=====================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 8-K/A
(Amendment No. 1)
---------------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 22, 1997
HLS (USA), INC.
(formerly HARVEST E-XPRESS)
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction 33-89326 87-0530644
of incorporation) (Commission File No.) (IRS Employer
Identification No.)
145 West 44th Street
6th Floor
New York, NY 10036
(Address of principal executive offices)
(212) 789-7772
(Registrant's telephone number, including area code)
Page 1 of 18 Pages
Exhibit Index on Page 4
=====================================================================
<PAGE>
The undersigned registrant, HLS (USA), Inc. (formerly known as Harvest
E-xpress), hereby amends the following item of its Current Report on
Form 8-K dated April 22, 1997 as set forth below:
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
Audited Financial Statements of HLS Corporation Limited as of and
for the years ended December 31, 1995 and 1996.
(b) Pro forma financial information.
Narrative Pro Forma Financial Information for HLS (USA), Inc.
(c) Exhibits.
The exhibits listed on the accompanying Index to Exhibits are
filed as part of this Amendment to Current Report on Form 8-K.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
HLS (USA), INC.
By: /s/ Peter C. R. Huang
---------------------
Date: July 3 , 1997
Name: Peter C. R. Huang
Title: Director
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Sequential Page No.
99.1 Audited Financial Statements of HLS
Corporation Limited as of and for
the years ended December 31, 1995
and 1996.
99.2 Pro Forma Financial Information for
HLS (USA), Inc.
Exhibit 99.1
HLS Corporation Limited
Financial Statements for the Years Ended December 31, 1995 and 1996
<PAGE>
Independent Auditors' Report
The Directors and Shareholders of
HLS Corporation Limited and Subsidiaries
We have audited the accompanying consolidated balance sheets
of HLS Corporation Limited as of December 31, 1995 and 1996, and the
related consolidated statements of income, shareholders' equity, and
cash flows for the years then ended. These financial statements are
the responsibility of management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards in the United States of America ("US
GAAS"). 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
HLS Corporation Limited as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles in
the United States of America.
KPMG Peat Marwick
Certified Public Accountants
Singapore
June 30, 1997
<PAGE>
December 31,
1995 1996
------ -----
ASSETS
Current Assets
Cash and cash equivalents.......................US$ 27,170 US$ 33,096
Advance payments to suppliers................... 8,275 8,677
Amounts due from affiliates..................... -- 6,974
Accounts receivable, net........................ 6,775 11,603
Prepaid expenses and other assets............... 5,148 2,264
Inventories, net................................ 54,142 71,937
--------- ---------
Total Current Assets......................... 101,510 134,551
Goodwill on consolidation, net...................... 1,282 1,214
Property, plant and equipment, net.................. 52,748 65,931
Total Assets........................................US$155,540 US$201,696
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable................................US$ 24,76 US$ 29,142
Accrued expenses................................ 3,099 13,478
Other accrued liabilities....................... 3,063 6,756
Short term bank loans........................... 12,965 7,236
Amounts due to affiliates....................... 8,3 12,893
---------- ----------
Total Current Liabilities.................... 52,274 69,505
Minority interests.................................. 54,796 67,304
---------- ----------
Total Liabilities................................... 107,070 136,809
Shareholders' Equity
Share capital: total of 55,000,000 common shares authorized
Class A common shares, par value $0.001 per share;
Authorized 50,000,000 shares;
issued and outstanding 25,000,000 shares..... 25 25
Class B common shares, par value $0.001 per share;
Authorized 5,000,000 shares;
issued and outstanding 5,000,000 shares...... 5 5
Additional paid-in capital...................... 35,653 35,653
Capital reserves................................ 1,355 3,106
Cumulative translation adjustment............... 512 1,514
Retained earnings............................... 10,920 24,584
---------- ----------
Total Shareholders' Equity.......................... 48,470 64,887
---------- ----------
Total Liabilities and Shareholders' Equity..........US$155,540 US$201,696
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
HLS Corporation Limited
Consolidated Statements of Income
for the years ended December 31, 1995 and 1996
US$ amounts expressed in thousands
(except per share data)
Year Ended
December 31,
1995 1996
------ -----
Net sales...........................................US$173,430 US$298,546
Cost of sales....................................... (133,148) (242,666)
----------- -----------
Gross profit........................................ 40,282 55,880
Selling, general and administrative expenses........ (13,819) (22,417)
----------- -----------
Operating income.................................... 26,463 33,463
Interest income..................................... 933 1,335
Interest expense.................................... (2,119) (2,217)
Foreign exchange losses............................. (500) (10)
Other non-operating items........................... 511 1,018
----------- -----------
Income before income tax............................US$ 25,288 US$ 33,589
Income tax expense.................................. - -
Income after income tax............................. 25,288 33,589
Minority interests.................................. (13,692) (18,174)
----------- -----------
Net income..........................................US$ 11,596 US$ 15,415
========== ==========
Net income per share................................US$ 0.42 US$ 0.51
========== ==========
Weighted average shares outstanding (in thousands).. 27,801 30,000
---------- ----------
See accompanying notes to consolidated financial statements.
<PAGE>
HLS Corporation Limited
Consolidated Statements of Cash Flows for the years ended
December 31, 1995 and 1996
US$ amounts expressed in thousands
Year Ended
December 31,
1995 1996
------ -----
Cash flows from operating activities
Net income......................................US$11,596 US$15,415
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 2,052 4,448
Minority interest............................ 13,692 18,174
(Gain)/Loss on sale of property, plant and
equipment................................. (51) 38
Exchange loss/(gain) on cash balances........ 542 (3)
Change in assets/liabilities:
(Increase)/Decrease in
Advance payments to suppliers................ 2,025 (326)
Accounts receivable, net..................... 4,225 (4,766)
Prepaid expenses and other assets............ (465) 2,931
Inventories, net............................. (22,636) (17,297)
Increase/(Decrease) in
Accounts payable............................. 1,219 4,148
Accrued expenses............................. 1,223 10,350
Other accrued liabilities.................... (2,498) 3,665
---------- ---------
Net cash provided by operating activities........... 10,924 36,777
---------- ---------
Cash flows from investing activities
Sale of property, plant and equipment........... 153 64
Capital expenditure............................. (34,476) (17,115)
Government subsidy for capital expenditure...... 203 -
---------- ---------
Net cash used by investing activities............... (34,120) (17,051)
---------- ---------
Cash flows from financing activities
Capital contribution............................ 15,103 -
Capital contribution by minority interests...... 9,532 -
Dividends to minority interests................. - (5,667)
Short term bank loans, net...................... 5,028 (5,848)
Long term bank notes, net....................... (404) -
Balances with affiliates, net................... 1,336 (2,539)
---------- ---------
Net cash provided/(used) by financing activities.... 30,595 (14,054)
---------- ---------
Net increase in cash and cash equivalents........... 7,399 5,672
Cash and cash equivalents at beginning of year...... 20,074 27,170
Effects of exchange rate changes on cash and cash
equivalents held in foreign currencies.......... (303) 254
---------- ---------
Cash and cash equivalents at end of year............US$27,170 US$33,096
---------- ---------
Supplemental cash flow information
Cash paid during the year for:
Interest.....................................US$ 2,013 US$ 2,053
Taxes........................................ - -
--------- ---------
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
HLS Corporation Limited
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1995 and 1996
US$ amounts expressed in thousands
<CAPTION>
Common Shares
---------------------
Additional Cumulative Total
Stated Paid-in Capital Retained Translation Shareholders'
No. of Shares Value Capital Reserves Earnings Adjustment Equity
-------------- ------ ---------- -------- -------- ----------- -------------
Class A Class B
------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1995.. 11,161,811 5,000,000 US$16 US$20,564 US$120 US$559 - US$21,259
Capital contribution 13,838,189 - 14 15,089 - - - 15,103
Net income.......... - - - - - 11,596 - 11,596
Transfers........... - - - - 1,235 (1,235) - -
Currency translation - - - - - - US$ 512 512
----------- ---------- ----- --------- ------- ------- ----------- ----------
Balance at
December 31, 1995 25,000,00 5,000,000 US$30 US$35,653 US$1,355 US$10,920 US$ 512 US$48,470
============ ========== ====== ========= ======== ========= =========== ==========
Net Income.......... - - - - - 15,415 - 15,415
Transfers........... - - - - 1,751 (1,751) - -
Currency translation - - - - - - 1,002 1,002
------------ ---------- ------- --------- -------- --------- ----------- -----------
Balance at
December 31, 1996 25,000,00 5,000,000 US$30 US$35,653 US$3,106 US$24,584 US$1,514 US$64,887
============ ========== ======= ========= ========= ========= =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
HLS Corporation Limited
Notes to Consolidated Financial Statements
US$ amounts expressed in thousands
1. Business and Organization
HLS Corporation Limited ("HLS" or the "Company") was formed
in 1997 through a series of transactions in a reorganization of
companies owned by or affiliated with the Hong Leong Group of
Singapore ("HLG"). As part of that reorganization (the
"Reorganization"), in April 1997, HLG contributed to HLS its majority
ownership interests in Henan Xinfei Electric Co. Ltd. ("Xinfei"). A
description of this business is set forth below.
Prior to the Reorganization, HLS (USA) Inc. ("HLS USA") was
a development stage company known as Harvest E-xpress Inc. HLS USA was
formed in June 1994 and completed a registered public offering of its
securities in 1995, in which it raised US$100 in funds. Soon
thereafter, the management of HLS USA decided to defer and reevaluate
the proposed business operations for which the company was formed, and
to seek and pursue other business acquisitions. HLS USA has had no
full-time employees since its inception. It reported a net loss of
US$14 and US$43 for the years ended December 31, 1995 and 1996,
respectively, and had total assets of US$100 and US$40 as of December
31, 1995 and 1996, respectively.
In April 1997, HLG contributed to HLS its ownership interest
in Xinfei in exchange for the issuance to Hong Leong Strategic
Holdings Limited ("HLSHL"), a wholly owned HLG entity, of 25,000,000
Class A common shares and 5,000,000 Class B common shares of HLS,
which represented all of the outstanding common shares of HLS. On May
2, 1997, HLS USA purchased all of the outstanding common shares of HLS
from HLSHL, as a result of which HLS became a wholly owned subsidiary
of HLS USA. The purchase price was paid through the issuance to HLSHL
of 590,000 shares of Class A common stock and 29,010,000 shares of
Class B common stock of HLS USA.
As a result of the foregoing transactions, HLSHL became the
beneficial owner of approximately 99.6% of the voting power of HLS
USA's common stock.
The Reorganization and related transactions were among
entities under common control and thus are accounted for on the basis
of historical cost.
Since HLS USA never had significant operations, never
undertook the operations for which it was formed, and never had
significant assets, liabilities, revenues or expenses, the
accompanying financial statements present the financial position,
results of operations and cash flows of Xinfei which was controlled by
HLG. Xinfei's business is considered the predecessor company to HLS
and is presented on a historical basis.
Xinfei is an industrial company based in Xinxiang in Henan
province in the People's Republic of China ("PRC" or "China"). Its
operations consist principally of the production and sale of
refrigerators and freezers for the local market in China. Xinfei was
established on August 18, 1994 as a Sino-foreign equity joint venture
in the PRC with a fifty-year term to acquire the refrigerator and
freezer manufacturing business of Henan Xinfei Electrical Appliance
(Group) Co Ltd ("HXE") which, through its predecessors, has been in
operation since 1958 as an entity wholly owned by the PRC government
and employees of the Company. In the August 1994 transaction, HLG
acquired control of Xinfei through its 88.24% (subsequently increased
to 90.20%) ownership of an entity that owns 51% of the voting interest
in Xinfei.
2. Summary of Significant Accounting Policies
A. Accounting Principles. The accompanying consolidated
financial statements are prepared in accordance with generally
accepted accounting principles applicable in the United States ("U.S.
GAAP").
B. Basis of Accounting. The consolidated financial
statements have been prepared on the historical cost basis.
C. Use of Estimates. The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect
<PAGE>
HLS Corporation Limited
Notes to Consolidated Financial Statements
US$ amounts expressed in thousands
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the
reporting period. Actual results could differ from those estimates.
D. Principles of Consolidation. The consolidated financial
statements include the accounts of the Company and the controlled
subsidiaries in which the Company owns more than 50% of the
outstanding shares. Intercompany balances and transactions have been
eliminated.
E. Translation of Foreign Currencies. The consolidated
financial statements presented herein are expressed in U.S. dollars
("US$"). The functional currency of Xinfei and of the Company's equity
affiliates, is the Renminbi.
Assets and liabilities denominated in foreign currencies are
translated into U.S. dollars at rates of exchange prevailing at the
balance sheet date. Income and expenses are translated at the average
rates of exchange prevailing during the year.
Exchange gains and losses are included in the results of
operations, except for the translation differences arising from the
translation of the financial statements of the Company from functional
currencies to U.S. dollars, such translation differences being
recognized as a separate component of shareholders' equity.
F. Cash and Cash Equivalents. Cash and cash equivalents are
represented by highly liquid investments that are readily convertible
to known amounts of cash and have original maturities of three months
or less.
G. Inventories. Inventories are stated at the lower of
historical cost (determined principally on the weighted average cost
basis) or net realizable value. Cost includes materials, direct labor,
and a portion of production overhead costs.
H. Goodwill on Consolidation. Goodwill on consolidation,
representing the net excess of the cost of acquisition of subsidiary
companies over the fair value of net underlying assets at the date of
acquisition, is amortized over its estimated useful economic life of
20 years except where the goodwill no longer has a value in which case
it is immediately written off.
I. Property, Plant and Equipment. PRC law does not allow the
occupation or ownership of land other than through leases. The initial
lump sum payments typical under PRC leases are capitalized and
included in the balance sheet as land use rights.
Fixed assets are stated at cost less accumulated
depreciation. Depreciation is calculated on the straight line basis to
write off the cost of the assets to an estimated residual value over
the following estimated useful lives:
Land use rights - over the expected term of the rights
Buildings - 35 years
Machinery and equipment - 10 years
Office equipment - 5 years
Motor vehicles - 5 years
Repairs and replacements of a routine nature are charged to
expense, while those that extend the life of an asset are capitalized.
When depreciable property is retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the
accounts, and any gain or loss is reflected in income.
J. Construction in Progress. Construction in progress
represents factories and office buildings under construction, and
plant and machinery pending installation. All direct and indirect
costs relating to the acquisition or construction of buildings and
plant and machinery, including interest charges arising from
borrowings used to finance these assets during the period of
construction or installation, are capitalized as construction in
progress. No depreciation is provided on construction in progress.
<PAGE>
HLS Corporation Limited
Notes to Consolidated Financial Statements
US$ amounts expressed in thousands
K. Product Warranty. The Company provides warranties on its
refrigerators for three years from the date of sale, during which the
Company provides free repair and replacement. The estimated cost of
warranty repairs and replacements is provided at the time of sale of
the warranted products.
L. Income Taxes. Deferred taxation is calculated on the
temporary differences between the accounting and tax treatment of
assets and liabilities under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("Statement 109").
Under Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is
recorded for loss carryforwards and other deferred tax benefits where
it is more likely than not they will not be realized. See Note 9.
M. Revenue Recognition. Sales represent the invoiced value
of goods supplied, excluding value added tax and sales taxes, net of
goods returned, trade discounts and allowances. Sales are recognized
upon delivery and acceptance of goods by customers.
N. Research and Development. Research and development costs
are expensed when incurred. The amounts charged against earnings were
US$214 in 1995 and US$299 in 1996.
O. Fair Values of Financial Instruments.
(a) Cash, Current Receivables and Current Payables. The
carrying amounts approximate fair value because of the short maturity
of these instruments.
(b) Bank Loans. The carrying amounts approximate fair value
as interest rates are revised at regular intervals of short duration.
(c) Limitations. Fair value estimates are made at a specific
point in time, and are based on relevant market information and
information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
3. Accounts Receivable
Accounts receivable at December 31, 1995 and 1996 consist of:
December 31
---------------------------
1995 1996
-------- --------
Accounts receivable....................... US$6,805 US$11,633
Allowance for doubtful accounts........... (30) (30)
--------- ----------
US$6,775 US$11,603
========= ==========
Movements in the allowance for
doubtful accounts were as follows:
December 31
---------------------------
1995 1996
-------- --------
Balance at the beginning of the year...... -- US$ 30
Provision made during the year............ US$ 30 --
-------- --------
Balance at the end of the year............ US$ 30 US$ 30
======== ========
<PAGE>
HLS Corporation Limited
Notes to Consolidated Financial Statements
US$ amounts expressed in thousands
4. Inventories
Inventories at December 31, 1995 and 1996 consist of:
December 31
---------------------------
1995 1996
-------- --------
Raw materials............................... US$29,348 US$46,412
Work in progress............................ 2,963 3,280
Finished goods.............................. 21,831 22,245
--------- ---------
US$54,142 US$71,937
Inventories are stated net of provision for stock obsolescence.
Movements in the provision were as follows:
December 31
---------------------------
1995 1996
-------- --------
Balance at the beginning of the year........ -- US$ 799
Provision charged to expense................ US$ 799 2,057
Stocks written off.......................... -- (753)
--------- ---------
Balance at the end of the year.............. US$ 799 US$2,103
========= =========
5. Goodwill on Consolidation
Goodwill on consolidation at December 31, 1995 and 1996 consists of:
December 31
---------------------------
1995 1996
-------- --------
Goodwill on consolidation................... US$1,361 US$1,361
Accumulated amortization.................... (79) (147)
---------- ----------
US$1,282 US$1,214
Movements in the allowance for accumulated amortization were as follows:
December 31
---------------------------
1995 1996
-------- --------
Balance at the beginning of the year........ US$ 11 US$ 79
Amortization charged to expense............. 68 68
-------- --------
Balance at the end of the year............. US$ 79 US$147
======== ========
<PAGE>
HLS Corporation Limited
Notes to Consolidated Financial Statements
US$ amounts expressed in thousands
6. Property, Plant and Equipment
Property, plant and equipment at December 31, 1995 and 1996 consist of:
December 31
---------------------------
1995 1996
-------- --------
Land use rights............................. US$ 556 US$ 561
Buildings................................... 4,539 11,086
Machinery and equipment..................... 13,315 32,587
Office equipment............................ 2,707 4,161
Motor vehicles.............................. 1,528 2,253
Construction in progress.................... 32,307 21,702
------------ ----------
54,952 72,350
Accumulated depreciation.................... 2,204) (6,419)
------------ -----------
Property, plant and equipment--net.......... US$52,748 US$65,931
========= =========
The land which is used by the Company to erect the buildings is
owned by the PRC Government. Land use rights represent the cost
paid by the Company for the right to use it for specified
manufacturing purposes.
Construction in progress related to the expansion of refrigerator
production facilities at Xinfei.
7. Bank Loans
Short-term bank loans at December 31, 1995 and 1996 are
denominated in Renminbi. The bank loans are unsecured and interest
is charged at rates which ranged from 13.18% to 14.47% in 1995 and
10.08% to 11.09% in 1996. The repayment terms of these loans range
from 5 to 10 months.
8. Operating Leases
Minimum future rental obligation on noncancelable operating leases
as of December 31, 1996, are as follows:
Year Ending December 31,
1997................................................... US$ 79
1998................................................... 79
1999................................................... 80
2000................................................... 80
2001................................................... 80
Thereafter............................................. US$1,517
Rental expense for the years ended December 31, 1995 and 1996 was
US$245 and US$294, respectively.
9. Taxation
While the statutory national income tax rate enacted in the PRC
was 30% in 1995 and 1996, there were no tax liabilities as the
Company is exempt from tax. Pursuant to the income tax laws
applicable to Sino-foreign equity joint ventures, Xinfei is fully
exempt from PRC income tax for two years starting from the first
profitable year, followed by a 50% exemption for the next three
years ("tax holiday"). In Xinfei's case, it has been agreed with
the relevant tax authorities that the first profitable year was
1995. Xinfei will be paying PRC income tax at half of the
statutory rate from 1997 through 1999.
In addition, Xinfei has been exempted since 1994 from local income
taxes payable at the rate of 3%. This exemption has no fixed term
and can be revoked by the local tax authorities at their
discretion.
Had Xinfei not been in a tax holiday period in 1995 and 1996,
income tax expense of approximately US$8,345 and US$11,084 would
have been recorded for the years ended December 31, 1995 and 1996,
respectively. Net
<PAGE>
HLS Corporation Limited
Notes to Consolidated Financial Statements
US$ amounts expressed in thousands
income would have been reduced by approximately US$3,839 and
US$5,099 or US$0.14 and US$0.17 per share, respectively.
10. Capital Reserves
PRC regulations require the appropriation of profit to certain
statutory reserves designated for specific purposes. These
regulations, however, do not specify the amounts required to be
transferred and allow the directors of the company to determine
the amounts transferred. In compliance with these regulations,
Xinfei transfers 10% of its profit arrived at under PRC generally
accepted accounting principles to statutory reserves. The
utilization of these reserves is restricted to the acquisition of
fixed assets, enhancement of technology, and for working capital
purposes and bonus issues of shares (upon approval). Such reserves
are not distributable in the form of cash dividends.
11. Business Segment Data
No business segment data is presented as virtually all of the
Company's sales, operating income and identifiable assets during
each of the years ended December 31, 1995 and 1996 relate to the
sale of refrigerators and freezers in the PRC.
12. Related Party Transactions
Xinfei purchases raw materials from companies controlled by a
director of Xinfei. Such purchases amounted to US$14,586 in 1996.
Xinfei also sells refrigerators and freezers to those companies,
which amounted to US$1,137 and US$12,560 in 1995 and 1996,
respectively.
Xinfei occupies land owned by HXE and pays rent at what it
believes to be fair market rates. Rent expense paid to HXE
amounted to US$23 and US$82 in 1995 and 1996, respectively.
Arising from these transactions, the Company had amounts due to
affiliates at December 31, 1995 and 1996, as follows:
December 31
1995 1996
--------- --------
Amounts due to companies controlled by a
director of Xinfei........................... US$123 US$351
Amounts due to/(from) Hong Leong Group.......... US$ 99 US$(4,987)
HXE has granted a Renminbi-denominated loan to Xinfei at interest
rates that are comparable to fair market rates. The average rates
of interest were 13.2% and 12.2% in 1995 and 1996, respectively.
There is no fixed repayment term for the loan. The outstanding
balance under the loan was US$6,453 and US$6,512 as of December
31, 1995 and 1996, respectively.
HXE has granted another Renminbi-denominated loan of US$6,030 to
Xinfei in 1996 at interest rates determined by reference to market
rates. The average rate of interest was 10.1% for the year. There
is no fixed repayment term for the loan.
From time to time, Xinfei and HXE pay expenses on behalf of each
other for which they are reimbursed. As of December 31, 1995,
US$1,706 was due by Xinfei to HXE. As of December 31, 1996,
US$1,293 was due by HXE to Xinfei.
As of December 31, 1996, a current amount of US$694 was due from a
minority shareholder of Xinfei. This amount represents an advance
repayable on demand.
In 1995, HXE contributed capital of US$8,198 to Xinfei by the
capitalization of amounts owing by Xinfei to HXE.
HLG provides management personnel and support services to Xinfei,
which pays an annual management fee of US$200 for such services.
The management fee was agreed between the Hong Leong Group and
Xinfei at a level which the parties believe is a fair reflection
of the cost incurred by the Hong Leong Group.
<PAGE>
HLS Corporation Limited
Notes to Consolidated Financial Statements
US$ amounts expressed in thousands
13. Commitments and Contingencies
The General Principles of the Civil Law of China and the
Industrial Product Quality Liability Regulation provide for the
liability of manufacturers and sellers for loss and injury caused
by defective products. The Company does not carry product
liability insurance. However, the laws have seldom been utilized.
The Company has not had any product liability claims brought
against it.
As at December 31, 1996, the Company has contracted capital
expenditure amounting to US$2,373 which has not been reflected as
liabilities in the financial statements. This expenditure relates
to the construction cost for a factory extension, the cost of
additional machinery, modifications costs for production equipment
and payments for additional land use rights.
14. Retirement Plan
As stipulated by PRC regulations, the Company participates in a
multiemployer defined contribution retirement plan organized by
local government authorities for the Company's staff. All staff
are entitled to an annual pension equal to a fixed proportion of
their final basic salary amount at their retirement date.
Currently, the Company is required to make contributions to the
retirement plan at a rate of 24% of the basic salary of the staff.
Expenses incurred in connection with the plan were US$539 and
US$846 for the years ended December 31, 1995 and 1996,
respectively.
The Company has no obligations for the payment of pension benefits
other than for the payment of the annual contributions described
above.
Exhibit 99.2
Pro Forma Financial Information
As more fully described in Note 1 to the Consolidated
Financial Statements of HLS Corporation Limited ("HLS") included
elsewhere herein, HLS (USA), Inc. ("HLS USA"), formerly Harvest
E-xpress, was a development stage company formed in 1994. On May 2,
1997, HLS USA acquired all of issued and outstanding shares of HLS
through the issuance of shares of Class A and Class B common stock to
Hong Leong Strategic Holdings Limited ("HLSHL"), the parent company of
HLS. As a result of the issue of shares by HLS USA, HLSHL became the
beneficial owner of approximately 99.6% of the voting power of HLS
USA's common stock. Transactions of this type which result in the
legally acquired company (HLS) obtaining a majority of the voting
shares of the issuing company (HLS USA) are commonly referred to for
accounting purposes as a "reverse acquisition." For financial
statement purposes under US GAAP, HLS is considered to be the acquiror
and HLS USA is considered to be the acquired company. Accordingly, the
accounting acquiror (HLS) will record the assets acquired and
liabilities assumed of HLS USA at their respective fair values in
accordance with the purchase method.
After the initial public offering of HLS USA in 1994, which
raised $100,000, management of HLS USA decided to defer and reevaluate
the proposed operations for which it was initially formed. HLS USA has
never had any full-time employees, never had significant operations
nor had significant assets, liabilities, revenues or expenses. HLS on
the other hand, is the majority owner of Henan Xinfei Electric Co.
Ltd. ("Xinfei"), an industrial company based in Xinxiang in Henan
province in the People's Republic of China with total assets at
December 31, 1996, in excess of $200,000,000 and revenues and net
income in excess of $298,000,000 and $15,000,000, respectively, for
the year then ended. Total assets of HLS USA at December 31, 1996,
were $40,000 with a net loss incurred of $43,000 for the year then
ended.
Under the rules and regulations of the Securities and
Exchange Commission, pro forma financial information is required to be
presented as if the reverse acquisition of HLS USA by HLS had actually
occurred on December 31, 1996, for pro forma balance sheet purposes
and on January 1, 1996, for pro forma income statement purposes. Due
to the relative insignificance of the assets and liabilities and net
loss of HLS USA and the fact that HLS USA never commenced operations,
detailed pro forma financial data in a columnar fashion is not
presented herein as such presentation is not considered meaningful
based upon the immaterial financial statement amounts of HLS USA
disclosed above. Reference is made to Note 1 to the Consolidated
Financial Statements of HLS included elsewhere herein.
