News is out!!! Here it is:
Tuesday June 16, 4:15 pm Eastern Time
Company Press Release
China Pacific Announces Decision in Nasdaq Delisting Action and Its
Results for the Fiscal Year Ended Dec. 31, 1997
LONG BEACH, Calif.--(BUSINESS WIRE)--June 16, 1998--As previously announced in a news release dated May 8,
1998, on May 21, 1998, a hearing was held before the Nasdaq Stock Market Inc. (Nasdaq) Listing Qualifications Panel (the
''Panel'') to consider whether the common stock of China Pacific Inc. (Nasdaq/SmallCap:CHNAE) should be delisted from
the Nasdaq SmallCap Market due to the company's failure to file its Form 10-K for the period ended Dec. 31, 1997, and its
Form 10-Q for the quarter ended March 31, 1998, on a timely basis.
Connie Mo, vice president of the company, attended and participated in the hearing on behalf of the company.
On June 9, 1998, the company was notified by Nasdaq that the Panel decided that the stock of China Pacific may continue to
be listed on Nasdaq pursuant to certain exceptions, including the following: The company must file its Form 10-K for the fiscal
year ended Dec. 31, 1997, with the Securities and Exchange Commission and Nasdaq on or before June 15, 1998; and the
company must also file its Form 10-Q for the quarterly period ended March 31, 1998, by June 22, 1998.
Further, each filing must demonstrate the company's compliance with all requirements for continued listing on the Nasdaq
SmallCap Market. If the company fails to meet any of the terms of these exceptions, the company's stock will be immediately
delisted.
Additionally, the Panel was of the opinion that the company experienced a delay in completing its audit due to extraordinary
circumstances and that the company has taken appropriate action to file its required reports in the near term.
On June 15, 1998, China Pacific filed with the SEC and Nasdaq its form 10-K for the fiscal year ended Dec. 31, 1997. The
company confirmed a substantial loss for 1997 of $15.1 million, compared with a net income of $10.1 million during 1996.
Furthermore, the company's unaudited management accounts for the three months ended March 31, 1998, indicate that the
company has continued to incur losses.
The downturn in 1997 is attributable both to the general economic conditions prevailing in Asia and to specific management
problems at the company's joint-venture partner, Chengdu Iron and Steel Plant (CISP), and the company's 60 percent owned
joint-venture subsidiary, Chengdu Chengkang Iron and Steel Co. Ltd. (Chengdu Steel).
The economic turmoil that has occurred in Asia has affected the company in several ways. First, a softening of demand and
increased competition required that Chengdu Steel reduce unit prices for steel from $313 per ton in 1996, to $294 per ton in
1997.
Second, a decline in real estate prices in Hong Kong and China had a negative impact on the company's real property
investments, leading to a $2.1 million loss and to the receipt of no income from an associated real estate company, China
Pacific Construction (B.V.I.) Ltd. (CPCT), which in 1996 had contributed $1.3 million to the company.
Third, increased inflation in Hong Kong and China contributed to an increase in the company's selling, general and
administrative expenses. Fourth, the company's need to borrow (in the form of its 9 percent convertible notes) and its need to
service mortgage debt at increased rates of interest resulted in higher net interest expense ($2.5 million in 1997, compared with
$99,000 in 1996).
The company's joint venture with CISP also suffered from previously announced management uncertainties. CISP removed the
former general manager of Chengdu Steel on Jan. 6, 1998, and for a period thereafter the joint venture was left without
adequate leadership. This resulted in, among other things, the delay in preparing financial statements for Chengdu Steel and the
company.
Chengdu Steel's new management decided to write off $5.9 million for obsolete stock and poor quality raw materials as of the
end of 1997. This write off came on top of scheduled maintenance on Chengdu Steel's two blast furnaces that increased selling,
general and administrative expenses by $1.6 million. In addition, new management determined that an increase in the allowance
for doubtful accounts of $5.9 million was appropriate.
As a result of the operating loss sustained by the company in 1997, the company determined to write off goodwill in the amount
of Rmb16.6 million.
In addition to contributing to the poor performance of the company in 1997, as compared with 1996, the general decline in
Asian economic conditions has caused some of the company's financial assets to either decline in value, or at least be of
uncertain value.
As of Dec. 31, 1997, the company had receivables totalling approximately Rmb33.7 million from Open View Properties Ltd.,
the company that is responsible for developing the Sun City Project, and companies related to Open View Properties, and an
investment of approximately Rmb59 million in an associated company, CPCT, the major assets of which are two promissory
notes issued by Open View Properties and its holding company.
Both the receivables and promissory notes are due for settlement in December 1998. Due to the substantial diminution in real
property values in Hong Kong in the last quarter of 1997, which affected Southern China -- Huiyang City, where the Sun City
project was situated -- the company obtained an updated valuation of such project.
A review of the updated appraisal showed a substantial decrease in the appraised value from Rmb632 million to Rmb493.2
million.
As unaudited management accounts of Open View Properties indicate that its net asset value is approximately Rmb33.1 million
as of Dec. 31, 1997, it is unclear whether Open View Properties and its related companies have the necessary cash resources
to pay their respective obligations to the company and CPCT on the due dates, and hence the company's realization on the
above-mentioned receivables and its investment in CPCT, with a carrying value of Rmb92.7 million, is uncertain.
As of Dec. 31, 1997, the company had outstanding receivables of approximately Rmb365.4 million from CISP. Rmb211
million of this balance arises from short-term bank loans due in 1998 that were transferred from CISP into the name of
Chengdu Steel without authorization from Chengdu Steel.
The remaining Rmb154.4 million of receivables arises from loans by Chengdu Steel to CISP to finance CISP's operations. The
company and its auditors are unable to determine whether CISP has the necessary financial ability to repay its obligations to the
company or its subsidiaries.
Chengdu Steel and CISP have entered into an agreement recognizing that CISP, and not Chengdu Steel, is responsible for
repayment of the Rmb211 million bank loans but it is unclear when, or whether, the bank loans will be transferred back to
CISP.
As a condition to request a transfer of the loans back to CISP, CISP has to obtain permission from the relevant Chinese
governmental authorities to use its real property as collateral for the loans. CISP has made an application for such use of its real
property to the relevant Chinese governmental authorities and is awaiting their approval.
If such short-term bank loans are not transferred back to CISP, and the company is required to repay such loans during 1998,
it is unclear whether the company will have the necessary cash resources to pay back the loans. This is due to the substantial
losses the company incurred during 1997, and the fact that its current liabilities exceeded its current net assets as of Dec. 31,
1997, by approximately Rmb290.9 million.
The company's operating loss, coupled with the uncertainties surrounding the Open View Properties and CISP receivables, has
caused some uncertainty as to whether the company will be able to repay the approximately $15 million in 9 percent
convertible debentures it currently has outstanding when due.
The arranger of this debenture issue is currently attempting to negotiate changes to the terms of these notes with the holders to,
among other things, delay their maturity. However, there can be no assurance that such negotiations will be successful.
The foregoing matters resulted in the inability of the company's auditors to express an opinion on the company's financial
statements for 1997.
At Dec. 31, 1997, the company's current liabilities exceeded its current assets by approximately Rmb290.9 million. The
company's unaudited management accounts for the three months ended March 31, 1998, indicate that the company has
continued to incur losses.
These facts, together with the company's operating loss, its uncertain ability to realize on certain of its financial assets and its
obligation to repay the 9 percent convertible debentures in January 1999, will require the company to restructure its
indebtedness and/or raise additional funds during 1998.
Historically, the company's operations have been funded by a combination of periodic sales of common stock and convertible
securities to fund specific expansion plans, capital contributions from the company's ultimate shareholders, loans from
shareholders and affiliates, and bank loans.
Although there can be no assurance that the company will be able to raise capital using these methods in the future, the
company's management intends to explore such and other methods (such as asset injections from third parties, etc.) to raise
additional capital. There can be no assurance that the company can be successful in raising capital from any of these or other
methods.
China Pacific Inc. and Subsidiaries
Consolidated Statements of Operations
For the Years Ended Dec. 31, 1995, 1996 and 1997
1995 1996 1997
Rmb '000 Rmb '000 Rmb '000 US$ '000
Net sales 442,088 1,023,846 1,131,227 136,622
Cost of goods sold (341,289) (876,162) (1,106,833) (133,675)
Gross profit 100,799 147,684 24,394 2,947
Selling, general and
administrative expenses (31,223) (64,679) (144,838) (17,493)
Interest income 34 3,634 4,121 498
Interest expense (1,423) (818) (21,075) (2,545)
Other income (expenses),
net 11,547 257 (17,161) (2,073)
Write off of goodwill -- -- (16,624) (2,008)
Operation differential
subsidies -- 28,236 -- --
Share of income of an
associated company -- 11,023 -- --
Income (loss) from
continuing operations
before income taxes 79,734 125,337 (171,183) (20,674)
Provision for income
taxes (1,897) (1,816) (1,263) (153)
Income (loss) from
continuing operations 77,837 123,521 (172,446) (20,827)
Discontinued operations:
Income from operations of
the discontinued Sun
City subsidiaries (less
Nil amount of applicable
income taxes) 13,760 -- -- --
Income (loss) before
minority interests 91,597 123,521 (172,446) (20,827)
Minority interests (41,115) (39,739) 47,210 5,702
Net income (loss) 50,482 83,782 (125,236) (15,125)
Basic earnings per
common share:
Income (loss) from
continuing
operations Rmb 12.03 Rmb 10.97 Rmb (13.88) US$(1.68)
Income from
discontinued
operations 1.94 -- -- --
Net income (loss) Rmb 13.97 Rmb 10.97 Rmb (13.88) US$(1.68)
Weighted average
number of shares
outstanding used in
basic calculation 3,612 7,638 9,021 9,021
Diluted earnings per
common share:
Income (loss) from
continuing
operations Rmb 11.41 Rmb 9.29 Rmb (13.88) US$(1.68)
Income from
discontinued
operations 1.84 -- -- --
Net income (loss) Rmb 13.25 Rmb 9.29 Rmb (13.88) US$(1.68)
Weighted average
number of shares
outstanding used in
diluted calculation 3,816 9,023 9,021 9,021
China Pacific Inc. and Subsidiaries
Consolidated Balance Sheets
As of Dec. 31, 1996 and 1997
1996 1997
Rmb '000 Rmb '000 US$ '000
Assets
Current assets:
Cash and bank deposits 61,293 16,582 2,003
Restricted bank deposits -- 33,284 4,020
Accounts receivable, net 112,003 51,487 6,218
Due from related companies 2,031 1,449 175
Due from CISP, current portion 13,000 -- --
Prepayments, deposits and other
current assets 45,062 15,485 1,870
Loans receivable -- 3,000 362
Inventories, net 316,919 228,853 27,639
Deferred debt costs -- 4,440 536
Total current assets 550,308 354,580 42,823
Due from CISP, long-term portion 38,191 365,435 44,135
Investment in an associated
company 58,988 58,988 7,124
Investments and note receivable 33,997 36,098 4,360
Deferred value-added tax
recoverable 35,054 4,663 563
Property, machinery, equipment
and capital leases, net 214,220 220,943 26,684
Investment properties -- 56,919 6,875
Goodwill, net 17,064 -- --
Total assets 947,822 1,097,626 132,564
Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings 49,716 211,110 25,496
Long-term debt, current portion 10,603 22,858 2,761
Capital lease obligations,
current portion 777 630 76
Accounts payable 164,159 129,125 15,595
Deposits from customers 132,792 172,595 20,845
Accrued liabilities 101,399 88,323 10,667
Taxation payable -- 1,233 149
Value-added tax payable 22,452 18,027 2,177
Due to related companies 9,363 1,592 192
Total current liabilities 491,261 645,493 77,958
Long-term debt, noncurrent
portion -- 166,767 20,141
Capital lease obligations,
noncurrent portion 1,708 1,516 183
Total liabilities 492,969 813,776 98,282
Minority interests 147,455 100,245 12,107
Shareholders' equity:
Common stock, par value
US$0.001; authorized
25 million shares;
outstanding 8,956,384
shares in 1996, and
9,039,644 shares in 1997 74 75 9
Treasury stock, 27,500
shares in 1996 and 1997 (1,420) (1,420) (171)
Additional paid-in capital 189,423 191,036 23,072
Dedicated capital 23,245 23,245 2,807
Retained earnings (accumulated
deficit) 92,235 (33,001) (3,985)
Cumulative translation
adjustments 3,841 3,670 443
Total shareholders' equity 307,398 183,605 22,175
Total liabilities, minority
interests and shareholders'
equity 947,822 1,097,626 132,564
Translation of amounts from Renminbi (Rmb) into U.S. dollars (US$) is
for the convenience of readers and has been made at the Noon buying
rate in New York City for cable transfers in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of New York
on April 30, 1998, of US$1.00 = Rmb8.28. No representation is made
that the Renminbi amounts could have been, or could be, converted into
U.S. dollars at that rate or at any other rate.
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