PegBio Co., Ltd. - Capital/Financing Update 2006

THIS PROSPECTUS IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt about any of the contents of this prospectus, you should obtain independent professional advice.

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 of 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 248,112,042 OFFER SHARES AT HK$0.12 PER OFFER SHARE ON THE BASIS OF THREE OFFER SHARES FOR EVERY SHARE HELD PAYABLE IN FULL ON APPLICATION

Financial adviser to the Company

SOMERLEY LIMITED

Underwriter

KINGSTON SECURITIES LIMITED

The latest time for application and payment for the Offer Shares is 4:00 p.m. on Wednesday, 11 October 2006. The procedures for application and payment are set out on pages 16 to 17 of this prospectus.

The Underwriting Agreement (as defined herein) in respect of the Open Offer (as defined herein) contains provisions entitling the Underwriter (as defined herein) by notice in writing to terminate the obligations of the Underwriter thereunder on the occurrence of certain events including force majeure. These events are set out in the paragraph headed “Termination of the Underwriting Agreement” on pages 4 to 5 of this prospectus. 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 Wednesday, 20 September 2006 and that dealings in such Shares may 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 Monday, 16 October 2006), 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

26 September 2006

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Termination of the Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Undertaking of the controlling shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Warning of the risks of dealing in Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Shareholdings in the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Reasons for the Open Offer and use of proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Prospects of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Fund raising activities in the past twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Permission of the Bermuda Monetary Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Procedures for application and payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Share certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Adjustment of conversion price of the Convertible Note
and exercise price of the Share Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Appendix I – Financial information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Appendix II – Pro forma financial information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	82
Appendix III – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	85

DEFINITIONS

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

“Application Form(s)”

application form(s) for use by the Qualifying Shareholders to apply for Offer Shares

“associate(s)”

the meaning given to it in the Listing Rules

“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”

the meaning given to it in the Listing Rules

“Convertible Note”
1% convertible note of the Company in the aggregate principal amount of HK$37 million, which is repayable in March 2009 or convertible into Shares at an initial conversion price of HK$0.205 per Share, subject to adjustment
“Directors”

directors of the Company

“Excess Application Form(s)” excess application form(s) for use by the Qualifying Shareholders to apply for excess Offer Shares that have not been applied for in full by the Qualifying Shareholders

“Group”

the Company and its subsidiaries

“HKSCC”

Hong Kong Securities Clearing Company Limited

“Hong Kong”
the Hong Kong Special Administrative Region of the People’s Republic of China
“Independent Shareholders” Shareholders other than Vision Century and its associates
“Latest Practicable Date” 22 September 2006, being the latest practicable date prior to the printing of this prospectus for the purpose of ascertaining certain information contained in this prospectus

“Listing Rules”

the Rules Governing the Listing of Securities on the Stock Exchange

DEFINITIONS

“Offer Share(s)”
the new Share(s) now being offered to the Qualifying Shareholders for application pursuant to the Open Offer
“Open Offer”
the offer of Offer Shares to the Qualifying Shareholders on the basis of assured allotments of three Offer Shares for every Share held on the Record Date on the terms set out in the Prospectus Documents
“Overseas Shareholders”
Shareholders whose addresses on the register of members of the Company are outside Hong Kong on the Record Date
“Prospectus Documents”
this prospectus, the Application Form(s) and the Excess Application Form(s)
“Qualifying Shareholders”
the persons shown on the register of members of the Company on the Record Date
“Record Date”
Tuesday, 26 September 2006, being the date by reference to which assured allotments under the Open Offer was determined
“Registrar” Tengis Limited, the Company’s branch share registrar in Hong Kong, located at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong
“Settlement Date” Monday, 16 October 2006, being the third business day following the last date for application and payment for Offer Shares (or such other date as the Underwriter and the Company may agree in writing)
“SFO”
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Shareholder(s)” holder(s) of Shares
“Share(s)”
ordinary share(s) of HK$0.01 each in the share capital of the Company
“Share Options”
4,800,000 share options granted to eligible participants under the share option scheme of the Company adopted on 30 December 2002 conferring on the holders thereof rights to subscribe in cash for new Shares at exercise price determined in accordance with the scheme
“SGM”
the special general meeting of the Company held on 26 September 2006 to approve, among other things, the Open Offer

DEFINITIONS

“Stock Exchange”

The Stock Exchange of Hong Kong Limited

“Subscription Price” the subscription price of HK$0.12 per Offer Share

“Underwriter”

Kingston Securities Limited, a corporation licensed to conduct type 1 (dealing in securities) regulated activity under the SFO

“Underwriting Agreement”

the underwriting agreement dated 17 August 2006 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 of the Company

“HK$” Hong Kong dollars

“%” per cent.

Save where otherwise stated, throughout this prospectus amounts in Renminbi have been translated, for illustration only, into HK$ at the exchange rate of RMB1 = HK$0.962.

TERMINATION OF THE UNDERWRITING AGREEMENT

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

(a) there develops, occurs, exists or comes into force any event 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:–
(i) 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
(ii) 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
(iii) any change or deterioration (whether or not permanent) in local, national or international securities market conditions; or
(iv) without prejudice to sub-paragraphs (ii) and (iii) 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
(v) any local, national or international outbreak or escalation of hostilities, insurrection or armed conflict; or
(vi) 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 ten consecutive business days pending the publication of 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
(vii) 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

TERMINATION OF THE UNDERWRITING AGREEMENT

(viii) any material adverse change in the circumstances of the Company or any member of the Group (including, without limitation to the generality of the foregoing, the presentation of a petition or the passing of a resolution for the liquidation or winding up or similar event occurring in respect of any member of the Group or the destruction of any material asset of the Group); or
(b) 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 in the Underwriting Agreement have not been complied with in any respect; or
(c) 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 in 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. All obligations of the Underwriter thereunder shall cease and determine and no party shall have any claim against any other party in respect of any matter or thing arising out of or in connection with the Underwriting Agreement provided that the Company shall remain liable to pay to the Underwriter such fees as may then be agreed by the parties.

EXPECTED TIMETABLE

2006

Latest time for application for Offer Shares and payment . . . . . . . . 4:00 p.m. on Wednesday, 11 October

Underwriting Agreement becomes unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 16 October

Announcement of the results of the Open Offer published . . . . . . . . . . . . . . . . . . . . . . Tuesday, 17 October

Refund cheques in respect of wholly or partially

unsuccessful excess applications posted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 18 October

Share certificates for Offer Shares posted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 18 October

Notes:

(i) Dealings in the fully-paid Offer Shares will commence as soon as the relevant Shareholders receive the share certificates for Offer Shares.
(ii) All times in this prospectus refer to Hong Kong times.
(iii) Dates or deadlines specified in this prospectus for events in the timetable for (or otherwise in relation to) the Open Offer are indicative only and may be extended or varied by agreement between the Company and the Underwriter. Any consequential changes to the expected timetable will be published by way of press announcements or otherwise notified to Shareholders.
(iv) The latest time for application and payment in the Open Offer will be postponed if there is:
a tropical cyclone warning signal number 8 or above, or
a “black” rainstorm warning
(a) in force in Hong Kong at any local time before 12:00 noon and no longer in force after 12:00 noon on Wednesday, 11 October 2006. Instead, the latest time for application and payment in the Open Offer will be extended to 5:00 p.m. on the same business day; or
(b) in force in Hong Kong at any local time between 12:00 noon and 4:00 p.m. on Wednesday, 11 October 2006. Instead, the latest time for application and payment in the Open Offer will be rescheduled to 4:00 p.m. on the following business day which does not have either of those warnings in force at any time between 9:00 a.m. and 4:00 p.m..

If the latest time for application and payment in the Open Offer is postponed in accordance with the above paragraph, the dates mentioned in this section may be affected. A press announcement will be made by the Company in such event.

LETTER FROM THE BOARD

(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 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: Room 2107, 21st Floor Nan Fung Tower 173 Des Voeux Road Central Hong Kong

26 September 2006

To Qualifying Shareholders

Dear Sir or Madam,

OPEN OFFER OF 248,112,042 OFFER SHARES AT HK$0.12 PER OFFER SHARE ON THE BASIS OF THREE OFFER SHARES FOR EVERY SHARE HELD PAYABLE IN FULL ON APPLICATION

INTRODUCTION

The Board announced on 17 August 2006 that the Board proposes to raise approximately HK$29.8 million before expenses by way of the Open Offer, payable in full on application on the basis of assured allotments of three Offer Shares for every Share held on the Record Date.

At the SGM held on 26 September 2006, the ordinary resolution approving the Open Offer was duly passed on a poll by the Independent Shareholders.

The purpose of this prospectus is to set out further information regarding the Open Offer, including information on dealings and application for Offer Shares, financial information and other information of the Group.

* For identification only

LETTER FROM THE BOARD

OPEN OFFER

Issue statistics

– Basis of the Open Offer held on the Record Date – Number of existing Shares in issue 82,704,014 Shares Number of Offer Shares – 248,112,042 Offer Shares – Enlarged issued share capital upon 330,816,056 Shares completion of the Open Offer

assured allotments of three Offer Shares for every Share held on the Record Date

Qualifying Shareholders

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 Application Forms and the Excess Application Forms for Offer Shares are sent to the Qualifying Shareholders only.

Rights of the Overseas Shareholders

The Prospectus Documents have not been and will not be registered or filed under the applicable securities or equivalent legislation of any jurisdiction other than Hong Kong and Bermuda. No persons receiving a copy of the Prospectus, 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 Overseas Shareholders and any other 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 and no Shareholder will be excluded in the Open Offer.

LETTER FROM THE BOARD

Application for excess Offer Shares

Qualifying Shareholders may apply (using Excess Application Forms for excess Offer Shares) for any Offer Shares that have not been applied for in full by the Qualifying Shareholders. Application can be made by completing the Excess Application Form for excess Offer Shares and lodging the same with a separate remittance for excess Offer Shares being applied for. The Company will allocate excess Offer Shares on a fair and equitable basis.

Persons holding Shares through a nominee should note that the nominee company is a single Shareholder according to the register of members of the Company. Accordingly, the aforesaid arrangement in relation to the allocation of the excess Offer Shares will not be extended to beneficial owner(s) individually. Shareholders with their Shares held through a nominee company are advised to consider whether they would like to arrange re-registration of the relevant Shares in the name of the beneficial owner(s) prior to the Record Date.

Subscription Price

The Subscription Price is HK$0.12 per Offer Share, payable in full on application. The Subscription Price represents:–

(i) a discount of approximately 42.6% to the closing price of HK$0.209 per Share as quoted on the Stock Exchange on 17 August 2006 (being the last trading day before the date of the announcement of the Open Offer);
(ii) a discount of approximately 15.5% to the theoretical ex-entitlement price of HK$0.142 per Share based on the aforesaid closing price per Share;
(iii) a discount of approximately 43.4% to the average of the closing prices of the Shares for the 10 trading days ended on 17 August 2006 of approximately HK$0.212; and
(iv) a discount of approximately 34.4% to the closing price of HK$0.183 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 prevailing market prices of Shares before the announcement of the Open Offer and the fundamentals of the Group. 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 to enjoy the future growth of the Company.

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 the Offer Shares.

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.

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 dealing in the Offer Shares or such other date as may be 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.

Fractions of Offer Shares

Given the Open Offer is made on the basis of three Offer Shares for every existing Share held on the Record Date, there will be no fractions of Offer Shares.

UNDERTAKING OF THE CONTROLLING SHAREHOLDER

As at the Latest Practicable Date, Vision Century, the controlling shareholder of the Company, held 51,157,196 Shares representing approximately 61.86% of the existing issued share capital of the Company. Vision Century has irrevocably undertaken to the Company that it will apply for the 153,471,588 Offer Shares that it will be entitled to apply for on an assured basis under the Open Offer.

UNDERWRITING AGREEMENT

Pursuant to the Underwriting Agreement, the Underwriter has agreed to fully underwrite the Offer Shares not undertaken by Vision Century, which will be 94,640,454 Offer Shares as illustrated in the section headed “Shareholdings in the Company” below.

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, the Underwriter is a third party independent of the Company and its connected persons.

LETTER FROM THE BOARD

Commission and other payment

The Company will pay to the Underwriter an underwriting commission of 2.5% of the aggregate Subscription Price of the number of Offer Shares underwritten by the Underwriter. The underwriting commission will be approximately HK$0.28 million.

Termination of the Underwriting Agreement

(a) there develops, occurs, exists or comes into force any event 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:–
(i) 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
(ii) 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
(iii) any change or deterioration (whether or not permanent) in local, national or international securities market conditions; or
(iv) without prejudice to sub-paragraphs (ii) and (iii) 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
(v) any local, national or international outbreak or escalation of hostilities, insurrection or armed conflict; or
(vi) 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 ten consecutive business days pending the publication of 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

LETTER FROM THE BOARD

(vii) 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
(viii) any material adverse change in the circumstances of the Company or any member of the Group (including, without limitation to the generality of the foregoing, the presentation of a petition or the passing of a resolution for the liquidation or winding up or similar event occurring in respect of any member of the Group or the destruction of any material asset of the Group); or
(b) 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 in the Underwriting Agreement have not been complied with in any respect; or
(c) 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 in 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.

All obligations of the Underwriter thereunder shall cease and determine and no party shall have any claim against any other party in respect of any matter or thing arising out of or in connection with the Underwriting Agreement provided that the Company shall remain liable to pay to the Underwriter such fees as may then be agreed by the parties.

Conditions of the Underwriting Agreement

The obligations of the Underwriter under the Underwriting Agreement are conditional, among other things, on the following conditions:

(i) the Independent Shareholders approving the Open Offer at the SGM;
(ii) the Listing Committee of the Stock Exchange granting listing 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 and where relevant) by no later than the dates specified in such approval and not having withdrawn or revoked such listings and permission on or before 4:00 p.m. on the Settlement Date;

LETTER FROM THE BOARD

(iii) the delivery to the Stock Exchange and registration by the Registrar of Companies in Hong Kong respectively on or prior to the posting date of the Prospectus Documents 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 delivery and filing with the Registrar of Companies in Bermuda in accordance with the requirements of the Companies Act of one copy of each of the Prospectus Documents each duly certified as required by the Companies Act and otherwise complying with the requirements of the Companies Ordinance, the Companies Act and the Listing Rules;
(iv) the Prospectus Documents being duly approved by the Directors, delivered to the Underwriter and despatched to the Shareholders; and
(v) if required, the Bermuda Monetary Authority granting its consent to the issue of Offer Shares on or before the date of despatch of the Prospectus Documents.

None of the above conditions is capable of being waived. Conditions (i), (iii), (iv) and (v) have been satisfied. If the remaining condition to the Underwriting Agreement is not fulfilled on the dates specified in the Underwriting Agreement (or such later date or dates as the Underwriter may agree with the Company), the obligations and liabilities of the parties to the Underwriting Agreement shall cease and determine and neither of the parties shall have any claim against the other save that all such reasonable costs, fees and other out-of-pocket expenses (excluding sub-underwriting fees and related expenses) as have been properly incurred by the Underwriter in connection with the underwriting of the Open Offer shall to the extent agreed by the Company be borne by the Company. The Open Offer is subject to the Underwriting Agreement becoming unconditional and not being terminated.

WARNING OF THE RISKS OF DEALING IN SHARES

If the Underwriting Agreement is terminated, or the conditions of the Underwriting Agreement are not fulfilled, the Open Offer will not proceed.

Any Shareholder or other person dealing in 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.

LETTER FROM THE BOARD

SHAREHOLDINGS IN THE COMPANY

The following is a summary of the shareholdings in the Company as at the Latest Practicable Date and immediately after the completion of the Open Offer:

	As at the Latest	As at the Latest
	Practicable Date and prior			Upon completion of the
Shareholders	to the Open Offer				Open	Offer
				(Note a)		(Note b)
	Number of			Number of		Number of
	Shares	%		Shares	%	Shares	%
Vision Century	51,157,196	61.9	204,628,784		61.9	204,628,784	61.9
The Underwriter and/or
subscribers procured
by it	0	0		0	0	94,640,454	28.6
Independent Shareholders	31,546,818	38.1	126,187,272		38.1	31,546,818	9.5
Total public Shareholders	31,546,818	38.1		126,187,272	38.1	126,187,272	38.1
Total	82,704,014	100.0	330,816,056		100.0	330,816,056	100.0

Notes:

(a) Assuming that all Independent Shareholders apply for their full assured allotments in the Open Offer.

(b) Assuming no Independent Shareholders apply in the Open Offer and all the underwritten Offer Shares are taken up by the Underwriter and/or subscribers procured by it.

Pursuant to the Underwriting Agreement, the Underwriter has undertaken to the Company to use all best endeavours to ensure that none of the subscribers procured by the Underwriter to subscribe for Offer Shares or the Underwriter itself individually shall hold 10% or more of the total issued share capital of the Company (as enlarged by the issue of Offer Shares) immediately after completion of the Open Offer. In addition, the Underwriter has stated that any subscribers procured by it will be independent of, and not connected with the Company and its connected persons. As set out above, sufficient public float for the Shares will be maintained immediately after the Open Offer.

LETTER FROM THE BOARD

REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS

The principal activity of the Group is the supply and procurement business in the Asia Pacific Region for the supply of office equipment and office supplies, machinery, machinery parts, lubricating oil and bunkerage for vessels.

According to the 2006 annual report of the Company, the Group incurred an audited net loss attributable to the equity holders of the Company of approximately HK$12.0 million and HK$16.0 million respectively for the two years ended 31 March 2005 and 2006 respectively. Following the disposal of a loss-making group of subsidiaries engaged in the toys business in August 2005, the Group has been, on one hand, concentrating in its supply and procurement business and, on the other hand, continuing to explore new investment opportunities to expand its existing operations and to diversify its business. As at 31 March 2006, the Group had audited net current liabilities of approximately HK$17.4 million and a net deficiency in assets attributable to equity holders of the Company of HK$2.1 million. As set out in the 2006 annual report of the Company, in order to strengthen the capital base of the Group and to improve the Group’s financial position, immediate liquidity and cash flow position, the Directors have been considering various alternatives including, among others, an open offer. The Directors are of the view that with the recent equity market conditions, it is in the interests of the Company to raise equity capital to strengthen the Group’s financial position and enlarge its capital base for the aforesaid purposes.

Net proceeds of the Open Offer of approximately HK$28.0 million are intended to be applied as to approximately HK$18.5 million for the repayment of liabilities and as to the remainder of approximately HK$9.5 million for general working capital of the Group. The Directors believe that the Open Offer is in the interests of the Group and the Shareholders as a whole given that the Open Offer will increase the asset base of the Group and provide it with additional working capital.

PROSPECTS OF THE GROUP

The Group adopted strategies to exit from unsound businesses and to strengthen the Group’s investments with stable revenue-generating power. Following the completion of the disposal of the group of subsidiaries engaged in the toys business in August 2005, the Group has been concentrating on the supply and procurement business.

Going forward, the Directors believe that the supply and procurement business will continue to do well, with sustainable growth. The Directors are optimistic about the prospects of the Group, and will continue to explore new investment opportunities that have earnings potential to expand its existing operations and to diversify its business.

LETTER FROM THE BOARD

FUND RAISING ACTIVITIES IN THE PAST TWELVE MONTHS

In March 2006, the Company completed the issue of a 1% convertible note in the principal amount of HK$37 million to Vision Century. Details of the Convertible Note were set out in the announcement of the Company dated 17 February 2006 and the circular of the Company dated 10 March 2006. The proceeds of HK$37 million were used to release and discharge the Company from part of its obligations and liabilities in respect of a loan advanced by Vision Century. Vision Century has the right to convert the outstanding principal amount of the Convertible Note into Shares at any time before 29 March 2009 at the initial conversion price of HK$0.205 per Share, subject to adjustment.

Save for the issue of the Convertible Note as mentioned above, the Company has not conducted any fund raising activities in the past twelve months before the date of the announcement of the Open Offer.

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. Pursuant to a public notice dated 1 June 2005 in respect of the issue of shares of the Company (which would include the Offer Shares) to persons regarded as non-residents of Bermuda for exchange control purposes subject to the requirement that the shares of the Company are listed on an appointed stock exchange such as 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.

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 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 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong by not later than 4:00 p.m. on Wednesday, 11 October 2006. 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 Wednesday, 11 October 2006, that assured allotments and all rights thereunder will be deemed to have been declined and will be cancelled.

LETTER FROM THE BOARD

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 Wednesday, 11 October 2006. 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. If you have applied for Offer Shares in excess of your assured allotment and the Offer Shares allotted to you is less than that applied for, the surplus monies will be refunded to you by cheque, in the manner described below which is expected to be despatched on or before Wednesday, 18 October 2006.

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 allotment.

All cheques or cashier’s orders will be presented for payment upon receipt and all interest earned on such monies (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 allotments 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 interest, 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(es) specified in the register of members of the Company on or before Wednesday, 18 October 2006.

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 addresses specified in the register of members of the Company. On the assumption that the Open Offer becomes unconditional on or about Monday, 16 October 2006, share certificates are expected to be posted on or before Wednesday, 18 October 2006.

LETTER FROM THE BOARD

ADJUSTMENT OF CONVERSION PRICE OF THE CONVERTIBLE NOTE AND EXERCISE PRICE OF THE SHARE OPTIONS

Subject to the Open Offer becoming unconditional, the conversion price of the Convertible Note and the exercise price of the Share Options may be required to be adjusted in accordance with their terms as a result of the Open Offer. An 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

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 were and are expected to be as follows:

HK$

Authorised:

10,000,000,000 Shares as at the Latest Practicable Date Issued and fully paid: 82,704,014 Shares in issue as at the Latest Practicable Date 248,112,042 Offer Shares to be issued 330,816,056	100,000,000.00

	827,040.14 2,481,120.42
	3,308,160.56

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 2006 and up to the Latest Practicable Date.

As at the Latest Practicable Date, the Company had outstanding (i) 4,800,000 Share Options entitling the holders thereof to subscribe for an aggregate of 4,800,000 Shares at an exercise price of HK$0.295; and (ii) Convertible Note of a principal amount of HK$37 million, which is convertible into an aggregate of 180,487,804 Shares at the initial conversion price of HK$0.205. Save for the aforesaid Share Options and Convertible Note, the Company has no other options, warrants, derivatives, convertible notes or other securities of the Company convertible into or giving rights to subscribe for Shares.

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

FINANCIAL INFORMATION

APPENDIX I

2. SUMMARY OF FINANCIAL INFORMATION

The following information has been extracted from the audited consolidated financial statements of the Group for each of the three years ended 31 March 2006:

Results

CONTINUING OPERATIONS
Revenue
Profit/(loss) before tax
Tax
LOSS FOR THE YEAR FROM
CONTINUING OPERATIONS
DISCONTINUED OPERATIONS
Loss for the year from discontinued operations
LOSS FOR THE YEAR
Attributable to:
Equity holders of the Company
Minority interests
ASSETS, LIABILITIES AND
MINORITY INTERESTS
Total assets
Total liabilities
Minority interests

Year ended 31 March
2004
2005
2006
HK$’000
HK$’000
HK$’000
(Restated)
(Restated)
–
144,687
155,550
(13,182)
(5,807)
693
–
(1,608)
(3,172)
(13,182)
(7,415)
(2,479)
(16,868)
(1,717)
(7,855)
(30,050)
(9,132)
(10,334)
(30,575)
(12,047)
(15,994)
525
2,915
5,660
(30,050)
(9,132)
(10,334)
As at 31 March
2004
2005
2006
HK$’000
HK$’000
HK$’000
(Restated)
(Restated)
89,383
139,472
118,007
(95,696)
(134,027)
(110,524)
520
(2,395)
(9,607)
(5,793)
3,050
(2,124)

FINANCIAL INFORMATION

APPENDIX I

3. AUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 2006 as extracted from the 2006 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 2006):

“

To the members

Xin Corporation Limited

(Incorporated in Bermuda with limited liability)

We have audited the financial statements on pages 33 to 132 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 Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public 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.

FINANCIAL INFORMATION

APPENDIX I

FUNDAMENTAL UNCERTAINTY RELATING TO THE GOING CONCERN BASIS

The Group recorded net current liabilities of HK$17,364,000 and deficiency in assets of HK$2,124,000 as at 31 March 2006. 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 the ongoing support by 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 2006 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

Hong Kong

25 July 2006”

FINANCIAL INFORMATION

APPENDIX I

Set out below is the audited consolidated income statement, consolidated balance sheet, consolidated statement of changes in equity and consolidated cash flow statement of the Group and the balance sheet of the Company together with the notes to the financial statements of the Group as extracted from pages 33 to 132 of the annual report of the Company for the year ended 31 March 2006.

“Consolidated Income Statement

For the year ended 31 March 2006

Notes CONTINUING OPERATIONS REVENUE 5 Cost of sales Gross profit Other income and gains 5 Selling and distribution costs Administrative expenses Other expenses Finance costs 6 PROFIT/(LOSS) BEFORE TAX 7 Tax 10 LOSS FOR THE YEAR FROM CONTINUING OPERATIONS DISCONTINUED OPERATIONS Loss for the year from discontinued operations 11 LOSS FOR THE YEAR Attributable to: Equity holders of the Company 12 Minority interests LOSS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY 13 Basic – For loss for the year – For loss from continuing operations Diluted – For loss for the year – For loss from continuing operations	2006 HK$’000 155,550 (136,723) 18,827 1,431 (296) (12,989) (1,660) (4,620) 693 (3,172) (2,479) (7,855) (10,334) (15,994) 5,660 (10,334) (HK19.3 cents) (HK10.2 cents) N/A N/A	2005 HK$’000 (Restated) 144,687 (132,223) 12,464 446 (187) (13,355) (389) (4,786) (5,807) (1,608) (7,415) (1,717) (9,132) (12,047) 2,915 (9,132) (HK14.6 cents) (HK13.3 cents) N/A N/A

FINANCIAL INFORMATION

APPENDIX I

Consolidated Balance Sheet

31 March 2006

Notes NON-CURRENT ASSETS Property, plant and equipment 14 Investment properties 15 Prepaid land lease payments 16 Total non-current assets CURRENT ASSETS Inventories 18 Accounts receivable 19 Prepaid land lease payments 16 Prepayments, deposits and other receivables Cash and bank balances Total current assets CURRENT LIABILITIES Accounts payable 20 Tax payable Other payables and accruals Interest-bearing bank and other borrowings 21 Loans from minority shareholders 23 Due to a minority shareholder 24 Due to a related company 24 Convertible bonds 25 Total current liabilities NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES	2006 HK$’000 268 21,437 29,816 51,521 2,073 57,691 728 871 5,123 66,486 12,925 3,172 22,495 17,884 1,127 25,704 543 – 83,850 (17,364) 34,157	2005 HK$’000 (Restated) 30,671 – 30,544 61,215 9,902 41,463 728 2,164 24,000 78,257 21,964 1,608 25,325 26,797 7,007 12,643 – 2,155 97,499 (19,242) 41,973

FINANCIAL INFORMATION

APPENDIX I

Consolidated Balance Sheet

31 March 2006

Notes NON-CURRENT LIABILITIES Other loan 21 Loans from the immediate holding company 22 Convertible note 25 Total non-current liabilities Net assets EQUITY Equity/(deficiency in assets) attributable to equity holders of the Company Issued capital 27 Equity component of convertible note and bonds 25 Deficits 29(a) Minority interests Total equity	2006 HK$’000 – – 26,674 26,674 7,483 827 10,344 (13,295) (2,124) 9,607 7,483	2005 HK$’000 (Restated) 2,000 34,528 – 36,528 5,445 16,541 517 (14,008) 3,050 2,395 5,445

FINANCIAL INFORMATION

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 March 2006

Notes At 1 April 2004 As previously reported Prior year adjustments 2.5(b) As restated Net loss for the year (as restated) Total income and expense for the year Share issued on open offer 27(a) Share issue expenses Redemption of convertible note At 31 March 2005			Attributable to equity	Attributable to equity	holders of the Company	holders of the Company	Total HK$’000 9,858 (15,651 ) (5,793 ) (12,047 ) (12,047 ) 22,055 (1,165 ) – 3,050	Minority interests HK$’000 (520 ) – (520 ) 2,915 2,915 – – – 2,395	Total equity HK$’000 9,338 (15,651 ) (6,313 ) (9,132 ) (9,132 ) 22,055 (1,165 ) – 5,445
		Issued capital HK$’000 11,027 – 11,027 – – 5,514 – – 16,541	Share premium account HK$’000 43,303 351 43,654 – – 16,541 (1,165 ) – 59,030*	Equity component of convertible note and bonds HK$’000 (note 25) – 2,640 2,640 – – – – (2,123 ) 517	Asset revaluation reserve HK$’000 18,037 (18,037 ) – – – – – – –*	Accumulated losses HK$’000 (62,509 ) (605 ) (63,114 ) (12,047 ) (12,047 ) – – 2,123 (73,038)*

FINANCIAL INFORMATION

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 March 2006

	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company		Total equity HK$’000 22,561 (17,116)
Issued capital HK$’000 16,541 – 16,541 – – – – (15,714) – – – – – – – 827	Share of premium Contributed account surplus HK$’000 HK$’000 58,679 – 351 – 59,030 – – – – – – – – – – 15,714 (59,030) 59,030 – (71,659) – – – – – – – – – – – 3,085	Equity component convertible note and bonds HK$’000 (note 25) – 517 517 – – – – – – – – – – (517) 10,344 10,344	Asset revaluation reserve HK$’000 18,534 (18,534) – – – – – – – – – – – – – –	Exchange fluctuation reserve HK$’000 – – – 10 10 – 10 – – – – – – – – 10	Share option Accumulated reserve losses HK$’000 HK$’000 – (73,588) – 550 – (73,038) – – – – – (15,994) – (15,994) – – – – – 71,659 466 – (9) 9 – – – 517 – – 457 (16,847)
						5,445 10
						10 (10,334)
						(10,324) – – – 466 – 1,552 – 10,344
						7,483

These reserve accounts comprise the consolidated deficits of HK$13,295,000 (2005: HK$14,008,000 (restated)) in the consolidated balance sheet.

FINANCIAL INFORMATION

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 March 2006

Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax From continuing operations From discontinued operations Adjustments for: Finance costs 6 Interest income 5 Gains on disposal of items of property, plant and equipment 5 Waiver of accounts payable 5 Share option expenses 7 Impairment of items of property, plant and equipment 7 Provision/(write-back of provision) against inventories 7 Depreciation of items of property, plant and equipment 7 Depreciation of investment properties 7 Recognition of prepaid land lease payments 7 Revaluation surplus on leasehold buildings 7 Provision for impairment of accounts receivable 7 Gain on disposal of subsidiaries 30(b) Operating profit/(loss) before working capital changes Increase in inventories Increase in accounts receivable Decrease/(increase) in prepayments, deposits and other receivables Increase/(decrease) in accounts payable Increase in other payables and accruals Increase in an amount due to a related company Cash used in operations Overseas taxes paid Net cash outflow from operating activities	2006 HK$’000 693 (7,855) 4,649 (267) (23) – 466 3,873 (485) 4,285 430 728 – – (66) 6,428 (824) (20,540) 596 (6,246) 864 543 (19,179) (1,608) (20,787)	2005 HK$’000 (Restated) (5,807) (1,717) 4,786 (25) – (294) – 111 828 8,892 – 728 (1,164) 290 (8,030) (1,402) (5,695) (40,328) (1,025) 17,321 3,640 – (27,489) – (27,489)

FINANCIAL INFORMATION

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 March 2006

Notes CASH FLOWS FROM INVESTING ACTIVITIES Interest received Purchases of items of property, plant and equipment 14 Proceeds from disposal of items of property, plant and equipment Disposal of subsidiaries 30(b) Net cash inflow/(outflow) from investing activities Net cash outflow from operating activities and investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares 27(a) Share issue expenses 27 Repayment of bank loans Repayment of an other loan Drawdown/(repayment) of loans from the immediate holding company Drawdown of a loan from a minority shareholder Drawdown of a loan from a director of a subsidiary Increase in an amount due to a minority shareholder Redemption of convertible bonds 25 Interest paid Net cash inflow/(outflow) from financing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Effect of foreign exchange rate change CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances	2006 HK$’000 267 (481) 23 2,707 2,516 (18,271) – – (4,413) (6,500) (3,150) – 4,650 13,061 (2,167) (2,097) (616) (18,887) 24,000 10 5,123 5,123	2005 HK$’000 (Restated) 25 (681) – 9 (647) (28,136) 22,055 (1,165) (4,002) (1,500) 21,150 1,127 – 12,643 (8,166) (1,943) 40,199 12,063 11,937 – 24,000 24,000

FINANCIAL INFORMATION

APPENDIX I

Balance Sheet

31 March 2006

Notes NON-CURRENT ASSETS Property, plant and equipment 14 Investments in subsidiaries 17 Total non-current assets CURRENT ASSETS Due from a subsidiary 17 Prepayments, deposits and other receivables Cash and bank balances Total current assets CURRENT LIABILITIES Other payables and accruals Interest-bearing bank and other borrowings 21 Convertible bonds 25 Total current liabilities NET CURRENT ASSETS/(LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Other loan 21 Loans from the immediate holding company 22 Convertible note 25 Total non-current liabilities DEFICIENCY IN ASSETS Issued capital 27 Equity component of convertible note and bonds 25 Deficits 29(b)	2006 HK$’000 12 – 12 – 231 796 1,027 2,349 2,000 – 4,349 (3,322) (3,310) – – 26,674 26,674 (29,984) 827 10,344 (41,155) (29,984)	2005 HK$’000 (Restated) 21 – 21 – 231 18,393 18,624 5,413 6,500 2,155 14,068 4,556 4,577 2,000 34,528 – 36,528 (31,951) 16,541 517 (49,009) (31,951)

FINANCIAL INFORMATION

APPENDIX I

Notes to the Financial Statements

1. CORPORATE INFORMATION

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

The Group is principally engaged in supply and procurement business operations. During the year, following the disposal of Gadgets Yard Limited (“Gadgets Yard”), a previously 51% owned subsidiary of the Company, the Group ceased the operations of design, manufacture and sale of a wide range of toys. There were no other 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.

2.1 BASIS OF PRESENTATION

At 31 March 2006, the Group had net current liabilities of HK$17,364,000 and deficiency in assets of HK$2,124,000. The Group incurred a loss attributable to equity holders of the Company of HK$15,994,000 and reported a net cash outflow from operating activities of HK$20,787,000 for the year ended 31 March 2006.

In order to strengthen the capital base of the Group and to improve the Group’s financial position, immediate liquidity and cash flows, 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 2007, 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 ongoing 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. In particular, the Group has successfully obtained from a Group’s banker in Mainland China a new borrowing of RMB12,750,000 (equivalent to HK$12,260,000), repayable on 26 April 2007 (the “New Loan”), after the year end date. The New Loan was utilised to partially repay a bank loan of HK$15,884,000 outstanding as at 31 March 2006.
(c) Vision Century has granted a credit facility of HK$50,000,000 to the Company since 2 July 2003. On 15 February 2006, the Company entered into a subscription agreement with Vision Century, for issuance of a convertible note in the principal amount of HK$37,000,000 as part of the consideration for the release and discharge of the Group from all of its obligations and liabilities in respect of the loan from Vision Century. On 30 March 2006, the date the convertible note being issued, HK$37,856,000 (being the principal amount of a loan of HK$31,378,000 and accrued interest of HK$6,478,000) was owed by the Company to Vision Century. The Company settled the remaining accrued interest of HK$856,000 by cash from internal resources. The convertible note is repayable on 29 March 2009 while the credit facility of HK$50,000,000 granted by Vision Century is still valid and should be expired on 31 October 2007.
(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 continue to take action to tighten cost controls over 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 going 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 2006.

FINANCIAL INFORMATION

APPENDIX I

2.1 BASIS OF PRESENTATION (Continued)

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.

2.2 BASIS OF PREPARATION

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants, 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 buildings as further explained below. These financial statements are presented in Hong Kong dollars and all values are rounded to the nearest thousand (HK$’000) except when otherwise indicated.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 March 2006. The results of subsidiaries acquired or disposed of during the year are consolidated from the date on which the Group obtains control, and continued to be consolidated until the date that such control ceases. 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.

2.3 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

The following new and revised HKFRSs affect the Group and are adopted for the first time for the current year’s financial statements:

HKAS 1	Presentation of Financial Statements
HKAS 2	Inventories
HKAS 7	Cash Flow Statements
HKAS 8	Accounting Policies, Changes in Accounting Estimates and Errors
HKAS 10	Events after the Balance Sheet Date
HKAS 12	Income Taxes
HKAS 14	Segment Reporting
HKAS 16	Property, Plant and Equipment
HKAS 17	Leases
HKAS 18	Revenue
HKAS 19	Employee Benefits
HKAS 21	The Effects of Changes in Foreign Exchange Rates
HKAS 23	Borrowing Costs
HKAS 24	Related Party Disclosures
HKAS 27	Consolidated and Separate Financial Statements
HKAS 32	Financial Instruments: Disclosure and Presentation
HKAS 33	Earnings per Share
HKAS 36	Impairment of Assets
HKAS 37	Provisions, Contingent Liabilities and Contingent Assets
HKAS 38	Intangible assets
HKAS 39	Financial Instruments: Recognition and Measurement
HKAS 39 Amendment	Transition and Initial Recognition of Financial Assets and Financial Liabilities
HKAS 40	Investment Property
HKFRS 2	Share-based Payment
HKFRS 3	Business Combinations
HKFRS 5	Non-current Assets Held for Sale and Discontinued Operations
HK(SIC)-Int 21	Income Taxes – Recovery of Revalued Non-depreciable Assets
HK-Int 4	Leases – Determination of the Length of Lease Term in respect of
	Hong Kong Land Leases

FINANCIAL INFORMATION

APPENDIX I

2.3 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (Continued)

The adoption of HKASs 2, 7, 8, 10, 12, 14, 16, 18, 19, 21, 23, 27, 33, 36, 37, 38, 40, HKFRS 3, HK(SIC)-Int 21 and HK-Int 4 has had no material impact on the accounting policies of the Group and the Company and the methods of computation in the Group’s and the Company’s financial statements.

HKAS 1 has affected the presentation of minority interests on the face of the consolidated balance sheet, consolidated income statement, consolidated statement of changes in equity and other disclosures.

HKAS 24 has expanded the definition of related parties and affected the Group’s related party disclosures.

The impact of adopting the other HKFRSs is summarised as follows:

(a) HKAS 17 – Leases

In prior years, leasehold land and buildings held for own use were stated at valuation less accumulated depreciation and any impairment losses.

Upon the adoption of HKAS 17, the Group’s leasehold interest in land and buildings is separated into leasehold land and leasehold buildings. The Group’s leasehold land is classified as an operating lease, because the title of the land is not expected to pass to the Group by the end of the lease term, and is classified as prepaid land lease payments, while leasehold buildings are classified as part of property, plant and equipment. Prepaid land lease payments under operating leases are initially stated at cost and subsequently amortised on the straight-line basis over the lease term. When the lease payments cannot be allocated reliably between the land and buildings elements, the entire lease payments are included in the cost of the land and buildings as a finance lease in property, plant and equipment.

The comparative amounts for the year ended 31 March 2005 have been restated to reflect the reclassification of the leasehold land.

(b) HKAS 32 and HKAS 39 – Financial Instruments

Upon the adoption of HKAS 32, convertible note and bonds are split into liability and equity components. The effects of the above changes are summarised in note 2.5 to the financial statements. In accordance with HKAS 32, comparative amounts have been restated.

(c) HKFRS 2 – Share-based Payment

In prior years, no recognition and measurement of share-based payment transactions in which employees (including directors) were granted share options over shares in the Company were required until such options were exercised by employees, at which time the share capital and share premium account were credited with the proceeds received.

Upon the adoption of HKFRS 2, when employees (including directors) render services as consideration for equity instruments (“equity-settled transactions”), the cost of the equity-settled transactions with employees is measured by reference to the fair value at the date at which the instruments are granted.

The main impact of HKFRS 2 on the Group is the recognition of the cost of these transactions and a corresponding entry to equity for employee share options. The revised accounting policy for share-based payment transactions is described in more detail in note 2.6 “Summary of significant accounting policies” below.

The effects of adopting HKFRS 2 are summarised in note 2.5 to the financial statements.

FINANCIAL INFORMATION

APPENDIX I

2.3 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (Continued)

(d) HKFRS 5 – Non-current Assets Held for Sale and Discontinued Operations

The Group has applied HKFRS 5 prospectively in accordance with the transitional provisions of HKFRS 5, which has resulted in a change in accounting policy on the recognition of a discontinued operation. Under Statement of Standard Accounting Practice (“SSAP”) 33 “Discontinuing Operations”, the Group would have recognised a discontinued operation at the earlier of:

the date the Group enters into a binding sale agreement; and
the date the board of directors have approved and announced a formal disposal plan.

HKFRS 5 requires a component of the Group to be classified as discontinued when the criteria to be reclassified as held for sale have been met or when that component of the Group has been recovered principally through a sale transaction rather than through continuing use. The principal impact of this change in accounting policy is that the results for the year ended 31 March 2005 attributable to the discontinued operations have been reclassified to the “Loss for the year from discontinued operations” on the face of the consolidated income statement of the Group.

2.4 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements. Unless otherwise stated, these HKFRSs are effective for accounting periods beginning on or after 1 April 2006:

HKAS 1 Amendment	Capital Disclosures
HKAS 21 Amendment	Net Investment in a Foreign Operation
HKAS 39 Amendment	Cash Flow Hedge Accounting of Forecast Intragroup Transactions
HKAS 39 Amendment	The Fair Value Option
HKAS 39 & HKFRS 4 Amendments	Financial Guarantee Contracts
HKFRS 7	Financial Instruments: Disclosures
HK(IFRIC)-Int 4	Determining whether an Arrangement contains a Lease
HK(IFRIC)-Int 8	Scope of HKFRS 2
HK(IFRIC)-Int 9	Reassessment of Embedded Derivatives

HKAS 1 Amendment shall be applied for accounting periods beginning on or after 1 April 2007. The revised standard will affect the disclosures about qualitative information about the Group’s objective, policies and processes for managing capital; quantitative data about what the Company regards as capital; and compliance with any capital requirements and the consequences of any non-compliance.

HKFRS 7 incorporates and further extends the disclosure requirements of HKAS 32 relating to financial instruments. This HKFRS shall be applied for accounting periods beginning on or after 1 April 2007.

In accordance with the amendments to HKAS 39 regarding financial guarantee contracts, financial guarantee contracts are initially recognised at fair value and are subsequently measured at the higher of (i) the amount determined in accordance with HKAS 37 and (ii) the amount initially recognised, less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18.

Except as stated above, the Group expects that the adoption of the pronouncements listed above will not have any significant impact on the Group’s financial statements in the period of initial application.

FINANCIAL INFORMATION

APPENDIX I

2.5 SUMMARY OF THE IMPACT OF CHANGES IN ACCOUNTING POLICIES

Group

(a) Effect on the consolidated balance sheets

At 1 April 2005

Effect of adopting
HKAS 17
HKAS 32
Prepaid
Convertible
land lease
note
Effect of new policies
payments
and bonds
HK$’000
HK$’000
Assets
Decrease in property, plant and
equipment
(48,400)
–
Increase in prepaid land
lease payments
31,272
–
Liabilities/equity
Decrease in convertible bonds
–
(12)
Decrease in asset revaluation
reserve
(18,534)
–
Increase in share premium account
–
351
Increase in equity component of
convertible bonds
–
517
Decrease/(increase) in
accumulated losses
1,406
(856)

Total
HK$’000
(48,400)
31,272
(17,128)
(12)
(18,534)
351
517
550
(17,128)

FINANCIAL INFORMATION

APPENDIX I

2.5 SUMMARY OF THE IMPACT OF CHANGES IN ACCOUNTING POLICIES (Continued)

Group (Continued)

(a) Effect on the consolidated balance sheets (Continued)

At 31 March 2006

Effect of adopting
HKAS 17
HKAS 32
HKFRS 2
Equity-
Prepaid
Convertible
settled
land lease
note
share option
Effect of new policies
payments
and bonds
arrangements
HK$’000
HK$’000
HK$’000
Assets
Decrease in property, plant
and equipment
(49,700)
–
–
Increase in prepaid land lease
payments
30,544
–
–
Liabilities/equity
Decrease in convertible note
–
(10,326)
–
Decrease in asset revaluation
reserve
(19,653)
–
–
Increase in share option reserve
–
–
457
Increase in equity component of
convertible note
–
10,344
–
Decrease/(increase) in
accumulated losses
497
(18)
(457)

Total
HK$’000
(49,700)
30,544
(19,156)
(10,326)
(19,653)
457
10,344
22
(19,156)

FINANCIAL INFORMATION

APPENDIX I

2.5 SUMMARY OF THE IMPACT OF CHANGES IN ACCOUNTING POLICIES (Continued)

Group (Continued)

(b) Effect on the balances of equity at 1 April 2004 and at 1 April 2005

Effect of adopting
HKAS 17
HKAS 32
Prepaid
Convertible
land lease
note
Effect of new policies
payments
and bonds
HK$’000
HK$’000
1 April 2004
Decrease in asset revaluation reserve
(18,037)
–
Increase in share premium account
–
351
Increase in equity component
of convertible note and bonds
–
2,640
Decrease/(increase) in accumulated
losses
1,637
(2,242)
1 April 2005
Decrease in asset revaluation reserve
(18,534)
–
Increase in share premium account
–
351
Increase in equity component
of convertible bonds
–
517
Decrease/(increase) in accumulated
losses
1,406
(856)

Total
HK$’000
(18,037)
351
2,640
(605)
(15,651)
(18,534)
351
517
550
(17,116)

FINANCIAL INFORMATION

APPENDIX I

2.5 SUMMARY OF THE IMPACT OF CHANGES IN ACCOUNTING POLICIES (Continued)

Group (Continued)

(c) Effect on the consolidated income statements for the years ended 31 March 2006 and 2005

Effect of new policies Year ended 31 March 2006 Decrease in revenue Decrease in cost of sales Decrease in other income and gains Loss on disposal of a subsidiary Decrease in selling and distribution costs Decrease/(increase) in administrative expenses Decrease/(increase) in other operating expenses Decrease/(increase) in finance costs Increase in loss for the year from discontinued operations Total increase in loss Increase in basic loss per share	HKAS 17 Prepaid land lease payments HK$’000 – – – – – 438 (1,347) – – (909) (HK1.1 cents)	Effect of adopting HKAS 32 HKFRS 2 HKFRS 5 Equity- Convertible settled note share option Discontinued and bonds arrangements operations HK$’000 HK$’000 HK$’000 – – (10,795) – – 13,459 – – (441) – – 34 – – 334 – (466) 1,404 – – 3,831 (30) – 29 – – (7,855) (30) (466) – – (HK0.6 cent) –	Total HK$’000 (10,795) 13,459 (441 ) 34 334 1,376 2,484 (1 ) (7,855 ) (1,405 ) (HK1.7 cents )

FINANCIAL INFORMATION

APPENDIX I

2.5 SUMMARY OF THE IMPACT OF CHANGES IN ACCOUNTING POLICIES (Continued)

Group (Continued)

(c) Effect on the consolidated income statements for the years ended 31 March 2006 and 2005 (Continued)

HKAS 17 Prepaid land lease Effect of new policies payments HK$’000 Year ended 31 March 2005 Decrease in revenue – Decrease in cost of sales – Decrease in other income and gains – Gain on disposal of a subsidiary – Decrease in selling and distribution costs – Decrease in administrative expenses 385 Increase in other operating expenses (616) Increase in finance costs – Increase in loss for the year from discontinued operations – Total increase in loss (231) Increase in basic loss per share (HK0.3 cent)	Effect of adopting HKAS 32 HKFRS 5 Convertible note Discontinued and bonds operations HK$’000 HK$’000 – (36,205) – 39,379 – (944) – (8,030) – 1,106 – 7,199 – (788) (737) – – (1,717) (737) – (HK0.9 cent) –	Total HK$’000 (36,205) 39,379 (944) (8,030) 1,106 7,584 (1,404) (737) (1,717) (968) (HK1.2 cents)

FINANCIAL INFORMATION

APPENDIX I

2.5 SUMMARY OF THE IMPACT OF CHANGES IN ACCOUNTING POLICIES (Continued)

Company

(a) Effect on the balance sheets

(b)	At 1 April 2005 Effect of new policy Liabilities/equity Decrease in convertible bonds Increase in share premium account Increase in equity component of convertible bonds Increase in accumulated losses At 31 March 2006 Effect of new policies Liabilities/equity Decrease in convertible bonds Increase in share option reserve Increase in equity component of convertible bonds Increase in accumulated losses Effect on the balances of equity Effect of new policies Increase in share premium account Increase in equity component of convertible note and bonds Increase in accumulated losses	HKAS 32 Convertible note and bonds HK$’000 (10,326) – 10,344 (18)	Effect of adopting HKAS 32 Convertible note and bonds HK$’000 (12) 351 517 (856) Effect of adopting HKFRS 2 Equity- settled share option arrangements Total HK$’000 HK$’000 – (10,326) 457 457 – 10,344 (457) (475) Effect of adopting HKAS 32 Convertible note and bonds 1 April 1 April 2005 2004 HK$’000 HK$’000 351 351 517 2,640 (856) (2,242)

FINANCIAL INFORMATION

APPENDIX I

2.5 SUMMARY OF THE IMPACT OF CHANGES IN ACCOUNTING POLICIES (Continued)

Company (Continued)

(c) Effect on the income statements

At 31 March 2006

==> picture [373 x 228] intentionally omitted <==

----- Start of picture text -----

Effect of adopting
HKFRS 2
HKAS 32 Equity-
Convertible settled
note share option
Effect of new policies and bonds arrangements Total
HK$’000 HK$’000 HK$’000
–
Increase in administrative expenses (466) (466)
Increase in finance costs (30) – (30)
Total increase in loss (30) (466) (496)
At 31 March 2005
Effect of adopting
HKAS 32
Convertible
Effect of new policies note and bonds
HK$’000
Increase in finance costs (737)
----- End of picture text -----

2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

A subsidiary is an entity 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 income statement to the extent of dividends received and receivable. The Company’s interests in subsidiaries are stated at cost less any impairment losses.

Impairment of assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, financial assets and investment properties), the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation), had no impairment loss been recognised for the asset in prior years. A reversal of such impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

FINANCIAL INFORMATION

APPENDIX I

2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Related parties

A party is considered to be related to the Group if:
(a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group;
(b) the party is a member of the key management personnel of the Group or its holding companies;
(c) the party is a close member of the family of any individual referred to in (a) or (b);
(d) the party is an entity that is controlled, jointly-controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (b) or (c); or
(e) the party is a post-employment benefit plan for the benefit of the employees of the Group, or of any entity that is related party of the Group.

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost or valuation less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment 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 items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement 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 an item of property, plant and equipment, and where the cost of the item can be measured reliably, the expenditure is capitalised as an additional cost of that asset or as a replacement.

Valuations are performed frequently enough to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Changes in the values of property, plant and equipment are dealt with as movements in the 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 income statement. Any subsequent revaluation surplus is credited to the income statement to the extent of the deficit previously charged. On disposal of a revalued asset, the relevant portion of the asset revaluation reserve realised in respect of previous valuations is transferred to accumulated losses as a movement in reserves.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life, after taking into account its estimated residual value. The principal annual rates used for this purpose are as follows:

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% – 15% Furniture, fixtures and equipment and motor vehicles 20%

Where parts of an item of property, plant and equipment have different useful lives, the cost or valuation of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.

Residual values, useful lives and depreciation method are reviewed, and adjusted if appropriate, at each balance sheet date.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement of an item of property, plant and equipment recognised in the income statement in the year the asset is derecognised is the difference between the net sale 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 items of property, plant and equipment when completed and ready for use.

FINANCIAL INFORMATION

APPENDIX I

2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investment properties

Investment properties are interests in buildings held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are stated at cost less accumulated depreciation and any impairment losses.

Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year of the retirement or disposal.

Leases

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.

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 lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the income statement on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under the operating leases are charged to the income statement on the straight-line basis over the lease terms.

Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms.

Investments and other financial assets (applicable to the year ended 31 March 2006)

Financial assets in the scope of HKAS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.

All regular way purchases and sales of financial assets are recognised on the trade date, i.e., the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Impairment of financial assets (applicable to the year ended 31 March 2006)

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

FINANCIAL INFORMATION

APPENDIX I

2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of financial assets (applicable to the year ended 31 March 2006) (Continued)

Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognised in the income statement.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

Derecognition of financial assets (applicable to the year ended 31 March 2006)

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

the rights to receive cash flows from the asset have expired;
the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay in full without material delay to a third party under a “pass-through” arrangement; or
the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

Gains and losses are recognised in net profit or loss when the liabilities are derecognised as well as through the amortisation process.

FINANCIAL INFORMATION

APPENDIX I

2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Convertible note and bonds

The component of convertible note and bonds that exhibits characteristics of a liability is recognised as a liability in the balance sheet, net of transaction costs. On issuance of convertible note and bonds, the fair value of the liability component is determined using a market rate for an equivalent non-convertible note and bond; and this amount is carried as a long term liability on the amortised cost basis until extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognised and included in shareholders’ equity, net of transaction costs. The carrying amount of the conversion option is not remeasured in subsequent years.

Transaction costs are apportioned between the liability and equity components of the convertible note and bonds based on the allocation of proceeds to the liability and equity components when the instruments are first recognised.

Derecognition of financial liabilities (applicable to the year ended 31 March 2006)

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in the income statement.

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 cost 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 sheets, 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 income statement.

FINANCIAL INFORMATION

APPENDIX I

2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income tax

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

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

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 in a transaction that is not a business combination 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 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.

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits 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 credits 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 in a transaction that is not a business combination 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, 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 reassessed at each balance sheet date and 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.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

FINANCIAL INFORMATION

APPENDIX I

2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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;
(b) rental income, on the straight-line basis over the lease terms; and
(c) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.

Employee benefits

Share-based payment transactions

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. Employees (including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company (“market conditions”), if applicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the “vesting date”). The cumulative expense recognised for equitysettled transactions at each balance sheet date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the income statement for a period represents the movement in the cumulative expense recognised as at the beginning and end of that period.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

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.

FINANCIAL INFORMATION

APPENDIX I

2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Employee benefits (Continued)

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 (the “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.

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 income statement 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.

Foreign currencies

These financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions are initially recorded using the functional currency rates ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the balance sheet date. All differences are taken to the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The functional currencies of certain overseas subsidiaries are currencies other than the Hong Kong dollar. As at the balance sheet date, the assets and liabilities of these entities are translated into the presentation currency of the Company at the exchange rates ruling at the balance sheet date and, their income statements are translated into Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are included in the exchange fluctuation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

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.

FINANCIAL INFORMATION

APPENDIX I

3. SIGNIFICANT ACCOUNTING JUDGEMENTS

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements:

Impairment test of assets

In determining whether an asset is impaired or whether the event previously causing the impairment no longer exists, the Company has to exercise judgement in the area of asset impairment, particularly in assessing: (1) whether an event has occurred that may affect the asset value, or such an event affecting the asset value has not been in existence; (2) whether the carrying value of an asset can be supported by the net present value of future cash flows, which are estimated based upon the continued use of the asset; and (3) the appropriate key assumptions to be applied in preparing cash flow projections including whether these cash flow projections are discounted using an appropriate rate. Changing the assumptions selected by management to determine the level of impairment, including the discount rates or the growth rate assumptions in the cash flow projections, could have a material effect on the net present value used in the impairment test.

4. 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 segments 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:

Continuing operations:

the supply and procurement segment supplies office equipment and office supplies, machinery, machinery parts, lubricating oil and bunkerage for vessels; and
the corporate and other segments consists of corporate income and expense items and holding of property.

Discontinued operations:

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.

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, Singapore and the Asia Pacific Region and other regions. Assets are attributed to the segments based on the location of the assets.

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

FINANCIAL INFORMATION

APPENDIX I

4. SEGMENT INFORMATION (Continued)

(a) Business segments

The following tables present revenue, profit/(loss) and certain asset, liability and expenditure information for the Group’s business segments for the years ended 31 March 2005 and 2006.

Segment revenue: Sales to external customers Other revenue and gains Segment results Interest income and unallocated revenue and gains Unallocated expenses Finance costs Profit/(loss) before tax Tax Profit/(loss) for the year Assets and liabilities Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities	Continuing operations Supply and Corporate and procurement others Sub-total 2006 2005 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) (Restated) 155,550 144,687 – – 155,550 144,687 91 34 – – 91 34 155,641 144,721 – – 155,641 144,721 15,494 8,884 – – 15,494 8,884 – – 1,340 412 1,340 412 – – (11,521) (10,317) (11,521) (10,317) – – (4,620) (4,786) (4,620) (4,786) 15,494 8,884 (14,801) (14,691) 693 (5,807) (3,172 ) (1,608) – – (3,172) (1,608) 12,322 7,276 (14,801) (14,691) (2,479) (7,415) 60,400 38,641 52,484 55,113 112,884 93,754 43,738 33,310 22,228 26,375 65,966 59,685	Discontinued operations Toddler cars Cycling Other toys Sub-total Consolidated 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) (Restated) (Restated) (Restated) (Restated) 4,501 25,874 2,519 5,360 3,775 4,971 10,795 36,205 166,345 180,892 184 663 103 146 154 135 441 944 532 978 4,685 26,537 2,622 5,506 3,929 5,106 11,236 37,149 166,877 181,870 (3,274) (7,452) (1,724) (1,365) (2,828) (930) (7,826) (9,747) 7,668 (863 – 8,030 1,340 8,442 – – (11,521) (10,317 (29) – (4,649) (4,786 (7,855) (1,717) (7,162) (7,524 – – (3,172) (1,608 (7,855) (1,717) (10,334) (9,132 – 13,428 – 4,746 – 3,544 – 21,718 112,884 115,472 5,123 24,000 118,007 139,472 – 2,692 – 717 – 5,453 – 8,862 65,966 68,547 44,558 65,480 110,524 134,027

FINANCIAL INFORMATION

APPENDIX I

4. SEGMENT INFORMATION (Continued)

(a) Business segments (Continued)

Other segment information: Depreciation and recognition of prepaid land lease payments Impairment of items of property, plant and equipment Provision/(write-back of provision) against inventories Provision for impairment of accounts receivable Equity settled share option expenses Capital expenditure	Continuing operations Supply and Corporate and procurement others Sub-total 2006 2005 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) (Restated) 126 – 2,660 5,843 2,786 5,843 – – – – – – (485 ) 485 – – (485) 485 – – – – – – – – 466 – 466 – 296 – – 182 296 182	Discontinued operations Toddler cars Cycling Other toys Sub-total Consolidated 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) (Restated) (Restated) (Restated) (Restated) 1,109 950 620 1,569 928 1,258 2,657 3,777 5,443 9,620 1,624 60 892 28 1,357 23 3,873 111 3,873 111 – 175 – 96 – 72 – 343 (485) 828 – 207 – 43 – 40 – 290 – 290 – – – – – – – – 466 – 185 323 – 130 – 46 185 499 481 681

FINANCIAL INFORMATION

APPENDIX I

4. SEGMENT INFORMATION (Continued)

(b) Geographical segments

The following tables present revenue and certain asset and expenditure information for the Group’s geographical segments for the years ended 31 March 2006 and 2005.

Group

Group
							Asia Pacific Region
							(including Hong Kong
							and Mainland China
							but excluding
	North America		Europe		Singapore		Singapore)		Others		Consolidated
	2006	2005	2006	2005	2006	2005	2006	2005	2006	2005	2006	2005
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
								(Restated)				(Restated)
Segment revenue:
Sales to external
customers	1,141	2,037	6,248	25,172	155,550	144,687	3,406	5,100	–	3,896	166,345	180,892
Attributable to
discontinued operations	(1,141)	(2,037)	(6,248)	(25,172)	–	–	(3,406)	(5,100)	–	(3,896)	(10,795)	(36,205)
Revenue from:
continuing operations	–	–	–	–	155,550	144,687	–	–	–	–	155,550	144,687

Other segment
information:
Segment assets	–	8	–	5,210	63,344	40,547	54,663	93,707	–	–	118,007	139,472
Capital expenditure	–	–	–	–	296	–	185	681	–	–	481	681

FINANCIAL INFORMATION

APPENDIX I

5. REVENUE, OTHER INCOME AND GAINS

Revenue, which is also the Group’s turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts during the year.

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

Continuing Discontinued operations operations Total 2006 2005 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue Sale of goods 155,550 144,687 10,795 36,205 166,345 180,892 Other income	Continuing Discontinued operations operations Total 2006 2005 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue Sale of goods 155,550 144,687 10,795 36,205 166,345 180,892 Other income	Continuing Discontinued operations operations Total 2006 2005 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue Sale of goods 155,550 144,687 10,795 36,205 166,345 180,892 Other income	Continuing Discontinued operations operations Total 2006 2005 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue Sale of goods 155,550 144,687 10,795 36,205 166,345 180,892 Other income	Continuing Discontinued operations operations Total 2006 2005 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue Sale of goods 155,550 144,687 10,795 36,205 166,345 180,892 Other income	Continuing Discontinued operations operations Total 2006 2005 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue Sale of goods 155,550 144,687 10,795 36,205 166,345 180,892 Other income	Continuing Discontinued operations operations Total 2006 2005 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue Sale of goods 155,550 144,687 10,795 36,205 166,345 180,892 Other income


Interest income Rental income Others Gains	267 654 487 1,408	24 – 301 325	– – 441 441	1 – 562 563	267 654 928 1,849	25 – 863
						888

Waiver of accounts payables Gain on disposal of items of property, plant and equipment Exchange gain, net	– 23 – 23 1,431	81 – 40 121 446	– – – – 441	213 – 168 381 944	– 23 – 23 1,872	294 – 208
						502
						1,390

6. FINANCE COSTS

Interest on: Bank loans, overdrafts and other loans wholly repayable within five years Convertible note and bonds Attributable to discontinued operations Attributable to continuing operations reported in the consolidated income statement	Group 2006 HK$’000 4,619 30 4,649 29 4,620 4,649	2005 HK$’000 (Restated) 3,618 1,168
		4,786

		– 4,786
		4,786

FINANCIAL INFORMATION

APPENDIX I

7. PROFIT/(LOSS) BEFORE TAX

The Group’s profit/(loss) before tax is arrived at after charging/(crediting):

Cost of inventories sold Depreciation of items of property, plant and equipment (note 14) Depreciation of investment properties (note 15) Recognition of prepaid land lease payments (note 16) Provision for impairment of accounts receivable Minimum lease payments in respect of land and buildings Auditors’ remuneration Employee benefits expense (excluding directors’ remuneration – note 8): Wages and salaries Equity-settled share option expenses Pension scheme contributions Foreign exchange differences, net Impairment of items of property, plant and equipment Provision/(write-back of provision) against inventories Revaluation surplus on leasehold buildings Gross and net rental income	Continuing operations 2006 2005 HK$’000 HK$’000 (Restated) 136,723 132,223 1,665 2,146 430 – 728 728 – 290 450 633 1,180 1,080 2,951 2,859 466 – 124 251 3,541 3,110 2,194 (40) – – (485) 485 – – 654 –	Discontinued operations 2006 2005 HK$’000 HK$’000 (Restated) 6,726 23,729 2,620 6,746 – – – – – – 155 108 – – 1,732 5,412 – – 21 53 1,753 5,465 (43) (168) 3,873 111 – 343 – (1,164) – –	Total 2006 2005 HK$’000 HK$’000 (Restated) 143,449 155,952 4,285 8,892 430 – 728 728 – 290 605 741 1,180 1,080 4,683 8,271 466 – 145 304 5,294 8,575 2,151 (208) 3,873 111 (485) 828 – (1,164) 654 –

At 31 March 2006 the Group had no forfeited contributions available to reduce its contributions to pension schemes in future years (2005: Nil).

FINANCIAL INFORMATION

APPENDIX I

8. 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: Salaries, other allowances and benefits in kind Equity-settled share option expenses Pension scheme contributions	Group 2006 HK$’000 – 300 300 1,040 380 52 1,472 1,772	2005 HK$’000 – 240
		240
		1,279 – 64
		1,343
		1,583

During the year, certain directors were granted share options, in respect of their services to the Group, under the share option scheme of the Company, further details of which are set out in note 28 to the financial statements. The fair value of such options, which has been amortised to the income statement, was determined as at the date of the grant and included in the above directors’ remuneration disclosures.

(a) Independent non-executive directors

The fees paid to independent non-executive directors during the year were as follows:

Mr. Wong Kwok Tai Mr. Lau Pok Lam Mr. Ko Kwong Woon, Ivan Mr. Wu Wing Kit	Group 2006 HK$’000 100 100 100 – 300	2005 HK$’000 80 80 42 38
		240

There were no other emoluments payable to the independent non-executive directors during the year (2005: Nil)

FINANCIAL INFORMATION

APPENDIX I

8. DIRECTORS’ REMUNERATION (Continued)

(b) Executive directors

	Salaries, other	Equity-
	allowances	settled	Pension
	and benefits	share option	scheme	Total
	in kind	expenses	contribution	remuneration
	HK$’000	HK$000	HK$’000	HK$’000
2006
Executive directors:
Mr. Lo Ming Chi, Charles	520	76	26	622
Mr. Yu Wai Man	260	76	13	349
Mr. Ng Eng Leng	260	76	13	349
Mr. Wilson Ng	–	76	–	76
Mr. Ng Wee Keat	–	76	–	76
	1,040	380	52	1,472
2005
Executive directors:
Mr. Lo Ming Chi, Charles	520	–	26	546
Mr. Yu Wai Man	250	–	13	263
Mr. Ng Eng Leng	260	–	13	273
Mr. Wilson Ng	–	–	–	–
Mr. Ng Wee Keat	–	–	–	–
Mr. Ng Teow Leng	249	–	12	261
	1,279	–	64	1,343

There was no arrangement under which a director waived or agreed to waive any remuneration during the year.

9. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included three (2005: four) directors, details of whose remuneration are set out in note 8 above. Details of the remuneration of the remaining two (2005: one) non-director, highest paid employees for the year are as follows:

Basic salaries, other allowances and benefits in kind Equity-settled share option expenses Pension scheme contributions	Group 2006 HK$’000 436 56 22 514	2005 HK$’000 252 – 13
		265

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 2006 and 2005.

During the year, there were no bonuses paid to or receivable by any of the five highest paid employees of the Group (2005: 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 (2005: Nil).

During the year, share options were granted to a non-director, highest paid employee in respect of his services to the Group, further details of which are included in the disclosures in note 28 to the financial statements. The fair value of such options, which has been charged to the income statement, was determined as at the date of the grant and was included in the above non-director, highest paid employees’ remuneration disclosures.

FINANCIAL INFORMATION

APPENDIX I

10. 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 (2005: 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.

Group: Current – elsewhere and tax charge for the year	2006 HK$’000 (3,172)	2005 HK$’000 (1,608)

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

Group – 2006

Profit/(loss) before tax (including loss from discontinued operations) Tax at the applicable tax rate Income not subject to tax Expenses not deductible for tax Tax losses not recognised Tax charge at the Group’s effective rate Tax charge attributable to discontinued operations (note 11) Tax charge attributable to continuing operations reported in the consolidated income statement Group – 2005 Profit/(loss) before tax (including loss from discontinued operations) Tax at the applicable tax rate Income not subject to tax Expenses not deductible for tax Tax losses not recognised Tax charge at the Group’s effective rate Tax charge attributable to discontinued operations (note 11) Tax charge attributable to continuing operations reported in the consolidated income statement	Hong Kong HK$’000 (22,619) 3,958 349 (655) (3,652) – Hong Kong HK$’000 (Restated) (16,405) 2,871 1,721 (326) (4,266) –	Singapore HK$’000 15,457 (3,091) 114 (195) – (3,172) Singapore HK$’000 (Restated) 8,881 (1,776) 168 – – (1,608)	Total HK$’000 (7,162) 867 463 (850) (3,652) (3,172) – (3,172) Total HK$’000 (Restated) (7,524) 1,095 1,889 (326) (4,266) (1,608) – (1,608)

FINANCIAL INFORMATION

APPENDIX I

11. DISCONTINUED OPERATIONS

On 31 August 2005, pursuant to a sale and purchase agreement entered into between the Group and an independent third party, the Group agreed to dispose of its entire equity interest in Gadgets Yard Limited and its subsidiary (together known as the “GY Group”) together with the relevant shareholder’s loan. The GY Group is engaged in the design, manufacture and sale of a wide range of toys.

The results of the discontinued operations for the year are presented below:

		2006	2005
		HK$’000	HK$’000
Revenue		10,795	36,205
Expenses		(18,621)	(37,922)
Finance costs		(29)	–
Loss before tax		(7,855)	(1,717)
Tax		–	–
Loss for the year from the
discontinued operations		(7,855)	(1,717)

The net cash flows incurred by the discontinued operations are as follows:
		2006	2005
		HK$’000	HK$’000
Operating activities		(5,696)	(2,495)
Investing activities		(189)	(569)
Financing activities		4,650	6,120
Net cash inflow/(outflow)		(1,235)	3,056

Loss per share:
Basic, from the discontinued operations	HK9.1 cents		HK1.3 cents
Diluted, from the discontinued operations		N/A	N/A

The calculations of basic loss per share from the discontinued operations are	based on:
		2006	2005
Net loss attributable to ordinary equity
holders of the Company
from the discontinued operations	HK$7,495,000		HK$1,046,000
Weighted average number of ordinary
shares in issue during the year
used in the basic loss
per share calculation		82,704,014	82,704,014

Diluted loss per share amounts for the years ended 31 March 2006 and 2005 have not been disclosed as the convertible note and bonds and share options outstanding during the year had an anti-dilutive effect on the basic loss per share from the discontinued operations.

12. NET LOSS FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The net loss from ordinary activities attributable to equity holders of the Company for the year ended 31 March 2006 dealt with in the financial statements of the Company was HK$8,843,000 (2005: HK$59,434,000 (restated)) (note 29(b)).

FINANCIAL INFORMATION

APPENDIX I

13. LOSS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY

The calculation of basic loss per share amounts is based on the net loss for the year attributable to equity holders of the Company for the year of HK$15,994,000 (2005: HK$12,047,000 (restated)), and the weighted average of 82,704,014 (2005: 82,704,014, restated to reflect the share consolidation as set out in note 27(b)(iv)) ordinary shares in issue during the year, as adjusted to reflect the capital reorganisation during the year.

14. PROPERTY, PLANT AND EQUIPMENT

Group

31 March 2006 At 31 March 2005 and at 1 April 2005: Cost or valuation Accumulated depreciation and impairment Net carrying amount At 1 April 2005, net of accumulated depreciation and impairment Additions Disposals Impairment Depreciation provided during the year Transfer to investment properties (note 15) At 31 March 2006, net of accumulated depreciation and impairment At 31 March 2006: Cost Accumulated depreciation and impairment Net carrying amount	Leasehold Buildings improvements HK$’000 HK$’000 23,170 22,544 – (22,438) 23,170 106 23,170 106 – – – (5) – (46) (1,303) (39) (21,867) – – 16 – 24 – (8) – 16	Moulds, plant and machinery HK$’000 89,023 (82,315) 6,708 6,708 185 (772) (3,501)# (2,620) – – 88,302 (88,302) –	Furniture, fixtures, equipment and motor Construction vehicles in progress HK$’000 HK$’000 5,043 32,288 (4,356) (32,288) 687 – 687 – 296 – (82) – (326) – (323) – – – 252 – 1,592 32,288 (1,340) (32,288) 252 –	Total HK$’000 172,068 (141,397)
				30,671

				30,671 481 (859) (3,873) (4,285) (21,867)
				268

				122,206 (121,938)
				268

The Group has discontinued its toddler cars segment, cycling segment and other toys segment after the disposal of the GY Group during the year. As a result, the directors are of the opinion that the recoverable value of the relevant moulds, plant and machinery for manufacturing of toys is minimal. Accordingly, a full provision for impairment was made for these moulds, plant and machinery.

FINANCIAL INFORMATION

APPENDIX I

14. PROPERTY, PLANT AND EQUIPMENT (Continued)

Group (Continued)

31 March 2005 At 31 March 2004 and at 1 April 2004: Cost or valuation Accumulated depreciation and impairment Net carrying amount At 1 April 2004, net of accumulated depreciation and impairment Additions Write-off Revaluation Depreciation provided during the year At 31 March 2005, net of accumulated depreciation and impairment At 31 March 2005: Cost or valuation Accumulated depreciation and impairment Net carrying amount Analysis of cost or valuation: At cost At 31 March 2005 valuation	Leasehold Buildings improvements HK$’000 HK$’000 (Restated) 23,790 22,620 – (22,411) 23,790 209 23,790 209 – 24 – (72) 1,164 – (1,784) (55) 23,170 106 23,170 22,544 – (22,438) 23,170 106 – 22,544 23,170 – 23,170 22,544	Moulds, plant and machinery HK$’000 88,512 (75,569) 12,943 12,943 511 – – (6,746) 6,708 89,023 (82,315) 6,708 89,023 – 89,023	Furniture, fixtures, equipment and motor Construction vehicles in progress HK$’000 HK$’000 4,976 32,288 (4,089) (32,288) 887 – 887 – 146 – (39) – – – (307) – 687 – 5,043 32,288 (4,356) (32,288) 687 – 5,043 32,288 – – 5,043 32,288	Total HK$’000 172,186 (134,357)
				37,829

				37,829 681 (111) 1,164 (8,892)
				30,671

				172,068 (141,397)
				30,671

				148,898 23,170
				172,068

FINANCIAL INFORMATION

APPENDIX I

14. PROPERTY, PLANT AND EQUIPMENT (Continued)

Company

At 31 March: Cost or valuation Accumulated depreciation and impairment Net carrying amount At 1 April, net of accumulated depreciation and impairment Additions Depreciation provided during the year At 31 March, net of accumulated depreciation and impairment At 31 March: Cost Accumulated depreciation and impairment Net carrying amount	Furniture, fixtures equipment and motor vehicles 2006 2005 HK$’000 HK$’000 631 615 (610) (574) 21 41 21 41 – 16 (9) (36) 12 21 631 631 (619) (610) 12 21	Furniture, fixtures equipment and motor vehicles 2006 2005 HK$’000 HK$’000 631 615 (610) (574) 21 41 21 41 – 16 (9) (36) 12 21 631 631 (619) (610) 12 21
		41

		41 16 (36)
		21

		631 (610)
		21

Had the Group’s leasehold buildings been stated at cost less accumulated depreciation, their carrying amounts would have been approximately HK$23,170,000 as at 31 March 2005.

15. INVESTMENT PROPERTIES

Cost: Transfer from owner-occupied properties (note 14) Accumulated depreciation: Provided for the year Net book value: At end of year	Group 2006 HK$’000 21,867 (430) 21,437	2005 HK$’000 – –
		–

The fair value of the Group’s investment properties as at 31 March 2006 was HK$21,560,000 based on valuation performed by Knight Frank Petty Limited, a firm of independent professionally qualified valuers, on a depreciated replacement cost basis at 31 March 2006.

At 31 March 2006, all of the Group’s investment properties were pledged to secure general banking facilities granted to the Group (note 21).

FINANCIAL INFORMATION

APPENDIX I

16. PREPAID LAND LEASE PAYMENTS

Carrying amount at 1 April As previously reported Effect of adopting HKAS 17 (note 2.3(a)) Recognised during the year Carrying amount at 31 March Current portion Non-current portion	Group 2006 HK$’000 – 31,272 31,272 (728) 30,544 (728) 29,816	2005 HK$’000 – 32,000 32,000 (728) 31,272 (728) 30,544

The prepaid land lease payments are paid for the right to use certain lands under long term leases in Mainland China.

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 land use rights (the “Land”) in Mainland China with a carrying value of HK$26,416,000 as at 31 March 2006 (2005: HK$27,041,000). 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 (note 32).

The Group has not yet obtained the land use rights certificate for the Land. Having consulted with the Group’s Mainland China lawyers, the director’s considered that the Group has the right to use the Land and after the payment of a premium of approximately HK$13,400,000 and attending the necessary administrative procedures, the Group should be able to obtain the land use rights certificate for the Land.

At 31 March 2006, the Group’s prepaid land lease payments with a value of HK$4,128,000 were pledged to secure general banking facilities granted to the Group (note 21).

17. INVESTMENTS IN SUBSIDIARIES

Unlisted shares, at cost Less: Provision for impairment Due from a subsidiary Less: Provision for impairment	Company 2006 2005 HK$’000 HK$’000 68,709 68,709 (68,709) (68,709) – – 212,467 217,922 (212,467) (217,922) – – – –

The amount due from a subsidiary included in the Company’s current assets is unsecured, interest-free, and has no fixed terms of repayment. The carrying amount of this amount due from a subsidiary, after provision for impairment, approximates to its fair value.

FINANCIAL INFORMATION

APPENDIX I

17. INVESTMENTS IN SUBSIDIARIES (Continued)

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

	Place of	Nominal	Percentage of	Percentage of
	incorporation/	value of issued	equity attributable
	registration	ordinary	to the Company		Principal
Name	and operations	share capital	Direct	Indirect	activities
Hung Cheong Holdings	British Virgin Islands	Ordinary US$2,004	100	–	Investment holding
Limited	(“BVI”)/Hong Kong
Able Market Profits Limited	BVI	Ordinary US$1	100	–	Investment holding
Xin Toys Factory Limited	BVI/Hong Kong	Ordinary US$4	–	100	Ceased business
					during the year
Xin Toys International	Hong Kong	Ordinary HK$2	–	100	Ceased business
Limited					during the year
Huang Chiang Chen Hung	Hong Kong	Ordinary HK$1,000	–	100	Property holding
Cheong Plastics Factory		Non-voting deferred
Company Limited		HK$10,000*
Xin Procurement &	Singapore	Ordinary S$10,000	–	51	Supply and
Trading Pte. Ltd.					procurement of
(“Xin Procurement”)					equipment, 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 trillion had 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.

18. INVENTORIES

Raw materials Work in progress Finished goods Goods held for resale	Group 2006 HK$’000 – – – 2,073 2,073	2005 HK$’000 3,313 656 3,303 2,630
		9,902

FINANCIAL INFORMATION

APPENDIX I

19. 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 to six months for major customers. Each customer has a maximum credit limit. Overdue balances are reviewed regularly by senior management. Account receivables are non-interest-bearing. The carrying amounts of the accounts receivable approximate to their fair values.

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

Within 30 days 31 to 60 days 61 to 90 days 91 to 180 days Over 180 days	Group 2006 HK$’000 13,138 10,629 13,083 17,046 3,795 57,691	2005 HK$’000 13,299 9,625 7,962 5,495 5,082
		41,463

20. 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 2006 HK$’000 6,848 2,868 372 591 2,246 12,925	2005 HK$’000 12,148 3,453 1,676 2,779 1,908
		21,964

The accounts payable are non-interest-bearing and are normally settled on 60 day terms. The carrying amounts of the accounts payable approximate to their fair values.

FINANCIAL INFORMATION

APPENDIX I

21. INTEREST-BEARING BANK AND OTHER BORROWINGS

Effective interest rate (%) Maturity Bank loans – secured 6.3% 1 year Other loan – unsecured 4.0% 1 year Bank loans repayable within one year Other loan repayable: Within one year In the second year Total Portion classified as current liabilities Long term portion	Group 2006 2005 HK$’000 HK$’000 15,884 20,297 2,000 8,500 17,884 28,797 15,884 20,297 2,000 6,500 – 2,000 2,000 8,500 17,884 28,797 (17,884) (26,797) – 2,000	Company 2006 2005 HK$’000 HK$’000 – – 2,000 8,500 2,000 8,500 – – 2,000 6,500 – 2,000 2,000 8,500 2,000 8,500 (2,000) (6,500 – 2,000	Company 2006 2005 HK$’000 HK$’000 – – 2,000 8,500 2,000 8,500 – – 2,000 6,500 – 2,000 2,000 8,500 2,000 8,500 (2,000) (6,500 – 2,000
			8,500

			– 6,500 2,000
			8,500
			8,500 (6,500
			2,000

At 31 March 2006, the banking facilities of the Group were supported by:

(a) certain investment properties and prepaid land lease payments of the Group in Mainland China with an aggregate carrying value of approximately HK$25,565,000 (2005: HK$43,200,000) (notes 15 and 16); and

(b) corporate guarantees executed by certain subsidiaries of the Company.

During the year ended 31 March 2005, a loan of HK$10,000,000 was granted by the holder of convertible note (the “Note Holder”) to surrogate the outstanding principal amount of the convertible note due to the Note Holder. The loan is unsecured, bears interest at 4% per annum and is repayable by six quarterly instalments from March 2005 onwards.

All the interest-bearing bank and other borrowings bear interest at fixed rates.

The carrying amounts of the Group’s and the Company’s current borrowings approximate their fair values. The carrying amounts and fair value of the Group’s non-current borrowings are as follows:

Other loan	Carrying amounts 2006 2005 HK$’000 HK$’000 – 2,000	Fair value 2006 2005 HK$’000 HK$’000 – 1,905

22. LOANS FROM THE IMMEDIATE HOLDING COMPANY

The loans from the immediate holding company were unsecured and bore interest at the rate of 3% per annum above the prime lending rate offered from time to time by The Hongkong and Shanghai Banking Corporation Limited. The amount was fully settled in current year.

FINANCIAL INFORMATION

APPENDIX I

23. LOANS FROM MINORITY SHAREHOLDERS

The loans were advanced by certain minority shareholders of the Group’s subsidiaries. The loans are unsecured and interest-free. Pursuant to the shareholders’ agreements entered into between the Group and the minority shareholders of the respective subsidiaries, the minority shareholders have agreed not to demand the repayment of the loans until the respective subsidiaries have the ability to do so and have obtained prior consent from the Group for the repayment of the loans. The carrying amounts of the loans from minority shareholders approximate to their fair values.

24. DUE TO A MINORITY SHAREHOLDER AND A RELATED COMPANY

The amounts due to a minority shareholder and a related company are unsecured, interest-free and have no fixed terms of repayment. The carrying amounts of the amounts due to a minority shareholder and a related company approximate to their fair values.

25. CONVERTIBLE NOTE AND BONDS

Note Convertible note issued to Vision Century (a) Convertible bonds issued to the Bank Group (as defined below) (b)	Group and Company 2006 2005 HK$’000 HK$’000 (Restated) 26,674 – – 2,155 26,674 2,155	Group and Company 2006 2005 HK$’000 HK$’000 (Restated) 26,674 – – 2,155 26,674 2,155
		2,155

(a) On 30 March 2006, the Company issued a convertible note in the principal amount of HK$37,000,000, as part of the consideration for the release and discharge of the Group from all of its obligations and liabilities in respect of a loan advanced by Vision Century. Vision Century will have the right to convert the outstanding principal amount of the convertible note into shares at any time before 29 March 2009 at the initial conversion price of HK$0.205 per conversion share. The convertible note carry interest at a rate of 1% per annum, which is payable semi-annually in arrears on 31 March and 30 September.
(b) On 1 February 2002, the Group has entered into a bank compromise agreement with the Group’s Hong Kong bankers (the “Bank Group”). Pursuant to the bank compromise agreement, 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 release and discharge of the Group from all of its obligations and liabilities in respect of bank borrowings advanced by the Bank Group. The convertible bonds bear interest at the rate of 5% per annum and are repayable by three instalments on each anniversary of issue. Interest is payable semi-annually. The convertible bonds would be convertible into the Company’s ordinary price of HK$0.2228 per share, as adjusted.

The fair value of the liability component was estimated at the issuance date using an equivalent market interest rate for a similar bond without a conversion option. The residual amount is assigned as the equity component and is included in shareholders’ equity.

FINANCIAL INFORMATION

APPENDIX I

25. CONVERTIBLE NOTE AND BONDS (Continued)

The net proceeds received from the issue of the convertible note and bonds have been split between the liability and equity components, as follows:

	Convertible	Convertible	Convertible	Convertible	Convertible
	note issued	bonds issued			note issued
	to Vision	to the Bank		to	Wise Wind
	Century		Group		Limited
	HK$’000		HK$’000		HK$’000
Nominal values of the convertible note
and bonds issued in prior years	–		6,500		16,000
Equity component	–		(517)		(2,123)
Interest expenses in prior years	–		918		2,292
Interest paid in prior years	–		(516)		(803)
Repayment made in prior years	–		(2,167)		–
Liability component at 1 April 2004	–		4,218		15,366
Interest expenses for the year
ended 31 March 2005	–		224		944
Interest paid for the year
ended 31 March 2005	–		(121)		(310)
Repayment made during the year
ended 31 March 2005	–		(2,166)		(6,000)
Loan granted by Note Holder
(note 21)	–		–		(10,000)
Liability component at 1 April 2005	–		2,155		–
Nominal values of the convertible note
issued in current year	37,000		–		–
Equity component	(10,344)		–		–
Interest expenses for the year	18		12		–
Repayment made in current year	–		(2,167)		–
Liability component at
31 March 2006	26,674		–		–

26. DEFERRED TAX

The Group has tax losses arising in Hong Kong of HK$25,100,000 (2005: HK$24,406,000) 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 companies that have been lossmaking for some time.

The Group and the Company had no unprovided deferred tax at 31 March 2006.

FINANCIAL INFORMATION

APPENDIX I

27. SHARE CAPITAL

Authorised: 10,000,000,000 (2005: 10,000,000,000) ordinary shares of HK$0.01 each Issued and fully paid: 82,704,014 (2005: 1,654,080,285) ordinary shares of HK$0.01 each	2006 HK$’000 100,000 827	2005 HK$’000 100,000

		16,541

The following changes in the Company’s issued share capital took place during the years ended 31 March 2005 and 2006:

(a) On 23 February 2005, the Company effected an open offer with assured allotments of one offer share for every two shares of HK$0.01 each held by shareholders as at 4 February 2005 and issued a total of 551,360,095 new ordinary shares of HK$0.01 each at an issue price of HK$0.04 per share. Cash proceeds of approximately HK$22,055,000, before the related expenses, were received by the Company. The excess of the offer price over the nominal value of the shares issued amounting to approximately HK$16,541,000 was credited to the share premium account.
(b) Pursuant to a special resolutions passed at a special general meeting of the Company held on 23 May 2005, a capital reorganisation (the “Capital Reorganisation”) involving, inter alia, the following steps was implemented:
(i) a reduction of the nominal value of each issued share from HK$0.01 each to HK$0.0005 each by the cancellation of HK$0.0095 per share (the “Capital Reduction”);
(ii) the cancellation of the entire amount standing to the credit of the share premium account of the Company (the “Share Premium Cancellation”);
(iii) the credit arising from the Capital Reduction and the Share Premium Cancellation were transferred to the contributed surplus account of the Company where they had utilised to eliminate the accumulated losses of the Company as at 30 September 2004; and
(iv) subject to the forthwith upon the Capital Reduction and Share Premium Cancellation, a consolidation of every 20 issued shares of HK$0.0005 each into one consolidated share of HK$0.01 each.

FINANCIAL INFORMATION

APPENDIX I

27. SHARE CAPITAL (Continued)

A summary of the transactions during the years ended 31 March 2005 and 2006 with reference to the above movements in the Company’s issued ordinary share capital is set out below:

Issued capital

Notes At 1 April 2004 As previously reported Prior period adjustment in respect of convertible bonds (note 2.5(b)) As restated Issued on open offer (a) Share issue expenses At 31 March 2005 and 1 April 2005 (as restated) Capital Reorganisation (b) At 31 March 2006	Number of shares in issue 1,102,720,190 – 1,102,720,190 551,360,095 – 1,654,080,285 (1,571,376,271) 82,704,014	Issued share capital HK$’000 11,027 – 11,027 5,514 – 16,541 (15,714) 827	Share premium account HK$’000 43,303 351 43,654 16,541 (1,165) 59,030 (59,030) –	Total HK$’000 54,330 351 54,681 22,055 (1,165) 75,571 (74,744) 827

28. 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 shares in respect of which options may be granted under the Scheme shall not exceed 10%, in nominal amount of the issued share capital of the Company on the adoption date of the Scheme (the “Scheme Mandate Limit”). Options which lapsed in accordance with the terms of this Scheme will not be counted for the purpose of calculating the Scheme Mandate Limit. 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. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

Share options granted to any director, chief executive, substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by the independent non-executive directors of the Company. In addition, any grant of share options 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 closing price of the Company’s shares as stated in the daily quotations sheets issued by The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) 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.

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 or the expiry date of the Scheme, if earlier.

FINANCIAL INFORMATION

APPENDIX I

28. SHARE OPTION SCHEME (Continued)

The exercise price of the share options is determinable by the directors in their absolute discretion, but in any event shall not be less than the greater of (i) the closing price of the Company’s shares as stated in the daily quotations sheet issued by the Stock Exchange on the date of the grant of the share options; (ii) the average Stock Exchange closing price of the Company’s shares as stated in the daily quotations sheets issued by the Stock Exchange for the five business days immediately preceding the date of grant of share options; and (iii) the nominal value of the Company’s share.

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

		Number of share options	Number of share options				Price of Company’s	shares***
							Exercisable
					Date of grant		price of	At grant
Name or category	Granted	Lapsed		At	of share	Exercisable period	share	date of
of participant	during the year	during the year	31	March 2006	options*	of share options	options**	options
							HK$	HK$
Directors
Mr. Lo Ming Chi,	800,000	–		800,000	29-07-05	29-07-05 to	0.295	0.295
Charles						28-07-07
Mr. Yu Wai Man	800,000	–		800,000	29-07-05	29-07-05 to	0.295	0.295
						28-07-07
Mr. Wilson Ng	800,000	–		800,000	29-07-05	29-07-05 to	0.295	0.295
						28-07-07
Mr. Ng Wee Keat	800,000	–		800,000	29-07-05	29-07-05 to	0.295	0.295
						28-07-07
Mr. Ng Eng Leng	800,000	–		800,000	29-07-05	29-07-05 to	0.295	0.295
						28-07-07
	4,000,000	–		4,000,000
Other employees	900,000	(100,000)		800,000	29-07-05	29-07-05 to	0.295	0.295
						28-07-07
Total	4,900,000	(100,000)		4,800,000

Notes to the reconciliation of share options outstanding during the year:

The share options granted to directors and other employees are vested upon granted.
** The exercise price of the share options is subject to adjustments in the case of capitalisation of profit and reserve, right or bonus issues, consolidation, subdivision or reduction of the share capital or other alternative in the capital structure of the Company.
*** The price of the Company’s shares disclosed as at the date of the grant of the share options is the closing price as stated in the daily quotations sheets issued by the Stock Exchange on the trading day immediately prior to the date of the grant of the options.

FINANCIAL INFORMATION

APPENDIX I

28. SHARE OPTION SCHEME (Continued)

At the balance sheet date, the Company had 4,800,000 share options outstanding under the Scheme. The exercise in full of the remaining share options would, under the present capital structure of the Company, result in the issue of 4,800,000 additional ordinary shares of the Company and additional share capital of HK$48,000 and share premium of HK$1,368,000 (before issue expenses).

Pursuant to the passing of an ordinary resolution by shareholders at the special general meeting held on 23 May 2005, the Scheme Mandate Limit was refreshed. As at the date of the special general meeting held on 23 May 2005, there was an aggregate of 82,704,014 shares in issue. Upon the refreshment of the Scheme Mandate Limit, the Company may grant options entitling holders thereof to subscribe for 8,270,401 shares. Further details of the refreshment were disclosed in the circular dated 29 April 2005.

At the date of approval of these financial statements, the Company had 4,800,000 share options outstanding under the Scheme, which represented approximately 5.8% of the Company’s shares in issue as at that date.

The fair value of the share options granted during the year was HK$466,000.

The fair value of equity-settled share options granted during the year was estimated as at the date of grant, using a binomial model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used for the year ended 31 March 2006:

Expected	volatility (%)	55.00
Historical	volatility (%)	55.00
Risk-free	interest rate (%)	3.35
Expected	life of option (year)	2.00

The expected life of the options is based on the historical data over the past two years and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

No other feature of the options granted was incorporated into the measurement of fair value.

FINANCIAL INFORMATION

APPENDIX I

29. DEFICITS

(a) Group

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

(b) Company

Share premium Contributed account surplus HK$’000 HK$’000 At 1 April 2004 43,303 – Prior year adjustment in respect of convertible note and bonds (note 2.5(b)) 351 – As restated 43,654 – Issued on open offer (note 27(a)) 16,541 – Share issue expenses (1,165) – Loss for the year (as restated) – – At 31 March 2005 (as restated) 59,030 – At 1 April 2005 As previously reported 58,679 – Prior year adjustment in respect of convertible bond (note 2.5(b)) 351 – As restated 59,030 – Capital Reorganisation (note 27(b)(iv)) (59,030) 3,085 Redemption of convertible bonds – – Equity-settled share option arrangement – – Share option lapsed during the year – – Loss for the year – – At 31 March 2006 – 3,085	Share option Accumulated reserve losses HK$’000 HK$’000 – (48,485) – (120) – (48,605) – – – – – (59,434) – (108,039) – (107,183) – (856) – (108,039) – 71,659 – 517 466 – (9) 9 – (8,843) 457 (44,697)	Total HK$’000 (5,182) 231 (4,951) 16,541 (1,165) (59,434) (49,009) (48,504) (505) (49,009) 15,714 517 466 – (8,843) (41,155)

FINANCIAL INFORMATION

APPENDIX I

30. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Major non-cash transactions

The Group had the following major non-cash transactions during the year ended 31 March 2005 and 2006:

(i) During the year ended 31 March 2005, a holder of convertible note granted a loan to the Group of HK$10,000,000 to surrogate the then outstanding principal amount of the convertible note which did not result in any cash flow.
(ii) At 30 March 2006, HK$37,856,000 (being the principal amount of a loan of HK$31,378,000 and accrued interest of HK$6,478,000) was owed by the Company to Vision Century. On the same date, the Company issued to Vision Century a convertible note in the principal amount of HK$37,000,000 as part of the consideration for the release and discharge of the Group from all of its obligations and liabilities in respect of the loan advanced by Vision Century. The Company settled the remaining accrued interest of HK$856,000 by cash from internal resources (note 25(a)).

(b) Disposal of subsidiaries

Net assets/(liabilities) disposed of: Property, plant and equipment Inventories Accounts receivable Prepayments, deposits and other receivables Cash and bank balances Accounts payable Other payables and accruals Loans from a minority shareholder Amount due to a director of a subsidiary Tax payable Minority interests Gain on disposal of subsidiaries Satisfied by: Cash	2006 HK$’000 859 9,138 4,312 697 1,861 (2,793) (594) (5,880) (4,650) – 1,552 4,502 66 4,568 4,568	2005 HK$’000 – – – 17 1 (6,602) (1,431) – – (5) – (8,020) 8,030 10 10

FINANCIAL INFORMATION

APPENDIX I

30. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (Continued)

(b) Disposal of subsidiaries (Continued)

An analysis of the net inflow of cash and cash equivalents in respect of the disposal of subsidiaries is as follows:

Cash consideration Cash and bank balances disposed of Net inflow of cash and cash equivalents in respect of the disposal of subsidiaries	2006 HK$’000 4,568 (1,861) 2,707	2005 HK$’000 10 (1
		9

The results of the subsidiaries disposed of in the year ended 31 March 2005 had no significant impact on the Group’s consolidated turnover or loss before tax for that year.

31. PLEDGE OF ASSETS

Details of the Group’s bank and other borrowings, which are secured by assets of the Group, are included in notes 15, 16 and 21 to the financial statements.

32. OPERATING LEASE ARRANGEMENTS

(a) As lessor

The Group leases its investment properties (note 15) under operating lease arrangements, with leases negotiated for terms of one year.

At 31 March 2006, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:


	2006	2005
	HK$’000	HK$’000
Within one year	467	–

(b) As lessee

The Group leases certain of its office properties under operating lease arrangements. Leases for the properties are negotiated for terms of one year.

At 31 March 2006, 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 2006 HK$’000 312 – 312	2005 HK$’000 570 312
		882

FINANCIAL INFORMATION

APPENDIX I

32. OPERATING LEASE ARRANGEMENTS (Continued)

(b) As lessee (Continued)

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 fee of HK$118,000 in respect of the Land classified as prepaid land lease payments of the Group in Mainland China, with a carrying value of HK$26,416,000 at 31 March 2006, commencing from calendar year 2008 up to calendar year 2048 with a 20% increment for every five years (note 16).

33. COMMITMENTS

In addition to the operating lease commitments detailed in note 32, the Group had the following commitments at the balance sheet date:

==> picture [398 x 58] intentionally omitted <==

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Group
2006 2005
HK$’000 HK$’000
Contracted, but not provided for:
Machinery – 558
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At the balance sheet date, the Company had no significant commitment.

34. RELATED PARTY TRANSACTIONS

Save as disclosed elsewhere, the Group also had the following related party transactions:

(a) On 12 May 2005, Gadgets Yard entered into a loan agreement with one of its director for a loan facility of HK$10,000,000. During the year, Gadgets Yard has drawn down HK$4,650,000 for its operation. In August 2005, Gadgets Yard and its subsidiary, as further set out in note 11, were disposed of to an unrelated third party of the Group.
(b) 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 its initial working capital. The terms of the advance are set out in note 23 to the financial statements. In August 2005, Gadgets Yard and its subsidiary, as further set out in note 11, were disposed of to an unrelated third party by the Group.
(c) 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 was appointed as a supplier of HCSPL for the supply of certain office equipment and office supplies, machinery, machinery parts, lubricating oil and bunkerage for vessels. By virtue of the interests of the parents of Mr. Wilson Ng and Mr. Ng Wee Keat in HCSPL, the formation of Xin Procurement and the transactions contemplated under the Supply Agreement constitute connected transactions or continuing connected transactions of the Company under Chapter 14A 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. Further details of the above transactions are set out in the Company’s circular dated 12 March 2004. During the current year, Xin Procurement made sales to HCSPL amounting to HK$17,688,000 (2005: HK$32,973,000).

Sale of office equipment and office supplies were made at the price equivalent to 10/9 times the cost incurred by the Group. Sale of machinery, parts, stores for the upkeeping of vessels, necessary victuals for the crew, lubricating oil and bunkerage for the operation of the vessels and appointment of surveyors and technical consultants for the vessels were made at the price equivalent to 100/98 times the cost incurred by the Group.

FINANCIAL INFORMATION

APPENDIX I

34. RELATED PARTY TRANSACTIONS (Continued)

(d) Pursuant to the Xin Procurement Agreement, HCSPL advanced HK$1,127,000 to Xin Procurement as the initial working capital. The terms of the advance are set out in note 23 to the financial statements.
(e) During the year, HCSPL made advances of HK$27,850,000 (2005: HK$33,317,000) to Xin Procurement. At 31 March 2006, the outstanding balance owed by Xin Procurement to HCSPL amounted to HK$25,704,000 (2005: HK$12,643,000) which is unsecured, interest-free and have no fixed terms of repayment.
(f) As further set out in note 2.1(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 2007.
(g) During the year ended 31 March 2005, HK$275,000 were charged to the Group by HCSPL in respect of certain of the office premises leased to the Group. The rental expenses were determined between the Group and HCSPL.
(h) During the year, a management fee of HK$580,000 (2005: HK$370,000) was charged by HCSPL in respect of certain administrative services rendered to the Group. The management fee was determined between the Group and HCSPL.
(i) During the year, HCSPL reimbursed HK$100,000 (2005: HK$859,000) to the Group in respect of certain administrative expenses paid by the Group on behalf of HCSPL.
(j) During the year, the Group reimbursed expenses of HK$188,000 (2005: HK$795,000) to HCSPL in respect of certain administrative expenses paid by HCSPL on behalf of the Group.
(k) During the year ended 31 March 2005, the Group purchased from Huang Procurement Pte. Ltd. (“Huang Procurement”), a wholly-owned subsidiary of HCSPL, certain office equipment and office supplies, machinery, machinery parts, lubricants and bunkerage of HK$15,219,000 at cost.
(l) During the year, HCSPL paid HK$2,255,000 to certain of the Group’s suppliers on behalf of the Group in respect of its purchases of office equipment and office supplies, machinery, machinery parts, lubricants and bunkerage.
(m) During the year, Huang Procurement paid HK$29,283,000 to certain of the Group’s suppliers on behalf of the Group in respect of its purchases of office equipment and office suppliers, machinery, machinery parts, lubricants and bunkerage (2005: Nil).

35. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise cash and bank balances and short term time deposits, interest-bearing bank and other borrowings, loans from minority shareholders and the immediate holding company, amount due to minority shareholders and convertible note. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as accounts receivable and accounts payable, which arise directly from its operations.

It is, and has been, throughout the year under review, the Group’s policy that no trading in financial instruments shall be undertaken.

The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.

Interest rate risk

The Group’s exposure to the risk of changes in market interest rates is minimal since the interest rate of all of the Group’s borrowings are fixed.

FINANCIAL INFORMATION

APPENDIX I

35. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

Foreign currency risk

The Group has transactional currency exposures in United States dollars, Singapore dollars and Malaysia Ringgit. Such exposures arise from the Group’s procurement business. During the year under review, the Group did not issue any financial instruments for hedging purposes.

Credit risk

The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant. For transactions that are not denominated in the functional currency of the relevant operating unit, the Group does not offer credit terms without the specific approval of the Head of Credit Control.

The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents, arises from default of the counterparty, with a maximum exposure equal to the carrying amount of the instrument.

Since the Group trades only with recognised and creditworthy third parties, there is no requirement for collateral.

Liquidity risk

The Group’s objective is to ensure adequate funds to meet commitments associated with its financial liabilities. Cash flows are closely monitored on an ongoing basis.

36. COMPARATIVE AMOUNTS

As further explained in notes 2.3 and 2.5 to the financial statements, due to the adoption of new and revised HKFRSs during the current year, the accounting treatment and presentation of certain items and balances in the financial statements have been revised to comply with the new requirements. Accordingly, certain prior year adjustments have been made and certain comparative amounts have been reclassified and restated to conform with the current year’s presentation and accounting treatment.

37. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 25 July 2006. ”

FINANCIAL INFORMATION

APPENDIX I

4. MANAGEMENT DISCUSSION AND ANALYSIS

Set out below is the management discussion and analysis of the Group as extracted from the 2006 annual report of the Company:

“ RESULTS

For the year ended 31 March 2006, the Group’s turnover amounted to HK$166,345,000 (2005: HK$180,892,000) and net loss attributable to equity holders of the Company was HK$15,994,000 (2005 restated: HK$12,047,000).

CAPITAL REORGANISATION

On 13 April 2005, the Company proposed to effect a capital reorganisation scheme, which involved (i) a reduction of the nominal value of each issued share from HK$0.01 each to HK$0.0005 each by the cancellation of HK$0.0095 per share; (ii) the cancellation of the entire amount standing to the credit of the share premium account of the Company; (iii) the credit arising from (i) and (ii) were transferred to the contributed surplus account of the Company where they had been utilized to eliminate the accumulated losses of the Company as at 30 September 2004; and (iv) a consolidation of every 20 issued shares of HK$0.0005 each into one consolidated share of HK$0.01 each. The capital reorganisation scheme was approved by the Company’s shareholders on 23 May 2005 at a special general meeting.

CHARGE ON GROUP’S ASSETS

Certain investment properties and prepaid land lease payments of the Group in Mainland China with an aggregate carrying value of approximately HK$25,565,000 as at 31 March 2006 (31 March 2005: HK$43,200,000) were pledged to secure bank borrowings advanced to the Group.

CONTINGENT LIABILITIES

In the opinion of the directors, there was no significant contingent liabilities noted as at 31 March 2006.

PENDING LITIGATIONS

As at 31 March 2006, there was no pending litigations (31 March 2005: HK$392,000).

FINANCIAL INFORMATION

APPENDIX I

LIQUIDITY AND FINANCIAL RESOURCES

As at 31 March 2006, the Group had neither unutilized banking facilities nor any hedging financial statements. The Group’s net current liabilities were HK$17,364,000. Since there was a negative equity attributable to equity holders of the Company of HK$2,124,000 at the balance sheet, calculation of gearing ratio is not applicable.

As at 31 March 2006, the Group’s total indebtedness (representing the total interest-bearing loans and convertible note from banks, financial institutions and loan providers) was approximately HK$44,558,000 (31 March 2005 restated: HK$65,480,000) will be repayable within one to three years. All borrowings of the Group are at fixed interest rate and mainly denominated either in Hong Kong dollars or Renminbi.

On 30 March 2006, pursuant to the subscription agreement entered on 15 February 2006 between the Group and Vision Century Group Limited (“Vision Century”), the controlling shareholder of the Company, a 1% per annum convertible note in principal amount of HK$37,000,000 was issued to Vision Century as settlement of debts owed by the Group to Vision Century. The 1% convertible note is repayable in three years or convertible into the Company’s ordinary share of HK$0.01 at an initial conversion price of HK$0.205 each (subject to adjustment).

In order to strengthen the capital base of the Group and to improve the Group’s financial position, the directors have been considering various alternatives to strengthen the capital base of the Company through various fund-raising exercises.

FOREIGN CURRENCY EXPOSURE

All borrowings of the Group are denominated either in Hong Kong dollars or Renminbi or Singapore dollars or Malaysia Ringgit. The Group currently does not have a foreign currency hedging policy. However, management closely monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

HUMAN RESOURCES

As at 31 March 2006, the Group employed a total of 16 employees, among which, 7 staff were based in Hong Kong and 9 were in Singapore. Apart from competitive remuneration package offered to the employees, discretionary bonuses and share options are granted to eligible staff based on individual performance.”

5. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 March 2006, the date to which the latest audited financial statements of the Company were made up.

FINANCIAL INFORMATION

APPENDIX I

6. INDEBTEDNESS

At the close of business on 31 July 2006, 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$79.8 million comprising a secured bank loan of approximately HK$12.3 million, an unsecured loan from a minority shareholder of approximately HK$1.2 million, an unsecured payable to a minority shareholder of approximately HK$27.7 million, an unsecured payable to a related company of approximately HK$0.5 million and an unsecured Convertible Note of approximately HK$38.1 million (comprising liability component of approximately HK$27.8 million and equity component of approximately HK$10.3 million).

As at 31 July 2006, the Group’s bank loan was supported by legal charges on certain of the Group’s investment properties and prepaid land lease payments in Mainland China with net book value of approximately HK$18.4 million and corporate guarantees executed by certain subsidiaries of the Company.

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 July 2006, 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 July 2006.

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 July 2006.

7. WORKING CAPITAL

After the completion of the Open Offer, the Group will raise net proceeds of approximately HK$28.0 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 31 October 2007. At present, the Group has undertaken a number of other measures in order to further relieve its current liquidity pressure.

The Group has obtained from a bank in Mainland China (the “Banker”) a new borrowing of approximately RMB12.8 million (equivalent to approximately HK$12.3 million), repayable on 26 April 2007 but the Group has also obtained written consent from the Banker agreeing to rollover this new borrowing for another one year from its original maturity date in April 2007, with monthly repayments of the principal in instalments of approximately HK$0.3 million from April 2007.

FINANCIAL INFORMATION

APPENDIX I

Vision Century granted a credit facility of HK$50.0 million (the “Credit Facility”) to the Company on 2 July 2003. On 15 February 2006, the Company entered into a subscription agreement with Vision Century, for issuance of a convertible note in the principal amount of HK$37.0 million as part of the consideration for the release and discharge of the Group from all of its obligations and liabilities in respect of the loan from Vision Century. On 30 March 2006, the date the Convertible Note was issued, approximately HK$37.9 million (being the principal amount of a loan of approximately HK$31.4 million and accrued interest of approximately HK$6.5 million) was owed by the Company to Vision Century. The Company settled the remaining accrued interest of approximately HK$0.9 million by cash from internal resources. The Convertible Note is repayable on 29 March 2009 while the credit facility of HK$50.0 million granted by Vision Century is still outstanding and is available until 31 October 2007.

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 honour the Credit Facility granted to the Group; the ability of Huang Worldwide to provide continuing financial support to the Group; and the rollover of the new borrowing of approximately HK$12.3 million granted by the Banker for another year from its original maturity date in April 2007, the Group will have sufficient working capital up to 30 September 2007. Otherwise, the Directors are of the opinion that the Group would not have adequate funds to enable it to operate as a going concern in the foreseeable future.

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 paragraph 4.29 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 31 March 2006.

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 audited consolidated net deficiency in assets of the Group as at 31 March 2006 and adjusted to reflect the effect of the Open Offer:

Net tangible (liabilities)/assets Unaudited pro forma consolidated net tangible liabilities 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)_	As at 31 March 2006 HK$’000 (2,124)	Net proceeds from the Open Offer HK$’000 28,000	Pro forma HK$’000 (Note 1) 25,876 (HK2.568 cents) HK7.822 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 Note or the exercise of any outstanding Share Options.
The number of Shares used for the calculation of this amount is 82,704,014 which was the number of Shares in issue as at the Latest Practicable Date.
The number of Shares used for the calculation of this amount is 330,816,056 which is the total number of Shares expected to be in issue after the completion of the Open Offer based on the existing 82,704,014 Shares in issue as at the Latest Practicable Date but has not taken into account the effect of the conversion of the outstanding Convertible Note or the exercise of any outstanding Share Options.

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.

18th Floor Two International Finance Centre 8 Finance Street Central Hong Kong

26 September 2006

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 82 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 26 September 2006 in connection with the open offer of 248,112,042 offer shares at HK$0.12 per share on the basis of assured allotments of three offer shares for every share held payable in full on application (the “Prospectus”). The unaudited pro forma adjusted consolidated statement of net tangible assets of the Group has 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. The basis of preparation of the unaudited pro forma adjusted consolidated statement of net tangible assets of the Group is set out on page 82 to the Prospectus.

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 paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”), and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of 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

PRO FORMA FINANCIAL INFORMATION

APPENDIX II

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.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements (HKSIR) 300 “Accountants’ Report on Pro Forma Financial Information in Investment Circulars” issued by HKICPA. Our work 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 of the Group with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the pro forma financial information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that 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 paragraph 4.29(1) of the Listing Rules.

Our work did not constitute an audit or review made in accordance with Hong Kong Standards on Auditing issued by HKICPA, 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 hypothetical nature, it may not be indicative of the financial position of the Group as at 31 March 2006 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;
(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 paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

ERNST & YOUNG

Certified Public Accountants

Hong Kong

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 , J.P. Chairman and the chairman of the Remuneration Committee

Aged 56. Mr. Lo joined the Company as an executive director and the chairman of the Company in December 2000. Mr. Lo is a Certified Practising Accountant of CPA Australia and is an associate member of the Financial Services Institute of Australasia. Mr. Lo has over 30 years of professional and business experience in financial and investment services in Australia, Hong Kong and other Asian countries. Mr. Lo is also a director of various members of the Group.

Mr. Yu Wai Man Company Secretary, Qualified Accountant and member of Remuneration Committee

Aged 41. Mr. Yu joined the Company as the Company Secretary and Qualified Accountant in December 2000 and was appointed an executive director 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 21 years of experience in the accounting field, including 3 years in external audit and 2 years in internal audit. Mr. Yu has over 13 years of financial experience in companies listed both in Hong Kong and the United Kingdom. Mr. Yu is also a director of various members of the Group.

Mr. Wilson Ng

Aged 34. Mr. Ng 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 a director of Xin Procurement & Trading Pte. Ltd., a subsidiary of the Company. Mr. Ng is also a director of Huang Worldwide Holding Limited, the immediate holding company of Vision Century Group Limited which is a substantial shareholder of the Company. Mr. Ng is the elder brother of Mr. Ng Wee Keat.

GENERAL INFORMATION

APPENDIX III

Mr. Ng Wee Keat

Aged 29. Mr. Ng 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 reengineering the company’s structure as well as ensuring its daily operation in a smooth and efficient way. Mr. Ng is a director of Xin Procurement & Trading Pte. Ltd., a subsidiary of the Company. Mr. Ng is also a director of Huang Worldwide Holding Limited, the immediate holding company of Vision Century Group Limited, which is a substantial shareholder of the Company and in which Mr. Ng is also a director. Mr. Ng is a younger brother of Mr. Wilson Ng.

Mr. Ng Eng Leng

Aged 56. Mr. Ng 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. Mr. Ng has 35 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 a director of Xin Procurement & Trading Pte. Ltd., a subsidiary of the Company.

Independent Non-executive Directors

Mr. Wong Kwok Tai Chairman of the Audit Committee and member of the Remuneration Committee

Aged 67. Mr. Wong joined the Company as an independent non-executive director in August 2001. Mr. Wong is a Practising Certified Public Accountant and a fellow member of both of the CPA Australia and the Hong Kong Institute of Certified Public Accountants. Mr. Wong has more than 41 years of financial experience. Mr. Wong is the the principal of W. Wong & Co., C.P.A..

Mr. Lau Pok Lam Member of the Audit Committee and the Remuneration Committee

Aged 59. Mr. Lau joined the Company as an independent non-executive director in April 2003. Mr. Lau is a practising Certified Public Accountant, a fellow member of both of the Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants, an associate member of the Institute of Chartered Accountants in England and Wales and the Taxation Institute of Hong Kong and a member of the Society of Chinese Accountants and Auditors. Mr. Lau has over 35 years of experience in the professional accountancy and financial fields.

Mr. Ko Kwong Woon, Ivan Member of the Audit Committee and the Remuneration Committee

Aged 46. Mr. Ko 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 studied a Master Degree Course in Real Estate Development at the University of Hong Kong. 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 has over 14 years of experience in real estate development and real estate finance in both Hong Kong and Mainland China.

GENERAL INFORMATION

APPENDIX III

3. PARTIES INVOLVED IN THE OPEN OFFER AND CORPORATE INFORMATION

Head office and principal place	Room 2107,
of business	21st Floor
	Nan Fung Tower
	173 Des Voeux Road Central
	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
	Richards Butler
	20th Floor
	Alexandra House
	16-20 Chater Road
	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
	18th Floor
	Two International Finance Centre
	8 Finance Street
	Central
	Hong Kong

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 Agricultural Bank of China No. 8 Jiangnan 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 26th Floor Tesbury Centre 28 Queen’s Road East Wanchai Hong Kong Authorised representatives Mr. Lo Ming Chi, Charles Room 1104, Block B Villa Rocha 10 Broadwood Road Happy Valley Hong Kong Mr. Yu Wai Man Flat G, 41st Floor, Block 2 Well On Garden Tseung Kwan O Kowloon Hong Kong Company secretary and qualified accountant Mr. Yu Wai Man, FCPA, FCCA

Company secretary and qualified accountant

GENERAL INFORMATION

APPENDIX III

4. DISCLOSURE OF INTERESTS OF DIRECTORS AND CHIEF EXECUTIVE

As at the Latest Practicable Date, the interests and short positions of each Director and chief executive of the Company in the Shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which required notification to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he was deemed or taken to have under such provisions of the SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers to be notified to the Company and the Stock Exchange were as follows:

Nature of Name of Directors interests Mr. Lo Ming Chi, Personal interest Charles Mr. Yu Wai Man Personal interest Mr. Wilson Ng Personal interest Other interest Mr. Ng Wee Keat Personal interest Other interest Mr. Ng Eng Leng Personal interest	Approximate Number of Shares percentage of the Long Short existing issued position position share capital 800,000 (Note 1) – 0.97% 800,000 (Note 1) – 0.97% 800,000 (Note 1) – 0.97% 231,645,000 (Note 2) – 280.09% 232,445,000 281.06% 800,000 (Note 1) – 0.97% 231,645,000 (Note 2) – 280.09% 232,445,000 281.06% 800,000 (Note 1) – 0.97%	Approximate Number of Shares percentage of the Long Short existing issued position position share capital 800,000 (Note 1) – 0.97% 800,000 (Note 1) – 0.97% 800,000 (Note 1) – 0.97% 231,645,000 (Note 2) – 280.09% 232,445,000 281.06% 800,000 (Note 1) – 0.97% 231,645,000 (Note 2) – 280.09% 232,445,000 281.06% 800,000 (Note 1) – 0.97%
		281.06% 0.97% 280.09%
		281.06% 0.97%

Notes:

Each of the personal interests of Mr. Lo Ming Chi, Charles, Mr. Yu Wai Man, Mr. Wilson Ng, Mr. Ng Wee Keat and Mr. Ng Eng Leng represented 800,000 underlying Shares in respect of share options granted by the Company under the share option scheme of the Company adopted on 30 December 2002.
Vision Century is ultimately owned by the discretionary trust of which Mr. Wilson Ng and Mr. Ng Wee Keat are discretionary beneficiaries and was deemed to be interested in 231,645,000 Shares under the SFO. Details of such 231,645,000 Shares held by Vision Century are set out in item number 5 of this appendix under the heading “Substantial Shareholders”.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests or short positions in the Shares, underlying shares and debentures of the Company or any of its associated corporations which required 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 he was deemed or taken to have under such provisions of the SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers to be notified to the Company and the Stock Exchange; and none of the Directors was a director or employee of a company which had an interest or short position in the 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.

GENERAL INFORMATION

APPENDIX III

5. SUBSTANTIAL SHAREHOLDERS

So far as is known to any Director or chief executive of the Company and as at the Latest Practicable Date, the following persons, other than the Directors or chief executive of the Company as disclosed above, had interests or short positions in the Shares or 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, or who was, 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 and the amount of each such person’s interest in such securities, together with particulars of any options in respect of such capital:

				Approximate
		Number of Shares		percentage of the
	Long		Short	existing issued
Name of substantial Shareholders	position		position	share capital
Vision Century	231,645,000	(Note 1)	–	280.09%
Huang Worldwide Holding Limited	231,645,000	(Note 1)	–	280.09%
Huang Group (BVI) Limited	231,645,000	(Notes 1 and 2)	–	280.09%
Mr. Kan Ka Chong, Frederick	231,645,000	(Notes 2 and 3)	–	280.09%
Mr. Ng (Huang) Cheow Leng	231,645,000	(Notes 2 and 3)	–	280.09%
Kingston Securities Limited	97,640,454	(Note 4)	–	118.06%
Mrs. Chu Yuet Wah	97,640,454	(Note 4)	–	118.06%
Ms. Ma Siu Fong	97,640,454	(Note 4)	–	118.06%

Notes:

Huang Group (BVI) Limited is the ultimate holding company of Huang Worldwide Holding Limited and Vision Century. Huang Worldwide Holding Limited is the immediate holding company of Vision Century. Huang Worldwide Holding Limited and Vision Century were deemed to be interested in 231,645,000 Shares representing 51,157,196 Shares held by Vision Century as at the Latest Practicable Date and a maximum of 180,487,804 conversion shares (subject to adjustment) to be issued to Vision Century upon full conversion of the Convertible Note.
Huang Group (BVI) Limited is held by Mr. Kan Ka Chong, Frederick as the trustee of a discretionary trust, the settlor of which is Mr. Ng (Huang) Cheow Leng.
Mr. Kan Ka Chong, Frederick was deemed to be interested in 231,645,000 Shares under SFO since he is the trustee of the discretionary trust.
These Shares represent the maximum number of Offer Shares that Kingston Securities Limited as the Underwriter is required to subscribe or procure to subscribe for pursuant to the Underwriting Agreement. As such, Kingston Securities Limited is deemed to be interested in these Shares under the SFO. Kingston Securities Limited is controlled by Mrs. Chu Yuet Wah and Ms. Ma Siu Fong as to 51% and 49% respectively who are therefore also deemed to be interested in these Shares under the SFO.

GENERAL INFORMATION

APPENDIX III

Save as disclosed above, no other person as at the Latest Practicable Date had interests or short positions in the Shares or 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, or who was, 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 members of the Group, or in any options in respect of such capital.

6. EXPERT

The following is the qualification of the expert who has given opinions or advice which is contained in this prospectus:

Name Qualification Ernst & Young Certified Public Accountants

Ernst & Young has given and has not withdrawn its written consent to the issue of this prospectus with the inclusion of its letters as set out in this prospectus and references 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 2006 (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. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or their respective associates was considered to have an interest in a business which competes or is likely to compete, either directly or indirectly, with the business of the Group pursuant to Rule 8.10 of the Listing Rules.

8. LITIGATION

As at the Latest Practicable Date, no litigation or claim of material importance was known to the Directors to be pending or threatened against any members of the Group.

GENERAL INFORMATION

APPENDIX III

9. 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:

two supplemental agreements dated 29 October 2004 and 14 July 2006 respectively relating to a credit facility in the amount of HK$50.0 million dated 2 July 2003 granted by Vision Century in favour of the Company;
a loan agreement in the amount of HK$10.0 million dated 25 November 2004 granted by Wise Wind Limited in favour of the Company;
an underwriting agreement dated 13 January 2005 entered into between Kingston Securities Limited and the Company in relation to the underwriting of the open offer completed in February 2005;
a sale and purchase agreement dated 31 August 2005 entered with Trimanage Limited, a third party independent of the Group, in relation to the disposal of the Group’s entire equity interest in a group of subsidiaries engaged in the toys business and the relevant shareholders’ loan;
a subscription agreement dated 15 February 2006 (as supplemented on 17 February 2006) entered into between the Company and Vision Century in relation to the issue of the Convertible Note; and
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.

10. 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.

11. 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$1.8 million and will be payable by the Company.

GENERAL INFORMATION

APPENDIX III

12. 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.

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.; (ii) a supply agreement dated 20 February 2004 entered into between Huang & Co (Singapore) Pte Ltd and Xin Procurement & Trading Pte. Ltd.; (iii) the loan facility agreement dated 2 July 2003 (as supplemented on 29 October 2004 and 14 July 2006) relating to a credit facility for the amount of HK$50.0 million granted to the Group by Vision Century; and (iv) the subscription agreement dated 17 February 2006 entered into between the Company and Vision Century in relation to the Convertible Note, there was no contract or arrangement entered into by any member of the Group subsisting at the Latest Practicable Date in which any Director was materially interested and which was significant in relation to the business of the Group.
(c) None of the Directors has any direct or indirect interest in any assets which had 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 2006 (the date to which the latest published audited financial statements of the Company were made up).
(d) The English texts of this propectus and the accompanying Application Forms and Excess Application Forms 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 and principal place of business of the Company in Hong Kong at Room 2107, 21st Floor, Nan Fung Tower, 173 Des Voeux Road Central, Hong Kong from the date of this prospectus up to and including 10 October 2006:

(a) the memorandum of association and Bye-laws of the Company;
(b) the annual reports of the Company for each of the two years ended 31 March 2005 and 2006;
(c) the circular of the Company dated 8 September 2006 in relation to the Open Offer;

GENERAL INFORMATION

APPENDIX III

(d) the written consent from Ernst & Young referred to in the paragraph headed “Expert” in this appendix;
(e) the letter issued by Ernst & Young in connection with the unaudited pro forma statement of net tangible assets of the Group, the text of which is set out in Appendix II to this prospectus; and
(f) all material contracts referred to in the paragraph headed “Material Contracts” in this appendix.

AI assistant

PegBio Co., Ltd. — Capital/Financing Update 2006

50676_rns_2006-09-27_e3aef8c7-5b99-4760-b822-09e6a5f4b6d7.pdf

SOMERLEY LIMITED

Underwriter

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

INTRODUCTION

OPEN OFFER

Issue statistics

Qualifying Shareholders

Rights of the Overseas Shareholders

Application for excess Offer Shares

Subscription Price

Status of Offer Shares

Application for listing

Fractions of Offer Shares

UNDERTAKING OF THE CONTROLLING SHAREHOLDER

UNDERWRITING AGREEMENT

Commission and other payment

Termination of the Underwriting Agreement

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

Conditions of the Underwriting Agreement

LETTER FROM THE BOARD

WARNING OF THE RISKS OF DEALING IN SHARES

SHAREHOLDINGS IN THE COMPANY

REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS

PROSPECTS OF THE GROUP

LETTER FROM THE BOARD

FUND RAISING ACTIVITIES IN THE PAST TWELVE MONTHS

PERMISSION OF THE BERMUDA MONETARY AUTHORITY

PROCEDURES FOR APPLICATION AND PAYMENT

LETTER FROM THE BOARD

SHARE CERTIFICATES

ADJUSTMENT OF CONVERSION PRICE OF THE CONVERTIBLE NOTE AND EXERCISE PRICE OF THE SHARE OPTIONS

GENERAL

1. SHARE CAPITAL

HK$

2. SUMMARY OF FINANCIAL INFORMATION

Results

3. AUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 Income Statement

Consolidated Balance Sheet

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Consolidated Cash Flow Statement

Balance Sheet

Notes to the Financial Statements

1. CORPORATE INFORMATION

2.1 BASIS OF PRESENTATION

2.1 BASIS OF PRESENTATION (Continued)

2.2 BASIS OF PREPARATION

Basis of consolidation

2.3 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

2.3 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (Continued)

(a) HKAS 17 – Leases

(b) HKAS 32 and HKAS 39 – Financial Instruments

(c) HKFRS 2 – Share-based Payment

2.3 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (Continued)

(d) HKFRS 5 – Non-current Assets Held for Sale and Discontinued Operations

2.4 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

2.5 SUMMARY OF THE IMPACT OF CHANGES IN ACCOUNTING POLICIES

Group

(a) Effect on the consolidated balance sheets

At 1 April 2005

APPENDIX I

At 31 March 2006

APPENDIX I

APPENDIX I

PegBio Co., Ltd. Capital/Financing Update 2006