331
<RECEIVABLES> 1,050,430
<ALLOWANCES> 70,258
<INVENTORY> 4,403,682
<CURRENT-ASSETS> 7,136,395
<PP&E> 4,249,076
<DEPRECIATION> 846,838
<TOTAL-ASSETS> 10,625,380
<CURRENT-LIABILITIES> 6,084,273
<BONDS> 865,594
0
0
<COMMON> 119,868
<OTHER-SE> 4,701,023
<TOTAL-LIABILITY-AND-EQUITY> 10,625,380
<SALES> 1,622,508
<TOTAL-REVENUES> 2,051,366
<CGS> 1,478,600
<TOTAL-COSTS> 4,416,793
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,975
<INCOME-PRETAX> (2,365,427)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,288,328)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> 0
</TABLE>
