SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K/A#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) November 18, 1996
(September 19, 1996)
HENG FAI CHINA INDUSTRIES, INC.
(Exact name of Registrant as specified in charter)
Delaware 0-7619 93-063633
(State or other jurisdic- (Commission (IRS Employer
tion of incorporation) File Number) Identification No.)
650 West Georgia Street, Vancouver, British Columbia, Canada V6B4N8
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (604) 685-8318
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(Former Address) (Zip Code)
Item 2. Acquisition or Disposition of Asset
As of September 4, 1996, Heng Fai China Industries, Inc. (the "Registrant"
or the "Company"), entered into an agreement, a copy of which is annexed as an
exhibit to this Report (the "Agreement"), with Monkey King Group (the "Seller")
pursuant to which Worldwide Container Company Ltd. ("Worldwide"), a wholly owned
subsidiary of the Company, acquired from the Seller a 70% interest in Wuhan
Container Co., Ltd. ("Wuhan") in exchange for 727,272 shares of the Company's
restricted common stock (the "Shares"). Based upon negotiations between the
Company's President and the Seller the Shares were valued at a per share price
of $5.50. Pursuant to the terms of the Agreement the Shares will be held in
escrow by an escrow agent in Singapore (the "Escrow Agent"). The Seller has
agreed that the Shares cannot be sold until Worldwide receives cumulative
profits, contributions and/or dividends aggregating a minimum of $4,000,000 from
the operations of Wuhan. Wuhan is a People's Republic of China state company
which was formed to engage in the design, manufacture, lease and repair of
standard and non-standard containers and related steel structure products. Wuhan
commenced trial production of its containers in the Spring of 1996.
The closing of the Agreement was conditioned upon the approval of the Board
of Directors of the Company as well as the Company's satisfactory completion of
a due diligence review of Wuhan. On September 19, 1996 the Company's Board
approved the Agreement, completed its due diligence review of Wuhan and directed
the issuance of the Shares to Hubei Monkey King Investment & Development
Corporation ("HMK"). Pursuant to the Agreement the transaction will be deemed
closed upon delivery of the Shares to the Escrow Agent.
2
The assets acquired by the Company through the acquisition of a 70%
interest in Wuhan consisted of assembly lines, plant and manufacturing
production equipment, power generators and related equipment. Wuhan presently
owns its manufacturing plant which is located in the City of Wuhan on the banks
of the Yangtze River and Hanshui River. The facility consists of approximately
480,000 square feet which will Wuhan estimates has a capacity to produce 10,000
containers on an annual basis. The Company believes that approximately
$5,000,000 in capital improvements will be required to be made to the plant in
order to reach maximum capacity. The Company intends to utilize Wuhan's assets
in order to engage in the full scale design, manufacture and production of
container and related steel structure products.
Neither the Company nor any of the affiliates possessed any interest in
Wuhan, the Seller and/or HMK prior to the execution and/or closing of the
Agreement.
Item 7. Financial Statements and Exhibits
a) Annexed as Exhibit A are Wuhan's audited financial statements for the year
ended December 31, 1995.
b) Annexed as Exhibit B are the Company's Pro-Forma condensed balance sheet
and statement of operations and explanatory notes, giving effect to the combined
accounts of the Company and Wuhan as required by the instructions to Form 8-K.
c) Attached hereto as Exhibit C is a copy of the Stock Purchase Agreement
between the Company and the Monkey King Group. (previously filed)
3
Signatures
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.
November 18, 1996
HENG FAI CHINA INDUSTRIES, INC.
(Registrant)
By:s\ROBERT H. TRAPP
----------------------------------------
Robert H. Trapp,
Secretary, Treasurer and Director
4
EXHIBIT A
WUHAN KMK CONTAINERS CO., LTD.
(REGISTERED IN THE PEOPLE'S REPUBLIC OF
CHINA WITH LIMITED LIABILITY)
Report and Financial Statements
For the period from April 3, 1995
(date of registration) to December 31, 1995
WUHAN KMK CONTAINERS CO., LTD.
(REGISTERED IN THE PEOPLE'S REPUBLIC OF CHINA WITH LIMITED LIABILITY)
REPORT AND FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 3, 1995 (DATE OF REGISTRATION)
TO DECEMBER 31, 1995
CONTENTS PAGES
- -------- -----
AUDITORS' REPORT 1
PROFIT AND LOSS ACCOUNT 2
BALANCE SHEET 3
CASH FLOW STATEMENT 4
NOTES TO THE FINANCIAL STATEMENTS 5 - 9
[Letterhead of Deloitte Touche Tohmatsu]
INDEPENDENT AUDITORS' REPORT
TO THE DIRECTORS OF WUHAN KMK CONTAINERS CO., LTD.
(Registered in the People's Republic of China with limited liability)
We have audited the accompanying balance sheet of Wuhan KMK Containers Co., Ltd.
as of December 31, l995 and the related profit and loss account and cash flow
statement for the period from April 3, 1995 (date of registration) to December
31, 1995, a11 expressed in Renminbi.
Respective responsibilities of directors and auditors
The directors are responsible for the preparation of financial statements which
give a true and fair view. In preparing financial statements which give a true
and fair view it is fundamental that appropriate accounting policies are
selected and applied consistently. Our responsibility is to express an opinion
on these financial statements based on our audits.
Basis of opinion
We conducted our audits in accordance with Statements of Auditing Standards
issued by tbe Hong Kong Society of Accountants, which do not differ in any
material respect from auditing standards generally accepted in tbe United States
of America. These 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 significant estimates and judgements made by management,
evaluating the overall financial statement presentation and assessing whether
the accounting policies are appropriate to the circumstances of the Company,
consistently applied and adequately disclosed. We believe that our audits
provide a reasonable basis for our opinion.
Opinion
In our opinion, the financial statements give a true and fair view of the
financial position of the Company at December 31, 1995 and its results of
operations and cash flows for the period from April 3, 1995 (date of
registration) to December 31, 1995 in conformity with accounting principles
generally accepted in Hong Kong.
/s/ Deloitte Touche Tohmatsu
- ---------------------------
Deloitte Touche Tohmatsu
Hong Kong
November 19, 1996
-1-
WUHAN KMK CONTAINERS CO., LTD.
- ------------------------------
(REGISTERED IN THE PEOPLE'S REPUBLIC OF CHINA WITH LIMITED LIABILITY)
PROFIT AND LOSS ACCOUNT
FOR THE PERIOD FROM APRIL 3, l995 (DATE OF REGISTRATION)
TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
RMB
Sales .................................................. 3,944,479
Costs of sales ......................................... 4,168,430
----------
Gross loss ............................................. (173,951)
Operating expenses ..................................... (2,424,166)
----------
Operating loss ......................................... (2,598,117)
Other income ........................................... 11,072
----------
Loss before taxation ................................... (2,587,045)
Taxation ............................................... --
----------
Loss for the Period and carried forward ................ (2,587,045)
==========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
-2-
WUHAN KMK CONTAINERS CO., LTD.
- ------------------------------
(REGISTERED IN THE PEOPLE'S REPUBLIC OF CHINA WITH LIMITED LIABILITY)
BALANCE SHEET
TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
RMB
ASSETS
Current assets:
Cash and cash equivalents .............................. 745,423
Debtors, deposits and prepayments ...................... 1,300,946
Stocks (note 6) ........................................ 19,210,323
----------
Total current assets ................................... 21,256,692
----------
Fixed assets, net (note 5) ............................. 31,731,588
----------
Total .................................................. 52,988,280
==========
LIAIBILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Creditors and accrued charges .......................... 818,811
Amounts due to fellow subsidiaries ..................... 459,862
Value added tax payable ................................ 413,187
Bank borrowings ........................................ 900,000
----------
Total current liabilities: ............................. 2,591,860
----------
Long-term liabilities:
Amount due to immediate holding company ................ 12,640,906
Amounts due to fellow subsidiaries ..................... 10,342,559
----------
Total long-term liabilities ............................ 22,983,465
----------
Commitments
Equity
Registered capital ................................... 30,000,000
Deficit .............................................. (2,587,045)
----------
Total Equity ........................................... 27,412,955
----------
Total .................................................. 52,988,280
==========
See accompanying notes to financial statements.
---------------------------------------------------------------------------
-3-
WUHAN KMK CONTAINERS CO., LTD.
- ------------------------------
(REGISTERED IN THE PEOPLE'S REPUBLIC OF CHINA WITH LIMITED LIABILITY)
CASH FLOW STATEMENT
FOR THE PERIOD FROM APRIL 3, 1995 (DATE OF REGISTRATION)
TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
RMB
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................... (2,587,045)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation ............................................. 653,382
Changes in operating assets and liabilities:
Stock .................................................... (19,210,323)
Debtors, deposits and prepayments ........................ (1,300,946)
Creditors and accrued charges ............................ 818,811
Amounts due to fellow subsidiaries ....................... 459,862
Value added tax payable .................................. 413,187
-----------
NET CASH USED IN OPERATING ACTIVITIES ...................... (20,753,072)
-----------
NET CASH USED IN INVESTING ACTVITIES
Purchase of fixed assets ................................... (32,384,970)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
New bank loans ............................................. 900,000
Proceeds from capital contribution ......................... 30,000,000
Amounts due to immediate holding company ................... 12,640,906
Amounts due to fellow subsidiaries ......................... 10,342,559
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES .................. 53,883,465
-----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................... 745,423
===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest ................... 2,078
===========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
-4-
WUHAN KMK CONTAINERS CO., LTD.
- ------------------------------
(REGISTERED IN THE PEOPLE'S REPUBLIC OF CHINA WITH LIMITED LIABILITY)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 3, 1995 (DATE OF REGISTRATION)
TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
1. GENERAL
The Company is a limited liability company registered in the People's
Republic of China. Its immediate holding company is Hubei KMK Industry &
Commence Co., Ltd. and its ultimate holding company is Monkey King Group
both are registered in the People's Republic of China.
The Company's accounting records are maintained in Renminbi ("RMB"), the
currency in which majority of the Company's transactions are denominated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies which have been adopted in preparing
these financial statements and which conform with accounting principles
generally accepted in Hong Kong are as follows:
Turnover
Turnover represents the amount received and receivable for goods sold, net
of value-added tax, during the period.
Revenue recognition
Sales of goods are recognized when goods are delivered and title has
passed.
Interest income is accrued on a time proportion basis on the principal
outstanding and at the rate applicable.
Fixed assets and deprecitation
Fixed assets are stated at cost less depreciation. The cost of an asset
comprises its purchase price and any directly attributable costs of
bringing the asset to its working condition and location for its intended
use. Expenditure incurred after the fixed assets have been put into
operation, such as repairs and maintenance and overhaul costs, is normally
charged to the profit and loss account in the period in which it is
incurred. ln situations where it can be clearly demonstrated that the
expenditure has resulted in an increase in the future economic benefits
expected to be obtained from the use of the fixed asset, the expenditure is
capitalised as an additional cost of the fixed asset. When assets are sold
or retired, their cost and accumulated depreciation are eliminated from
accounts and any gain or loss resulting from their disposal is included in
the profit and loss account.
-5-
WUHAN KMK CONTAINERS CO., LTD.
- ------------------------------
(REGISTERED IN THE PEOPLE'S REPUBLIC OF CHINA WITH LIMITED LIABILITY)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Fixed assets and depreciation - continued
Depreciation is provided to write off the cost of fixed assets over their
estimated useful lives using the straight line method, at the following
rates per annum:
Leasehold buildings Over the lease term
Electric equipment 5 years
Furniture and equipment 10 years
Motor vehicles 5 years
Plant and machinery 10 years
No depreciation is provided in respect of construction in progress.
Construction in progress
Construction in progress is stated at cost which includes all development
expenditure and other direct costs attributable to such projects. Costs on
completed construction works are transferred to fixed assets.
Stocks
Stocks are stated at the lower of cost and net realizable value. Cost,
which comprises direct materials and, where applicable, direct labour costs
and those overheads that have been incurred in bringing the stocks to their
present location and condition, is calculated using the weighted average
method. Net realizable value represents the estimated selling price less
all further costs to completion and costs to be incurred in selling and
distribution.
Operating leases
Rentals under operating leases are charged to the proflt and loss account
on a straight line basis over the lease terms.
Foreign currencies
Transactions in foreign currencies other than Renminbi are translated into
Renminbi at the rates ruling on the transactions. Monetary assets and
liabilities denominated in foreign currencies other than Renminbi are
translated into Renminbi at the rates ruling on the balance sheet date.
Profits and losses arising on exchange are dealt with in the profit and
loss account.
Preliminary expenses
Expenses relating to the Company's formation are charged directly to the
profit and loss account when incurred.
-6-
WUHAN KMK CONTAINERS CO., LTD.
- ------------------------------
(REGISTERED IN THE PEOPLE'S REPUBLIC OF CHINA WITH LIMITED LIABILlTY)
3. LOSS BEPORE TAXATION
RMB
Loss before taxation has been arrived at after charging:
Auditors' remuneration --
Depreciation 653,382
Directors' remuneration --
Interest on bank borrowings wbolly repayable within five years 207,290
Preliminary expenses written off 17,155
Rental paid to immediate holding company 180,550
and after crediting:
Interest income 11,072
Auditors' remuneration for the period is borne by Heng Fai China Industries
Inc. (Note 12).
4. TAXATION
No provision for PRC Income Tax has been made in the financial statements
as there is no assessable profit for the period.
5. PIXED ASSETS
Furniture Plant
Construction Leasehold Electric and Motor and
in progress buildings equipment equipment vehicles machinery Total
----------- --------- --------- --------- -------- --------- -----
RMB RMB RMB RMB RMB RMB RMB
COST
Acquisition during the
period and balance at
December 31, 1995 16,000 12,713,930 256,243 12,232 331,450 19.055,115 32,384,970
DEPRECIATION
Provided for the period
and balance at
December 31, 1995 -- (476,772) (38,436) (1,835) (49,718) (86,621) (653,382)
------ ---------- ------- ------ ------- ---------- ----------
NET BOOK VALUE
At December 31, 1995 16,000 12,237,158 217,807 10,397 281,732 18,968,494 31,731,588
====== ========== ======= ====== ======= ========== ==========
-7-
WUHAN KMK CONTAINERS CO., LTD.
- ------------------------------
(REGISTERED IN THE PEOPLE'S REPUBLIC OP CHINA WITH LIMITED LIABILITY)
6. STOCKS
RMB
Raw materials 17,148,214
Work in progress 91,350
Furnished goods 1,432,275
Consumables 538,484
----------
19,210,323
==========
7. CONTR1BUTED CAPITAL
RMB
Registered and fully paid 30,000,000
==========
8. AMOUNT DUE TO IMMEDIATE HOLDING COMPANY
The amount is unsecured, interest-free and is repayable on demand. In the
opinion of the directors, the amount will not be repaid within the next
twelve months and accordingly, the amount is shown as non-current.
9. AMOUNTS DUE TO PELLOW SUBSIDIARIES
The amoullts are unsecured, interest-free and are repayable on demand. In
the opinion of the directors, the amounts will not be repaid within the
next twelve months and according1y, the amounts are shown as non-current.
10. RELATED PARTY TRANSACTIONS
Durng the period, the Company had the following transactions with its
immediate holding company:
RMB
Purchase of fixed assets 31,801,958
Purchase of stocks 21,181,507
Rental paid 180,550
==========
-8-
WUHAN KMK CONTAINERS CO., LTD.
- ------------------------------
(REGISTERED IN THE PEOPLE'S REPUBLIC OF CHINA W1TH LIMITED LIABILITY)
11. CAPITAL COMMITMENT
RMB
Contracted for but not provided in the financial statements
in respect of fixed assets 24,000
======
12. SUBSEQUENT EVENT
Pursuant to an agreement dated September 4, 1996 signed between the
Company's ultimate holding company, Monkey King Group ("MKG"), Worldwide
Container Co. ("Worldwide"), a company incorporated in Hong Kong, and Heng
Fai China Industries Inc. ("HFCI"), a corporation incorporated in Delaware
of the United States of America, Worldwide and HFCI will become the
immediate and ultimate holding companies of the Company respectively upon
the completion of this agreement.
Up to the date of this report, the completion of this agreement is still
pending upon the approval of PRC authority on the application of change of
immediate holding company to Worldwide.
- --------------------------------------------------------------------------------
-9-
EXHIBIT B
HENG FAI CHINA INDUSTRIES, INC.
PROFORMA CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1996
HFCI Wuhan Total Pro-Forma Pro-Forma
Jun 30, 1996 Jun 30, 1996 Jun 30, 1996 Adjustments Combined
US$ US$ US$ Increase(Decrease) US$
--- --- --- ------------------ ---
ASSETS
CURRENT ASSETS
Cash and cash equivalents 22,240 21,940 44,180 44,180
Available for sale securities 417,111 -- 417,111 417,111
Accounts receivable 40,176 -- 40,176 40,176
Prepaids and other currents assets 111,701 136,847 248,548 248,548
Inventories 192,718 2,366,454 2,559,172 2,559,172
--------- --------- --------- ---------
783,946 2,525,241 3,309,187 3,309,187
--------- --------- --------- ---------
INVESTMENT IN WUHAN -- -- -- 1,000,000 --
--------- --------- --------- ---------
(1,000,000)
PROPERTY, net 844,057 3,660,585 4,504,642 c (1,079,944) 3,424,698
PREPAID RENTAL 101,002 -- 101,002 101,002
--------- --------- --------- ---------
TOTAL ASSETS 1,729,005 6,185,826 7,914,831 6,834,887
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 187,500 95,151 282,651 282,65l
Bank overdraft 14,382 -- 14,382 14,382
Short-term borrowings 96,033 1,249,976 1,346,009 1,346,009
Margin loan payable 264,262 -- 264,262 264,262
Interest payable 37,770 -- 37,770 37,770
Security deposits payable 10,269 -- 10,269 10,269
Accrued expenses l04,010 -- 104,010 104,010
Due to related parties 92,265 101,281 193,546 193,546
Current portion of mortage 17,324 -- 17,324 17,324
Due in holdings company -- 1,020,203 1,020,203 1,020,203
Due to shareholders -- 701,388 701,388 701,388
Tax payables -- 46,478 46,478 46,478
--------- --------- --------- ---------
TOTAL CURRENT LIABILITIES 823,815 3,214,477 4,038,292 4,038,292
--------- --------- --------- ---------
Mortgages payable 975,086 -- 975,186 975,086
Long-term payable 91,415 -- 91,415 91,4l5
Minority interest -- -- -- b 891,406 891,406
--------- --------- --------- ---------
1,066,501 -- 1,066,501 1,957,907
--------- --------- --------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Share capital 109,595 3,6Ol,44l 3,711,036 (3,601,441) 116,868
7,273
Paid in capital -- -- -- 992,727 992,727
Contributed surplus 3,392,546 -- 3,392,546 3,392,546
Unrealized gain (loss) on
available-for sale securities (107,665) -- (107,665) (107,665)
Cumulative exchange adjustments 6,968 -- 6,968 6,968
Accumulated deficit (3,562,755) (630,091) (4,l92,846) 630,091 (3,562,755)
--------- --------- --------- ---------
Total stockholders' equity (l61,311) 2,971,349 2,810,038 838,688
--------- --------- --------- ---------
Total liabilities and stockholders'
equity (deficit) 1,729,005 6,185,826 7,914,831 6,834,887
========= ========= ========= =========
HENG FAI CHINA INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 1996
Pro-Forma Pro-Forma
HFCI Wuhan Total Adjustments Combined
US$ US$ US$ Increase(Decrease) US$
--- --- --- ------------------ ---
REVENUES
Rental income 169,650 -- 169,650 169,650
Sales 174,795 103,278 278,073 278,073
Investment income 26,276 -- 26,276 26,276
Laundry and interest income 2,981 -- 2,981 2,981
Foreign exchange gain 1,379 -- 1,379 1,379
Other income -- 34,524 34,524 34,524
--------- ------- --------- ---------
Total Revenues 375,081 137,802 512,883 512,883
--------- ------- --------- ---------
COSTS AND EXPENSES
Cost of sales 154,338 212,692 367,030 367,030
Consulting fees 1,290,395 -- 1,290,395 1,290,395
Interest expenses 67,037 -- 67,037 67,037
Other administrative expenses 203,480 244,631 448,111 a (47,244) 400,867
--------- ------- --------- ---------
1,715,250 457,323 2,l72,573 2,125,329
--------- ------- --------- ---------
Loss before income taxes (1,340,169) (319,521) (1,659,690) (1,612,447)
Income taxes -- -- -- --
Minority interests -- -- -- d 95,856 95,856
--------- ------- --------- ---------
NetLoss (1,340,169) (319,521) (1,659,690) (1,516,591)
========== ======== ========== ==========
HENG FAI CHINA INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
Pro-Forma Pro-Forma
HFCI Wuhan Total Adjustments Combined
US$ US$ US$ Increase(Decrease) US$
--- --- --- ------------------ ---
REVENUES
Rental income 347,034 -- 347,034 347,034
Sales 278,622 479,529 758,151 758,151
Laundry and interest income 7,918 1,329 9,247 9,247
---------- -------- ---------- ----------
Total Revenues 633,574 480,858 1,114,432 1,114,432
---------- -------- ---------- ----------
COSTS AND EXPENSES
Cost of sales 235,711 500,412 736,123 736,123
Consulting fees 1,620,433 -- 1,620,433 1,620,433
Interest expenses 105,435 24,915 130,350 130,350
Other administrative expenses 627,774 266,101 893,875 a (23,140) 870,735
---------- -------- ---------- ----------
2,589,353 791,428 3,380,781 3,357,641
---------- -------- ---------- ----------
Loss before income taxes (1,955,779) (310,570) (2,266,349) (2,243,209)
Income taxes (16,947) -- (16,947) (16,947)
Minority interests -- -- -- d 93,171 93,171
---------- -------- ---------- ----------
Net income (loss) (1,972,726) (310,570) (2,283,296) (2,166,985)
========== ======== ========== ==========
HENG FAI CHINA INDUSTRIES, INC.
NOTES TO UNAUDITED PROFORMA CONDENSED BALANCE SHEET AND
STATEMENT OF OPERATIONS
Notes 1 - Description of proforma adjustments
(a) To reverse the over-provision of depreciation of the fixed assets.
(b) To record minority interests in the net assets of Wuhan.
(c) To record the discounts of the historical costs of the acquired
assets to their fair values at the acquisition date.
(d) To record minority interests in the deficit of Wuhan.
Notes 2 - Impact of tax holiday and other tax
Income taxes - No income tax would have been paid by Wuhan since its formation
as it would be granted an exemption by the PRC government tax authorities. The
income tax laws generally exempt Sino-foreign equity joint ventures enterprises
engaged in manufacturing, upon approval by the relevant tax authorities, from
state and local taxes for two years starting from the first profitable year of
operations, which two-year tax holiday will be followed by a 50% reduction for
the next three years. Wuhan will be governed by the Income Tax Law of the
People's Republic of China concerning Foreign Investment Enterprises and Foreign
Enterprises. Pursuant to these laws, Sino-foreign equity joint venture
enterprises generally are subject to an income tax at an effective rate of 33%
consisting of a notional tax of 30% and a local tax of 3%.
Notes 3 - Translation into United States Dollars
The financial records of Wuhan are maintained, and its financial statements are
expressed, in Renminbi. The translations of Renminbi amounts into US dollars
have been made at the rate of Rmb8.33 to US$1, the exchange rate quoted by the
Peoples' Bank of China on June 30, 1996. Such translations should not be
construed as representations that the amounts could be converted into US dollars
at that rate or any other rate.