SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission File Number 0-7619
POWERSOFT TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 93-063633
(State or other jurisdiction of (I.R.S. Employer
corporation or organization) Identification No.)
650 West Georgia Street, Suite 1088, Vancouver, British Columbia Canada V6B 4N8
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (604) 685-8318
Heng Fai China Industries, Inc.
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes___ No _X_
15,559,542 shares of common stock, $.01 par value, were issued and outstanding
as of September 30, 1998.
POWERSOFT TECHNOLOGIES, INC.
FORM 10-Q
FOR THE
QUARTER ENDED SEPTEMBER 30, 1998
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements............................................. 1
Condensed Consolidated Balance Sheets as at
September 30, 1998 and December 31, 1997......................... 2
Condensed Consolidated Statements of Operations for the
nine months and three months ended September 30, 1998 and 1997... 3
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997.................... 4
Condensed Consolidated Statement of Shareholders' Equity for the
nine months and three months ended September 30, 1998 and 1997... 5
Notes to the Condensed Consolidated Financial Statements......... 6
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operations.............................. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 15
Item 2. Changes in Securities ........................................... 15
Item 3. Defaults Upon Senior Securities ................................. 15
Item 4. Submission of Matters to a Vote of Security Holders.............. 15
Item 5. Other Information................................................ 15
Item 6. Exhibits and Reports on Form 8-K................................. 15
Signature Page........................................................... 16
I
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statements of Heng Fai China Industries, Inc. (the
"Company") are provided herewith:
(a) Condensed Consolidated Balance Sheets as at September 30, 1998 and
December 31, 1997;
(b) Condensed Consolidated Statements of Operations for the nine months
and three months ended September 30, 1998 and 1997;
(c) Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997;
(d) Condensed Consolidated Statement of Stockholders' Equity for the
nine months ended September 30, 1998 and 1997; and
(e) Notes to the Condensed Consolidated Financial Statements.
-1-
Powersoft Technologies, Inc.
formerly Heng Fai China Industries, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(United States Dollars)
ASSETS
September 30, December 31,
1998 1997
------------- ------------
Current assets:
Cash and cash equivalents $ 32,787 $ 36,173
Available-for-sale securities (Note 3) 432,165 1,507,345
Accounts receivable, trade, less
allowance for doubtful
accounts of $nil 25,418 7,521
Prepaid and other current assets 23,179 32,153
Amounts receivable from related parties 10,298 18,950
----------- -----------
Total current assets 523,847 1,602,142
Property, plant and equipment, net 753,974 785,920
----------- -----------
Total assets $ 1,277,821 $ 2,388,062
=========== ===========
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Current portion of mortgage
loans payable $ 119,121 $ 115,251
Accounts payable and accrued expenses 111,555 148,948
Margin loan payable (Note 3) 3,160,138 3,058,295
Interest payable 67,806 43,319
Security deposits payable 11,049 11,190
Amounts payable to related parties 1,546,595 904,756
----------- -----------
Total current liabilities 5,015,864 4,281,759
----------- -----------
Long-term liabilities:
Mortgage loans payable (Note 4) 816,298 837,966
----------- -----------
Total long-term liabilities 816,298 837,966
----------- -----------
Commitments and contingencies
Shareholders' (deficit) equity:
Preferred stock, $5 par value, 25,000,000
shares authorized, unissued
Common stock, $.01 par value, 30,000,000
shares authorized; issued and
outstanding 1998 and 1997:
15,559,542 shares 155,595 155,595
Contributed surplus 5,385,296 5,385,296
Unrealized loss on
available-for-sale securities
(Note 3) (3,379,101) (2,307,267)
Cumulative exchange adjustments 13,376 1,516
Accumulated deficit (6,729,507) (5,904,303)
----------- -----------
(4,554,341) (2,669,163)
Common stock issued for consulting
services to be received (62,500)
----------- -----------
Total shareholders'(deficit) equity (4,554,341) (2,731,663)
----------- -----------
Total liabilities and shareholders'
(deficit) equity $ 1,277,821 $ 2,388,062
=========== ===========
See the accompanying notes to the Condensed Financial Statements.
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Powersoft Technologies, Inc.
formerly Heng Fai China Industries, Inc.
Condensed Consolidated Statement of Operations
(Unaudited)
(United States Dollars)
Nine months ended September 30, Three months ended June 30,
------------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ -----------
Revenues:
Rental income $ 252,180 $ 259,989 $ 79,429 $ 88,313
Investment income (loss) (15,741) 678,710 (18,620) 569,498
Other income 0 5,659 0 1,607
------------ ------------ ------------ -----------
Total revenues 236,439 944,538 60,809 659,418
------------ ------------ ------------ -----------
Expenses:
Depreciation 31,941 26,114 10,647 8,704
Legal and professional fees 9,499 51,731 5,182 8,252
Consulting fees 62,500 247,250 0 71,250
Consulting fees paid to a
related company 375,000 375,000 125,000 125,000
Interest expense 375,410 141,598 160,905 18,330
Foreign exchange (gain) loss 0 48,427 0 10,833
Land lease 56,132 60,241 17,959 20,080
Rental real estate management fees 17,214 24,521 5,068 5,694
Salaries 0 4,528 0 0
Other operating and
administrative fees 133,947 524,973 57,305 178,999
------------ ------------ ------------ -----------
Total expenses 1,061,643 1,504,383 382,066 447,142
------------ ------------ ------------ -----------
Net income (loss) from continuing
operations (825,204) (560,025) (321,257) 212,276
------------ ------------ ------------ -----------
Discontinued operations
Cangzhou cement 96,637 26,054
Wuhan container 276,470 58,225
------------ -----------
Net income (loss) from discontinued operations 373,107 84,279
------------ -----------
Net income (loss) before minority
interest (825,204) (933,132) (321,257) 127,997
Minority interest from
discontinued operations 100,030 66,898
------------ -----------
Net income (loss) $ (825,204) $ (833,102) $ (321,257) $ 194,895
============ ============ ============ ===========
Earnings (loss) per share (basic):
From continuing operations $ (0.053) $ (0.039) $ (0.021) $ 0.013
Effect of discontinued operations 0.000 (0.065) 0.000 0.008
------------ ------------ ------------ -----------
Net loss per share $ (0.053) $ (0.104) $ (0.021) $ 0.021
============ ============ ============ ===========
Weighted average number
of shares of common stock
outstanding 15,559,542 14,402,740 15,559,542 16,234,592
============ ============ ============ ===========
See the accompanying notes to the Condensed Financial Statements.
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Powersoft Technologies, Inc.
formerly Heng Fai China Industries, Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(United States Dollars)
Nine months ended September 30,
-------------------------------
1998 1997
------------ ------------
Cash flows from operating activities
Net loss $ (825,204) $ (833,102)
Adjustments to reconcile net loss
to net cash used in operating activities:
Minority interest -- (100,030)
Depreciation and amortization 31,941 198,008
Consulting fee paid in common stock 62,500 247,250
Changes in working capital components:
Accounts receivable (17,897) (3,017,393)
Inventories -- 2,291,750
Prepaid and other current assets 8,974 (1,176,251)
Amounts receivable from related parties 8,652 (1,688,627)
Value added taxes recoverable 427,369
Prepaid rental 21,687
Accounts payable and accrued expenses (37,793) 822,466
Bills payable (562,651)
Accrued interest 24,487 1,068
Security deposits payable (141) (1,021)
Amounts due to related parties 641,839 (389,526)
Exchange difference 15,211 --
----------- -----------
Net cash used in operating activities (87,431) (3,759,003)
----------- -----------
Cash flows from investing activities:
Purchase of available-for-sale securities (4,367,238)
Proceeds from sale of available-for-sale
securities 2,587,924
Purchases of property, plant and
equipment (59,438)
-----------
Net cash used in investing activities (1,838,752)
-----------
Cash flow from financing activities:
Common stock issued for cash 1,620,000
Increase in short-term borrowings 3,138,275
Increase in margin loan payable 101,843 849,655
Mortgage loan repaid (17,798) (15,069)
----------- -----------
Net cash provided by financing
activities 84,045 5,592,861
----------- -----------
Net decrease in cash and
cash equivalents (3,386) (4,894)
Cash and cash equivalents, beginning of
the period 36,173 170,259
----------- -----------
Cash and cash equivalents, end of the period $ 32,787 $ 165,365
=========== ===========
Analysis of the balance of cash and
cash equivalents
Bank balances and cash $ 32,787 $ 165,365
=========== ===========
None-cash financing activities
Issuance of common stock for
consulting services None $ 100,000
=========== ===========
See the accompanying notes to the Condensed Financial Statements.
-4-
Powersoft Technologies, Inc.
formerly Heng Fai China Industries, Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(United States Dollars)
Nine months ended September 30, Three months ended September 30,
------------------------------- --------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Balance, beginning $(2,731,663) $ 3,370 $(3,648,691) $ 2,798,202
----------- ----------- ----------- -----------
Comprehensive income (loss):
Net income (loss) (825,204) (833,102) (321,257) 153,563
Reversal of expense for common
stock issued for services 62,500 247,250 0 71,250
Change in cummulative exchange
adjustment 11,860 0 42,270 0
Change in net unrealized gain (loss) (1,071,834) 300,473 (626,663) (1,685,024)
----------- ----------- ----------- -----------
Comprehensive income (loss) (1,822,678) (285,379) (905,650) (1,460,211)
----------- ----------- ----------- -----------
Proceeds from private placement 1,620,000
----------- ----------- ----------- -----------
Balance, September 30, 1998 $(4,554,341) $ 1,337,991 $(4,554,341) $ 1,337,991
=========== =========== =========== ===========
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Powersoft Technologies, Inc.
formerly Heng Fai China Industries, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 1998
(Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. The condensed consolidated financial
statements included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. The condensed consolidated financial statements and
the notes thereto should be read in conjunction with the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997. In the opinion of the management of the Company, the
accompanying condensed consolidated financial statements contain all necessary
adjustments to present fairly the financial position, the results of operations
and cash flows for the periods reported. All adjustments are a normal recurring
nature.
The results of operations for the nine months periods and three month periods
ended September 30, 1998 and September 30, 1997, are not necessarily indicative
of the results to be expected for the full year.
The condensed statements of operations for the nine-month period and the
three-month period ended September 30, 1997, have been reclassified to conform
to the 1998 presentation.
2. CONTINUING OPERATIONS
These condensed 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 in 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.
-6-
Powersoft Technologies, Inc.
formerly Heng Fai China Industries, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 1998
(Unaudited)
2. CONTINUING OPERATIONS (continued)
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. AVAILABLE-FOR-SALE SECURITIES
The cost and approximate market value of investment securities were as follows:
September 30, December 31,
1998 1997
------------- ------------
Corporate equity securities (a):
Cost $ 3,786,859 $ 3,814,612
Less gross unrealized losses (3,354,694) (2,307,267)
----------- -----------
Estimated fair value $ 432,165 $ 1,507,345
=========== ===========
Carrying value (c) $ 432,165 $ 1,507,345
=========== ===========
Margin loan payable (b) $ 3,160,138 $ 3,058,295
=========== ===========
(a) Included in the above securities are 48,535,276 shares at September
30, 1998, and December 31, 1997, representing 3.9 percent of the
outstanding common stock of Heng Fung Holdings Company Limited ("Heng
Fung"). These securities were acquired in 1997 at a cost of $3,786,859 and
had a carrying value of $432,165 at September 30, 1998, and $1,507,345 at
December 31, 1997. Fai H. Chan and Robert 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.
(b) All investments are pledged to secure the Company's margin loan
payable. The loan is payable on demand and bears interest at Hong Kong
best lending rate (10% at September 30, 1998) plus 3.5% per annum.
(c) At October 31, 1998, the market value of the available-or-sale
securities held by the Company at the balance sheet date amounted to
approximately $450,000.
-7-
Powersoft Technologies, Inc.
formerly Heng Fai China Industries, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 1998
(Unaudited)
4. MORTGAGE LOAN PAYABLE
The mortgage loan which matured and became payable June 15, 1998, has been
extended for an additional five year period.
-8-
Powersoft Technologies, Inc.
formerly Heng Fai China Industries, inc.
September 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements of the Company and the related notes thereto,
and other financial information that is included elsewhere herein or
incorporated by reference.
Introduction
The Company was originally incorporated in 1958 and until June 1994 had been
engaged in business other than those it presently operates.
The Company owns an apartment building in North Vancouver, British Columbia, and
until June 1995 the Company's operations were comprised of that single segment.
In 1995 and 1996, the Company, through various subsidiaries, acquired certain
interests in the People's republic of China ("PRC"), including (i) Min You,
which has an option to lease a production line in Cangzhou Factory for cement
manufacturing; (ii) a 70% interest in Wuhan, a PRC container manufacturer; (iii)
an interest in the duck contract pursuant to which the Company operated a duck
farm in PRC; and (iv) an option to form Heng Li in order to develop a commercial
building in Zhangjiagang PRC.
During the fourth quarter of 1997, the Company determined that it would
discontinue substantially all of its operations in PRC. The divestiture included
(i) the transfer of 81% of the Company's interest in Min You; (ii) effecting an
agreement to reverse the acquisition of a 70% interest in Wuhan; (iii) the
termination of the duck contract; and (iv) the termination of the option to form
Heng Li and cancel the respective joint venture agreement.
Presently the Company retains a 19% interest in Min You, with a full provision
for the permanent dimunition in value, its sole PRC operation, and 100% of the
outstanding stock of Vancouver Hong Kong.
-9-
Results of Continuing Operations
The nine-months ended September 30, 1998 as compared to the nine months ended
September 30, 1997
There were no significant changes in the revenues and expenses attributable to
the operation of Vancouver Hong Kong's real estate between the nine-months ended
September 30, 1998 and nine-months ended September 30, 1997.
Investment income decreased from income of $678,710 through September 30, 1997
to a loss of $15,741 through September 30, 1998. The Company has not engaged in
investment activity during the quarter ended September 30, 1998. This is because
of the uncertainty related to the international securities markets. The net
investment loss in 1998 consists of the loss due to the expiration of warrants,
amounting to $18,820, and interest income. During the quarter ended September
30, 1997, the Company earned investment income of $569,498.
Consulting expense decreased from an aggregate of $612,250 for the nine months
ended September 30, 1997 to $437,500 for the nine months ended September 30,
1998. This is due to the Company's reduced use of consulting services. Interest
expense increased from $141,598 for the nine-months ended September 30, 1997 to
$375,410 for the same period in 1998. This is due to the increase in margin
loans payable. The outstanding balance of margin loans payable amounted to
$3,160,138 and $1,338,848 at September 30, 1998, and September 30, 1997,
respectively. Other expenses decreased from $524,973 in 1997 to $133,947 in
1998. The decrease is due to reduced professional fees and financial, travel and
miscellaneous expenses. The Company experienced no foreign exchange loss for the
nine months ended September 30, 1998, as compared to a foreign exchange loss of
$48,427 nine months ended September 30, 1997.
The Company's net loss from continuing operations was $825,204 for the nine
months ended September 30, 1998, as compared to a net loss of $560,025 for the
nine months ended September 30, 1997. This trend is also reflected in the net
loss from continuing operations for the three months ended September 30, 1998,
amounting to $321,257, compared to net income of $212,276 for the three month
period ended September 30, 1997. The reasons for this trend are the reductions
in other operating and administrative expenses and consulting fees, the
offsetting decrease in increase in interest expense and the investment income of
$569,498 that occurred in the quarter ended September 30, 1997
The nine months ended September 30, 1997 as compared to the nine months ended
September 30, 1996
There were no significant changes in the revenues and expenses attributable to
the operation of Vancouver Hong Kong's real estate between the first nine months
of fiscal 1997 and the nine months of fiscal 1996.
Investment income increased to $678,710 for the nine-months ended September 30,
1997 as compared to $30,942 for the nine months ended September 30, 1996.
The consulting arrangements that caused an expense of $1,290,395 in the nine
months ended September 30, 1996 did not recur in 1997. Consulting fees declined
from $1,290,395 to $622,250 in 1997. Other operating and administrative expenses
increased in the nine months ended September 30, 1997 to $524,973 from $275,677
in the same period of 1996. The
-10-
increase is due primarily to increased professional fees.
Interest expense amounted to $141,598 and $141,365 for the nine months ended
September 30, 1997 and 1996, respectfully.
The Company's net loss from continuing operations for the nine-month period
ended September 30, 1997 was $560,025, a change of $910,712 compared to a net
loss of $1,570,737 for the corresponding period in 1996. The decrease in the net
loss was the net result of (I) an increase in investment income; (ii) a
reduction in expenses for overhead and consultants; (iii) increases in
professional fees that are included in other operating and administrative
expenses; (iv) an increase in interest expense.
Results of Discontinued Operations
Inflation
The general inflation rate in China was approximately 15%, 8% and 3%per annum in
1995, 1996 and 1997, respectively. In recent years, 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. The austerity measures implemented by the PRC Government have
continued to affect the operations of Min You and Wuhan Container. Although
there was a sign of easing in such austerity measures, both turnover and profit
margin of Min You and Wuhan Container were still severely affected.
The nine months ended September 30, 1998 as compared to the nine months ended
September 30, 1997
There has been no activity in the discontinued operations in 1998.
The nine months ended September 30, 1997 as compared to the nine months ended
September 30, 1996
The cement operation of Min You Cement Company Limited commenced in the second
half of 1995. Cement sales decreased from $346,930 in 1996 to $262,257 in 1997.
At the same time the cost of cement sales decreased from $321,737 in 1996 to
$288,437 in 1997.
Wuhan container experienced sales of $2,934,871 and cost of sales of $2,647,720
for the nine months ended September 30, 1997. There was no activity for the
corresponding period in 1996.
Both operations operated at less than full capacity because of the impacts of
the austerity measures that took place in the People's Republic of China.
Liquidity and Capital Resources
The net cash used in operating activities for the nine-month period ended
September 30, 1998 amounted to $87,431. This is primarily due to the operating
losses experienced. The Company met its working capital requirements from the
proceeds of margin loans, described below and the collection of amounts from
related parties.
-11-
During the nine months ended September 30, 1998, the Company did not make
additional cash investments in securities or facilities.
The net cash provided by financing activities amounted to $84,045 for the nine
months ended September 30, 1998. This is due primarily to the increases in
margin loans.
The net cash used in operating activities for the nine months ended September
30, 1997, amounted to $3,759,003. This was primarily due to the operating losses
experienced, increases in receivables from the container segment and the payment
of amounts that were payable to related parties. The Company met its working
capital requirements from the proceeds of bank borrowings and the issuance of
common shares.
The net cash used in investing activities amounted to $1,838,752 for the nine
months ended September 30, 1998. This is primarily due to the use of cash to pay
for the purchase of investments.
The net cash provided by financing activities amounted to $5,592,861 for the
nine months ended September 30, 1997. This is due to the increases in short term
borrowings and margin loans and the issuance of common shares.
As discussed in Note 2 of the Notes to the Consolidated Financial Statements,
the Company's recurring losses from operations and minimal net tangible assets
raise substantial doubts as to its ability to continue as a going concern.
However, the principal shareholder has committed to continue providing financial
support.
-12-
Exchange Rate Risk
At present, the Company's revenues and expenses are denominated in U.S. dollars
and Hong Kong dollars. In view of the exchange rate pegged between Hong Kong
dollars and U.S. dollars, the Company is not subject to any direct exposure from
the fluctuation of U.S. dollars. Also, the Company's disposal of its operations
in PRC in 1997 nearly eliminates its exposure to exchange rate risk with the PRC
Renminbi. The Renminbi is the currency of the PRC. The Company is exposed to
exchange rate risk in its real estate operations in Canada. The Company's real
estate activity transactions, including long-term debt are payable in Canadian
dollars. The Canadian dollar has declined in its relation to the U.S. dollar to
$1.53 from approximately $1.36 in 1996.
The Company is not involved in any hedging activities in foreign currencies.
New accounting standards not yet adopted
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which amends the disclosure
requirements for pensions and other postretirement benefits. Adoption of the
standard will not significantly change the Company's financial statement
disclosures.
During April 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities".
Generally the Statement requires that the costs of start-up activities shall be
expensed as incurred, and that upon initial adoption an adjustment to reflect
the cumulative effect of a change in accounting principle shall be recorded.
This statement will be effective for periods beginning after December 15, 1998,
with earlier application permitted.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments. It requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for fiscal years beginning after June 15, 1999, although early
adoption is permitted.
The Company believes that the effects of adopting these standards will not be
material to the Company's financial position or results of operations.
-13-
Regional economic developments
Several countries in Asia have recently experienced significant adverse economic
developments including substantial exchange rate fluctuations, inflation, social
unrest, increased interest rates, reduced economic growth rates, corporate
bankruptcies, declines in the market value of shares listed on stock exchanges,
emergency loan agreements with the International Monetary Fund and
government-imposed austerity measures. To date, neither the PRC nor Hong Kong
has experienced these developments to the same extent as many other major Asian
countries. However, there can be no assurance that these economic developments
in other countries will not adversely affect the economy of the PRC or Hong
Kong, or that similar adverse economic developments will not occur in the PRC or
Hong Kong in the future, which could have a material adverse effect on a
Company's financial condition or results of operations.
The year 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Computer programs
that have sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. Based on a recent internal assessment,
the Company does not anticipate that the cost of any needed modifications will
have a material effect on results of operations.
There can be no assurance, however, that should the Year 2000 Issue become a
problem, that such problem will be resolved successfully and in a timely fashion
or that any failure or delay by the Company or any third parties which interact
with the Company in achieving year 2000 compliance will not have an adverse
effect on its operations.
-14-
(c) PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HENG FAI CHINA INDUSTRIES, INC.
Dated: December 19, 1998 By: /s/ Robert H. Trapp
-------------------------------
Robert H. Trapp
Secretary and Treasurer
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