PegBio Co., Ltd. - Proxy Solicitation & Information Statement 2007

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Xin Corporation Limited (the “Company”), you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer, other licensed corporation, or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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

FORMATION OF A JOINT VENTURE COMPANY

Financial adviser to Xin Corporation Limited

Optima Capital Limited

A letter from the board of directors of the Company is set out on pages 4 to 9 of this circular.

A notice convening a special general meeting of the Company to be held at Plaza IV, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong on Monday, 22 October 2007 at 10:00 a.m., is set out on pages 77 to 78 of this circular. If you are not able to attend the meeting of the Company, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the principal place of business of the Company at Room 2107, 21st Floor, Nan Fung Tower, 173 Des Voeux Road Central, Hong Kong as soon as possible and in any event not later than forty-eight (48) hours before the time appointed for holding the meeting of the Company. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting of the Company or any adjournment thereof if you so wish.

* For identification only

4 October 2007

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The JV Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Reasons for the formation of the JV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Financial effect of the JV Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Implication of Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Procedures for demanding a poll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Appendix I – Financial information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Appendix II – Pro forma financial information on the Enlarged Group . . . . . . . . . . . . . . .	67
Appendix III – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	71
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	77

DEFINITIONS

In this circular, unless the context otherwise requires, the following terms have the following meanings:

“Board”

the board of Directors

“Company” Xin Corporation Limited, a company incorporated in Bermuda with limited liability and the issued ordinary shares of which are listed on the main board of the Stock Exchange

“Convertible Notes” the zero coupon 2-year convertible notes with principal amount up to HK$100,000,000 proposed to be issued by the Company pursuant to the placing, details of which are set out in the circular of the Company dated 19 July 2007

“Directors” the directors of the Company

“Discretionary Trust” the discretionary trust of which Mr. Kan Ka Chong, Frederick is the trustee, Mr. Ng (Huang) Cheow Leng is the settlor and Mr. Ng (Huang) Cheow Leng and his family members and unspecified charities are the discretionary beneficiaries

“Enlarged Group” the Group immediately after the formation of the JV
“Existing Hotels” 21 hotels in the PRC, including 14 hotels in operation and 7 hotels under construction, which are all under the brandname of “金獅” (“Gold-lions”) or “金獅100超市化賓館” (“Gold-lions 100 Supermarket Style Hotel”) owned by the JV Partners and other third parties independent of the Company
“Group”

the Company and its subsidiaries

“Huang Group” Huang Group (BVI) Limited, a company incorporated in the British Virgin Islands with limited liability and held by Mr. Kan Ka Chong, Frederick, as the trustee of the Discretionary Trust

“Huang Worldwide”

Huang Worldwide Holding Limited, a wholly-owned subsidiary of Huang Group

“JV”

a company to be established in the PRC pursuant to the JV Agreement which will be beneficially owned as to 70% by the Subsidiary and as to 30% by the JV Partners

“JV Agreement” a joint venture agreement dated 5 September 2007 entered into among the Subsidiary and the JV Partners

DEFINITIONS

“JV Partners” (i)張均先生(“Mr. Zhang Jun”), a citizen of the PRC; (ii) Goldlions (International) Hotel Management Group Limited, a company incorporated in Hong Kong with limited liability; and (iii)青島金獅壹佰酒店有限公司(“Qingdao Gold-lions 100 Hotel Limited”), a company incorporated in the PRC with limited liability
“Latest Practicable Date” 2 October 2007, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information for inclusion in this circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“New Vision Century Notes” the zero coupon 2-year convertible notes of up to the aggregate principal amount of HK$100,000,000 which may be issued in tranches of which the principal amount of such notes comprised in each tranche shall not be less than HK$20,000,000
“Open Offer” the three-for-one open offer involving the issue of 248,112,042 new Shares at a price of HK$0.12 per Share completed in October 2006, details of which are set out in the announcement of the Company dated 17 August 2006, the circular of the Company dated 8 September 2006 and the prospectus of the Company dated 26 September 2006
“PRC” The People’s Republic of China
“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“SGM” the special general meeting of the Company to be held on Monday, 22 October 2007 to consider and, if thought fit, approve the JV Agreement
“Share(s)” ordinary share(s) of HK$0.01 each in the share capital of the Company
“Shareholder(s)” holder(s) of the Share(s) “Stock Exchange” The Stock Exchange of Hong Kong Limited “Subsidiary” Charmtime International Limited, a company incorporated in Hong Kong with limited liability and wholly owned by the Company

DEFINITIONS

“Vision Century” Vision Century Group Limited, a company incorporated in the British Virgin Islands, the controlling shareholder of the Company and a wholly-owned subsidiary of Huang Group “HK$” Hong Kong dollars “RMB” Renminbi

For illustration only, in this circular (excluding the pro forma financial information set out in Appendix II to this circular), amounts stated in RMB have been translated into HK$ at the exchange rate of RMB1.0 = HK$1.0323. Amounts stated in RMB have been translated into HK$ at the exchange rate of RMB1.0 = HK$1.0 for illustration in Appendix II to this circular.

LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability)

(Stock Code: 1141)

Executive Directors:

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

4 October 2007

To Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION

FORMATION OF A JOINT VENTURE COMPANY

INTRODUCTION

On 13 September 2007, the Directors announced that on 5 September 2007, the Subsidiary and the JV Partners had entered into the JV Agreement for the establishment of the JV which will be principally engaged in the operation of budget hotels in the PRC.

The transactions contemplated under the JV Agreement constitute a major transaction under the Listing Rules and are subject to the approval of Shareholders.

The purpose of this circular is to provide you with, among other things, (i) details of the JV Agreement; (ii) the financial information on the Group; (iii) the pro forma financial information on the Enlarged Group; and (iv) the notice of the SGM.

* For identification only

LETTER FROM THE BOARD

THE JV AGREEMENT

Date : 5 September 2007 Parties : the Subsidiary and the JV Partners

The JV Partners are principally engaged in operating budget hotels in the PRC. To the best of the Directors’ knowledge, information and belief, and having made all reasonable enquiries, the JV Partners and their ultimate beneficial owners are third parties independent of the Company and its connected persons (as defined in the Listing Rules).

The JV

Purpose : The JV will be established in the PRC and will be principally engaged in setting up and operating budget hotels under the brandname of “金獅 100超市化賓館 ” (“Gold-lions 100 Supermarket Style Hotel”) in the PRC.

The JV will identify suitable buildings in the PRC with a view to renting and renovating them for operation as budget hotels.

Registered capital : The registered capital of the JV will be RMB5.0 million (equivalent to approximately HK$5.2 million) and will be contributed as to RMB3.5 million (equivalent to approximately HK$3.6 million) by the Subsidiary and as to RMB1.5 million (equivalent to approximately HK$1.6 million) by the JV Partners in cash. Upon establishment of the JV, it will be owned as to 70% by the Subsidiary and as to 30% by the JV Partners. The JV will become a 70%-owned subsidiary of the Company upon its establishment and its accounts will be consolidated into the Group’s accounts.
Board of directors : The board of directors of the JV will comprise 5 directors, 3 of whom will be appointed by the Subsidiary and 2 of whom will be appointed by the JV Partners. The appointment of the managing director (legal representative) and the general manager of the JV, and the articles of association of the JV will have to be approved by both the Subsidiary and the JV Partners.
Capital commitment : It is expected that the JV will open about 30 to 40 budget hotels in the PRC in the coming 2 years, with 4,000 guest rooms in aggregate. The total capital commitment is estimated to be RMB150.0 million (equivalent to approximately HK$154.8 million). The Subsidiary will be responsible for the funding of such investment by way of shareholder’s loan which shall be interest-free. The JV Partners shall not be responsible for the funding of the capital commitment.

LETTER FROM THE BOARD

Profit sharing

: After repayment in full of the shareholder’s loan of the Subsidiary, the remaining net profit after expenses but before depreciation of the JV will be distributed to the Subsidiary and the JV Partners in accordance with their then respective shareholdings in the JV.

Conditions

The JV Agreement is subject to and conditional upon the fulfilment of the following conditions:

a) (i) as required by the Subsidiary, disclosure to the Subsidiary by the JV Partners information relating to the corporate structure of the JV Partners and information on the Existing Hotels, including but not limited to, business and operation information, land use right, regulatory approvals, statistics and financial statements; and (ii) the Subsidiary being satisfied with the results of its due diligence review on the Existing Hotels;
b) all consents and/or approvals (if any) of the Stock Exchange, any relevant governmental or regulatory authorities and other relevant third parties which are necessary for the entering into of the JV Agreement and for all transactions contemplated under the JV Agreement having been obtained;
c) the approval of the JV Agreement by the Shareholders (if required) at a duly convened special general meeting of the Company in accordance with the Listing Rules; and
d) the Group obtaining financing sufficient for the purpose of implementing the transactions contemplated under the JV Agreement and obtaining the relevant consents and/or approvals of the Board and the Shareholders (if required) in relation thereto in accordance with the Listing Rules.

As at the Latest Practicable Date, none of the condition had been fulfilled. In the event that any of the above conditions are not fulfilled on or before the day that is 90 days from the date of the JV Agreement, the JV Agreement will terminate.

First right of refusal

Pursuant to the JV Agreement, the JV has the first right of refusal to establish the budget hotels in the PRC with 4,000 guest rooms in aggregate under the brandname of “金獅100超市化賓館 ” (“Goldlions 100 Supermarket Style Hotel”) and the JV Partners are required to identify suitable buildings for the establishment of the budget hotels in the one and a half year, following the establishment of the JV.

In addition, pursuant to the JV Agreement, the Subsidiary is also given a first right of refusal to acquire the Existing Hotels owned by the JV Partners and other third parties on terms no less favourable than those that would otherwise offer to the independent potential buyers.

LETTER FROM THE BOARD

REASONS FOR THE FORMATION OF THE JV

The Group is principally engaged in the supply and procurement business in the Asia Pacific Region.

The formation of the JV will enable the Group to diversify its business into the hotel industry. Riding on the rapid development of the economy in the PRC and the development of a local tourism industry in the PRC, the Board considers that there will be more travellers and tourists in the PRC and thereby increasing demand for hotel services. The JV will become a 70% owned subsidiary of the Company upon its establishment and its accounts will be consolidated into the Group’s accounts and will therefore widen the income base of the Group. Although the Group will be solely responsible for the funding of the total capital commitment for the 30 to 40 budget hotels in the PRC, with 4,000 guest rooms in aggregate planned to be set up by the JV in the coming 2 years, through the formation of the JV the Group can share the well-established brandname of “金獅 100 超市化賓館 ” (“Gold-lions 100 Supermarket Style Hotel”), and at the same time leverage on the hotel operation expertise of the JV Partners. Therefore, the Directors consider the formation of the JV represents a promising opportunity for the Group to explore the hotel business in the PRC. Besides, certain senior management of the Company has well-established presence in the cruise line business and tourism-related business. The Directors consider that the Group is well equipped to diversify into the hotel industry. Taking into account the above, the Directors consider that the terms of the JV Agreement are fair and reasonable, and the formation of the JV is in the interests of the Company and the Shareholders as a whole.

It is a condition precedent to the JV Agreement that the Group is required to obtain financing sufficient for the purpose of implementing the transactions contemplated under the JV Agreement. Subject to the sources of funding obtained by the Group, the Group intends to finance the funding as required under the JV Agreement by internal resources and/or borrowings and/or other equity fund raising exercises.

FINANCIAL EFFECT OF THE JV AGREEMENT

Upon the establishment of the JV, the JV will become a 70% subsidiary of the Company. The results of the JV will be consolidated into the accounts of the Group. According to the pro forma financial information of the Enlarged Group as contained in Appendix II of this circular, total assets of the Enlarged Group will increase by HK$1.5 million, representing the 30% of registered capital of the JV borne by the JV Partners. The formation of the JV itself will have no immediate effect on the Group’s liability unless the Group incurs any borrowings to fund the capital requirement under the JV Agreement. It is expected that the JV will broaden the revenue base of the Group when it commences operation.

IMPLICATION OF LISTING RULES

The transactions contemplated under the JV Agreement constitute a major transaction for the Company under the Listing Rules and are subject to the approval of Shareholders. As no Shareholder has interests in the JV Agreement which are different from other Shareholders to the best knowledge and belief of the Directors, no Shareholder is required to abstain from voting on the resolution to be proposed at the SGM regarding the JV Agreement.

LETTER FROM THE BOARD

SGM

A notice convening the SGM, at which an ordinary resolution will be proposed to consider and, if thought fit, to approve, among other things, the JV Agreement is set out on pages 77 to 78 of this circular.

A form of proxy for use at the SGM accompanies this circular. If you are not able to attend the SGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s principal place of business in Hong Kong at Room 2107, 21st Floor, Nan Fung Tower, 173 Des Voeux Road Central, Hong Kong as soon as possible and in any event not later than forty-eight (48) hours before the time appointed for holding the SGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof if you so wish.

PROCEDURES FOR DEMANDING A POLL

Pursuant to Bye-law 66 of the Bye-laws of the Company, a resolution put to the vote of a general meeting shall be decided on a show of hands unless voting by way of a poll is required by the rules of the designated Stock Exchange or (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

(i) by the chairman of such meeting; or
(ii) by at least three members present in person (or in the case of a member being a corporation by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or
(iii) by a member or members present in person (or in the case of a member being a corporation by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all members having the right to vote at the meeting; or
(iv) by a member or members present in person (or in the case of a member being a corporation by its duly authorised representative) or by proxy and holding Shares in the Company conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Shares conferring that right; or
(v) if required by the rules of the designated Stock Exchange, by any Director or Directors who, individually or collectively, hold proxies in respect of Shares representing five per cent (5%) or more of the total voting rights at such meeting.

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

LETTER FROM THE BOARD

RECOMMENDATION

The Directors consider that the terms of the JV Agreement are fair and reasonable and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolution to be proposed at the SGM to approve the JV Agreement.

GENERAL

Your attention is drawn to the additional information set out in the appendices to this circular, including the financial information on the Group and the pro forma financial information on the Enlarged Group.

Yours faithfully, For and on behalf of the Board

Lo Ming Chi, Charles Chairman

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. 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 2007:

Results

CONTINUING OPERATIONS
Revenue
Profit/(loss) before tax
Tax
PROFIT/(LOSS) FOR THE YEAR FROM
CONTINUING OPERATIONS
DISCONTINUED OPERATIONS
Loss for the year from discontinued operations
PROFIT/(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
2005
2006
2007
HK$’000
HK$’000
HK$’000
(Restated)
144,687
155,550
193,989
(5,807)
693
3,643
(1,608)
(3,172)
(3,553)
(7,415)
(2,479)
90
(1,717)
(7,855)
–
(9,132)
(10,334)
90
(12,047)
(15,994)
(7,904)
2,915
5,660
7,994
(9,132)
(10,334)
90
As at 31 March
2005
2006
2007
HK$’000
HK$’000
HK$’000
(Restated)
139,472
118,007
166,931
(134,027)
(110,524)
(128,178)
(2,395)
(9,607)
(688)
3,050
(2,124)
38,065

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 37 to 120 of the annual report of the Company for the year ended 31 March 2007 which is not subject to any qualified opinion.

“Consolidated Income Statement

Year ended 31 March 2007

Notes CONTINUING OPERATIONS REVENUE 5 Cost of sales Gross profit Other income and gains 5 Selling and distribution cost Administrative expenses Other expenses Finance costs 6 PROFIT BEFORE TAX 7 Tax 10 PROFIT/(LOSS) FOR THE YEAR FROM CONTINUING OPERATIONS DISCONTINUED OPERATIONS Loss for the year from discontinued operations 11 PROFIT/(LOSS) FOR THE YEAR	2007 HK$’000 193,989 (168,509) 25,480 2,080 (248) (17,499) (1,897) (4,273) 3,643 (3,553) 90 – 90	2006 HK$’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)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Income Statement (continued)

Year ended 31 March 2007

Notes 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	2007 HK$’000 (7,904) 7,994 90 (HK3.6 cents) (HK3.6 cents) N/A N/A	2006 HK$’000 (15,994) 5,660 (10,334) (HK15.1 cents) (HK8.0 cents) N/A N/A

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Balance Sheet

31 March 2007

Notes NON-CURRENT ASSETS Property, plant and equipment 14 Investment properties 15 Prepaid land lease payments 16 Goodwill 17 Total non-current assets CURRENT ASSETS Inventories 19 Accounts receivable 20 Prepaid land lease payments 16 Prepayments, deposits and other receivables Cash and cash equivalents 21 Total current assets CURRENT LIABILITIES Accounts and bills payable 22 Tax payable Other payables and accruals 23 Interest-bearing bank and other borrowings 24 Loan from a minority shareholder 25 Due to a minority shareholder 26 Due to a related company 26 Total current liabilities NET CURRENT ASSETS/(LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Convertible notes 27 Total non-current liabilities Net assets	2007 HK$’000 163 20,188 31,124 6,478 57,953 1,970 75,869 779 1,105 29,255 108,978 21,019 3,659 22,982 12,079 644 48,241 18 108,642 336 58,289 19,536 19,536 38,753	2006 HK$’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 26,674 26,674 7,483

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Balance Sheet (continued)

31 March 2007

Notes EQUITY Equity/(deficiency in assets) attributable to equity holders of the Company Issued capital 29 Equity component of convertible notes Reserves/(deficits) 31(a) Minority interests Total equity	2007 HK$’000 4,747 6,035 27,283 38,065 688 38,753	2006 HK$’000 827 10,344 (13,295) (2,124) 9,607 7,483

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

Year ended 31 March 2007

		Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Total equity HK$’000 5,445 10
Issued capital HK$’000 16,541 – – – – (15,714) – – – – – – – 827	Share premium account HK$’000 59,030 – – – – – (59,030) – – – – – – –	Equity component of convertible Contributed notes and surplus bonds HK$’000 HK$’000 (note 27) – 517 – – – – – – – – 15,714 – 59,030 – (71,659) – – – – – – – – (517) – 10,344 3,085 10,344	Exchange fluctuation reserve HK$’000 – 10 10 – 10 – – – – – – – – 10	Share option Accumulated reserve losses HK$’000 HK$’000 – (73,038) – – – – – (15,994) – (15,994) – – – – – 71,659 466 – (9) 9 – – – 517 – – 457 (16,847)
					10 (10,334)
					(10,324) – – – 466 – 1,552 – 10,344
					7,483

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity (continued)

Year ended 31 March 2007

		Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Total equity HK$’000 7,483 3,273
Issued capital HK$’000 827 – – – – – – 2,481 1,418 21 – – 4,747	Share premium account HK$’000 – – – – – – – 27,292 20,106 602 (1,765) – 46,235*	Equity component of Contributed convertible surplus notes HK$’000 HK$’000 (note 27) 3,085 10,344 – – – – – – – – – – – – – – – (5,591) – – – – – 1,282 3,085* 6,035	Exchange fluctuation reserve HK$’000 10 2,399 2,399 – 2,399 – – – – – – – 2,409*	Share option Accumulated reserve losses HK$’000 HK$’000 457 (16,847) – – – – – (7,904) – (7,904) – – – – – – – – (152) – – – – – 305 (24,751)
					3,273 90
					3,363 (30) (17,757) 29,773 15,933 471 (1,765) 1,282
					38,753

* These reserve accounts comprise the consolidated reserves of HK$27,283,000 (2006: deficits of HK$13,295,000) in the consolidated balance sheet.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

Year ended 31 March 2007

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 Equity-settled share option expenses 7, 8 Impairment of items of property, plant and equipment 7 Impairment of investment properties 7 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 Gain on disposal of subsidiaries 32(b) Decrease/(increase) in inventories Increase in accounts receivable Decrease/(increase) in prepayments, deposits and other receivables Increase/(decrease) in accounts and bills payable Increase/(decrease) in other payables and accruals Increase/(decrease) in an amount due to a related company Exchange realignment Cash generated from/(used in) operations Overseas taxes paid Net cash outflow from operating activities	2007 HK$’000 3,643 – 4,273 (372) (157) – – 446 – 146 2,312 779 – 11,070 103 (18,178) (234) 8,094 402 (525) (265) 467 (3,066) (2,599)	2006 HK$’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)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Cash Flow Statement (continued)

Year ended 31 March 2007

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 32(b) Increase in time deposit 21 Net cash inflow/(outflow) from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares 29(b) Proceeds from exercise of share options 29(d) Share issue expenses 29 Increase in trust receipt loans Repayment of bank loans Repayment of other loan Repayment of loans from the immediate holding company Drawdown of a loan from a director of a subsidiary Increase in an amount due to a minority shareholder Redemption of convertible bonds 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 rates changes CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 21	2007 HK$’000 372 (15) 157 – (1,030) (516) 29,773 471 (1,765) 529 (4,334) (2,000) – – 4,780 – (1,237) 26,217 23,102 5,123 – 28,225 28,225	2006 HK$’000 267 (481) 23 2,707 – 2,516 – – – – (4,413) (6,500) (3,150) 4,650 13,061 (2,167) (2,097) (616) (18,887) 24,000 10 5,123 5,123

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Balance Sheet

31 March 2007

Notes NON-CURRENT ASSETS Property, plant and equipment 14 Investments in subsidiaries 18 Total non-current assets CURRENT ASSETS Due from a subsidiary 18 Prepayments, deposits and other receivables Cash and bank balances Total current assets CURRENT LIABILITIES Other payables and accruals 23 Interest-bearing bank and other borrowings 24 Total current liabilities NET CURRENT ASSETS/(LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Convertible notes 27 Total non-current liabilities Net assets/(liabilities) EQUITY/(DEFICIENCY IN ASSETS) Issued capital 29 Equity component of convertible notes Reserves/(deficits) 31(b) Total equity/(deficiency in assets)	2007 HK$’000 9 – 9 8,114 357 24,827 33,298 1,878 – 1,878 31,420 31,429 19,536 19,536 11,893 4,747 6,035 1,111 11,893	2006 HK$’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)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes to Financial Statements

31 March 2007

1. CORPORATE INFORMATION

Xin Corporation Limited is a limited liability company incorporated in Bermuda. 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.

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 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. These financial statements are presented in Hong Kong dollars and all values are rounded to the nearest thousand 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 2007. The results of subsidiaries 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 not held by the Group in the results and net assets of the Company’s subsidiaries. Acquisition of minority interests is accounted for using the parent entity extension method whereby the difference between the consideration and the book value of the share of the net assets is recognised as goodwill.

2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

The Group has adopted the following new and revised HKFRSs for the first time for the current year’s financial statements. The adoption of these new and revised standards and interpretation has had no material effect on these financial statements.

HKAS 21 Amendment Net Investment in a Foreign Operation HKAS 39 & HKFRS 4 Amendments Financial Guarantee Contracts HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease

The effect of the adoption of these new and revised HKFRSs are as follows:

(a) HKAS 21 The Effects of Changes in Foreign Exchange Rates

Upon the adoption of the HKAS 21 Amendment regarding a net investment in a foreign operation, all exchange differences arising from a monetary item that forms part of the Group’s net investment in a foreign operation are recognised in a separate component of equity in the consolidated financial statements irrespective of the currency in which the monetary item is denominated. This change has had no material impact on these financial statements as at 31 March 2007 or 31 March 2006.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (continued)

(b) HKAS 39 Financial Instruments: Recognition and Measurement

Amendment for financial guarantee contracts

This amendment has revised the scope of HKAS 39 to require financial guarantee contracts issued that are not considered insurance contracts, to be recognised initially at fair value and to be remeasured at the higher of the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue. The adoption of this amendment has had no material impact on these financial statements.

(c) HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease

The Group has adopted this interpretation as of 1 April 2006, which provides guidance in determining whether arrangements contain a lease to which lease accounting must be applied. This interpretation has had no material impact on these financial statements.

2.3 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 and are relevant to the financial statements of the Group but are not yet effective, in these financial statements.

HKAS 1 Amendment Capital Disclosures HKAS 23 (Revised) Borrowing Costs HKFRS 7 Financial Instruments: Disclosures HKFRS 8 Operating Segments HK(IFRIC)-Int 8 Scope of HKFRS 2 HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment

HKAS 1 Amendment shall be applied for annual periods beginning on or after 1 January 2007. This revised standard will affect the disclosures about qualitative information about the Group’s objectives, 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.

HKAS 23 (Revised) shall be applied for annual periods beginning on or after 1 January 2009. This standard requires an entity to capitalise all borrowing costs if they are directly attributable to the acquisition, construction or production of a qualifying asset. The choice to immediately recognise such costs as an expense is eliminated.

HKFRS 7 shall be applied for annual periods beginning on or after 1 January 2007. This standard requires disclosures that enable users of the financial statements to evaluate the significance of the Group’s financial instruments and the nature and extent of risks arising from those financial instruments.

HKFRS 8 shall be applied for annual periods beginning on or after 1 January 2009. This standard requires an entity to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments.

HK(IFRIC)-Int 8, HK(IFRIC)-Int 9 and HK(IFRIC)-Int 10 shall be applied for annual periods beginning on or after 1 May 2006, 1 June 2006 and 1 November 2006, respectively.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (continued)

The Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, it has concluded that while the adoption of HKAS 1 Amendment, HKAS 23 and HKFRS 7 may result in new or amended disclosures, these new and revised HKFRSs should not have any significant impact on the Group’s results of operations and financial position.

2.4 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 investments in subsidiaries are stated at cost less any impairment losses.

Goodwill

Goodwill arising on the acquisition of minority interests represents the difference between the consideration and the book value of the share of the net assets acquired at the date of acquisition.

Goodwill arising on acquisition is recognised in the consolidated balance sheet as an asset, initially measured at cost and subsequently at cost less any accumulated impairment losses. The carrying amount of goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined by assessing the recoverable amount of the cashgenerating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Impairment of non-financial assets other than goodwill

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, financial assets and goodwill), 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.

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/amortisation), 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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2.4 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 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.

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:

Leasehold improvements 20% or over the lease terms, whichever is shorter Moulds, plant and machinery 12.5% – 15% Furniture, fixtures and equipment 20% and motor vehicles

Where parts of an item of property, plant and equipment have different useful lives, the cost 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 ON THE GROUP

APPENDIX I

2.4 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 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

When financial assets are recognised initially, they are measured at fair value plus 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, that is, the date that the Group commits to purchase or sell 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 subsequently carried at amortised cost using the effective interest method. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. 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

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.

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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of financial assets (continued)

Assets carried at amortised cost (continued)

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.

In relation to accounts receivable, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of an invoice. The carrying amount of the receivables is reduced through the use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible.

Derecognition of financial assets

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 them 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.

Financial liabilities at amortised cost (including interest-bearing loans and borrowings)

Financial liabilities, including accounts and bills payable, other payables, interest-bearing loans and borrowings, loan from a minority shareholder and amounts due to a minority shareholder and a related company, are initially stated at fair value less directly attributable transaction costs and are subsequently measured at amortised cost, using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.

Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisation process.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Convertible notes

The component of convertible notes that exhibits characteristics of a liability is recognised as a liability in the balance sheet, net of transaction costs. On issuance of convertible notes, the fair value of the liability component is determined using a market rate for an equivalent non-convertible note; 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 notes based on the allocation of proceeds to the liability and equity components when the instruments are first recognised.

Derecognition of financial liabilities

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. 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.

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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income tax (continued)

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 goodwill or 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.

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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATE

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 Group 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.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 31 March 2007 was HK$6,478,000 (2006: Nil). More details of the assessment of impairment of goodwill are set out in note 17.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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 others segment 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, revenue are attributed to the segments based on the location of the customers. 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 ON THE GROUP

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 2006 and 2007.

Continuing	operations		Discontinued operations	Discontinued operations	Consolidated 2007 2006 HK$’000 HK$’000 193,989 166,345 1,545 532 195,534 166,877 22,389 7,668 535 1,340 (15,008) (11,521) (4,273) (4,649) 3,643 (7,162) (3,553) (3,172) 90 (10,334)
Corporate 2007 HK$’000 – 1,200 1,200 1,200	and others 2006 HK$’000 – – – –	Toddler cars 2007 2006 HK$’000 HK$’000 – 4,501 – 184 – 4,685 – (3,274)	Cycling 2007 2006 HK$’000 HK$’000 – 2,519 – 103 – 2,622 – (1,724)	Other toys 2007 2006 HK$’000 HK$’000 – 3,775 – 154 – 3,929 – (2,828)
					166,877

					7,668 1,340 (11,521) (4,649)
					(7,162) (3,172)
					(10,334)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. SEGMENT INFORMATION (continued)

(a) Business segments (continued)

Continuing operations Supply and procurement Corporate and others Sub-total 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Assets and liabilities Segment assets 82,491 60,400 55,185 52,484 137,676 112,884 Unallocated assets Total assets Segment liabilities 74,403 43,738 22,161 22,228 96,564 65,966 Unallocated liabilities Total liabilities Other segment information: Depreciation and recognition of prepaid land lease payments 139 126 3,098 2,660 3,237 2,786 Impairment of items of property, plant and equipment – – – – – – Impairment of investment properties – – 446 – 446 – Write-back of provision against inventories – (485) – – – (485) Equity-settled share option expenses – – – 466 – 466 Capital expenditure 15 296 – – 15 296	Discontinued operations Toddler cars Cycling Other toys Sub-total 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – – – – – – – – – – – – – – – – – 1,109 – 620 – 928 – 2,657 – 1,624 – 892 – 1,357 – 3,873 – – – – – – – – – – – – – – – – – – – – – – – – – 185 – – – – – 185	Consolidated 2007 2006 HK$’000 HK$’000 137,676 112,884 29,255 5,123 166,931 118,007 96,564 65,966 31,614 44,558 128,178 110,524 3,237 5,443 – 3,873 446 – – (485) – 466 15 481	Consolidated 2007 2006 HK$’000 HK$’000 137,676 112,884 29,255 5,123 166,931 118,007 96,564 65,966 31,614 44,558 128,178 110,524 3,237 5,443 – 3,873 446 – – (485) – 466 15 481
			118,007

			65,966 44,558
			110,524

			5,443

			3,873

			–

			(485)

			466

			481

FINANCIAL INFORMATION ON THE GROUP

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 2007 and 2006.

Group

Group	Group	Group	Group	Group	Group	Group
North America Europe Singapore 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Segment revenue: Sales to external customers – 1,141 – 6,248 193,989 155,550 Attributable to discontinued operations – (1,141) – (6,248) – – Revenue from continuing operations – – – – 193,989 155,550 Other segment information: Segment assets – – – – 82,491 63,344 Capital expenditure – – – – 15 296							Asia Pacific Region (including Hong Kong and Mainland China but excluding Singapore) 2007 2006 HK$’000 HK$’000 – 3,406 – (3,406) – – 84,440 54,663 – 185		Consolidated 2007 2006 HK$’000 HK$’000 193,989 166,345 – (10,795) 193,989 155,550 166,931 118,007 15 481
	–	–	–	–	193,989	155,550	–	–	193,989	155,550

		– –	– –	– –	82,491 15	63,344 296	84,440 –	54,663 185	166,931 15	118,007 481

FINANCIAL INFORMATION ON THE GROUP

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 revenue, other income and gains is as follows:

Revenue Sale of goods Other income Interest income Rental income Others Gains Gain on disposal of items of property, plant and equipment	Continuing operations 2007 2006 HK$’000 HK$’000 193,989 155,550 372 267 1,200 654 351 487 1,923 1,408 157 23 157 23 2,080 1,431	Discontinued operations 2007 2006 HK$’000 HK$’000 – 10,795 – – – – – 441 – 441 – – – – – 441	Total 2007 2006 HK$’000 HK$’000 193,989 166,345 372 267 1,200 654 351 928 1,923 1,849 157 23 157 23 2,080 1,872	Total 2007 2006 HK$’000 HK$’000 193,989 166,345 372 267 1,200 654 351 928 1,923 1,849 157 23 157 23 2,080 1,872

				267 654 928
				1,849
				23
				23
				1,872

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. FINANCE COSTS

Interest on: Bank loans and other loan wholly repayable within five years Convertible notes and bonds Attributable to discontinued operations Attributable to continuing operations reported in the consolidated income statement	Group 2007 2006 HK$’000 HK$’000 962 4,619 3,311 30 4,273 4,649 – 29 4,273 4,620 4,273 4,649	Group 2007 2006 HK$’000 HK$’000 962 4,619 3,311 30 4,273 4,649 – 29 4,273 4,620 4,273 4,649
		4,649

		29 4,620
		4,649

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) 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 Exchange differences, net Impairment of items of property, plant and equipment Impairment of investment properties Write-back of provision against inventories Net rental income	Continuing operations 2007 2006 HK$’000 HK$’000 168,509 136,723 146 1,665 2,312 430 779 728 389 450 1,020 1,180 1,906 1,590 – 86 140 124 2,046 1,800 1,450 2,194 – – 446 – – (485) 1,200 654	Discontinued operations 2007 2006 HK$’000 HK$’000 – 6,726 – 2,620 – – – – – 155 – – – 1,732 – – – 21 – 1,753 – (43) – 3,873 – – – – – –	Total 2007 2006 HK$’000 HK$’000 168,509 143,449 146 4,285 2,312 430 779 728 389 605 1,020 1,180 1,906 3,322 – 86 140 145 2,046 3,553 1,450 2,151 – 3,873 446 – – (485) 1,200 654	Total 2007 2006 HK$’000 HK$’000 168,509 143,449 146 4,285 2,312 430 779 728 389 605 1,020 1,180 1,906 3,322 – 86 140 145 2,046 3,553 1,450 2,151 – 3,873 446 – – (485) 1,200 654
				3,553
				2,151 3,873 – (485) 654

At 31 March 2007, the Group had no forfeited contributions available to reduce its contributions to pension schemes in future years (2006: Nil).

FINANCIAL INFORMATION ON THE GROUP

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 (the “Listing Rules”) 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 2007 2006 HK$’000 HK$’000 – – 300 300 300 300 1,040 1,040 – 380 52 52 1,092 1,472 1,392 1,772	Group 2007 2006 HK$’000 HK$’000 – – 300 300 300 300 1,040 1,040 – 380 52 52 1,092 1,472 1,392 1,772
		300
		1,040 380 52
		1,472
		1,772

(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	Group 2007 2006 HK$’000 HK$’000 100 100 100 100 100 100 300 300	Group 2007 2006 HK$’000 HK$’000 100 100 100 100 100 100 300 300
		300

There were no other emoluments payable to the independent non-executive directors during the year (2006: Nil).

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. DIRECTORS’ REMUNERATION (continued)

(b) Executive directors

	Salaries,
	other
	allowances	Equity-settled	Pension
	and benefits	share option	scheme	Total
	in kind	expenses	contributions	remuneration
	HK$’000	HK$’000	HK$’000	HK$’000
2007
Mr. Lo Ming Chi, Charles	520	–	26	546
Mr. Yu Wai Man	260	–	13	273
Mr. Ng Eng Leng	260	–	13	273
Mr. Wilson Ng	–	–	–	–
Mr. Ng Wee Keat	–	–	–	–
	1,040	–	52	1,092
2006
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

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 (2006: three) directors, details of whose remuneration are set out in note 8 above. Details of the remuneration of the remaining two (2006: two) non-director, highest paid employees for the year are as follows:

Other allowances and benefits in kind Equity-settled share option expenses Pension scheme contributions	Group 2007 2006 HK$’000 HK$’000 456 436 – 56 23 22 479 514	Group 2007 2006 HK$’000 HK$’000 456 436 – 56 23 22 479 514
		514

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 2007 and 2006.

During the year, there were no bonuses paid to or receivable by any of the five highest paid employees of the Group (2006: 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 (2006: Nil).

FINANCIAL INFORMATION ON THE GROUP

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 (2006: Nil). Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdictions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

	2007	2006
	HK$’000	HK$’000
Group:
Current – elsewhere and tax charge for the year	(3,553)	(3,172)

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

Group – 2007

Profit/(loss) before tax 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$’000 (15,903) (2,783) (285) 1,338 1,730 –	Singapore HK$’000 21,152 3,807 (284) 30 – 3,553	Mainland China HK$’000 (1,606) (531) – – 531 –	Total HK$’000 3,643 493 (569) 1,368 2,261 3,553 – 3,553

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

10. TAX (continued)

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	Hong Kong HK$’000 (22,619) (3,958) (349) 655 3,652 –	Singapore HK$’000 15,457 3,091 (114) 195 – 3,172	Total HK$’000 (7,162) (867) (463) 850 3,652 3,172 – 3,172

FINANCIAL INFORMATION ON THE GROUP

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 was 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:

Revenue Expenses Finance costs Loss before tax Tax Loss for the year from the discontinued operations	2007 HK$’000 – – – – – –	2006 HK$’000 10,795 (18,621) (29) (7,855) – (7,855)

The net cash flows incurred by the discontinued operations are as follows:

Operating activities Investing activities Financing activities Net cash outflow Loss per share: Basic, from the discontinued operations Diluted, from the discontinued operations	2007 HK$’000 – – – – – –	2006 HK$’000 (5,696) (189) 4,650 (1,235) HK7.1 cents N/A

The calculation of basic loss per share from the discontinued operations is based on:

	2007	2006
Loss attributable to ordinary equity holders of the Company
from the discontinued operations	–	HK$7,495,000
Weighted average number of ordinary shares in issue during
the year used in the basic loss per share calculation	N/A	105,861,138#

Weighted average number of ordinary shares for year ended 31 March 2006 has been restated to reflect the open offer during the year ended 31 March 2007 (note 29(b)).

Diluted loss per share amount for the year ended 31 March 2006 has not been disclosed as the convertible note and bonds and share options outstanding during that year had anti–dilutive effects on the basic loss per share from the discontinued operations.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

12. LOSS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The consolidated loss attributable to equity holders of the Company for the year ended 31 March 2007 includes a loss of HK$3,817,000 (2006: HK$8,843,000) which has been dealt with in the financial statements of the Company (note 31 (b)).

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

The calculation of basic loss per share amount is based on the loss for the year attributable to ordinary equity holders of the Company for the year of HK$7,904,000 (2006: HK$15,994,000), and the weighted average of 218,723,611 (2006: 105,861,138, restated to reflect the open offer during the year ended 31 March 2007 (note 29(b))), ordinary shares in issue during the year.

Diluted loss per share amounts for the years ended 31 March 2007 and 2006 have not been disclosed, as the convertible notes and share options outstanding during these years had anti–dilutive effects on the basic loss per share for these years.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

14. PROPERTY, PLANT AND EQUIPMENT

Group

Leasehold improvements HK$’000 31 March 2007 At 31 March 2006 and at 1 April 2006: Cost 24 Accumulated depreciation and impairment (8) Net carrying amount 16 At 1 April 2006, net of accumulated depreciation and impairment 16 Additions – Depreciation provided during the year (7) Exchange realignment 1 At 31 March 2007, net of accumulated depreciation and impairment 10 At 31 March 2007: Cost 25 Accumulated depreciation and impairment (15) Net carrying amount 10	Moulds, plant and machinery HK$’000 88,302 (88,302) – – – – – – – – –	Furniture, fixtures, equipment and motor Construction vehicles in progress HK$’000 HK$’000 1,592 32,288 (1,340) (32,288) 252 – 252 – 15 – (139) – 25 – 153 – 1,650 32,288 (1,497) (32,288) 153 –	Total HK$’000 122,206 (121,938) 268 268 15 (146) 26 163 33,963 (33,800) 163

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

14. PROPERTY, PLANT AND EQUIPMENT (continued)

Group

31 March 2006 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 ended 31 March 2006. 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 ON THE GROUP

APPENDIX I

14. PROPERTY, PLANT AND EQUIPMENT (continued)

Company
At 1 April:
Cost
Accumulated depreciation
Net carrying amount
At 1 April, net of accumulated depreciation
Depreciation provided during the year
At 31 March, net of accumulated depreciation
At 31 March:
Cost
Accumulated depreciation
Net carrying amount
15.
INVESTMENT PROPERTIES
Cost:
At 1 April
Transfer from owner-occupied properties_(note 14)_
Exchange realignment
At 31 March
Accumulated depreciation and impairment:
At 1 April
Depreciation provided for the year
Impairment
Exchange realignment
At 31 March
Net book value:
At 31 March

Furniture, fixtures,
equipment and
motor vehicles
2007
2006
HK$’000
HK$’000
631
631
(619)
(610)
12
21
12
21
(3)
(9)
9
12
631
631
(622)
(619)
9
12
Group
2007
2006
HK$’000
HK$’000
21,867
–
–
21,867
1,531
–
23,398
21,867
430
–
2,312
430
446
–
22
–
3,210
430
20,188
21,437

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. INVESTMENT PROPERTIES (continued)

The aggregate fair value of the Group’s investment properties as at 31 March 2007 was HK$21,330,000 (2006: HK$21,560,000) based on valuation (the “Valuation”) performed by Knight Frank Petty Limited, a firm of independent professionally qualified valuers, on a direct comparison approach at 31 March 2007. Based on the Valuation, the directors determined that, certain of the Group’s investment properties were impaired as their carrying values before impairment were higher than their recoverable amounts. As a result, an impairment loss of HK$446,000 was charged to the consolidated income statement for the year.

At 31 March 2007, the Group’s investment properties with a carrying value of approximately HK$15,620,000 (2006: HK$21,437,000) were pledged to secure general banking facilities granted to the Group (note 24).

16. PREPAID LAND LEASE PAYMENTS

Carrying amount at 1 April Recognised during the year Exchange realignment Carrying amount at 31 March Current portion Non-current portion	Group 2007 2006 HK$’000 HK$’000 30,544 31,272 (779) (728) 2,138 – 31,903 30,544 (779) (728) 31,124 29,816

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$26,354,000 as at 31 March 2007. Pursuant to the S&P Agreements, the Group is required to pay an annual fee of HK$126,000 in respect of the Land commencing from 2008 up to 2048 with a 20% increment for every five years starting from 2008 (note 34).

The Group has not yet obtained the land use rights certificate for the Land. Having consulted with the Group’s Mainland China lawyers, the directors considered that the Group has the right to use the Land and after the payment of a premium of approximately HK$17,683,000 and attending the necessary administrative procedures, the Group should be able to obtain the land use rights certificate for the Land.

At 31 March 2007, the Group’s prepaid land lease payments with a carrying value of HK$2,149,000 (2006: HK$4,128,000) were pledged to secure general banking facilities granted to the Group (note 24).

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

17. GOODWILL

Goodwill arising from the acquisition of additional 24% interest in Xin Procurement & Trading Pte. Ltd. (“Xin Procurement”) from the minority shareholder, Huang & Co (Singapore) Pte. Ltd. (“HCSPL”), is related to the procurement business cash-generating unit.

The recoverable amount of the procurement business cash-generating unit has been determined based on a value in use calculation using cash flow projections based on financial budgets covering a five-year period approved by senior management.

Key assumptions were used in the value in use calculation of the procurement business cash-generating unit for 31 March 2007. The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill:

Budgeted gross margins – The basis used to determine the value assigned to the budgeted gross margins is the average gross margins achieved in the year immediately before the budget year.

Discount rate – The discount rate used (8%) is before tax and reflects specific risks relating to the relevant unit.

18. INVESTMENTS IN SUBSIDIARIES AND AN AMOUNT DUE FROM A SUBSIDIARY

Unlisted shares, at cost Less: Provision for impairment Due from a subsidiary Less: Provision for impairment	Company 2007 2006 HK$’000 HK$’000 68,709 68,709 (68,709) (68,709) – – 219,615 212,467 (211,501) (212,467) 8,114 – 8,114 –

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.

An impairment loss of HK$966,000 in respect of the amount due from a subsidiary was reversed in the current year because the subsidiary of the Group had improved financial position as at the balance sheet date.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

18. INVESTMENTS IN SUBSIDIARIES AND AN AMOUNT DUE FROM A SUBSIDIARY (continued)

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

==> picture [398 x 259] intentionally omitted <==

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

Place of Nominal value of Percentage of
incorporation/ issued ordinary/ equity attributable
registration registered to the Company
Name and operations share capital Direct Indirect Principal activities
Hung Cheong Holdings Limited British Virgin Islands Ordinary US$2,004 100 – Investment holding
(“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 Dormant
Xin Toys International Limited Hong Kong Ordinary HK$2 – 100 Dormant
Huang Chiang Chen Hung Cheong Hong Kong Ordinary HK$1,000 – 100 Property holding
Plastics Factory Company Limited Non–voting deferred
HK$10,000
Xin Procurement Singapore Ordinary S$10,000 – 75 Supply and procurement
of equipment, goods
and services for vessels
東莞新創五金製品有限公司 People’s Republic of HK$5,700,000 – 100 Dormant
China/Mainland China
----- End of picture text -----*

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 non– voting 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.
** On 28 February 2007, the Group acquired an additional 24% interest in Xin Procurement, which resulted in an increase of the Group’s interest in Xin Procurement from 51% at 31 March 2006 to 75% at 31 March 2007. Further details of the acquisition were disclosed in notes 27(b), 32(a)(ii) and 36(a).

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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

19. INVENTORIES

	Group
	2007	2006
	HK$’000	HK$’000
Goods held for resale	1,970	2,073

20. 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. Accounts receivable 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 CASH AND CASH EQUIVALENTS Cash and bank balances Time deposit: With original maturity of more than three months when acquired	Group 2007 2006 HK$’000 HK$’000 18,939 13,138 18,960 10,629 11,905 13,083 25,337 17,046 728 3,795 75,869 57,691 Group 2007 2006 HK$’000 HK$’000 28,225 5,123 1,030 – 1,030 – 29,255 5,123	Group 2007 2006 HK$’000 HK$’000 18,939 13,138 18,960 10,629 11,905 13,083 25,337 17,046 728 3,795 75,869 57,691 Group 2007 2006 HK$’000 HK$’000 28,225 5,123 1,030 – 1,030 – 29,255 5,123
		–
		5,123

21. CASH AND CASH EQUIVALENTS

As at 31 March 2007, the Group had cash and bank balances denominated in RMB amounting to approximately HK$284,000 (2006: HK$1,216,000) deposited with banks in Mainland China. RMB is not freely convertible into foreign currencies. Under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for foreign currencies through banks that are authorised to conduct foreign exchange business.

Cash at banks earns interest at floating rate based on daily bank deposit rates. Time deposit is made for one year, and earns interest at the respective time deposit rate. The carrying amounts of the cash and bank balances and the time deposit approximate to their fair values.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

22. ACCOUNTS AND BILLS PAYABLE

An aged analysis of the accounts and bills 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 2007 2006 HK$’000 HK$’000 12,322 6,848 3,410 2,868 517 372 338 591 4,432 2,246 21,019 12,925	Group 2007 2006 HK$’000 HK$’000 12,322 6,848 3,410 2,868 517 372 338 591 4,432 2,246 21,019 12,925
		12,925

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. Included in the above are bills payable of HK$265,000 (2006: Nil) which are within 30 days.

23. OTHER PAYABLES AND ACCRUALS

Other payables Accruals	Group 2007 2006 HK$’000 HK$’000 349 4,479 22,633 18,016 22,982 22,495	Company 2007 2006 HK$’000 HK$’000 6 102 1,872 2,247 1,878 2,349	Company 2007 2006 HK$’000 HK$’000 6 102 1,872 2,247 1,878 2,349
			2,349

24. INTEREST–BEARING BANK AND OTHER BORROWINGS

Effective interest rate (%) Maturity Bank loans – secured 6.138 1 year Trust receipt loans – secured 8 90 days Other loan – unsecured 4 1 year	Group 2007 2006 HK$’000 HK$’000 11,550 15,884 529 – – 2,000 12,079 17,884	Company 2007 2006 HK$’000 HK$’000 – – – – – 2,000 – 2,000	Company 2007 2006 HK$’000 HK$’000 – – – – – 2,000 – 2,000
			2,000

At 31 March 2007, the bank loan 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$17,769,000 (2006: HK$25,565,000) (notes 15 and 16);
(b) corporate guarantees executed by a subsidiary of the Company;
(c) a corporate guarantee executed by HCSPL;

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

24. INTEREST–BEARING BANK AND OTHER BORROWINGS (continued)

(d) a personal guarantee executed by Mr. Ng (Huang) Cheow Leng, a parent of certain directors of the Company and a substantial shareholder of the Company; and
(e) certain bank deposits of HCSPL of not less than S$5,000,000 (equivalent to HK$25,750,000).

All the interest-bearing bank and other borrowings bear interest at fixed rates. The carrying amounts of the Group’s and the Company’s borrowings approximate to their fair values.

25. LOAN FROM A MINORITY SHAREHOLDER

The loan was advanced by a minority shareholder of one of the Group’s subsidiaries. The loan is unsecured and interest–free. Pursuant to the shareholders’ agreements entered into between the Group and the minority shareholder of the relevant subsidiary, the minority shareholder has agreed not to demand the repayment of the loan until the relevant subsidiary has the ability to do so and has obtained prior consent from the Group for the repayment of the loan. The carrying amount of the loan from a minority shareholder approximates to its fair value.

26. 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.

27. CONVERTIBLE NOTES

Notes Convertible note issued to Vision Century (a) Convertible note issued to HCSPL (b)	Group and Company 2007 2006 HK$’000 HK$’000 13,658 26,674 5,878 – 19,536 26,674	Group and Company 2007 2006 HK$’000 HK$’000 13,658 26,674 5,878 – 19,536 26,674
		26,674

Notes:

(a) On 30 March 2006, the Company issued a convertible note in the principal amount of HK$37,000,000 to Vision Century, 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 (the “Old Convertible Note”). 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 conversion price of HK$0.141 per conversion share, which was adjusted to reflect the Company’s open offer (note 29(b)). The Old Convertible Note carries interest at a rate of 1% per annum, which is payable semi–annually in arrears on 31 March and 30 September.

In March 2007, two conversions in an aggregate principal amount of HK$20,000,000 of the Old Convertible Note were made by Vision Century, which resulted in a total number of 141,843,970 ordinary shares of HK$0.01 each being issued by the Company. After the conversions, the outstanding principal amount of the Old Convertible Note was reduced to HK$17,000,000 as at 31 March 2007.

(b) On 28 February 2007, the Company issued a convertible note in the principal amount of HK$7,126,560 to HCSPL, as consideration for the acquisition of an additional 24% interest in Xin Procurement and the rights of and benefits in a shareholder’s loan of S$120,000 (equivalent to HK$618,000) from HCSPL, the minority shareholder of Xin Procurement (the “New Convertible Note”). HCSPL has the right to convert the outstanding principal amount of the New Convertible Note into shares at any time before 27 February 2010 at a conversion price of HK$0.17 per conversion share. The New Convertible Note carries interest at 1% per annum, which is payable semi–annually in arrears on 31 March and 30 September.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

27. CONVERTIBLE NOTES (continued)

Notes: (continued)

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

The convertible notes issued have been split as to the liability and equity components, as follows:

Nominal value of the convertible note issued for the year ended 31 March 2006 Equity component Interest expense for the year Liability component at 31 March 2006 and 1 April 2006 Nominal value of the convertible note issued in current year Equity component Interest expense for the year Interest paid for the year Conversion of convertible note Liability component at 31 March 2007	Old Convertible Note HK$’000 37,000 (10,344) 18 26,674 – – 3,272 (270) (16,018) 13,658	New Convertible Note HK$’000 – – – – 7,126 (1,282) 39 (5) – 5,878	Total HK$’000 37,000 (10,344) 18 26,674 7,126 (1,282) 3,311 (275) (16,018) 19,536

28. DEFERRED TAX

The Group has tax losses arising in Hong Kong of HK$34,986,000 (2006: HK$25,100,000) 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 loss– making for some time.

The Group and the Company had no unprovided deferred tax at 31 March 2007 and 31 March 2006.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

29. SHARE CAPITAL

Authorised: 10,000,000,000 (2006: 10,000,000,000) ordinary shares of HK$0.01 each Issued and fully paid: 474,708,026 (2006: 82,704,014) ordinary shares of HK$0.01 each	2007 HK$’000 100,000 4,747	2006 HK$’000 100,000

		827

A summary of the transactions of the Company’s issued ordinary share capital during the years ended 31 March 2006 and 2007 is set out below:

Issued capital

Issued capital
Notes At 1 April 2005 Capital Reorganisation (as defined below) (a) At 31 March 2006 and 1 April 2006 Issued on Open Offer (as defined below) (b) Issued on conversion of convertible notes (c) Share options exercised (d) Share issue expenses At 31 March 2007	Number of shares in issue 1,654,080,285 (1,571,376,271) 82,704,014 248,112,042 141,843,970 2,048,000 474,708,026 – 474,708,026	Issued share capital HK$’000 16,541 (15,714) 827 2,481 1,418 21 4,747 – 4,747	Share premium account HK$’000 59,030 (59,030) – 27,292 20,106 602 48,000 (1,765) 46,235	Total HK$’000 75,571 (74,744)
				827 29,773 21,524 623
				52,747
				(1,765)
				50,982

Notes:

(a) Pursuant to a special resolution 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 to HK$0.0005 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 were 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 ON THE GROUP

APPENDIX I

29. SHARE CAPITAL (continued)

Notes: (continued)

(b) On 16 October 2006, the Company effected an open offer of 248,112,042 new shares of HK$0.01 each at HK$0.12 per share (the “Open Offer”) to its qualifying shareholders on the basis of three offer shares for every share held on that date. Cash proceeds of approximately HK$29,773,000, before the related expenses, were received by the Company.
(c) In March 2007, two conversions in an aggregate principal amount of HK$20,000,000 of the Old Convertible Note were made by Vision Century at conversion price of HK$0.141 per share, resulting in the issue of 141,843,970 ordinary shares of HK$0.01 each. The conversion resulted in an increase in share capital and share premium account by approximately HK$1,418,000 and HK$20,106,000, respectively.
(d) The subscription rights attaching to 2,048,000 share options were exercised at the subscription price of HK$0.23 per share (note 30), resulting in the issue of 2,048,000 ordinary shares of HK$0.01 each for a total cash consideration of HK$471,000 and the transfer of HK$152,000 from share option reserve to the share premium account.

30. 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 or 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”) on the date of the grant) in excess of HK$5,000,000, within any 12–month period, is 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 up to the expiry date of the Scheme, if earlier.

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 greatest 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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

30. SHARE OPTION SCHEME (continued)

The following share options were outstanding under the Scheme during the year:

	Number of share options	Exercise	Exercise	Price of the Company’s shares****
			Exercise	Immediately At
At 1 April 2006 800,000 800,000 800,000 800,000 800,000	Exercised during the year (1,024,000) – – – – (1,024,000) (1,024,000) (2,048,000)	At Date of grant Exercised price of 31 March of share period of share 2007 options share options options* HK$ per share – 29-07-2005 29-07-2005 to 0.23 28-07-2007 1,024,000 29-07-2005 29-07-2005 to 0.23 28-07-2007 1,024,000 29-07-2005 29-07-2005 to 0.23 28-07-2007 1,024,000 29-07-2005 29-07-2005 to 0.23 28-07-2007 1,024,000 29-07-2005 29-07-2005 to 0.23 28-07-2007 4,096,000 – 29-07-2005 29-07-2005 to 0.23 28-07-2007 4,096,000		At before the exercise grant date exercise date of of options date options HK$ HK$ HK$ per share per share per share 0.295 0.305 0.29 0.295 – – 0.295 – – 0.295 – – 0.295 – – 0.295 0.305 0.29
4,000,000
800,000

The aggregate number of shares subject to the Scheme was adjusted from 4,800,000 to 6,144,000 during the year as a result of the Open Offer (note 29(b)).
** 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 profits or reserve, rights or bonus issues, consolidation, subdivision or reduction of the share capital or other alternative in the capital structure of the Company. During the year, the exercise price of the share options was adjusted from HK$0.295 per share to HK$0.23 per share as a result of the Open Offer (note 29(b)).
**** 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. The price of the Company’s share immediately before the exercise date of the share options is the weighted average of the Stock Exchange closing prices immediately before the dates on which the options are execised over all of the exercises of options within the disclosure line.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

30. SHARE OPTION SCHEME (continued)

The 2,048,000 share options exercised during the year resulted in the issue of 2,048,000 ordinary shares of the Company, new share capital of HK$21,000, share premium of HK$602,000 and the reduction of share option reserve of HK$152,000, as further detailed in note 29(d) to the financial statements.

At the balance sheet date, the Company had 4,096,000 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 4,096,000 additional ordinary shares of the Company, additional share capital of HK$41,000 and share premium of HK$1,206,000 (before issue expenses), and reduction of share premium option reserve of HK$305,000.

Subsequent to the balance sheet date, on 30 April 2007 and 31 May 2007, the remaining 4,096,000 share options were exercised by the directors of the Company, resulting in the issue of 4,096,000 ordinary shares of the Company.

At the date of approval of these financial statements, the Company had no share options outstanding under the Scheme.

31. RESERVES/(DEFICITS)

(a) Group

The amounts of the Group’s reserves/(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

At 1 April 2005 Capital Reorganisation Redemption of convertible bonds Equity-settled share option arrangement Share options lapsed during the year Loss for the year At 31 March 2006 and 1 April 2006 Shares issued on the Open Offer Conversion of the Old Convertible Note Share options exercised during the year Share issue expenses Loss for the year At 31 March 2007	Share premium account HK$’000 59,030 (59,030) – – – – – 27,292 20,106 602 (1,765) – 46,235	Contributed surplus HK$’000 – 3,085 – – – – 3,085 – – – – – 3,085	Share option Accumulated reserve losses HK$’000 HK$’000 – (108,039) – 71,659 – 517 466 – (9) 9 – (8,843) 457 (44,697) – – – – (152) – – – – (3,817) 305 (48,514)	Total HK$’000 (49,009) 15,714 517 466 – (8,843) (41,155) 27,292 20,106 450 (1,765) (3,817) 1,111

The share option reserve comprises the fair value of share options granted which are yet to be exercised, as further explained in the accounting policy for share–based payment transactions in note 2.4 to the financial statements. The amount will either be transferred to the share premium account when the related options are exercised, or be transferred to accumulated losses should the related options expire or be forfeited.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

32. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Major non–cash transactions

The Group had the following major non–cash transactions during the years ended 31 March 2006 and 2007:

(i) On 28 February 2007, Xin Procurement declared and approved an interim dividend of approximately HK$36,236,000, of which HK$17,757,000 was payable to the Group’s minority shareholder, which was settled through an amount due to the minority shareholder.
(ii) On 28 February 2007, the Group acquired an additional 24% interest in Xin Procurement and the rights of and benefits in a shareholders’ loan of S$120,000 (equivalent to HK$618,000) from HCSPL at a consideration of HK$7,126,560. The consideration of the acquisition was settled by issuing the New Convertible Note of principal amount of HK$7,126,560 by the Company to HCSPL.
(iii) In March 2007, two conversions in an aggregate principal amount of HK$20,000,000 of the Old Convertible Note were made by Vision Century, which did not result in any cash flows. The conversions resulted in a decrease of the liability component of the convertible note by HK$16,018,000 and an increase in other payables and accruals by HK$85,000, representing the unpaid interest accrued to the portion of the Old Convertible Note converted.
(iv) On 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 the Group from all of its obligations and liabilities in respect of the loan advanced by Vision Century (note 27(a)). The Company settled the remaining accrued interest of HK$856,000 by cash from internal resources.

(b) Disposal of subsidiaries

Net assets 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 Minority interests Gain on disposal of subsidiaries Satisfied by: Cash	2007 HK$’000 – – – – – – – – – – – – – –	2006 HK$’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

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

32. 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	2007 HK$’000 – – –	2006 HK$’000 4,568 (1,861
		2,707

The results of the subsidiaries disposed of in the year ended 31 March 2006 had no significant impact on the Group’s consolidated turnover or loss before tax for that year.

33. 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 24 to the financial statements.

34. 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 2007, the Group did not have any future minimum lease receivables (2006: HK$467,000) under non–cancellable operating leases with its tenants.

(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 to two years.

At 31 March 2007, 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 2007 2006 HK$’000 HK$’000 583 312 430 – 1,013 312	Group 2007 2006 HK$’000 HK$’000 583 312 430 – 1,013 312
		312

In addition, pursuant to various agreements entered into between the Group and an independent third party in Mainland China, the Group is required to pay an annual fee of HK$126,000 in respect of the Land classified as prepaid land lease payments of the Group in Mainland China, with a carrying value of HK$26,354,000 at 31 March 2007, commencing from calendar year 2008 up to calendar year 2048 with a 20% increment for every five years (note 16).

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

35. COMMITMENTS

At the balance sheet date, the Group had a contractual commitment in respect of the purchase of inventories of HK$1,048,000 (2006: Nil). The Company did not have any commitments as at 31 March 2007 (2006: Nil).

36. RELATED PARTY TRANSACTIONS

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

(a) On 20 February 2004, the Group entered into a shareholders’ agreement (the “Xin Procurement Agreement”) with 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 International”), a company incorporated in Singapore with limited liability. New Century International 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 28 February 2007, the Group acquired an additional 24% interest in Xin Procurement and the rights of and benefits in a shareholders’ loan of S$120,000 (equivalent to HK$618,000) from HCSPL at a consideration of HK$7,126,560 (the “Acquisition”). The consideration of the Acquisition was settled by issuing the New Convertible Note of the principal amount of HK$7,126,560 by Company to HCSPL. Upon completion of the Acquisition, the Group holds 75% interest in Xin Procurement and HCSPL holds the remaining 25% interest. The Acquisition constituted a very substantial acquisition under the Listing Rules. Details of the Acquisition have been disclosed in the Company’s circular dated 29 January 2007.
(b) 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. The Supply Agreement remains valid after the change of the Group’s interest in Xin Procurement on 28 February 2007. By virtue of the interests of the parents of Mr. Wilson Ng and Mr. Ng Wee Keat in HCSPL, the transactions contemplated under the Supply Agreement constitute connected transactions or continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

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. During the current year, Xin Procurement made sales to HCSPL amounting to HK$2,791,000 (2006: HK$17,688,000).

(c) Pursuant to the Xin Procurement Agreement, HCSPL had advanced funds to Xin Procurement as working capital. At 31 March 2007, the outstanding balance owed by Xin Procurement to HCSPL was HK$644,000. The terms of the advance are set out in note 25 to the financial statements.
(d) During the year, HCSPL made advances of HK$2,857,000 (2006: HK$27,850,000) to Xin Procurement. At 31 March 2007, the outstanding balance owed by Xin Procurement to HCSPL amounted to HK$48,241,000 (2006: HK$25,704,000), including dividend payable of HK$17,757,000 (2006: Nil) which is unsecured, interest–free and has no fixed terms of repayment.
(e) During the year, a management fee of HK$600,000 (2006: HK$580,000) was charged by HCSPL in respect of certain administrative services rendered to the Group. The management fee was determined between the Group and HCSPL.
(f) During the year, HCSPL reimbursed HK$420,000 (2006: HK$100,000) to the Group in respect of certain administrative expenses paid by the Group on behalf of HCSPL.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

36. RELATED PARTY TRANSACTIONS (continued)

(g) During the year, the Group reimbursed expenses of HK$43,000 (2006: HK$188,000) to HCSPL in respect of certain administrative expenses paid by HCSPL on behalf of the Group.
(h) During the year, HCSPL paid HK$1,584,000 (2006: 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, lubricating oil and bunkerage.
(i) During the year, Huang Procurement Pte. Ltd., a wholly–owned subsidiary of HCSPL, paid HK$36,206,000 (2006: 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, lubricating oil and bunkerage.
(j) 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 2008.
(k) Xin Procurement has provided corporate guarantee to a bank in respect of banking facilities granted to HCSPL of principal amount up to S$9,860,000 (equivalent to HK$50,779,000). At at 31 March 2007, HCSPL did not utilise the banking facilities.
(l) Compensation of key management personnel of the Group:

Short term employee benefits Post-employment benefits Share-based payments Total compensation paid to key management personnel	2007 HK$’000 1,340 52 – 1,392	2006 HK$’000 1,340 52 380
		1,772

Further details of directors’ emoluments are included in note 8 to the financial statements.

37. 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, loan from a minority shareholder, amount due to a minority shareholder and convertible notes. 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 and bills 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 rates of all of the Group’s borrowings are fixed.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

37. 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 these instruments.

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.

38. POST BALANCE SHEET EVENTS

(a) On 17 April 2007, HCSPL exercised its right to convert the New Convertible Note of principal amount of HK$7,126,560 into 41,920,941 ordinary shares of HK$0.01 each of the Company at a conversion price of HK$0.17 per share. The conversion resulted in an increase in share capital and share premium account of HK$419,000 and HK$6,707,000, respectively.
(b) On 30 April 2007 and 30 May 2007, 3,072,000 and 1,024,000 share options were exercised by the directors of the Company, respectively, at an exercise price of HK$0.23 per share. Further details are disclosed in note 30 to the financial statements.
(c) On 20 June 2007, the Company entered into (i) a conditional placing agreement with Interchina Securities Limited (the “Placing Agent”) in relation to the placing by the Placing Agent, on a best effort basis, of the Company’s convertible notes with principal amount up to HK$100,000,000 (the “Notes”) to independent third parties (the “Placing Agreement”). The Notes are convertible into new shares of the Company at an initial conversion price of HK$0.28 per share. Upon exercise in full of the Notes with principal amount of HK$100,000,000, 357,142,857 new shares will be issued, representing 68.6% of the existing issued share capital of the Company as at the date of the Placing Agreement; and (ii) a conditional option agreement with Vision Century to which the Company has conditionally agreed to grant to Vision Century an option exerciseable during the option period to subscribe for convertible notes to be issued by the Company with principal amount up to HK$100,000,000 (the “New Vision Century Notes”) at consideration of HK$10 (the “Option Agreement”). The terms of the New Vision Century Notes will be identical to those of the Notes, as disclosed above. Among other things, completion of the Placing Agreement and the Option Agreement is inter-conditional and subject to the approval of the Placing Agreement, the Option Agreement and the issue of the Notes and the New Vision Century Notes by the independent shareholders of the Company at the forthcoming special general meeting to be held on 6 August 2007.

39. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 25 July 2007.”

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. MANAGEMENT DISCUSSION AND ANALYSIS

Set out below is the management discussion and analysis of the Group for the year ended 31 March 2007:

Results

For the year ended 31 March 2007, the Group recorded its turnover of HK$193,989,000 (2006: HK$166,345,000) and its loss attributable to equity holders of the Company was HK$7,904,000 (2006: HK$15,994,000).

Business overview

Following the disposal of a loss-making group of subsidiaries engaged in the toys business in August 2005, the Group has been concentrating on the profit-making supply and procurement business. For the year under review, the performance by the supply and procurement business was satisfactory. It recorded a turnover HK$193,989,000 (2006: HK$155,550,000), representing an increase of 24.7% and a profit of HK$21,189,000, representing an increase of 36.8% as compared to HK$15,494,000 for the last year.

Since April 2004, the Group has been commencing its supply and procurement business in Asia Pacific Region by formation of a joint venture company namely as “Xin Procurement and Trading Pte. Ltd.” (“Xin Procurement”) in which the Group and Huang & Co (Singapore) Pte. Ltd. (“HCSPL”) own 51% and 49% equity interest respectively. With the improvement in the economy of Southeast Asia Region, tight cost control and the appreciation of Singapore dollars, the Group recorded double-digit growth in both turnover and results of the supply and procurement business in the year. In order to strengthen the Group’s investment with stable revenue-generating power, the Group, on 22 November 2006, entered into a sale and purchase agreement to acquire from HCSPL an additional 24% equity interest in the entire issued share capital of Xin Procurement (the “Sale Shares”) and the rights of and benefits in a loan of S$120,000 (equivalent to HK$600,000) advanced from HCSPL to Xin Procurement, representing 24% of the total principal amount of the shareholders’ loans in Xin Procurement (the “Sale Loan”). Upon completion on 28 February 2007, the Group has 75% equity interest in Xin Procurement. The management believes that the supply and procurement business is expected to be one of major engines for the Group’s growth.

Charge on the Group[’] s assets

Certain investment properties and prepaid land lease payments of the Group in Mainland China with an aggregate carrying value of HK$17,769,000 as at 31 March 2007 (2006: HK$25,565,000) were pledged to secure bank borrowing advanced to the Group.

Contingent liabilities

In the opinion of the directors, there was no significant contingent liabilities noted as at 31 March 2007 (2006: Nil).

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Pending litigations

As at 31 March 2007, there was no pending litigations (2006: Nil).

Liquidity and financial resources

As at 31 March 2007, the Group’s total indebtedness (representing the total interest-bearing borrowings and convertible notes from banks and loan providers) was approximately HK$31,615,000 (2006: HK$44,558,000) will be repayable within one to three years. All borrowings of the Group are at fixed or floating interest rates and mainly denominated either in Hong Kong dollars or Renminbi or Singapore dollars. As at 31 March 2007, the Group has current ratio of 1.00 (2006: 0.79) based on current assets of HK$108,978,000 and current liabilities of HK$108,642,000.

As at 31 March 2007, the Group had neither unutilised banking facilities nor any hedging financial statements. The Group’s net current assets were HK$336,000 and its gearing ratio (total indebtedness divided by equity attributable to equity holders of the Company) was 0.83 as at 31 March 2007. Since there was a negative equity attributable to equity holders of the Company of HK$2,124,000 in the previous year, calculation of gearing ratio was not applicable.

On 30 March 2006, pursuant to the subscription agreement entered on 15 February 2006 between the Group and Vision Century, the controlling shareholder of the Company, a 1% per annum convertible note in principal amount of HK$37,000,000 (the “Old Convertible Note”) was issued to Vision Century. The Old 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, which was subsequently adjusted to HK$0.141 per conversion share as a result of the open offer on 16 October 2006 as stated herein.

In order to strengthen the capital base of the Group and to improve the Group’s financial position, on 16 October 2006, the Company effected an open offer with assured allotment of three offer shares for every share of HK$0.01 each held by shareholders as at 26 September 2006. The open offer resulted in the issue of 248,112,042 new ordinary shares of HK$0.01 each in the Company at a price of HK$0.12 per share. Cash proceeds of approximately HK$29,773,000, before the related expenses, were received by the Company. For details, please refer to the Company’s prospectus dated 26 September 2006. As a result of the open offer, the conversion price of the Old Convertible Note, the exercise price and the aggregate number of the share options were adjusted accordingly. For details, please refer to the Company’s announcement dated 20 October 2006. On 1 March 2007 and 5 March 2007, two tranches of the Old Convertible Note of principal sum of HK$10,000,000 each at the adjusted conversion price of HK$0.141 per share were converted into a total of 141,843,970 shares. As at 31 March 2007, the outstanding principal sum of the Old Convertible Note was HK$17,000,000.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

On 22 November 2006, the Group entered into a conditional sale and purchase agreement to acquire from HCSPL (i) the Sale Shares; and (ii) the Sale Loan at an aggregate consideration of HK$7,126,560. For details, please refer to the Company’s circular dated 29 January 2007. Upon completion on 28 February 2007, the Group’s equity interest in Xin Procurement was increased to 75% and the consideration was satisfied by the Company issuing HCSPL a convertible note in principal sum of HK$7,126,560 at an initial conversion price of HK$0.17 per share (the “New Convertible Note”).

Post balance sheet events

On 17 April 2007, HCSPL exercised its right to convert the New Convertible Note of principal amount of HK$7,126,560 into 41,920,941 ordinary shares of HK$0.01 each of the Company at a conversion price of HK$0.17 per share. The conversion resulted in an increase in share capital and share premium account of HK$419,000 and HK$6,707,000, respectively.

On 30 April 2007 and 30 May 2007, 3,072,000 and 1,024,000 share options were exercised by the directors of the Company, respectively, at an exercise price of HK$0.23 per share.

On 20 June 2007, the Company entered into (i) a conditional placing agreement with Interchina Securities Limited (the “Placing Agent”) in relation to the placing by the Placing Agent, on a best effort basis, of the Company’s convertible notes with principal amount up to HK$100,000,000 (the “Convertible Notes”) to independent third parties (the “Placing Agreement”). The Convertible Notes are convertible into new shares of the Company at initial conversion price of HK$0.28 per share. Upon exercise in full of the Convertible Notes with principal amount of HK$100,000,000, 357,142,857 new shares will be issued, representing 68.6% of the existing issued share capital of the Company as at the date of the Placing Agreement; and (ii) a conditional option agreement with Vision Century to which the Company has conditionally agreed to grant to Vision Century an option exerciseable during the option period to subscribe for convertible notes to be issued by the Company with principal amount up to HK$100,000,000 (the “New Vision Century Notes”) at consideration of HK$10 (the “Option Agreement”). The terms of the New Vision Century Notes will be identical to those of the Convertible Notes, as disclosed above. Among other things, completion of the Placing Agreement and the Option Agreement is inter-conditional and subject to the approval of the Placing Agreement, the Option Agreement and the issue of the Convertible Notes and the New Vision Century Notes by the independent shareholders of the Company at the forthcoming special general meeting to be held on 6 August 2007. For details, please refer to the Company’s circular dated 19 July 2007.

Foreign currency exposure

The Group has transactional currency exposures in United States dollars, Singapore dollars and Malaysia Ringgit. Such exposures arise from the Group’s procurement business. 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.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Human resources

As at 31 March 2007, the Group employed a total of 15 employees, among which, 6 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. During the year ended 31 March 2007, total employee benefits expense (excluding directors’ remuneration) amounted to HK$2.0 million, while directors’ remuneration amounted to HK$1.4 million.

Prospects

In the long term, Asia Pacific Region’s economic performance remains promising and continues to have a positive effect on the local economy. The management is confident that the supply and procurement business will continue to be benefited from the improving economic prospects. To strengthen the prospects of further growth, we will continue to expand its existing operations, to look for new investment opportunities and to diversify its business.

4. STATEMENT OF INDEBTEDNESS

Borrowings

As at the close of business on 31 August 2007, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had outstanding borrowings of approximately HK$58.8 million comprising the following:

(a) a secured bank loan of approximately HK$9.4 million;
(b) a secured trust receipt loan of approximately HK$0.3 million;
(c) an unsecured loan from a minority shareholder of approximately HK$0.6 million;
(d) an unsecured payable to a minority shareholder of approximately HK$48.4 million; and
(e) an unsecured payable to a related company of approximately HK$0.1 million.

Mortgages, charges and securities

As at 31 August 2007, 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$17.0 million and corporate guarantee executed by a subsidiary of the Company.

As at 31 August 2007, the Group’s trust receipt loan was supported by a corporate guarantee executed by HCSPL; a personal guarantee executed by Mr. Ng (Huang) Cheow Leng, a parent of certain directors of the Company and a substantial shareholder of the Company; and certain bank deposits of HCSPL of not less than S$5.0 million (equivalent to HK$25.8 million).

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Disclaimer

Save as aforesaid and apart from intra-Group liabilities, none of the companies comprising the Group, as at the close of business on 31 August 2007, had any outstanding mortgages, charges or debentures, loan capital issued 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.

According to the Placing Agreement and the Option Agreement, the Company completed the placing of the first tranche of the Convertible Notes to six subscribers in the aggregate principal amount of HK$40.0 million and the issue of first tranche of the New Vision Century Notes to Vision Century in the principal amount of HK$40.0 million on 17 September 2007. Subsequent to the issue of these convertible notes, the Company received conversion notices from the six subscribers and Vision Century for conversion of all these convertible notes of total principal amount of HK$80.0 million on 18 September 2007. A total of 285,714,283 shares of the Company were issued upon conversion. Save as aforementioned, there has been no material change in indebtedness and contingent liabilities of the Group since 31 August 2007.

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 August 2007.

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the directors of the Company were not aware of any material adverse change in the financial or trading position of the Group since 31 March 2007 (the date to which the latest audited financial statements of the Company were made up.)

6. WORKING CAPITAL

On 17 September 2007, the Company completed the placing of the first tranche of the Convertible Notes to six subscribers in the aggregate principal amount of HK$40.0 million and the issue of the first tranche of the New Vision Century Notes to Vision Century in the principal amount of HK$40.0 million. Subsequent to the issue of these convertible notes, the Company received conversion notices from the six subscribers and Vision Century for conversion of all these convertible notes of total principal amount of HK$80.0 million on 18 September 2007. A total of 285,714,283 shares of the Company were issued upon conversion. In addition, 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 liabilities experienced by the Group up to 31 October 2008.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Taking into account the financial resources available to the Enlarged Group, including internally generated funds, further funds from the issue of the remaining portion of the Convertible Notes and the New Vision Century Notes of each of HK$60.0 million, the available banking facilities and the ability of Huang Worldwide to provide continuing financial support to the Group, and in the absence of any unforeseen circumstances, the directors of the Company are of the opinion that the Enlarged Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this circular.

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX II

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Ernst & Young, Certified Public Accountants.

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

4 October 2007

The Board of Directors Xin Corporation Limited

Dear Sirs,

We report on the unaudited pro forma consolidated statement of assets and liabilities of Xin Corporation Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) set out on pages 69 to 70 in Appendix II to the Company’s circular dated 4 October 2007 in connection with the formation of a company in the PRC (the “JV”) pursuant to a joint venture agreement dated 5 September 2007 (the “JV Agreement”), which will be principally engaged in the operation of budget hotels in the PRC (the “Transaction”). The unaudited pro forma consolidated statement of assets and liabilities of the Group and the JV (collectively known as the “Enlarged Group”) has been prepared by the directors of the Company, solely for illustrative purpose, to provide information about how the Transaction might have affected the net assets of the Group.

Respective Responsibilities of Directors of the Company and Reporting Accountants

It is solely the responsibility of the directors of the Company to prepare the unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group in accordance with paragraph 29 of Chapter 4 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 (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group and to report our opinion solely to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX II

Basis of opinion

We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements (“HKSIR”) 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the 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 consolidated statement of assets and liabilities of the Enlarged 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 unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group 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 consolidated statement of assets and liabilities of the Enlarged Group as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

The unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group is for illustrative purpose only, based on the directors’ judgements and assumptions, because of its nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position or results of:

the Enlarged Group had the Transaction actually occurred as at the dates indicated therein; or
the Enlarged Group at any future date or for any future periods.

Opinion

In our opinion:

(a) the unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purpose of the unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours faithfully,

Ernst & Young

Certified Public Accountants Hong Kong

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX II

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

Set out below is the unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group assuming that the JV was formed as at 31 March 2007.

The unaudited pro forma financial information of the Enlarged Group is prepared based on the audited consolidated balance sheet of the Group as at 31 March 2007, extracted from its annual report for the year ended 31 March 2007, after making appropriate pro forma adjustment that is considered necessary.

The unaudited pro forma financial information was prepared by the directors of the Company for the purpose of illustrating how the Transaction might have affected the assets and liabilities position of the Enlarged Group. As it is prepared for illustrative purpose only, it may not purport to represent the assets and liabilities position of the Enlarged Group on the completion of the Transaction.

NON-CURRENT ASSETS Property, plant and equipment Investment properties Prepaid land lease payments Goodwill Total non-current assets CURRENT ASSETS Inventories Accounts receivable Prepaid land lease payments Prepayments, deposits and other receivables Cash and cash equivalents Total current assets	The Group at 31 March Pro forma 2007 adjustment HK$’000 HK$’000 (note) 163 20,188 31,124 6,478 57,953 1,970 75,869 779 1,105 29,255 1,500 108,978	Adjusted balance HK$’000 163 20,188 31,124 6,478
		57,953
		1,970 75,869 779 1,105 30,755
		110,478

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX II

CURRENT LIABILITIES Accounts and bills payable Tax payable Other payables and accruals Interest-bearing bank and other borrowings Loan from a minority shareholder Due to a minority shareholder Due to a related company Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Convertible notes Total non-current liabilities Net assets Note to the pro forma adjustment:	The Group at 31 March Pro forma 2007 adjustment HK$’000 HK$’000 (note) 21,019 3,659 22,982 12,079 644 48,241 18 108,642 336 58,289 19,536 19,536 38,753	Adjusted balance HK$’000 21,019 3,659 22,982 12,079 644 48,241 18
		108,642
		1,836
		59,789
		19,536
		19,536
		40,253

The increase in cash and bank balance is due to the capital contribution of RMB1.5 million by other joint venture partners, representing 30% of registered capital of RMB5.0 million of the JV upon establishment of the JV, and the JV will become a 70% owned subsidiary of the Company, of which the balance sheet will be consolidated into the Group’s balance sheet. Amount stated in RMB is translated into HK$ at the exchange rate of RMB1.0 = HK$1.0.

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This circular 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 circular 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. 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. 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 1,000,000 – 0.11% 2,024,000 – 0.21% 684,181,001 (Note) – 73.81% 686,205,001 74.02% 1,024,000 – 0.11% 684,181,001 (Note) – 73.81% 685,205,001 73.92% 1,024,000 – 0.11%	Approximate Number of Shares percentage of the Long Short existing issued position position share capital 1,000,000 – 0.11% 2,024,000 – 0.21% 684,181,001 (Note) – 73.81% 686,205,001 74.02% 1,024,000 – 0.11% 684,181,001 (Note) – 73.81% 685,205,001 73.92% 1,024,000 – 0.11%
		74.02% 0.11% 73.81%
		73.92% 0.11%

Note: Vision Century is ultimately owned by the discretionary trust of which Mr. Wilson Ng and Mr. Ng Wee Keat are discretionary beneficiaries and thus was deemed to be interested in 684,181,001 Shares under the SFO. Details of such 684,181,001 Shares in which Vision Century is interested for the purposes of the SFO are set out in point 3 of this appendix under the heading “Substantial Shareholders”.

GENERAL INFORMATION

APPENDIX III

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.

3. SUBSTANTIAL SHAREHOLDERS

So far as is known to any Director or chief executive of the Company, 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	684,181,001	(Note 1)	–	73.81%
Huang Worldwide	684,181,001	(Note 1)	–	73.81%
Huang Group	684,181,001	(Notes 1 and 2)	–	73.81%
Mr. Kan Ka Chong, Frederick	684,181,001	(Notes 2 and 3)	–	73.81%
Mr. Ng (Huang) Cheow Leng	726,101,942	(Notes 2, 4 and 5)	–	78.33%

GENERAL INFORMATION

APPENDIX III

Notes:

Huang Group is the ultimate holding company of Huang Worldwide and Vision Century. Huang Worldwide is the immediate holding company of Vision Century. Huang Worldwide and Vision Century were deemed to be interested in 684,181,001 Shares representing 469,895,286 Shares held by Vision Century as at the Latest Practicable Date and 214,285,715 new Shares to be issued to Vision Century upon conversion of the remaining portion of the New Vision Century Notes (subject to adjustments).
Huang Group is held by Mr. Kan Ka Chong, Frederick in the capacity of the trustee of the Discretionary Trust, the settlor of which is Mr. Ng (Huang) Cheow Leng.
Mr. Kan Ka Chong, Frederick was deemed to be interested in 684,181,001 Shares under the SFO since he is the trustee of the Discretionary Trust.
Huang & Co (Singapore) Pte. Ltd. is wholly owned by New Century International Pte. Ltd.. Mr. Ng (Huang) Cheow Leng jointly owns New Century International Pte. Ltd. with other shareholders.
In capacity of the settlor of the Discretionary Trust and the shareholding in New Century International Pte. Ltd., Mr. Ng (Huang) Cheow Leng was deemed to be interested in 726,101,942 Shares under the SFO.

Save as disclosed above, so far is known to any Directors or Chief Executive of the Company, as at the Latest Practicable Date no other person 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.

4. EXPERT AND CONSENT

The following is the qualification of the expert who has given an opinion or advice contained in this circular:

Name Qualification Ernst & Young Certified Public Accountants

Ernst & Young has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and opinion as set out in this circular and references to its name in the form and context in which they appear.

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 they have any interest, either direct or indirect, in any assets which had been since 31 March 2007 (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.

GENERAL INFORMATION

APPENDIX III

5. 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.

6. 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.

7. 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 circular and are or may be material:

a loan facility agreement dated 2 July 2003 (as supplemented on 29 October 2004, 14 July 2006 and 10 July 2007) relating to a credit facility for the amount of HK$50.0 million granted to the Group by Vision Century;
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 1% convertible note in the principal amount of HK$17.0 million and was fully converted into Shares on 26 July 2007 and 30 July 2007;
an underwriting agreement dated 17 August 2006 entered into between Kingston Securities Limited and the Company in relation to the underwriting of the Open Offer;
the sale and purchase agreement dated 22 November 2006 entered into between Huang & Co (Singapore) Pte. Ltd. (the “Vendor”), Able Market Profits Limited (the “Purchaser”), and Xin Procurement & Trading Pte. Ltd. (“Xin Procurement”), in relation to the acquisition by the Group of 24% of the entire issued share capital of Xin Procurement and the rights of and benefits in 24% of the shareholders’ loan advanced to Xin Procurement;
the conditional placing agreement dated 20 June 2007 (as supplemented on 28 June 2007) entered into between the Company and Interchina Securities Limited as the placing agent in relation to the private placement of the Convertible Notes;
the conditional call option agreement dated 20 June 2007 (as supplemented on 28 June 2007) entered into between the Company and Vision Century pursuant to which the Company has agreed to grant to Vision Century the option to subscribe for the New Vision Century Notes in the aggregate principal amount of up to HK$100,000,000; and
the JV Agreement.

GENERAL INFORMATION

APPENDIX III

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

8. 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 28 February 2007 entered into between the Purchaser, the Vendor and Xin Procurement; (ii) a loan facility agreement dated 2 July 2003 (as supplemented on 29 October 2004, 14 July 2006 and 10 July 2007) relating to a credit facility for the amount of HK$50.0 million granted to the Group by Vision Century; and (iii) the conditional call option agreement dated 20 June 2007 (as supplemented on 28 June 2007) entered into between the Company and Vision Century in relation to the option granted to Vision Century to subscribe for the New Vision Century Notes, 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 2007 (the date to which the latest published audited financial statements of the Company were made up).
(d) The secretary and qualified accountant of the Company is Mr. Yu Wai Man, who is a fellow member of the Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants.
(e) The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
(f) The head office and principal place of business of the Company in Hong Kong is located at Room 2107, 21st Floor, Nan Fung Tower, 173 Des Voeux Road Central, Hong Kong.
(g) The branch share registrar of the Company in Hong Kong is Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(h) The English texts of this circular and the accompanying form of proxy shall prevail over their respective Chinese texts.

GENERAL INFORMATION

APPENDIX III

9. 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 circular up to and including 22 October 2007:

(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 2006 and 2007;
(c) all material contracts referred to in the paragraph headed “Material contracts” in this appendix;
(d) the report issued by Ernst & Young in connection with the unaudited pro forma financial information on the Enlarged Group, the text of which is set out in Appendix II to this circular;
(e) the prospectus of the Company dated 26 September 2006 in relation to the Open Offer; and
(f) a copy of each circular issued by the Company pursuant to the requirements set out in Chapters 14 and/or 14A of the Listing Rules which has been issued since the date of the latest published audited accounts of the Company.

NOTICE OF SGM

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

NOTICE IS HEREBY GIVEN that a special general meeting of Xin Corporation Limited (the “Company”) will be held at Plaza IV, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong on Monday, 22 October 2007 at 10:00 a.m. for the purpose of considering and, if thought fit, passing the following resolution, with or without amendments, as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT :

(a) the joint venture agreement (“Joint Venture Agreement”) dated 5 September 2007 entered into between Charmtime International Limited, 張均先生 (Mr. Zhang Jun), Goldlions (International) Hotel Management Group Limited and 青島金獅壹佰酒店有限公司 (Qingdao Gold-lions 100 Hotel Limited) in relation to the formation of a joint venture in the People’s Republic of China, a copy of which has been produced to this meeting marked “A” and signed by the Chairman of the meeting for the purpose of identification, be and is hereby approved, confirmed and ratified; and
(b) the directors of the Company be and are hereby authorised to do all things and acts and sign all documents which they may consider necessary, desirable or expedient to implement and/ or give effect to any matters relating to or in connection with the Joint Venture Agreement.”

By order of the Board Yu Wai Man Company Secretary

Hong Kong, 4 October 2007

Registered Office:

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Head Office and Principal Place of Business in Hong Kong:

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

For identification only

NOTICE OF SGM

Notes:

Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member of the Company who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company. In addition, a proxy or proxies representing either a member of the Company who is an individual or a member of the Company which is a corporation is entitled to exercise the same powers on behalf of the member of the Company which he or they represent as such member of the Company could exercise.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorised to sign the same. In the case of an instrument of proxy purporting to be signed on behalf of a corporation by an officer thereof it shall be assumed, unless the contrary appears, that such officer was duly authorised to sign such instrument of proxy on behalf of the corporation without further evidence of the fact.
The instrument appointing a proxy and (if required by the board) the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority, shall be delivered to the 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 not later than forty-eight (48) hours before the time appointed for holding the meeting at which the person named in the instrument proposes to vote and in default the instrument of proxy shall not be treated as valid.
Delivery of an instrument appointing a proxy shall not preclude a member from attending and voting in person at the meeting convened and in such event, the instrument appointing a proxy shall be deemed to be revoked.
Where there are joint holders of any share, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders be present at any meeting the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.

AI assistant

PegBio Co., Ltd. — Proxy Solicitation & Information Statement 2007

50676_rns_2007-10-03_c02f0e5e-de59-42b4-9e2c-54bf5254d59d.pdf

MAJOR TRANSACTION

FORMATION OF A JOINT VENTURE COMPANY

Financial adviser to Xin Corporation Limited

Optima Capital Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

MAJOR TRANSACTION

FORMATION OF A JOINT VENTURE COMPANY

INTRODUCTION

THE JV AGREEMENT

The JV

LETTER FROM THE BOARD

Conditions

First right of refusal

LETTER FROM THE BOARD

REASONS FOR THE FORMATION OF THE JV

FINANCIAL EFFECT OF THE JV AGREEMENT

IMPLICATION OF LISTING RULES

SGM

PROCEDURES FOR DEMANDING A POLL

RECOMMENDATION

GENERAL

1. SUMMARY OF FINANCIAL INFORMATION

Results

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS

“Consolidated Income Statement

Consolidated Income Statement (continued)

Consolidated Balance Sheet

Consolidated Balance Sheet (continued)

Consolidated Statement of Changes in Equity

Consolidated Statement of Changes in Equity (continued)

Consolidated Cash Flow Statement

Consolidated Cash Flow Statement (continued)

Balance Sheet

Notes to Financial Statements

1. CORPORATE INFORMATION

2.1 BASIS OF PREPARATION

Basis of consolidation

2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

(a) HKAS 21 The Effects of Changes in Foreign Exchange Rates

2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (continued)

(b) HKAS 39 Financial Instruments: Recognition and Measurement

(c) HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease

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

2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

Goodwill

Impairment of non-financial assets other than goodwill

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Related parties

Property, plant and equipment and depreciation

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investment properties

Leases

Investments and other financial assets

Loans and receivables

Impairment of financial assets

Assets carried at amortised cost

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of financial assets (continued)

Derecognition of financial assets

Financial liabilities at amortised cost (including interest-bearing loans and borrowings)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Convertible notes

Derecognition of financial liabilities

Inventories

Cash and cash equivalents

Provisions

Income tax

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income tax (continued)

Revenue recognition

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

PegBio Co., Ltd. Proxy Solicitation & Information Statement 2007