PegBio Co., Ltd. - Capital/Financing Update 2005

THIS PROSPECTUS IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this prospectus, or as to the action to be taken, you should consult your stockbroker or other licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

A copy of this prospectus, together with copies of the other documents specified in the paragraph headed “Documents registered by the Registrars of Companies” in Appendix III to this prospectus, have been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Companies Ordinance in Hong Kong and filed with the Registrar of Companies in Bermuda as required by Section 26 of the Companies Act 1981 of Bermuda. The Registrar of Companies in Hong Kong, the Securities and Futures Commission in Hong Kong, the Registrar of Companies in Bermuda and the Bermuda Monetary Authority take no responsibility as to the contents of any of these documents.

Dealings in the shares in Xin Corporation Limited (the “Company”) may be settled through the Central Clearing and Settlement System and you should consult your stockbroker or other licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser for details of those settlement arrangements and how such arrangements may affect your rights and interests.

The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this prospectus, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this prospectus.

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(Incorporated in Bermuda with limited liability) (Stock Code: 1141)

OPEN OFFER OF 551,360,095 OFFER SHARES AT HK$0.04 PER SHARE ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO SHARES HELD PAYABLE IN FULL ON APPLICATION

Financial adviser to Xin Corporation Limited

SOMERLEY LIMITED

Underwriter

KINGSTON SECURITIES LIMITED

The latest time for application and payment for the Offer Shares is 4:00 p.m. on Friday, 18 February 2005. The procedures for application and payment are set out on pages 13 to 14 of this prospectus.

You should note that the Underwriter may terminate the arrangements set out in the Underwriting Agreement by notice in writing to the Company at any time up to 4:00 p.m. on the Settlement Date, if at any time prior to 4:00 p.m. on the Settlement Date: (i) there develops, occurs, exists or comes into force any events whereby in the reasonable opinion of the Underwriter, the success of the Open Offer or the business or financial condition or prospects of the Group would, might be or is likely to be adversely affected or which makes it inadvisable or inexpedient to proceed with the Open Offer, including: (a) the introduction of any new law or regulation or any change in existing laws or regulations (or any change in the judicial interpretation thereof) whether in Hong Kong or elsewhere; or (b) any change or deterioration (whether or not permanent) in local, national or international, economic, financial, political or military conditions or any event beyond the control of the Company (including, without limitation, acts of government, strikes, wars, acts of violence, acts of terrorism, sabotage, raids, attacks, explosion, flooding, civil commotion, terrorist attack, acts of God or accident); or (c) any change or deterioration (whether or not permanent) in local, national or international securities market conditions; or (d) without prejudice to sub-paragraphs (b) and (c) above, the imposition of any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange due to exceptional financial or political circumstances or otherwise; or (e) any local, national or international outbreak or escalation of hostilities, insurrection or armed conflict; or (f) any suspension in the trading of Shares on the Stock Exchange for a continuous period of five business days (save and except for any temporary suspension of dealing for a period not exceeding 10 consecutive business days pending the announcement of the Open Offer or any other public announcement by the Company as may be required by the Stock Exchange and/or the Securities and Futures Commission); or (g) a change or development involving a prospective change in taxation or exchange control in Hong Kong or elsewhere which will or may materially and adversely affect the Group or the present or prospective shareholders of the Company in their capacity as such; or (ii) there comes to the notice of the Underwriter or the Underwriter shall have reasonable cause to believe that any of the undertakings or other obligations expressed to be assumed by or imposed on the Company under the Underwriting Agreement have not been complied with in any respect; or (iii) there comes to the notice of the Underwriter or the Underwriter shall have reasonable cause to believe that any of the representations or warranties given by the Company under the Underwriting Agreement was untrue or inaccurate in any respect which adversely affect the success of the Open Offer. If the Underwriter terminates the Underwriting Agreement, the Open Offer will not proceed.

It should be noted that the Shares have been dealt with on an ex-entitlements basis commencing from Friday, 28 January 2005 and that dealings in such Shares take place whilst the conditions to which the Underwriting Agreement is subject remain unfulfilled. Any Shareholder or other person dealing in such Shares up to the date on which all conditions to which the Open Offer is subject are fulfilled (which is expected to be on Wednesday, 23 February 2005), will accordingly bear the risk that the Open Offer cannot become unconditional and may not proceed. Any Shareholder or other person contemplating selling or purchasing Shares who is in any doubt about his/her position is recommended to consult his/her own professional adviser.

* For identification only

4 February 2005

TERMINATION OF THE UNDERWRITING AGREEMENT

The Underwriter may terminate the arrangements set out in the Underwriting Agreement by notice in writing to the Company at any time up to 4:00 p.m. on the Settlement Date, if at any time prior to 4:00 p.m. on the Settlement Date:

(i) there develops, occurs, exists or comes into force any events whereby in the reasonable opinion of the Underwriter, the success of the Open Offer or the business or financial condition or prospects of the Group would, might be or is likely to be adversely affected or which makes it inadvisable or inexpedient to proceed with the Open Offer, including:
(a) the introduction of any new law or regulation or any change in existing laws or regulations (or any change in the judicial interpretation thereof) whether in Hong Kong or elsewhere; or
(b) any change or deterioration (whether or not permanent) in local, national or international, economic, financial, political or military conditions or any event beyond the control of the Company (including, without limitation, acts of government, strikes, wars, acts of violence, acts of terrorism, sabotage, raids, attacks, explosion, flooding, civil commotion, terrorist attack, acts of God or accident); or
(c) any change or deterioration (whether or not permanent) in local, national or international securities market conditions; or
(d) without prejudice to sub-paragraphs (b) and (c) above, the imposition of any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange due to exceptional financial or political circumstances or otherwise; or
(e) any local, national or international outbreak or escalation of hostilities, insurrection or armed conflict; or
(f) any suspension in the trading of Shares on the Stock Exchange for a continuous period of five business days (save and except for any temporary suspension of dealing for a period not exceeding 10 consecutive business days pending the announcement of the Open Offer or any other public announcement by the Company as may be required by the Stock Exchange and/or the Securities and Futures Commission); or
(g) a change or development involving a prospective change in taxation or exchange control in Hong Kong or elsewhere which will or may materially and adversely affect the Group or the present or prospective shareholders of the Company in their capacity as such; or
(ii) there comes to the notice of the Underwriter or the Underwriter shall have reasonable cause to believe that any of the undertakings or other obligations expressed to be assumed by or imposed on the Company under the Underwriting Agreement have not been complied with in any respect; or
(iii) there comes to the notice of the Underwriter or the Underwriter shall have reasonable cause to believe that any of the representations or warranties given by the Company under the Underwriting Agreement was untrue or inaccurate in any respect which adversely affect the success of the Open Offer.

If the Underwriter terminates the Underwriting Agreement, the Open Offer will not proceed.

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	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected timetable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Undertaking of the controlling Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Warning of the risks of dealings in Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Reasons for the Open Offer and use of proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Business review and prospects of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Listings and dealings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Shareholding structure in the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Permission of the Bermuda Monetary Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Procedures for application and payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Share certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Adjustment of conversion price of the Convertible Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Appendix I – Financial information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Appendix II – Pro forma financial information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	65
Appendix III – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	68

– ii –

DEFINITIONS

In this prospectus, the following expressions have the following meanings, unless the context otherwise requires:

“Application Form(s)”

application form(s) for Offer Shares

“associate(s)”

has the same meaning given to it in the Listing Rules

“Board”

board of Directors

“CCASS”

the Central Clearing and Settlement System established and operated by HKSCC

“Companies Act”

the Companies Act 1981 of Bermuda

“Companies Ordinance”

the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)

“Company”

Xin Corporation Limited, a company incorporated in Bermuda with its shares listed on the Stock Exchange

“connected persons”

has the same meaning given to it in the Listing Rules

“Convertible Bonds”

5% convertible bonds of the Company in an aggregate outstanding principal amount of HK$2,166,664, which are repayable in May 2005 or convertible into Shares at a conversion price of HK$0.2432 per Share (subject to adjustment)

“Directors”

directors of the Company

“Excess Application Form(s)”

form(s) of application for excess Offer Shares

“Excluded Shareholders”

those Overseas Shareholders whom the Directors, after making relevant enquiry as required under the Listing Rules, consider their exclusion from the Open Offer to be necessary or expedient on account either of the legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place

“Group”

the Company and its subsidiaries

“HK$”

Hong Kong dollars, the lawful currency of Hong Kong

“HKSCC”

Hong Kong Securities Clearing Company Limited

“Hong Kong”

Hong Kong Special Administrative Region of the PRC

“Independent Shareholders”

Shareholders other than Vision Century, directors of certain subsidiaries of the Company and their respective associates

“Latest Practicable Date”
1 February 2005, being the latest practicable date for ascertaining certain information for inclusion in this prospectus
“Listing Rules”

the Rules Governing the Listing of Securities on the Stock Exchange

“Offer Share(s)”

the new Share(s) proposed to be offered to the Qualifying Shareholders for subscription pursuant to the Open Offer

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DEFINITIONS

“Open Offer” the proposed issue of Offer Shares by way of open offer to the Qualifying Shareholders on the terms to be set out in the Prospectus Documents and summarised herein
“Overseas Shareholders”
Shareholders whose addresses on the register of members of the Company are outside Hong Kong on the Record Date
“Posting Date”
4 February 2005 or such other date as the Underwriter may agree in writing with the Company for the date of despatch of the Prospectus Documents
“PRC”
the People’s Republic of China, excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan

“Prospectus Documents” this prospectus, the Application Form and the Excess Application Form

“Qualifying Shareholders”
Shareholders on the register of members of the Company on the Record Date other than the Excluded Shareholders
“Record Date” 4 February 2005, being the date by reference to which entitlements under the Open Offer will be determined
“Registrar” Tengis Limited, the Company’s branch share registrar in Hong Kong
“Record Date”
“Settlement Date” the date being the third business day following the last date for application of and payment for Offer Shares
“SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Shareholder(s)” holder(s) of Shares
“Shares”
shares of HK$0.01 each in the capital of the Company
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Subscription Price” the subscription price of HK$0.04 per Offer Share pursuant to the Open Offer
“Underwriter” Kingston Securities Limited, a licensed corporation to carry on business in types 1, 4, 6, 7 and 9 regulated activities (dealing in securities, advising on securities and corporate finance, providing automated trading services and asset management) under the SFO
“Underwriting Agreement” the underwriting agreement dated 13 January 2005 entered into between the Underwriter and the Company in relation to the underwriting of the Open Offer

“Vision Century”

Vision Century Group Limited, a company incorporated in the British Virgin Islands, and the controlling Shareholder

“%”

per cent.

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EXPECTED TIMETABLE

2005

Prospectus for the Open Offer, Application Forms and

Excess Application Forms posted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 4 February

Register of members to be reopened . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 7 February

Latest time for application for Offer Shares and payment . . . . . . . . . . . 4:00 p.m. on Friday, 18 February

Open Offer becomes unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Wednesday, 23 February

Announcement of results of the Open Offer to be published . . . . . . . . . . . . . . . . . . .Thursday, 24 February

Refund cheques for wholly and partially

unsuccessful excess applications to be posted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Thursday, 24 February

Share certificates for Offer Shares to be posted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 24 February

Note: Dealings in the fully-paid Offer Shares will commence as soon as the relevant Shareholders receive the share certificates for Offer Shares.

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LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability)

(Stock Code: 1141)

Executive Directors:

Mr. Lo Ming Chi, Charles (Chairman) Mr. Yu Wai Man Mr. Wilson Ng Mr. Ng Wee Keat Mr. Ng Teow Leng Mr. Ng Eng Leng

Independent Non-executive Directors:

Mr. Wong Kwok Tai Mr. Lau Pok Lam Mr. Ko Kwong Woon, Ivan

Registered Office:

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Head Office and Principal Place of Business in Hong Kong: Room 808B, 8th Floor, Tower B New Mandarin Plaza 14 Science Museum Road Tsim Sha Tsui East Kowloon Hong Kong

4 February 2005

To Qualifying Shareholders and, for information only, Excluded Shareholders and holders of the Convertible Bonds

Dear Sirs or Madam,

OPEN OFFER OF 551,360,095 OFFER SHARES AT HK$0.04 PER SHARE ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO SHARES HELD PAYABLE IN FULL ON APPLICATION

INTRODUCTION

The Directors announced on 14 January 2005 that the Company proposes to raise approximately HK$22.1 million (before expenses) by way of the Open Offer. Pursuant to the Open Offer, the Qualifying Shareholders are entitled to apply for, on an assured basis, one Offer Share for every two Shares held on the Record Date. The Open Offer is not available to the Excluded Shareholders.

This prospectus sets out further information regarding the Open Offer, including information on dealings and application for Offer Shares, financial information and other information in respect of the Group.

OPEN OFFER

Basis of the Open Offer

: one Offer Share for every two Shares held on the Record Date

Number of existing Shares in issue : 1,102,720,190 Shares

For identification only

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LETTER FROM THE BOARD

Number of Offer Shares : 551,360,095 Offer Shares Enlarged issued share capital upon : 1,654,080,285 Shares completion of the Open Offer assuming no conversion of the Convertible Bonds

Qualifying Shareholders:

To qualify for the Open Offer, Shareholders must at the close of business on the Record Date be registered on the register of members of the Company. Shareholders having addresses outside Hong Kong on the register of members of the Company at the close of business on the Record Date are qualified for the Open Offer only if the Board, after making relevant enquiry as required under the Listing Rules, considers that the offer to these Shareholders would not contravene any legal restriction under the laws of the relevant place or any requirement of the relevant regulatory body or stock exchange in that place.

The invitation to apply for Offer Shares is not transferable and there will be no trading in nil-paid entitlements on the Stock Exchange.

The Company has sent the Application Forms and the Excess Application Forms to the Qualifying Shareholders only.

Rights of the Overseas Shareholders:

If at the close of business on the Record Date a Shareholder’s address on the Company’s register of members is in a place outside Hong Kong, that Shareholder may not be eligible to take part in the Open Offer as the Prospectus Documents will not be registered and/or filed under the applicable securities legislation of any jurisdiction other than Hong Kong and Bermuda. No persons receiving a copy of the Application Form or the Excess Application Form in any jurisdiction outside Hong Kong may treat it as an offer or invitation to apply for Offer Shares, unless in the relevant jurisdiction such an offer or invitation could lawfully be made without compliance with any registration or other legal and regulatory requirements. It is the responsibility of any person outside Hong Kong wishing to make an application for Offer Shares to satisfy himself/herself as to the observance of the laws and regulations of the relevant jurisdiction, including the obtaining of any government or other consents, and payment of any taxes and duties required to be paid in such jurisdiction in connection therewith.

Based on the register of members of the Company as at the Record Date, there is one Shareholder with registered address in the PRC. The Board has made enquiries as required under the Listing Rules as to whether the issue of Offer Shares to such Overseas Shareholder may contravene the applicable securities legislation of or the regulations of the relevant regulatory body or stock exchange in the PRC, and has been informed that there is no restriction to extend the Open Offer to such Overseas Shareholder. Accordingly, the Open Offer will be extended to such Overseas Shareholder. Accordingly, there is no Excluded Shareholder.

Subscription Price:

The subscription price of HK$0.04 per Offer Share, payable in full on application,

(i) represents a discount of approximately 25.9% to the closing price of HK$0.054 per Share as quoted on the Stock Exchange on 13 January 2005 (being the last trading day before the date of the announcement of the Open Offer);

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LETTER FROM THE BOARD

(ii) represents a discount of approximately 18.9% to the theoretical ex-entitlement price of approximately HK$0.0493 per Share based on the aforesaid closing price per Share;
(iii) represents a discount of approximately 32.1% to the average of the closing prices of Shares for the 10 trading days ended on 13 January 2005 of approximately HK$0.0589 per Share;
(iv) represents a premium of approximately 6,051.9% over the unaudited consolidated net asset value per Share of the Group as at 30 September 2004;
(v) represents a premium of approximately 206.3% over the pro forma adjusted consolidated net asset value of the Group upon completion of the Open Offer of approximately HK$0.01306 per Share; and
(vi) is equivalent to the closing price of HK$0.04 per Share as quoted on the Stock Exchange as at the Latest Practicable Date.

The Subscription Price for Offer Shares has been determined based on arm’s length negotiations between the Company and the Underwriter with reference to the prevailing market prices of Shares. The Directors consider that the terms of the Underwriting Agreement are fair and reasonable and the discount of the Subscription Price as compared to the recent market prices would encourage Shareholders to participate in the Open Offer and the future growth of the Group.

Fractions of Offer Shares:

There will be no provisional allotment of fractions of Offer Shares on an assured basis and the fractions of Offer Shares which would otherwise form part of the provisional allotments (if any) will be taken up by the Underwriter.

Status of Offer Shares:

When allotted and issued fully paid, Offer Shares will rank pari passu in all respects with the existing Shares. Holders of Offer Shares will be entitled to receive all dividends and distributions which are declared, made or paid on or after the date of issue of Offer Shares.

Share certificates:

Subject to fulfillment of the conditions of the Open Offer, share certificates for fully-paid Offer Shares are expected to be posted at the risk of the Qualifying Shareholders on or before Thursday, 24 February 2005.

Application for excess Offer Shares:

The Qualifying Shareholders may apply for any Offer Shares provisionally allotted but not accepted by the Qualifying Shareholders. Application can be made by completing the Excess Application Forms and lodging the same with remittance of the aggregate Subscription Price payable for the excess Offer Shares. The Directors will allocate the excess Offer Shares at their discretion on a fair and equitable basis and will give preference to topping up odd lots to whole board lots.

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LETTER FROM THE BOARD

Application for listing:

Application has been made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, Offer Shares. Dealings in Offer Shares on the Hong Kong branch register of members will be subject to the payment of stamp duty in Hong Kong.

UNDERTAKING OF THE CONTROLLING SHAREHOLDER

As at the Latest Practicable Date, Vision Century, being the controlling Shareholder, was interested in 682,095,950 Shares representing approximately 61.9% of the existing issued share capital of the Company. Vision Century has irrevocably undertaken to the Company and the Underwriter that it will subscribe for the 341,047,975 Offer Shares that it will be entitled to apply for on an assured basis under the Open Offer. Vision Century has no intention to apply for any excess Offer Shares.

UNDERWRITING AGREEMENT

Pursuant to the Underwriting Agreement, the Underwriter has agreed to fully underwrite the Offer Shares not taken up by Vision Century, which amounts to 210,312,120 Offer Shares.

The Underwriter is independent of and not connected with the Company and its connected persons.

Commission and other payment:

The Company will pay to the Underwriter an underwriting commission at 2.5% of the aggregate Subscription Price of the number of Offer Shares not taken up by Vision Century. The underwriting commission is expected to be approximately HK$210,312.

Conditions of the underwriting agreement

The Underwriting Agreement is conditional, among other things, on the following conditions being fulfilled:

(i) the Prospectus Documents being duly approved by the Directors, the signing by or on behalf of all of the Directors on or before the Posting Date of two copies of each of the Prospectus Documents and the certification by two Directors of two copies of each of the Prospectus Documents and the delivery on or before the Posting Date of one such signed copy of each of the Prospectus Documents to the Underwriter;
(ii) the delivery to the Stock Exchange and registration with the Registrar of Companies in Hong Kong respectively on or before the Posting Date of one copy of each of the Prospectus Documents each duly certified in compliance with Section 342C of the Companies Ordinance (and all other documents required to be attached thereto) and the filing and registration with the Registrar of Companies in Bermuda on or before the Posting Date of one copy of each of the Prospectus Documents each duly signed by or on behalf of the Directors as required by the Companies Act and otherwise complying with the requirements of the Companies Ordinance, the Companies Act and the Listing Rules;

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LETTER FROM THE BOARD

(iii) if required, the Bermuda Monetary Authority granting its consent to the issue of Offer Shares on or before the Posting Date;
(iv) the posting on the Posting Date of copies of the Prospectus Documents to the Qualifying Shareholders; and
(v) the Listing Committee of the Stock Exchange agreeing to grant listings of, and permission to deal in, Offer Shares either unconditionally or subject to such conditions which the Company accepts and the satisfaction of such conditions (if any) by no later than the Posting Date and not having withdrawn or revoked such listings and permission on or before 4:00 p.m. on the Settlement Date.

If the conditions to the Underwriting Agreement are not fulfilled or waived on the dates as specified in the Underwriting Agreement (or such later date or dates as the Underwriter may agree with the Company in accordance with its terms), or if the Underwriting Agreement shall be terminated as described below, the obligations and liabilities of the parties shall cease and terminate. Conditions (i) to (iv) above are capable of being waived. However, the Underwriter has stated that it does not intend to waive any of the above conditions. The Open Offer is subject to the Underwriting Agreement becoming unconditional and not being terminated in accordance with its terms.

Termination of the Underwriting Agreement:

(i) there develops, occurs, exists or comes into force any events whereby in the reasonable opinion of the Underwriter, the success of the Open Offer or the business or financial condition or prospects of the Group would, might be or is likely to be adversely affected or which makes it inadvisable or inexpedient to proceed with the Open Offer, including:
(a) the introduction of any new law or regulation or any change in existing laws or regulations (or any change in the judicial interpretation thereof) whether in Hong Kong or elsewhere; or
(b) any change or deterioration (whether or not permanent) in local, national or international, economic, financial, political or military conditions or any event beyond the control of the Company (including, without limitation, acts of government, strikes, wars, acts of violence, acts of terrorism, sabotage, raids, attacks, explosion, flooding, civil commotion, terrorist attack, acts of God or accident); or
(c) any change or deterioration (whether or not permanent) in local, national or international securities market conditions; or

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LETTER FROM THE BOARD

(d) without prejudice to sub-paragraphs (b) and (c) above, the imposition of any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange due to exceptional financial or political circumstances or otherwise; or
(e) any local, national or international outbreak or escalation of hostilities, insurrection or armed conflict; or
(f) any suspension in the trading of Shares on the Stock Exchange for a continuous period of five business days (save and except for any temporary suspension of dealing for a period not exceeding 10 consecutive business days pending the announcement of the Open Offer or any other public announcement by the Company as may be required by the Stock Exchange and/or the Securities and Futures Commission); or
(g) a change or development involving a prospective change in taxation or exchange control in Hong Kong or elsewhere which will or may materially and adversely affect the Group or the present or prospective shareholders of the Company in their capacity as such; or
(ii) there comes to the notice of the Underwriter or the Underwriter shall have reasonable cause to believe that any of the undertakings or other obligations expressed to be assumed by or imposed on the Company under the Underwriting Agreement have not been complied with in any respect; or
(iii) there comes to the notice of the Underwriter or the Underwriter shall have reasonable cause to believe that any of the representations or warranties given by the Company under the Underwriting Agreement was untrue or inaccurate in any respect which adversely affect the success of the Open Offer.

If the Underwriter terminates the Underwriting Agreement, the Open Offer will not proceed.

WARNING OF THE RISKS OF DEALINGS IN SHARES

Existing Shares have been dealt with on an ex-entitlements basis from Friday, 28 January 2005. If the Underwriter terminates the Underwriting Agreement, or the conditions of the Underwriting Agreement are not fulfilled or waived, the Open Offer will not proceed.

Shareholders should note that the Shares have been dealt with on an ex-entitlements basis commencing from Friday, 28 January 2005 and that dealings in such Shares will take place whilst the conditions to which the Underwriting Agreement is subject remain unfulfilled. Any Shareholder or other person dealing in such Shares up to the date on which all conditions to which the Open Offer is subject are fulfilled will accordingly bear the risk that the Open Offer cannot become unconditional and may not proceed. Any Shareholder or other person contemplating selling or purchasing Shares who is in any doubt about his/her position is recommended to consult his/her own professional adviser.

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LETTER FROM THE BOARD

REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS

The principal activities of the Group are (i) the provision of supply and procurement business; and (ii) the design, manufacture and sale of a wide range of toys. For the year ended 31 March 2004, the Group recorded an audited consolidated net loss of approximately HK$30.9 million. For the six months ended 30 September 2004, the Group recorded an unaudited net loss of approximately HK$9.2 million. The Directors are of the view that with the recent improving equity market conditions, it is in the interest of the Company to raise equity capital to strengthen the Group’s financial position and enlarge its capital base.

Net proceeds of the Open Offer of approximately HK$20.9 million are intended to be applied as to approximately HK$16.0 million for the repayment of the liabilities outstanding (including the Convertible Bonds and other liabilities of the Group) and as to the remainder of approximately HK$4.9 million for general working capital of the Group. The Directors believe that the Open Offer is in the interest of the Company and the Shareholders given that the Open Offer will increase the asset base of the Group and provide it with additional working capital.

The Company did not conduct any fund raising activities in the past 12 months.

BUSINESS REVIEW AND PROSPECTS OF THE GROUP

Business review

For the year ended 31 March 2004

The financial year of 2003/2004 continued to be a difficult year for the Group and the worldwide economy was dramatically hit by the Iraq war and the outbreak of Severe Acute Respiratory Syndrome (“SARS”).

Upon successful implementation of debt restructuring in the year of 2002/2003 and completion of an open offer in September 2003, the Group’s financial position was significantly improved and its capital base was enlarged as well. In order to restore the on-going support from its customers and to enhance the competitiveness of the Group’s products, the management also adopted several measures including (i) modifying its ODM products; (ii) implementing various marketing strategies such as early bird program; (iii) adopting new pricing policies; (iv) expanding its business into key markets. However, the Iraq war hampered the consumer spending sentiment seriously and also caused a rise in the price of plastic materials which are primary raw materials for the Group’s core product item - toddler cars. Such increase in material cost affected the Group’s margins and turnover. Following the outbreak of SARS in Asian countries and the issue of the travellers’ warnings by the World Health Organisation in early 2003, nearly all buyers cancelled their business trips to Hong Kong in April and May of 2003. That further aggravated the business environment.

In order to introduce the Group with a stable revenue income source and to diversify its business, the Group entered into with a connected person on 20 February 2004 (i) a shareholders’ agreement for formation of a joint venture company namely “Xin Procurement and Trading Pte. Ltd.” (“Xin Procurement”) for the provision of the supply and procurement business in which the Group and the connected person own 51% and 49% equity interest respectively; and (ii) a supply agreement for the efficient and timely

– 10 –

LETTER FROM THE BOARD

supply of certain office equipment and office supplies, machinery, parts, lubricating oil and bunker for vessels. Details of the above transactions were set out respectively in the announcement of the Company dated 20 February 2004 and the circular of the Company dated 12 March 2004. The above transactions were approved by the independent shareholders at the special general meeting held on 29 March 2004.

For the six months ended 30 September 2004

For the six months ended 30 September 2004, there was an improvement in the Group’s turnover and results by the contribution from the supply and procurement business in Asia Pacific region.

Through the business partnership in a joint venture company named as “Gadgets Yard Limited”, the Group has successfully broadened its clientele network and developed reliable relationship with customers. It was encouraging to note that sales in toys business has been improved. However, the relatively high level of the price of crude oil throughout the period led to further increase in the price of plastic materials. Accordingly, the overall performance of toys business was not satisfactory and still operated at a loss during the six months ended 30 September 2004.

Following the formation of a joint venture company of Xin Procurement for the provision of the supply and procurement business in Asia Pacific region as mentioned above, the supply and procurement business commenced in April 2004 which provided the Group with a stable revenue income source. During the six months ended 30 September 2004, Xin Procurement recorded a turnover of HK$65,505,000 and unaudited segment profit of HK$3,794,000. Leveraging on our sourcing network, diverse customer base together with the recovery of the global economy, the management is confident that the Group is well equipped to diversify its business into the provision of the supply and procurement business which will serve to provide a stable revenue income source for the Group.

Prospects

Looking forward, it has been the Group’s key strategy to monitor and evaluate the toys business, to further develop the supply and procurement business, to implement cost control measures and to consider other alternatives which could maximise shareholders’ return. The Directors believe that the Group will improve its profit margins and turnover in the forthcoming years.

LISTING AND DEALINGS

Subject to the granting of the listing of, and permission to deal in, the Offer Shares on the Stock Exchange, the Offer Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Offer Shares or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

– 11 –

LETTER FROM THE BOARD

Share certificates for all Offer Shares are expected to be posted on or before Thursday, 24 February 2005, at the risk of the Qualifying Shareholders. The Offer Shares will be traded in board lots of 4,000 Shares each. Dealings in the Offer Shares on the Hong Kong branch register of members will be subject to the payment of stamp duty in Hong Kong.

SHAREHOLDING STRUCTURE IN THE COMPANY

Set out below is a summary of the shareholding structure of the Company immediately before and after the completion of the Open Offer (assuming no change in shareholding since then):

Shareholders Vision Century Directors of the subsidiaries of the Company The Underwriter and/or the subscribers procured by it Independent Shareholders Total	As at the Latest Practicable Date 682,095,950 61.9% 16,000 0.0% 0 0.0% 420,608,240 38.1% 1,102,720,190 100.0%	Upon completion of the Open Offer 1,023,143,925 61.9% 1,023,143,925 61.9% 24,000 0.0% 16,000 0.0% 0 0.0% 210,312,120 12.7% 630,912,360 38.1% 420,608,240 25.4% 1,654,080,285 100.0% 1,654,080,285 100.0% (Note a) (Note b)	Upon completion of the Open Offer 1,023,143,925 61.9% 1,023,143,925 61.9% 24,000 0.0% 16,000 0.0% 0 0.0% 210,312,120 12.7% 630,912,360 38.1% 420,608,240 25.4% 1,654,080,285 100.0% 1,654,080,285 100.0% (Note a) (Note b)
			100.0%

Notes:

(a) Assuming that all Independent Shareholders and the directors of certain subsidiaries of the Company take up their assured entitlements under the Open Offer.
(b) Assuming neither Independent Shareholders nor the directors of certain subsidiaries of the Company take up their assured entitlements under the Open Offer and all the underwritten Offer Shares taken up by the Underwriter or the subscribers procured by it.

It is stated in the Underwriting Agreement that any subscribers procured by the Underwriter will be independent of and not connected with the Company and its connected persons.

PERMISSION OF THE BERMUDA MONETARY AUTHORITY

Permission under the Exchange Control Act 1972 of Bermuda (and regulations made thereunder) has been received from the Bermuda Monetary Authority in respect of the issue of the Offer Shares to persons regarded as non-residents of Bermuda for exchange control purposes subject to the requirement that the Offer Shares are listed on the Stock Exchange. In granting such permission and in accepting the Prospectus Documents for filing, neither the Bermuda Monetary Authority nor the Registrar of Companies in Bermuda accepts any responsibility for the financial soundness of the Group or for the correctness of any statements made or opinions expressed in the Prospectus Documents.

– 12 –

LETTER FROM THE BOARD

PROCEDURES FOR APPLICATION AND PAYMENT

An Application Form and an Excess Application Form are enclosed with this prospectus which entitle you to apply for any number of Offer Shares. Qualifying Shareholders should note that they may apply for any number of Offer Shares but are assured of an allotment only up to the number set out in the Application Form. If you are a Qualifying Shareholder and you wish to apply for any number of Shares in your assured allotment of Offer Shares to which you are entitled as specified in the enclosed Application Form, you must complete, sign and lodge the Application Form in accordance with the instructions printed thereon, together with remittance for the aggregate Subscription Price in respect of such number of Offer Shares you have applied for with the Registrar, Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong by not later than 4:00 p.m. on Friday, 18 February 2005. All remittances must be made in Hong Kong dollars and cheques or cashier’s orders must be drawn on a bank account in Hong Kong and made payable to “Xin Corporation Limited – Open Offer Account” and crossed “Account Payee Only”.

It should be noted that unless the Application Form, together with the appropriate remittance, has been lodged with the Registrar by not later than 4:00 p.m. on Friday, 18 February 2005, that assured entitlement and all rights thereunder will be deemed to have been declined and will be cancelled.

Any Offer Shares not validly applied for by Qualifying Shareholders will be made available for application by Qualifying Shareholders by completing and signing the enclosed Excess Application Form in accordance with the instruction printed thereon, together with separate remittance for the aggregate Subscription Price in respect of such number of excess Offer Shares you have applied for with the Registrar by not later than 4:00 p.m. on Friday, 18 February 2005. All remittance must be made in Hong Kong dollars and cheques or cashier’s orders must be drawn on a bank account in Hong Kong and made payable to “Xin Corporation Limited – Excess Application Account” and crossed “Account Payee Only”. The Directors will allocate the excess Offer Shares at their discretion on a fair and equitable basis and will give preference to topping up odd Lots to whole board lots. If you have applied for Offer Shares in excess of your assured entitlement and the Offer Shares allotted to you is less than that applied for, the surplus moneys will be refunded to you by cheque, in the manner described below which is expected to be despatched on or before Thursday, 24 February 2005.

The Application Form and the Excess Application Form contain full information regarding the procedures to be followed if you wish to apply for a number of Shares different to that in your assured entitlement.

All cheques or cashier’s orders will be presented for payment upon receipt and all interests earned on such moneys (if any) will be retained for the benefit of the Company. Any application in respect of which the cheque or cashier’s order is dishonoured on first presentation is liable to be rejected, and in that event the assured entitlement and all rights thereunder will be deemed to have been declined and will be cancelled.

If the conditions of the Open Offer are not fulfilled, the application monies will be refunded, without interests, by sending a cheque made out to the applicant (or in the case of joint applicants, to the first named applicant) and crossed “Account Payee Only”, through ordinary post at the risk of the applicant(s) to the address specified in the register of members of the Company on or before Thursday, 24 February 2005.

– 13 –

LETTER FROM THE BOARD

The Application Form and the Excess Application Form are for use only by the person(s) named therein and are not transferable.

No receipt will be issued in respect of any application monies received.

SHARE CERTIFICATES

Share certificates in respect of the Offer Shares which are successfully applied for by Qualifying Shareholders will be sent through ordinary post to the applicants (or, in the case of joint applicants, to the first named applicant), at their own risk, to the address specified in the register of members of the Company. On the assumption that the Open Offer becomes unconditional on or about Wednesday, 23 February 2005, share certificates are expected to be posted on or before Thursday, 24 February 2005.

ADJUSTMENT OF CONVERSION PRICE OF THE CONVERTIBLE BONDS

The conversion price of the Convertible Bonds may be required to be adjusted in accordance with their terms as a result of the Open Offer. Further announcement will be made by the Company relating to any required adjustment.

GENERAL

Your attention is drawn to the additional information set out in the appendices to this prospectus.

On behalf of the Board Lo Ming Chi, Charles

Chairman

– 14 –

FINANCIAL INFORMATION

APPENDIX I

1. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date and following completion of the Open Offer are as follows:

HK$

Authorised:

10,000,000,000 Shares as at the Latest Practicable Date ssued and fully paid: 1,102,720,190 Shares in issue as at the Latest Practicable Date 551,360,095 Offer Shares to be issued 1,654,080,285	100,000,000.00

	11,027,201.90 5,513,600.95
	16,540,802.85

Issued and fully paid:

All the Shares in issue and to be issued rank and will rank pari passu in all respects with each other including as regards dividends, voting and return of capital. The Company has not issued any Shares since 31 March 2004 and up to the Latest Practicable Date.

As at the Latest Practicable Date, the Company had outstanding Convertible Bonds which are convertible into an aggregate of 8,908,975 Shares at the current exercise price of HK$0.2432.

Save as disclosed in this prospectus, no share or loan capital of any member of the Group has been put under option or agreed conditionally or unconditionally to be put under option and no warrant or conversion right affecting the Shares has been issued or granted or agreed conditionally, or unconditionally to be issued or granted.

Save as disclosed in this prospectus, the Company has no options, warrants and conversion rights convertible into Shares and no share or loan capital of the Company has been issued or is proposed to be issued for cash or otherwise and no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any such capital.

Shares are listed on the Stock Exchange. No part of the securities of the Company is listed or dealt in, nor is listing or permission to deal in the securities of the Company being or proposed to be sought, on any other stock exchange.

– 15 –

FINANCIAL INFORMATION

APPENDIX I

2. FIVE YEARS SUMMARY

The following information has been extracted from the audited consolidated financial statements of the Group for each of the five years ended 31 March 2004:

Results

2004 HK$’000 Turnover 22,531 Profit/(loss) before tax (32,259) Tax 836 Profit/(loss) before minority interests (31,423) Minority interests 525 Net profit/(loss) from ordinary activities attributable to shareholders (30,898)	Year ended 31 March 2003 2002 2001 HK$’000 HK$’000 HK$’000 38,092 47,408 202,682 38,268 (59,284) (283,689) (836) – 4,354 37,432 (59,284) (279,335) – – – 37,432 (59,284) (279,335)	2000 HK$’000 290,600 30,286 (4,091) 26,195 – 26,195

Assets and Liabilities and Minority Interests

Total assets Total liabilities Minority interests	2004 HK$’000 105,782 (96,444) 520 9,858	As 2003 HK$’000 108,951 (119,965) – (11,014)	at 31 March 2002 HK$’000 127,116 (255,512) – (128,396)	2001 HK$’000 141,004 (210,576) – (69,572)	2000 HK$’000 392,552 (163,841) – 228,711

– 16 –

FINANCIAL INFORMATION

APPENDIX I

3. AUDITED FINANCIAL INFORMATION

Set out below is the reproduction of the report of the auditors for the financial statements of the Group for the year ended 31 March 2004 as extracted from the 2004 annual report of the Company (the references to pages and note numbers set out below are the pages and note numbers of the annual report of the Company for the year ended 31 March 2004):

“

To the members

Xin Corporation Limited

(Incorporated in Bermuda with limited liability)

We have audited the financial statements on pages 46 to 108 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

The Company’s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion solely to you, as a body, in accordance with Section 90 of the Bermuda Companies Act 1981, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

BASIS OF OPINION

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants. An audit includes an examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s and the Group’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

– 17 –

FINANCIAL INFORMATION

APPENDIX I

FUNDAMENTAL UNCERTAINTY RELATING TO THE GOING CONCERN BASIS

In forming our opinion, we have considered the adequacy of the disclosures made in note 2 to the financial statements concerning the adoption of the going concern basis on which the financial statements have been prepared. As explained in note 2 to the financial statements, the Group is currently undertaking a number of measures to improve its financial and current liquidity position. The financial statements have been prepared on a going concern basis, the validity of which depends upon ongoing support of the Group’s holding companies, bankers and other creditors, the availability of additional external funding and the attainment of profitable and positive cash flow operations to meet the Group’s future working capital and financial requirements. The financial statements do not include any adjustment that may be necessary should the implementation of such measures be unsuccessful. We consider that appropriate disclosures have been made in the financial statements concerning this situation, but we consider that this fundamental uncertainty relating to whether the going concern basis is appropriate is so extreme that we have disclaimed our opinion.

DISCLAIMER OF OPINION

Because of the significance of the fundamental uncertainty relating to the going concern basis, we are unable to form an opinion as to whether the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 March 2004 and of the loss and cash flows of the Group for the year then ended and as to whether the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Ernst & Young

Certified Public Accountants

Hong Kong 26 July 2004”

– 18 –

FINANCIAL INFORMATION

APPENDIX I

Set out below are the audited financial statements together with the relevant notes to the financial statements as extracted from the 2004 annual report of the Company:

“Consolidated Profit and Loss Account

Year ended 31 March 2004

Notes TURNOVER 6 Cost of sales Gross loss Other revenue and gains 6 Selling and distribution costs Administrative expenses Other operating expenses LOSS FROM OPERATING ACTIVITIES 7 Finance costs 8 Gain on debt restructuring, net of expenses PROFIT/(LOSS) BEFORE TAX Tax 11 PROFIT/(LOSS) BEFORE MINORITY INTERESTS Minority interests NET PROFIT/(LOSS) FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS 12 EARNINGS/(LOSS) PER SHARE 13 Basic Diluted	2004 HK$’000 22,531 (30,953) (8,422) 1,577 (1,433) (18,323) (707) (27,308) (4,951) – (32,259) 836 (31,423) 525 (30,898) (HK$0.04) N/A	2003 HK$’000 38,092 (50,182) (12,090) 5,076 (3,077) (18,856) (4,436) (33,383) (5,380) 77,031 38,268 (836) 37,432 – 37,432 HK$0.16 N/A

– 19 –

FINANCIAL INFORMATION

APPENDIX I

Consolidated Balance Sheet

31 March 2004

Notes NON-CURRENT ASSETS Fixed assets 14 CURRENT ASSETS Inventories 16 Accounts receivable 17 Prepayments, deposits and other receivables Cash and bank balances CURRENT LIABILITIES Accounts payable 18 Tax payable Other payables and accruals Interest-bearing bank and other borrowings 19 Loans from a shareholder 20 Loan from a minority shareholder 21 Convertible note and bonds 23 NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Convertible note 23 Deferred tax liabilities 24 MINORITY INTERESTS CAPITAL AND RESERVES Issued capital 25 Reserves 27(a)	2004 HK$’000 86,229 5,035 1,425 1,156 11,937 19,553 11,539 5 21,010 24,299 13,378 5,880 20,333 96,444 (76,891) 9,338 – – – (520) 9,858 11,027 (1,169) 9,858	2003 HK$’000 97,158 6,391 1,576 938 2,888 11,793 12,637 5 23,752 48,235 12,000 – 6,500 103,129 (91,336) 5,822 16,000 836 16,836 – (11,014) 2,155 (13,169) (11,014)

– 20 –

FINANCIAL INFORMATION

APPENDIX I

Consolidated Statement of Changes in Equity

Year ended 31 March 2004

Issued share capital Notes HK$’000 At 1 April 2002 24,839 Shares issued on conversion of a convertible note 25(i) 2,000 Shares issued on share subscription 25(iii) 30,000 Shares issued on open offer 25(iv) 40,259 Shares issued on settlement of certain trade and other creditors 25(v) 10,664 Share issue expense – Capital reduction 25(vi)(b),27(a) (105,607) Share premium cancellation 25(vi)(c),27(a) – Elimination of accumulated losses 27(a) – Revaluation deficit and net loss not recognised in the profit and loss account – Net profit for the year – At 31 March 2003 and 1 April 2003 2,155 Shares issued on share subscription 25(vii) 251 Shares issued on open offer 25(ix) 8,621 Share issue expense – Revaluation deficit and net loss not recognised in the profit and loss account – Net loss for the year – At 31 March 2004 11,027	Share premium account HK$’000 44,397 1,000 – – 342 (4,273) – (41,466) – – – – 1,746 43,105 (1,548) – – 43,303	Contributed surplus HK$’000 10 – – – – – – 41,466 (41,476) – – – – – – – – –	Fixed asset revaluation reserve HK$’000 18,484 – – – – – – – – (42) – 18,442 – – – (405) – 18,037	Accumulated losses HK$’000 (216,126) – – – – – 105,607 – 41,476 – 37,432 (31,611) – – – – (30,898) (62,509)	Total HK$’000 (128,396) 3,000 30,000 40,259 11,006 (4,273) – – – (42) 37,432
					(11,014) 1,997 51,726 (1,548) (405) (30,898)
					9,858

These reserve accounts comprise the consolidated reserves of (HK$1,169,000) (2003: (HK$13,169,000)) in the consolidated balance sheet.

– 21 –

FINANCIAL INFORMATION

APPENDIX I

Consolidated Cash Flow Statement

Year ended 31 March 2004

Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax Adjustments for: Finance costs 8 Interest income 6 Loss on disposal of fixed assets 7 Provision for trade receivables 7 Provision for other receivables 7 Provision for inventories 7 Depreciation 7 Revaluation deficit/(surplus) on land and buildings 7 Write back of provision for doubtful debts 6 Gain on debt restructuring, before related expenses Waiver of a director’s remuneration accrued 6 Waiver of accounts payable 6 Waiver of interest accrued on finance leases 6 Operating loss before working capital changes Decrease in inventories Decrease in accounts receivable Decrease/(increase) in prepayments, deposits and other receivables Decrease in accounts payable Increase/(decrease) in other payables and accruals Cash used in operations Interest element on finance lease rental payments Net cash outflow from operating activities	2004 HK$’000 (32,259) 4,951 (15) 81 – – – 10,604 697 (53) – – (832) (140) (16,966) 1,356 204 (218) (266) 973 (14,917) (24) (14,941)	2003 HK$’000 38,268 5,380 (78) – 1,556 307 528 14,796 (82) (435) (81,587) (1,405) (1,922) (109) (24,783) 86 1,467 3,253 (8,113) (5,044) (33,134) (105) (33,239)

– 22 –

FINANCIAL INFORMATION

APPENDIX I

Consolidated Cash Flow Statement

Year ended 31 March 2004

Notes Net cash outflow from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Interest received Purchases of fixed assets 14 Proceeds from disposal of fixed assets Net cash outflow from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of share capital 25(ix) Share issue expense Repayment of bank loans Repayment of other loans Drawdown of loans from a shareholder 28(i) Repayment of loans from a shareholder 28(i) Loan from a minority shareholder Issue of shares to a minority shareholder Redemption of convertible bonds Capital element of finance lease rental payments Interest paid Net cash inflow from financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances	2004 HK$’000 (14,941) 15 (858) – (843) 51,726 (1,548) (2,570) – 57,377 (77,977) 5,880 5 (2,167) (966) (4,927) 24,833 9,049 2,888 11,937 11,937	2003 HK$’000 (33,239) 78 (924) 13 (833) 70,259 (4,273) (15,470) (6,000) 8,000 – – – – (2,833) (5,275) 44,408 10,336 (7,448) 2,888 2,888

– 23 –

FINANCIAL INFORMATION

APPENDIX I

Balance Sheet
31 March 2004
2004
Notes
HK$’000
NON-CURRENT ASSETS
Fixed assets
14
41
Interests in subsidiaries
15
–
41
CURRENT ASSETS
Due from a subsidiary
15
32,674
Prepayments, deposits and other
receivables
129
Cash and bank balances
10,207
43,010
CURRENT LIABILITIES
Other payables and accruals
3,495
Interest-bearing bank and other borrowings
19
–
Loans from a shareholder
20
13,378
Convertible note and bonds
23
20,333
37,206
NET CURRENT ASSETS/(LIABILITIES)
5,804
TOTAL ASSETS LESS CURRENT LIABILITIES
5,845
NON-CURRENT LIABILITY
Convertible note
23
–
5,845
CAPITAL AND RESERVES
Issued capital
25
11,027
Reserves
27(b)
(5,182)
5,845
Lo Ming Chi, Charles
Yu Wai Man
Chairman
Director

2003
HK$’000
234
–
234
22,092
–
5
22,097
5,908
20,400
12,000
6,500
44,808
(22,711)
(22,477)
16,000
(38,477)
2,155
(40,632)
(38,477)

– 24 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

1. CORPORATE INFORMATION

The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

During the year, the Group was principally engaged in the design, manufacture and sale of a wide range of toys. There were no significant changes in the nature of the Group’s principal activities during the year.

Vision Century Group Limited (“Vision Century”), a company incorporated in the British Virgin Islands, is the immediate holding company of the Company. In the opinion of the directors, the ultimate holding company of the Company is Huang Group (BVI) Limited, a company incorporated in the British Virgin Islands which is ultimately held by a discretionary trust.

2. BASIS OF PRESENTATION

At 31 March 2004, the Group had net current liabilities of approximately HK$76,891,000. The Group incurred a loss from operating activities of HK$27,308,000 and reported a net cash outflow from operating activities of HK$14,941,000 for the year ended 31 March 2004.

In order to strengthen the capital base of the Group and to improve the Group’s financial position, immediate liquidity and cash flow, and otherwise to sustain the Group as a going concern, the directors of the Company have adopted the following measures:

(a) Huang Worldwide Holding Limited, the immediate holding company of Vision Century which was incorporated in the British Virgin Islands, has undertaken to the Company, during the period up to 31 October 2005, to provide continuing financial support to the Group so as to enable the Group to continue its day-to-day operations as a viable going concern notwithstanding any present or future financial difficulties experienced by the Group.
(b) The directors of the Company are in active negotiations with the Group’s bankers and other creditors to reschedule the repayment of certain borrowings due from the Group and to seek their ongoing support to the Group.
(c) Vision Century has granted a credit facility of HK$50,000,000 to the Company since 2 July 2003. At 31 March 2004, the loans from Vision Century amounted to approximately HK$13,378,000. Subsequent to the balance sheet date, Vision Century has undertaken that it will not demand the Group to repay partly or wholly of any advance made to the Group under the credit facility before 31 October 2005 (note 20).
(d) The directors of the Company are considering various alternatives to strengthen the capital base of the Company through various fund raising exercises, including but not limited to, a private placement, an open offer or a rights issue of new shares of the Company.
(e) The directors of the Company have been taking actions to tighten cost controls over factory overheads and various general and administrative expenses, and are actively seeking new investment and business opportunities with an aim to attain profitable and positive cash flow operations.

In the opinion of the directors of the Company, in light of the measures taken to date, together with the expected results of other measures in progress, the Group will have sufficient working capital for its current requirements and it is reasonable to expect the Group to return to a commercially viable concern. Accordingly, the directors of the Company are satisfied that it is appropriate to prepare the financial statements on a going concern basis, notwithstanding the Group’s financial and liquidity position at 31 March 2004.

Should the Group be unable to continue as a going concern, adjustments would have to be made to restate the values of assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets and liabilities as current assets and liabilities, respectively. The effects of these potential adjustments have not been reflected in the financial statements.

– 25 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

3. IMPACT OF A REVISED HONG KONG STATEMENT OF STANDARD ACCOUNTING PRACTICE (“SSAP”)

The revised SSAP 12 “Income taxes” is effective for the first time for the current year’s financial statements. SSAP 12 prescribes the accounting for income taxes payable or recoverable, arising from the taxable profit or loss for the current period (current tax); and income taxes payable or recoverable in future periods, principally arising from taxable and deductible temporary differences and the carryforward of unused tax losses (deferred tax).

The SSAP has had no significant impact for these financial statements on the amounts recorded for income taxes. However, the related note disclosures are now more extensive than previously required. These are detailed in notes 11 and 24 to the financial statements and include a reconciliation between the accounting loss and the tax credit for the year.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared in accordance with Hong Kong Statements of Standard Accounting Practice, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for the periodic remeasurement of certain fixed assets as further explained below.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 March 2004. The results of subsidiaries acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal, respectively. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

Minority interests represent the interests of outside shareholders in the results and net assets of the Company’s subsidiaries.

Subsidiaries

A subsidiary is a company whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities.

The results of subsidiaries are included in the Company’s profit and loss account to the extent of dividends received and receivable. The Company’s interests in subsidiaries are stated at cost less any impairment losses.

Joint venture companies

A joint venture company is a company set up by contractual arrangement, whereby the Group and other parties undertake an economic activity. The joint venture company operates as a separate entity in which the Group and the other parties have an interest.

The joint venture agreement between the venturers stipulates the capital contributions of the joint venture parties, the duration of the joint venture and the basis on which the assets are to be realised upon its dissolution. The profits and losses from the joint venture company’s operations and any distributions of surplus assets are shared by the venturers, either in proportion to their respective capital contributions, or in accordance with the terms of the joint venture agreement.

A joint venture company is treated as:

(a) a subsidiary, if the Company has unilateral control, directly or indirectly, over the joint venture company;
(b) a jointly-controlled entity, if the Company does not have unilateral control, but has joint control, directly or indirectly, over the joint venture company;
(c) an associate, if the Company does not have unilateral or joint control, but holds, directly or indirectly, generally not less than 20% of the joint venture company’s registered capital and is in a position to exercise significant influence over the joint venture company; or
(d) a long term investment, if the Company holds, directly or indirectly, less than 20% of the joint venture company’s registered capital and has neither joint control of, nor is in a position to exercise significant influence over, the joint venture company.

– 26 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.

Impairment of assets

An assessment is made at each balance sheet date of whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is credited to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Fixed assets and depreciation

Fixed assets, other than construction in progress, are stated at cost or valuation less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after fixed assets have been put into operation, such as repairs and maintenance, is normally charged to the profit and loss account in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed asset, the expenditure is capitalised as an additional cost of that asset.

Changes in the values of fixed assets are dealt with as movements in the fixed asset revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on an individual asset basis, the excess of the deficit is charged to the profit and loss account. Any subsequent revaluation surplus is credited to the profit and loss account to the extent of the deficit previously charged. On disposal of a revalued asset, the relevant portion of the revaluation reserve realised in respect of previous valuations is transferred to retained profits as a movement in reserves.

Depreciation is calculated on the straight-line basis to write off the cost or valuation of each asset over its estimated useful life. The principal annual rates used for this purpose are as follows:

Medium term leasehold land	Over the lease terms
Buildings	2% to 5%, or over the lease terms, whichever is
	shorter
Leasehold improvements	20% or over the lease terms, whichever is shorter
Moulds, plant and machinery	12.5% to 15%
Furniture, fixtures, equipment and motor vehicles	20%

The gain or loss on disposal or retirement of a fixed asset recognised in the profit and loss account is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress represents buildings under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction during the period of construction. Construction in progress is reclassified to the appropriate category of fixed assets when completed and ready for use.

– 27 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Leased assets

Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing.

Assets held under capitalised finance leases are included in fixed assets and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the profit and loss account so as to provide a constant periodic rate of charge over the lease terms.

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessee, rentals payable under the operating leases are charged to the profit and loss account on the straight-line basis over the lease terms.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Cash and cash equivalents

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the balance sheet, cash and bank balances comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted as to use.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the balance sheet date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the profit and loss account.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the profit and loss account or in equity if it relates to items that are recognised in the same or a different period, directly in equity.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences:

except where the deferred tax liability arises from the initial recognition of an asset or liability and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries and interests in joint ventures except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

– 28 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income tax (Continued)

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax assets and unused tax losses can be utilised:

except where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

(a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold; and
(b) interest income, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable.

Employee benefits

Paid leave carried forward

The Group provides paid annual leave to its employees under their employment contracts on a calendar year basis. Under certain circumstances, such leave which remains untaken as at the balance sheet date is permitted to be carried forward and utilised by the respective employees in the following year. An accrual is made at the balance sheet date for the expected future cost of such paid leave earned during the year by the employees and carried forward.

Employment Ordinance long service payments

Certain of the Group’s employees have completed the required number of years of service to the Group in order to be eligible for long service payments under the Hong Kong Employment Ordinance in the event of the termination of their employment. The Group is liable to make such payments in the event that such a termination of employment meets the circumstances specified in the Employment Ordinance.

A provision is recognised in respect of the probable future long service payments expected to be made. The provision is based on the best estimate of the probable future payments which have been earned by the employees from their service to the Group to the balance sheet date.

– 29 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Employee benefits (Continued)

Retirement benefits scheme

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for those employees who are eligible to participate in the MPF Scheme. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the profit and loss account as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme, except for the Group’s employer voluntary contributions, which are refunded to the Group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the MPF Scheme.

Share option scheme

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. The financial impact of share options granted under the share option scheme is not recorded in the Company’s or the Group’s balance sheet until such time as the options are exercised, and no charge is recorded in the profit and loss account or balance sheet for their cost. Upon the exercise of share options, the resulting shares issued are recorded by the Company as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over the nominal value of the shares is recorded by the Company in the share premium account. Options which are cancelled prior to their exercise date, or which lapse, are deleted from the register of outstanding options.

Foreign currencies

Foreign currency transactions are recorded at the applicable exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable exchange rates ruling at that date. Exchange differences are dealt with in the profit and loss account.

On consolidation, the financial statements of overseas subsidiaries are translated into Hong Kong dollars using the net investment method. The profit and loss accounts of overseas subsidiaries are translated into Hong Kong dollars at the weighted average exchange rates for the year, and their balance sheets are translated into Hong Kong dollars at the exchange rates ruling at the balance sheet date. The resulting translation differences are included in the exchange fluctuation reserve.

For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year.

5. SEGMENT INFORMATION

Segment information is presented by way of two segment formats: (i) on a primary segment reporting basis, by business segment; and (ii) on a secondary segment reporting basis, by geographical segment.

The Group’s operating businesses are structured and managed separately, according to the nature of their operations and the products they provide. Each of the Group’s business segment represents a strategic business unit that offers products which are subject to risks and returns that are different from those of the other business segments. Summary details of business segments are as follows:

(a) the toddler cars segment manufactures and trades children’s ride-on cars featuring working horns and turning wheels;
(b) the cycling segment manufactures and trades children’s bicycles, tricycles and scooters; and
(c) the other toys segment comprises the manufacture and the trading of pre-school toys, plastic utensils and other fashionable toys.

In determining the Group’s geographical segments, revenues are attributed to the segments based on the location of the customers, which are North America, Europe, Central and South America, Asia Pacific region, Middle East and other regions. Assets are attributed to the segments based on the location of the assets.

– 30 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

5. SEGMENT INFORMATION (Continued)

There are no intersegment sales and transfers among the business segments.

(a) Business segments

The following tables present revenue, loss and certain asset, liability and expenditure information for the Group’s business segments.

Group Toddler cars 2004 2003 HK$’000 HK$’000 Segment revenue: Sales to external customers 11,078 15,355 Other revenue 333 274 11,411 15,629 Segment results (7,364) (5,779) Interest income and unallocated gains Unallocated expenses Loss from operating activities Finance costs Gain on debt restructuring, net of expenses Profit/(loss) before tax Tax Profit/(loss) before minority interests Minority interests Net profit/(loss) from ordinary activities attributable to shareholders	Cycling 2004 2003 HK$’000 HK$’000 6,867 12,176 207 218 7,074 12,394 (5,593) (5,091)	Other toys 2004 2003 HK$’000 HK$’000 4,586 10,561 140 179 4,726 10,740 (3,911) (9,518)	Consolidated 2004 2003 HK$’000 HK$’000 22,531 38,092 680 671 23,211 38,763 (16,868) (20,388) 897 4,405 (11,337) (17,400) (27,308) (33,383) (4,951) (5,380) – 77,031 (32,259) 38,268 836 (836) (31,423) 37,432 525 – (30,898) 37,432	Consolidated 2004 2003 HK$’000 HK$’000 22,531 38,092 680 671 23,211 38,763 (16,868) (20,388) 897 4,405 (11,337) (17,400) (27,308) (33,383) (4,951) (5,380) – 77,031 (32,259) 38,268 836 (836) (31,423) 37,432 525 – (30,898) 37,432
				38,763

				(20,388) 4,405 (17,400)
				(33,383) (5,380) 77,031
				38,268 (836)
				37,432 –
				37,432

– 31 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

5. SEGMENT INFORMATION (Continued)

(a) Business segments (Continued)

Group Toddler cars Cycling Other toys 2004 2003 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Segment assets 6,278 7,291 5,285 7,799 6,224 7,694 Unallocated assets Total assets Segment liabilities 5,865 6,277 4,156 6,127 4,830 6,044 Unallocated liabilities Total liabilities Other segment information: Depreciation 950 928 1,592 1,670 1,231 1,235 Unallocated amounts Other non-cash expenses 341 702 212 947 144 742 Capital expenditure 6 – 167 27 – 4 Unallocated amounts	Consolidated 2004 2003 HK$’000 HK$’000 17,787 22,784 87,995 86,167 105,782 108,951 14,851 18,448 81,593 101,517 96,444 119,965 3,773 3,833 6,831 10,963 10,604 14,796 697 2,391 173 31 685 893 858 924	Consolidated 2004 2003 HK$’000 HK$’000 17,787 22,784 87,995 86,167 105,782 108,951 14,851 18,448 81,593 101,517 96,444 119,965 3,773 3,833 6,831 10,963 10,604 14,796 697 2,391 173 31 685 893 858 924
		108,951

		18,448 101,517
		119,965

		3,833 10,963
		14,796

		2,391

		31 893
		924

– 32 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

5. SEGMENT INFORMATION (Continued)

(b) Geographical segments

The following tables present revenue and certain asset and expenditure information for the Group’s geographical segments.

Group Segment revenue: Sales to external custome Group Other segment information: Segment assets Capital expenditure	North America 2004 2003 HK$’000 HK$’000 rs 4,205 5,441 North America 2004 2003 HK$’000 HK$’000 241 295 – –	Europe 2004 2003 HK$’000 HK$’000 8,315 13,958 Europe 2004 2003 HK$’000 HK$’000 386 269 – –	Asia Pacific region Central and (including Hong Kong Middle East South America and Mainland China) and other regions 2004 2003 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 3,969 7,051 4,831 9,308 1,211 2,334 Asia Pacific region Central and (including Hong Kong Middle East South America and Mainland China) and other regions 2004 2003 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 86 – 105,069 108,297 – 90 – – 858 924 – –	Consolidated 2004 2003 HK$’000 HK$’000 22,531 38,092 Consolidated 2004 2003 HK$’000 HK$’000 105,782 108,951 858 924

6. TURNOVER AND REVENUE

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts.

An analysis of turnover, other revenue and gains is as follows:

Turnover Sale of goods Other revenue Interest income Other Gains Revaluation surplus on land and buildings Exchange gains, net Write back of provision for bad and doubtful debts Waiver of accounts payable Waiver of interest accrued on finance leases Waiver of a director’s remuneration accrued_(note 9)_	2004 HK$’000 22,531 15 509 524 – 28 53 832 140 – 1,053 1,577	2003 HK$’000 38,092

		78 921
		999
		82 124 435 1,922 109 1,405
		4,077
		5,076

– 33 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

7. LOSS FROM OPERATING ACTIVITIES

The Group’s loss from operating activities is arrived at after charging/(crediting):

Cost of inventories sold Depreciation_(note 14)_ Provision for bad and doubtful debts: Trade receivables Other receivables Minimum lease payments under operating leases in respect of land and buildings Auditors’ remuneration Staff costs (excluding directors’ remuneration – note 9): Wages and salaries Retirement benefits scheme contributions Exchange gains, net Revaluation deficit/(surplus) on land and buildings Provision for inventories Loss on disposal of fixed assets	2004 HK$’000 14,444 10,604 – – – 411 800 7,841 171 8,012 (28) 697 – 81	2003 HK$’000 22,657 14,796 1,556 307
		1,863
		407 750 10,841 153
		10,994
		(124) (82) 528 –

Cost of sales includes approximately HK$10,917,000 (2003: HK$18,145,000) relating to staff costs and depreciation which are also included in the respective total amounts disclosed separately above for each of these types of expenses.

At 31 March 2004, the Group had no forfeited contributions available to reduce its contributions to retirement benefits schemes in future years (2003: Nil).

8. FINANCE COSTS

Interest on bank loans, overdrafts and other loans wholly repayable within five years Interest on convertible note and bonds Interest on finance leases	Group 2004 HK$’000 4,222 705 24 4,951	2003 HK$’000 4,701 574 105
		5,380

– 34 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

9. DIRECTORS’ REMUNERATION

Directors’ remuneration for the year, disclosed pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and Section 161 of the Hong Kong Companies Ordinance, is as follows:

Fees: Executive directors Independent non-executive directors Other emoluments of executive directors: Basic salaries, other allowance and benefits in kind Retirement benefits scheme contributions	Group 2004 HK$’000 – 240 240 1,344 67 1,411 1,651	2003 HK$’000 – 220
		220
		1,500 72
		1,572
		1,792

The remuneration of all directors fell within the band of nil to HK$1,000,000 for the years ended 31 March 2004 and 2003.

There was no arrangement under which a director waived or agreed to waive any remuneration during the year. During the year ended 31 March 2003, a director waived his remuneration of HK$1,405,000.

During the year, no emoluments were paid by the Group to any of the directors as an inducement to join, or upon joining the Group, or as compensation for loss of office (2003: Nil).

10. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included four (2003: two) directors, details of whose remuneration are set out in note 9 above. Details of the remuneration of the remaining (2003: three) non-director, highest paid employee for the year are as follows:

Basic salaries, other allowances and benefits in kind Retirement benefits scheme contributions	Group 2004 HK$’000 247 12 259	2003 HK$’000 833 42
		875

The remuneration of all non-director, highest paid employees fell within the band of nil to HK$1,000,000 for the years ended 31 March 2004 and 2003.

During the year, there were no bonuses paid to or receivable by any of the five highest paid employees of the Group (2003: Nil). No emoluments were paid by the Group to any of the five highest paid employees as an inducement to join, or upon joining the Group, or as compensation for loss of office (2003: Nil).

– 35 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

11. TAX

No Hong Kong profits tax has been provided as the Group did not generate any assessable profits arising in Hong Kong during the year (2003: Nil). Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

		2004	2003
		HK$’000	HK$’000
Group:
Deferred tax credit/(charge)(note	24)	836	(836)

A reconciliation of the tax credit/(expense) applicable to profit/(loss) before tax using the statutory rates for the countries in which the Company and its subsidiaries are domiciled to the tax credit/(expense) at the effective tax rates are as follows:

Profit/(loss) before tax Tax at the applicable tax rates Income not subject to tax Expenses not deductible for tax Tax losses utilised from previous periods Tax loss not recognised Tax credit/(charge) at the Group’s effective rate	Group 2004 HK$’000 (32,259) 5,645 1,564 (192) 88 (6,269) 836	2003 HK$’000 38,268

		(6,123) 8,856 (1,522) 12,296 (14,343)
		(836)

12. NET LOSS FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS

The net loss from ordinary activities attributable to shareholders for the year ended 31 March 2004 dealt with in the financial statements of the Company, was HK$7,853,000 (2003: HK$49,662,000).

13. EARNINGS/(LOSS) PER SHARE

The calculation of basic loss per share is based on the net loss attributable to shareholders for the year of HK$30,898,000 (2003: net profit of HK$37,432,000), and the weighted average of 728,666,188 (2003 (restated): 236,329,878) ordinary shares in issue during the year, as adjusted to reflect the open offer during the year.

Diluted loss per share amount for the year ended 31 March 2004 has not been disclosed as the convertible note and bonds outstanding during the year had anti-dilutive effect on the basic loss per share for the year.

Diluted earnings per share amount for the year ended 31 March 2003 has not been disclosed as the share options and convertible note and bonds outstanding during that year had no dilutive effect on the basic earnings per share for that year.

– 36 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

14. FIXED ASSETS

Group

Cost or valuation: At beginning of year Additions Deficit on revaluation Disposals At 31 March 2004 Accumulated depreciation and impairment: At beginning of year Provided during the year Reversal upon revaluation Disposals At 31 March 2004 Net book value: At 31 March 2004 At 31 March 2003 Analysis of cost or valuation: At cost At 31 March 2004 valuation	Medium term leasehold land and buildings HK$’000 76,150 – (3,960) – 72,190 – 2,858 (2,858) – – 72,190 76,150 – 72,190 72,190	Leasehold improvements HK$’000 22,574 156 – (110) 22,620 21,946 509 – (44) 22,411 209 628 22,620 – 22,620	Moulds, plant and machinery HK$’000 88,175 337 – – 88,512 68,924 6,645 – – 75,569 12,943 19,251 88,512 – 88,512	Furniture, fixtures, equipment and motor vehicles HK$’000 4,630 365 – (19) 4,976 3,501 592 – (4) 4,089 887 1,129 4,976 – 4,976	Construction in progress HK$’000 32,288 – – – 32,288 32,288 – – – 32,288 – – 32,288 – 32,288	Total HK$’000 223,817 858 (3,960) (129)
						220,586
						126,659 10,604 (2,858) (48)
						134,357
						86,229

						97,158

						148,396 72,190
						220,586

Company

Cost: At beginning of year and at 31 March 2004 Accumulated depreciation: At beginning of year Provided during the year At 31 March 2004 Net book value: At 31 March 2004 At 31 March 2003	Furniture, fixtures, equipment and motor vehicles HK$‘000 615
	381 193
	574
	41

	234

– 37 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

14. FIXED ASSETS (Continued)

All the Group’s medium term leasehold land and buildings are situated outside Hong Kong. All the Group’s leasehold land and buildings were revalued by Knight Frank Hong Kong Limited, a firm of independent professionally qualified valuers, on a depreciated replacement cost basis as at 31 March 2004 at HK$72,190,000 (2003: HK$76,150,000).

For the current year, a total revaluation deficit of HK$697,000 representing the shortfall of the revalued amounts under the then carrying values of the revalued assets, on an individual asset basis, has been debited to the profit and loss account. In the prior year, a total revaluation surplus of HK$82,000 representing the excess of the revalued amounts over the then carrying values of the revalued assets, on an individual asset basis, was credited to the profit and loss account.

A total revaluation deficit of HK$405,000 (2003: HK$42,000) representing the shortfall of the revalued amount under the then carrying value of certain revalued assets, on an individual asset basis, has been debited to the fixed asset revaluation reserve.

Had the Group’s revalued leasehold land and buildings been stated at cost less accumulated depreciation, their carrying amounts would have been approximately HK$57,907,000 (2003: HK$60,665,000).

Certain leasehold land and buildings with an aggregate carrying value of HK$43,700,000 (2003: HK$45,400,000) at 31 March 2004 were pledged to secure bank borrowings advanced to the Group as set out in note 19 to the financial statements.

Pursuant to various sale and purchase agreements (the “S&P Agreements”) entered into between the Group and an independent third party, during the years 1998 and 1999, the Group acquired certain leasehold land (the “Land”) in Mainland China with a carrying value of HK$28,676,000, (2003: HK$29,000,000) at 31 March 2004. Pursuant to the S&P Agreements, the Group is required to pay annual fees of HK$118,000 in respect of the Land commencing from 2008 up to 2048 with a 20% increment for every five years starting from 2008.

The Group has not yet obtained the land-use rights certificate for the Land. Having consulted with the Group’s Mainland China lawyers, the directors considered that the Group has the right to use the land. After the payment of a land premium of approximately HK$10.4 million and attending the necessary administrative procedures, the Group should be able to obtain the land use rights certificate for the Land.

15. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Less: Provision for impairment Due from a subsidiary Less: Provision	Company 2004 2003 HK$’000 HK$’000 68,709 68,709 (68,709) (68,709) – – 200,204 189,618 (167,530) (167,526) 32,674 22,092 32,674 22,092	Company 2004 2003 HK$’000 HK$’000 68,709 68,709 (68,709) (68,709) – – 200,204 189,618 (167,530) (167,526) 32,674 22,092 32,674 22,092
		–
		189,618 (167,526)
		22,092
		22,092

The amount due from a subsidiary included in the Company’s current assets is unsecured, interest-free and has no fixed terms of repayment.

– 38 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

15. INTERESTS IN SUBSIDIARIES (Continued)

Particulars of the Company’s principal subsidiaries are as follows:

	Place of	Nominal
	incorporation/	value of issued	Percentage of
	registration	ordinary	equity attributable			Principal
Name	and operations	share capital	to the	Company		activities
			Direct	Indirect
Hung Cheong	British Virgin	Ordinary	100		–	Investment
Holdings Limited	Islands (“BVI”)/	US$2,004				holding
	Hong Kong
Able Market Profits Limited	BVI	Ordinary	100		–	Investment
		US$1				holding
Xin Toys Factory Limited	BVI/	Ordinary	–	100		Manufacturing
(Formerly Hung Cheong	Hong Kong	US$4				and trading of
Toys Factory Limited)						toy products
Hung Cheong Toys	Hong Kong	Ordinary	–	100		Dormant
International Limited		HK$1,000
(“HCT”)		Non-voting
		deferred
		HK$200,000*
Xin Toys International Limited	Hong Kong	Ordinary	–	100		Trading of
		HK$2				toy products
Huang Chiang Chen	Hong Kong	Ordinary	–	100		Property holding
Hung Cheong Plastics		HK$1,000
Factory Company Limited		Non-voting
		deferred
		HK$10,000*
Gadgets Yard Limited	Hong Kong	Ordinary	–	51		Trading of
(“Gadgets Yard”)		HK$10,000				toy products
Xin Procurement &	Singapore	Ordinary	–	51		Supply of
Trading Pte. Ltd.		S$2				equipment,
(“Xin Procurement”)						goods and
						services for
						vessels

The non-voting deferred shares carry no rights to dividends other than a fixed non-cumulative dividend at the rate of 5% per annum on the excess of the net profit over HK$1,000,000,000,000 that the company may determine to distribute in respect of any financial year. On a winding-up, the holders of the nonvoting deferred shares are entitled, out of the surplus assets of the company, to a return of the capital paid-up on the non-voting deferred shares held by them, after a total sum of HK$1,000,000,000,000 has been distributed in such a winding-up in respect of each of the ordinary shares of the company. Save as described above, the holders of the non-voting deferred shares are not entitled to any participation in the profit or surplus assets of the company and shall not be entitled to receive notice of or to attend or vote at any general meeting of the company.

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

– 39 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

16. INVENTORIES

Raw materials Work in progress Finished goods	Group 2004 HK$’000 2,101 484 2,450 5,035	2003 HK$’000 1,943 432 4,016
		6,391

The carrying amount of inventories carried at net realisable value included in the above balance was nil (2003: HK$67,000) at the balance sheet date.

17. ACCOUNTS RECEIVABLE

The Group’s trading terms with its customers are mainly on credit, except for new customers, where payment in advance is normally required. The credit period is generally for a period of one month, extending up to three months for major customers. Each customer has a maximum credit limit. Overdue balances are reviewed regularly by senior management.

An aged analysis of the accounts receivable at the balance sheet date, based on invoice date, and net of provisions, is as follows:

Within 30 days 31 to 60 days 61 to 90 days 91 to 180 days Over 180 days	Group 2004 HK$’000 1,148 209 68 – – 1,425	2003 HK$’000 1,018 106 1 436 15
		1,576

18. ACCOUNTS PAYABLE

An aged analysis of the accounts payable at the balance sheet date, based on invoice date, is as follows:

Within 30 days 31 to 60 days 61 to 90 days 91 to 180 days Over 180 days	Group 2004 HK$’000 822 1,305 179 132 9,101 11,539	2003 HK$’000 336 404 247 206 11,444
		12,637

– 40 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

19. INTEREST-BEARING BANK AND OTHER BORROWINGS

Bank loans – secured Other loans – unsecured Current portion of finance lease payables_(note 22)_	Group 2004 2003 HK$’000 HK$’000 24,299 26,869 – 20,400 24,299 47,269 – 966 24,299 48,235	Company 2004 2003 HK$’000 HK$’000 – – – 20,400 – 20,400 – – – 20,400	Company 2004 2003 HK$’000 HK$’000 – – – 20,400 – 20,400 – – – 20,400
			20,400
			–
			20,400

All the Group’s bank loans and other loans at 31 March 2004 are repayable within one year or on demand.

At 31 March 2004, the banking facilities of the Group were supported by:

(i) certain leasehold land and buildings of the Group in Mainland China with an aggregate carrying value of approximately HK$43,700,000 (2003: HK$45,400,000) (note 14); and
(ii) corporate guarantees executed by certain subsidiaries of the Company.

20. LOANS FROM A SHAREHOLDER

The loans from a shareholder are unsecured, bear interest at the prime lending rate in Hong Kong plus 3% per annum and are repayable on demand.

Subsequent to the balance sheet date, the shareholder has undertaken that it will not demand the Group to repay partly or wholly of the loans advanced to the Group before 31 October 2005 (note 2(c)).

21. LOAN FROM A MINORITY SHAREHOLDER

The loan from a minority shareholder is unsecured, interest-free and has no fixed terms of repayment.

22. FINANCE LEASE PAYABLES

The Group leased certain of its plant and machinery, and motor vehicles during the year and these leases were classified as finance leases.

The Group had fully settled the finance lease payments during the year and had no future lease payables under finance leases at 31 March 2004 as follows:

Group

Total minimum finance lease payments payable within one year Future finance charges Total net finance lease payables Portion classified as current liabilities_(note 19)_ Long term portion	Minimum lease payments 2004 2003 HK$’000 HK$’000 – 990 – (24) – 966 – (966) – –	Present value of minimum lease payments 2004 2003 HK$’000 HK$’000 – 966	Present value of minimum lease payments 2004 2003 HK$’000 HK$’000 – 966

– 41 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

23. CONVERTIBLE NOTE AND BONDS

The Company had the following outstanding convertible note and bonds:

(i) Pursuant to a bank compromise agreement entered into by the Group and the Group’s Hong Kong bankers (the “Bank Group”) on 1 February 2002, the Bank Group was issued convertible bonds with an aggregate principal amount of HK$6,500,000 by the Company on 16 May 2002, as part of the consideration for the releasing and discharging of the Group from all of its obligations and liabilities in respect of its bank borrowings advanced by the Bank Group. The convertible bonds bear interest at the rate of 5% per annum and are repayable by three equal instalments on each anniversary of the issue of convertible bonds. The interests are payable semi-annually. The first and second instalments were settled by the Company on 16 May 2003 and 16 May 2004, respectively. The third instalment of the convertible bonds are repayable on 16 May 2005, subject to terms and conditions pursuant to the convertible bonds instruments which the Company is presently unable to meet. Accordingly, the convertible bonds have been considered by the directors to be repayable on demand and have been classified as current liabilities in the balance sheet as at 31 March 2004. Pursuant to the convertible bonds instruments, the convertible bonds are convertible to the shares of the Company at a conversion price of HK$0.01 per share at any time during the period from the issue date up to and including 16 May 2005. As a result of the completion of the share consolidation on 30 December 2002 and the open offer of the Company’s shares on 23 September 2003, the conversion price of the convertible bonds was adjusted to HK$0.2432 per share. The Company may at any time, after the issue of the convertible bonds, redeem all or part of the convertible bonds at a value equivalent to 105% of the outstanding principal amount of the convertible bonds.
(ii) Pursuant to a compromise agreement entered into between the Company and an entity (the “PRC Entity”) owned by the local government in Mainland China in respect of the settlement of its claim, the PRC Entity was issued a convertible note in the principal amount of HK$16,000,000 by the Company on 30 July 2002. The convertible note is repayable on the second anniversary of its issuance and bears interest at 3% per annum, payable semi-annually. The convertible note is convertible to shares of the Company at a conversion price of HK$0.01 per share at any time during the period from the issue date up to and including 30 July 2004. As a result of the completion of the share consolidation on 30 December 2002 and the open offer of the Company’s shares on 23 September 2003, the conversion price of the convertible note was adjusted to HK$0.2432 per share. The Company may at any time, after the date of issue of the convertible note, redeem the whole or any part of the convertible note at par value.

Convertible bonds issued to the Bank Group repayable on demand Convertible note issued to the PRC Entity repayable within one year Portion classified as current liabilities Non-current portion	2004 HK$’000 4,333 16,000 20,333 (20,333) –	2003 HK$’000 6,500 16,000
		22,500 (6,500)
		16,000

– 42 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

24. DEFERRED TAX

The movements in deferred tax liabilities during the year is as follows:

Deferred tax liabilities

Group At beginning of year Deferred tax charged/(credited) to the profit and loss account during the year_(note 11)_ At 31 March 2004	2004 HK$’000 836 (836) –	2003 HK$’000 – 836
		836

The Group’s deferred tax provision at 31 March 2003 comprised mainly the effect of accelerated tax depreciation.

The Group has tax losses arising in Hong Kong of HK$37,984,000 (2003: HK$27,887,000) that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries that have been lossmaking for some time.

The Company had no unprovided deferred tax at the balance sheet date (2003: Nil).

25. SHARE CAPITAL

Authorised: 10,000,000,000 (2003: 1,500,000,000) ordinary shares of HK$0.01 each Issued and fully paid: 1,102,720,190 (2003: 215,525,638) ordinary shares of HK$0.01 each	2004 HK$’000 100,000 11,027	2003 HK$’000 15,000

		2,155

The following changes in the Company’s authorised and issued share capital took place during the years ended 31 March 2003 and 2004:

(i) On 6 May 2002, the convertible note of HK$3,000,000 issued to Join Asia Enterprise Limited, an independent third party not connected with the Group, was converted into 200,000,000 ordinary shares of HK$0.01 each in the Company at a conversion price of HK$0.015 per share. The excess of the principal amount of the convertible note upon conversion over the nominal value of the shares issued, amounted to HK$1,000,000, was credited to the share premium account.
(ii) Pursuant to an ordinary resolution passed at a special general meeting held on 13 May 2002, the authorised share capital of the Company was increased from HK$100,000,000 to HK$300,000,000 by the creation of an additional 20,000,000,000 shares of HK$0.01 each.
(iii) On 16 May 2002, the subscription agreement entered into by the Company and Vision Century was completed which resulted in the issue of 3,000,000,000 ordinary shares of HK$0.01 each in the Company at a price of HK$0.01 per share. Cash proceeds of HK$30,000,000, before related expenses, were received by the Company.
(iv) On 29 May 2002, the Company effected an open offer and 4,025,905,140 new ordinary shares of HK$0.01 each in the Company were issued. Cash proceeds of approximately HK$40,259,000, before the related expenses, were received by the Company.
(v) Pursuant to various compromise agreements entered into by the Group with certain trade and other creditors during the year ended 31 March 2003, the Company issued 1,066,440,000 ordinary shares of HK$0.01 each at prices ranging from HK$0.01 to HK$0.015 each to those trade and other creditors. The excess of the debt amounts settled by way of the Company’s shares issued over the nominal value of the shares issued, amounting to approximately HK$342,000, was credited to the share premium account.

– 43 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

25. SHARE CAPITAL (Continued)

(vi) Pursuant to special and ordinary resolutions passed at a special general meeting of the Company held on 30 December 2002, a capital reorganisation (the “Capital Reorganisation”) involving, inter alia, the following was implemented:
(a) a consolidation of every fifty issued and unissued shares of HK$0.01 each into one consolidated share (the “Consolidated Share”) of HK$0.50 each;
(b) a reduction of the nominal value of each issued Consolidated Share from HK$0.50 each to HK$0.01 each by the cancellation of HK$0.49 per share and the credit arising therefrom amounting to HK$105,607,000 (the “Capital Reduction”);
(c) the cancellation of the entire amount standing to the credit of the share premium account of the Company and a transfer of the credit arising therefrom to the contributed surplus account of the Company (note 27(b));
(d) the cancellation of the existing authorised and unissued share capital of the Company to HK$15,000,000 comprising 1,500,000,000 consolidated shares of HK$0.01 each, ranking pari passu in all respects with the existing share capital of the Company; and
(e) the application of the credit arising from the Capital Reduction and the credit arising from the share premium cancellation were applied in full, together with the amount standing in the contributed surplus to eliminate the accumulated losses of the Company.
(vii) On 28 July 2003, the Company entered into share subscription agreements with Mr. Lo Ming Chi, Charles (“Mr. Lo”) and Mr Yu Wai Man (“Mr. Yu”), two executive directors of the Company. Pursuant to these share subscription agreements, 18,068,000 and 7,024,000 new ordinary shares of HK$0.01 each in the Company were issued at a subscription price of HK$0.0796 per share to Mr. Lo and Mr. Yu, respectively, as full settlement of the outstanding balances owed to them by the Company of approximately HK$1,997,000 at 31 March 2003. The excess of the subscription price over the nominal value of the shares issued amounted to approximately HK$1,746,000 was credited to the share premium account.
(viii) Pursuant to a resolution passed at a special general meeting held on 3 September 2003, the authorised share capital of the Company was increased from HK$15,000,000 to HK$100,000,000 by the creation of an additional 8,500,000,000 shares of HK$0.01 each.
(ix) On 23 September 2003, the Company effected an open offer with assured allotments of four offer shares for every one share of HK$0.01 each held by shareholders as at 3 September 2003 and issued a total of 862,102,552 new ordinary shares of HK$0.01 each at a issue price of HK$0.06 per share. Cash proceeds of approximately HK$51,726,000, before the related expenses, were received by the Company. The excess of the offer price over the nominal value of the shares issued amounted to approximately HK$43,105,000 was credited to the share premium account.

A summary of the transactions during the years ended 31 March 2003 and 2004 with reference to the above movements in the Company’s authorised and issued ordinary share capital is set out below:

Authorised share capital

Number of authorised shares Notes ’000 At 1 April 2002 10,000,000 Increase in authorised share capital (ii) 20,000,000 Share cancellation (vi)(d) (28,500,000) At 31 March 2003 and 1 April 2003 1,500,000 Increase in authorised share capital (viii) 8,500,000 At 31 March 2004 10,000,000	HK$’000 100,000 200,000 (285,000)
	15,000 85,000
	100,000

– 44 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

25. SHARE CAPITAL (Continued)

Issued capital

Notes At 1 April 2002 Shares issued on conversion of a convertible note (i) Shares issued on share subscription (iii) Shares issued on open offer (iv) Shares issued on settlement of certain trade and other creditors (v) Share consolidation (vi)(a) Capital reduction (vi)(b) Share issue expenses Share premium cancellation (vi)(c) At 31 March 2003 and 1 April 2003 Shares issued on share subscription (vii) Shares issued on open offer (ix) Share issue expenses At 31 March 2004	Number of shares in issue 2,483,936,760 200,000,000 3,000,000,000 4,025,905,140 1,066,440,000 (10,560,756,262) – – – 215,525,638 25,092,000 862,102,552 – 1,102,720,190	Issued capital HK$’000 24,839 2,000 30,000 40,259 10,664 – (105,607) – – 2,155 251 8,621 – 11,027	Share premium account HK$’000 44,397 1,000 – – 342 – – (4,273 ) (41,466) – 1,746 43,105 (1,548 ) 43,303	Total HK$’000 69,236 3,000 30,000 40,259 11,006 – (105,607) (4,273) (41,466) 2,155 1,997 51,726 (1,548) 54,330

Share options

Details of the Company’s share option scheme is included in note 26 to the financial statements.

26. SHARE OPTION SCHEME

The Company operates a share option scheme (the “Scheme”) for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the Scheme include the Company’s directors, including independent non-executive directors, other employees of the Group, suppliers of goods or services to the Group, customers of the Group, the Company’s shareholders, and any minority shareholders in the Company’s subsidiaries. The Scheme became effective on 30 December 2002 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date.

The maximum number of unexercised share options currently permitted to be granted under the Scheme is an amount equivalent, upon their exercise, to 10% of the shares of the Company in issue at any time. The maximum number of shares issuable under share options to each eligible participant in the Scheme within any 12-month period, is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

Share options granted to a director or substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by the independent non-executive directors. In addition, any share options granted to a substantial shareholder or an independent non-executive director of the Company, or to any of their associates, in excess of 0.1% of the shares of the Company in issue at any time or with an aggregate value (based on the price of the Company’s shares at the date of the grant) in excess of HK$5,000,000, within any 12-month period, are subject to shareholders’ approval in advance in a general meeting.

– 45 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

26. SHARE OPTION SCHEME (Continued)

The offer of a grant of share options may be accepted within 30 days from the date of the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. The exercise period of the share options granted is determinable by the directors, and commences after a certain vesting period and ends on a date which is not later than five years from the date of the offer of the share options or the expiry date of the Scheme, if earlier.

The exercise price of the share options is determinable by the directors, but may not be less than the higher of (i) The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) closing price of the Company’s shares on the date of the offer of the share options; and (ii) the average Stock Exchange closing price of the Company’s shares for the five trading days immediately preceding the date of the offer.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

No share option has yet been granted under the Scheme up to 31 March 2004.

27. RESERVES

(a) Group

The amounts of the Group’s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity on page 48 of the financial statements.

The Group’s contributed surplus originally represented the difference between the nominal value of the shares of the subsidiaries acquired pursuant to the Group’s reorganisation on 17 February 1998, over the nominal value of the Company’s shares issued in exchange therefor.

Pursuant to the capital reorganisation implemented during the year ended 31 March 2003, the credits arising from the capital reduction and cancellation of share premium account and the amount standing in the contribution surplus account were applied to eliminate the accumulated losses of the Group.

(b) Company

Notes At 1 April 2002 Shares issued on conversion of a convertible note 25(i) Shares issued on settlement of certain trade and other creditors 25(v) Share issue expenses Share premium cancellation 25(vi)(c) Elimination of accumulated losses 25(vi)(e) Net loss for the year At 31 March 2003 and 1 April 2003 Shares issued on share subscription 25(vii) Shares issued on open offer 25(ix) Share issue expenses Net loss for the year At 31 March 2004	Share premium account HK$’000 44,397 1,000 342 (4,273) (41,466) – – – 1,746 43,105 (1,548) – 43,303	Contributed Accumulated surplus losses HK$’000 HK$’000 68,509 (206,552) – – – – – – 41,466 – (109,975) 215,582 – (49,662) – (40,632) – – – – – – – (7,853) – (48,485)	Total HK$’000 (93,646 ) 1,000 342 (4,273 ) – 105,607 (49,662 ) (40,632 ) 1,746 43,105 (1,548 ) (7,853 ) (5,182 )

The contributed surplus of the Company originally represented the excess of the then combined net asset value of the subsidiaries acquired pursuant to the Group’s reorganisation referred to in (a) above, over the nominal value of the Company’s shares issued in exchange therefor.

– 46 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

28. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

Major non-cash transactions

The Group had the following major non-cash transactions during the year:

(i) During the year, Speed Up Developments Limited (“Speed Up”), an independent loan provider of the Group, has assigned its entire interest in other loans of HK$20,400,000 together with the accrued interest of HK$1,578,000 owed by the Group at 31 March 2003 to Vision Century, which did not result in any cash flow (note 33(i)).
(ii) As further set out in note 25(vii) to the financial statements, on 26 September 2003 the Company issued 25,092,000 new ordinary shares of HK$0.01 each at a subscription price of HK$0.0796 per share to two executive directors of the Company, as full settlement of the outstanding balances owed to them by the Company of approximately HK$1,997,000 at 31 March 2003.

29. PLEDGE OF ASSETS

Details of the Group’s bank and other borrowings, which are secured by assets of the Group, are included in notes 14 and 19 to the financial statements.

30. OPERATING LEASE ARRANGEMENTS

The Group leases certain of its office properties and a staff quarter under operating lease arrangements. Leases for the properties and the staff quarter are negotiated for terms of two years.

At 31 March 2004, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	Group 2004 HK$’000 295 128 423	2003 HK$’000 248 –
		248

In addition, pursuant to various agreements entered into between the Group and an unrelated party in Mainland China, the Group is required to pay annual fees of HK$118,000 in respect of certain leasehold land of the Group in Mainland China, with a carrying value of HK$28,676,000 at 31 March 2004, commencing from the year 2008 up to the year 2048 with a 20% increment for every five years (note 14).

31. COMMITMENTS

Neither the Company nor the Group had any significant capital commitments at the balance sheet date (2003: Nil).

32. PENDING LITIGATIONS

Claims for outstanding trade debts were brought by several suppliers and other miscellaneous creditors against the Group in prior years in respect of goods supplied and services provided for, together with interests, costs and/ or other relief, of approximately HK$2,129,000 in aggregate. A full provision thereof has been made in these financial statements.

In the opinion of the directors, adequate provisions have been made by the Group in respect of all the above claims in the Group’s financial statements at 31 March 2004.

– 47 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Financial Statements

31 March 2004

33. RELATED PARTY TRANSACTIONS

Save as disclosed elsewhere in these financial statements, the Group also had the following related party transactions during the year:

(i) As further set out in notes 2(c) and 28(i) to the financial statements, on 2 July 2003, Vision Century granted a credit facility to the Company of HK$50,000,000 to surrogate the amount due from the Company at that date, which covered the loans assigned from Speed Up of HK$20,400,000, additional loan balances of HK$20,000,000 then granted to the Company and the accrued interest thereon. The interest expense incurred by the Group during the year in respect of the loans from Vision Century amounted to HK$1,888,000. Vision Century has undertaken that it will not demand the Group to repay partly or wholly of any advances made to the Group under the Credit Facility before 31 October 2005.
(ii) As further set out in notes 25(vii) and 28(ii) to the financial statements, two executive directors of the Company subscribed for 25,092,000 new ordinary shares of HK$0.01 each in the Company at a subscription price of HK$0.0796 per share as full settlement of the outstanding balances owed to them by the Company of approximately HK$1,997,000 at 31 March 2003 pursuant to a subscription agreement dated 28 July 2003, which was completed on 26 September 2003.
(iii) On 24 September 2003, Vision Century subscribed for 625,676,760 ordinary shares of the Company of HK$0.01 each at a subscription price of HK$0.06 per share issued under the open offer of the Company.
(iv) Pursuant to a shareholders’ agreement entered with the Group on 20 December 2003, a minority shareholder of Gadgets Yard advanced HK$5,880,000 to Gadgets Yard as the initial working capital. The terms of the advancement are set out in note 21 to the financial statements.
(v) On 20 February 2004, the Group entered into a shareholders’ agreement (the “Xin Procurement Agreement”) with Huang & Co (Singapore) Pte. Ltd. (“HCSPL”), a company incorporated in Singapore with limited liability, to form Xin Procurement in Singapore with limited liability. HCSPL is wholly-owned by New Century International Pte. Ltd. (“New Century”), a company incorporated in Singapore with limited liability. New Century is in turn wholly owned by the parents of Mr. Wilson Ng and Mr. Ng Wee Keat, both of whom are executive directors of the Company and also directors of HCSPL. Pursuant to the Xin Procurement Agreement, the Group and HCSPL owned 51% and 49% of equity interests in Xin Procurement, respectively. On 20 February 2004, Xin Procurement entered into a supply agreement (the “Supply Agreement”) with HCSPL whereby Xin Procurement has been appointed as a supplier of HCSPL for the supply of certain office equipment and office supplies, machinery, parts, lubricating oil and bunker for two vessels. By virtue of Mr. Wilson Ng’s and Mr. Ng Wee Keat’s parents’ interests in HCSPL, the formation of Xin Procurement and the transactions contemplated under the Supply Agreement constitute connected transactions of the Company under Rule 14.26 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. Xin Procurement has not commenced its operations during the current year.
(vi) As further set out in note 2(a) to the financial statements, Huang Worldwide Holding Limited, the immediate holding company of Vision Century, has undertaken to the Company, to provide continuing financial support to the Group so as to enable the Group to continue its day-to-day operations as a viable going concern notwithstanding any present or future financial difficulties experienced by the Group up to 31 October 2005.

34. POST BALANCE SHEET EVENTS

Save for the post balance sheet events disclosed elsewhere in the financial statements, on 16 May 2004, the Company settled the second instalment of the convertible bonds issued to the Bank Group of approximately HK$2,167,000.

35. COMPARATIVE AMOUNTS

As further explained in note 3 to the financial statements, due to the adoption of revised SSAP 12 during the current year, the presentation of certain items in the financial statements have been revised to comply with the new requirements.

36. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 26 July 2004.”

– 48 –

FINANCIAL INFORMATION

APPENDIX I

4. UNAUDITED FINANCIAL INFORMATION

Set out below are the unaudited financial statements together with the relevant notes to the financial statements as extracted from the 2004 interim report of the Company:

“Condensed Consolidated Income Statement

For the six months ended 30 September 2004

Notes TURNOVER 3 Cost of sales Gross profit/(loss) Other revenue and gains Selling and distribution costs Administrative expenses LOSS FROM OPERATING ACTIVITIES 4 Finance costs LOSS BEFORE TAX Tax 5 LOSS BEFORE MINORITY INTERESTS Minority Interests NET LOSS FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS DIVIDEND 6 LOSS PER SHARE 7 – Basic – Diluted	Six months ended 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 83,758 11,862 (80,534) (16,724) 3,224 (4,862) 636 741 (664) (742) (9,577) (7,239) (6,381) (12,102) (1,842) (3,295) (8,223) (15,397) – – (8,223) (15,397) (928) – (9,151) (15,397) – – (HK$0.008) (HK$0.05) N/A N/A

– 49 –

FINANCIAL INFORMATION

APPENDIX I

Condensed Consolidated Balance Sheet

As at 30 September 2004

30 September
2004
(Unaudited)
Notes
HK$’000
NON-CURRENT ASSETS
Fixed assets
8
81,668
CURRENT ASSETS
Inventories
7,755
Accounts receivable
9
34,165
Prepayments, deposits and other receivables
3,446
Cash and bank balances
6,104
51,470
CURRENT LIABILITIES
Accounts payable
10
23,382
Tax payable
5
Other payables and accruals
22,676
Amount due to a minority shareholder
17(c)
14,758
Interest-bearing bank borrowings
22,617
Loans from a shareholder
11
23,378
Convertible note and bonds
12
18,167
124,983
NET CURRENT LIABILITIES
(73,513)
TOTAL ASSETS LESS CURRENT LIABILITIES
8,155
MINORITY INTERESTS
17(d)
7,438
717
CAPITAL AND RESERVES
Issued capital
13
11,027
Reserves
14
(10,310)
717

31 March
2004
(Audited)
HK$’000
86,229
5,035
1,425
1,156
11,937
19,553
11,539
5
21,010
–
24,299
13,378
20,333
90,564
(71,011)
15,218
5,360
9,858
11,027
(1,169)
9,858

– 50 –

FINANCIAL INFORMATION

APPENDIX I

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 September 2004

Total deficiency in assets at 1 April – as originally stated – adjustment on adoption of SSAP12 (Revised) – as restated Exchange realignment on translation of the financial statement of foreign entities Issue of shares, including share premium Share issue expenses Net loss from ordinary activities attributable to shareholders Total shareholders’ equity at 30 September	Six months ended 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 9,858 (11,014) – 836 9,858 (10,178) 10 – – 53,723 – (1,548) (9,151) (15,397) 717 26,600

– 51 –

FINANCIAL INFORMATION

APPENDIX I

Condensed Consolidated Cash Flow Statement

For the six months ended 30 September 2004

NET CASH OUTFLOW FROM OPERATING ACTIVITIES NET CASH OUTFLOW FROM INVESTING ACTIVITIES NET CASH INFLOW FROM FINANCING ACTIVITIES NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of period Effect of foreign exchange rate changes, net Cash and cash equivalents at end of period ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances	Six months ended 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 (26,414) (9,588) (428) (361) 20,999 22,730 (5,843) 12,781 11,937 2,888 10 – 6,104 15,669 6,104 15,669 6,104 15,669

– 52 –

FINANCIAL INFORMATION

APPENDIX I

Notes to Condensed Consolidated Financial Statements

For the six months ended 30 September 2004

1. ACCOUNTING POLICIES AND BASIS OF PRESENTATION

The unaudited condensed consolidated interim financial statements are prepared in accordance with the Hong Kong Statement of Standard Accounting Practice No. 25 “Interim financial reporting” issued by the Hong Kong Institute of Certified Public Accountants and Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The accounting policies and basis of preparation used in the preparation of these condensed consolidated financial statements are the same as those used in the audited financial statements for the year ended 31 March 2004.

SEGMENT INFORMATION

Segment information is presented by way of business segment, which is the primary reporting segment of the Group.

The Group’s operating businesses are structured and managed separately, according to the nature of their operations and the products and services they provide. Each of the Group’s business segments represents a strategic business unit that offers products and services which are subject to risks and returns that are different from those of the other business segments. Summary details of business segments are as follows:

(a) Toys business

the toddler cars segment manufactures and trades children’s ride-on cars featuring working horns and turning wheels;
the cycling segment manufactures and trades children’s bicycles, tricycles and scooters; and
the other toys segment comprises the manufacture and the trading of pre-school toys, plastic utensils and other fashionable toys.

(b) Supply and procurement business

Supply of equipment, goods and services, which include, but not limited to, office equipment, office supplies, machinery, parts, lubricating oil and bunker for vessels.

– 53 –

FINANCIAL INFORMATION

APPENDIX I

2. SEGMENT INFORMATION (Continued)

Business segments

The following tables present revenue and profit/(loss) for the Group’s business segments.

Segment revenue: Sales to external customers Other revenue and gains Total Segment results Interest income and unallocated revenue and gains Unallocated expenses Loss from operating activities Finance costs Loss before tax Tax Loss before minority interests Minority Interests Net loss from ordinary activities attributable to shareholders	Six months ended 30 September 2004 (Unaudited) Supply and Toys business procurement Toddler cars Cycling Others Sub-total business Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 10,520 3,428 4,305 18,253 65,505 83,758 195 64 80 339 – 339 10,715 3,492 4,385 18,592 65,505 84,097 (2,594 ) (880) (1,073) (4,547 ) 3,794 (753) 297 (5,925) (6,381) (1,842) (8,223) – (8,223) (928) (9,151)	Six months ended 30 September 2004 (Unaudited) Supply and Toys business procurement Toddler cars Cycling Others Sub-total business Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 10,520 3,428 4,305 18,253 65,505 83,758 195 64 80 339 – 339 10,715 3,492 4,385 18,592 65,505 84,097 (2,594 ) (880) (1,073) (4,547 ) 3,794 (753) 297 (5,925) (6,381) (1,842) (8,223) – (8,223) (928) (9,151)	Six months ended 30 September 2004 (Unaudited) Supply and Toys business procurement Toddler cars Cycling Others Sub-total business Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 10,520 3,428 4,305 18,253 65,505 83,758 195 64 80 339 – 339 10,715 3,492 4,385 18,592 65,505 84,097 (2,594 ) (880) (1,073) (4,547 ) 3,794 (753) 297 (5,925) (6,381) (1,842) (8,223) – (8,223) (928) (9,151)	Six months ended 30 September 2004 (Unaudited) Supply and Toys business procurement Toddler cars Cycling Others Sub-total business Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 10,520 3,428 4,305 18,253 65,505 83,758 195 64 80 339 – 339 10,715 3,492 4,385 18,592 65,505 84,097 (2,594 ) (880) (1,073) (4,547 ) 3,794 (753) 297 (5,925) (6,381) (1,842) (8,223) – (8,223) (928) (9,151)	Six months ended 30 September 2004 (Unaudited) Supply and Toys business procurement Toddler cars Cycling Others Sub-total business Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 10,520 3,428 4,305 18,253 65,505 83,758 195 64 80 339 – 339 10,715 3,492 4,385 18,592 65,505 84,097 (2,594 ) (880) (1,073) (4,547 ) 3,794 (753) 297 (5,925) (6,381) (1,842) (8,223) – (8,223) (928) (9,151)
		Toys business		Sub-total HK$’000 18,253 339 18,592 (4,547 )	Supply and procurement business HK$’000 65,505 – 65,505 3,794
	Toddler cars HK$’000 10,520 195 10,715 (2,594 )	Cycling HK$’000 3,428 64 3,492 (880)	Others HK$’000 4,305 80 4,385 (1,073)

– 54 –

FINANCIAL INFORMATION

APPENDIX I

2. SEGMENT INFORMATION (Continued)

Business segments (continued)

Six months ended 30 September 2003 (Unaudited)

	Toys business	Toys business	Consolidated HK$’000 11,862 155
Toddler cars HK$’000 5,771 76 5,847 (2,982 )	Cycling HK$’000 4,230 55 4,285 (1,931)	Others HK$’000 1,861 24 1,885 (1,563)
			12,017

			(6,476 586 (6,212
			(12,102 (3,295
			(15,397 –
			(15,397 –
			(15,397

3. TURNOVER

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts.

4. LOSS FROM OPERATING ACTIVITIES

The Group’s loss from operating activities for the period is arrived at after charging:

	Six months ended	Six months ended
	30 September
	2004	2003
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Depreciation	5,004	5,257
Staff costs	6,236	5,143

5. TAX

Hong Kong profits tax has not been provided because there were no assessable profits arising in Hong Kong during the period. Taxes on profit assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof. No taxes on profits assessable elsewhere have arisen.

– 55 –

FINANCIAL INFORMATION

APPENDIX I

6. DIVIDEND

The directors do not recommend the payment of any interim dividend for the six months ended 30 September 2004 (Six months ended 30 September 2003: Nil).

7. LOSS PER SHARE

The calculation of basic loss per share is based on the unaudited consolidated net loss from ordinary activities attributable to shareholders for the six months ended 30 September 2004 of HK$9,151,000 (unaudited net loss for the six months ended 30 September 2003: HK$15,397,000) and the weighted average of 1,102,720,190 (2003: 335,812,912) ordinary shares of the Company in issue during the period.

Diluted loss per share for the six months ended 30 September 2004 and 2003 have not been disclosed as the convertible note and bonds outstanding during the period had anti-dilutive effect on the basic loss per share for both periods.

8. FIXED ASSETS

Certain medium term leasehold land and buildings, plant and machinery and equipment, with an aggregate carrying value of HK$42,623,000 (31 March 2004: HK$43,700,000) were pledged to secure bank borrowings advanced to the Group.

9. ACCOUNTS RECEIVABLE

An aged analysis of the accounts receivable as at the balance sheet date, based on invoice date, and net of provisions, is as follows:

Within 30 days Between 31 to 60 days Between 61 to 90 days Between 91 to 180 days Over 180 days	30 September 2004 (Unaudited) HK$’000 13,135 9,065 6,097 5,853 15 34,165	31 March 2004 (Audited) HK$’000 1,148 209 68 – –
		1,425

10. ACCOUNTS PAYABLE

An aged analysis of the accounts payable as at the balance sheet date, based on invoice date, is as follows:

Within 30 days Between 31 to 60 days Between 61 to 90 days Between 91 to 180 days Over 180 days	30 September 2004 (Unaudited) HK$’000 8,009 5,699 1,228 1,371 7,075 23,382	31 March 2004 (Audited) HK$’000 822 1,305 179 132 9,101
		11,539

– 56 –

FINANCIAL INFORMATION

APPENDIX I

11. LOANS FROM A SHAREHOLDER

Pursuant to an agreement entered into between the Company and Vision Century Group Limited (“Vision Century”), the substantial shareholder of the Company, on 2 July 2003, Vision Century granted the Company a working capital facility up to the principal sum of HK$50,000,000. The loans are unsecured, bear interest at the rate of 3% per annum above the prime rate quoted from time to time by The Hongkong and Shanghai Banking Corporation Limited. On 23 July 2004, Vision Century has undertaken not to demand the Company any repayment of the facility on or before 31 October 2005.

12. CONVERTIBLE NOTE AND BONDS

Pursuant to a bank compromise agreement entered into between the Group, the Group’s bankers in Hong Kong (the “Bank Group”) and other interested parties on 1 February 2002, 5% convertible bonds in aggregate sum of HK$6,500,000 were issued to the Bank Group on 16 May 2002 as part of the settlement to release and discharge the Group from all of its obligations and liabilities in respect of its bank borrowings advanced by the Bank Group (including principal and interest) outstanding as at the completion of the bank compromise agreement. The 5% convertible bonds are repayable by three equal installments on each anniversary of the issue of the convertible bonds. The first and second instalments were settled by the Company on 16 May 2003 and 16 May 2004, respectively. The third instalment of the convertible bonds are repayable on 16 May 2005, subject to terms and conditions pursuant to the convertible bonds instruments which the Company is presently unable to meet. Accordingly, the convertible bonds have been considered by the directors to be repayable on demand. Pursuant to the convertible bond instruments, the convertible bonds are convertible into the Company’s ordinary share of HK$0.01 at a conversion price of HK$0.01 per share (subject to adjustment), which was adjusted to HK$0.2432 per share as result of a share consolidation implemented by the Company on 30 December 2002 and an open offer completed on 24 September 2003. The Company may at any time, after the issue of the convertible bonds, redeem all or part of the convertible bonds at a value equivalent to 105% of the outstanding principle amount of the convertible bonds.

Pursuant to a compromise agreement entered into between the Group and an entity owned by the local government in Mainland China (the “PRC Entity”) on 27 March 2002, a 3% convertible note in principal amount of HK$16,000,000 (the “Convertible Note”) were issued to the PRC Entity on 30 July 2002 as partial settlement of debts owed by the Group. The Convertible Note was repayable on the second anniversary of its issuance. Pursuant to the convertible note instruments, the Convertible Note would be convertible into the Company’s ordinary share of HK$0.01 at a conversion price of HK$0.01 per share (subject to adjustment), which was adjusted to HK$0.2432 per share as result of a share consolidation implemented by the Company on 30 December 2002 and an open offer completed on 24 September 2003. The Group partially repaid the Convertible Note in the sum of HK$1,000,000 and HK$5,000,000 on 20 October 2004 and 25 November 2004, respectively. On 25 November 2004, the PRC entity granted a loan to the Company of HK$10,000,000 to surrogate the outstanding principal amount of the Convertible Note at that date. The loan is unsecured, bears interest at 4% per annum and is repayable by six quarterly instalments since March 2005 onwards. The interests are payable semi-annually.

13. ISSUED CAPITAL

Authorised: 10,000,000,000 ordinary shares of HK$0.01 each Issued and fully paid: 1,102,720,190 ordinary shares of HK$0.01 each	30 September 2004 (Unaudited) HK$’000 100,000 11,027	31 March 2004 (Audited) HK$’000 100,000

		11,027

– 57 –

FINANCIAL INFORMATION

APPENDIX I

14. RESERVES

At 1 April 2004 Exchange realignment on translation of the financial statement of foreign entities Net loss for the period At 30 September 2004	Share premium (Unaudited) HK$’000 43,303 – – 43,303	Fixed asset revaluation reserve (Unaudited) HK$’000 18,037 – – 18,037	Exchange translation reserve (Unaudited) HK$’000 – 10 – 10	Accumulated losses (Unaudited) HK$’000 (62,509) – (9,151 ) (71,660)	Total (Unaudited) HK$’000 (1,169 10 (9,151
					(10,310

15. OPERATING LEASE ARRANGEMENTS

As at the balance sheet date, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	30 September 2004 (Unaudited) HK$’000 275 5 280	31 March 2004 (Audited) HK$’000 295 128
		423

In addition, pursuant to various sale and purchase agreements (the “S&P Agreements”) entered into between the Group and an unrelated party in Mainland China during the years 1998 and 1999, the Group acquired certain leasehold land (the “Land”) in Mainland China, with a carrying value of HK$26,492,000 as at 30 September 2004. Pursuant to the S&P Agreements, the Group is required to pay annual fees of HK$118,000 in respect of the Land commencing from the year 2008 up to the year 2048 with a 20% increment for every five years.

16. PENDING LITIGATIONS

In the opinion of the directors, adequate provisions have been made by the Group in respect of all the above claims in the Group’s condensed consolidated financial statements as at 30 September 2004.

17. RELATED PARTY TRANSACTIONS

(a) As further explained in note 11, Vision Century further advanced HK$1,000,000 and HK$9,000,000 to the Company on 28 May, 2004 and 1 June, 2004, respectively. At the balance sheet date, the total principal amount due from the Company to Vision Century was HK$23,378,000. Subsequent to the balance sheet date, Vision Century advanced additional loans of HK$11,150,000 to the Company. The loans are unsecured, bear interest at the rate of 3% per annum above the prime rate quoted from time to time by The Hongkong and Shanghai Banking Corporation.

– 58 –

FINANCIAL INFORMATION

APPENDIX I

17. RELATED PARTY TRANSACTIONS (Continued)

(b) On 20 February 2004, the Group entered into a shareholders’ agreement (the “Xin Procurement Agreement”) with Huang & Co (Singapore) Pte Ltd (“HCSPL”), a company incorporated in Singapore with limited liability, to form Xin Procurement & Trading Pte. Ltd. (“Xin Procurement”) in Singapore with limited liability. HCSPL is wholly owned by New Century International Pte. Ltd. (“New Century”), a company incorporated in Singapore with limited liability. New Century is in turn wholly owned by the parents of Mr. Wilson Ng and Mr. Ng Wee Keat, both of whom are executive directors of the Company and also directors of HCSPL. Pursuant to the Xin Procurement Agreement, the Group and HCSPL owned 51% and 49% of equity interests in Xin Procurement, respectively. On 20 February 2004, Xin Procurement entered into a supply agreement (the “Supply Agreement”) with HCSPL whereby Xin Procurement has been appointed as a supplier of HCSPL for the supply of certain office equipment and office supplies, machinery, parts, lubricating oil and bunker for two vessels. By virtue of Mr. Wilson Ng’s and Mr. Ng Wee Keat’s parents’ interests in HCSPL, the formation of Xin Procurement and the transactions contemplated under the Supply Agreement constitute connected transactions of the Company under Rule 14.26 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. These connected transactions were approved by the Company’s shareholders on a special general meeting held on 29 March 2004.

Pursuant to the Xin Procurement Agreement, HCSPL advanced S$245,000 (approximately HK$1,127,000) to Xin Procurement as the initial working capital during the period. The loan is unsecured, interest free and has no fixed terms of repayment.

Pursuant to the Supply Agreement, the Group had the following material transactions with HSCPL during the current period:

	Six months ended	Six months ended
	30 September
	2004	2003
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Supply of certain office equipment and office supplies,
machinery, parts, lubricating oil and bunker
for two vessels	13,595	–

(c) As at the balance sheet date, an advance of S$3,208,000 (approximately HK$14,758,000) was made by a minority shareholder. The balance is unsecured, interest free and have no fixed terms of repayment.
(d) Included in the minority interests were two loans advanced by two minority shareholders of the Group’s subsidiaries which amounted to HK$5,880,000 (31 March 2004: HK$5,880,000) and HK$1,127,000 (31 March 2004: Nil)), respectively at the balance sheet date. Both loans are unsecured and interest-free. Pursuant to the shareholders’ agreements entered with the Group and the minority shareholders, the minority shareholders agreed not to demand for repayment of the loans until their respective subsidiaries have the ability to do so and prior consent was obtained from the Group.
(e) Huang Worldwide Holding Limited, the immediate holding company of Vision Century, had undertaken to the Company to provide continuing financial support to the Group so as to enable the Group to continue its day-to-day business operations as a viable going concern notwithstanding any present or further financial difficulties experienced by the Group up to 31 October 2005.

– 59 –

FINANCIAL INFORMATION

APPENDIX I

18. POST BALANCE SHEET EVENTS

As further explained in note 12, subsequent to the balance sheet date, the Group partially repaid the Convertible Note in the principal sum of HK$1,000,000 and HK$5,000,000 on 20 October 2004 and 25 November 2004 respectively. On 25 November 2004, the PRC entity granted a loan to the Company of HK$10,000,000 to surrogate the outstanding principal amount of the Convertible Note at that date.

19. APPROVAL OF THE INTERIM FINANCIAL STATEMENTS

The unaudited condensed consolidated interim financial statements were approved and authorised for issue by the board of directors on 23 December 2004.”

– 60 –

FINANCIAL INFORMATION

APPENDIX I

Set out below is the management discussion and analysis as extracted from the 2004 interim report of the Company:

“Results

For the six months ended 30 September 2004, the Group’s turnover rose by 606% to HK$83,758,000 as compared with HK$11,862,000 in the corresponding period last year and the Group recorded an unaudited consolidated net loss attributable to shareholders of HK$9,151,000 (Six months ended 30 September 2003: net loss of 15,397,000). The improvement in turnover and results were mainly due to the contribution from the supply and procurement business in Asia Pacific region.

Through the business partnership in a joint venture company named as “Gadgets Yard Limited” in which the Group and an independent third party own 51% and 49% of equity interests, respectively, the Group has successfully broadened its clientele network and developed reliable relationship with customers. It was encouraging to note that sales in toys business has an increase of 54% over that in the corresponding period last year. However, due to the price of crude oil maintained at a high level throughout the period that led to an increase in the price of plastic materials, the primary raw material utilized for the Group’s core product item – toddler cars, the overall performance of toys business still operated in loss during the period under review. The escalating price of plastic materials further aggravated the business environment in toys industry.

By the formation of a joint venture company named as “Xin Procurement and Trading Pte. Ltd.” (“Xin Procurement”), in which the Group and connected party own 51% and 49% of equity interests, respectively, for the provision of the supply and procurement business in Asia Pacific region, Xin Procurement commenced its business in April 2004 and provided the Group with a stable revenue income source. During the period under review, Xin Procurement recorded a turnover of HK$65,505,000 and unaudited segment profit of HK$3,794,000. Leveraging on our sourcing network, diverse customer base together with the recovery of the global economy, the management is confident that the Group is well equipped to diversify its business into the provision of the supply and procurement business which will serve to provide a stable revenue income source for the Group.

Liquidity and Financial Resources

As at the balance sheet date, the Group’s net current liabilities was HK$73,513,000. Shareholders’ fund as at the balance sheet date amounted to approximately HK$717,000.

– 61 –

FINANCIAL INFORMATION

APPENDIX I

As at 30 September 2004, the Group’s total indebtedness (representing the aggregate amounts of interest bearing loans from banks, financial institutions and loan providers) was approximately HK$64,162,000 and is due within one to two years and the Group’s gearing ratio (total indebtedness divided by shareholders’ funds) was 89.49. HK$40,784,000 of the total indebtedness is at fixed interest rate and HK$23,378,000 at floating rate. Except for approximately HK$22,617,000, which was denominated in Renminbi, all the other indebtedness are denominated in Hong Kong dollars. As at the balance sheet date, bank borrowings amounting to approximately HK$22,617,000 are secured by mortgages over the Group’s properties having an aggregate carrying value of approximately HK$42,623,000.

In order to strengthen the capital base of the Group and to improve the Group’s financial position, immediate liquidity and cash flow, the directors of the Company are considering various alternatives through various fund raising exercises, including but not limited to, a private placement, an open offer or a rights issue of new shares of the Company.

Pending Litigations

Claims for outstanding trade debts were brought by several suppliers and other miscellaneous creditors against the Group in prior years in respect of goods supplied and services provided for, together with interests, costs and/or other relief, of approximately HK$2,129,000 in aggregate. A full provision thereof has been made.

Human Resources

As at 30 September 2004, the Group employed a total number of 443 full-time employees, among which, 428 staff were based in PRC and 15 staff in Hong Kong. Apart from competitive remuneration package offered to the employees, share options may also be granted in order to attract and retain talented employees. During the six months ended 30 September 2004, no share options have yet been granted.

Prospects

To monitor and evaluate the toys business, to further develop the supply and procurement business, to implement cost control measures and to consider other alternatives which could maximize shareholders’ return have been the key strategies of the Group. The directors believe that the Group will improve its profit margins and turnover in the forthcoming years.”

– 62 –

FINANCIAL INFORMATION

APPENDIX I

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 March 2004 (the date to which the latest audited financial statements of the Company were made up).

6. INDEBTEDNESS

At the close of business on 31 December 2004, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this prospectus, the Group had outstanding borrowings of approximately HK$91.6 million comprising secured bank loans of approximately HK$21.7 million, unsecured other loan of approximately HK$10.0 million, unsecured loans from Vision Century of approximately HK$34.5 million (the “Vision Century Loans”), unsecured convertible bonds payable of HK$2.2 million, unsecured loans from minority shareholders of approximately HK$7.0 million, unsecured payable to a minority shareholder of approximately HK$9.4 million, unsecured payable to a related company of approximately HK$3.7 million, unsecured bank overdrafts of approximately HK$0.3 million and accrued interest payable of approximately HK$2.8 million in respect of the Vision Century Loans.

As at 31 December 2004, the Group’s bank loans were secured by legal charges on certain of the Group’s medium term leasehold land and buildings situated outside Hong Kong and corporate guarantee executed by a subsidiary of the Company.

In addition to the above, as at 31 December 2004, the Group had outstanding claims in respect of pending litigations as detailed in note 7 of Appendix III to this prospectus.

Save as aforesaid and apart from intra-group liabilities, none of the companies comprising the Group had outstanding at the close of business on 31 December 2004, any mortgage, charges or debentures, loan capital issued and outstanding or agree to be issued, bank overdrafts and loans, debt security or other similar indebtedness, liabilities under acceptances (other than normal trade bills) or acceptance credits or any hire purchase commitments, finance lease commitments, guarantees or other material contingent liabilities.

The Directors confirmed that there had been no material change in indebtedness and contingent liabilities of the Group since 31 December 2004.

For the purpose of this indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the applicable rates of exchange prevailing at the close of business on 31 December 2004.

– 63 –

FINANCIAL INFORMATION

APPENDIX I

7. WORKING CAPITAL

After the completion of the Open Offer, the Group will raise net proceeds of approximately HK$20.9 million. In addition, Huang Worldwide Holding Limited (“Huang Worldwide”), an intermediate holding company of the Company, has undertaken to the Company to provide continuing financial support to the Group so as to enable the Group to continue its day-to-day operation as a viable concern notwithstanding any present or future financial difficulties experienced by the Group up to 28 February 2006. At present, the Group has undertaken a number of other measures in order to further relieve its current liquidity pressure.

The Group has obtained written consent from one of the Group’s Mainland China bankers (the “Banker”) agreeing to rollover bank loans of a total of HK$19.7 million at 31 December 2004 granted by the Banker, subject to a monthly repayment of the principal amount of approximately HK$0.3 million for the period from January 2005 to October 2005, for another one year from their original maturity date in October 2005.

Vision Century granted a credit facility (the “Credit Facility”) to the Company amounting to HK$50.0 million of which HK$34.5 million was utilised as at 31 December 2004. Vision Century has undertaken that it will not demand the Group to repay partly or wholly of any advance made to the Group under the Credit Facility on or before 31 March 2006.

Hung Cheong Toys International Limited (“HCT”), an indirect wholly-owned subsidiary of the Company, had a deficiency in assets of approximately HK$93.7 million as at 31 December 2004 and remained inactive since June 2001. As at 31 December 2004, HCT had total liabilities of approximately HK$93.7 million which comprised intra group liabilities of approximately HK$85.9 million, and trade payables (the “Trade Payables”) of approximately HK$7.8 million. According to the legal counsels’ advice, the holding company of HCT, which is a wholly-owned subsidiary of the Company, will have no liability on the winding-up of HCT given the share capital of HCT has been fully paid. Besides, no further financial support will be provided to HCT by such holding company. Having considered such advice, the Directors had withdrawn all the Company’s financial support provided to HCT and intend to dispose of the entire interest in HCT held by the Company. As a result of the intended disposal of HCT, it is expected that the Trade Payables will be no longer borne by the Group and the Group’s liquidity position will be improved accordingly which is in the interest of the Shareholders. In this regard, the Group has no intention to settle the Trade Payables of HCT amounted to approximately HK$7.8 million.

The Group has not yet obtained the land-use rights certificate for certain plots of its land in Mainland China. As confirmed by the legal opinion issued by the Group’s Mainland China lawyers, subject to the payment of a land premium of approximately HK$9.2 million, there is no legal barrier or otherwise for the Group to obtain a land-use rights certificate for the land from the relevant authority. At present, the Group has no business development plan regarding the use of such land. Accordingly, the Group has no intention to obtain the land-use rights certificate and pay the relevant land premium.

The Directors are of the opinion that, in the absence of unforeseen circumstances and subject to the completion of the Open Offer; the ability of Vision Century to honor the Credit Facility granted to the Group; the ability of Huang Worldwide to provide continuing financial support to the Group; the successful rollover of bank loans of a total of HK$19.7 million at 31 December 2004 granted by the Banker for another one year from their original maturity date of October 2005; the intention of the Directors in relation to the disposition of HCT, of which the Company had withdrawn all its financial support, and hence the settlements of the Trade Payables will not crystallise; the Group’s trade debtors will properly settle the amounts due to the Group; no demand of payment of the land premium in respect of certain plots of land of the Group by the relevant authority, the Group will have sufficient working capital up to 28 February 2006. Otherwise, the Directors are of the opinion that the Group would not have adequate fund to enable it to operate as a going concern in the foreseeable future.

– 64 –

PRO FORMA FINANCIAL INFORMATION

APPENDIX II

1. UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED STATEMENT OF NET TANGIBLE ASSETS OF THE GROUP

The unaudited pro forma financial information prepared in accordance with Rule 4.29 and Appendix 1B (13) of the Listing Rules is set out below to illustrate the effect of the Open Offer on the net tangible assets of the Group as if the Open Offer had taken place on 30 September 2004.

The unaudited pro forma financial information has been prepared for illustrative purposes only, and because of its nature, it may not give a true picture of the financial position or results of the Group as at the date to which it is made up or at any future date.

The following unaudited pro forma adjusted consolidated statement of net tangible assets of the Group is based on the unaudited consolidated net assets of the Group as at 30 September 2004 and adjusted to reflect the effect of the Open Offer:

As at Net proceeds 30 September 2004 from the (Unaudited) Open Offer HK$’000 HK$’000 Net tangible assets 717 20,890 Unaudited pro forma consolidated net tangible assets per Share prior to completion of the Open Offer_(Note 2) Unaudited pro forma adjusted consolidated net tangible assets per Share upon completion of the Open Offer(Note 3)_	Pro forma HK$’000 (Note 1) 21,607 HK0.065 cent	Pro forma HK$’000 (Note 1) 21,607


	HK1.306 cents

Notes:

The above unaudited pro forma adjusted consolidated statement of net tangible assets of the Group has not taken into account the effect of the conversion of the outstanding Convertible Bonds.
The number of Shares used for the calculation of this amount is 1,102,720,190 which is the existing number of Shares in issue as at the Latest Practicable Date.
The number of Shares used for the calculation of this amount is 1,654,080,285 which is the total number of Shares to be in issue after the completion of the Open Offer based on the existing 1,102,720,190 Shares in issue as at the Latest Practicable Date but has not taken into account the effect of the conversion of the outstanding Convertible Bonds.

– 65 –

PRO FORMA FINANCIAL INFORMATION

APPENDIX II

2. LETTER ON UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED STATEMENT OF NET TANGIBLE ASSETS OF THE GROUP

The following is the text of a report, prepared for the sole purpose of inclusion in this prospectus, received from Ernst & Young, Certified Public Accountants, Hong Kong.

15th Floor Hutchison House 10 Harcourt Road Central Hong Kong

4 February 2005

The Board of Directors Xin Corporation Limited

Dear Sirs,

We report on the unaudited pro forma adjusted consolidated statement of net tangible assets of Xin Corporation Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) set out on page 65 under the heading of “Unaudited pro forma adjusted consolidated statement of net tangible assets of the Group” in Section 1 of Appendix II of the Company’s prospectus dated 4 February 2005 in connection with the open offer of 551,360,095 offers shares at HK$0.04 per share on the basis of one offer share for every two shares held payable in full on application. The unaudited pro forma adjusted consolidated statement of net tangible assets have been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the open offer of the Company might have affected the net tangible assets of the Group.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma adjusted consolidated statement of net tangible assets of the Group in accordance with Rule 4.29 and Appendix 1B(13) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

It is our responsibility to form an opinion, as required by the Listing Rules, on the unaudited pro forma adjusted consolidated statement of net tangible assets of the Group and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma adjusted consolidated statement of net tangible assets beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

– 66 –

PRO FORMA FINANCIAL INFORMATION

APPENDIX II

Basis of opinion

We conducted our work in accordance with the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules” issued by the Auditing Practices Board in the United Kingdom. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma adjusted consolidated statement of net tangible assets with the directors of the Company.

Our work did not constitute an audit or review made in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants, and accordingly, we do not express any such audit or review assurance on the unaudited pro forma adjusted consolidated statement of net tangible assets of the Group.

The unaudited pro forma adjusted consolidated statement of net tangible assets of the Group is for illustrative purposes only, and because of its nature, it may not be indicative of the financial position of the Group as at 30 September 2004 or at any future date.

Opinion

In our opinion:

(a) the unaudited pro forma adjusted consolidated statement of net tangible assets of the Group has been properly compiled on the basis stated therein;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the unaudited pro forma adjusted consolidated statement of net tangible assets of the Group as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

Yours faithfully,

Ernst & Young

Certified Public Accountants

Hong Kong

– 67 –

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This prospectus includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this prospectus, and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading.

2. PARTICULARS OF DIRECTORS

The brief biographies of the Directors are set out below:

Executive Directors

Mr. Lo Ming Chi, Charles , JP., aged 55, joined the Company as an executive Director and the chairman of the Company in December 2000. Mr. Lo is a Certified Practising Accountant of Australia and an associate member of the Securities Institute of Australia. Mr. Lo has over 27 years of professional and business experience in financial and investment services in Australia, Hong Kong and other Asian countries.

Mr. Yu Wai Man , aged 40, joined the Company in December 2000 as the company secretary and was appointed as an executive Director and qualified accountant in April 2001. Mr. Yu is a fellow member of the Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants and has over 19 years of experience in the accounting field including 3 years in external audit and 2 years in internal audit. Mr. Yu has over 11 years of financial experience in companies listed both in Hong Kong and the United Kingdom.

Mr. Wilson Ng , aged 32, joined the Company as an executive Director in September 2002. Mr. Ng graduated from Santa Clara University with a Bachelor’s Degree in Chemistry and Psychology. Mr. Ng has extensive investment experience in Southeast Asia. Prior to joining the Company, Mr. Ng was primarily involved in corporate development and business investment activities. Mr. Ng is the elder brother of Mr. Ng Wee Keat.

Mr. Ng Wee Keat , aged 27, joined the Company as an executive Director in April 2003. Mr. Ng graduated from Indiana University with a Bachelor of Arts Degree in Economics. Prior to joining the Company, Mr. Ng worked in a ship management company where he was responsible for re-engineering the company’s structure as well as ensuring its daily operation in a smooth and efficient way. Mr. Ng is a younger brother of Mr. Wilson Ng.

Mr. Ng Teow Leng , aged 59, joined the Company as an executive Director in April 2003. Mr. Ng has over 38 years of extensive experience in international trading and marketing. Mr. Ng was a pioneer in Singapore from 1970 to 1992 for soft commodities futures in London and New York markets. Mr. Ng has also been appointed as a committee member and an arbitrator of the Statutory Board, Rubber Association of Singapore. Mr. Ng is an elder brother of Mr. Ng Eng Leng.

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GENERAL INFORMATION

APPENDIX III

Executive Directors (Continued)

Mr. Ng Eng Leng , aged 55, joined the Company as an executive Director in April 2003. Mr. Ng is a member of the Marketing Institute of Singapore and the Singapore Institute of Directors. He has 33 years of working experience as a senior executive with a wide range of multi-national corporations, especially in new event launches, marketing, research and operational management. Mr. Ng is the younger brother of Mr. Ng Teow Leng.

Independent non-executive Directors

Mr. Wong Kwok Tai , aged 66, joined the Company as an independent non-executive Director in August 2001. Mr. Wong is a fellow member of CPA Australia and a fellow member of the Hong Kong Institute of Certified Public Accountants and a Certified Public Accountant. Mr. Wong has more than 39 years of financial experience. Mr. Wong is the company secretary of many listed companies and also the principal of W. Wong & Co., C.P.A.

Mr. Lau Pok Lam , aged 58, joined the Company as an independent non-executive Director in April 2003. Mr. Lau is a Certified Public Accountant, a fellow member of both the Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants, an associate member of the Taxation Institute of Hong Kong and a member of the Society of Chinese Accountants and Auditors. Mr. Lau has over 33 years of experience in the professional accountancy and financial fields.

Mr. Ko Kwong Woon, Ivan , aged 45, joined the Company as an independent non-executive Director in September 2004. Mr. Ko graduated from the Chinese University of Hong Kong with a Business Degree and graduated from the University of Hong Kong with a Master Degree course in Real Estate Development. Mr. Ko also completed the Real Estate Finance Program at the Wharton School and attended the School of Mortgage Banking in United States. Mr. Ko is currently a board member of the Hong Kong Policy Research Institute and was a committee member of the Real Estate and Infrastructure Committee, the Real Estate Services Committee and the Financial Services Committee of the Hong Kong General Chamber of Commerce. Mr. Ko has over 12 years of experience in real estate development and real estate finance in both Hong Kong and Mainland China.

– 69 –

GENERAL INFORMATION

APPENDIX III

Name	Address	Nationality
Lo Ming Chi, Charles	Room 1104, Block B	Australian
	Villa Rocha
	10 Broadwood Road
	Happy Valley
	Hong Kong
Yu Wai Man	Flat G, 41st Floor, Block 2	Chinese
	Well On Garden
	Tseung Kwan O
	Kowloon
	Hong Kong
Wilson Ng	48A Serangoon Garden Way	Singaporean
	Singapore 556060
Ng Wee Keat	329 River Valley Road,	Malaysian
	#06-01 Yong An Park
	Singapore 238361
Ng Teow Leng	Apt. Block 437,	Singaporean
	Ang Mo Kio Ave. 10
	#19-1365
	Singapore 560437
Ng Eng Leng	803, Upper East Coast Road	Singaporean
	Singapore 466604
Wong Kwok Tai	Flat C, 7th Floor	Chinese
	Rowen Court
	25 Babington Path
	Hong Kong
Lau Pok Lam	Flat 19-E	Singaporean
	Golden Maple Court
	9-10 Kai Yuen Terrace
	North Point
	Hong Kong
Ko Kwong Woon, Ivan	House 16	Chinese
	Kwun Yam Garden
	Kwun Yam Shan
	Shatin, New Territories
	Hong Kong

– 70 –

GENERAL INFORMATION

APPENDIX III

3. PARTIES INVOLVED IN THE OPEN OFFER AND CORPORATE INFORMATION

Head office and principal place Room 808B, 8th Floor, Tower B of business in Hong Kong New Mandarin Plaza 14 Science Museum Road Tsim Sha Tsui East Kowloon Hong Kong Registered office Clarendon House 2 Church Street Hamilton HM 11 Bermuda Financial adviser Somerley Limited Suite 2201, 22nd Floor Two International Finance Centre Central Hong Kong Underwriter Kingston Securities Limited Suite 2801, 28th Floor One International Finance Centre 1 Harbour View Street Central Hong Kong Legal advisers On Hong Kong Law O’ Melveny & Myers Suite 1905, Tower Two Lippo Centre, 89 Queensway Central Hong Kong On Bermuda Law Conyers Dill & Pearman 2901, One Exchange Square 8 Connaught Place Central Hong Kong Auditors Ernst & Young Certified Public Accountants 15/F., Hutchison House 10 Harcourt Road Central Hong Kong

– 71 –

GENERAL INFORMATION

APPENDIX III

Principal bankers

Principal bankers Standard Chartered Bank (Hong Kong) Limited Standard Chartered Bank Building 4-4A Des Voeux Road Central Hong Kong The Bank of East Asia, Limited Shop No. B207, Basement 2 Time Square Causeway Bay Hong Kong Agricultural Bank of China No. 8 Jiangnan Road Huangjang Zhen Dongguan Shi Guangdong Province The People’s Republic of China China Construction Bank No. 124 Huangjang Road Huangjang Zhen Dongguan Shi Guangdong Province The People’s Republic of China Principal share registrar Butterfield Fund Services (Bermuda) Limited and transfer office Rosebank Centre 11 Bermudiana Road Pembroke Bermuda Hong Kong branch share registrar Tengis Limited and transfer office Ground Floor Bank of East Asia Harbour View Centre 56 Gloucester Road Wanchai Hong Kong Authorised representatives Mr. Lo Ming Chi, Charles Mr. Yu Wai Man Company secretary and qualified accountant Mr. Yu Wai Man, FCPA, FCCA

– 72 –

GENERAL INFORMATION

APPENDIX III

4. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors in the equity and debt securities of the Company or its associated corporations (within the meaning of Part XV of the SFO) which require notification to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Director is deemed or taken to have under such provisions of the SFO) or which are required, pursuant to Section 352 of the SFO, to be entered into the register maintained by the Company or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange were as follows:

		Number of Shares held	Number of Shares held
	Personal	Family	Corporate	Other
Name of Director	interests	interests	interests	interests
Mr. Wilson Ng	–	–	–	1,023,143,925
Mr. Ng Wee Keat	–	–	–	1,023,143,925
				(Note)

Note: 682,095,950 Shares are held by Vision Century as at the Latest Practicable Date. The remaining 341,047,975 Shares represent the Offer Shares to be subscribed for by Vision Century under the Open Offer. Vision Century is ultimately owned by a discretionary trust, the beneficiaries under the discretionary trust include, among others, Mr. Wilson Ng and Mr. Ng Wee Keat.

Save as disclosed in this prospectus, as at the Latest Practicable Date, no Directors had interests or short positions in the equity or debt securities of the Company or its associated corporations (within the meaning of Part XV of the SFO) which require notification to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Director is deemed or taken to have under such provisions of the SFO) or which are required to be entered into the register maintained by the Company, pursuant to Section 352 of the SFO, or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange. No Director is a director or an employee of a company which had an interest or short position in Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

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GENERAL INFORMATION

APPENDIX III

5. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, the following persons had an interest or a short position in Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

		Percentage of
	Number of	the Company’s
Name of substantial Shareholder	Shares held	issued share capital
Huang Group (BVI) Limited*	682,095,950	61.86%
Huang Worldwide Holding Limited*	682,095,950	61.86%
Vision Century*	682,095,950	61.86%
Mr. Ng (Huang) Cheow Leng*	682,095,950	61.86%
Mr. Kan Ka Chong, Frederick*	682,095,950	61.86%

Vision Century is a wholly-owned subsidiary of Huang Worldwide Holding Limited which is in turn wholly owned by Huang Group (BVI) Limited. Huang Group (BVI) Limited is wholly owned by a discretionary trust, of which Mr. Ng (Huang) Cheow Leng is the founder and Mr. Kan Ka Chong, Frederick is the trustee. Mr. Ng (Huang) Cheow Leng, Mr. Wilson Ng and Mr. Ng Wee Keat are discretionary beneficiaries of the trust.

6. EXPERT

Ernst & Young, Certified Public Accountants, has given and has not withdrawn its written consent to the issue of this prospectus with the inclusion of its letter as set out in this prospectus and reference to its name in the form and context in which they appear respectively.

As at the Latest Practicable Date, Ernst & Young was not beneficially interested in the share capital of any member of the Group, nor did it have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group, nor did it have any interest, either direct or indirect, in any assets which had been since 31 March 2004 (being the date to which the latest published audited financial statements of the Company were made up) acquired or disposed of by or leased to or were proposed to be acquired or disposed of by or leased to any member of the Group.

7. LITIGATION

There were claims for outstanding trade debts brought by several suppliers and other miscellaneous creditors against the Group in prior years in respect of goods supplied and services provided for, together with interests, costs and/or other relief, of approximately HK$1,928,000 in aggregate. A full provision thereof has been made.

Save as disclosed above, neither the Company nor any of its subsidiaries is engaged in litigation or arbitration of material importance and so far as the Directors are aware, no litigation or claims of material importance are pending or threatened by or against the Company or any of its subsidiaries.

– 74 –

GENERAL INFORMATION

APPENDIX III

8. MATERIAL CONTRACTS

The following contracts have been entered into by the Company and its subsidiaries (not being contracts entered into in the ordinary course of business) within the two years immediately preceding the date of this prospectus and are or may be material:

a credit facility in the amount of HK$50,000,000 dated 2 July 2003 (as supplemented on 29 October 2004) granted by Vision Century in favour of the Company.
the underwriting agreement dated 15 July 2003 entered into between the Company, Vision Century and the Underwriter in relation to an open offer in the proportion of four offer shares for every Share held.
the subscription agreement dated 28 July 2003 entered into between the Company, Mr. Lo Ming Chi, Charles and Mr. Yu Wai Man relating to the subscription of 25,092,000 Shares in aggregate at the price of HK$0.0796 per Share.
a shareholders’ agreement dated 20 December 2003 entered into between Able Market Profits Limited, Smartway Group Limited and Gadgets Yard Limited (formerly named as Well Channel (H.K.) Limited).
a shareholders’ agreement dated 20 February 2004 entered into between Able Market Profits Limited, Huang & Co (Singapore) Pte Ltd and Xin Procurement & Trading Pte. Ltd.
a supply agreement dated 20 February 2004 entered into between Huang & Co (Singapore) Pte Ltd and Xin Procurement & Trading Pte. Ltd.
a supplemental agreement dated 29 October 2004 relating to a credit facility in the amount of HK$50,000,000 dated 2 July 2003 granted by Vision Century in favour of the Company.
a loan agreement in the amount of HK$10 million dated 25 November 2004 granted by Wise Wind Limited in favour of the Company.
the Underwriting Agreement.

Save as aforesaid, no material contracts (not being contracts entered into in the ordinary course of business carried on by the Group) have been entered into by any member of the Group within the two years preceding the date of this prospectus.

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GENERAL INFORMATION

APPENDIX III

9. LEGAL EFFECT

This prospectus, the accompanying Application Form and Excess Application Form, and all acceptances of any offer or application contained in such documents, are governed by and shall be construed in accordance of the laws of Hong Kong. Where an application is made in pursuance of any such documents, the relevant document(s) shall have the effect of rendering all persons concerned bound by the provisions, other than the penal provisions, of Sections 44A and 44B of the Companies Ordinance, so far as applicable.

10. EXPENSES

The expenses in connection with the Open Offer, including the financial advisory fee, underwriting commission, printing, registration, translation, legal and accounting charges are estimated to amount to approximately HK$1.2 million and will be payable by the Company.

11. DOCUMENTS REGISTERED BY THE REGISTRARS OF COMPANIES

A copy of this prospectus, the Application Form, the Excess Application Form and the written consent given by Ernst & Young as referred to in this appendix, have been registered with the Registrar of Companies in Hong Kong. A copy of this prospectus, the Application Form and the Excess Application Form have been filed with the Registrar of Companies in Bermuda.

12. PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS

Pursuant to the bye-laws of the Company, a resolution put to the vote of a meeting shall be decided on show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

(a) by the chairman of such meeting; or
(b) by at least three Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or
(c) by a Shareholder or Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or
(d) by a Shareholder or Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

A demand by a person as proxy for a member or in the case of a member being a corporation by its duly authorised representative shall be deemed to be the same as a demand by a member.

– 76 –

GENERAL INFORMATION

APPENDIX III

13. MISCELLANEOUS

(a) None of the Directors has any existing or proposed service contract with any member of the Group which does not expire or is not determinable by the Group within one year without payment of compensation (other than statutory compensation).
(b) As at the Latest Practicable Date, save for (i) a shareholders’ agreement dated 20 February 2004 entered into between Able Market Profits Limited, Huang & Co (Singapore) Pte Ltd and Xin Procurement & Trading Pte. Ltd.; and (ii) a supply agreement dated 20 February 2004 entered into between Huang & Co (Singapore) Pte Ltd and Xin Procurement & Trading Pte. Ltd., there is no contract or arrangement entered into by any member of the Group subsisting at the date thereof in which any Director is materially interested and which is significant in relation to the business of the Group.
(c) As at the Latest Practicable Date, none of the Directors has, or has had, any direct or indirect interest in any assets which have been acquired, disposed of or leased to, or which are proposed to be acquired, disposed of or leased to, the Company or any of its subsidiaries since 31 March 2004 (the date to which the latest published audited financial statements of the Company were made up).
(d) The English texts of this prospectus, the accompanying Application Form and Excess Application Form shall prevail over their respective Chinese texts.

14. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours (Saturdays and public holidays excepted) at the head office of the Company at Room 808B, 8th Floor, Tower B, New Mandarin Plaza, 14 Science Museum Road, Tsim Sha Tsui East, Kowloon, Hong Kong from the date of this prospectus up to and including 18 February 2005:

(a) the memorandum of association and bye-laws of the Company;
(b) the annual reports of the Company for the two years ended 31 March 2003 and 2004 and the interim report of the Company for the six months ended 30 September 2004;
(c) the comfort letter regarding the pro forma financial information of the Group from Ernst & Young, the text of which is set out in Appendix II to this prospectus;
(d) the written consent referred to in the paragraph headed “Expert” in this appendix;
(e) all material contracts referred to in the paragraph headed “Material contracts” in this appendix; and
(f) a copy of each of the circulars issued pursuant to the requirements set out in Chapters 14 and/or 14A of the Listing Rules which have been issued since 31 March 2004.

– 77 –

AI assistant

PegBio Co., Ltd. — Capital/Financing Update 2005

50676_rns_2005-02-04_3396fd61-47a8-44b6-8f28-e13113cb6f36.pdf

OPEN OFFER OF 551,360,095 OFFER SHARES AT HK$0.04 PER SHARE ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO SHARES HELD PAYABLE IN FULL ON APPLICATION

Financial adviser to Xin Corporation Limited

SOMERLEY LIMITED

Underwriter

KINGSTON SECURITIES LIMITED

CONTENTS

DEFINITIONS

DEFINITIONS

OPEN OFFER OF 551,360,095 OFFER SHARES AT HK$0.04 PER SHARE ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO SHARES HELD PAYABLE IN FULL ON APPLICATION

INTRODUCTION

OPEN OFFER

Qualifying Shareholders:

Rights of the Overseas Shareholders:

Subscription Price:

Fractions of Offer Shares:

Status of Offer Shares:

Share certificates:

Application for excess Offer Shares:

Application for listing:

UNDERTAKING OF THE CONTROLLING SHAREHOLDER

UNDERWRITING AGREEMENT

Commission and other payment:

Conditions of the underwriting agreement

Termination of the Underwriting Agreement:

WARNING OF THE RISKS OF DEALINGS IN SHARES

REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS

BUSINESS REVIEW AND PROSPECTS OF THE GROUP

Business review

For the six months ended 30 September 2004

Prospects

LISTING AND DEALINGS

SHAREHOLDING STRUCTURE IN THE COMPANY

PERMISSION OF THE BERMUDA MONETARY AUTHORITY

PROCEDURES FOR APPLICATION AND PAYMENT

SHARE CERTIFICATES

ADJUSTMENT OF CONVERSION PRICE OF THE CONVERTIBLE BONDS

GENERAL

1. SHARE CAPITAL

2. FIVE YEARS SUMMARY

Results

Assets and Liabilities and Minority Interests

3. AUDITED FINANCIAL INFORMATION

Xin Corporation Limited

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

BASIS OF OPINION

FUNDAMENTAL UNCERTAINTY RELATING TO THE GOING CONCERN BASIS

DISCLAIMER OF OPINION

Ernst & Young

APPENDIX I

“Consolidated Profit and Loss Account

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Consolidated Cash Flow Statement

Notes to Financial Statements

1. CORPORATE INFORMATION

2. BASIS OF PRESENTATION

Notes to Financial Statements

3. IMPACT OF A REVISED HONG KONG STATEMENT OF STANDARD ACCOUNTING PRACTICE (“SSAP”)

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

Basis of consolidation

Subsidiaries

Joint venture companies

Notes to Financial Statements

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Related parties

Impairment of assets

Fixed assets and depreciation

Notes to Financial Statements

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Leased assets

Inventories

Cash and cash equivalents

Provisions

Income tax

Notes to Financial Statements

PegBio Co., Ltd. Capital/Financing Update 2005