Asia Fiber Holdings Ltd – ‘DEFR14A’ on 8/11/97

As of:  Monday, 8/11/97   ·   Accession #:  1019687-97-72   ·   File #:  1-08334

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

Revised Definitive Proxy Solicitation Material   —   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: DEFR14A     Revised Proxy Statement                               96    441K 

Document Table of Contents

DEFR14A
1st Page of 96
TOC
↑Top
Previous
Next
↓Bottom
Just 1st
 
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act  
of 1934   

Filed by the Registrant [x]                                                     

Filed by the Party other than the Registrant [ ]                                

Check the appropriate box:                                                      

[x]   Preliminary Proxy Statement                                               
[ ]   Definitive Proxy Statement                                                
[ ]   Definitive Additional Materials                                           
[ ]   Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12     

REGAL INTERNATIONAL, INC. 
----------------------------------------------------------------------------    
  (Name of Registrant as Specified In Its Charter)

REGAL INTERNATIONAL, INC. 
----------------------------------------------------------------------------    
(Name of Person(s) Filing Proxy Statement)    

Payment of Filing Fee (Check the appropriate box):                              

[ ]   $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-          
6(i)(2).                                                            
[ ]   $500 per each party to the controversy pursuant to Exchange Act Rule      
14a-6(i)(3).                                                        
[ ]   Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-     
11.                                                                 

(1)   Title of each class of securities to which transaction applies:           

(2)   Aggregate number of securities to which transaction applies:              

(3)   Per unit price or other underlying value of transaction computed          
pursuant to Exchange Act Rule 0-11:                                 

(4)   Proposed maximum aggregate value of transaction:                          

[ ]   Check box if any part of the fee is offset as provided by Exchange Act    
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was        
paid previously.  Identify the previous filing by registration statement        
number, or the Form or Schedule and the date of its filing.                     

(1)   Amount Previously Paid:                                                   

(2)   Form, Schedule or Registration Statement No.:                             

(3)   Filing Party:                                                             

(4)   Date Filed:                                                               

DEFR14A
2nd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 2nd
APPOINTMENT OF PROXY      

REGAL INTERNATIONAL, INC.     
Special Meeting of Stockholders -- October___, 1997   

The undersigned hereby appoints_____________ and ____________and each of        
them (with full power to act without the other), the true and lawful proxies    
of the undersigned, each having full power to substitute, to represent the      
undersigned and to vote all shares of stock of REGAL INTERNATIONAL, INC.        
(the "Company") which the undersigned would be entitled to vote if              
personally present at the Special Meeting of Stockholders (the "Meeting") of    
REGAL INTERNATIONAL, INC., to be held at ___________________________, on        
October__, 1997, at the hour of 10:00 a.m., local time.                         

1.   FOR [  ]   WITHHOLD [  ] ratification of the acquisition of Westronix      
Limited by the Company.                                                         

2.   FOR [  ]   WITHHOLD [  ] one or more amendments to the Certificates of     
Incorporation to increase the authorized number of shares of Common stock up    
to 1,100,000,000.                                                               

3.   FOR [  ]   WITHHOLD [  ] amendments to the Article Fourth, Fifth,          
Sixth, Seventh and Tenth of the Company's Certificate of Incorporation.         

4.   FOR [  ]   WITHHOLD [  ] reverse split of common stock of the Company.     

5.   FOR [  ]   WITHHOLD [  ] adoption of restated and amended  Bylaws of       
the Company.                                                                    

6.   FOR [  ]   WITHHOLD [  ] change of the Company's name to "Asia             
Resources Holdings Ltd.".                                                       

7.   FOR [  ]   WITHHOLD [  ] adoption of 1997 Incentive Stock Option Plan.     

8.   Upon all such other matters that may promptly be brought before such       
Meeting, as to which the undersigned hereby confers discretionary authority     
upon said proxies.                                                              

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.     
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR (1) [ ] THE            
RATIFICATION OF THE ACQUISITION OF WESTRONIX LIMITED (2) [ ] ONE OR MORE        
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION  (3) [ ] AMENDMENTS TO           
ARTICLE FOURTH, FIFTH, SIXTH, SEVENTH AND TENTH OF THE CERTIFICATE OF           
INCORPORATION (4) [  ] THE REVERSE SPLIT OF COMMON STOCK, (5) [ ], ADOPTION     
OF RESTATED AND AMENDED BYLAWS, (6) [ ],CHANGE OF THE COMPANY'S NAME TO         
"ASIA RESOURCES HOLDINGS, LTD.",  (7) [ ], ADOPTION OF 1997 INCENTIVE STOCK     
OPTION PLAN , OR, IF A CONTRARY INSTRUCTION IS INDICATED IN ACCORDANCE WITH     
SUCH INSTRUCTIONS.                                                              

All other proxies heretofore given by the undersigned to vote shares of         
stock of REGAL INTERNATIONAL, INC. which the undersigned would be entitled      
to vote if personally present at said Meeting or any adjournment thereof are    
hereby expressly revoked.  This proxy may be revoked at any time prior to       
the voting hereof.                                                              

NOTE:  Please date this proxy and sign it exactly as your name or names         
appear on your shares.  If signing as an attorney, executor, administrator,     
guardian or trustee, please give full title as such.  If a corporation,         
please sign full corporate name by duly authorized officer or officers,         
affix corporate seal and attach a certified copy of resolution or bylaws        
evidencing authority.                                                           

                       _________________________
    (Date)

                       _________________________
         (Signature)

                       _________________________
         (Signature)

DEFR14A
3rd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 3rd
REGAL INTERNATIONAL, INC. 
52/F Bank of China Tower  
1 Garden Road, Hong Kong  
--------------------------- 
 NOTICE OF SPECIAL MEETING
--------------------------- 

To Be Held    

October, 1997   

NOTICE IS HEREBY GIVEN, in accordance with the provisions of Section 222  
of the General Corporation Law of the State of Delaware, that a special         
meeting of the stockholders (the "Meeting") of REGAL INTERNATIONAL, INC., a     
Delaware corporation (the "Company"), whose principal executive offices are     
located at 52/F Bank of China Tower, 1 Garden Road, Hong Kong, will be held     
as follows:                                                                     

Place:      _________________, Los Angeles, California                          

Date:      October, 1997                                                        

Time:      10:00 a.m.                                                           

The purpose of the Meeting is as follows:                                       

1.   To ratify the acquisition of Westronix Limited by the Company.             

2.   To amend the Company's Certificate of Incorporation to increase the        
authorized number of shares of Common Stock up to 1,100,000,000 shares, of      
par value $0.01 per share.                                                      

3.   To amend the Company's Certificate of Incorporation (Ii) Article Fourth    
(D)(7),  to provide that the Company may remove directors or adopt, repeal      
or amend bylaws by a meeting of the shareholders or a written consent by        
shareholders holding a majority of the voting shares; (ii) Article Fifth to     
provide that the number of directors shall not be less than three, and to       
remove the classification of the board of directors; (iii)  Article Sixth to    
provide that the affirmative vote of the majority of voting shares is           
sufficient for the amendment or adoption of bylaws;  (iv) Article Seventh to    
remove the requirement of 80% shareholders' vote for certain transactions       
and to provide that the affirmative vote of the majority of voting shares is    
sufficient to approve those certain transactions listed in Article Seventh;     
and Article Tenth to remove the requirement of 80% shareholders' vote to        
amend  Article Fourth, Paragraph D (7) and (8), Article Fifth, Sixth,           
Seventh and Tenth, and  to provide that the affirmative vote of the majority    
of voting shares is sufficient to approve amendments to those provisions of     
the Company's Certificate of Incorporation.                                     

4.   To undertake a 138 to 1 reverse split of the Company's Common Stock        

5.   To adopt restated and amended Bylaws of the Company.                       

6.   To change the Company's name to "Asia Resources Holdings Ltd."             

7.   To adopt a 1997 Incentive Stock Option Plan.                               

8.   All such other matters as may be brought before such Meeting.              

The Board of Directors has fixed the close of business on June 27, 1997   
as the record date for determination of stockholders entitled to notice of,     
and to vote at, the Meeting.                                                    

Shares can be voted at the Meeting only if the record holder thereof is   
present at the Meeting or represented by proxy.  To ensure the presence of a    
quorum at the Meeting, you are requested to sign and date the accompanying      
Appointment of Proxy and return it promptly in the enclosed return envelope.    
The giving of such Appointment of Proxy will not affect your rights to vote   
in person in the event you attend the Meeting.                                  

September___, 1997                  By Order of The Board of Directors          

1   

DEFR14A
4th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 4th
REGAL INTERNATIONAL, INC.   
52/F Bank of China Tower    
1 Garden Road, Hong Kong    

PROXY STATEMENT   

Mailing Date: September___, 1997

----------------------------------------------------------------------------    
SPECIAL MEETING OF STOCKHOLDERS 
----------------------------------------------------------------------------    

To Be Held October___, 1997 

GENERAL                                                                         

This Proxy Statement is furnished to the holders of Common Stock, $0.01   
par value per share (the "Common Stock"), of REGAL INTERNATIONAL, INC. (the     
"Company" or the "Registrant"), on behalf of the Company, in connection with    
its solicitation of Appointments of Proxy in the form enclosed herewith for     
use at a special meeting of stockholders (the "Meeting") to be held on          
October___, 1997, and at any adjournments thereof.  The Meeting will be held    
at 10:00 a.m. local time, on the above date, at ____________________________    
The matters to be acted upon at the Meeting are set forth in the              
accompanying Notice of Meeting and are described herein.                        

The cost of this solicitation of Appointments of Proxy will be borne by   
the Company.  In addition to the solicitation of Appointments of Proxy by       
mail, certain officers, directors and regular employees of the Company,         
without additional remuneration, may solicit Appointments of Proxy,             
personally or by telephone, telegraph or cable.  Arrangements will also be      
made with brokerage firms and other nominee holders for forwarding proxy        
materials to the beneficial owners of shares of the Common Stock, and the       
Company will reimburse such persons for reasonable out-of-pocket expenses       
incurred by them in connection therewith.                                       

VOTING OF APPOINTMENTS OF PROXY                                                 

The persons named in the enclosed Appointment of Proxy, as proxies to     
represent stockholders at the Meeting, are __________and ______________.  An    
Appointment of Proxy which is properly executed and returned, and not           
revoked, will be voted in accordance with the directions contained therein.     
If no directions are given, that Appointment of Proxy will be voted FOR the   
ratification of the acquisition of Westronix Limited by the Company as          
further described in Proposal 1, FOR the amendment to the Company's             
Certificate of Incorporation increasing the authorized number of Common         
Stock to 1,100,000,000, as further described in Proposal 2 herein, FOR          
amendment to the Company's Certificate of Incorporation to amend Articles       
Fourth, Fifth, Sixth, Seventh and Tenth, as further described in Proposal 3     
herein, FOR the amendment to the Company's Certificate of Incorporation to      
effect a 1-for-138 reverse stock split approved by the Board of Directors on    
January 17, 1997, as further described in Proposal 4 herein, FOR adoption of    
the amended and restated Bylaws of the Company, as further described in         
Proposal 5 herein, FOR the name change, as further described in Proposal 6      
herein and FOR adoption of 1997 Incentive Stock Option Plan, as further         
described in Proposal 7 herein.  On any other matters that may come before      
the Meeting, each Appointment of Proxy will be voted in accordance with the     
best judgment of the proxies.                                                   

REVOCABILITY OF APPOINTMENTS OF PROXY                                           

An Appointment of Proxy may be revoked by the stockholder at any time     
before it is exercised by filing with the Secretary of the Company a written    
revocation or a duly executed Appointment of Proxy bearing a later date, or     
by attending the Meeting and announcing his intention to vote in person.        

2   

DEFR14A
5th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 5th
RECORD DATE AND VOTING RIGHTS                                                   

The close of business on June 27, 1997 has been fixed as the record date  
for the determination of stockholders entitled to notice of, and to vote at,    
the Meeting.  Only those stockholders of record, on that date, will be          
entitled to vote on the proposals described herein.                             

The voting securities of the Company are the shares of its Common Stock,  
of which shares were issued and outstanding as of June 27, 1997.  All           
outstanding shares of Common Stock are entitled to one vote on each matter      
submitted for voting at the meeting.                                            

Horler Holdings Limited, a wholly-owned subsidiary of China Strategic     
Holdings Limited has indicated its intention to vote for the proposals to be    
presented at the Meeting.                                                       

BENEFICIAL OWNERSHIP OF COMMON STOCK                                            

PRINCIPAL STOCKHOLDERS, DIRECTORS AND OFFICERS.  The following table sets 
forth the beneficial ownership of the Company's Common Stock, as of June 27,    
1997, by  each person known to the Company to own more than five percent        
(5%) of the Company's Common Stock and by each of the Company's current         
directors, and by all directors and officers of the Company as a group.  The    
table has been prepared based on information provided to the Company by each    
stockholder.                                                                    

                   Amount of
Name and                                     Beneficial         Percent of      
Address                                      Ownership            Class       
--------                                      ---------            -----        

China Strategic Holdings Ltd.(1)            1,033,877,483         96.16%        

Harlequin Investment Holdings Ltd.(2)(3)        4,452,082          0.41%        

Richard N. Gray (2)(3)                          4,452,082          0.41%        
Director                                                                        
Noble House, Queens Road                                                        
St. Peter Fort, Guernsey, Channel Islands                                       

Oei Hong Leong(1)                          1,033,877,483          96.16%        
Director                                                                        
52/F Bank of China Tower                                                        
1 Garden Road, Hong Kong                                                        

Chung Cho Yee Mico(1)                                  0              0%        
President and Director                                                          
52/F Bank of China Tower                                                        
1 Garden Road, Hong Kong                                                        

Ma Wai Man Catherine(1)                                0              0%        
Director                                                                        
52/F Bank of China Tower                                                        
1 Garden Road, Hong Kong                                                        

Jim G.K. Pang                                          0              0%        
Chief Financial Officer                                                         
52/F Bank of China Tower                                                        
1 Garden Road, Hong Kong                                                        

Martin J. Furner                                       0              0%        
Director                                                                        
24 Chiswick High Road                                                           
Chiswick, London W4 1TE                                                         

All Directors and Officers                 1,038,329,565          96.57%        
as a Group (6 persons)                                                          

_______________________________                                                 

As used in this table, "beneficial ownership" means the sole or shared power    
to vote, or to direct the voting of, a security, or the sole or shared          
investment power with respect to a security (i.e., the power to dispose of,     
or to direct the disposition of a security).                                    

(1)   China Strategic Holdings Limited has direct voting and investment         
power with respect to 40,500,00 shares and  indirect voting and investment      
power with respect to 993,377,483 shares issuable upon the conversion of a      
$30,000,000 Convertible Note held by Horler Holdings Limited, P.O. Box 71,      
Craigmuer Chamber, Road Town, Tortola, British Virgin Islands, a wholly         
owned subsidiary of China Strategic Holdings Limited.  Mr. Oei Hong Leong is    
a majority shareholder of China Strategic Holdings Limited.                     

3   

DEFR14A
6th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 6th
(2)   Harlequin Investment Holdings Limited has sole voting and investment      
power with respect to 4,452,082  shares of Common Stock.  The beneficial        
ownership set forth herein does not include 8,000,000 shares of Common Stock    
to be acquired upon an exercise of a Stock Purchase Option granted by China     
Strategic Holdings Limited to Harlequin Investment Holdings Limited.            

(3)   Harlequin Investment Holdings Limited is a wholly owned subsidiary of     
GHL (Senior) Pension Fund (the "Fund"), Noble House, Queens Road, St. Peter     
Port, Guernsey, Channel Islands.  Richard N. Gray is a director of the Fund     
and Overseas Trust Company Limited is a trustee of GHL (Senior) Pension Fund    
and have the same address.  Mr. Gray and Overseas Trust Company Limited each    
disclaim beneficial ownership of the shares of Common Stock.                    

As of June 27, 1997, there were approximately 9,000 shareholders of record.     
The percentage of  beneficial ownership is based upon 81,806,198 shares of      
Common Stock outstanding as of June 27, 1997 and  993,377,483 shares of         
Common Stock issuable upon conversion of  $30,000,000 Convertible Note.         

PROPOSAL NO. 1    
RATIFICATION OF THE ACQUISITION OF WESTRONIX LIMITED

DESCRIPTION OF TRANSACTION                                                      

On September 10, 1996, the Board of Directors of the Company approved the 
acquisition of all the issued and outstanding shares of Westronix Limited, a    
British Virgin Islands corporation ("Westronix"), from China Strategic          
Holdings Limited, a Hong Kong company ("CSH") pursuant to the terms of the      
Acquisition Agreement  entered into  on September 10, 1996.  Westronix's        
sole asset is a 100% equity interest in China Construction Holdings Limited,    
formerly known as China Construction International Group Limited, a Hong        
Kong company ("China Construction") which owns 51% joint venture interest in    
Hangzhou Zhongche Huantong  Development Co., Ltd. ("HZHD"), a Sino-foreign      
joint venture established in Hangzhou, Zhejiang Province, the People's          
Republic of China ("China") on June 23, 1993.  The Company's principal          
executive offices are located at 52/F Bank of China Tower, 1 Garden Road,       
Hong Kong, tel. (852) 2514-0300.                                                

The consideration paid for Westronix by the Company consisted of  a $30   
million Convertible Note bearing interest at the rate of nine percent (9%)      
per annum after an initial six (6) month interest-free period (the "Note").     
The Note is payable interest only on an annual basis, with all principal      
being due and payable on September 10, 1999.  The principal and any unpaid      
interest due on the Note are convertible at any time from the date of           
issuance of the Note, into shares of Common Stock, $0.01 par value, of the      
Company ("Common Stock") at a conversion price of $0.0302 per share.  The       
terms of the Agreement and the Note provided for a downward adjustment of       
the principal amount of the Note, if an opinion issued by an independent        
third party on the amount of consideration paid by the Company, stated an       
amount which is 10% less than the consideration paid by the Company.  The       
adjustment  formula was designed to ensure fairness of the transaction.  The    
Note is secured by all assets of Westronix and its related subsidiaries.        

The Board of Directors of the Registrant determined that acquisition of   
Westronix was in the best interest of the Registrant and was advantageous to    
the Company's plans to concentrate the resources of the Company in              
infrastructure projects in China.                                               

Based upon the audited consolidated financial statements of the Company   
as of December 31, 1995 ( which reflect the financial condition of the          
Company  before its acquisition of Acewin Profits Limited in February of        
1996), the total stockholders' equity amounted to approximately $2.6            
million, whereas the net income of the Company for the same period was only     
$28,000.  With 81,806,198 shares of common stock outstanding, the net income    
per share was negligible, and thus the conversion of the Note will not          
result in any meaningful dilution to earnings per share.                        

Acquisition of Westronix through the transfer of  CSH's equity interest in      
Westronix to the Company was accounted for as a reorganization of companies     
under common control similar to pooling of interests.  The management of the    
Company believes that  the transaction was exempt from any federal income       
taxes and there are no federal tax consequences to the Company.                 

4   

DEFR14A
7th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 7th
The Board of Directors obtained a fairness opinion (the "Fairness         
Opinion") from The New China Hong Kong Corporate Finance Limited ("New China    
Hong Kong"), an independent third party, with respect to the acquisition of     
Westronix by the Company at a consideration of  $30 million, to be satisfied    
by way of the issuance of the Note.  The Fairness Opinion was addressed to      
the Board of Directors of the Company and should not be relied upon by any      
parties other than the directors of the Company.  Any reference herein to       
the Fairness Opinion is made for reference purposes only.  In the Fairness      
Opinion, New China Hong Kong was of the opinion that the  terms of the          
proposed acquisition of Westronix were fair and reasonable to the Company.      

New China Hong Kong is a company incorporated in Hong Kong and is a       
registered investment advisor under the Hong Kong Securities Ordinance. New     
China Hong Kong has a broad experience in providing financial/advisory          
services to Hong Kong-listed companies with China-based businesses and/or       
assets.  New China Hong Kong often acts as an independent financial advisor     
to minority shareholders and independent directors of listed companies in       
Hong Kong.  In selecting New China Hong Kong to provide the Fairness Opinion    
with respect to the acquisition of Westronix, the Board of Directors took       
into consideration the above factors and New China Hong Kong's vast             
knowledge of companies based in China.  The Board of Directors also took        
under advisement the fees charged by New China Hong Kong for its                
professional services, which it found reasonable.                               

There had been no material relationship between New China Hong Kong and   
the Company or between New China Hong Kong and CSH, or any compensation         
received by New China Hong Kong from either of those parties as a result of     
any such relationship during the two years prior to selecting New China Hong    
Kong.  Furthermore, no such material relationship was mutually understood to    
be contemplated by New China Hong Kong, the Company and CSH at the time New     
China Hong Kong was selected and no compensation was received thereof as a      
result of such contemplated material relationship.                              

The terms of the proposed acquisition of Westronix were confirmed by New  
China Hong Kong as fair and reasonable.  New China Hong Kong's findings were    
based on its independent assessment of an internal appraisal report prepared    
and provided by CSH, which determined the valuation of Westronix by applying    
the discounted cash flow model to the projected cash flow of the Hangzhou       
Toll Road over the remaining life of the joint venture.                         

Summary of New China Hong Kong's Fairness Opinion                               
-------------------------------------------------                               

The Fairness Opinion was prepared by New China Hong Kong at the request   
of the Board of Directors.  In rendering its recommendation with respect to     
the fairness of the transaction, New China Hong Kong relied on the              
information and representations provided to it by CSH that such information     
was complete and relevant in all material respects.  New China Hong Kong has    
not conducted an independent in-depth investigation of the business of the      
joint venture and Hangzhou Toll Road.                                           

The Fairness Opinion found that based on  CSH's internal report, the net  
present value of the Hangzhou joint venture would have  values ranging from     
US$27.2 to US$44.1 million, at the range of discount rates of 18%-24%.  The     
valuation was calculated by using the discount cash flow method which was       
based on the free income streams available for distribution and on a            
predetermined rate of return ("discount rate").  Considering other              
comparable projects in the area, New China Hong Kong concluded that a           
required rate of return of 18% was appropriate for projects in the same         
locality.  At that discount rate, the valuation of the Hangzhou Toll Road       
would be approximately US$44.1 million.  If a discount rate of 20% were         
used,  accounting  for the additional risk involving the fact that the          
western section of the Toll Road will become fully operational only in early    
1998, the valuation would be approximately US$37.1 million.  Even at a          
discount rate of 24% the joint venture would have a value exceeding US$27       
million and the joint venture acquisition by the Company is expected to         
contribute profit to the Company commencing in 1997.  The Fairness Opinion      
also addressed the form of consideration, i.e. the Note, and the terms          
thereon, and went on to conclude that the conversion price of $0.0302 per       
share was substantially above the current price of the Company's Common         
Stock ($0.01 on November, 1996).  The Fairness Opinion further concluded        
that the conversion of the Note would not result in any dilution to earnings    
per share of the Common Stock, since based on the consolidated financial        
statements of the Company as of December 31, 1995 (which reflect the            
financial condition of the Company before the acquisition of Acewin Profits     
Limited in February, 1996), total stockholders' equity amounted to              
approximately US$2.6 million, and based on the statements of operations of      
the Company for the same period, its net income was only US$28,000.  Based      
on 81,806,198 shares of Common Stock outstanding, the net income per share      
was negligible and thus the conversion of the Note will not result in any       
meaningful dilution to earnings per share.                                      

The Fairness Opinion concluded that the terms of the proposed acquisition 
of Westronix by the Company were fair and reasonable.                           

5   

DEFR14A
8th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 8th
DESCRIPTION OF BUSINESS OF HANGZHOU ZHONGCHE HUANTONG  DEVELOPMENT CO., LTD.    

Hangzhou Zhongche Huantong Development Co., Ltd. ("HZHD"), is the only          
operating subsidiary of the Company.  Set forth below is the Company's          
organizational chart following the acquisition of Westronix.                    
-------------------------------                       
|  Regal International Inc.   |                       
|       (Delaware)            |                       
-------------------------------                       
|      100%                 
|                           
-------------------------------                       
|  Westronix Limited          |                       
|         (BVI)               |                       
-------------------------------                       
|      100%                 
|                           
-------------------------------                       
|   China Construction        |                       
|   Holdings Limited          |                       
|   (Hong Kong)               |                       
-------------------------------                       
|                           
|      51%                  
-------------------------------                       
|   Hangzhou Zhongche         |                       
|   Huantong Development Co.  |                       
|   Ltd. (PRC)                |                       
-------------------------------                       

HZHD has been established to develop the construction project called      
"Hangzhou Ring Road".  The Hangzhou Ring Road is designed to direct the         
congested traffic both inside and outside the city of Hangzhou.  The city of    
Hangzhou, which covers an area of approximately 16,000 square kilometers and    
has a population of approximately 5.6 million, is the capital of Zhejiang       
Province in China. The city is located about 150 kilometers from Shanghai       
and has experienced rapid growth in its light manufacturing industry in         
recent years, most notably in electronic instruments, refined chemicals,        
machinery and electrical appliances.                                            

Infrastructure projects, like Hangzhou Ring Road, became a priority to    
the government of China in recent years.  According to directives of the 10-    
year program (1991 - 2000) of the government of China, one of its key           
national goals is to build more basic industry and infrastructure projects      
during the 1990s. Preference is given to the construction of the principal      
national trunk highways. In addition, highway construction in coastal           
regions is prioritized.                                                         

The Hangzhou Ring Road was approved as a priority project by the Hangzhou 
Municipal Planning Committee in 1992. HZHD has registered capital of RMB200     
million and total investment of RMB600 million. The Chinese partner             
contributed RMB98 million by injecting the existing Class 2 toll road, and      
CCHL contributed RMB102 million in cash.  The principal asset of HZHD is its    
100% interest in a 30-year joint venture consisting of the Hangzhou Ring        
Road, a three-section toll road surrounding the city of Hangzhou, which is      
expected to be fully completed by the end of 1997. Two of the three sections    
of the road were already completed by the end of 1996.                          

When Hangzhou Ring Road is fully completed, it will be 38.2 km long and   
comprised of:                                                                   

-13.2 km of existing Class 2 wide single carriageway linking Jichang            
(Airport) Road to Xiangfuqiao. The traffic capacity is estimated at about       
20,000 vehicles per day (two way flow).                                         

-25.0 km of Class 1 construction (6km of four-lane wide single carriageway      
with slow lanes and 19km of dual two-lanes with hard shoulders for              
emergency) including 21 bridges and three grade-separated junctions. The        
implementation of this section of the toll road consists of two phases:         
Northwest section (Xiangfuqiao to Liuxai, 13.7 km) which was completed in       
December, 1996 and West section (Liuxai to Lingjiaqiao, 11.3 km), which is      
under construction and is expected to be completed by the end of fiscal         
1997.  This section encompasses extensive bridge works including:               

6   

DEFR14A
9th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 9th
*  river crossing bridges                                                       
*  bridges for road interchanges                                                
*  underpasses and underground crossings for pedestrians and vehicles           

The section of the road from Jichang Road to Xiangfuqiao is now in        
operation and has been generating revenues from toll collection from the        
toll plazas at Xiangfuqiao. The section from Xiangfuqiao to Liuxai was          
completed in 1996 and obtained approval from the government to collect tolls    
starting from March 1997. The section from Liuxai to Lingjiaqiao is expected    
to be completed by the end of 1997. Upon full completion, toll plazas are       
expected to operate at Xiangfuqiao (already in operation), Liuxai and           
Lingjiaqiao.                                                                    

The toll plazas are currently utilizing electronic surveillance systems   
along with computerized toll collection systems and the manual collection of    
tolls.  The government of Zhejiang Province approved a toll increase of 100%    
for the newly completed second phase of the Hangzhou Ring Road, effective       
from March 1, 1997.                                                             

Overview of Transportation Infrastructure in China                              
--------------------------------------------------                              

The earliest highway appeared in China at the beginning of this century.  
Up to the founding of the People's Republic of China in 1949, the country     
had merely 75,000 kilometers of highways, most of them cobblestone roads.       
During the second half of the century, however, highway construction in         
China experienced rapid development.  By the end of 1995, total highway         
mileage had reached 1.14 million kilometers.  So far, highways have extended    
to all provinces throughout the country, and 98 percent of China's townships    
and 80 percent of villages have bus service.                                    

China's highway construction after 1949 can be divided into three         
periods.  The first period was between 1949 and 1957, when emphasis was put     
on filling in the main arteries of the country.  The second period, 1958-       
1980, experienced a rapid popularization of highways throughout the country.    
During this period highway mileage increased from 254,600 kilometers to       
888,000 kilometers, and 90 percent of all counties and townships were made      
accessible by roads. In the third period, which started in 1981, China is       
seeking the popularization of highways with improvements in road quality.       
Priority is now given to the latter.  With high grade highways and              
expressways being built in the remotest areas, highway construction in China    
entered a period of rapid development.                                          

Since the implementation of "reform and opening", along with the          
transition from a planned economy to a "socialist market economy", traffic      
between different cities and between urban and rural areas in China has         
increased.  This has resulted in a sharp increase in demand for medium- and     
short-distance small-scale freight transport, a large increase in passenger     
flow and a steep rise in highway traffic.  Many highways have actual traffic    
volumes of four to five times more than their designed capacity.  Traffic       
congestion has become an outstanding bottleneck hindering economic              
development. To meet the need of rapid economic development, China's            
communication bureaus have shifted emphasis onto the economically developed     
regions where there are urgent traffic problems, constructing and renovating    
roads radiating from economic centers and coastal areas to neighboring and      
hinterland areas.  At the same time, in line with the increase in traffic,      
highways connecting energy bases, harbors and large and medium-sized cities,    
tributary roads to railways, arteries connecting economic zones and             
important townships, tourist highways, and roads for poor areas                 
transportation, are to be built or renovated. In addition, a certain number     
of expressways will be constructed according to necessity.                      

Highways in China are no longer the cart roads of the old.  They have     
become fully facilitated, with smooth surfaces and clear and neat traffic       
markings.  Sichuan Province, which had very poor transportation, now has a      
complete transportation  network.  The expressway connecting Chengdu and        
Chongqing has reduced the time between the two cities to a little over three    
hours.                                                                          

Compared with the sharp increase in transportation volume, however,       
highway construction is still lagging behind.  To solve this problem, the       
Chinese government has mapped out a long-term plan to improve the country's     
transportation network.  The plan covers the construction of highways,          
waterway transportation network and related safety systems.  According to       
the key highway construction projects in the plan, since 1990, construction     
has begun for 35,000 kilometers of  highway network of 12 national arteries     
connecting Beijing and the provincial capitals, major cities, important         
communication hubs and key ports throughout the country to form a nationwide    
passageway for rapid transportation.                                            

7   

DEFR14A
10th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 10th
These highway arteries will be composed mainly of expressways and grade-1 
and grade-2 special roads, and will be  well-equipped with complete safety,     
telecommunications and administration systems.  With the help of modern         
traffic monitoring, all  information relating to the traffic situation,         
accidents, road surface conditions and weather, will be fed back to a           
computer system in the traffic control center.  Processed  information will     
then be transmitted back and displayed on information panels erected along      
the roads.                                                                      

Raw Materials                                                                   
-------------                                                                   

The raw materials utilized by the Company in construction of the Hangzhou 
Ring Road consist mainly of cement, gravel and steel rebar.  The third and      
final section of the Hangzhou Ring Road, currently under construction, is       
being built by a general construction firm hired by the Company.  The           
general contractor is responsible for procuring all raw materials necessary     
for completion of the project, and has not experienced shortages of any raw     
materials.                                                                      

In general, the cement industry in China is competitive and supply        
shortages are rare.  Since there is a lack of obvious product                   
differentiation, manufacturers compete based primarily on price and timely      
delivery.  Currently, there are approximately 7,700 cement plants in China,     
of which 67 are state-owned enterprises and are capable of producing high       
grade cement.  The average annual output of these plants is approximately       
660,000 tons.  The production cost of cement in China varies with regions,      
ranging from RMB150 to RMB250 per ton.  Fuel and electricity account for 40%    
of the total production cost, while labor accounts for only about 5% of the     
total production cost.  Since 1993, the government has relaxed state control    
of cement prices and allowed cement prices to fluctuate according to market     
condition determined by demand and supply.  The uneven distribution of          
resources and differences in the pace of economic development in different      
regions of China, result in the movement of cement prices.  In the southeast    
coastal provinces and the Yangtze river valley, the average price is            
comparatively higher than the national level.                                   

Since 1978 the Chinese steel industry has grown rapidly.  At the end of   
1992 there were 1,744 iron and steel enterprises in China (including mining     
companies) and 3.8 million iron and steel workers as compared with 1,322        
companies and 2.4 million workers in 1980.  From 1980 through 1992, steel       
production increased at a compound annual growth rate of 6.7% with growth of    
13.9% in 1992 and 16.2% in 1993.  In 1994, with total steel production of       
91.5 million tons, China became the world's second largest steel producer       
behind Japan.                                                                   

The rate of growth in steel production in China also increased.  This     
accelerated growth is primarily due to the fact that, under China's new         
economic policies, demand for steel as a raw material for various industries    
for the building and rebuilding China's infrastructure has increased            
substantially.  Furthermore, with changes in the pricing system,                
profitability has improved and production capacity has increased                
accordingly.                                                                    

Since 1980, steel-making technology in China has experienced significant  
improvements.  Measures have been taken to modernize steel enterprises by       
merging and expanding existing facilities and improving and upgrading           
technologies. Although in the past three years the steel industry has grown     
rapidly with an annual average increase in production of 16%, domestic          
supply is still far from meeting demand.  Therefore China must continue to      
import a certain amount of steel from foreign sources.  During periods when     
importation is permitted the steel products producers in China generally        
experience decreased sales, as currently the Chinese steel industry cannot      
compete with producers of imported steel products with respect to price and,    
in some cases, quality.                                                         

Management and Employees                                                        
------------------------                                                        

The Board of Directors of HZHD consists of seven members; three directors 
appointed by the Chinese partner and four directors appointed by the Hong       
Kong joint venture partner, CCHL.  The General Manager, who reports directly    
to the Board of Directors of HZHD, is responsible for the day-to-day            
operations of the joint venture.  HZHD employs approximately 140 employees      
on a full time basis.                                                           

Competition                                                                     
-----------                                                                     

The Company's potential depends on its ability to identify and implement  
attractive transportation infrastructure development opportunities in China     
and to negotiate successfully to enter into joint ventures to develop or        
operate such projects.  In this regard, the Company faces competition from      
infrastructure development businesses currently operating in China, and in      
addition from foreign investors who may wish to invest in infrastructure        
projects, thereby competing with the Company. With respect to transportation    
infrastructure projects such as toll roads, there is no assurance that          
alternate routes which avoid toll charges or  charge lower toll will not be     
built.                                                                          

8   

DEFR14A
11th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 11th
In late 1995, the Hangzhou section of the Shanghai-Hangzhou Expressway    
was opened.  The Company expects, based on the report from its traffic          
consultant, that this would  cause diversion of traffic from the Hangzhou       
Ring Road and would reduce the flow through the southern toll plaza of the      
Hangzhou Ring Road by approximately 30%.  On the other hand, the opening of     
the north-western and western sections of the Hangzhou Ring Road would          
provide new traffic sources.  Furthermore, the Hangzhou Ring Road will also     
be used by local traffic and as the city of Hangzhou develops, this             
component of traffic is expected to grow.  In addition, on the opening of       
the north-western and western sections of the Hangzhou Ring Road, heavy         
vehicles will be discouraged from proceeding on the road going through the      
city, and thus diversion to the Hangzhou Ring Road can be expected to be        
high, since about half of the vehicles will be affected by the restrictions     
on entering Hangzhou.                                                           

The Company is also facing competition from the Hangzhou section of the   
Shanghai - Ningbo Expressway, which was opened in 1996.  The diversion of       
traffic from the Hangzhou Ring Road resulted in reduction of traffic volume     
from 6.1 million vehicles in 1995 to 5.2 million vehicles in 1996.              

The Company believes that, despite competition, the need of China for     
further transportation infrastructure projects will continue to provide         
development opportunities for the Company that will yield satisfactory          
return.                                                                         

Research and Development                                                        
------------------------                                                        

The Company did not engage in any research and development activities     
with respect to its infrastructure project in fiscal 1996.                      

Distributions From HZHD                                                         
-----------------------                                                         

Applicable Chinese laws and regulations require that, before a Sino-      
foreign equity joint venture enterprise (such as the Operating Subsidiary)      
distributes profits to investors, it must: (1) satisfy all tax liabilities;     
(2) provide for losses in previous years; and (3) make statutory                
appropriations, in proportions determined at the sole discretion of the         
Board of Directors, to a general reserve fund, an enterprise expansion fund     
and a staff welfare and employee bonus fund.  Since the establishment of        
HZHD joint venture, each year the Company has generated profits.  However,      
each year both joint venture partners have agreed to retain the profits         
within the joint venture.                                                       

Operating In China                                                              
------------------                                                              

ECONOMIC POLICIES.  General economic conditions in China could have a     
significant impact on the Company's Hangzhou Ring Road project. The economy     
of China differs in certain material respects from that of the United           
States, including its structure, level  of development, capital                 
reinvestment, growth rate, government involvement, resource allocation, rate    
of inflation and balance of payments position. Although the majority of         
China's productive assets are still owned by the State, the adoption of         
economic reform policies since 1978 has resulted in its' gradual reduction      
in the role of state economic plans, allocation of resources, pricing and       
management of such assets. The economic reform policies have increased          
emphasis on the utilization of market forces and rapid growth of the Chinese    
economy. The success of the Company's infrastructure project depends in part    
on the continued economic growth of China.                                      

INFLATION.  The general inflation rate in China was approximately 21.7%,  
14.8% and 6.3% per annum in 1994, 1995 and 1996 respectively. Accordingly,      
the Chinese government has taken steps to control inflation by means of         
credit restrictions and an increase in interest rates which, in turn, may       
lead to a slow down of the Chinese economy. In recent years, the Chinese        
economy has experienced periods of rapid economic growth as well as high        
rates of inflation, which in turn, has resulted in the adoption by the          
Chinese government from time to time of various corrective measures             
designated to regulate growth and contain inflation. Since 1993, the Chinese    
government has implemented an economic program to control inflation which       
has resulted in the tightening of credit available to Chinese state-owned       
enterprises.                                                                    

FOREIGN CURRENCY EXCHANGE. Prior to January 1, 1994, all foreign exchange 
transactions involving Renminbi ("Rmb") in China had to take place either       
through authorized financial institutions at the official exchange rate set     
by the State Administration of Exchange Control ("SAEC"), the department of     
the government of China responsible for foreign exchange administration or      
at local swap centers at exchange rates largely determined by supply and        
demand. However, transactions effected through swap centers still required      
the prior approval of the SAEC.                                                 

9   

DEFR14A
12th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 12th
On January 1, 1994, the government of China implemented a controlled      
floating exchange rate system based on market supply and demand and             
established a managed foreign exchange system. In place of the official rate    
and swap center rate, the People's Bank of China ("PBOC") now publishes a       
daily exchange rate (the "PBOC Exchange Rate") for Renminbi based on the        
previous day's dealings. The financial institutions authorized to deal in       
foreign currency may enter into foreign exchange transactions at exchange       
rates within a set range above or below the PBOC Exchange Rate, according to    
market conditions. In furtherance of these currency reforms, the China          
Foreign Exchange Trading Center ("CFETC") was formally established in           
Shanghai and came into operation in April 1994. The establishment of CFETC      
was originally intended to coincide with the phasing out of the swap            
centers. However, the swap centers have been retained as an interim measure     
and it is envisaged that the local centers will be phased out gradually.        

Currently, foreign investment enterprises ("FIE") in China (including     
Sino-foreign equity and cooperative joint ventures) are required to apply to    
the local bureau of the SAEC for "foreign exchange registration certificates    
for foreign investment enterprises". With such foreign exchange registration    
certificates (which are annually reviewed by the local bureau of the SAEC)or    
with the foreign exchange sales notice from the local bureau of the SAEC,       
FIEs may enter into foreign exchange transactions at the swap center, or in     
the future, through the unified market when all swap centers are connected      
to CFETC. On January 29, 1996, the State Council promulgated the regulations    
of China Regarding Foreign Exchange Control (the "Regulations") which came      
into effect on April 1, 1996. Pursuant to the Regulations, conversion of RMB    
into foreign exchange for the use of recurring items, including the             
distribution of dividends and profits to foreign investors of joint             
ventures, is permissible. FIEs are permitted to remit its foreign exchange      
from its foreign exchange bank account in China on the basis of the relevant    
joint venture contracts and the board resolution declaring the distribution     
of payment of the dividend, etc. Conversion of RMB into foreign exchange for    
capital items, such as direct investment, loans, security investment are        
still under control.                                                            

The exchange rate between the Renminbi and the U.S. Dollar as quoted by   
the People's Bank of China ranged between Rmb 8.33 and Rmb 8.29 to $1.00 in     
1996.                                                                           

LEGAL SYSTEM.  Since 1979, many laws and regulations dealing with         
economic matters in general and foreign investment in particular have been      
promulgated in China.  The Chinese Constitution, adopted in 1989, authorizes    
foreign investment, and guarantees the "lawful rights and interests" of         
foreign investors in China. The trend of legislation over the past twelve       
years has significantly enhanced the protection afforded foreign investment     
and allowed for more active control by foreign parties of foreign investment    
enterprises in China.                                                           

There can be no assurance, however, that the current trend and economic   
legislation toward promoting market reforms and experimentation will not be     
slowed, curtailed or reversed, especially in the event of a change in           
leadership, social or political disruption, or unforeseen circumstances         
affecting China's political, economic or social life.                           

Despite some progress in developing a legal system, China does not have a 
comprehensive system of laws. The interpretation of Chinese laws may be       
subject to policy changes reflecting domestic political factors. Enforcement    
of existing laws may be uncertain and sporadic, and implementation and          
interpretation may be inconsistent. The Chinese judiciary is relatively         
inexperienced in enforcing the laws or terms of contracts, leading to a         
higher than usual degree of uncertainty in the outcome of litigation. Even      
where adequate laws exist in China, it may be impossible to obtain swift and    
equitable law enforcement, or to obtain enforcement of a judgment by a court    
of another jurisdiction. As the Chinese legal system develops, the              
promulgation of new laws, changes to existing laws and the preemption of        
local regulations by national laws may adversely affect foreign investors,      
such as the Registrant.                                                         

HZHD's activities in China may be subject, in some cases, to              
administrative review and approval by various national, provincial and          
municipal authorities of the Chinese government. While China has promulgated    
an administrative procedural law permitting redress to the courts with          
respect to certain administrative actions, this law appears to be largely       
untested in its context.                                                        

Legal Structure of HZHD                                                         
------------------------                                                        

Hangzhou Zhongche Huantong Development Company, Ltd. was organized under  
Chinese law as a Sino-foreign equity joint venture enterprise, which is a       
distinct legal entity with limited liability. The term of HZHD joint venture    
is 30 years, after which time Hangzhou Ring Road, the only asset of the         
joint  venture, will revert back to HZHD's Chinese partner.  Such entities      
are governed by the Law of China on Joint Ventures Using Chinese and Foreign    
Investments and implementing regulations related thereto (the "Equity Joint     
Venture Law"). The parties to an equity joint venture have rights in the        
returns of the joint venture in proportion to the joint venture interests       
that they hold. The operations of equity joint ventures are subject to an       
extensive body of law governing such matters as formation, registration,        
capital contribution, capital distributions, accounting, taxation, foreign      
exchange, labor and liquidation. The transfer or increase of an interest in     
a Sino-foreign equity joint venture enterprise requires agreement among the     
parties to the venture and is effective upon the approval of relevant           
government agencies.                                                            

10  

DEFR14A
13th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 13th
Taxation                                                                        
--------                                                                        

A Sino-foreign equity joint venture with a term of 10 years or more, such 
as HZHD, and engaged in infrastructure construction is exempt from state        
income tax for the first two years after it attains profitability, and for      
three years thereafter it is eligible for a 50% reduction in the state          
income tax. HZHD will be fully exempted from Chinese state unified income       
tax of 30% as well as the local income tax of 3% for two years starting from    
the first profit-making year followed by a 50% reduction of the Chinese         
state unified income tax for the next three years.                              

Governance, Operations And Dissolution                                          
--------------------------------------                                          

Governance, operations and dissolution of a Sino-foreign equity joint     
venture enterprise are governed by the Equity Joint Venture Law and by the      
parties' joint venture contract and the joint venture's articles of             
association. Pursuant to the joint venture contracts and articles of            
association of HZHD, it has a 30-year term and is governed by a Board of        
Directors consisting of seven members appointed for 4-year terms. CCHL          
appoints four directors, including the chairman, to HZHD, while the Chinese     
joint venture partner appoints the remaining three directors, including the     
Vice Chairman.                                                                  

The Board of Directors of HZHD exercises authority by majority vote over  
major corporate decisions, including the appointment of officers, strategic     
planning, budgeting, employee compensation and welfare and distribution of      
after-tax profits. Management of HZHD is conducted by a management committee    
headed by a General Manager and one or two Deputy General Managers, who act     
on behalf of HZHD pursuant to the direction and guidance of its Board of        
Directors.                                                                      

Pursuant to relevant Chinese Law, certain major actions of HZHD require   
unanimous approval by all the directors present at a meeting called to          
decide upon the following actions: amendments to its contract and articles      
of association; increases in, or assignment of, the registered capital of       
the joint venture; a merger of the joint venture with another entity; or        
dissolution of the enterprise.                                                  

HZHD is subject to the Sino-foreign Equity Joint Venture Enterprise Labor 
Management Regulations. In compliance with these regulations, the management    
may hire and discharge employees and make other determinations with respect     
to wages, welfare, insurance and discipline of its employees.                   

Pursuant to the Equity Joint Venture Law, Sino-foreign equity joint       
venture enterprises may be terminated in certain limited circumstances,         
including the inability of the enterprise to conduct its business owing to a    
breach by one of its parties, insolvency, force majeure, or confiscation of     
the enterprise's assets by the government. Upon termination, the Board of       
Directors establishes a liquidating committee to dissolve the enterprise,       
which dissolution is subject to government review and approval.                 

Resort to Chinese courts to enforce a joint venture contract or to        
resolve disputes between the parties over the terms of the contracts is         
permissible. In practice, however, disputes between the parties are often       
resolved by negotiation. The Company believes that it has a good working        
relationship with its joint venture partner and that it will be able to         
reach agreements with it on business policies and decisions for HZHD.           

Government Regulations                                                          
----------------------                                                          

Any increase in toll rates proposed by HZHD is subject to approval by the 
Zhejiang Provincial Government and Hangzhou Municipal Government and City of    
Hangzhou Transportation Department.  There are no assurances that such          
proposals will be approved by these government authorities.  If such            
proposals are denied, toll revenues of HZHD may  be affected.                   

The government of Zhejiang Province has approved a toll increase of 100%  
for the newly completed second phase of Hangzhou Ring Road, effective from      
March 1, 1997.                                                                  

11  

DEFR14A
14th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 14th
Compliance with Environmental Laws                                              
----------------------------------                                              

HZHD is not aware of any Chinese government environmental regulations     
which would have an adverse impact on the Company's operations.                 

Description of Properties                                                       
-------------------------                                                       

As of March 31, 1997, the Company had no office or facility for U.S.      
operations.  The Company shares the office space at 52/F, Bank of China         
Tower, 1 Garden Road, Hong Kong and administrative support, with China          
Strategic Holdings Limited, a major shareholder of the Company ("CSH").         
During fiscal year 1996, the Company was charged RMB 1.29 million by CSH as     
a management fee for the use of the office space and staff support.             

Legal Proceedings                                                               
-----------------                                                               

Neither the Registrant nor its subsidiaries are a party to any material   
pending legal proceedings.                                                      

Material Contracts                                                              
------------------                                                              

Other than the Acquisition Agreement, there were no other material        
contracts entered into by the Company and Westronix Limited, or their           
respective affiliates.                                                          

Market for Company's Common Stock                                               
---------------------------------                                               

The Registrant's Common Stock was listed on the New York Stock                  
Exchange("NYSE") (symbol : RGL) until December 7, 1994, at which time the       
NYSE suspended its trading since the Registrant did not meet the continued      
listing requirements.  On February 9, 1995, the Common Stock was removed        
from registration and listing on the NYSE.  The Registrant's Common Stock       
began trading on the NASD Electronic Bulletin Board since August 1995.  The     
following table sets forth the high and low prices of the Common Stock as       
reported in the consolidated transaction reporting system during the periods    
indicated :                                                                     

Quarter Ended          High         Low                                         
-------------          ----         ---                                         
March 31,1996         0.0499        0.01                                        
June 30, 1996         0.1           0.01                                        
September 30, 1996    0.03          0.01                                        
December 31, 1996     0.03          0.001                                       

*  The low price reflects the average of the bid and asked prices.              

As of March 31, 1997, there were approximately  9,000 beneficial holders  
of the shares of the Registrant's Common Stock.                                 

Dividend Policy                                                                 
---------------                                                                 

The Registrant has never paid a cash dividend. It is the current policy   
of the Board to retain earnings, if any, to provide funds for the Company's     
operations. The payment of dividends is at the discretion of the Board, and     
dividends may be paid only out of current earnings and profits or retained      
earnings.                                                                       

Statement re Accountants                                                        
------------------------                                                        

The Company's accountants, Arthur Andersen & Co., are not expected to be  
present at the stockholders' meeting, although they will be presented an        
opportunity to attend such meeting and to make a statement, if they desire      
to do so.  They are expected to be available to respond to any appropriate      
questions raised at the meeting via telephone at (852) 2852-0222 .              

12  

DEFR14A
15th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 15th
Selected Financial Data of the Company                                          
--------------------------------------                                          

The following table presents the selected financial information of the    
Regal International, Inc. as of and for the years ended December 31, 1994,      
1995 and 1996 assuming that the Company had owned the shares of Westronix       
Limited in 1994 and 1995. The information was extracted from the audited        
consolidated financial statements of Regal International, Inc. and              
subsidiaries prepared under US GAAP.                                            

                                                        [Enlarge/Download Table]
Summary of Financial Results - 1994, 1995 & 1996                                            


Income Statement                   1994                   1995                   1996       
(Amount in thousands)        RMB          USD       RMB          USD       RMB          USD 
                             ---          ---       ---          ---       ---          --- 
                                                                                            
Toll revenue               37,614        4,457     37,206       4,472     38,463       4,640

Income from continuing                                                                      
     operations            17,376        2,059     14,704       1,767     13,411       1,618

Net income                 12,790        1,515     14,939       1,796     11,876       1,433

Balance Sheet                      1995                   1996                              
(Amount in thousands)         RMB          USD       RMB         USD                        
                              ---          ---       ---         ---                        
Current assets               44,873        5,393     35,610       4,296                     

Total assets                425,523       51,145    656,911      79,242                     

Current liabilities          32,995        3,966    124,206      14,985                     

Long-term bank loans         97,500       11,719    179,500      21,652                     

Shareholders' equity       (190,593)     (22,908)   (82,298)     (9,927)                    

____________________                                                            

(a) The U.S. dollar convenience translation amount have been translated         
using the unified exchange rate quoted by the People's Bank of China on         
December 31, 1994, 1995 and 1996 of $1.00 =Rmb 8.44, $1.00 = Rmb 8.32 and       
$1.00 = Rmb 8.29 respectively. No representation is made that the Renminbi      
amounts could have been, or could be, converted into United States Dollars      
at those rate on December 31, 1994, 1995 and 1996 or at any other certain       
rate.                                                                           

Dividends                                                                       

Neither Westronix Limited nor the Company paid any cash dividends during the    
last three fiscal years.                                                        

13  

DEFR14A
16th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 16th
Earnings Per Share                                                              

      Regal International, Inc.(1)       Westronix Limited (2)
      ---------------------------        ---------------------
12/31/94        0.012 Rmb                         17,717,000 Rmb                
12/31/95        0.014 Rmb                         15,019,000 Rmb                
12/31/96*       0.011 Rmb (US $0.001)             6,861,000 (3)                 
3/31/97         0.002 Rmb (US $0.000)             Not applicable                

*See footnote (3) below                                                         

Book Value Per Share                                                            

     Regal International, Inc.(1)       Westronix Limited(2)
     ----------------------------       --------------------
12/31/96        (1.01) Rmb (US $ (0.12))          43,921,000 Rmb (3)            
3/31/97         (0.99) Rmb (US $ (0.12))          not applicable                

(1) Based on 81,806,198 shares outstanding.                                     
(2) Based on 1 share issued and outstanding                                     
(3) With respect to Westronix Limited, earnings per share are provided for      
the six months period ended June 30, 1996.  Westronix Limited was acquired      
by the Company in September, 1996.                                              

Management Discussion and Analysis of Financial Condition and Results of        
Operation                                                                       
-------------------------------------------------------------------------       

Overview                                                                        

The year 1996 marked a substantial change in the business of the Company. 
In an effort to benefit from the growing Chinese economy, management decided    
to dispose of the oil exploration equipment supply operation and acquire the    
Hangzhou toll road in September of 1996. The Company  thereby redirected its    
focus from the US industrial product market to  infrastructure project          
investment in China.                                                            

As of December 31, 1996, the Company  had the following subsidiaries (the 
Company together with its subsidiaries shall be collectively referred to as     
the "Group").                                                                   

Westronix Limited ("Westronix") - A holding company incorporated in the   
British Virgin Islands.                                                         

China Construction Holdings Limited ("China Construction") - a company    
incorporated in Hong Kong, formally known as China Construction                 
International Group Limited.                                                    

Hangzhou Zhongche Huantong Development Co., Ltd. (the "Operating          
Subsidiary" or "HZHD"), a Sino-foreign equity joint venture located in          
Hangzhou, Zhejiang province.                                                    

Results of Operation - 1996 compared to 1995                                    
---------------------------------------------                                   

Summary Financial Information        1995        1996          % change         
(Rmb in thousands)                                          from prior year     
------------------                                         -----------------    
Toll revenue                        37,206      38,463            3.4%          

General and administrative                                                      
expenses                         10,516      15,646           48.8%       

Exchange gain                        1,101         350          (68.2%)         

Net income                          14,939      11,876          (20.5%)         

14  

DEFR14A
17th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 17th
Toll Revenue                                                                    
------------                                                                    

Toll revenue increased 3.4% to Rmb 38.5 million in 1996 from Rmb 37.2     
million in 1995. This was primarily attributable to an average increase of      
toll fees by approximately 50%, partially offset by a decrease in traffic       
flows. Competition from the Hangzhou section of the Shanghai - Ningbo           
Expressway, which was opened this year, resulted in reduction of traffic        
volume from 6.1 million vehicles in 1995 to 5.2 million vehicles in 1996.       

The management believes the impact has already been reflected in 1996.    
Further decrease of vehicle flows is unlikely.  Management is also              
optimistic about the future revenue generation ability of HZHD as the second    
phase of the toll road had been completed and started to collect toll           
revenue since March, 1997.  The toll rates for the second phase is              
approximately double the toll rates for the first phase.  In addition, the      
third and final phase of the toll road is expected to be completed by the       
end of 1997 and should start to generate revenues in the 1998 fiscal year.      

General and Administrative Expenses                                             
-----------------------------------                                             

As compared with last year, general and administrative expenses went up   
48.8% to Rmb 15.6 million. This is due to the fact that additional              
professional fees were incurred in 1996 and additional interest expenses        
incurred by the US$ 13.5 million convertible note in excess of the interest     
income generated from the US$900,000 note receivable.  Also, a management       
fee of approximately US$155,000 has been charged by China Strategic Holdings    
Limited for the year.  As far as the Operating Subsidiary is concerned,         
general and administrative expenses as a percentage of toll revenue remained    
flat and has remained around 28% for the past two years.                        

Exchange Gain                                                                   
-------------                                                                   

Exchange gain represents the favorable exchange difference arising from   
remeasurement of reporting currencies of the different companies within the     
Group into Renminbi, which is the Group's functional currency.  Upon year       
end revaluation of the amount payable to CSH, which were in terms of foreign    
currency, exchange gains were recorded in the past three years due to the       
continual strengthening of the Renminbi.                                        

The exchange rates for Renminbi against U.S. Dollars were 8.44, 8.32 and  
8.29 of 1994, 1995 and 1996 respectively, representing an appreciation of       
Renminbi by 1.4% and 0.4% in 1995 and 1996 respectively, when comparing the     
exchange rate at the end of the year with the position at the beginning of      
the year. As a consequence, the exchange gain dropped substantially from Rmb    
1.1 million  a year earlier to Rmb 0.35 million this year.                      

Net Income                                                                      
----------                                                                      

Net income fell 20.5% to Rmb 11.9 million in 1996 from Rmb 14.9 million   
in 1995. This was attributable to the combined effect of increased general      
and administrative expenses, a decrease in exchange gain and a loss from        
discontinued operations.                                                        

Loss from discontinued operations represents the operating loss of  Regal 
Rubber and Bell Petroleum up to the date of disposal which amounted to          
approximately Rmb972,000.  Net income in 1996 included a net gain on            
disposal of investment of approximately Rmb3,730,000.                           

Liquidity and Capital Resources                                                 
-------------------------------                                                 

In 1996, net cash provided by operating activities and financing          
activities was approximately Rmb 3.1 million and Rmb 171.3 million              
respectively. Net cash used in investing activities amounted to Rmb 175.1       
million, resulting in a net decrease in cash and cash equivalents of Rmb 0.7    
million.                                                                        

15  

DEFR14A
18th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 18th
For the past three years, the Company had been able to generate           
sufficient cash for its working capital needs. Net cash provided by             
operating activities dropped substantially from Rmb 48.9 million in 1995 to     
Rmb 3.1million in 1996 principally due to the combination of increases in       
other receivables by approximately Rmb 13.4 million and a decrease in           
accounts payable by Rmb 11.4 million in 1996.  The major contributor to the     
increase in other receivables was the notes receivable arising from the         
disposal of Regal Bell and Rubber to New Regal.                                 

During the year, the Company incurred capital expenditures of Rmb 216.9   
million which was financed through bank borrowings and loans from the           
Chinese joint venture partner amounting to Rmb 140.0 million and Rmb            
30.8million respectively.                                                       

As of December 31 1996, the Operating Subsidiary had outstanding capital  
commitments for construction contracts of approximately Rmb 91.8 million.       
The Operating Subsidiary has been able to raise funds from banks to finance     
the construction of the second and third phases of the toll road , which are    
expected to be completed by the end of fiscal year 1997.  Hangzhou Toll Road    
will collect toll revenue from all three phases of the toll road.  Given its    
sound credit history and good banking relationships, management believes        
that the Operating Subsidiary will have access to adequate borrowing            
facilities to meet its cash requirements in the foreseeable future.             

Effects of Inflation                                                            
--------------------                                                            

The general inflation rate in terms of the Retail Price Index in China    
was approximately 21.7%, 14.8%, and 6.3% for 1994, 1995 and 1996                
respectively. Management believes that inflation has not had a significant      
impact on the Operating Subsidiary. Inflation has resulted in upward            
pressure on wages and salaries for employees and other operating expenses at    
the Operating Subsidiary. However, management does not expect inflation to      
have a material effect on profit margins and income, since it has been able     
to pass on such cost increments to toll road users by increasing toll rates.    

Results of Operation - 1995 compared to 1994                                    
--------------------------------------------                                    

Summary Financial Information                                  % change         
(Rmb in thousands)                       1994      1995      from prior year    
-------------------                      ----      ----      ---------------    
Toll revenue                           37,614    37,206          (1.1%)         
General and administrative expenses     9,616    10,516           9.4%          
Exchange gain                           3,154     1,101         (65.1%)         
Net income                             12,790    14,939          16.8%          

Toll Revenue                                                                    
------------                                                                    

Toll revenue decreased slightly by 1.1% to Rmb 37.2 million in 1995 from  
Rmb 37.6 million in 1994. There was no material change in toll fees and         
traffic volume during the year.                                                 

General and Administrative Expenses                                             
-----------------------------------                                             

General and administrative expenses went up 9.4% to Rmb 10.5 million. As  
a percentage of toll revenue, these costs also increased from 25.6% in 1994     
to 28.3% in 1995 which was caused by the slight increase of the operation of    
Hangzhou Toll Road during 1995.                                                 

Exchange Gain                                                                   
-------------                                                                   

Exchange gain represents the favorable exchange difference arising from   
remeasurement of reporting currencies of the different companies within the     
Group into Renminbi, which is the Group's functional currency.  Upon year       
end revaluation of the amount payable to CSH, which were in terms of foreign    
currency, exchange gains were recorded in the past two years due to the         
continual strengthening of the Renminbi.                                        

The appreciation of the Renminbi in 1995 had slowed down as compared with 
the magnitude of upward movement in 1994. As a result, exchange gains in        
1995 fell to Rmb 1.1 million from Rmb 3.2 million in 1994.                      

16  

DEFR14A
19th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 19th
Net Income                                                                      
----------                                                                      

Net income increased 16.8% to Rmb 14.9 million in 1995 from Rmb 12.8      
million in 1994. This was mainly due to income of approximately Rmb 235,000     
from the discontinued operations as recorded in 1995, versus a loss of          
approximately Rmb 4.6 million from discontinued operations recorded in 1994.    

Liquidity and Capital Resources                                                 
-------------------------------                                                 

In 1995, net cash provided by operating activities and financing          
activities was approximately Rmb 48.9 million and Rmb 69.4 million              
respectively. Net cash used in investing activities amounted to Rmb 167.1       
million, resulting in a net decrease in cash and cash equivalents of Rmb        
48.8 million.                                                                   

The Company was able to generate sufficient cash for its working capital  
needs. Net cash provided by operating activities increased substantially        
from approximately Rmb 36.1 million in 1994 to approximately Rmb 48.9           
million in 1995, principally due to an increase in accounts payable of Rmb      
20.4 million and partially offset by the reduction in operating income of       
Rmb 2.7 million in 1995.                                                        

During 1995, the Company incurred capital expenditures of Rmb 166.2       
million. Funds for capital expenditure primarily came from bank borrowings      
and cash provided by operating activities.                                      

As of  December 31, 1995, the Operating Subsidiary had outstanding        
capital commitments for construction contracts of approximately Rmb 228.3       
million. The Operating Subsidiary was able to raise sufficient funds from       
banks to finance its projects. Given its sound credit history, future cash      
generating ability and superior banking relationships, management believes      
that the Operating Subsidiary will have access to adequate borrowing            
facilities to meet its cash requirements in the foreseeable future.             

Financial Statements and Supplementary Data                                     
-------------------------------------------                                     

The Financial Statements and Supplementary Data for the Company for the   
years ended December 31, 1996, 1995 and 1994 and the interim period ending      
March 31, 1997 are set forth hereto and made a part hereof.                     

DEFR14A
20th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 20th
REGAL INTERNATIONAL, INC. AND SUBSIDIARIES      
============================================      

CONSOLIDATED FINANCIAL STATEMENTS       
---------------------------------       

AS OF DECEMBER 31, 1995 AND 1996      
--------------------------------      

TOGETHER WITH AUDITORS' REPORTS       
-------------------------------       

DEFR14A
21st Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 21st
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                        

To Regal International, Inc.:                                                   

We have audited the accompanying consolidated balance sheets of Regal           
International, Inc. and its subsidiaries as of December 31, 1995 and 1996,      
and the related consolidated statements of income, cash flows and changes       
in shareholders' equity for the years ended December 31, 1994, 1995 and         
1996, expressed in Chinese Renminbi.  These financial statements are the        
responsibility of the Company's management.  Our responsibility is to           
express an opinion on these financial statements based on our audit.  We        
did not, however,  audit the financial statements of Regal International,       
Inc., Regal Rubber Products, Inc., and Bell Petroleum Services, Inc.            
("Regal Inc., Regal Rubber and Bell" respectively), as of and for the           
years ended December 31, 1994 and 1995.  Regal Inc., acquired Westronix         
Limited in 1996 in a transaction accounted for as a transfer of assets          
between companies under common control and also disposed of Regal Rubber        
and Bell, as discussed in more detail in Note 1 to the accompanying             
consolidated financial statements.  The financial statements                    
of Regal Inc., Regal Rubber and Bell are included in the consolidated           
financial statements of Regal Inc., as of and for the years ended December      
31, 1994 and 1995 and reflect total assets and total income of                  
approximately 5.2 percent and 1.6 percent, respectively of the related          
consolidated totals for 1995, and approximately 26.4 percent of the             
related consolidated income for 1994.  Those statements were audited by         
other auditors whose reports have been furnished to us and our opinion on       
the consolidated financial statements of the respective years, insofar as       
it relates to the amounts included for those entities, is based solely on       
the report of the other auditors.                                               

We conducted our audit in accordance with generally accepted auditing           
standards in the United States of America.  Those standards require that        
we plan and perform the audit to obtain reasonable assurance about whether      
the financial statements are free of material misstatement.  An audit           
includes examining, on a test basis, evidence supporting the amounts and        
disclosures in the financial statements.  An audit also includes assessing      
the accounting principles used and significant estimates made by                
management, as well as evaluating the overall financial statement               
presentation.  We believe that our audit and the reports of other auditors      
provide a reasonable basis for our opinion.                                     

The reports of the other auditors referred to above on the financial            
statements of Regal Inc., Regal Rubber and Bell for the year ended              
December 31, 1995, dated February 9, 1996, included an explanatory              
paragraph on the ability of these companies to continue to operate as a         
going concern.  However, in our opinion, this matter has been resolved by       
developments at the Company subsequent to the report issuance date which        
are explained in Note 1 to the accompanying consolidated financial              
statements.                                                                     

In our opinion, based on our audit and the reports of the other auditors,       
the consolidated financial statements referred to above present fairly, in      
all material respects, the financial position of Regal International, Inc.      
and its subsidiaries as of December 31, 1995 and 1996, and the results of       
their operations and their cash flows for the years ended December 31,          
1994, 1995 and 1996 in conformity with generally accepted accounting            
principles in the United States of America.                                     

Hong Kong,                                                                      
March 6, 1997.                                                                  

1     

DEFR14A
22nd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 22nd
                                                        [Enlarge/Download Table]
                            REGAL INTERNATIONAL, INC. AND SUBSIDIARIES                      
                            ------------------------------------------                      

                                  CONSOLIDATED STATEMENTS OF INCOME                         
                                  ---------------------------------                         

                        FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996                
                        ----------------------------------------------------                

           (Amounts in thousands, except number of shares and earnings per common share)    


                                                       Years ended December 31,             
                                          --------------------------------------------------
                                             1994         1995         1996         1996    
                                          -----------  -----------  -----------  -----------
                                              Rmb          Rmb          Rmb          US$    
                                                                                            
Toll revenue                                  37,614       37,206       38,463        4,640 

General and administrative expenses           (9,616)     (10,516)     (15,646)      (1,887)

Exchange gain                                  3,154        1,101          350           42 

Net gain on disposal of investment               -            -          3,730          450 
                                          -----------  -----------  -----------  -----------
     Income from continuing                                                                 
       operations before income taxes                                                       
       and minority interests                 31,152       27,791       26,897        3,245 

Provision for income taxes                       -            -            -            -   
                                          -----------  -----------  -----------  -----------
     Income from continuing                                                                 
       operations before minority                                                           
       interests                              31,152       27,791       26,897        3,245 

Minority interests                           (13,776)     (13,087)     (13,486)      (1,627)
                                          -----------  -----------  -----------  -----------
     Income from continuing                                                                 
       operations                             17,376       14,704       13,411        1,618 

Income/(Loss) from discontinued                                                             
  operations                                  (4,586)         235       (1,535)        (185)
                                          -----------  -----------  -----------  -----------
     Net income                               12,790       14,939       11,876        1,433 
                                          ===========  ===========  ===========  ===========
Earnings per common share (Primary):                                                        
   -from continuing operations                  0.33         0.18         0.16         0.02 
   -from discontinued operations               (0.09)        -           (0.01)        -    
                                          -----------  -----------  -----------  -----------
                                                0.24         0.18         0.15         0.02 
                                          ===========  ===========  ===========  ===========
Earnings per common share (Fully                                                            
  diluted):                                                                                 
   -from continuing operations                 0.017        0.014        0.012        0.001 
   -from discontinued operations              (0.005)        -          (0.001)        -    
                                          -----------  -----------  -----------  -----------
                                               0.012        0.014        0.011        0.001 
                                          ===========  ===========  ===========  ===========
Weighted average number of common                                                           
   shares outstanding                     53,330,164   81,806,198   81,806,198   81,806,198 
                                          ===========  ===========  ===========  ===========


Translation of amounts from Renminbi (Rmb) into United States Dollars           
(US$) for the convenience of the reader has been made at the unified            
exchange rate quoted by the Bank of China on December 31, 1996 of US$1.00       
= Rmb8.29.  No representation is made that the Renminbi amounts could have      
been, or could be, converted into United States Dollars at that rate on         
December 31, 1996 or at any other certain rate.                                 

The accompanying notes are an integral part of these consolidated               
statements of income.                                                           
2     

DEFR14A
23rd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 23rd
                                                        [Enlarge/Download Table]
                          REGAL INTERNATIONAL, INC. AND SUBSIDIARIES                                
                          ------------------------------------------                                

                                CONSOLIDATED BALANCE SHEETS AS OF                                   
                                ---------------------------------                                   

                                  DECEMBER 31, 1995 AND 1996                                        
                                   --------------------------                                       

              (Amounts in thousands, except number of shares and share data)                        

                                                      Years ended December 31,                      
                                              -------------------------------------                 
                                                 1995         1996          1996                    
                                              -----------  -----------  -----------                 
ASSETS                                           Rmb           Rmb           US$                    
-------                                                                                             
                                                                                                    
Current assets                                                                                      
  Cash and cash equivalents                       22,172       21,443        2,587                  
  Prepayments and deferred expenses                  452          469           57                  
  Other receivables and other current assets         300       13,698        1,652                  
  Net assets of discontinued operations           21,949          -            -                    
                                              -----------  -----------  -----------                 
Total current assets                              44,873       35,610        4,296                  
                                              -----------  -----------  -----------                 
Prepayments for construction-in-progress          29,789        9,942        1,199                  
Property, plant and equipment, net               350,861      611,359       73,747                  
                                              -----------  -----------  -----------                 
Total assets                                     425,523      656,911       79,242                  
                                              ===========  ===========  ===========                 

LIABILITIES AND SHAREHOLDERS' EQUITY                                                                
-------------------------------------                                                               
Current liabilities                                                                                 
  Long-term bank loans - current portion             -         58,000        6,996                  
  Accounts payable                                21,195        9,767        1,178                  
  Accrued expenses and other payables             10,193       56,325        6,794                  
  Taxes other than income                            107          114           17                  
  Due to related companies                         1,500          -            -                    
                                              -----------  -----------  -----------                 
Total current liabilities                         32,995      124,206       14,985                  
                                              -----------  -----------  -----------                 
Long-term bank loans                              97,500      179,500       21,652                  
Convertible note payable                         249,600      249,600       30,108                  
Due to Chinese joint venture partner              10,500       41,318        4,984                  
Due to China Strategic Holdings Limited           96,840        2,418          291                  
Minority interests                               128,681      142,167       17,149                  

Commitments and contingency (Notes 6 & 14)                                                          

Shareholders'  equity:                                                                              
Common stock, par value US$0.01 each;                                                               
  150,000,000 shares authorized; 81,806,198                                                         
  shares outstanding                               6,806        6,806          821                  
Additional paid-in capital                       (80,646)      15,773        1,903                  
Accumulated deficits                            (116,753)    (104,877)     (12,651)                 
                                              -----------  -----------  -----------                 
Total shareholders' equity                      (190,593)     (82,298)      (9,927)                 
                                              -----------  -----------  -----------                 
Total liabilities and shareholders' equity       425,523      656,911       79,242                  
                                              ===========  ===========  ===========                 

Translation of amounts from Renminbi (Rmb) into United States Dollars (US$)                         
for the convenience of the reader has been made at the unified exchange rate quoted                 
by the Bank of China on December 31, 1996 of US$1.00 = Rmb8.29.  No representation                  
is made that the Renminbi amounts could have been, or could be, converted into United States Dollars
at that rate on December 31, 1996 or at any other certain rate.                                     

The accompanying notes are an integral part of these consolidated balance sheets.                   

                                                     3                                              


DEFR14A
24th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 24th
                                                        [Enlarge/Download Table]
                               REGAL INTERNATIONAL, INC. AND SUBSIDIARIES                           
                               ------------------------------------------                           

                                 CONSOLIDATED STATEMENTS OF CASH FLOWS                              
                                 -------------------------------------                              

                           FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996                     
                           ----------------------------------------------------                     

                                           (Amounts in thousands)                                   


                                                                Years ended December 31,            
                                                  --------------------------------------------------
                                                     1994          1995         1996         1996   
                                                  -----------  -----------  -----------  -----------
                                                      Rmb          Rmb          Rmb          US$    
                                                                                                    
Cash flows from operating activities:                                                               
  Net income                                                                                        
    Income from continuing operations                 17,376       14,704       13,411        1,618 
    Income/(Loss) from discontinued operations        (4,586)         235       (1,535)        (185)
  Adjustments to reconcile net income to net cash                                                   
    provided by operating activities:                                                               
    Minority interests                                13,776       13,087       13,486        1,627 
    Depreciation and amortization                      3,740        4,298        4,117          497 
    Loss on disposal of fixed assets                     -             19          -            -   
  (Increase) Decrease in assets:                                                                    
    Prepayments and deferred expenses                     65          146          (18)          (2)
    Other receivables and other current assets         3,255         (239)     (13,397)      (1,616)
  Increase (Decrease) in liabilities:                                                               
    Accounts payable                                     840       20,355      (11,428)      (1,379)
    Accrued expenses and other payables                1,648       (3,708)      (1,570)        (189)
    Taxes other than income                               17           (7)           7            1 
                                                  -----------  -----------  -----------  -----------
Net cash provided by operating activities             36,131       48,890        3,073          372 
                                                  -----------  -----------  -----------  -----------
Cash flows from investing activities:                                                               
  Prepayments for construction-in-progress           (28,240)        (982)      19,846        2,394 
  Acquisition of property, plant and equipment       (41,681)    (166,230)    (216,912)     (26,166)
  Changes in net assets of discontinued operations    (3,411)          80       21,949        2,648 
                                                  -----------  -----------  -----------  -----------
Net cash used in investing activities                (73,332)    (167,132)    (175,117)     (21,124)
                                                  -----------  -----------  -----------  -----------
Cash flows from financing activities:                                                               
  Proceeds of bank loans                              35,500      117,445      140,000       16,888 
  Repayment of bank loans                             (9,500)     (55,945)         -            -   
  Due to related companies                             2,500       (1,000)      (1,500)        (181)
  Due to Chinese joint venture partner               (25,248)      10,500       30,818        3,717 
  Due to China Strategic Holdings Limited             68,252       (1,601)       1,997          240 
  Proceeds from issuance of capital stock                184          -            -            -   
  Conversion of preferred stock to common stock        1,490          -            -            -   
  Conversion of debt to common stock                   6,665          -            -            -   
                                                  -----------  -----------  -----------  -----------
Net cash provided by financing activities             79,843       69,399      171,315       20,664 
                                                  -----------  -----------  -----------  -----------
Net increase (decrease) in cash and cash equivalents  42,642      (48,843)        (729)         (88)
Cash and cash equivalents, at beginning of year       28,373       71,015       22,172        2,675 
                                                  -----------  -----------  -----------  -----------
Cash and cash equivalents, at end of year             71,015       22,172       21,443        2,587 
                                                  ===========  ===========  ===========  ===========

Translation of amounts from Renminbi (Rmb) into United States Dollars (US$)                         
for the convenience of the reader has been made at the unified exchange rate                        
quoted by the Bank of China on December 31, 1996 of US$1.00 = Rmb8.29.  No                          
representation is made that the Renminbi amounts could have been, or could be,                      
converted into United States Dollars at that rate on December 31, 1996 or at                        
any other certain rate.                                                                             

The accompanying notes are an integral part of these consolidated statements                        
of cash flows.                                                                                      

                                                      4                                             


DEFR14A
25th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 25th
                                                        [Enlarge/Download Table]
                                REGAL INTERNATIONAL, INC. AND SUBSIDIARIES                          
                                ------------------------------------------                          

                         CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY                 
                         ----------------------------------------------------------                 

                              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996                  
                              ----------------------------------------------------                  

                                 (Amounts in thousands, except number of shares)                    

                       Shares of                                                                    
                      Convertible    Shares of                                                      
                       Preferred      Common                                                        
                         Stock         Stock                    Additional                          
                      (US$0.1 par  (US$0.01 par  Preferred and    Paid-in    Accumulated            
                         value)       value)     Common Stock     Capital      Deficits      Total  
                      -----------  -----------   -----------   -----------  -----------  -----------
                         Number        Number        Rmb          Rmb          Rmb          Rmb     
                                                                                                    
Balance at                                                                                          
 December 31, 1993      2,630,134   53,330,164        6,625      (88,801)    (144,482)    (226,658) 

Conversion of                                                                                       
 preferred stock to                                                                                 
 common stock          (2,630,134)   8,423,952       (1,487)       1,490          -              3  

Conversion of debt to                                                                               
 common stock                 -     20,052,082        1,668        6,665          -          8,333  

Net income                    -            -            -            -         12,790       12,790  
                       -----------  -----------   -----------   -----------  -----------  ----------
Balance at                                                                                          
December 31, 1994             -     81,806,198        6,806      (80,646)    (131,692)    (205,532) 

Net income                    -            -            -            -         14,939       14,939  
                       -----------  -----------   -----------   -----------  -----------  ----------
Balance at                                                                                          
 December 31, 1995           -      81,806,198        6,806      (80,646)    (116,753)    (190,593) 

Contribution by China                                                                               
 Strategic Holdings                                                                                 
 Limited ("CSH")             -             -            -         96,419          -         96,419  

Net income                   -             -            -               -      11,876       11,876  
                       -----------  -----------   -----------   -----------  -----------  ----------
Balance at                                                                                          
 December 31, 1996           -      81,806,198        6,806       15,773     (104,877)     (82,298) 
                       ===========  ===========   ===========   ===========  ===========  ==========

The accompanying notes are an integral part of these consolidated statements                        
of changes in shareholders' equity.                                                                 

                                                     5                                              

DEFR14A
26th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 26th
REGAL INTERNATIONAL, INC. AND SUBSIDIARIES    
------------------------------------------    

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
------------------------------------------  

(Amounts in thousands, except number of shares,   
per share data and unless otherwise stated)   

1.  ORGANIZATION AND PRINCIPAL ACTIVITIES                                       
-----------------------------------------                                       

Regal International, Inc. ("Regal" or the "Company") was incorporated in the    
State of Delaware, the United States of America and is listed on the            
National Association of Securities Dealers Electronic Bulletin Board            
("NASD") with an authorized share capital of US$1.5 million or 150 million      
shares of US$0.01 each.                                                         

Pursuant to an Acquisition Agreement dated February 8, 1996 between Regal,      
Acewin Profits Limited ("AP"), a British Virgin Islands corporation and         
China Strategic Holdings Limited ("CSH"), a company incorporated in Hong        
Kong and is listed on The Stock Exchange of Hong Kong Limited, Regal            
acquired all the issued and outstanding shares of AP at a consideration of      
US$13.5 million satisfied through the issuance of a US$13.5 million             
Convertible Note (the "Convertible Note A") by Regal to Horler Holdings         
Limited ("Horler"), a Hong Kong company and a wholly-owned subsidiary of        
CSH, bearing interest at 9% per annum after an initial 6-month interest-free    
period.  AP was a wholly-owned subsidiary of CSH before the transfer and        
AP's sole asset was a 55% equity interest in Wuxi CSI Vibration Isolator Co.    
Ltd., a Sino-foreign equity joint venture incorporated in China, held           
through an intermediate Hong Kong company, China Machine (Holdings) Limited.    

On February 15, 1996, CSH appointed three directors to fill vacancies on the    
Board of Directors created by the resignation of three out of the five          
directors of Regal effective on the date of consummation of the transaction     
whereby Regal acquired all the outstanding share capital of AP.  On March 8,    

1996, Horler purchased 40,500,000 shares of common stock representing 49.51%    
of the then issued and outstanding share capital of Regal from a major          
shareholder of the Company thus becoming its major and controlling              
shareholder.                                                                    

Pursuant to a Purchase Agreement dated September 11, 1996 between Regal, an     
unrelated company incorporated in the Netherlands and CSH, Regal sold all       
the issued and outstanding shares of AP at a consideration of US$13.95          
million.  The proceeds were then used to repay the Convertible Note A           
principal of US$13.5 million, on September 13, 1996. The realized gain of       
US$450 on the disposal of AP has been included as part of "Net gain on          
disposal of investment" in the Company's consolidated statements of income      
for the year ended December 31, 1996.                                           

Pursuant to another Asset Purchase Agreement ("the Agreement") dated            
February 8, 1996 between Regal and Regal (New) International, Inc. ("New        
Regal"), the Company sold and transferred the operating assets and real         
property of Regal existing as of January 31, 1996 to New Regal in exchange      
for US$2.5 million and New Regal's assumption of all liabilities incurred,      
accrued or arising from the Operations of Regal, prior to the closing date      
of this transaction, other than the Convertible Note A.                         

6     

DEFR14A
27th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 27th
1.  ORGANIZATION AND PRINCIPAL ACTIVITIES  (Cont'd)                             
-----------------------------------------                                       

Pursuant to the Agreement, the US$2.5 million portion of the purchase price     
was paid as follows: US$800 in cash and the balance by delivery of two          
promissory notes, one in the principal amount of US$900 (the "US$900 Note")     
and the second in the principal amount of US$800 (the "US$800 Note").  The      
US$900 Note bears interest at 9% per annum and is payable in sixty equal        
monthly installments of principal and interest.  The US$800 Note bears no       
interest and is due and payable in one installment on January 31, 2001. The     
realized loss in connection with this transaction amounted to approximately     
US$69 and has been included as part of "Income/(Loss) from discontinued         
operations" in the Company's consolidated statements of income for the year     
ended December 31, 1996.                                                        

Pursuant to an Acquisition Agreement dated September 10, 1996 between Regal,    
Westronix Limited ("WL"), a wholly owned subsidiary of CSH, Regal acquired      
all the issued and outstanding shares of WL at a consideration of US$30         
million to be satisfied through the issuance of a US$30 million Convertible     
Note (the "Convertible Note B") by Regal to Horler bearing interest at 9%       
per annum after an initial 6-month interest-free period.  The principal and     
any unpaid interest owing on the Convertible Note B can be converted into       
shares of the Common Stock of Regal ("Common Stock") at a conversion price      
of US$0.0302 per share.  On conversion, CSH would hold approximately 96.16%     
of the outstanding shares of the Company.  WL's sole asset is a 51% equity      
interest in Hangzhou Zhongche Huantong Development Co. Ltd., a Sino-foreign     
equity joint venture incorporated in China, held through an intermediate        
Hong Kong company, China Construction Holdings Limited.                         

As of December 31, 1996, the Company had the following subsidiaries:            

Westronix Limited ("WL") - a holding company incorporated in the British        
Virgin Islands).                                                                

China Construction Holdings Limited ("CCHL") - a company incorporated in        
Hong Kong and was formally known as China Construction International Group      
Limited.                                                                        

Hangzhou Zhongche Huantong Development Co., Ltd. (the "Operating Subsidiary"    
or "Hangzhou toll road"), a Sino-foreign equity joint venture located in        
Hangzhou, Zhejiang Province, China).                                            

The Company holds a 100% interest in WL.  WL was incorporated on July 3,        
1996 with an authorized share capital of 50,000 shares with a par value of      
US$1 each.  One share was issued at par value to CSH which was subsequently     
transferred to Regal pursuant to a shareholder's resolution dated September     
10, 1996.  WL, holds a 100% interest in CCHL which in turn holds a 51%          
interest in Hangzhou toll road.  WL's interest in CCHL and Hangzhou toll        
road was transferred from CSH pursuant to a shareholders' resolution dated      
August 28, 1996.                                                                

7     

DEFR14A
28th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 28th
1.  ORGANIZATION AND PRINCIPAL ACTIVITIES  (Cont'd)                             
-----------------------------------------                                       

Hangzhou toll road is a Sino-foreign equity joint venture enterprise            
established on June 23, 1993, which formally began business operations in       
September 1993 in China.  The total cash consideration paid by CCHL for         
its interest in Hangzhou toll road amounted to Rmb 102 million.  Tolls          
collected from the existing portion of the toll road ("the first phase"),       
which was injected by the Chinese joint venture partner, Hangzhou City          
Transportation Development Company, and cash injected by CSH will be used to    
finance the construction of the second and third phases of the toll road        
(the "CIP Projects") which are expected to be completed by the end of fiscal    
year 1997.  Hangzhou toll road will collect toll from all three phases of       
the toll road after the CIP Projects are completed.                             

Key provisions of the joint venture agreement of Hangzhou toll road include:    

*  the joint venture period is 30 years from the date of formation;             

*  the profit and loss sharing ratio is the same as the percentage of equity    
interest; and                                                                   

*  the Board of Directors consists of 7 members : 4 designated by CCHL and 3    
designated by Hangzhou City Transportation Development Company.                 

The acquisition of the Operating Subsidiary by CCHL was accounted for by the    
purchase method of accounting.  The tangible assets were valued at their        
estimated fair value.  The results of the Operating Subsidiary are included     
in the consolidated statements of income from the effective date of the         
joint venture, June 23, 1993.  No revenue was generated from the toll road      
before the formation of the joint venture.                                      

Hangzhou toll road operates in China and accordingly is subject to special      
considerations and significant risks not typically associated with              
investments in equity securities of United States and Western European          
companies.  These include risks associated with, among others, the              
political, economic and legal environments and foreign currency exchange.       
These are described further in the following paragraphs:                        

Political Environment                                                           

The value of the Company's interests in the Operating Subsidiary may be         
adversely affected by changes in policies by the Chinese government             
including, among others: changes in laws, regulations or the interpretation     
thereof; confiscatory taxation; restrictions on foreign currency conversion,    
imports or sources of suppliers; or the expropriation or nationalization of     
private enterprises.                                                            

8     

DEFR14A
29th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 29th
1.  ORGANIZATION AND PRINCIPAL ACTIVITIES  (Cont'd)                             
-----------------------------------------                                       

Economic Environment                                                            

The economy of China differs significantly from the economies of the            
United States and Western Europe in such respects as structure, level of        
development, gross national product, growth rate, capital reinvestment,         
resource allocation, self-sufficiency, rate of inflation and balance of         
payments position, among others.  Only recently has the Chinese government      
encouraged substantial private economic activities.                             

The Chinese economy has experienced significant growth in the past five         
years, but such growth has been uneven among various sectors of the economy     
and geographic regions.  Actions by the Chinese central government to           
control inflation have significantly restrained economic expansion recently.    
Similar actions by the central government of China in the future could          
have a significant adverse effect on economic conditions in China and the       
economic prospects for the Operating Subsidiary and the Company.                

Foreign Currency Exchange                                                       

The Chinese central government imposes control over its foreign currency        
reserves through control over imports and through direct regulation of the      
conversion of its national currency into foreign currencies.  As a result,      
the Renminbi is not freely convertible into foreign currencies.                 

The Operating Subsidiary conducts substantially all of its business in          
China, and its financial performance and condition are measured in terms of     
Renminbi. The Operating Subsidiary's source of income, toll revenue, is         
denominated in Renminbi. Revenues and profits have to be converted to United    
States Dollars or Hong Kong Dollars to pay dividends to the Company.  Should    
the Renminbi devalue against the United States Dollar, such devaluation         
would have a material adverse effect on the Company's profits measured in       
foreign currency and reduce the foreign currency that could be repatriated      
by the Operating Subsidiary to the Company.  The Company currently is not       
able to hedge its Renminbi - United States Dollars exchange rate exposure in    
China because neither the banks in China nor any other financial                
institutions authorized to engage in foreign exchange transactions offer        
forward exchange contracts.                                                     

Legal System                                                                    

Since 1979, many laws and regulations dealing with economic matters in          
general and foreign investment in particular have been enacted in China.        
However, China still does not have a comprehensive system of laws and           
enforcement of existing laws may be uncertain and sporadic.                     

Toll Revenue                                                                    

Any increase in toll rates proposed by the Operating Subsidiary is subject      
to approval by the Hangzhou Municipal Government and Hangzhou City              
Transportation Department.  However, there is no assurance that proposed        
increases will be approved by these government authorities.  If such            
proposals are denied, profit margins of the Operating Subsidiary could be       
reduced.                                                                        

9     

DEFR14A
30th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 30th
2.  BASIS OF PRESENTATION                                                       
-------------------------                                                       

The accompanying consolidated financial statements were prepared in             
accordance with generally accepted accounting principles in the United          
States of America ("U.S. GAAP").  This basis of accounting differs from that    
used in the statutory financial statements of the Operating Subsidiary,         
which were prepared in accordance with the accounting principles and the        
relevant financial regulations applicable to joint venture enterprises as       
established by the Ministry of Finance of China ("PRC GAAP").                   

The principal adjustments made to conform the statutory financial statements    
of the Operating Subsidiary to U.S. GAAP included the following:                

*  Provision of depreciation on roads and bridges.                              

*  Recognition of toll revenue on the accrual basis and upon the                
commencement of operations.                                                     

The transfer of CSH's equity interests in CCHL to WL and the transfer of CSH    
equity interests in WL to Regal were accounted for as reorganizations of        
companies under common control similar to a pooling of interests.  The          
accompanying consolidated financial statements of the Company have been         
restated to present the transfers of CSH's interests in CCHL to WL and in WL    
to Regal as if they had occurred on the date of formation of the Operating      
Subsidiary, June 23, 1993.  The acquisition of the Operating Subsidiary was     
financed by advances from CSH.  In 1996, the advances payable to CSH in         
relation to the above acquisition was capitalized and treated as an increase    
in additional paid-in capital.  In addition, due to the specific                
requirements of the U.S. GAAP for transfers of assets between entities under    
common control, the difference of Rmb147,600 between the historical cost of     
the investment of CSH in Hangzhou toll road and the Company's acquisition       
cost was treated as a deemed dividend paid to CSH in 1993.                      

Regal's acquisition of CSH's interests in AP and its subsequent disposal        
have been accounted for using the purchase method of accounting.  The           
results of operations of AP and its subsidiaries have not been consolidated     
into the financial statements for the year ended December 31, 1996 given the    
temporary nature of the holding.                                                

Income from the historical operations of Regal for the years ended December     
31, 1994, 1995 and 1996 has been reclassified as "Income/(Loss) from            
discontinued operations" in the consolidated statements of income as a          
result of the disposal of the related net assets to New Regal in 1996.          
Accordingly, net assets related to the discontinued operations of Regal as      
of December 31, 1994, and 1995 have also been reclassified as "Net assets of    
discontinued operations" in the accompanying financial statements.              

10    

DEFR14A
31st Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 31st
3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                  
----------------------------------------------                                  

a.  Basis of Consolidation                                                      
----------------------                                                  

The consolidated financial statements include the financial statements of       
the Company and its majority-owned subsidiaries.  All material intercompany     
balances and transactions have been eliminated on consolidation.                

b.  Toll revenue                                                                
------------                                                            

Toll revenue represents the gross receipts at the toll stations, net of         
business tax calculated at 3.0% of the gross toll receipts.                     

c.  Cash and Cash Equivalents                                                   
-------------------------                                               

Cash and cash equivalents include cash on hand, demand deposits with banks      
and liquid investments with an original maturity of one year or less.  Cash     
and cash equivalents included United States Dollar deposits of US$1,078         
(Rmb8,967) and US$67 (Rmb555) as of December 31, 1995 and 1996 respectively.    
Deposits of US$700 (Rmb5,824) as of December 31, 1995 were used to guarantee    
bank loans of a related company.                                                

d.  Property, Plant and Equipment                                               
-----------------------------                                           

Property, plant and equipment are stated at cost less accumulated               
depreciation.  Depreciation of property, plant and equipment is computed        
using the straight-line method over the assets' estimated useful lives,         
taking into account the estimated residual value of 10% (except for roads       
and bridges which have no residual value) of the cost of the assets.  The       
estimated useful lives are as follows:                                          

Roads and bridges                          30 years                 
Buildings                                  20 years                 
Machinery and equipment                     5 years                 
Motor vehicles                              5 years                 
Furniture, fixtures and office equipment    5 years                 

Construction-in-progress ("CIP" see also Note 4) represents new roads and       
bridges under construction and plant and machinery pending installation.        
This includes the costs of construction, the costs of plant and machinery       
and interest charges (net of interest income), arising from borrowings used     
to finance these assets during the period of construction or installation.      
Interest capitalized amounted to Rmb6,778 and Rmb25,035 for the years ended     
December 31, 1995 and 1996.                                                     

11    

DEFR14A
32nd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 32nd
3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Cont'd)                        
----------------------------------------------                                  

e.  Taxation: Income Taxes                                                      
----------------------                                                  

No provision for withholding or U.S. federal income taxes or tax benefits on    
the undistributed earnings of the subsidiaries and/or losses of the             
Operating Subsidiary has been provided as the earnings of the subsidiaries      
have been reinvested and, in the opinion of management, will continue to be     
reinvested indefinitely.                                                        

WL was incorporated under the laws of the British Virgin Islands, and under     
current British Virgin Islands laws, WL is not subject to tax on income or      
on capital gains.                                                               

The Company and its subsidiaries provide for Hong Kong profits tax on the       
basis of their income for financial reporting purposes, adjusted for income     
and expense items which are not assessable or deductible for profits tax        
purposes.  The Company and its subsidiaries have had no profits assessable      
for Hong Kong profits tax purposes.                                             

Hangzhou toll road is subject to Chinese income taxes at the applicable tax     
rate for Sino-foreign equity joint venture enterprises (currently 33%) on       
the taxable income as reported in its statutory accounts adjusted in            
accordance with the relevant income tax laws.  Since it has a joint venture     
term of more than 10 years and is engaged in infrastructure construction,       
Hangzhou toll road will be fully exempted from Chinese state unified income     
tax of 30% as well as the local income tax of 3% for two years starting from    
the first profit-making year followed by a 50% reduction of the Chinese         
state unified income tax for the next three years ("tax holiday").              

If the Operating Subsidiary had not been in the tax holiday period, the         
Company would have recorded additional income tax expense of Rmb10,000,         
Rmb9,901 and Rmb10,176 and net income of the Company would have been reduced    
by Rmb5,100, Rmb5,050 and Rmb5,190  for the years ended December 31, 1994,      
1995 and 1996 respectively (See Note 14).                                       

The Company provides for deferred income taxes using the liability method,      
by which deferred income taxes are recognized for all significant temporary     
differences between the tax and financial statement bases of assets and         
liabilities.  The tax consequences of those differences are classified as       
current or non-current based upon the classification of the related assets      
or liabilities in the financial statements.                                     

f.  Taxation: Business Tax                                                      
----------------------                                                  

In December 1993, the Chinese government promulgated several major new tax      
regulations which came into effect on January 1, 1994.  These new tax           
regulations replaced a number of former tax laws and regulations including      
the Consolidated Industrial and Commercial Tax ("CICT").  Under these new       
tax regulations, the Operating Subsidiary is subject to business tax which      
replaced the CICT and is now the principal direct tax on the toll revenue       
generated.  The business tax rate applicable to the Operating Subsidiary is     
3.0%.                                                                           

12    

DEFR14A
33rd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 33rd
3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Cont'd)                        
----------------------------------------------                                  

g.  Foreign Currency Translation                                                
----------------------------                                            

The functional currency of the group and the Company is Renminbi.               

The Operating Subsidiary maintains its books and records in Renminbi.           
Foreign currency transactions are translated into Renminbi at the applicable    
unified rates of exchange or the applicable rates of exchange quoted by the     
applicable foreign exchange adjustment center ("swap center"), prevailing at    
the dates of the transactions.  Monetary assets and liabilities denominated     
in foreign currencies are translated into Renminbi using the applicable         
unified rates of exchange or the applicable swap center rates prevailing at     
the balance sheet dates.  The resulting exchange differences are included in    
the determination of income.                                                    

The Company's registered capital is denominated in and its reporting            
currency is the United States Dollars.  For financial reporting purposes,       
the United States Dollars capital injection amounts have been translated        
into Renminbi at the unified exchange rate as of December 31, 1995.             

The Renminbi is not freely convertible into foreign currencies.  All foreign    
exchange transactions involving Renminbi must take place either through the     
Bank of China or other institutions authorized to buy and sell foreign          
currencies, or at a swap center.  Before January 1, 1994, the exchange rates    
used for transactions through the Bank of China and other authorized            
institutions were set by the government (the "official exchange rate") from     
time to time whereas the exchange rates available at the swap centers (the      
"swap center rates") were determined largely by supply and demand.  The         
Chinese government announced the unification of the two-tier exchange rate      
systems in December 1993 effective January 1, 1994.  The unification brought    
the official exchange rate of the Renminbi in line with the swap center         
rate.  The unification did not have a major impact on the consolidated          
financial statements of the Company under U.S. GAAP.                            

Sino-foreign equity joint venture enterprises can enter into exchange           
transactions at swap centers.  Payment for imported materials and remittance    
of earnings outside of China are subject to the availability of foreign         
currency which is dependent on the foreign currency denominated earnings of     
the entity or must be arranged through a swap center or designated foreign      
exchange banks.  Approval for exchange at the swap center is granted to         
joint venture enterprises for valid reasons such as the purchase of imported    
materials and remittance of earnings.                                           

The official exchange rates, unified exchange rates and Shanghai swap center    
rates as of December 31, 1994, 1995 and 1996 were as follows:                   

                  1994        1995        1996
                  ----------  ----------  ----------
Rmb equivalents of US$1                                                         
Official exchange rate             N/A         N/A         N/A              
Unified exchange rate             8.44        8.32        8.29              
Shanghai swap center rate         8.44        8.32        8.29              

13    

DEFR14A
34th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 34th
3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Cont'd)                        
----------------------------------------------                                  

h.  Dedicated Capital                                                           
-----------------                                                       

In accordance with the relevant laws and regulations for Sino-foreign equity    
joint venture enterprises, the Operating Subsidiary maintains discretionary     
dedicated capital, which includes a general reserve fund, an enterprise         
expansion fund and a staff welfare and incentive bonus fund.  The Board of      
Directors of the Operating Subsidiary will determine on an annual basis the     
amount of the annual appropriations to dedicated capital.  For the period       
from January 1, 1994 to December 31, 1996, the Operating Subsidiary did not     
report any profits in the statutory financial statements, and accordingly,      
no appropriation to dedicated capital has been made.                            

i.  Use of estimates                                                            
----------------                                                        

The preparation of financial statements in conformity with generally            
accepted accounting principles in the United States of America requires         
management to make estimates and assumptions that affect certain reported       
amounts and disclosures.  Accordingly, actual results could differ from         
those estimates.                                                                

j.  Earnings per common share                                                   
-------------------------                                               

The calculation of primary earnings per common share is based on the            
weighted average number of common shares outstanding during the year ended      
December 31, 1994, 1995 and 1996.  The calculation of fully diluted earnings    
per common share is based on the common shares outstanding during the years     
ended December 31, 1994, 1995 and 1996 adjusted for the assumed conversion      
of the Company's US$30 million convertible Note B as mentioned in Note 1        
above and exercise of stock options mentioned in Note 12.                       

The number of shares used in the computation was as follows:                    

                       1994              1995             1996
                       ---------------  ---------------  ---------------

Primary EPS computation        53,330,164       81,806,198       81,806,198     

Fully diluted EPS                                                               
computation             1,047,817,647    1,076,293,694    1,075,293,694 

4.  PROPERTY, PLANT AND EQUIPMENT                                               
---------------------------------                                               

                               December 31,       December 31,
                              1995                1996
                              ---------------    ---------------
                             Rmb                 Rmb

Roads and bridges                          109,020             110,784          
Buildings                                      148                 148          
Machinery and equipment                        475               3,804          
Motor vehicles                               2,121               3,084          
Furniture, fixtures and office equipment        38                  38          
Construction-in-progress                   247,346             505,734          
Less: Accumulated depreciation              (8,287)            (12,233)         
                              ---------------    ---------------
Net book value                             350,861             611,359          
                              ===============    ===============

14    

DEFR14A
35th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 35th
5.  LONG-TERM BANK LOANS                                                        
------------------------                                                        

Long-term bank loans, all of which are unsecured, bear average interest         
rates of approximately 14.87% and 14.66% as of December 31, 1995 and 1996       
respectively and are repayable as follows:                                      

                          December 31,          December 31,
                         1995                   1996
                         ---------------       ---------------
                        Rmb                    Rmb

1997                                    58,000                 58,000           
1998                                    20,000                 25,000           
1999                                    19,500                 54,500           
2000                                       -                   45,000           
2001                                       -                   55,000           
                          ---------------       ----------------
Total                                   97,500                237,500           
                          ===============       ================

All the long-term bank loans are denominated in Renminbi.  Loans amounting      
to Rmb19,500 and Rmb159,500 as of December 31, 1995 and 1996 respectively       
are guaranteed by a related company.                                            

6.  COMMITMENTS                                                                 
---------------                                                                 

As of December 31, 1995 and 1996, the Operating Subsidiary had outstanding      
capital commitments for construction contracts related to its CIP projects      
amounting to approximately Rmb228,270 and Rmb91,783 respectively.               

7.  DISTRIBUTION OF PROFITS                                                     
---------------------------                                                     

Dividends from the Operating Subsidiary will be declared based on the           
profits as reported in the statutory financial statements.  Such profits        
will be different from the amounts reported under U.S. GAAP.  As of December    
31, 1996, the Operating Subsidiary had no available retained earnings for       
distribution.                                                                   

In the opinion of management, any undistributed earnings and/or losses of       
the Operating Subsidiary have been reinvested and will continue to be           
reinvested indefinitely.                                                        

15    

DEFR14A
36th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 36th
8.  PROVISION FOR INCOME TAXES                                                  
------------------------------                                                  

The reconciliation of the effective income tax rate based on income before      
provision for income taxes and minority interests stated in the consolidated    
statements of income to the statutory income tax rate in Hong Kong, the         
British Virgin Islands, China and the U.S. is as follows:                       

                              1994          1995          1996
                              --------      --------      --------
Weighted average statutory tax rate    34.8%         31.6%         35.5%        
Effect of tax holiday                 (34.8%)       (31.6%)       (35.5%)       
                              --------      --------      --------
Effective tax rate                      -             -             -           
                              ========      ========      ========

Provision for income taxes consists of:                                         

                              1994          1995          1996
                              --------      --------      --------
                              Rmb           Rmb            Rmb

Current                                 -             -             -           
Deferred                                -             -           2,082         
Adjustment of valuation allowance       -             -          (2,082)        
                              --------      --------      --------
                             -             -             -
                                ========      ========      ========

The valuation allowance refers to the portion of the deferred tax assets        
that are not currently realizable.  The realization of these benefits           
depends upon the ability of the Company to generate income in future years.     

No provision or benefit for deferred income taxes was recognized in 1994,       
1995 and 1996.                                                                  

9.  RELATED PARTY TRANSACTIONS AND ARRANGEMENTS                                 
-----------------------------------------------                                 

The Operating Subsidiary guaranteed bank borrowings of a related company of     
CSH in an amount of Rmb10,000 and Rmb75,000 as of December 31, 1995 and 1996    
respectively.                                                                   

CSH has undertaken to provide continuing financial support to the Company to    
the extent of CSH's interest in the Company for a period ending on December     
31, 1997.                                                                       

The Company paid management fees of US$155 (RMB1,288) to CSH during 1996 for    
administrative services rendered on behalf of the Company by CSH.               

10.  DUE TO CHINESE JOINT VENTURE PARTNER                                       
-----------------------------------------                                       

Balances due to the Chinese joint venture partner as of December 31, 1995       
and 1996 represented amounts borrowed from the Chinese joint venture partner    
to finance the CIP Projects.                                                    

These amounts are unsecured, non-interest bearing and have no fixed             
repayment date.                                                                 

16    

DEFR14A
37th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 37th
11.  RETIREMENT PLANS                                                           
---------------------                                                           

As stipulated by the regulations of the Chinese government, all of the          
Chinese staff of the Operating Subsidiary are entitled to an annual pension     
on retirement, which is equal to their basic salaries at their retirement       
dates.  The Chinese government is responsible for the pension liability to      
retired staff.  The Operating Subsidiary is only required to make specified     
contributions to the state-sponsored retirement plan calculated at 23% of       
the basic salary of the staff.  The expense reported in the consolidated        
financial statements related to these arrangements was Rmb34, Rmb64 and         
Rmb99 for the years ended December 31, 1994, 1995 and 1996 respectively.        

12.  STOCK OPTIONS                                                              
--------------                                                          

The following tables summarize the movement of share options of the Company.    

During 1987 and 1988, the Company issued five-year Common Stock options in      
conjunction with its financing activities to various promissory note holders    
and other selected creditors.  During 1989, the Company issued five and ten-    
year stock options in an additional financing and extension of debt.            

Common stock options                                                            

                                            1995        1996
                                            ----------  ----------
Shares under option beginning of year                150,000     150,000        
Expired                                                  -           -          
                                            ----------  ----------
Shares under option at end of year                   150,000     150,000        
                                            ==========  ==========
Average exercise price of outstanding options      $   0.156   $   0.156        
                                            ==========  ==========
Exercisable at end of year                           150,000     150,000        
                                             ==========  ===========

In December 1991 the Board of Directors approved the issuance of Common         
Stock options to members of the Board of Directors.  The options were to        
expire in five years and be issued at 110% of market value on the date of       
grant.                                                                          

Common stock options                                                            

                                            1995        1996
                                            ----------  ----------
Options at beginning of year                       1,000,000   1,000,000        
Issued                                               300,000         -          
Expired                                             (300,000) (1,000,000)       
                                            ----------  ----------
Shares under option at end of year                 1,000,000         -          
                                            ==========  ==========
Average exercise price of outstanding options      $    0.14   $     -          
                                            ==========  ==========
Exercisable at end of year                         1,000,000         -          
                                            ==========  ==========

DEFR14A
38th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 38th
13.  OTHER SUPPLEMENTAL INFORMATION                                             
-----------------------------------                                             

a)  The following items are included in the consolidated statements of          
income:                                                                         

                              December 31,   December 31,   December 31,
                             1994           1995            1996
                              ------------   ------------   ------------
                             Rmb            Rmb            Rmb

Business tax                       1,163          1,171          1,211  

b)  Non-cash investing and                                                      
financing activities:                                               
Capitalization of advances                                              
payable to CSH as                                               
  additional paid-in capital       -              -           96,419

14.  CONTINGENCY                                                                
----------------                                                                

The Operating Subsidiary has obtained an approval from the local government     
to offset the toll revenue collected from the first phase of the toll road      
against the construction-in-progress balances until the CIP Projects are        
completed by the end of 1997.  Thus, the tax holiday has been deferred until    
the CIP Projects are completed.  As such, the Operating Subsidiary reported     
zero net profits in its statutory financial statements starting from the        
commencement of operations in 1993 and will continue to do so until the CIP     
Projects are completed at the end of 1997.  The Company plans to record the     
net profits offset against the construction-in-progress account during 1993     
to 1997 into income of the statutory financial statements of the Operating      
Subsidiary during 1998 and/or 1999 fiscal years (i.e. the first two tax         
exemption years of the tax holiday). This plan is subject to the approval of    
the local tax bureau.  Should such approval not be obtained from the local      
tax bureau, a tax liability amounting to approximately Rmb5 million and Rmb5    
million for the years ended December 31, 1995 and 1996 respectively may         
arise.  In the opinion of the directors, it is not probable that a liability    
will arise.                                                                     

17    

DEFR14A
39th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 39th
UNAUDITED FINANCIAL STATEMENTS OF REGAL INTERNATIONAL, INC. FOR THE THREE       
MONTHS ENDED MARCH 31, 1997                                                     

Consolidated Condensed Statements of Income (unaudited) for                     
the three  months ended March 31, 1997 and 1996                       1         

Consolidated Condensed Balance Sheets (unaudited) at March                      
31, 1997 and December 31, 1996                                        2         

Consolidated Condensed Statements of Cash Flows (unaudited)                     
for the three months ended March 31, 1997 and 1996                    3         

Notes to Consolidated Condensed Financial Statements                            
(unaudited) for the three months ended March 31, 1997 and                       
1996                                                                 4-15       

DEFR14A
40th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 40th
                                                        [Enlarge/Download Table]

                           REGAL INTERNATIONAL, INC. AND SUBSIDIARIES                              
                           ------------------------------------------                              
                     CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)                       
                     -------------------------------------------------------                       
                              THREE MONTHS ENDED MARCH 31, 1997 AND 1996                           
                (Amounts in thousands, except number of shares and per share data )                



                                                       Three Months Ended March 31,                
                                                 -------------------------------------             

                                                    1997          1997          1996               
                                                 -----------  -----------  -----------             
                                                     US$           Rmb           Rmb               
                                                                                                   

Toll revenue                                          1,145        9,502        7,657              

General and administrative expenses                    (571)      (4,732)      (2,689)             

Exchange gain                                             2           14         (164)             
                                                 -----------  -----------  -----------             

   Income from continuing                                                                          
     operations before income                                                                      
     taxes and minority interest                        576        4,784        4,804              
Provision for income taxes                               -            -            -               
                                                 -----------  -----------  -----------             

   Income from continuing                                                                          
     operations before minority                                                                    
     interest                                           576        4,784        4,804              
Minority interests                                     (372)      (3,087)      (2,557)             
                                                 -----------  -----------  -----------             

   Income from continuing                                                                          
     operations                                         204        1,697        2,247              

Loss from discontinued operations                        -            -        (1,149)             
                                                 -----------  -----------  -----------             

   Net income                                           204        1,697        1,098              
                                                 ===========  ===========  ===========             

Earnings per common share (Primary):                                                               
   - from continuing operations                       0.002        0.021        0.027              
   - from discontinued operations                        -            -        (0.014)             
                                                 -----------  -----------  -----------             
                                                      0.002        0.021        0.013              
                                                 ===========  ===========  ===========             

Earnings per common share (Fully diluted)):                                                        
   - from continuing operations                      0.0002       0.0016       0.0021              
   - from discontinued operations                       -            -        (0.0011)             
                                                 -----------  -----------  -----------             
                                                     0.0002       0.0016       0.0010              
                                                 ===========  ===========  ===========             
Weighted average common                                                                            
shares outstanding                               81,806,198   81,806,198    81,806,198             
                                                 ===========  ===========  ===========             

Translations of amounts from Renminbi (Rmb) into United States Dollars (US$) for the convenience of

the reader has been made at the unified exchange rate quoted by the Bank of China on March 31, 1997
of US$1.00 = Rmb8.30.  No representation is made that the Renminbi amounts could have been, or     
could be, converted into United States Dollars at that rate on March 31, 1997 or at any other      
certain                                                                                            
rate.                                                                                              

The accompanying notes are an integral part of these consolidated statements of income.            

                                              -1-                                                  


DEFR14A
41st Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 41st
                                                        [Enlarge/Download Table]

                 REGAL INTERNATIONAL, INC. AND SUBSIDIARIES                                        
                 ------------------------------------------                                        
             CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)                                     
             -------------------------------------------------                                     
                      MARCH 31, 1997 AND DECEMBER 31, 1996                                         
   (Amounts in thousands, except number of shares and per share data)                              



                                                  March          March        December             
                                                 31, 1997      31, 1997       31, 1996             
                                               -----------    ----------    ----------             
                                                   US$            Rmb           Rmb                
                                                                                                   

ASSETS                                                                                             
------                                                                                             

Current assets                                                                                     
  Cash and cash equivalents                         3,895        32,328        21,443              
  Prepayments and deferred expenses                    79           655           469              
  Other receivables and other current assets        1,595        13,236        13,698              
                                                ----------    ----------    ----------             
Total current assets                                5,569        46,219        35,610              

Prepayments for construction-in-progress              863         7,167         9,942              
Property, plant and equipment, net                 74,109       615,106       611,359              
                                                ----------    ----------    ----------             
Total assets                                       80,541       668,492       656,911              
                                                ==========    ==========    ===========            

LIABILITIES AND SHAREHOLDERS EQUITY                                                                
-----------------------------------                                                                

Current liabilities                                                                                
  Short-term bank loans                             1,506        12,500            -               
  Long-term bank loans - current portion            6,988        58,000        58,000              
  Accounts payable                                  1,695        14,065         9,767              
  Accrued expenses and other payables                 465         3,865        56,325              
  Taxes other than income                              14           116           114              
                                                ----------    ----------    ----------             
Total current liabilities                          10,668        88,546       124,206              
                                                ----------    ----------    ----------             
Long-term loans                                    26,687       221,500       179,500              
Convertible note payable                           30,072       249,600       249,600              
Due to Chinese joint venture partner                5,046        41,881        41,318              
Due to China Strategic Holdings Ltd.                  279         2,312         2,418              
Minority interests                                 17,500       145,254       142,167              

Shareholders' equity:                                                                              

Common stock                                          820         6,806         6,806              
Additional paid-in capital                          1,900        15,773        15,773              
Accumulated deficit                               (12,431)     (103,180)     (104,877)             
                                                ----------    ----------    ----------             

Total shareholders' equity                         (9,711)      (80,601)       (82,298)            
                                                ----------    ----------    ----------             
Total liabilities and shareholders' equity         80,541       668,492        656,911             
                                                ==========    ==========    ===========            

Translations of amounts from Renminbi (Rmb) into United States Dollars (US$) for the convenience of
the reader has been made at the unified exchange rate quoted by the Bank of China on march 31, 1997
of US$1.00 = Rmb8.30. No representation is made that the Renminbi amounts could have been, or      
could be, converted into United States Dollars at that rate on March 31, 1997 or at any other      
certain rate.                                                                                      

The accompanying notes are an integral part of these consolidated balance sheets.                  

                                      -2-                                                          


DEFR14A
42nd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 42nd
                                                        [Enlarge/Download Table]

                             REGAL INTERNATIONAL, INC. AND SUBSIDIARIES                             
                             ------------------------------------------                             
                  CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)                       
                  -----------------------------------------------------------                       
                              THREE MONTHS ENDED MARCH 31, 1997 AND 1996                            
                                      (Amounts in thousands)                                        



                                                         1997         1997         1996             
                                                      ----------   ----------   ----------          
                                                          US$          Rmb          Rmb             
                                                                                                    

Cash flows from operating activities:                                                               
  Net Income                                                                                        
     Income from continuing operations                      204        1,697        2,247           
     Income/(Loss) from discontinued operations              -            -        (1,149)          
  Adjustments to reconcile net income (loss) to                                                     
  net cash provided by (used in) operations:                                                        
     Minority interests                                     372        3,087        2,557           
     Depreciation and amortization                          146        1,208        1,031           
  (Increase)Decrease in assets:                                                                     
     Prepayments and deferred expenses                      (22)        (186)        (818)          
     Other receivables and other current assets              56          462      (14,575)          
  Increase (Decrease) in liabilities:                                                               
     Accounts payable                                       518        4,298       (6,175)          
     Accrued expenses and other payables                 (6,320)     (52,460)      (7,663)          
     Taxes other than income                                 -             2            9           
                                                      ----------   ----------   ----------          

Net cash used in operating activities                    (5,046)     (41,892)     (24,536)          
                                                      ----------   ----------   ----------          

Cash flows from investing activities:                                                               
  Prepayments for construction-in-progress                  334        2,775        3,825           
  Acquisition of property, plant and equipment             (597)      (4,955)     (23,421)          
  Change in net assets of discontinued operations            -            -        21,949           
                                                      ----------   ----------   ----------          

Net cash (used in) provided by investing activities        (263)      (2,180)       2,353           
                                                      ----------   ----------   ----------          

Cash flows  from financing activities:                                                              
  Proceeds of bank loans                                  6,566       54,500       13,000           
  Due to related companies                                   -            -        (1,500)          
  Due to Chinese joint venture partner                       68          563           -            
  Due to China Strategic Holdings Limited                   (13)        (10)          198           
                                                      ----------   ----------   ----------          

Net cash provided by (used in) financing activities       6,621       54,957       11,698           
                                                      ----------   ----------   ----------          

Net increase (decrease) in cash and cash equivalents      1,312       10,885      (10,485)          
Cash and cash equivalents, at beginning of period         2,583       21,443       22,172           
                                                      ----------   ----------   ----------          
Cash and cash equivalents, at end of period               3,895       32,328       11,687           
                                                      ==========   ==========   ==========          

Translations of amounts from Renminbi (Rmb) into United States Dollars (US$) for the convenience of 
the reader has been made at the unified exchange rate quoted by the Bank of China on March 31, 1997 
of US$1.00 = Rmb8.30.  No representation is made that the Renminbi amounts could have been, or could
be, converted into United States Dollars at that rate on March 31, 1997 or at any other certain     
rate.                                                                                               

The accompanying notes are an integral part of these consolidated statements of cash flows.         

                                                               -3-                                  


DEFR14A
43rd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 43rd
REGAL INTERNATIONAL, INC. AND SUBSIDIARIES      
------------------------------------------      
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      
------------------------------------------      
(UNAUDITED)     
-----------     

1.   ORGANIZATION AND PRINCIPAL ACTIVITIES                                      
-------------------------------------                                 

Regal International, Inc. ("Regal" or the "Company") was incorporated in        
the State of Delaware, the United States of America and is listed on the        
National Association of Securities Dealers ("NASD") over-the-counter            
market with an authorized share capital of US$1.5 million or 150 million        
shares of US$0.01 each.                                                         

Pursuant to an acquisition agreement dated February 8, 1996 between Regal,      
Acewin Profits Limited ("Acewin"), a British Virgin Islands corporation         
and China Strategic Holdings Limited ("CSH"), a company incorporated in         
Hong Kong and listed on the Stock Exchange of Hong Kong Limited, Regal          
acquired all the issued and outstanding shares of Acewin at a                   
consideration of US$13.5 million satisfied through the issuance of a            
US$13.5 million Convertible Note (the "Convertible Note A") by Regal to         
Horler Holdings Limited ("Horler"), a British Virgin Islands company and a      
wholly-owned subsidiary of CSH, bearing interest at 9% per annum after an       
initial 6-month interest-free period. Acewin was a wholly-owned subsidiary      
of CSH before the transfer and Acewin's sole asset was a 55% equity             
interest in Wuxi CSI Vibration Isolator Co. Ltd., a Sino-foreign equity         
joint venture incorporated in the People's Republic of China, held through      
an  intermediate Hong Kong Company, China Machine (Holdings) Limited.           

On February 15, 1996, CSH appointed three directors to fill vacancies on the    
Board of Directors created by the resignation of three out of the five          
directors of Regal effective on the date of consummation of the transaction     
whereby Regal acquired all the outstanding share capital of Acewin.  On         
March 8, 1996, Horler purchased 40,500,000 shares of common stock               
representing 49.51% of the then issued and outstanding share capital of         
Regal from a major shareholder of the Company thus becoming its major and       
controlling shareholder.                                                        

Pursuant to a purchase agreement dated September 11, 1996 between Regal,        
an unrelated company incorporated in the Netherlands and CSH, Regal sold        
all the issued and outstanding shares of Acewin at a consideration of           
US$13.95 million. The proceeds were then used to repay the Convertible          
Note A principal of US$13.5 million, on September 13, 1996. The realized        
gain of US$450,000 on the disposal of Acewin has been included as "Net          
gain on disposal of investment" in the Company's consolidated statements        
of income for the period ended September 30, 1996.                              

Pursuant to another asset purchase agreement (the "Agreement") dated            
February 8, 1996 between Regal and Regal (New) International, Inc. ("New        
Regal"), the Company sold and transferred the operating assets and real         
property of Regal existing as at January 31, 1996 to New Regal in exchange      
for US$2.5 million and New Regal's assumption of all liabilities of Regal,      
other than the Convertible Note A.                                              

DEFR14A
44th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 44th
Pursuant to the Agreement, the US$2.5 million portion of the purchase           
price was paid as follows: US$800,000 in cash and the balance by delivery       
of two promissory notes, one in the principal amount of US$900,000 (the         
"US$900,000 Note") and the second in the principal amount of US$800,000         
(the "US$800,000 Note"). The US$900,000 Note bears interest at 9% per           
annum and is payable in sixty equal monthly installments of principal and       
interest. The US$800,000 Note bears no interest and is due and payable in       
one installment on January 31, 2001. The realized loss in connection with       
this transaction amounted to approximately US$21,000 and has been included      
as part of "Loss from discontinued operations" in the Company's consolidated    
statements of income for the period ended March 31, 1997.                       

Pursuant to an acquisition agreement dated September 10, 1996 between           
Regal, Westronix Limited ("Westronix"), a wholly owned subsidiary of CSH,       
and CSH, Regal acquired all the issued and outstanding shares of Westronix      
at a consideration of US$30 million satisfied through the issuance of a         
US$30 million Convertible Note (the "Convertible Note B") by Regal to           
Horler bearing interest at 9% per annum after an initial 6-month interest-      
free period. The principal and any unpaid interest owing on the                 
Convertible Note B can be converted into shares of the Common Stock of          
Regal ("Common Stock") at a conversion price of US$0.0302 per share. On         
conversion, CSH would hold approximately 96.16% of the outstanding shares       
of the Company. Westronix's sole asset is a 51% equity interest in              
Hangzhou Zhongche Huantong Development Co. Ltd., a Sino-foreign equity          
joint venture incorporated in the People's Republic of China, held through      
an intermediate Hong Kong company, China Construction International Group       
Limited (name changed to "China Construction Holdings Limited" on December      
5, 1996).                                                                       

As of March 31, 1997, the Company had the following subsidiaries:               

Westronix Limited ("Westronix") - a holding company incorporated in the         
British Virgin Islands.                                                         

China Construction Holdings Limited ("CCIG") - a company incorporated in        
Hong Kong.                                                                      

Hangzhou Zhongche Huantong Development Co., Ltd. (the "Operating                
Subsidiary" or "Hangzhou toll road"), a Sino-foreign equity joint venture       
located in Hangzhou, Zhejiang Province, the People's Republic of China          
"the PRC".                                                                      

The Company holds a 100% interest in Westronix, which was incorporated          
on July 3, 1996 with an authorized share capital of 50,000 shares with a        
par value of US$1 each. At the time of incorporation, one share was issued      
to CSH, representing a 100% interest in Westronix.  The one share issued to     
CSH was subsequently transferred to Regal pursuant to a shareholder's           
resolution dated September 10, 1996. Westronix, holds a 100% interest in        
CCIG which in turn holds a 51% interest in Hangzhou toll road. Westronix's      
interest in CCIG and Hangzhou toll road was transferred from CSH pursuant to    
a shareholders' resolution dated August 28, 1996.                               

DEFR14A
45th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 45th
Hangzhou toll road is a Sino-Foreign equity joint venture enterprise            
established on June 23, 1993, which formally began business operations in       
September 1993 in the City of Hangzhou, Zhejiang Province in the People's       
Republic of China (the "PRC").  The total cash consideration paid by CCIG       
for its interest in Hangzhou toll road amounted to Rmb102 million.  Tolls       
collected from the existing portion of the toll road ("the first phase"),       
which was injected by the Chinese joint venture partner, Hangzhou City          
Transportation Development Company, and cash injected by CSH will be used       
to finance the construction of second and third phases of the toll road         
(the "CIP Projects").  Construction works of the second phase had been          
completed at the reporting date and the third phase is expected to be           
completed by the end of fiscal year 1997.  Hangzhou toll road will collect      
tolls from all three phases of the toll road after the CIP Projects are         
completed.                                                                      

Any increase in toll rates proposed by the Operating Subsidiary is subject      
to approval by the Hangzhou Municipal Government, Hangzhou City                 
Transportation Department and the Zhejiang Provincial Government.  However,     
there is no assurance that any proposal for a toll rate increase will be        
approved by these government authorities. If such proposals are denied,         
profit margins of the Operating Subsidiary could be reduced.                    

Key provisions of the joint venture agreement of Hangzhou toll road             
include:                                                                        

-   the joint venture period is 30 years from the date of formation;            

-   the profit and loss sharing ratio is the same as the percentage of          
equity interest; and                                                            

-   the Board of Directors consists of 7 members: 4 designated by CCIG and      
3 designated by Hangzhou City Transportation Development Company.               

The acquisition of the Operating Subsidiary by CCIG was accounted for by        
the purchase method of accounting.  The tangible assets were valued at          
their estimated fair value. The results of the Operating Subsidiary are         
included in the consolidated statements of income from the effective date       
of the joint venture, June 23, 1993.  No revenue was generated from the         
toll road before the formation of the joint venture.                            

2.   BASIS OF PRESENTATION                                                      
---------------------                                                 

The accompanying consolidated financial statements were prepared in             
accordance with generally accepted accounting principles in the United          
States of America ("U.S. GAAP").  This basis of accounting differs from         
that used in the statutory financial statements of the Operating                
Subsidiary, which were prepared in accordance with the accounting               
principles and the relevant financial regulations applicable to joint           
venture enterprises as established by the Ministry of Finance of China          
("PRC GAAP").                                                                   

DEFR14A
46th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 46th
The principal adjustments made to conform the statutory financial               
statements of the Operating Subsidiary to U.S. GAAP included the following      
:                                                                               

-  Provision of depreciation on roads and bridges.                              

-  Recognition of toll revenue on the accrual basis and upon the                
commencement of operations.                                                     

The transfer of CSH's equity interests in CCIG to Westronix and the             
transfer of CSH's equity interests in Westronix to Regal were accounted         
for as a reorganization of companies under common control, similar to a         
pooling of interests.  The accompanying consolidated financial statements       
of the Company have been restated to present the transfers of CSH's             
interests in CCIG to Westronix and in Westronix to Regal as if they had         
occurred on the date of formation of the Operating Subsidiary, June 23,         
1993.  The acquisition of the Operating Subsidiary was financed by              
advances from CSH.  In 1996, the advances payable to CSH in relation to         
the above acquisition was capitalized and treated as an increase in             
additional paid-in capital.  In addition, due to the specific requirements      
of the U.S. GAAP for transfers of assets between entities under common          
control, the difference of Rmb147.6 million between the historical cost of      
the investment of CSH in Hangzhou toll road and the Company's acquisition       
cost was treated as a deemed dividend paid to CSH in 1993.                      

Regal's acquisition of CSH's interests in Acewin and its subsequent             
disposal have been accounted for using the purchase method of accounting.       
The results of operations of Acewin and its subsidiaries have not been          
consolidated into the financial statements for the period ended March           
31, 1997 given the temporary nature of the holding.                             

Loss from the historical operations of Regal for the period ended               
March 31, 1996 has been reclassified as "Loss from discontinued operations"     
in the consolidated statements of income as a result of the disposal of the     
related net assets to New Regal in 1996.                                        

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                 
------------------------------------------                            

a.   Basis of Consolidation                                                     
----------------------                                                

The consolidated financial statements include the financial statements of       
the Company and its majority owned and controlled subsidiaries. All             
material inter company balances and transactions have been eliminated on        
consolidation.                                                                  

DEFR14A
47th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 47th
b.   Toll Revenue                                                               
------------                                                          

Toll revenue represents the gross receipts at the toll stations, net of         
business tax calculated at 3% of the gross toll receipts.                       

c.   Cash and Cash Equivalents                                                  
-------------------------                                             

Cash and cash equivalents include cash on hand, demand deposits with banks      
and liquid investments with an original maturity of three months or less.       
Cash and cash equivalents included United States Dollar deposits of             
US$67,000 (Rmb555,000) and US$67,000 (Rmb555,000) as of December 31,1996        
and March 31, 1997 respectively.                                                

d.   Property, Plant and Equipment                                              
-----------------------------                                         

Property, plant and equipment are stated at cost less accumulated               
depreciation. Depreciation of property, plant and equipment is computed         
using the straight line method over the assets' estimated useful lives,         
taking into account the estimated residual value of 10% (except for roads       
and bridges which have no residual value) of the cost of fixed assets. The      
estimated useful lives are as follows:                                          

Roads and bridges                          30 years                   
Buildings                                  20 years                   
Machinery and equipment                     5 years                   
Motor vehicles                              5 years                   
Furniture, fixtures and office equipment    5 years                   

Construction in progress ("CIP" see Note 4) represents new roads and            
bridges under construction and plant and machinery pending installation.        
This includes the costs of construction, the costs of plant and machinery       
and interest charges (net of interest income ), arising from borrowings         
used to finance these assets during the period of construction or               
installation.                                                                   

e.   Foreign Currency Translation                                               
----------------------------                                          

The functional currency of the group and the Company is Renminbi.  The          
Operating Subsidiary maintains its books and records in Renminbi. Foreign       
currency transactions are translated into Renminbi at the applicable            
unified rates of exchange or the applicable rates of exchange quoted by         
the applicable foreign exchange adjustment center ("swap center"),              
prevailing at the dates of the transactions. Monetary assets and                
liabilities denominated in foreign currencies are translated into Renminbi      
using the applicable unified rates of exchange or the applicable swap           
center rates prevailing at the balance sheet dates. The resulting exchange      
differences are included in the determination of income.                        

DEFR14A
48th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 48th
The Company's registered capital is denominated in the United States            
Dollar and its reporting currency is the United States Dollar. For              
financial reporting purposes, the United States Dollars capital injection       
amounts have been translated into Renminbi at the unified exchange rate as      
of December 31, 1995.                                                           

The Renminbi is not freely convertible into foreign currencies. All             
foreign exchange transactions involving Renminbi must take place either         
through the Bank of China or other institutions authorized to buy and sell      
foreign currencies, or at a swap center. Before January 1, 1994, the            
exchange rates used for transactions through the Bank of China and other        
authorized institutions were set by the government (the "official exchange      
rate") from time to time whereas the exchange rates available at the swap       
centers ( the "swap center rates" ) were determined largely by supply and       
demand. The Chinese government announced the unification of the two-tier        
exchange rate systems in December 1993 effective January 1, 1994. The           
unification brought the official exchange rate of the Renminbi in line          
with the swap center rate. The unification did not have a major impact on       
the consolidated financial statements of the Company under U.S. GAAP.           

Sino-foreign equity joint venture enterprises can enter into exchange           
transactions at swap centers. Payment for imported materials and                
remittance of earnings outside of the PRC are subject to the availability       
of foreign currency which is dependent on the foreign currency denominated      
earnings of the entity or must be arranged through a swap center or             
designated foreign exchange banks. Approval for exchange at the swap            
center is granted to joint venture enterprises for valid reasons such as        
the purchase of imported materials and remittance of earnings.                  

The official exchange rates, unified exchange rates and Shanghai swap           
center rates as of December 31, 1995 and 1996 and March 31, 1997 were as        
follows :                                                                       

            1995     1996     1997
            ----     ----     ----

Rmb equivalents of US$1                                                         
Official exchange rate           N/A      N/A      N/A                    
Unified exchange rate           8.32     8.29     8.30                    
Shanghai swap center rate       8.32     8.29     8.30                    

DEFR14A
49th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 49th
f.   Taxation : Income Taxes                                                    
-----------------------                                               

No provision for withholding or U.S. federal income taxes or tax benefits       
on the undistributed earnings of the subsidiaries and/or losses of the          
Operating Subsidiary has been provided as the earnings of the subsidiaries      
have been reinvested and, in the opinion of management, will continue to        
be reinvested indefinitely.                                                     

Westronix was incorporated under the laws of the British Virgin Islands,        
and under current British Virgin Islands laws, Westronix is not subject to      
tax on income or on capital gains.                                              

The Company and its subsidiaries provide for Hong Kong profits tax on the       
basis of their income for financial reporting purposes, adjusted for            
income and expense items which are not assessable or deductible for             
profits tax purposes. The Company and its subsidiaries have had no profits      
assessable for Hong Kong profits tax purposes.                                  

Hangzhou toll road is subject to Chinese income taxes at the applicable tax     
rate for Sino-foreign equity joint venture enterprises (currently 33%) on       
the taxable income as reported in its statutory accounts adjusted in            
accordance with the relevant income tax laws. Since it has a joint venture      
term of not less than 10 years and is engaged in infrastructure                 
construction, Hangzhou toll road will be fully exempt from Chinese state        
unified income tax of 30% as well as the local income tax of 3% for two         
years starting from the first profit-making year followed by a 50%              
reduction of the Chinese state unified income tax for the next three years      
("tax holiday").                                                                

If the Operating Subsidiary had not been in the tax holiday period, the         
Company would have recorded additional income tax expense of Rmb1,928,000       
and Rmb2,328,000 and net income of the Company would have been reduced by       
Rmb983,000 and Rmb1,187,000 for the three  months ended March 31, 1996 and      
1997 respectively (See Note 12).                                                

The Company provides for deferred income taxes using the liability method,      
by which deferred income taxes are recognized for all significant               
temporary differences between the tax and financial statement bases of          
assets and liabilities. The tax consequences of those differences are           
classified as current or non-current based upon the classification of the       
related assets or liabilities in the financial statements.                      

g.   Taxation : Business Tax                                                    
-----------------------                                               

In December 1993, the Chinese government promulgated several major new tax      
regulations which came into effect on January 1, 1994.  These new tax           
regulations replaced a number of former tax laws and regulations including      
the Consolidated Industrial and Commercial Tax ("CICT"). Under these new        
tax regulations, the Operating Subsidiary is subject to a business tax          
which replaced the CICT and is now the principal direct tax on the toll         
revenue generated.  The business tax rate applicable to the Operating           
Subsidiary is 3.0%.                                                             

DEFR14A
50th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 50th
h.   Dedicated Capital                                                          
-----------------                                                     

In accordance with the relevant laws and regulations for Sino-foreign           
equity joint venture enterprises, the Operating Subsidiary maintains            
discretionary dedicated capital, which includes a general reserve fund, an      
enterprise expansion fund and a staff welfare and incentive bonus fund.         
The Board of Directors of the Operating Subsidiary will determine on an         
annual basis the amount of the annual appropriations to the dedicated           
capital. For the period from January 1, 1994 to March 31, 1997, the             
Operating Subsidiary did not report any profits in the statutory financial      
statements, and accordingly, no appropriation to dedicated capital has          
been made.                                                                      

i.   Use of estimates                                                           
----------------                                                      

The preparation of financial statements in conformity with generally            
accepted accounting principles in the United States of America requires         
management to make estimates and assumptions that affect    certain             
reported amounts and disclosures. Accordingly, actual results could differ      
from those estimates.                                                           

j.   Earnings per common share                                                  
-------------------------                                             

The calculation of primary earnings per common share is based on the            
weighted average number of common shares outstanding during the period          
ended March 31, 1996 and 1997. The calculation of fully diluted earnings        
per common share is based on the common shares outstanding during the           
periods ended March 31, 1996 and 1997 adjusted for the assumed conversion       
of the Company's US$30 million convertible Note B as mentioned in Note 1        
above and exercise of the stock options mentioned in Note 10.                   

The number of shares used in the computation was as follows:                    

                       1996           1997
                       ----           ----
Primary EPS computation                81,806,198      81,806,198               
Fully diluted EPS computation       1,076,293,694   1,075,293,694               

DEFR14A
51st Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 51st
4.   PROPERTY, PLANT AND EQUIPMENT                                              
-----------------------------                                         

                                  March 31,     December 31,
                                1997            1996
                                ------------    ------------
                                Rmb '000        Rmb '000

Road and bridges                         110,696         110,784      
Buildings                                    148             148      
Machinery and equipment                    3,975           3,804      
Motor vehicles                             3,328           3,084      
Furniture, fixtures and office equipment      38              38      
Construction-in-progress                 510,274         505,734      
Less : Accumulated depreciation          (13,353)        (12,233)     
                                ------------    ------------
Net book value                           615,106         611,359      
                                ============    ============

5.   LONG-TERM BANK LOANS                                                       
--------------------                                                  

Long-term bank loans, all of which are unsecured, bear average interest         
rates of approximately 14.66% as of December 31, 1996 and 14.70% as of          
March 31, 1997 and are repayable as follows:                                    

                                  March 31,     December 31,
                                1997            1996
                                ------------    ------------
                                Rmb '000        Rmb '000

1997                                      58,000          58,000      
1998                                      25,000          25,000      
1999                                      61,500          54,500      
2000                                      55,000          45,000      
2001                                      55,000          55,000      
2002                                      25,000               -      
                                ------------    ------------
                                   279,500         237,500
                                ============    ============

All the long-term bank loans are denominated in Renminbi. Loans amounting       
to Rmb159.5 million as of December 31,1996 and Rmb203.5 million as of           
March 31, 1997 respectively are guaranteed by a related company.                

6.   DISTRIBUTION OF PROFITS                                                    
-----------------------                                               

Dividends from the Operating Subsidiary will be declared based on the           
profits as reported in the statutory financial statements.  Such profits        
will be different from the amounts reported under U.S. GAAP. As of March        
31, 1997, the Operating Subsidiary had no available retained earnings for       
distribution.                                                                   

DEFR14A
52nd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 52nd
In the opinion of management, any undistributed earnings and/or losses of       
the Operating Subsidiary have been reinvested and will continue to be           
reinvested indefinitely.                                                        

7.   PROVISION FOR INCOME TAXES                                                 
--------------------------                                            

No provision for income taxes was provided in respect of the income derived     
from Hangzhou toll road since the tax holiday has been deferred until the       
CIP Projects are completed as mentioned in Note 12.                             

8.   RELATED PARTY TRANSACTIONS AND ARRANGEMENTS                                
-------------------------------------------                           

The Operating Subsidiary guaranteed bank borrowings of a related company        
of CSH in an amount of Rmb75 million and Rmb96 million as of December 31,       
1996 and March 31, 1997 respectively.                                           

CSH has undertaken to provide continuing financial support to the Company       
to the extent of CSH's interest in the Company for a period ending on           
December 31, 1997.                                                              

The Company paid management fees of US$155,000 (Rmb1,288,000) to CSH during     
1996 for administrative services rendered to the Company by CSH.                

9.   DUE TO CHINESE JOINT VENTURE PARTNER                                       
------------------------------------                                  

The amount due to Chinese joint venture partner as at December 31, 1996         
and March 31, 1997 represented money borrowed from the Chinese joint            
venture partner to finance the CIP Projects. These amounts are unsecured,       
bear interest at commercial rate and have no fixed repayment date.              

10.  STOCK OPTIONS                                                              
-------------                                                         

The following tables summarize the movement of share options of the             
Company.                                                                        

DEFR14A
53rd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 53rd
During 1987 and 1988, the Company issued five-year Common Stock options in      
conjunction with its financing activities to various promissory note            
holders and other selected creditors. During 1989, the Company issued five      
and ten-year stock options in an additional financing and extension of          
debt.                                                                           

Common stock options                                                            

                                                 1997       1996
                                                  ---------  ---------

Shares under option as at January 1,               150,000    150,000 
Issued                                                -          -    
Expired                                               -          -    
                                                  ---------  ---------
Shares under option as at March 31                 150,000    150,000 
                                                  =========  =========
Average exercise price of outstanding options      $ 0.156   $ 0.156  
                                                  =========  =========
Exercisable at end of period                       150,000    150,000 
                                                  =========  =========

In December 1991 the Board of Directors approved the issuance of Common         
Stock options to members of the Board of Directors.  The options were to        
expire in five years and be issued at 110% of market value on the date of       
grant.                                                                          

Common stock options                                                            

                                                 1997       1996
                                                  ---------  ---------

Option as at January 1                                -      1,000,000
Issued                                                -          -    
Expired                                               -          -    
                                                  ---------  ---------
Shares under option as at March 31                    -      1,000,000
                                                  =========  =========
Average exercise price of outstanding options         -      $  0.14  
                                                  =========  =========
Exercisable at end of period                          -      1,000,000
                                                  =========  =========

11.  COMMITMENTS                                                                
-----------                                                           

As of December 31, 1996 and March 31, 1997, the Operating Subsidiary had        
outstanding capital commitments for construction contracts related to its       
CIP projects amounting to approximately Rmb10,000,000 as of December 31,        
1996 and Rmb11.2 million as of March 31, 1997 may arise.  In the opinion of     
management, it is unlikely that a liability will arise.                         

12.  CONTINGENCY                                                                
------------                                                          

The Operating Subsidiary has obtained an approval from the local                
government to offset the toll revenue collected from the first phase of         
the toll road against the construction-in-progress balances until the CIP       
Projects are completed by the end of 1997. Thus the tax holiday has been        
deferred until the CIP Projects are completed. As such, the Operating           
Subsidiary reported zero net profits in its statutory financial statements      
starting from the commencement of operations in 1993 and will continue to       
do so until the CIP Projects are completed at the end of 1997. The company      
plans to record the net profits offset in the construction-in-progress          
account during 1993 to 1997 into income of the statutory financial              
statements of the Operating Subsidiary of the 1998 and / or 1999 fiscal         
years (i.e. the first two exemption years of the tax holiday). The plan is      
subject to the approval of the local tax bureau. Should such approval not       
be obtained from the local tax bureau, a tax liability amounting to             
approximately Rmb10 million as of December 31, 1996 and Rmb11.2 million as      
of March 31, 1997 may arise.  In the opinion of management, it is unlikely      
that a liability will arise.                                                    

13.  RETIREMENT PLANS                                                           
----------------                                                      

As stipulated by the regulations of the Chinese government, all of the          
Chinese staff of the Operating Subsidiary are entitled to an annual             
pension on retirement, which is equal to their basic salaries at their          
retirement dates. The Chinese government is responsible for the pension         
liability to retired staff. The Operating Subsidiary is only required to        
make specified contributions to the state-sponsored retirement plan             
calculated at 23% of the basic salary of the staff. The expense reported        
in the consolidated financial statements related to these arrangements was      
Rmb23,000 and Rmb31,000 for the three months ended March 31, 1996 and 1997      
respectively.                                                                   

DEFR14A
54th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 54th
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND        
RESULTS OF OPERATIONS                                                           

Overview of Recent Transactions:                                                

On September 10, 1996, the  Company acquired all the issued and outstanding     
shares of Westronix Limited, a British Virgin Islands corporation               
("Westronix"), from China Strategic Holdings Limited, a Hong Kong company       
("CSH") pursuant to the terms of the Acquisition Agreement  entered into on     
September 10, 1996.  Westronix's sole asset is a 100% equity interest in        
China Construction Holdings Limited, a Hong Kong company ("China                
Construction") which owns 51% joint venture interest in Hangzhou Zhongche       
Huantong  Development Co., Ltd. ("HZHD"), a Sino-foreign joint venture          
established in Hangzhou, Zhejiang Province, the People's Republic of China      
("China") on June 23, 1993.                                                     

On September 11, 1996, the  Company disposed of all the issued and              
outstanding shares of Acewin Profits Limited, a British Virgin Islands          
corporation ("Acewin"), to BTR China Holdings B.V., a Netherlands company       
(the "Purchaser") pursuant to the terms of the agreement relating to the        
sale and purchase of the entire issued share capital of Acewin entered into     
on September 11, 1996.  On February 19, 1996, the Company had acquired all      
the issued and outstanding shares of Acewin, from CSH.                          

The Board of Directors of the Company determined that disposal of Wuxi was      
in the best interest of the Company and was advantageous to the Company's       
plans to concentrate the resources of the Company in infrastructure projects    
in China in connection with the  Company 's recent acquisition.                 

As of March 31, 1997, the Company had the following subsidiaries:               

Westronix Limited ("WL") - a holding company incorporated in the British        
Virgin Islands.                                                                 

China Construction Holdings Limited ("CCHL") - a company incorporated in        
Hong Kong and formally known as China Construction International Group          
Limited.                                                                        

Hangzhou Zhongche Huantong Development Co., Ltd. ("HZHD"), a Sino-foreign       
equity joint venture located in Hangzhou, Zhejiang Province, China.             

The Company holds a 100% interest in WL.  WL holds a 100% interest in CCHL      
which in turn holds a 51% interest in HZHD.                                     

Business:                                                                       

HZHD has been established to develop the construction project called            
"Hangzhou Ring Road".  The Hangzhou Ring Road is designed to direct the         
congested traffic outside the city of Hangzhou.  The city of Hangzhou, which    
covers an area of approximately 16,000 square kilometers and has a              
population of approximately 5.6 million, is the capital of Zhejiang Province    
in China.  The city is located about 150 kilometers from Shanghai and has       
experienced rapid growth in its light manufacturing industry in recent          
years, most notably in electronic instruments, refined chemicals, machinery     
and electrical appliances.                                                      

DEFR14A
55th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 55th
When the toll road is fully completed, it will be 38.2 km long and comprised    
of:                                                                             

-13.2 km of existing Class 2 wide single carriageway linking Jichang            
(Airport) Road to Xiangfuqiao. The traffic capacity is estimated at about       
20,000 vehicles per day (two way flow).                                         

-25.0 km of Class 1 construction (6km of four-lane wide single carriageway      
with slow lanes and 19km of dual two-lanes with hard shoulders for              
emergency) including 21 bridges and three grade-separated junctions. The        
implementation of this section of the toll road consists of two phases:         
Northwest section (Xiangfuqiao to Liuxai, 13.7 km) which was completed in       
December, 1996 and West section (Liuxai to Lingjiaqiao, 11.3 km), which is      
under construction and is expected to be completed by the end of fiscal         
1997.  This section encompasses extensive bridge works including:               

*  river crossing bridges                                                       
*  bridges for road interchanges                                                
*  underpasses and underground crossings for pedestrians and vehicles           

The section of the road from Jichang Road to Xiangfuqiao is now in            
operation and has been generating revenues from toll collection from the        
toll plazas at Xiangfuqiao. The section from Xiangfuqiao to Liuxai was          
completed in 1996 and obtained approval from the government to collect          
tolls. The section from Liuxai to Lingjiaqiao is expected to be completed by    
the end of 1997. Upon full completion, toll plazas are expected to operate      
at Xiangfuqiao (already in operation), Liuxai and Lingjiaqiao.  The toll        
plazas are currently utilizing electronic surveillance systems along with       
computerized toll collection systems.                                           

The three months ended March 31, 1997 marked a significant page in the          
Company's history. In February, the Zhejiang provincial government granted      
approval to the Operating Subsidiary to start collecting toll fees on the       
second phase of the toll road commencing March 1997.  The second phase was      
completed in November, 1996.   Concurrently, the toll rates for the second      
phase of the road proposed by the Operating Subsidiary were also approved.      
Revenue contribution from the new section will further strengthen the           
profitability and liquidity position of the Company.                            

Results of operation                                                            
Summary financial information                     Three months ended            
-----------------------------                     ------------------            
                                         March 31,
                                         ---------
                                      1997          1996
                                      ----          ----

                                      Rmb '000      Rmb '000

Toll revenue                                       9,502         7,657          
General and administrative expenses                4,732         2,689          
Exchange gain / (loss)                                14          (164)         
Loss from discontinued operations                      -        (1,149)         
Net income                                         1,697         1,098          

DEFR14A
56th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 56th
Toll revenue                                                                    

Toll revenue increased by 21.5% or Rmb1,679,000 in the three months ended       
March 31, 1997 as compared with the same period last year. With toll fees       
for the two periods under discussion remaining intact, this increase was a      
direct result of increased traffic flow, which went up from 774,550 vehicles    
in 1996 to 944,000 vehicles in 1997. Management is optimistic about the         
future revenue generation ability of Hangzhou toll road, particularly since     
the second phase of the toll road has been completed and will generate toll     
revenue in full capacity very soon. In addition, the third and final phase      
of the toll road is expected to be completed by the end of 1997 and should      
become operative in the 1998 fiscal year.                                       

General and Administrative Expenses                                             

During the three months ended March 31, 1997, general and                       
administrative expenses increased by Rmb 2,043,000 or 76% as compared to Rmb    
2,689,000 for the three months ended March 31, 1996. This was primarily         
attributable to additional professional fees incurred and the interest          
payable on the US$30 million convertible note in excess of the interest         
income generated from the US$ 900,000 note receivable.  As far as the           
Operating Subsidiary is concerned, general and administrative expenses as a     
percentage of toll revenue increased slightly from 31.8% in the first           
quarter of 1996 to 33.7% in 1997.                                               

Exchange Gain                                                                   

Exchange gain represents the favorable exchange difference arising from         
re-measurement of various reporting currencies of the companies within the      
Group into Renminbi, which is the Group's functional currency. At the end       
of the three months ended March 31, 1997, the Renminbi appreciated by           
approximately 0.03% when compared with the position at the beginning of the     
period. Consequently, a marginal gain of Rmb14,000 was recorded upon            
translation of foreign currency denominated assets and liabilities into         
Renminbi.  This contrasted with an exchange loss of Rmb164,000 for the three    
months ended March 31, 1996, when the Renminbi depreciated by approximately     
0.2%.                                                                           

Net Income                                                                      

During the three months ended March 31, 1997, net income increased 54.6% to     
Rmb1,697,000 as compared to Rmb1,098,000 in the three months ended March 31,    
1996.  Net income increased primarily by the combined effect of                 
increases in toll revenue and non-recurrence of loss from discontinued          
operations.  Loss from discontinued operations represents the operating         
loss of Regal Bell and Rubber, which had been spun-off in January, 1996.        

Liquidity and Capital Resources                                                 

For the three months ended March 31, 1997, net cash used in operating           
activities and investing activities was approximately Rmb41.9 million and       
Rmb24.5 million respectively.  Net cash provided by financing activities        
amounted to Rmb55.0 million, resulting in a net increase in cash and cash       
equivalents of approximately Rmb10.9 million for the three months ended         
march 31, 1997.                                                                 

Cash from operating activities was mainly used in settlement of accrued         
expenses and other payables which were reduced by approximately Rmb52.5         
million for the three months ended March 31, 1997.  The remaining shortfall     
in operating cash and capital expenditures of approximately Rmb2.2 million      
incurred during the quarter were financed principally through bank              
borrowings of Rmb54.5 million.                                                  

The Operating Subsidiary has been able to raise funds from banks for            
financing the construction of the second and third phases of the toll           
road. The second phase has now been completed and the third phase would         
follow by the end of fiscal year 1997. The Company anticipates that in          
1998 the Operating Subsidiary will generate significant toll revenue from       
all three phases of the toll road, and such revenue can then be used to         
repay its bank loans.  The Company anticipates that its cash flows from         
operations, combined with cash and cash equivalents, bank lines of credit       
and other external sources of financing, are adequate to finance the            
Company's operating and debt service requirements for the foreseeable           
future.                                                                         

DEFR14A
57th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 57th
Effects of Inflation                                                            

In recent years, the Chinese economy has experienced periods of rapid growth    
and high rates of inflation, which have, from time to time, led to the          
adoption by the PRC government of various corrective measures designed to       
regulate growth and contain inflation.  The general inflation rate in terms     
of the Retail Price Index in China was approximately 21.7%, 14.8%  and 6.3%     
for 1994, 1995 and 1996, respectively.  The Chinese government has              
implemented and maintained an economic program designed to control              
inflation, which has resulted in the tightening of working capital available    
to Chinese business enterprises.  The success of the Company depends in         
substantial part on the continued growth and development of the Chinese         
economy.  Management believes that inflation has not had significant            
impact on the Operating Subsidiary. Inflation has resulted in upward            
pressure on wages and salaries for employees and other operating expenses       
at the Operating Subsidiary. However, management does not expect inflation      
to have a material effect on profit margins and income since the                
Operating Subsidiary has been effective in controlling costs.                   

DEFR14A
58th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 58th
Financial Statements of Westronix Limited                                       
-----------------------------------------                                       

          WESTRONIX LIMITED AND SUBSIDIARIES
          ----------------------------------

         CONSOLIDATED FINANCIAL STATEMENTS
          ----------------------------------
       AS OF DECEMBER 31,1994 AND 1995
       -------------------------------
         TOGETHER WITH AUDITORS' REPORTS
       -------------------------------

DEFR14A
59th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 59th
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                        

To Westronix Limited:                                                           

We have audited the accompanying consolidated balance sheets of Westronix       
Limited (incorporated in the British Virgin Islands) and its subsidiaries       
as of December 31, 1994 and 1995, and the related consolidated statements       
of income, cash flows and changes in shareholders' equity for the period        
from June 23, 1993 to December 31, 1993 and the years ended December 31,        
1994 and 1995, expressed in Chinese Renminbi.                                   

These financial statements are the responsibility of the Company's          
management. Our responsibility is to express an opinion on these financial      
statements based on our audit.                                                  

We conducted our audit in accordance with generally accepted auditing           
standards in the United States of America.  Those standards require that        
we plan and perform the audit to obtain reasonable assurance about whether      
the financial statements are free of material misstatement.  An audit           
includes examining, on a test basis, evidence supporting the amounts and        
disclosures in the financial statements.  An audit also includes assessing      
the accounting principles used and significant estimates made by                
management, as well as evaluating the overall financial statement               
presentation.  We believe that our audit provides a reasonable basis for        
our opinion.                                                                    

In our opinion, the consolidated financial statements referred above            
present fairly, in all material respects, the financial position of             
Westronix Limited and its subsidiaries as of December 31, 1994 and 1995,        
and the results of their operations and their cash flows for the period         
from June 23, 1993 to December 31, 1993 and the years ended December 31,        
1994 and 1995 in conformity with generally accepted accounting principles       
in the United States of America.                                                

Hong Kong,                                                                      
November 5,1996.                                                                
 1

DEFR14A
60th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 60th
                                                        [Enlarge/Download Table]

                      WESTRONIX LIMITED AND SUBSIDIARIES                                          
                      ----------------------------------                                          

                      CONSOLIDATED STATEMENTS OF INCOME                                           
                      ---------------------------------                                           
       FOR THE PERIOD FROM JUNE 23, 1993 TO DECEMBER 31, 1993 AND                                 
       --------------------------------------------------------                                   
       FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 (AUDITED) AND                               
       ------------------------------------------------------------                               
       FOR THE SIX MONTHS ENDED JUNE 30,1995 AND 1996 (UNAUDITED)                                 
       ----------------------------------------------------------                                 
                          (Amounts in thousands)                                                  



                    Period from                                                                   
                   June 23,1993                                                                   
                        to             Year ended December 31,     Period ended June 30,          
                    December 31,                                                                  
                   -------------    ----------------------------   ----------------------------   
                       1993           1994      1995      1995       1995      1996      1996     
                   -------------    --------  --------  --------   --------  --------   -------   
                       Rmb            Rmb        Rmb       US$        Rmb       Rmb        US$    
                                                               (unaudited) (unaudited) (unaudited)
                                                                                                  
Toll revenue             10,462       37,614    37,206     4,472     19,635    18,410     2,213   

General and administrative                                                                        
   expenses              (2,687)      (9,615)  (10,517)   (1,264)    (5,165)   (5,020)     (603)  

Exchange gain               378        3,494     1,417       170      1,417        37         4   
                   -------------    --------  --------  --------   --------  --------   -------   
   Income before income                                                                           
     taxes and minority                                                                           
     interests            8,153       31,493    28,106     3,378     15,887    13,427     1,614   

Provision for income taxes    -            -         -         -          -         -         -   
                    -------------    --------  --------  --------   --------  --------   -------  
   Income before minority                                                                         
     interests            8,153       31,493    28,106     3,378     15,887    13,427     1,614   

Minority interests       (3,817)     (13,776)  (13,087)   (1,573)    (7,095)   (6,566)     (789)  
                   -------------    --------  --------  --------   --------  --------   -------   
   Net income             4,336       17,717    15,019     1,805      8,792     6,861       825   
                   =============    ========  ========  ========   ========  ========   ========  


Translation of amounts from Renminbi (Rmb) into United States Dollars (US$)     
for the convenience of the reader has been made at the unified exchange         
rate quoted by the Bank of China on June 30,1996 of US$1.00 = Rmb8.32. No       
representation is made that the Renminbi amounts could have been, or could      
be, converted into United States Dollars at that rate on December 31, 1995      
and June 30, 1996 or at any other certain rate.                                 

The accompanying notes are an integral part of these consolidated               
statements of income.                                                           

2       

DEFR14A
61st Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 61st
                                                        [Enlarge/Download Table]
                   WESTRONIX LIMITED AND SUBSIDIARIES                                            
                   ----------------------------------                                            

                  CONSOLIDATED BALANCE SHEETS AS OF                                              
                  ----------------------------------                                             
                 DECEMBER 31, 1994, 1995 (AUDITED) AND                                           
                 -------------------------------------                                           
                     AS OF JUNE 30, 1996 (UNAUDITED)                                             

     (Amounts in thousands, except number of shares and share data)                              



                                            December 31,                          June 30,       
                                 --------------------------------------------------------------  
                                    1994          1995         1995         1996         1996    
                                 ----------   ----------   ----------   ----------   ----------  
                                     Rmb           Rmb          US$          Rmb          US$    
                                                                         (unaudited)  (unaudited)
                                                                                                 
ASSETS                                                                                           
------                                                                                           
Current assets                                                                                   
  Cash and cash equivalents         71,015       22,172        2,665        7,613          915   
  Prepayments and deferred expenses    598          452           54        1,258          151   
  Other receivables and                                                                          
    other current assets                60          300           36          247           30   
                                 ----------   ----------   ----------   ----------   ----------  
Total current assets                71,673       22,924        2,755        9,118        1,096   
                                 ----------   ----------   ----------   ----------   ----------  

Prepayments for                                                                                  
  construction-in- progress         28,807       29,789        3,580       17,894        2,151   
Property, plant and equipment, net 179,883      350,861       42,171      422,352       50,763   
                                 ----------   ----------   ----------   ----------   ----------  

Total assets                       280,363      403,574       48,506      449,364       54,010   
                                 ==========   ==========   ==========   ==========   ==========  
LIABILITIES AND SHAREHOLDERS'                                                                    
  EQUITY                                                                                         
-----------------------------                                                                    
Current liabilities                                                                              
  Short-term bank loans              8,000            -            -       10,000        1,202   
  Accounts payable                     840       21,195        2,547       16,879        2,029   
  Accrued expenses and                                                                           
     other payables                  4,832       10,191        1,225        3,909          468   
  Taxes other than income              115          107           13          101           12   
  Due to related companies           2,500        1,300          180            -            -   
                                 ----------   ----------   ----------   ----------   ----------  

Total current liabilities           16,287       32,993        3,965       30,889        3,711   
                                 ----------   ----------   ----------   ----------   ----------  

Long-term bank loans                28,000       97,500       11,719      127,500       15,325   
Due to Chinese joint                                                                             
  venture partner                        -       10,500        1,262       15,000        1,803   
Due to China Strategic                                                                           
  Holdings Limited                  98,441       96,940       11,639       96,806       11,635   
Minority interests                 115,594      128,691       15,466      135,248       16,256   
Commitments and contingency (Notes 6 & 13)                                                       

Shareholders' equity:                                                                            

Common stock, par value                                                                          
  US$1 each; 50,000                                                                              
  shares authorized;                                                                             
  1 share outstanding                    1            1            1            1           1    
Retained earnings                   22,040       37,059        4,454       43,920       5,279    
                                 ----------   ----------   ----------   ----------   ----------  

Total shareholders' equity          22,041       37,060        4,455       43,921       5,280    
                                 ----------   ----------   ----------   ----------   ----------  

Total liabilities and                                                                            
  shareholders' equity             280,363      403,574       48,506      449,364      54,010    
                                 ==========   ==========   ==========   ==========   ==========  


Translation of amounts from Renminbi (Rmb) into United States Dollars (US$)     
for the convenience of the reader has been made at the unified exchange         
rate quoted by the Bank of China on June 30, 1996 of US$1.00 = Rmb8.32. No      
representation is made that the Renminbi amounts could have been, or could      
be, converted into United States Dollars at that rate on December 31, 1995      
and June 30, 1996 or at any other certain rate.                                 

The accompanying notes are an integral part of these consolidated               
balance sheets.                                                                 

3         

DEFR14A
62nd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 62nd
                                                        [Enlarge/Download Table]

                    WESTRONIX LIMITED AND SUBSIDIARIES                                              
                    -----------------------------------                                             
                CONSOLIDATED STATEMENTS OF CASH FLOWS                                               
               ---------------------------------------                                              
        FOR THE PERIOD FROM JUNE 23, 1993 TO DECEMBER 31, 1993 AND                                  
        ----------------------------------------------------------                                  
      FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 (AUDITED) AND                                  
      ------------------------------------------------------------                                  

       FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)                                  
       -----------------------------------------------------------                                  

                             (Amounts in thousands)                                                 


                        Period from                                                                 
                       June 23,1993                                                                 
                            to                                                                      
                       December 3l,        Year ended December 31,         Period ended June 30,    
                       -----------   ------------------------------   ------------------------------
                           1993        1994       1995       1995       1995       1996       1996  
                       -----------   --------   --------   --------   --------   --------   --------
                           Rmb          Rmb        Rmb        US$       Rmb        Rmb         US$  
                                                                 (unaudited) (unaudited) (unaudited)
                                                                                                    
Cash flows from operating                                                                           
  activities:                                                                                       

Net income                   4,336     17,717     15,019      1,805      8,792      6,861       825 
Adjustments to reconcile                                                                            
  net income to net cash                                                                            
  provided by operating                                                                             
  activities:                                                                                       
  Minority interests         3,817     13,776      13,087     1,573      7,095      6,566       789 
  Depreciation and                                                                                  
    amortization               963      3,847       4,173       502      2,160      2,102       253 
  Loss on disposal of                                                                               
    fixed assets                 -         -           19         2          -          -         - 
(Increase) decrease in                                                                              
  assets:                                                                                           
  Prepayments and                                                                                   
    deferred expenses         (581)       (42)         91        11        (90)      (843)     (101)

  Other receivables and                                                                             
    other current assets    (1,816)     1,755        (239)      (29)      (208)        53         6 
Increase (decrease:) in                                                                             
  liabilities:                                                                                      
  Accounts payable               -        840      20,355     2,447      3,536     (4,316)     (519)
  Accrued expenses and                                                                              
    other payables             205      1,649      (3,526)     (424)       787     (8,874)   (1,067)
  Taxes other than                                                                                  
    income                      98         17          (9)       (1)       (23)        (5)       (1)
                        -----------   --------   ---------   -------   --------   --------   -------

Net cash provided by                                                                                
  operating activities       7,022     39,559      48,970     5,886     22,049      1,544       185 
                         ----------   --------   ---------  --------   --------   --------   -------
Cash flows from investing                                                                           
  activities!                                                                                       
    Prepayments for                                                                                 
      construction-in-                                                                              
      progress                (567)   (28,240)      (982)      (118)    (6,302)    11,895     1,430 
                        -----------   --------   --------   --------   --------   --------   -------

  Acquisition of property,                                                                          
    plant and equipment    (39,569)   (41,681)  (166,230)   (19,980)   (43,550)   (70,964)   (8,530)
                         ----------   --------   --------   --------   --------   --------   -------

Net cash used in investing                                                                          
  activities               (40,136)   (69,921)  (167,212)   (20,098)   (49,852)   (59,069)   (7,100)
                         ----------   --------   --------   --------   --------   --------   -------

                                     4                                                              


DEFR14A
63rd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 63rd
                                                        [Enlarge/Download Table]
                   WESTRONIX LIMITED AND SUBSIDIARIES                                               
                   ----------------------------                                                     
                  CONSOLIDATED STATEMENTS OF CASH FLOWS                                             
                  -------------------------------------                                             
         FOR THE PERIOD FROM JUNE 23, 1993 TO DECEMBER 31, 1993 AND                                 
         ----------------------------------------------------------                                 
        FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 (AUDITED) AND                                
       -------------------------------------------------------------                                
         FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)                                
        ------------------------------------------------------------                                

                          (Amounts in thousands)                                                    



                              Period from                                                           
                            June 23, 1996                                                           
                                  to         Year ended December 31,        Period ended June 30,   
                              December 31,                                                          
                         ---------------------------------------------------------------------------
                                  1993      1994      1995      1995      1995      1996      1996  
                                --------  --------  --------  --------  --------  --------  --------
                                   Rmb       Rmb       Rmb       US$       Rmb       Rmb       US$  
                                                                 (unaudited) (unaudited) (unaudited)
                                                                                                    
Cash flows from financing                                                                           
  activities:                                                                                       
  Proceeds of bank loans         10,000   35,500    114,945     13,816     9,000    40,000     ,808 
  Repayment of bank loans             -   (9,500)   (33,445)    (6,424)   (8,000)        -        - 
  Due to related companies            -    2,500     (1,000)      (120)   (2,500)   (1,500)    (180)
Due to Chinese joint                                                                                
  venture partner                23,748  (23,748)     10,500     1,262     5,500     4,500      541 
  Due to China Strategic                                                                            
    Holdings Limited               (373)  68,252     (1,601)     (192)   (1,414)      (34)       (4)
                                --------  --------  --------  --------  --------  --------  --------
Net cash provided by                                                                                
  financing activities           33,375    73,004    69,399     8,342     2,586    42,966     5,165 
                                --------  --------  --------  --------  --------  --------  --------

Net increase (decrease) in                                                                          
  cash and cash equivalents         261    42,642   (48,843)    5,870)   (25,217)  (14,559)  (1,750)

Cash and cash equivalents, at                                                                       
  beginning of period/year       28,112    28,373    71,015     8,535    71,015     22,172    2,665 
                                --------  --------  --------  --------  --------  --------  --------

Cash and cash equivalents, at                                                                       
  end of period/year             28,373    71,015    22,172     2,665    45,798     7,613       915 
                                ========  ========  ========  ========  ========  ========  ========


Translation of amounts from Renminbi (Rmb) into United States Dollars           
(US$) for the convenience of the reader has been made at the unified            
exchange rate quoted by the Bank of China on June 30, 1996 of US$1.00 =         
Rmb8.32.  No representation is made that the Renminbi amounts could have        
been, or could be, converted into United States Dollars at that rate on         
December 31, 1995 and June 30, 1996 or at any other certain rate.               

The accompanying notes are an integral part of these consolidated               
statements of cash flows.                                                       

5     

DEFR14A
64th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 64th
WESTRONIX LIMITED AND SUBSIDIARIES    
----------------------------------    

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
FOR THE PERIOD FROM JUNE 23, 1993 TO DECEMBER 31, 1993 AND    
----------------------------------------------------------    
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 (AUDITED) AND    
-------------------------------------------------------------     
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)   

(Amounts in thousands, except number of shares)   

Shares of                 
      Common    Common    Retained
                 Stock     Stock     Earnings    Total
                 --------   --------   --------   --------
                 Number     Rmb        Rmb         Rmb

Balance at June 23, 1993          1          1         (13)       (12)          
Net income                        -          -       4,336      4,336           
                 --------   --------   --------   --------

Balance at December 31, 1993      1          1       4,323     4,324            
                 --------   --------   --------   --------

Net income                        -          -      17,717     17,717           
                 --------   --------   --------   --------

Balance at December 31, 1994      1          1      22,040     22,041           
                 --------   --------   --------   --------

Net income                        -          -      15,019     15,019           
                 --------   --------   --------   --------

Balance at December 31, 1995      1          1      37,059     37,060           

Net income (unaudited)            -          -       6,861      6,861           
                 --------   --------   --------   --------

Balance at June 30,1996                                                         
(unaudited)                     1          1      43,920     43,921         
                 ========   ========   ========   ========

The accompanying notes are an integral part of these consolidated               
statements of changes in shareholders equity.                                   

6           

DEFR14A
65th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 65th
WESTRONIX LIMITED AND SUBSIDIARIES        
----------------------------------        

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS          

(Amounts in thousands, except number of shares,           
per share data and unless otherwise stated)           

1.    ORGANIZATION AND PRINCIPAL ACTIVITIES                                     
--------------------------------------------                                    

Westronix Limited ("the Company") was incorporated in the British Virgin        
Islands on July 3, 1996 with an authorized share capital of 50,000 common       
shares with a par value of US$1 each.  One share was issued at par value        
to China Strategic Holdings Limited ("CSH") (formerly known as China            
Strategic Investment Limited), a company incorporated in Hong Kong whose        
shares are listed on the Stock Exchange of Hong Kong.                           

The Company is a holding company established to hold a 100% interest in         
China Construction International Group Limited ("CCIG" - formally known as      
China Construction International Limited and Cassia Taste Limited), a           
company incorporated in Hong Kong.  CCIG, in turn, holds a 51% interest in      
Hangzhou Zhongche Huantong Development Co., Ltd. (the "Operating                
Subsidiary" or "Hangzhou toll road").  The Company's interest in Hangzhou       
toll road was transferred from CSH pursuant to a shareholders' resolution       
dated August 28, 1996.                                                          

Hangzhou toll road is a Sino-foreign equity joint venture enterprise            
established on June 23, 1993, which formally began business operation in        
September 1993 in the City of Hangzhou, Zhejiang Province in the People's       
Republic of China (the "PRC").  The total cash consideration paid by CCIG       
for its interest in Hangzhou toll road amounted to Rmb102,000 at the date       
of acquisition.  Tolls collected from the existing portion of the toll          
road ("the first phase"), which was injected by the Chinese joint venture       
partner, Hangzhou City Transportation Development Company, and cash             
injected by CSH will be used to finance the construction of second and          
third phases of the toll road (the "CIP Projects") which are expected to        
be completed by the end of fiscal year 1997.  Hangzhou toll road will           
collect toll from all three phases of the toll road after the CIP Projects      
are completed.                                                                  

Key provisions of the joint venture agreement of Hangzhou toll road             
include:                                                                        

the joint venture period is 30 years from the date of formation;            

the profit and loss sharing ratio is the same as the percentage of          
equity interest; and                                                            
the Board of Directors consists of 7 members: 4 designated by CCIG and 3    
designated by Hangzhou City Transportation Development Company, the             
Chinese joint venture partner of Hangzhou toll road.                            

7         

DEFR14A
66th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 66th
1.  ORGANIZATION AND PRINCIPAL ACTIVITIES (Cont'd)                              
-------------------------------------------------                               

The acquisition of the Operating Subsidiary by CCIG was accounted for by        
the purchase method of accounting.  The tangible assets were valued at          
their estimated fair value.  The results of the Operating Subsidiary are        
included in the consolidated statements of income from the effective date       
of the joint venture, June 23, 1993.  No revenue was generated from the         
toll road before the formation of the joint venture.                            

The transfer of CSH's interest in CCIG to the Company was accounted for as      
a reorganization of companies under common control and similar to a pooling     
of interests.  The accompanying consolidated financial statements of the        
Company have been restated to present the transfer of CSH's interest in         
CCIG to the Company as if it had occurred on June 23, 1993.                     

Hangzhou toll road operates in the PRC and accordingly is subject to            
special considerations and significant risks not typically associated with      
investments in equity securities of United States and Western European          
companies.  These include risks associated with, among others, the              
political, economic and legal environments and foreign currency exchange.       
These are described further in the following paragraphs:                        

Political Environment                                                           

The value of the Company's interests in the Operating Subsidiary may be         
adversely affected by changes in policies by the Chinese government             
including, among others: changes in laws, regulations or the interpretation     
thereof; confiscatory taxation; restrictions on foreign currency                
conversion, imports or sources of suppliers; or the expropriation or            
nationalization of private enterprises.                                         

Economic Environment                                                            

The economy of the PRC differs significantly from the economies of the          
United States and Western Europe in such respects as structure, level of        
development, gross national product, growth rate, capital reinvestment,         
resource allocation, self-sufficiency, rate of inflation and balance of         
payments position, among others.  Only recently has the Chinese government      
encouraged substantial private economic activities.                             

The Chinese economy has experienced significant growth in the past five         
years, but such growth has been uneven among various sectors of the             
economy and geographic regions.  Actions by the Chinese central government      
to control inflation have significantly restrained economic expansion           
recently.  Similar actions by the central government of the PRC in the          
future could have a significant adverse effect on economic conditions in        
the PRC and the economic prospects for the Operating Subsidiary and the         
Company.                                                                        

8       

DEFR14A
67th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 67th
1.    ORGANIZATION AND PRINCIPAL ACTIVITIES (Cont'd)                            
---------------------------------------------------                             

Foreign Currency Exchange                                                       

The Chinese central government imposes control over its foreign currency        
reserves through control over imports and through direct regulation of the      
conversion of its national currency into foreign currencies.  As a result,      
the Renminbi is not freely convertible into foreign currencies.                 

The Operating Subsidiary conducts substantially all of its business in the      
PRC, and its financial performance and condition are measured in terms of       
Renminbi.  The Operating Subsidiary's source of income, toll revenue, is        
denominated in Renminbi.  Revenues and profits have to be converted to          
United States Dollars or Hong Kong Dollars to pay dividends to the              
Company.  Should the Renminbi devalue against the United States Dollar,         
such devaluation would have a material adverse effect on the Company's          
profits measured in foreign currency and reduce the foreign currency that       
could be repatriated by the Operating Subsidiary to the Company.  The           
Company currently is not able to hedge its Renminbi - United States             
Dollars exchange rate exposure in the PRC because neither the banks in the      
PRC nor any other financial institution authorized to engage in foreign         
exchange transactions offer forward exchange contracts.                         

Legal System                                                                    

Since 1979, many laws and regulations dealing with economic matters in          
general and foreign investment in particular have been enacted in the PRC.      
However, the PRC still does not have a comprehensive system of laws and         
enforcement of existing laws may be uncertain and sporadic.                     

Toll Revenue                                                                    

Any increase in toll rates proposed by the Operating Subsidiary is subject      
to approval by the Hangzhou Municipal Government and Hangzhou City              
Transportation Department.  However, there are no assurances that such          
proposal will be approved by these government authorities.  If such             
approvals proposals are denied, profit margins of the operating subsidiary      
will be reduced.                                                                

9             

DEFR14A
68th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 68th
2.    BASIS OF PRESENTATION                                                     

The accompanying consolidated financial statements were prepared in             
accordance with generally accepted accounting principles in the United          
States of America ("U.S. GAAP").  This basis of accounting differs from         
that used in the statutory financial statements of the Operating                
Subsidiary, which were prepared in accordance with the accounting               
principles and the relevant financial regulations applicable to joint           
venture enterprises as established by the Ministry of Finance of China          
("PRC GAAP").                                                                   

The principal adjustments made to conform the statutory financial               
statements of the Operating Subsidiary to U.S. GAAP included the following:     

Restatement of monetary assets and liabilities denominated in foreign       
currencies to reflect the exchange rates prevailing at the balance              
sheet dates; and                                                                

Recognition of toll revenue on the accrual basis and upon the               
commencement of operations.                                                     

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                 
-----------------------------------------------                                 

a.   Basis of Consolidation                                                     
----------------------                                                

The consolidated financial statements include the financial statements of       
the Company and its majority-owned subsidiaries.  All material intercompany     
balances and transactions have been eliminated on consolidation.                

b.   Toll revenue                                                               
------------                                                          

Toll revenue represents the gross receipts at the toll stations, net of         
business tax calculated at 3.0% of the gross toll receipts                      

10            

DEFR14A
69th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 69th
3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)                        
--------------------------------------------------------                        

c.   Cash and Cash Equivalents                                                  
-------------------------                                             

Cash and cash equivalents include cash on hand, demand deposits with banks      
and liquid investments with an original maturity of one year or less.  Cash     
and cash equivalents included United States Dollar deposits of US$8,280         
(Rmb69,733), US$1,078 (Rmb8,967) and US$128 (Rmbl,071) (unaudited) as of        
December 31, 1993, 1994, 1995 and June 30, 1996 respectively.  Deposits of      
US$700 (Rmb5,824) as of December 31, 1995 were used to guarantee bank loans     
of a related company.                                                           

d.   Property, Plant and Equipment                                              
-----------------------------                                         

Property, plant and equipment are stated at cost less accumulated               
depreciation.  Depreciation of property, plant and equipment is computed        
using the straight line method over the assets' estimated useful lives,         
taking into account the estimated residual value of 10% (except for roads       
and bridges which have no residual value) of the cost of the assets.  The       
estimated useful lives are as follows:                                          

Roads and bridges                         30 years                    
Buildings                                 20 years                    
Machinery and equipment                    5 years                    
Motor vehicles                             5 years                    
Furniture, fixtures and office equipment   5 years                    

Construction-in-progress ("CIP" see Note 4) represents new roads and            
bridges under construction and plant and machinery pending installation.        
This includes the costs of construction, the costs of plant and machinery       
and interest charges (net of interest income), arising from borrowings used     
to finance these assets during the period of construction or installation.      
Interest capitalized amounted to Rmb1,752, Rmb6,778, Rmb2,566 (unaudited)       
and Rmb9,148 (unaudited) respectively for the period ended December 31,         
1993 and for the years/periods ended December 31, 1994, 1995 and June 30,       
1996 respectively.                                                              

11    

DEFR14A
70th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 70th
3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)                        
--------------------------------------------------------                        

e.   Taxation: Income Taxes                                                     
----------------------                                                

The Company was incorporated under the laws of the British Virgin Islands,      
and under current British Virgin Islands law, the Company is not subject to     
tax on income or on capital gains.                                              

The Company and its subsidiaries provide for Hong Kong profits tax on the       
basis of its income for financial reporting purposes, adjusted for income       
and expense items which are not assessable or deductible for profits tax        
purposes.  The Company and its subsidiaries has had no profits assessable       
for Hong Kong profits tax purposes.                                             

Hangzhou toll road is subject to Chinese income taxes at the applicable tax     
rate for Sino-foreign equity joint venture enterprises (currently 33%) on       
the taxable income as reported in its statutory accounts adjusted in            
accordance with the relevant income tax laws.  Since it has a joint             
venture term of not less than 10 years and is engaged in infrastructure         
construction, Hangzhou toll road will be fully exempt from Chinese state        
unified income tax of 30% as well as the local income tax of 3% for two         
years starting from the first profit-making year followed by a 50%              
reduction of the Chinese state unified income tax for the next three years      
("tax holiday").                                                                

If the Operating Subsidiary had not been in the tax holiday period, the         
Company would have recorded additional income tax expense of Rmb3,236,          
Rmb10,000, Rmb9,901, Rmb5,322 (unaudited) and Rmb4,966 (unaudited) and net      
income of the Company would have been reduced by Rmb1,651, Rmb,5,100,           
Rmb5,050, Rmb2,714 and Rmb2,533 (unaudited) for the period/years ended          
December 31, 1993, 1994, 1995 and for the six months ended June 30, 1996        
respectively (See Note 13)                                                      

The Company provides for deferred income taxes using the liability method,      
by which deferred income taxes are recognized for all significant temporary     
differences between the tax and financial statement bases of assets and         
liabilities.  The tax consequences of those differences are classified as       
current or non-current based upon the classification of the related assets      
or liabilities in the financial statements.                                     

12            

DEFR14A
71st Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 71st
3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)                        
--------------------------------------------------------                        

f.  Taxation: Business Tax                                                      
----------------------                                                

Prior to December 31, 1993, the Operating Subsidiary was subject to             
Consolidated Industrial and Commercial Tax ("CICT") at a rate of 3.03% on       
the gross toll revenue.                                                         

In December 1993, the Chinese government promulgated several major new tax      
regulations which came into effect on January 1, 1994.  These new tax           
regulations replaced a number of former tax laws and regulations including      
the Consolidated Industrial and Commercial Tax.  Under these new tax            
regulations, the Operating Subsidiary is subject to business tax which          
replaced the CICT and is now the principal direct tax on the toll revenue       
generated.  The business tax rate applicable to the Operating Subsidiary is     
3.0%.                                                                           

g.   Foreign Currency Translation                                               
----------------------------                                          

The Operating Subsidiary maintains its books and records in Renminbi.           
Foreign currency transactions are translated into Renminbi at the               
applicable unified rates of exchange or the applicable rates of exchange        
quoted by the applicable foreign exchange adjustment center ("swap              
center"), prevailing at the dates of the transactions.  Monetary assets and     
liabilities denominated in foreign currencies are translated into Renminbi      
using the applicable unified rates of exchange or the applicable swap           
center rates prevailing at the balance sheet dates.  The resulting exchange     
differences are included in the determination of income.                        

The Company's registered capital and reporting currency are denominated in      
United States Dollars.  For financial reporting purposes, the United States     
Dollars capital injection amounts have been translated into Renminbi at the     
swap centre rates prevailing at the capital injection date.                     

The Renminbi is not freely convertible into foreign currencies.  All            
foreign exchange transactions involving Renminbi must take place either         
through the Bank of China or other institutions authorized to buy and sell      
foreign currencies or at a swap center.  Before January 1, 1994, the            
exchange rates used for transactions through the Bank of China and other        
authorized institutions were set by the government (the "official exchange      
rate") from time to time whereas the exchange rates available at the swap       
centers (the "swap center rates") were determined largely by supply and         
demand.  The Chinese government announced the unification of the two-tier       
exchange rate systems in December 1993 effective January 1, 1994.  The          
unification brought the official exchange rate of the Renminbi in line with     
the swap center rate.  The unification did not have a major impact on the       
consolidated financial statements of the Company under U.S. GAAP.               

13        

DEFR14A
72nd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 72nd
3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)                        
--------------------------------------------------------                        

g.   Foreign Currency Translation (Cont'd)                                      
--------------------------------------                                

Sino-foreign equity joint venture enterprises can enter into exchange           
transactions at swap centers.  Payment for imported materials and               
remittance of earnings outside of the PRC are subject to the availability       
of foreign currency which is dependent on the foreign currency denominated      
earnings of the entity or must be arranged through a swap center or             
designated foreign exchange banks.  Approval for exchange at the swap           
center is granted to joint venture enterprises for valid reasons such as        
the purchase of imported materials and remittance of earnings.                  

The official exchange rates, unified exchange rates and Shanghai swap           
center rates as of December 31, 1993, December 31, 1994 and December 31,        
1995 were as follows:                                                           

                          December 31,
                            ----------------------------------------
                            1993        1994          1995
                            ------------  ------------  ------------
Rmb equivalents of US$1                                                         
Official exchange rate                 5.80         N/A           N/A       
Unified exchange rate                   N/A        8.44          8.32       
Shanghai swap center rate              8.70        8.44          8.32       

h.   Dedicated Capital                                                          
-----------------                                                     

In accordance with the relevant laws and regulations for Sino-foreign           
equity joint venture enterprises, the Operating Subsidiary maintains            
discretionary dedicated capital, which includes a general reserve fund, an      
enterprise expansion fund and a staff welfare and incentive bonus fund.         
The Board of Directors of the Operating Subsidiary will determine on an         
annual basis the amount of the annual appropriations to dedicated capital.      
For the period from June 23, 1993 to June 30, 1996, the Operating               
Subsidiary did not report any profits in the statutory financial                
statements, and accordingly, no appropriation to dedicated capital has been     
made.                                                                           

14          

DEFR14A
73rd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 73rd
4.    PROPERTY, PLANT AND EQUIPMENT                                             
-----------------------------------                                             

                                   December 31,         June 30,
                                ------------------------------------
                                 1994          1995         1996
                                ----------   ----------   ----------
                                 Rmb           Rmb           Rmb
                                 (unaudited)

Roads and bridges                       108,372     109,020       112,216       
Buildings                                   146         148           148       
Machinery and equipment                     370         475           529       
Motor vehicles                            2,121       2,121         2,162       
Furniture, fixtures and office                                                  
equipment                                 36          38            38    
Construction-in-progress                 73,365     247,346       317,435       
Less: Accumulated depreciation           (4,527)     (8,287)      (10,176)      
                                ----------   ---------    ----------

Net book value                          179,883     350,861       422,352       
                                ==========   =========    ==========

5.    LONG-TERM BANK LOANS                                                      
---------------------------                                                     

Long-term bank loans, all of which were unsecured, bear average interest        
rates of approximately 14.87% as of December 31,1995.  December 31,1993 and     
1994 - 13.86%, June 30,1996 - 14.54% (unaudited) and are repayable as           
follows:                                                                        

                           December 31,       June 30,
                            1995            1996
                            -------------   ------------
                             Rmb             Rmb
                                             (Unaudited)

1997                                        58,000          58,000              
1998                                        20,000          25,000              
1999                                        19,500          39,500              
2001                                           -             5,000              
                           -----------      ----------
Total                                       97,500         127,500              
                           ===========      ==========

All the long-term bank loans are denominated in Renminbi.  Loans amounting      
to Rmb19,500 and Rmb49,500 (unaudited) as of December 31, 1995 and June         
30, 1996 respectively, are guaranteed by a related company.                     

6.    COMMITMENTS                                                               
------------------                                                              

As of December 31, 1995, the Operating Subsidiary had outstanding capital       
commitments for construction contracts contracted for its CIP projects          
amounting to approximately Rmb228,270.                                          

15          

DEFR14A
74th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 74th
7.    DISTRIBUTION OF PROFIT                                                    
----------------------------                                                    

Dividends from the Operating Subsidiary will be declared based on the           
profits as reported in the statutory financial statements.  Such profits        
will be different from the amounts reported under U.S. GAAP.  As of             
December 31, 1995, and June 30, 1996 (unaudited), the Operating Subsidiary      
had no available retained earnings for distribution.                            

8.    RELATED PARTY TRANSACTIONS AND ARRANGEMENTS                               
-------------------------------------------------                               

The Operating Subsidiary guaranteed bank borrowings of a related                
company of CSH of Rmbl0,000, and Rmb5l,000 (unaudited), as of December          
31, 1995 and June 30,1996 respectively.                                         

9.    DUE TO CHINESE JOINT VENTURE PARTNER                                      
------------------------------------------                                      

The amounts due to Chinese joint venture partner as at December 31, 1993        
represented the excess of the book value of the net assets contributed          
by the Chinese joint venture partner upon the formation of the                  
Operating Subsidiary over its share of the registered capital of the            
joint venture enterprise.  This was repaid in 1994.  Balances due to            
the Chinese joint venture as at December 31, 1995 and June 30, 1996             
(unaudited) represented amounts borrowed from the Chinese joint venture         
partner to finance the CIP Projects.                                            

These amounts are unsecured, non-interest bearing and have no fixed             
repayment date.                                                                 

10.    RETIREMENT PLANS                                                         
-----------------------                                                         

As stipulated by the regulations of the Chinese government, all of the          
Chinese staff of the Operating Subsidiary are entitled to an annual pension     
on retirement, which is equal to their basic salaries at their retirement       
dates.  The Chinese government is responsible for the pension liability to      
retired staff.  The Operating Subsidiary is only required to make specified     
contributions to the state-sponsored retirement plan calculated at 23% (for     
1994, 1995 and 1996) of the basic salary of the staff.  The expenses            
reported in the consolidated financial statements related to these              
arrangements were Rmb34, Rmb64, Rmb32 (unaudited) and Rmb30 (unaudited) for     
the years/periods ended December 31, 1994 and 1995 and six months ended         
June 30, 1995, 1996 respectively.                                               

16            

DEFR14A
75th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 75th
11.   SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION                        
---------------------------------------------------------                       

                Period from June                          Six months
                 23, 1993 to                               ended
                  December 3l,   Year ended December 31,    June 30,
                                  -----------------------  -----------
                     1993         1994           1995         1996
                   -----------    ---------   -----------  -----------
                    Rmb           Rmb            Rmb         Rmb
                                                           (Unaudited)

Non-cash investing and                                                          
financing activities:                                                       
Paid-in capital from the                                                    
Chinese joint                                                           
venture partner                                                         
contributed through                                                     
the injection of                                                        
fixed assets          98,000             -             -           -    

12.    OTHER SUPPLEMENTAL INFORMATION                                           
-------------------------------------                                           

The following items are included in the consolidated statements of income:      

              Period from June                            Six months
             23, 1993 to                                 ended
               December 3l,    Year ended December 31,    June 30,
                               -------------------------  ------------
                1993          1994           1995         1996
                -------------  -----------   -----------  ------------
                Rmb           Rmb             Rmb          Rmb
                                                           (Unaudited)

Foreign exchange gain       378          3,494         1,417            37      

Business tax                327          1,163         1,171           579      

17      

DEFR14A
76th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 76th
13.    CONTINGENCY                                                              
------------------                                                              

The Operating Subsidiary has obtained an approval from the local government     
to offset the toll revenue collected from the first phase of the toll road      
against the construction-in-progress balances until the CIP Projects are        
completed by the end of 1997.  Thus, the tax holiday has been deferred          
until the CIP Projects are completed.  As such, the Operating Subsidiary        
reported zero net profits in its statutory financial statements starting        
from the commencement of operations in 1993 and will continue to do so          
until the CIP Projects are completed at the end of 1997.  The Company plans     
to record the net profits offset in the construction-in-progress account        
during 1993 to 1997 in the statutory income statements of the 1998 and 1999     
fiscal years (i.e. the first two tax exemption years of the tax holiday).       
This plan is subject to the approval of the local tax bureau.  Should such      
approval not be obtained from the local tax bureau, a tax liability             
amounting to approximately Rmb5 million as of December 31, 1995 may arise.      
In the opinion of management, it is not probable that a liability will          
arise.                                                                          

14.    SUBSEQUENT EVENTS                                                        
------------------------                                                        

Pursuant to an acquisition agreement dated September 10, 1996 between Regal     
International, Inc., ("Regal"), a Delaware Corporation whose shares are         
listed on the National Association of Securities Dealers Automated              
Quotations ("NASDAQ"), the Company and China Strategic Holdings Limited         
("CSH"), Regal acquired all the issued and outstanding shares of the            
Company for a consideration of US$30 million (Rmb250 million) to be             
satisfied through the issuance of a US$30 million Convertible Note (the         
"Convertible Note") by Regal to CSH bearing interest at 9% per annum after      
an initial 6-month interest-free period.  The principal and any unpaid          
interest owing on the Convertible Note can be converted into shares of          
Common Stock, US$0.01 par value, of Regal ("Common Stock") at a conversion      
price of US$0.0302 per share.  The Convertible Note, if exercised by CSH,       
would give CSH a controlling interest of more than 90% in Regal.  This          
Convertible Note is secured by a pledge of Regal's interest in the shares       
of the Company in favour of CSH.                                                

Pursuant to an agreement signed between CSH and the Company dated September     
1, 1996, the payable balance of Rmb96,806 (unaudited) due to CSH as of June     
30, 1996 will be contributed by CSH into the Company as additional paid-in      
capital.                                                                        

19          

DEFR14A
77th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 77th
ARTHUR          
ANDERSEN          

July 4, 1997                                    Arthur Andersen & Co.           
                                            Certified Public Accountants
The Board of Directors                                                          
Regal International, Inc. &                     25/F Wing On Centre             
Westronix Limited,                              111 Connaught Road Central      
c/o 52/F Bank of China Tower                    Hong Kong                       
1 Garden Road                                   852 2852 0222                   
Hong Kong                                       852 2815 0548 fax               

Dear Sirs,                                                                      

Regal International, Inc. and Westronix Limited         

We hereby consent to the inclusion in the draft proxy statement dated           
1997 for the special shareholders' meeting of Regal International, Inc. to      
be held on a date to be determined, of uor name and of our reports dated        
March 6, 1997, and November 5, 1996 of Regal International, Inc. and            
Westronix Limited in thr form and context in which they respectively            
appear.                                                                         

/s Arthur Andersen & Co.                                                        

DEFR14A
78th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 78th
Pro-Forma Financial Statements                                                  
------------------------------                                                  

DEFR14A
79th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 79th
REGAL INTERNATIONAL, INC.   

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS   
-----------------------------------------------------   
AS OF DECEMBER 31, 1995 AND JUNE 30,1996    
-----------------------------------------   

DEFR14A
80th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 80th
INTRODUCTION TO UNAUDITED PRO FORMA   
------------------------------------  
CONSOLIDATED FINANCIAL STATEMENTS OF  
------------------------------------  

REGAL INTERNATIONAL, INC. AND SUBSIDIARIES    
------------------------------------------    

The unaudited pro forma consolidated financial statements as of and for the     
six months ended June 30, 1996 and as of and for the year ended December 31,    
1995 have been prepared to give effect to:                                      

(i)  the sale and transfer of certain operating assets and real property by     
Regal International, Inc. ("Regal") to Regal (New) International, Inc.          
("New Regal"), pursuant to an Asset Purchase Agreement dated February           
8,1996;                                                                         

(ii)  the acquisition by Regal International, Inc. ("Regal") of China           
Strategic Holdings Limited's ("CSH") entire interests in Westronix              
Limited and its subsidiaries, pursuant to an Acquisition Agreement              
dated September 10, 1996.                                                       

The unaudited pro forma consolidated financial statements are based upon the    
historical consolidated financial statements of Regal International, Inc. as    
of and for the six months ended June 30, 1996 and as of and for the year        
ended December 31, 1995 after giving effect to the pro forma adjustments        
described in the notes thereto as if the events described in (i) and (ii)       
above had occurred on January 1, 1995.                                          

The unaudited pro forma consolidated financial statements do not purport to     
represent what the financial positions and results of operations of Regal       
would actually have been if the events described above had in fact occurred     
on January 1, 1995, or to project the financial position and results of         
operations of Regal for any future date or period.                              

The unaudited pro forma consolidated financial statements should be read in     
conjunction with the consolidated financial statements of Regal                 
International, Inc., and Westronix Limited and its subsidiaries, including      
the notes thereto.                                                              

     1

DEFR14A
81st Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 81st
                                                        [Enlarge/Download Table]

                            REGAL INTERNATIONAL, INC. AND SUBSIDIARIES                           
                            ------------------------------------------                           

                        UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME                     
                        ----------------------------------------------------                     

                                 FOR THE YEAR ENDED DECEMBER 31, 1995                            
                                 ------------------------------------                            

                                (Amounts expressed in thousands)                                 


                                     Historical     As adjusted     Historical                   
                                      -----------   -------------   ------------                 
                                                                                       Notes to  
                                                                                       unaudited 
                                                                                       pro forma 
                                        Regal             Regal        Westronix     consolidated
                                    International,   International,  Limited and       financial 
                                         Inc.              Inc.       Subsidiaries    statements 
                                      ------------     ------------   -----------     ---------- 
                                          Rmb              Rmb            Rmb                    
                                        (Note 2)        (Notes 1 & 2)                            

                                                                                                 
Sales/Revenue                              63,157                -        37,206                 
                                      ------------     ------------   -----------                
Cost of goods sold                         41,783                -            -                  
Selling and                                                                                      
  administrative                                                                                 
  expenses                                 22,131                -        10,517                 
Interest expenses, net                      2,729                -            -                  
Other (income), net                        (3,719)               -            -                  
Exchange gain                                  -                 -        (1,417)                
                                      ------------     -------------   -----------               
Total costs and                                                                                  
  expenses                                 62,924                -         9,100                 
                                      ------------     -------------   -----------               
Income from                                                                                      
  continuing                                                                                     
  operations before                                                                              
  income tax                                  233                -        28,106                 
Provision for income                                                                             
  tax                                          -                 -            -                  
                                       ------------     ------------   -----------               
Income from                                                                                      
  continuing                                                                                     
  operations                                  233                -        28,106                 
Income from                                                                                      
  discontinued                                                                                   
  operations                                    -              233            -                  
                                       -------------     ------------   ----------               
Income before                                                                                    
  minority interests                          233              233        28,106                 
Minority interests                             -                -        (13,087)                
                                       -------------     ------------   ----------               
Net income                                    233              233        15,019                 
                                       =============     ============   ==========               


                                                         Unaudited Pro                           
                                                            forma                                
                                                         consolidated                            
                                                         statement of                            
                                        Pro forma      income of Regal                           
                                        adjustments      International,      US$                 
                                                             Inc.                                
                                       -------------     ------------   ----------               
                                            Rmb              Rmb                                 
                                                                                                 

Sales/Revenue                                                37,206         4,472                
                                                         ------------   ----------               
Cost of goods sold                                               -             -                 
Selling and                                                                                      
  administrative                                                                                 
  expenses                                                   10,517         1,264                
Interest expenses, net                                           -             -                 
Other (income), net                                              -             -                 
Exchange gain                                                (1,417)         (170)               
                                                         -------------   ----------              
Total costs and                                                                                  
  expenses                                                    9,100         1,094                
                                                         -------------   ----------              
Income from                                                                                      
  continuing                                                                                     
  operations before                                                                              
  income tax                                                 28,106         3,378                
Provision for income                                                                             
  tax                                                            -             -                 
                                                         -------------   ----------              
Income from                                                                                      
  continuing                                                                                     
  operations                                                 28,106         3,378                
Income from                                                                                      
  discontinued                                                                                   
  operations                                                    233            28                
                                                         -------------   ----------              
Income before                                                                                    
  minority interests                                         28,339         3,406                
Minority interests                                          (13,087)       (1,573)               
                                                         -------------   ----------              
Net income                                                   15,252         1,833                
                                                         =============   ==========              


Translation of amounts from Renminbi (Rmb) into United States Dollars (US$)     
for the convenience of the reader has been made at the unified exchange rate    
quoted by the Bank of China on June 30, 1996 of US$1.00 = Rmb8.32. No           
representation is made that the Renminbi amounts could have been, or could      
be, converted into United States Dollars at that rate on December 31, 1995      
and June 30, 1996 or at any other certain rate.                                 

The accompanying notes are an integral part of this unaudited pro forma         
consolidated statement of income.                                               

   2

DEFR14A
82nd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 82nd
                                                        [Enlarge/Download Table]

                             REGAL INTERNATIONAL INC. AND SUBSIDIARIES                            
                             -------------------------------------------                          
                          UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET                          
                          ---------------------------------------------                           
                                      AS OF DECEMBER 31, 1995                                     
                                      -----------------------                                     
                               (Amounts expressed in thousands)                                   


                                     Historical     As adjusted     Historical                    
                                      -----------   -------------   ------------                  

                                        Regal             Regal        Westronix                  
                                    International,   International,  Limited and                  
                                         Inc.              Inc.       Subsidiaries                
                                      ------------     ------------   -----------                 
                                           Rmb              Rmb            Rmb                    
                                        (Note 2)        (Notes 1 & 2)                             
                                                                                                  

ASSETS                                                                                            
------                                                                                            
Current Assets                                                                                    
  Cash and cash equivalents                  92             6,656         22,172                  
  Restricted cash                           158                -              -                   
  Note receivable                            -              1,240             -                   
  Accounts receivable, net               13,171                -              -                   
  Inventories                            20,467                -              -                   
  Prepayments and deferred expenses       1,822                -             452                  
  Other receivables and other                                                                     
    current assets                           -                 -             300                  
                                      ------------     ------------    -----------                
Total current assets                     35,710             7,896         22,924                  
                                      ------------     ------------    -----------                
Prepayments for                                                                                   
  construction-in-progress                   -                 -          29,789                  
Property, plant and equipment, net       15,275                -         350,861                  
Long-term investment                        133           249,600             -                   
Note receivable                              -             12,904             -                   
                                      ------------     ------------    -----------                
Total assets                             51,118           270,400        403,574                  
                                      ============     ============    ===========                

LIABILITIES AND SHAREHOLDERS' EQUITY                                                              
------------------------------------                                                              
Current liabilities                                                                               
  Long-term loans - current portion       7,197                -              -                   
  Accounts payable                        6,257                -          21,195                  
  Accrued expenses and other payables     4,950                -          10,191                  
  Taxes other than income                    -                 -             107                  
  Due to related companies                   -                 -           1,500                  
                                      ------------     ------------    -----------                
Total current liabilities                18,404                -          32,993                  
                                      ------------     ------------    -----------                


                                         Notes to                    Unaudited Pro                
                                        unaudited                         forma                   
                                        pro forma                      consolidated               
                                       consolidated                  balance sheet of             
                                        financial         Pro forma       Regal                   
                                        statements       adjustments   International,             
                                                                            Inc.             US$  
                                      -------------     ------------   ----------      -----------
                                                             Rmb           Rmb                    
                                         (Note 3)                                                 
                                                                                                  
ASSETS                                                                                            
------                                                                                            
Current Assets                                                                                    
  Cash and cash equivalents                                                 28,828          3,465 
  Restricted cash                                                               -              -  
  Note receivable                                                            1,240            149 
  Accounts receivable, net                                                      -              -  
  Inventories                                                                   -              -  
  Prepayments and deferred expenses                                            452             54 
  Other receivables and other                                                                     
    current assets                                                             300             36 
                                                                        ------------   -----------
Total current assets                                                        30,820          3,704 
                                                                        ------------   -----------
Prepayments for                                                                                   
  construction-in-progress                                                  29,789          3,580 
Property, plant and equipment, net                                         350,861         42,171 
Long-term investment                        (c)            (249,600)            -              -  
Note receivable                                                             12,904          1,551 
                                                                        ------------   -----------
Total assets                                                               424,374         51,006 
                                                                        ============   ===========
LIABILITIES AND SHAREHOLDERS' EQUITY                                                              
------------------------------------                                                              
Current liabilities                                                                               
  Long-term loans - current portion                                             -              -  
  Accounts payable                                                          21,195          2,547 
  Accrued expenses and other payables                                       10,191          1,225 
  Taxes other than income                                                      107             13 
  Due to related companies                                                   1,500            180 
                                                                        ------------   -----------
Total current liabilities                                                   32,993          3,965 
                                                                        ------------   -----------

 3

DEFR14A
83rd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 83rd
                                                        [Enlarge/Download Table]

                            REGAL INTERNATIONAL INC. AND SUBSIDIARIES                              
                           -------------------------------------------                             
                        UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET                             
                        ---------------------------------------------                              
                                      AS OF DECEMBER 31, 1995                                      
                                      -----------------------                                      
                                (Amounts expressed in thousands)                                   


                                     Historical     As adjusted     Historical                     
                                      -----------   -------------   ------------                   

                                        Regal             Regal        Westronix                   
                                    International,   International,  Limited and                   
                                         Inc.              Inc.       Subsidiaries                 
                                      ------------     ------------   -----------                  
                                           Rmb              Rmb            Rmb                     
                                        (Note 2)        (Notes 1 & 2)                              

                                                                                                   
Convertible Note Payable                     -            249,600             -                    
Long-term loans                           3,952                -          97,500                   
Loans from related parties                6,814                -              -                    
Due to Chinese joint                                                                               
  venture partner                            -                 -          10,500                   
Due to China Strategic                                                                             
  Holdings Limited                           -                 -          96,840                   
Minority interests                           -                 -         128,681                   

Shareholders' equity:                                                                              

Common stock                              6,806             6,806              1                   

Additional paid-in capital              168,954           167,806             -                    

(Accumulated deficits)                                                                             
  Retained earnings                    (153,812)         (153,812)        37,059                   
                                    ------------     --------------    -----------                 
Total shareholders' equity               21,948            20,800         37,060                   
                                    ------------     --------------    -----------                 
Total liabilities and                                                                              
  shareholders' equity                   51,118          270,400         403,574                   
                                    ============     ==============    ===========                 


                                                                       Unaudited Pro               
                                         Notes to                          forma                   
                                       unaudited pro                    consolidated               
                                           forma                       balance sheet of            
                                       consolidated       Pro forma        Regal                   
                                         financial       adjustments    International,             
                                         statements                         Inc.          US$      
                                       -------------     ------------   ------------   ----------- 
                                                              Rmb            Rmb                   
                                          (Note 3)                                                 

                                                                                                   
Convertible Note Payable                     (b)         (249,600)                -           -    
Long-term loans                                                               97,500      11,719   
Loans from related parties                                                        -           -    
Due to Chinese joint                                                                               
  venture partner                                                             10,500       1,262   
Due to China Strategic                                                                             
  Holdings Limited                           (a)          (96,840)                -           -    
Minority interests                                                           128,681      15,466   

Shareholders' equity:                                                                              

Common stock                                 (b)           82,651             89,457      10,752   
                                             (c)               (1)                                 

Additional paid-in capital                   (b)          166,949            181,996      21,875   
                                             (a)           96,840                                  
                                             (c)         (249,599)                                 

(Accumulated deficits)                                                                             
  Retained earnings                                                         (116,753)     (14,033) 
                                                                         ------------   -----------
Total shareholders' equity                                                   154,700       18,594  
                                                                          -----------   -----------
Total liabilities and                                                                              
  shareholders' equity                                                       424,374       51,006  
                                                                          ===========   ===========


Translation of amounts from Renminbi (Rmb) into United States Dollars (US$)     
for the convenience of the reader has been made at the unified exchange rate    
quoted by the Bank of China on June 30, 1996 of US$1.00 = Rmb8.32.  No          
representation is made that the Renminbi amounts could have been, or could      
be, converted into United States Dollars at that rate on December 31, 1995      
and June 30, 1996 or at any other certain rate.                                 

The accompanying notes are an integral part of this unaudited consolidated      
balance sheet.                                                                  

DEFR14A
84th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 84th
                                                        [Enlarge/Download Table]
                 REGAL INTERNATIONAL, INC. AND SUBSIDIARIES                                        
                 -------------------------------------------                                       

                UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME                               
                ----------------------------------------------------                               

                     FOR THE SIX MONTHS ENDED JUNE 30, 1996                                        
                     --------------------------------------                                        

                          (Amounts expressed in thousands)                                         


                 Historical and                                                                    
                    adjusted          Historical                                                   
                ---------------    ---------------                                                 
                                              Notes to                Unaudited Pro                
                                              unaudited                   forma                    
                                              pro forma               income of Regal              
                   Regal        Westronix   consolidated               statement of                
               International,  Limited and    financial  Pro forma    income of Regal              
                   Inc.        Subsidiaries   statements adjustments  International,       US$     
                                                                           Inc.                    
               -------------  -------------  ------------ ----------- --------------   ------------
                  $0'000          $'000                     Rmb             Rmb                    
                    Rmb            Rmb                                                             
                 (Note 2)                                                                          

                                                                                                   
Sales/Revenue         -           18,410                                  18,410            2,213  
               -------------  -------------                           --------------   ------------
Selling and                                                                                        
  administrative                                                                                   
  expenses            -            5,020                                   5,020              603  
Interest (income),                                                                                 
  net               (266)             -                                     (266)             (32) 
Other expenses, net  632              -                                      632               76  
Exchange gain         -              (37)                                    (37)              (4) 
               --------------  -------------                          --------------   ------------
Total costs and                                                                                    
  expenses           366           4,983                                   5,349              643  
               --------------  -------------                          --------------   ------------
Income/(loss) from                                                                                 
  continuing                                                                                       
  operations before                                                                                
  income tax        (366)         13,427                                  13,061             1,570 
Provision for income                                                                               
  tax                 -               -                                       -                 -  
               --------------  --------------                         --------------   ------------
Income/(loss) from                                                                                 
  continuing                                                                                       
  operations        (366)         13,427                                  13,061             1,570 
Income from                                                                                        
  discontinued                                                                                     
  operations          -               -                                       -                 -  
               --------------  --------------                         --------------   ------------
Income/(loss) before                                                                               
  minority interests(366)         13,427                                  13,061             1,570 
Minority interests    -           (6,566)                                 (6,566)             (789)
               --------------  --------------                         --------------   ------------
Net income/(loss)   (366)          6,861                                   6,495               781 
               ==============  ==============                         ==============   ============

Translation of amounts from Renminbi (Rmb) into United States Dollars (US$)     
for the convenience of the reader has been made at the unified exchange rate    
quoted by the Bank of China on June 30, 1996 of US$1.00=Rmb8.32.  No            
representation is made that the Renminbi amounts could have been, or could      
be, converted into United States Dollars at that rate on December 31, 1995      
and June 30, 1996 or at any other certain rate.                                 

The accompanying notes are an integral part of this unaudited pro forma         
consolidated statement of income.                                               

5   

DEFR14A
85th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 85th
                                                        [Enlarge/Download Table]

                           REGAL INTERNATIONAL, INC. AND SUBSIDIARIES                              
                           -------------------------------------------                             

                          UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET                           
                          ----------------------------------------------                           

                                       AS OF JUNE 30, 1996                                         
                                       --------------------                                        



              Historical and                                                                       
                 adjusted          Historical                                                      
             ---------------    ---------------                                                    
                                              Notes to                Unaudited Pro                
                                              unaudited                   forma                    
                                              pro forma               consolidated                 
                   Regal        Westronix   consolidated             balance sheet of              
               International,  Limited and    financial  Pro forma       Regal                     
                   Inc.        Subsidiaries   statements adjustments  International,       US$     
                                                                           Inc.                    
               -------------  -------------  ------------ ----------- --------------   ------------
                  $0'000          $'000                     Rmb             Rmb                    
                    Rmb            Rmb                                                             
              (Notes 1 & 2)                      (Note 3)                                          
                                                                                                   

ASSETS                                                                                             
------                                                                                             
Current assets                                                                                     
  Cash and cash                                                                                    
    equivalents      7,326         7,613                                   14,939           1,796  
  Note receivable    1,280            -                                     1,280             154  
  Prepayments and                                                                                  
    deferred                                                                                       
    expenses           478         1,258                                    1,736             209  
  Other receivables                                                                                
    and other                                                                                      
    current assets      -            247                                      247              30  
               -------------  -------------                           --------------   ------------
Total current assets 9,084         9,118                                   18,202           2,189  
               -------------  -------------                           --------------   ------------
Prepayments for                                                                                    
  construction-in-                                                                                 
  progress              -         17,894                                   17,894           2,151  
Property, plant and                                                                                
  equipment, net        -        422,352                                  422,352          50,763  
Long-term                                                                                          
  investment       361,920            -             (c)      (249,600)    122,320          13,500  
Note receivable     12,464            -                                    12,464           1,497  
               -------------  -------------                           --------------   ------------
Total assets       383,468       449,364                                  583,232          70,100  
               =============  =============                           ==============   ============
LIABILITIES AND                                                                                    
  SHAREHOLDERS'                                                                                    
  EQUITY                                                                                           
----------------                                                                                   
Current liabilities                                                                                
  Short-term bank                                                                                  
    loans               -         10,000                                   10,000           1,202  
  Accounts payable      -         16,879                                   16,879           2,029  
  Accrued expenses                                                                                 
    and other                                                                                      
    payables           265         3,909                                    4,174             502  
  Taxes other than                                                                                 
    income              -            101                                      101              12  
               -------------  -------------                           --------------   ------------
Total current                                                                                      
  liabilities          265        30,889                                   31,154            3,745 
               -------------  -------------                           --------------   ------------


6 

DEFR14A
86th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 86th
                                                        [Enlarge/Download Table]

                            REGAL INTERNATIONAL, INC. AND SUBSIDIARIES                             
                            -------------------------------------------                            

                         UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET                            
                         ----------------------------------------------                            

                                         AS OF JUNE 30, 1996                                       
                                         --------------------                                      



              Historical and                                                                       
                 adjusted          Historical                                                      
             ---------------    ---------------                                                    
                                              Notes to                Unaudited Pro                
                                              unaudited                   forma                    
                                              pro forma               consolidated                 
                   Regal        Westronix   consolidated             balance sheet of              
               International,  Limited and    financial  Pro forma       Regal                     
                   Inc.        Subsidiaries   statements adjustments  International,       US$     
                                                                           Inc.                    
               -------------  -------------  ------------ ----------- --------------   ------------
                  $0'000          $'000                     Rmb             Rmb                    
                    Rmb            Rmb                                                             
              (Notes 1 & 2)                      (Note 3)                                          

                                                                                                   
Convertible Note                                                                                   
  Payable          361,920            -              (b)    (249,600)     112,320          13,500  
Long-term loans         -        127,500                                  127,500          15,324  
Due to Chinese joint                                                                               
  venture partner       -         15,000                                   15,000           1,803  
Due to China                                                                                       
  Strategic Holdings                                                                               
  Limited              849        96,806             (a)     (96,806)         849             102  
Minority interests      -        135,248                                  135,248          16,256  

Shareholders' equity:                                                                              

Common stock         6,806             1             (b)      82,651       89,457          10,752  
                                                     (c)          (1)                              

Additional paid-in                                                                                 
  capital          167,806            -              (b)      166,949     181,962          21,870  
                                                     (a)       96,806                              
                                                     (c)     (249,599)                             

(Accumulated                                                                                       
  deficits) Retained                                                                               
  earnings        (154,178)       43,920                                 (110,258)        (13,252) 
               -------------  -------------                           --------------   ------------
Total shareholders'                                                                                
  equity            20,434        43,921                                  161,161          19,370  
               -------------  -------------                           --------------   ------------
Total liabilities and                                                                              
  shareholders'                                                                                    
  equity           383,468       449,364                                  583,232          70,100  
               =============  =============                           ==============   ============


Translation of amounts from Renminbi (Rmb) into United States Dollars (US$)     
for the convenience of the reader has been made at the unified exchange rate    
quoted by the Bank of China on June 30, 1996 of US$1.00=Rmb8.32.  No            
representation is made that the Renminbi amounts could have been, or could      
be, converted into United States Dollars at that rate on December 31, 1995      
and June 30, 1996 or at any other certain rate.                                 

The accompanying notes are an integral part of this unaudited consolidated      
balance sheet.                                                                  

7 

DEFR14A
87th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 87th
 REGAL INTERNATIONAL INC. AND SUBSIDIARIES
 -----------------------------------------
NOTES TO UNAUDITED PRO FORMA
----------------------------

CONSOLIDATED FINANCIAL STATEMENTS 
----------------------------------

   (Amounts in thousands, except number of shares,
per share data and unless otherwise stated) 

1.  ADJUSTMENTS TO REGAL INTERNATIONAL, INC.'S HISTORICAL                       
FINANCIAL STATEMENTS                                                    
----------------------------------------------------------                      

Pursuant to an Acquisition Agreement dated February 8, 1996 between Regal       
International, Inc. ("Regal"), Acewin Profits Limited ("AP"), a British         
Virgin Islands corporation and China Strategic Holdings Limited ("CSH"), a      
Hong Kong company, Regal acquired all the issued and outstanding shares of      
AP at a consideration of US$13.5 million satisfied through the issuance of a    
US$13.5 million Convertible Note (the "Convertible Note A") by Regal to CSH     
bearing interest at 9% per annum after an initial 6-month interest-free         
period.  Acewin's sole asset is a 55% joint venture interest in Wuxi CSI        
Vibration Isolator Co. Ltd., a Sino-foreign equity joint venture                
incorporated in the People's Republic of China, held through an intermediate    
Hong Kong company, China Machine (Holdings) Limited.                            

Pursuant to a Purchase Agreement dated September 11, 1996 between Regal         
International, Inc. ("Regal"), BTR China Holdings B.V. ("BTR"), a company       
incorporated in the Netherlands, and China Strategic Holdings Limited           
("CSH"), a Hong Kong company, Regal sold all the issued and outstanding         
shares of AP at a consideration of US$13.95 million.  The proceeds were then    
used to repay the Convertible Note A principal of US$13.5 million, on           
September 13, 1996.  The realized gain was US$450.  As of June 30, 1996, the    
Company's interest in AP was reflected as an investment.                        

Pursuant to another Asset Purchase Agreement ("the agreement") dated            
February 8, 1996 between Regal International, Inc. ("Regal") and Regal (New)    
International, Inc. ("New Regal"), Regal sold and transferred the existing      
operating assets and real property of Regal to New Regal in exchange for        
US$2.5 million and New Regal's assumption of all liabilities of Regal, other    
than the Convertible Note A.  Pursuant to the agreement, the US$2.5 million     
portion of the purchase price was paid as follows: US$800 in cash and the       
balance by delivery of two promissory notes, one in the principal amount of     
US$900 (the "US$900 Note") and the second in the principal amount of US$800     
(the "US$800 Note").  The US$900 Note bears interest at 9% per annum and is     
payable in sixty equal monthly installments of principal and interest.  The     
US$800 Note bears no interest and is due and payable in one installment on      
January 31, 2001.                                                               

   8

DEFR14A
88th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 88th
1.  ADJUSTMENTS TO REGAL INTERNATIONAL, INC.'S HISTORICAL                       
FINANCIAL STATEMENTS (Cont'd)                                           
-----------------------------------------------------------                     

Pursuant to an Acquisition Agreement dated September 10, 1996 between Regal     
International, Inc. ("Regal"), Westronix Limited ("WL"), a British Virgin       
Islands corporation and China Strategic Holdings Limited ("CSH"), a Hong        
Kong company, Regal acquired all the issued and outstanding shares of WL at     
a consideration of US$30 million to be satisfied through the issuance of a      
US$30 million Convertible Note (the "Convertible Note B") by Regal to CSH       
bearing interest at 9% per annum after an initial 6-month interest-free         
period.  The principal and any unpaid interest owing on the Convertible Note    
B can be converted into shares of the Common Stock, US$0.01 par value, of       
Regal ("Common Stock") at a conversion price of US$0.0302 per share.  WL's      
sole asset is a 51% joint venture interest in Hangzhou Zhongche Huantong        
Development Co. Ltd., a Sino-foreign equity joint venture incorporated in       
the People's Republic of China, held through an intermediate Hong Kong          
company, China Construction International Group Limited.                        

Adjustments have been made to reflect the financial positions of Regal as if    
the net operating assets had been sold and transferred to new Regal as of       
December 31, 1995 and the acquisition of the interests in WL had occurred as    
of January 1, 1995.  Income from historical continuing operations of Regal      
for the year ended December 31, 1995 has been reclassified as "Income from      
discontinued operations" as a result of the disposal of the net operating       
assets to New Regal.                                                            

The transfer of CSH's equity interest in WL to Regal has been accounted for     
as a purchase in the accompanying unaudited pro forma consolidated financial    
statements.                                                                     

2.   FOREIGN CURRENCY TRANSLATION                                               
---------------------------------                                               

The financial statements of Regal are translated into Renminbi using the        
closing rate method, whereby the balance sheet items are translated into        
Renminbi using the exchange rate prevailing at year end.  Profit and loss       
items are translated at the average rate for the year.                          

   9

DEFR14A
89th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 89th
3.   DESCRIPTION OF PRO FORMA ADJUSTMENTS                                       
-----------------------------------------                                       

a)  To reflect the contribution by CSH to additional paid-in capital of WL,     
originally recorded as a payable to CSH, pursuant to an agreement signed        
between CSH and WL dated September 1, 1996.                                     

b)  To adjust the share capital and additional paid-in capital as if the        
Convertible Note B of Regal had been exercised by CSH as of December 31,        
1995.                                                                           

c)  To eliminate the investment in WL on consolidation.  The difference         
between CSH's historical cost of investment in WL and the acquisition cost      
to Regal has been treated as a reduction of additional paid-in capital as       
the transfer is considered a transfer of assets between entities under          
common control.                                                                 

4.   INCOME TAXES                                                               
-----------------                                                               

No provision for United States federal income taxes or tax benefits on the      
undistributed earnings and/or losses of the PRC Operating Subsidiary has        
been provided as the earnings have been reinvested and, in the opinion of       
management, will continue to be reinvested indefinitely.                        

10  

DEFR14A
90th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 90th
BUSINESS OF THE COMPANY PRIOR TO ACQUISITION OF WESTRONIX                       

After February 19, 1996 the Registrant owned, as its sole asset, all the  
issued and outstanding capital stock of Acewin, a company which owned all       
the outstanding capital stock of China Machine Holdings Limited ("CMHL").       
CMHL was the holder of a 55% interest in Wuxi CSI. Wuxi CSI was the only        
operating subsidiary of the Registrant prior to September 10, 1996. Wuxi        
CSI, established in September 21, 1993, was a Sino-foreign joint venture in     
China between CMHL and Wuxi Vibration Isolator Factory. Wuxi Vibration          
Isolator Factory, built in 1960, is a National Grade II Enterprise (The         
National Grade System grades all factories in terms of size, profitability,     
sales, productivity and excellence in products. There are only a few Grade I    
Enterprises in each province) and Wuxi CSI was the largest vibration            
isolator producer in China. Wuxi CSI, was a primary supplier to domestically    
produced Volkswagens, Peugeots and Audis developed close ties to China's        
burgeoning automobile industry.                                                 

Wuxi CSI, with registered capital of $8.0 million, occupied 39,540 square 
meters of land, including a building area of 45,504 square meters and a         
workshop area of 37,232 square meters.                                          

17  

DEFR14A
91st Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 91st
The factory was situated in Wuxi City which is located in Southern        
Jiangsu Province, at the center of the "golden delta" of the Yangtze River,     
bordering Suzhou in the East and the Hangzhou in the West. It is 128 km.        
apart from Shanghai; 183 km. from Nangjing and 40 km. away from the natural     
port of Zhangjiagang. The urban area around Wuxi City covers 397 square km.     
with a population of 0.928 million. Wuxi City has become a major                
international open-port city at the mouth of the Yangtze River.                 

Business Of Wuxi CSI Vibration Isolator                                         
---------------------------------------                                         

Wuxi CSI was engaged in the manufacture and sale of vibration isolators,  
rubber damping materials, stainless steel bellows expansion joint and           
similar products, primarily for sale within China.  Its primary customer        
base was in Shanghai, although the distribution of its sales was regional.      
Being located only 128 km. from Shanghai where three (3) of the largest         
automobile manufacturers in China produce over 50% of the entire automobile     
market of China, Wuxi CSI sold over 70% of its output to Shanghai               
Volkswagon.                                                                     

Wuxi CSI Sales For The Years Ended December 31, 1995 And 1994                   
-------------------------------------------------------------                   

Table 1 Sales Analysis                                                          
(Rmb in thousands)                                                              

        1994           1995     % Change
        ------         ------    ---------
Sales                      72,570         43,623        49%                     
Gross Profit               26,357         27,981        66%                     
Operating income (1)       12,184         16,871       130%                     
Net income                  7,531                      124%                     
________________________                                                        

(1) Operating income means income before minority interest, income tax, net     
interest expense and other income.                                              

Products And Markets                                                            
--------------------                                                            

Wuxi CSI produced a complete range of the following products under the    
brand name "Xizhen" (See Table 2 - Sales by Units).                             

(1)  Rubber-Metal Vibration Isolators                                           
Minimizes harmful vibrations and noise. Widely utilized in automobiles,         
ships, trains and heavy machinery.                                              

(2)  Metal Bellows                                                              
Widely used in the shipbuilding, petroleum, chemical, industry, railway,        
construction, electric power and nuclear industries.                            

(3)  Bitumen Damping Materials                                                  
Reduces vibration and noise from mechanical equipment installed in              
automobiles, refrigerators, fans and machinery.                                 

18  

DEFR14A
92nd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 92nd
Table 2 Sales by Units                                                          

Type of Vibration Isolator       1994       1995     % Change      Market       
--------------------------       ----       ----     --------      ------       
-General Vehicle Vibration                                                      
Isolator                       388,007    353,774      -8.8%        Auto        

-Santana (Volkswagen)        1,795,260  3,133,754      74.6%        Auto        

-Audi                           97,833    161,992      65.6%        Auto        

-Damping Materials and Damp-                                                    
ing Materials with fabrics   1,511,007  4,691,384       210%        Auto        

Others                         285,032    253,631     -11.0%        Auto        

Approximately 74% of Wuxi CSI's total sales in 1995 were made to Shanghai 
Volkswagen. Shanghai Volkswagen manufactures the "Santana". Compared to the     
Shanghai region, sales to other regions were relatively small. Sales to         
Jilin and Jiangsu come in second and third place but only accounted for 5.4%    
and 3.5% of total sales, respectively. (See Table 3 Geographical Sales          
Distribution).                                                                  

Table 3 Geographical Sales Distribution - 1995                                  

Region           % of total sales                                               
------------------------------------                                            
Shanghai                74.1                                                    
Jilin                    5.4                                                    
Jiangsu                  3.5                                                    
Guangdong                0.2                                                    
Sichuan                  0.1                                                    
Jiangxi                  0.8                                                    
Shandong                 1.3                                                    
Others(1)               14.6                                                    
---------------------------                                                     
Total                   100%                                                    

(1)  Others refer to regions which are not listed above in the table            

The complete information of the Company's business prior to September 10, 
1996 has been provided in the Company's report on Form 10-KSB for the fiscal    
year ending December 31, 1995, which has been filed with the SEC.               

The acquisition of Westronix Limited was approved by the consent in writing     
of the majority of the Company's shareholders on September 10, 1996.  The       
Board of Directors recommends that stockholders ratify the acquisition of       
Westronix Limited and approve the terms of the acquisition.  This proposal      
requires the affirmative vote of 80% of the outstanding shares of Common        
Stock entitled to vote at the Meeting                                           

PROPOSAL NO. 2    
AMENDMENT OF CERTIFICATE OF INCORPORATION       
INCREASE IN AUTHORIZED SHARES OF THE COMPANY'S COMMON STOCK   

The Company is soliciting the approval of stockholders for one or more    
amendments to the Fourth Article of the Company's Certificate of                
Incorporation to increase the number of authorized shares of the Company's      
Common Stock from 150,000,000 to 1,100,000,000 shares.  The number of           
authorized shares of  the Company's Preferred Stock, $0.10 par  value per       
share,  shall remain unchanged.  There are currently no issued and              
outstanding shares of the Company's Preferred Stock.                            

The Company's Certificate of Incorporation currently authorizes the       
issuance of a total of 150,000,000 shares of Common Stock.   There were         
81,806,198  shares of Common Stock outstanding at the close of business on      
June 27, 1997.                                                                  

The Board of Directors has proposed the increase in authorized Common     
Stock to provide the Board of Directors with greater flexibility in the         
event the Board of Directors determines that it is in the best interest of      
the Company to issue additional shares.  In connection with the acquisition     
of Westronix Limited, the Company has issued a $30,000,000 convertible note     
to Horler Holdings Limited, a wholly owned subsidiary of China Strategic        
Holdings Limited.  The principal and any unpaid interest due on the Note are    
convertible into shares of Common Stock, $0.01 par value, of the Company        
("Common Stock") at a conversion price of $0.0302 per share. If the  holder     
of the Note exercise its conversion rights and converts the full amount of      
the Note, the number of shares issued to Noteholder would exceed the total      
authorized amount of common stock of the Company.                               

19  

DEFR14A
93rd Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 93rd
Under the laws of the State of Delaware, authorized, but unissued and     
unreserved, shares may be issued for such consideration (not less than par      
value) and purposes as the Board of Directors may determine without further     
action by the stockholders.  The issuance of such additional shares may,        
under certain circumstances, result in the dilution of the equity or            
earnings per share of the existing stockholders.                                

The additional shares of Common Stock authorized by this proposed         
amendment will, if and when issued, have the same rights and privileges as      
the shares of Common Stock currently authorized.  Holders of shares of          
Common Stock have no preemptive rights.                                         

The above amendment to the Certificate of Incorporation requires the      
affirmative vote of a majority of the outstanding shares of Common Stock        
entitled to vote at the Meeting.  The Board of Directors recommends that the    
stockholders vote FOR this proposal.                                            

PROPOSAL NO.  3   
AMENDMENT OF ARTICLES FOURTH, FIFTH, SIXTH, SEVENTH AND TENTH OF CERTIFICATE    
OF INCORPORATION                                                                

The Company is soliciting the approval of stockholders for one or more    
amendments to the Company's Certificate of Incorporation (i) Article Fourth     
(D)(7),  to provide that a meeting of shareholders or a written consent by      
shareholders holding a majority of the voting shares shall be required to       
remove directors or adopt, repeal or amend bylaws; (ii) Article Fifth to        
provide that the number of directors shall not be less than three, and to       
remove the classification of the board of directors;  (iii)  Article Sixth      
to provide that the affirmative vote of the majority of voting shares rather    
than 80% of such vote, is sufficient for the amendment or adoption of           
bylaws; (iv) Article Seventh to remove the requirement of 80% shareholders'     
vote for certain transactions with shareholders that have a 5% or more          
holdings with the Company and to provide that the affirmative vote of the       
majority of voting shares is sufficient to approve those certain                
transactions listed in Article Seventh; and Article Tenth to remove the         
requirement of 80% shareholders' vote to amend  Article Fourth, Paragraph D     
(7) and (8), Article Fifth, Sixth, Seventh and Tenth, and  to provide that      
the affirmative vote of the majority of voting shares is sufficient to          
approve amendments to those provisions of the Company's Certificate of          
Incorporation.                                                                  

The Board of Directors of the Company  submitted the amendments to the    
Articles Fourth, Fifth, Sixth, Seventh and Tenth  of the Company's              
Certificate of Incorporation to the vote of the shareholders, because it        
believes that that such amendments would be beneficial to the Company and       
its shareholders.  The Company seeks to amend Article Fourth (D)(7)to           
provide that a removal of directors and adoption, repeal or amendment of        
bylaws may  also be approved by a written consent in writing of the             
shareholders holding not less than a majority of the outstanding shares, in     
addition to the Company having an option of voting at the shareholders'         
meeting.  The Board believes that the current requirement of approving the      
above actions only at the shareholders meeting, without the Company having      
an alternative of an approval of such actions by a written consent of           
majority shareholders, is unduly cumbersome, in administrative and other        
costs, for the Company which has approximately 9,000 shareholders.  The         
Company  seeks to amend Article Fifth to change the required number of          
directors from the minimum of  five and the maximum of twelve to the minimum    
of three and the maximum as provided by the Delaware General Corporation Law    
(the "Delaware Law"), to be determined by the Board.  The Company also seeks    
to remove the classification of the Board of Directors to which it does not     
see any benefit at this time.  The classified board was adopted under the       
circumstances where the Board of directors felt it was necessary to take        
strong measures to add stability to the leadership and policies of the          
Company and to discourage certain types of tactics which could involve          
actual or threatened changes of control of the Company.  Although the Board     
of Directors still believes continuity and stability are desirable, it          
believes that the current constitution of the Board provides those features     
without the necessity of a classified format.  The Company believes that the    
changes to Article Fifth will not have any  significant negative effet on       
the management of the Company and its shareholders.                             

20  

DEFR14A
94th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 94th
The Company proposes to amend Article Sixth and Seventh to provide that   
the affirmative vote of the majority of the voting shares shall be              
sufficient for the amendment or adoption of the bylaws (Article Sixth) and      
to approve certain transactions (such as mergers, sales or leases) involving    
shareholders of 5% or more of the Company's common stock  (Article Seventh).    

Currently, Articles Sixth and Seventh require the affirmative vote of 80% 
of the voting shares to take such actions.  The effect of Article Sixth and     
Seventh currently is that the amendments to the Bylaws or approval of the       
transactions set forth in Article Seventh, may presently be made by the         
affirmative vote of 80% of voting shares, which find it in the best interest    
of the Company to adopt such actions.  The purpose of the amendments is to      
provide that such actions can be taken by the majority vote of the              
stockholders in accordance with the provisions of section 109 of the            
Delaware Law. The Company believes that such requirement is too restraining     
and that the majority vote of the shareholders should constitute sufficient     
approval of the shareholders, as prescribed by the Delaware Law.  The           
Company does not believe that having more restrictive governing provisions      
in its Certificate of Incorporation than those provided in the Delaware Law     
would serve its shareholders better in making corporate decisions for the       
Company.                                                                        

For the same reasons as stated above, the Company seeks to amend Article  
Tenth to remove the requirement of 80% shareholders' vote to amend Article      
Fourth  (D)(7) and (8) (which requires that the special meeting of the          
shareholders may only be called by the Board of Directors), Article Fifth,      
Sixth, Seventh and Tenth (discussed above) and to provide that the              
affirmative vote of the majority of voting shares shall be sufficient to        
take those corporate actions.                                                   

The above amendment to the Certificate of Incorporation requires the      
affirmative vote of 80% of the outstanding shares of Common Stock entitled      
to vote at the Meeting.  The Board of Directors recommends that the             
stockholders vote FOR this proposal.                                            

PROPOSAL NO. 4    
AMENDMENT OF CERTIFICATE OF INCORPORATION     
1-FOR-138 REVERSE STOCK SPLIT   

The Board of Directors has proposed to amend the Company's Certificate of 
Incorporation to effect a 1-for-138 reverse stock split of its Common Stock     
under which each outstanding 138 shares of Common Stock, par value $0.01 per    
share,  registered in the name of each shareholder as of the record date,       
will be exchanged for 1 share of Common Stock.  The effective date of the       
reverse split shall be immediately upon approval of the shareholders.  The      
Board of Directors believes that the reverse split is necessary in order to     
cause the Common Stock to be tradable at such a price per share as is           
required by NASDAQ initial admission rules and that the reverse split will      
raise earnings per share to acceptable levels, in connection with the           
Company's future plans to apply to NASDAQ for inclusion of the Company's        
Common Stock.  In addition, the Board of Directors believes that the            
proposed reverse split will make the management of shareholding more            
efficient and cost effective.  Fractional shares will be rounded up to the      
nearest whole share.   Because of the high ratio of the reverse split, there    
will be a  negative effect of the proposed reverse split on certain holders,    
in that many holders will be left with odd lots which are more expensive to     
trade.                                                                          

The above amendment to the Certificate of Incorporation requires the      
affirmative vote of 80% of the outstanding shares of Common Stock entitled      
to vote at the Meeting.  The Board of Directors recommends that the             
stockholders vote FOR this proposal.                                            

PROPOSAL NO. 5  
ADOPTION OF AMENDED AND RESTATED BYLAWS         

Pursuant to the Company's Certificate of  Incorporation, the adoption of  
amended or restated bylaws may only be approved at the annual or special        
meeting of stockholders of the Company.  The Board of Directors proposes to     
adopt the amended and restated Bylaws.  The main amended provisions in the      
Company's bylaws are to delete the classified Board requirement, the change     
in the number of required directors (as discussed above in Proposal No. 3)      
and to dispense with the meeting requirement for the shareholders' approval     
of any amendments to the bylaws.                                                

The Board of Directors, by unanimous vote at a meeting on January 27,     
1997, adopted new amended and restated Bylaws.  The new Bylaws are "standard    
form" bylaws for a Delaware corporation and provide for maximum corporate       
management operating flexibility as permitted under Delaware Law.   The         
above proposal requires 80% of the affirmative vote of a majority of the        
outstanding shares of Common Stock entitled to vote at the Meeting.  The        
Board of Directors recommends that the stockholders vote FOR this proposal.     

21  

DEFR14A
95th Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 95th
PROPOSAL NO. 6  
NAME CHANGE   

The Board of Directors has proposed to amend the Company's Certificate of 
Incorporation to change the name of the Company to "Asia Resources Holdings     
Ltd."  The Board of Directors believes that the new name reflects better the    
current business of the Company.  The above proposal requires the               
affirmative vote of a majority of the outstanding shares of Common Stock        
entitled to vote at the Meeting.  The Board of Directors recommends that the    
stockholders vote FOR this proposal.                                            

PROPOSAL NO. 7      
ADOPTION OF 1997 INCENTIVE STOCK OPTION PLAN    

The Company's proposed 1997 Incentive Stock Option Plan (the "Plan")      
provides for the grant of incentive stock options ("ISO's") qualifying under    
the Internal Revenue Code, the grant of nonqualifying stock options             
("NSO's"), and the grant of awards of stock appreciation rights, stock          
options, restricted stock or performance units ("Awards") to officers,          
employees and consultants of the Company and its affiliates. 750,000 post-      
reverse split shares of the Company's Common Stock will be reserved for         
issuance pursuant to the Plan.  The Plan will be administered by the Stock      
Option Committee of the Board of Directors or such other committee of the       
Board, if the Board so designates (the "Committee").  The purpose of the        
Plan is to aid the Company in retaining the services of executive and key       
employees and in attracting new management personnel when needed for future     
operations and growth, to offer such personnel additional incentives to put     
forth maximum efforts for the success of the business and to afford them        
opportunities to obtain or increase a proprietary interest in the Company on    
a favorable basis and, thereby, to have an opportunity to share in its          
success.                                                                        

The Plan will expire ten years from its effective date as specified by    
the Board of Directors at the time the Plan is approved (except as to           
options outstanding at that time, if any).  The Board may amend, alter or       
terminate the Plan in any respect at any time, except that no amendment,        
alteration or termination shall be made which would (i ) impair the rights      
of an optionee under a stock option, stock appreciation right, restricted       
stock or performance award unit therefore granted without such optionee's       
consent, or (ii) disqualify the Plan from the exemption provided by Rule        
16b-3 of the Securities Exchange Act of 1934, and , further, no material        
amendment shall be made without the prior approval of the Company's             
stockholders to the extent such approval is required by law or agreement.       

The Committee has substantial discretion pursuant to the Plan to          
determine the persons to whom ISO's, NSO's and Awards may be granted or         
authorized and also to determine the amounts, time, price (provided that the    
exercise price per share shall not be less than the fair market value of the    
Common Stock on the date of such grant ), exercise terms and restrictions       
imposed in connection with each individual grant.  ISO's, NSO's and Awards      
may be granted to any employee (which may include officers, and directors       
who are also employees) or consultants of the Company or its subsidiaries.      
No participant in the Plan may be granted ISO's, NSO's or Awards aggregating    
in excess of the number of shares of Common Stock equal to 10% of issued and    
outstanding Common Stock over the life of the Plan and no stock option shall    
be exercisable more than ten years after the date such option is granted.       
Options may expire earlier as determined by the Committee and the Committee     
may determine vesting provisions in its discretion.                             

Stock appreciation rights may be granted in conjunction with all or part  
of any stock options granted under the Plan at the discretion of the            
Committee.  Shares of restricted stock and performance units may be awarded     
either alone or in addition to other Awards granted under the Plan at the       
discretion of the Committee.                                                    

If an optionee ceases to be an employee of the Company or a subsidiary    
other than by reason of death, disability or retirement, any stock option       
held by him shall terminate on the date of termination of his employment in     
the case of voluntary termination, and shall terminate one month after the      
termination of his employment in the case of involuntary termination of         
employment (but not later than its specified expiration date).  In the case     
of death, any stock option held by an optionee may be exercised by his          
estate, personal representative or beneficiary at any time prior to the         
earlier of the specified expiration date of the stock option or one year        
from the date of the optionee's death.  If an optionee's employment is          
terminated by reason of disability or retirement, the optionee may exercise     
any stock options held by him at any time prior to the earlier of the           
specified expiration date of the stock option or three years from the date      
of termination of employment.                                                   

Options are, in general, non-assignable.  The options carry certain anti- 
dilution provisions concerning stock dividends, stock splits,                   
consolidations, mergers, recapitalizations and reorganizations.                 

Generally, under applicable provisions of the Internal Revenue Code, the  
amount of profit realized by an optionee under exercise of stock option is      
taxed as ordinary income to the optionee in the year of exercise.  The          
Company is entitled to a compensation deduction in the same amount in the       
same year.                                                                      

An optionee who holds the stock received upon exercise of a stock option  
for at least two years from the date the option was granted and at least one    
year from the receipt of the stock upon exercise generally pays no tax until    
the stock is sold, at which time any profit or loss realized is long-term       
capital gain or loss, as the case may be, and the Company is not entitled to    
a corresponding tax deduction at any time.  The spread at exercise of a         
stock option is effectively treated as a tax preference item in the exercise    
year for purposes of calculating the optionee's alternative minimum tax.        

22  

DEFR14A
Last Page of 96
TOC
1st
Previous
Next
↓Bottom
Just 96th
An optionee who sells the stock received upon the exercise of a stock     
option within two years after the option was granted or within one year of      
receipt of the shares upon exercise is taxed on the profit up to the date of    
the exercise (which is ordinary income) and the Company is entitled to a        
corresponding tax deduction; the income and tax deduction items are             
recognized by the optionee and the Company, respectively, in the year the       
stock is sold.  Appreciation or depreciation after the date of exercise is      
taxable to the optionee as capital gain or loss, respectively, and is           
nondeductible by the Company.                                                   

The Company may be required to withold tax on the amount of the income    
recognized by the optionee upon exercise of an option and upon transfer of      
stock received upon exercise of an option.                                      

The above proposal requires the affirmative vote of a majority of the     
outstanding shares of Common Stock entitled to vote at the Meeting.  The        
Board of Directors recommends that the stockholders vote FOR this proposal.     

PROPOSAL NO.8   
OTHER MATTERS   

The Board of Directors is not aware of any other matters that will be     
presented for consideration at the Meeting other than those matters referred    
to in this Proxy Statement.                                                     

September__, 1997                        BY ORDER OF THE BOARD OF DIRECTORS     

23  

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘DEFR14A’ Filing		Date		First		Last			Other Filings
		1/31/01		27		87
		9/10/99		6
		12/31/97		36		52			10KSB,  10KSB/A,  NT 10-K
Filed on:		8/11/97							10-K/A
		7/4/97		77
		6/27/97		3		92
		3/31/97		14		56			10QSB
		3/6/97		21		77
		3/1/97		9		13
		1/27/97		94
		1/17/97		4
		12/31/96		15		53			10KSB,  10KSB/A,  8-K/A,  NT 10-K
		12/5/96		44
		11/5/96		77
		9/30/96		43					10-Q,  10-Q/A,  10QSB/A
		9/13/96		26		87
		9/11/96		26		87			5,  8-K
		9/10/96		6		92			8-K
		9/1/96		76		89
		8/28/96		27		65
		7/3/96		27		65
		6/30/96		16		87			10-Q
		6/23/96		63
		4/1/96		12					8-K,  SC 13D,  SC 13D/A
		3/31/96		39		56			10-Q
		3/8/96		26		43
		2/19/96		54		90			8-K,  8-K/A
		2/15/96		26		43
		2/9/96		21
		2/8/96		26		87
		1/31/96		26		43
		1/29/96		12
		12/31/95		6		92			10-K,  10-K/A,  10KSB/A
		6/30/95		62		74			10QSB,  10QSB/A
		2/9/95		14
		1/1/95		80		88
		12/31/94		15		91
		12/7/94		14
		1/1/94		11		71
		12/31/93		59		74
		9/21/93		90
		6/23/93		6		72
									List all Filings