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Samsonite Group S.A. Proxy Solicitation & Information Statement 2007
50259_rns_2007-06-22_db83e590-b9ae-4494-948b-3caf81c07167.pdf
Proxy Solicitation & Information Statement
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THIS CIRCULAR REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt as to any aspect of this circular, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.
If you have sold or transferred all your shares in Riche Multi-Media Holdings Limited, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker 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.
RICHE MULTI-MEDIA HOLDINGS LIMITED
(Incorporated in Bermuda with limited liability)
(Stock Code: 764)
MAJOR TRANSACTION — GRANTING OF FACILITY
A letter from the board of directors of Riche Multi-Media Holdings Limited is set out on pages 3 to 9 of this circular.
A notice convening the special general meeting of Riche Multi-Media Holdings Limited to be held at Unit 3408, Shun Tak Centre, West Tower, 168-200 Connaught Road Central, Hong Kong on Tuesday, 10 July 2007, at 4:00 p.m., or any adjournments thereof, is set out on pages 74 to 75 of this circular. Whether or not you intend to attend the meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the Company's branch registrars in Hong Kong, Standard Registrars Limited at 26th Floor, Tesbury Centre, 28 Queen's Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the special general meeting or any adjournment thereof should you so wish.
22 June 2007
CONTENTS
Page
Definitions 1
Letter from the Board
Introduction 3
Information on JV Co. 4
Information on Steve Leung Hotel Design and Management Limited and Mr. Steve Leung 4
Details of the Facility 5
Reasons for and benefits of the Facility 6
Financial Effects of the Facility 7
Business Review and Prospects of the Group 7
Procedures for Demanding a Poll 8
The SGM 9
Recommendation 9
Additional Information 9
Appendix I — Financial Information on the Group 10
Appendix II — General Information 68
Notice of SGM 74
DEFINITIONS
In this circular, the following expressions have the meanings respectively set opposite them unless the context otherwise requires:
"Board"
the board of Directors;
"Company"
Riche Multi-Media Holdings Limited, a company incorporated in Bermuda with limited liability and the Shares of which are listed on the Main Board of the Stock Exchange;
"Director(s)"
director(s) of the board of the Company;
"Facility"
the revolving facility of up to HK$200,000,000 to be granted by Rich Joy to JV Co.;
"Facility Agreement"
the agreement dated 11 May 2007 entered into between Rich Joy and JV Co. in relation to the Facility;
"Facility Limit"
the maximum amount drawn under the Facility, being HK$200,000,000;
"Group"
the Company and its subsidiaries;
"Hong Kong"
Hong Kong Special Administrative Region of the PRC;
"Independent Third Party"
person who himself is, and (in the case of corporate entity) its ultimate beneficial owners are, to the best of the Directors' knowledge, information and belief, having made all reasonable enquiries, third parties who are not connected persons of the Company and are independent of the Company and its subsidiaries, their directors, chief executives and substantial shareholders or their respective associates (as that term is defined in the Listing Rules);
"JV Co."
Best Season Holdings Corp., the joint venture company incorporated in the British Virgin Islands with limited liability as to US$75 and US$25 paid up by the Company and Steve Leung Hotel Design and Management Limited respectively (a company wholly owned by Mr. Steve Leung);
"JV Agreement"
the agreement dated 11 May 2007 entered into between Legend Rich, the Company and Steve Leung Hotel Design and Management Limited;
— 1 —
DEFINITIONS
"Latest Practicable Date"
20 June 2007, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein;
"Legend Rich"
Legend Rich Limited, a wholly-owned subsidiary of the Company;
"Listing Rules"
the Rules Governing the listing of securities on the Stock Exchange;
"Macau"
Macau Special Administrative Region of the PRC;
"Placing I"
the top-up placing of 1,296,860,000 new ordinary shares of HK$0.01 each in the share capital of the Company as announced by the Company on 19 March 2007;
"Placing II"
the placing of 155,622,000 new Shares as announced by the Company on 10 April 2007;
"PRC"
the People's Republic of China;
"Review"
an annual review by Rich Joy of the Facility (including amounts advanced) and determine whether to continue with the Facility;
"Rich Joy"
Rich Joy Investments Limited, a wholly-owned subsidiary of the Company;
"SFO"
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong);
"SGM"
the special general meeting to be convened for Shareholders to approve the granting of the Facility;
"Share(s)"
ordinary share(s) of HK$0.10 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; and
"%"
per cent.
— 2 —
LETTER FROM THE BOARD
RICHE MULTI-MEDIA HOLDINGS LIMITED
(Incorporated in Bermuda with limited liability)
(Stock Code: 764)
Executive Directors:
Mr. Heung Wah Keung
Ms. Chen Ming Yin, Tiffany
Independent Non-executive Directors:
Mr. Tang Chak Lam, Gilbert
Mr. Ho Wai Chi, Paul
Mr. Lien Wai Hung
Registered office:
Clarendon House
2 Church Street
Hamilton HM11
Bermuda
Head office and principal place of business in Hong Kong:
Unit 3408
Shun Tak Centre, West Tower
168-200 Connaught Road Central
Hong Kong
22 June 2007
To the Shareholders and. for information only, the holders of the share options of the Company
Dear Sir or Madam,
MAJOR TRANSACTION — GRANTING OF FACILITY
INTRODUCTION
On 16 May 2007, the Board announced that the Company and Legend Rich entered into the JV Agreement with Steve Leung Hotel Design and Management Limited on 11 May 2007 for the purpose of setting up of JV Co. JV Co. is held as to 75% by Legend Rich and 25% by Steve Leung Hotel Design and Management Limited. Rich Joy has agreed to grant JV Co. the Facility for the purpose of its business and working capital requirements.
On 11 May 2007, Rich Joy and JV Co. also entered into the Facility Agreement pursuant to which Rich Joy has agreed to provide the Facility, which is revolving in nature, to JV Co. The provision of the Facility is a major transaction for the Company under Chapter 14 of the Listing Rules.
LETTER FROM THE BOARD
The purpose of this circular is to provide you with further information relating to, among other things, (i) details of the terms and conditions of the Facility and (ii) a notice of the SGM.
INFORMATION ON JV CO.
JV Co. has been established to invest in, manage and conduct branding for real estate and/or related properties in Macau including but not limited to hotel(s), serviced apartment(s), restaurant(s), retail(s), catering(s), resort(s), club(s), residential(s) and any other service position. The total assets of JV Co. is US$100 and JV Co. has no liabilities as at the Latest Practicable Date. There is no profit or loss recorded in the unaudited management accounts of JV Co. for the period commencing on 27 March 2007 (being its date of incorporation) to the Latest Practicable Date.
Pursuant to the JV Agreement, the financing requirements of JV Co. shall be borne solely by Legend Rich. As such, Legend Rich has procured the Company, through Rich Joy, to provide the Facility to JV Co.
In order for JV Co. to proceed with its business of investing in, management and branding for real estate and/or related properties in Macau, Rich Joy has entered into the Facility Agreement to grant the Facility to JV Co., details of which are set out below. The formation of the JV Co. and the granting of the Facility constitute a major transaction under Chapter 14 of the Listing Rules (on the assumption of the whole Facility amount is drawdown).
INFORMATION ON STEVE LEUNG HOTEL DESIGN AND MANAGEMENT LIMITED AND MR. STEVE LEUNG
Mr. Steve Leung is an architect and interior designer. In 1997, Mr. Steve Leung established Steve Leung Designers Ltd., subsequently opening branches in Guangzhou, Shanghai and Beijing. He works on a wide spectrum of design projects — hotels, restaurants, shops, office and show flats, etc. In 2001, Mr. Steve Leung branched out into furniture design, creating unique collections such as “i-chi”, “cube”, and “ling-long”.
In 2006, Mr. Steve Leung won for the sixth time the Best Interior Designers Worldwide award in the Andrew Martin International Awards 2006, the Oscars of design. His creations won the highest accolades in several categories of the Asia Pacific Interior Design awards for four consecutive years, and are highly credited in international hospitality design awards, like Gold Key Awards and Hospitality Awards in the USA. He has been credited with over 50 awards in the Asia Pacific region and internationally.
Steve Leung Hotel Design and Management Limited and its ultimate beneficial owners are Independent Third Parties.
— 4 —
LETTER FROM THE BOARD
DETAILS OF THE FACILITY
The principal terms and conditions of the Facility are as follows:
Date
11 May 2007
Parties
(i) Rich Joy (as lender)
(ii) JV Co. (as borrower)
The Amount
Subject to the terms and conditions of the Facility, Rich Joy has agreed to grant the Facility to JV Co. The Facility is of up to HK$200,000,000. The amount of the Facility was determined by reference to the ballpark figure of properties currently scouted by JV Co. for investment and also for its general working capital purpose.
Interest
An interest rate of 6.5% per annum on the Facility is payable together with the principal. A default interest rate of 9.5% per annum is payable on any overdue amount whether principal or interest.
Term
The Facility is for a term not exceeding 3 years commencing on the drawdown date.
Conditions precedent
The drawdown of the Facility is subject to, amongst others, the condition that the Facility having been approved by the Shareholders in the SGM and the results of a due diligence on the projects to be entered into by JV Co. having been satisfactory to Rich Joy in its absolute discretion.
Security
None
LETTER FROM THE BOARD
Repayment
The JV Co. shall repay each revolving advance in full on or before the maturity date although Rich Joy shall have the right to request for immediate repayment of all outstanding amounts following a Review.
REASONS FOR AND BENEFITS OF THE FACILITY
The Group is principally engaged in the distribution of films, sub-licensing of film rights, sales of financial assets and property investments and will continue with such business following the formation of the JV Co.
In view of rampant piracy and weak demand for Hong Kong-made movies in the PRC, Hong Kong film production companies adopt a cautious approach in investing films. Such difficult operating environment places strong pressure on the profitability of the Group's film distribution business. As a result, the Directors have been proactively identifying suitable investment opportunities to develop the Group's business.
Following the liberalization of gaming industry in 2002, Macau has successfully established itself as the most important tourism and gaming destination in Asia and foreign investment has poured into Macau. In 2006, 20 million people visited Macau. More visitors need more hotels, transport, residential properties and related services. An influx of expatriates working in overseas casino operators, hotel properties and convention & exhibition sector is demanding high-end serviced apartments. Various entertainment properties, such as small and medium hotels, need professional services on management and branding to meet the increase in competition. There is an upward trend of property value and rental in Macau driven by its significant economic growth.
Given the Directors' positive outlook of the Macau property market and related service position, the Directors believe that the Group would capitalise on the connections and expertise of Mr. Steve Leung in managing and branding of real estate and/or related properties, interior design and property developments to develop the business of JV Co. and to establish a leading position in Macau's property and related services markets. Also, the Directors believe that the formation of JV Co. would enable the Group to diversify its revenue source.
Upon the completion of formation of JV Co., JV Co. is a 75% owned subsidiary of the Company. The Directors believe that the provision of the Facility to JV Co. will facilitate the business of JV Co. and may in turn improve the Group's profitability in the long run.
The directors of JV Co. have confirmed that the proceeds of the Facility shall be used by JV Co. exclusively for investing into, management and branding of real estate and/or related properties in Macau including but not limited to hotel(s), serviced apartment(s), restaurant(s),
— 6 —
LETTER FROM THE BOARD
catering(s), retail(s), resort(s), club(s), residential(s) and any other service position. The Directors consider that the provision of the Facility and the terms of the Facility Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Facility will be funded by the Group's internal resources.
Taking into account the Placing I and Placing II as completed on 30 March 2007 and 31 May 2007 respectively, the Group shall have sufficient internal resources to fund the Facility.
FINANCIAL EFFECTS OF THE FACILITY
The granting of the Facility to JV Co. will have no effect on the assets and liabilities of the Group, but it will generate an annual interest income of HK$3,250,000, after the elimination of the interest income of HK$9,750,000 arising from intra-group transaction, in the event that the Facility is fully drawdown by JV Co.
BUSINESS REVIEW AND PROSPECTS OF THE GROUP
The Group recorded a turnover of HK$17,476,000 for the year ended 31 December 2006, a 54% decrease from HK$38,339,000 for the previous year. Of the total turnover amount, HK$164,000 or 1% was generated from distribution of films, HK$200,000 or 1% was generated from sub-licensing of film rights, HK$15,229,000 or 87% was generated from sales of financial assets and HK$1,883,000 or 11% was generated from property investment. The loss for the year ended 31 December 2006 was HK$21,294,000, representing a 28% improvement over the corresponding figure of HK$29,664,000 in 2005. The improvement was mainly attributable to the fact that the Group did not record any impairment losses recognised in respect of film rights and goodwill in the year ended 31 December 2006 while the Group recorded such impairment losses of HK$21,012,000 in the previous year. This improvement was partly offset by the increases in administrative expenses and finance costs resulted from the Group's expansion into property investment business.
In view of rampant piracy and weak demand for Hong Kong-made movies in the PRC, Hong Kong film production companies adopt a cautious approach in investing in films. Such difficult operating environment placed strong pressure on the profitability of the Group's film distribution business. As a result, the Group slowed down its film distribution activities during the year. For the year ended 31 December 2006, the revenue from film distribution business was generated from the sales of the Group's old films.
The property located at No. 9 Gongyuan Xijie, Dongcheng District, Beijing, the PRC (the "Beijing Property") is currently under renovation and being transformed from an apartment complex into high-end serviced apartments. To create serviced apartments of an international standard that will add value to the Beijing Property and achieve a maximum revenue return for its operations, the Group has recently appointed Shama Group to provide pre-handover and procurement services for the Beijing Property. Our project team is working closely with
LETTER FROM THE BOARD
Shama Group at the pre-handover stage. The Group is currently in the course of negotiations with Shama Group with a view to appointing Shama Group to manage the Beijing Property. The negotiations are at an advanced stage and the Directors envisage they will be concluded by mid-2007. It is expected that the Beijing Property will commence operation in September 2007.
As the operating environment for film distribution in the PRC takes some time to improve, the Group will continue to cautiously monitor the environment and strengthen it business foundations by implementing prudent cost control. In addition, the Group will explore non-traditional distribution media for its old films in the PRC and seek opportunities to act as a distributor for Hong Kong film production companies.
With the effect of the PRC's accession into the World Trade Organisation in place and 2008 Beijing Olympic Games, Beijing is expected to see an increasing number of expatriates from multinational companies and foreign government institutions, which will lead to continual increase in demand for high-end serviced apartments. Upon the completion of the renovation, the Beijing Property is expected to meet the demand. The Directors believe that the Beijing Property provides the Group with a stable source of revenue.
Given the Directors' positive outlook of the Macau property market and related service position, the formation of JV Co. and the granting of the Facility match with the Group's diversification strategy. The Directors believe that the formation of JV Co. and the granting of the Facility to JV Co. will enable the Group to diversify its revenue sources and improve the Group's profitability in the long run.
PROCEDURES FOR DEMANDING A POLL
Pursuant to bye-law 66 of the bye-laws of the Company, at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) demanded by:
(i) the chairman of the meeting; or
(ii) at least three Shareholders present in person or, in the case of a Shareholder being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or
(iii) Shareholder or Shareholders present in person or, in the case of a Shareholder being a corporation by its duly authorised corporate representative or by proxy and representing not less than one-tenth of the total voting rights of all the Shareholders having the right to vote at the meeting; or
— 8 —
LETTER FROM THE BOARD
(iv) Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised corporate representative or by proxy and holding Shares 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 the Shares conferring that right.
THE SGM
A notice convening the SGM to be held at Unit 3408, Shun Tak Centre, West Tower, 168-200 Connaught Road Central, Hong Kong on Tuesday, 10 July 2007, at 4:00 p.m. for the purpose of considering and, if thought fit, passing, with or without amendments, the ordinary resolution to approve the entering into of the JV Agreement and the Facility Agreement and the transactions contemplated thereunder is set out on pages 74 to 75 of this circular. No Shareholder has a material interest in the Facility which is different from the other Shareholders. Accordingly, no Shareholder is required to abstain from voting on the resolution to approve the Facility at the SGM.
A form of proxy for use by the Shareholders at the SGM is enclosed. Whether or not you are able to attend the SGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Company's branch registrars in Hong Kong, Standard Registrars Limited at 26th Floor, Tesbury Centre, 28 Queen's Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof. 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 should you so wish.
RECOMMENDATION
The Directors (including the independent non-executive Directors) are of the opinion that the granting of the Facility is in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors (including the independent non-executive Directors) recommend that all Shareholders should vote in favour of the ordinary resolution proposed at the SGM.
ADDITIONAL INFORMATION
Your attention is drawn to the additional information set out in the appendices to this circular.
By Order of the Board
Heung Wah Keung
Chairman
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
1. SUMMARY OF FINANCIAL INFORMATION
The following is a summary of the consolidated results of the Group for the three years ended 31 December 2006 and the consolidated balance sheets as at 31 December 2004, 2005 and 2006 as extracted from the published annual reports of the Company for the two years ended 31 December 2006.
(a) Consolidated balance sheet
| As at 31 December | |||
|---|---|---|---|
| 2004 | 2005 | 2006 | |
| HK$'000 | HK$'000 | HK$'000 | |
| ASSETS | |||
| Non-current assets | |||
| Property, plant and equipment | 7,975 | 3,418 | 2,468 |
| Interests in leasehold land | 1,580 | — | — |
| Film rights | 9,236 | — | — |
| Investment properties | — | — | 678,000 |
| Goodwill | 4,400 | — | 77,284 |
| Available-for-sale financial assets | 172 | 172 | 172 |
| 23,363 | 3,590 | 757,924 | |
| Current assets | |||
| Inventories | 15 | 6 | 45,154 |
| Film rights | 1,105 | — | — |
| Film rights deposits | 14 | 14 | — |
| Trade receivables | 23,308 | 4,729 | 936 |
| Deposits, prepayments and other receivables | 4,584 | 54,202 | 19,254 |
| Deposit with a related company | 5,000 | — | — |
| Financial assets at fair value through profit or loss | 41,732 | 30,567 | 28,100 |
| Available-for-sale financial assets | 18,000 | — | — |
| Amount due from an associate | 300 | — | — |
| Tax prepayments | — | 4,146 | 7,720 |
| Cash and cash equivalents | 15,460 | 137,973 | 63,140 |
| 109,518 | 231,637 | 164,304 | |
| Total assets | 132,881 | 235,227 | 922,228 |
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
| As at 31 December | |||
|---|---|---|---|
| 2004 | 2005 | 2006 | |
| HK$'000 | HK$'000 | HK$'000 | |
| EQUITY | |||
| Capital and reserves attributable to to the Company’s equity holders | |||
| Share capital | 47,520 | 51,540 | 64,843 |
| Reserves | 21,051 | 116,070 | 334,793 |
| 68,571 | 167,610 | 399,636 | |
| Minority interests | — | — | 3,896 |
| 68,571 | 167,610 | 403,532 | |
| LIABILITIES | |||
| Current liabilities | |||
| Trade payables | 1,983 | 1,714 | — |
| Accruals and other payables | 3,797 | 7,619 | 20,208 |
| Receipts in advance | 1,204 | 483 | 60,898 |
| Amounts due to related companies | 549 | 34,832 | 606 |
| Obligations under a finance lease | |||
| — amount due within one year | 8 | — | — |
| Convertible notes payable | 33,800 | — | — |
| Secured bank loans | |||
| — due within one year | — | — | 5,470 |
| Tax payable | 22,969 | 22,969 | 23,240 |
| 64,310 | 67,617 | 110,422 | |
| Non-current liabilities | |||
| Secured bank loans | |||
| — due after one year | — | — | 351,957 |
| Deferred taxation | — | — | 56,317 |
| — | — | 408,274 | |
| Total equity and liabilities | 132,881 | 235,227 | 922,228 |
| Net current assets | 45,208 | 164,020 | 53,882 |
| Total assets less current liabilities | 68,571 | 167,610 | 811,806 |
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
(b) Consolidated income statement
| Year ended 31 December | |||
|---|---|---|---|
| 2004 | 2005 | 2006 | |
| HK$'000 | HK$'000 | HK$'000 | |
| Turnover | 58,382 | 38,339 | 17,476 |
| Cost of sales | (48,674) | (36,466) | (13,998) |
| Gross profit | 9,708 | 1,873 | 3,478 |
| Other revenue | 390 | 2,066 | 5,699 |
| Other income | — | 7,110 | 5,560 |
| Increase in fair value of investments properties | — | — | 590 |
| Administrative expenses | (36,266) | (19,332) | (26,811) |
| Selling expenses | (234) | (29) | — |
| Impairment loss recognised in respect of others assets | (46,512) | — | — |
| Impairment loss recognised in respect of film rights | (16,213) | (8,956) | — |
| Impairment loss recognised in respect of goodwill | (28,072) | (12,056) | — |
| Impairment loss recognised in respect of available-for-sale financial assets | (12,000) | — | — |
| Allowance for advances an associate | (138,531) | — | — |
| Loss from operations | (267,730) | (29,324) | (11,484) |
| Finance costs | (349) | (340) | (9,615) |
| Loss before taxation | (268,347) | (29,664) | (21,099) |
| Taxation | (277) | — | (195) |
| Loss for the year | (268,347) | (29,664) | (21,294) |
| Attributable to: Equity holders of the Company | (268,347) | (29,664) | (21,294) |
| Loss per share attributable to the equity holders of the Company | |||
| Basic | HK$(0.0565) cents | HK$(0.61) cents | HK$(0.33) cents |
| Diluted | HK$(0.0565) cents | N/A | N/A |
— 12 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
Note:
- The Hong Kong Institute of Certified Public Accountants has issued a number of new and revised Hong Kong Financial Reporting Standards (“HKFRSs”) that are effective for accounting periods beginning on or after 1 January 2005. Figures for 2005 and 2006 have been adjusted for these new and revised HKFRSs in accordance with the transitional provisions. The figures relating to earlier years have not adjusted to take into account the effect on the adoption of these new and revised HKFRSs.
— 13 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
2. CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP
The following is the consolidated balance sheet of the Group and balance sheet of the Company as at 31 December 2006 and 2005, the consolidated income statement of the Group for the two years ended 31 December 2006, the consolidated statement of changes in equity of the Group for the two years ended 31 December 2006, the consolidated cash flow statement of the Group for the two years ended 31 December 2006, together with the accompany notes as extracted from the annual report of the Company for the year ended 31 December 2006:
Consolidated Balance Sheet
At 31 December 2006
| Notes | 2006 | 2005 | |
|---|---|---|---|
| HK$'000 | HK$'000 | ||
| ASSETS | |||
| Non-current assets | |||
| Property, plant and equipment | 7 | 2,468 | 3,418 |
| Investment properties | 8 | 678,000 | — |
| Goodwill | 10 | 77,284 | — |
| Available-for-sale financial assets | 172 | 172 | |
| 757,924 | 3,590 | ||
| Current assets | |||
| Inventories | 11 | 45,154 | 6 |
| Film rights deposits | — | 14 | |
| Trade receivables | 12 | 936 | 4,729 |
| Deposits, prepayments and other receivables | 13 | 19,254 | 54,202 |
| Financial assets at fair value through profit or loss | 14 | 28,100 | 30,567 |
| Tax prepayments | 15 | 7,720 | 4,146 |
| Cash and cash equivalents | 16 | 63,140 | 137,973 |
| 164,304 | 231,637 | ||
| Total assets | 922,228 | 235,227 | |
| EQUITY | |||
| Capital and reserves attributable to the Company's equity holders | |||
| Share capital | 17 | 64,843 | 51,540 |
| Reserves | 334,793 | 116,070 | |
| 399,636 | 167,610 | ||
| Minority interests | 3,896 | — | |
| 403,532 | 167,610 |
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
| Notes | 2006 | 2005 | |
|---|---|---|---|
| HK$'000 | HK$'000 | ||
| LIABILITIES | |||
| Current liabilities | |||
| Trade payables | 19 | — | 1,714 |
| Accruals and other payables | 20 | 20,208 | 7,619 |
| Receipts in advance | 21 | 60,898 | 483 |
| Amounts due to related companies | 22 | 606 | 34,832 |
| Secured bank loans — due within one year | 23 | 5,470 | — |
| Tax payable | 23,240 | 22,969 | |
| 110,422 | 67,617 | ||
| Non-current liabilities | |||
| Secured bank loans — due after one year | 23 | 351,957 | — |
| Deferred taxation | 24 | 56,317 | — |
| 408,274 | — | ||
| Total equity and liabilities | 922,228 | 235,227 | |
| Net current assets | 53,882 | 164,020 | |
| Total assets less current liabilities | 811,806 | 167,610 |
— 15 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
Balance Sheet
At 31 December 2006
| | Notes | 2006
HK$'000 | 2005
HK$'000 |
| --- | --- | --- | --- |
| ASSETS | | | |
| Non-current assets | | | |
| Interests in subsidiaries | 9 | 41,824 | — |
| Current assets | | | |
| Deposits, prepayments and other receivables | 13 | 1,801 | — |
| Cash and cash equivalents | 16 | 55,862 | 136,670 |
| | | 57,663 | 136,670 |
| Total assets | | 99,487 | 136,670 |
| EQUITY | | | |
| Capital and reserves attributable to the Company’s equity holders | | | |
| Share capital | 17 | 64,843 | 51,540 |
| Reserves | 18 | 25,708 | 47,479 |
| | | 90,551 | 99,019 |
| LIABILITIES | | | |
| Current liabilities | | | |
| Accruals and other payables | 20 | 233 | 1,118 |
| Amounts due to subsidiaries | | 8,703 | 2,733 |
| Amount due to a related company | 22 | — | 33,800 |
| | | 8,936 | 37,651 |
| Total equity and liabilities | | 99,487 | 136,670 |
| Net current assets | | 48,727 | 99,019 |
| Total assets less current liabilities | | 90,551 | 99,019 |
— 16 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
Consolidated Income Statement
For the year ended 31 December
| | Notes | 2006
HK$’000 | 2005
HK$’000 |
| --- | --- | --- | --- |
| Turnover | 25 | 17,476 | 38,339 |
| Cost of sales | | (13,998) | (36,466) |
| Gross profit | | 3,478 | 1,873 |
| Other revenue | 26 | 5,699 | 2,066 |
| Other income | 26 | 5,560 | 7,110 |
| Increase in fair value of investment properties | | 590 | — |
| Administrative expenses | | (26,811) | (19,332) |
| Selling expenses | | — | (29) |
| Impairment loss recognised in respect of film rights | | — | (8,956) |
| Impairment loss recognised in respect of goodwill | | — | (12,056) |
| Loss from operations | 27 | (11,484) | (29,324) |
| Finance costs | 28 | (9,615) | (340) |
| Loss before taxation | | (21,099) | (29,664) |
| Taxation | 31 | (195) | — |
| Loss for the year | | (21,294) | (29,664) |
| Attributable to: | | | |
| Equity holders of the Company | | (21,294) | (29,664) |
| Loss per share attributable to the equity holders of the Company | | | |
| Basic | 32 | HK(0.33) cents | HK(0.61) cents |
| Diluted | 32 | N/A | N/A |
— 17 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
Consolidated Statement of Changes in Equity
For the year ended 31 December 2006
| Attributable to equity holders of the Company | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Share capital | |||||||||||
| IBXS'000 | Share premium | ||||||||||
| IBXS'000 | Capital reserve | ||||||||||
| IBXS'000 (Note i) | Contributed surplus | ||||||||||
| IBXS'000 (Note ii) | Special reserve | ||||||||||
| IBXS'000 (Note iii) | Properties revaluation reserve | ||||||||||
| IBXS'000 | Exchange reserve | ||||||||||
| IBXS'000 | Accumulated losses | ||||||||||
| IBXS'000 | Sub-total | ||||||||||
| IBXS'000 | Minority interests | ||||||||||
| IBXS'000 | Total | ||||||||||
| IBXS'000 | |||||||||||
| At 1 January 2005 | 47,520 | — | 19,834 | 80,103 | — | 3,182 | — | (82,068) | 68,571 | — | 68,571 |
| Reserve realised on disposal of leasehold land and buildings | — | — | — | — | — | (3,182) | — | — | (3,182) | — | (3,182) |
| Issuance of new shares | 4,020 | 132,706 | — | — | — | — | — | — | 136,726 | — | 136,726 |
| Share issue expenses | — | (4,841) | — | — | — | — | — | — | (4,841) | — | (4,841) |
| Net loss for the year | — | — | — | — | — | — | — | (29,664) | (29,664) | — | (29,664) |
| At 31 December 2005 and 1 January 2006 | 51,540 | 127,865 | 19,834 | 80,103 | — | — | — | (111,732) | 167,610 | — | 167,610 |
| Issuance of new shares | 13,303 | 252,761 | — | — | — | — | — | — | 266,064 | — | 266,064 |
| Acquisition of a subsidiary | — | — | 10 | — | — | — | — | — | 10 | 3,896 | 3,906 |
| Special reserve arising from acquisition of a subsidiary | — | — | — | — | (19,955) | — | — | — | (19,955) | — | (19,955) |
| Exchange differences arising from translation of investment in a foreign subsidiary | — | — | — | — | — | — | 7,201 | — | 7,201 | — | 7,201 |
| Net loss for the year | — | — | — | — | — | — | — | (21,294) | (21,294) | — | (21,294) |
| At 31 December 2006 | 64,843 | 380,626 | 19,844 | 80,103 | (19,955) | — | 7,201 | (133,026) | 399,636 | 3,896 | 403,532 |
Notes:
(i) The capital reserve of the Group represents the difference of the share capital and share premium of the subsidiaries and the nominal value of the 880 shares issued by Ocean Shores (BVI) Limited (now renamed Riche (BVI) Limited) prior to the allotment of 120 shares to Classical Statue Limited and the amount arising from issue of shares by a subsidiary.
(ii) The contributed surplus of the Group represents the net amount transferred from the share premium account and to the accumulated losses account pursuant to the special resolution passed at the special general meeting on 22 August 2003.
(iii) The special reserve represents the difference between the fair value and the contracted value of the consideration in respect of the acquisition of Shinhan-Golden during year ended 31 December 2006.
— 18 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
Consolidated Cash Flow Statement
For the year ended 31 December
| | 2006
HK$'000 | 2005
HK$'000 |
| --- | --- | --- |
| OPERATING ACTIVITIES | | |
| Loss before taxation | (21,099) | (29,664) |
| Adjustments for: | | |
| Interest income | (4,314) | (1,339) |
| Dividend income | (754) | — |
| Increase in fair value of financial assets at fair value
through profit or loss | (5,360) | — |
| Increase in fair value of investment properties | (590) | — |
| Finance costs | 9,615 | 340 |
| Amortisation of film rights | — | 10,332 |
| Amortisation of interests in leasehold land | — | 10 |
| Depreciation of property, plant and equipment | 652 | 1,108 |
| Impairment loss on provision of bad and doubtful debts | — | 1,390 |
| Impairment loss recognised in respect
of trade receivables | 1,050 | 1,084 |
| Impairment loss recognised in respect of prepayments | 131 | 1,188 |
| Impairment loss recognised in respect of film rights | — | 8,956 |
| Impairment loss recognised in respect of goodwill | — | 12,056 |
| Gain on disposal of leasehold land and buildings | — | (7,110) |
| Loss on disposal of property, plant and equipment | 1,956 | — |
| Reversal of overprovision of accruals in previous year | (200) | — |
| Operating cash flows before movements
in working capital | (18,913) | (1,649) |
| (Increase)/decrease in inventories | (1,309) | 9 |
| Additions of film rights | — | (8,947) |
| Decrease in film rights deposits | 14 | — |
| Decrease in trade receivables | 2,755 | 16,105 |
| Decrease/(increase) in deposits, prepayments and
other receivables | 34,988 | (50,037) |
| Decrease in fair value of financial assets at fair value
through profit or loss | — | 11,165 |
| Decrease in available-for-sale financial assets | — | 18,000 |
| Decrease in deposit with a related company | — | 5,000 |
| Decrease in amount due from an associate | — | 300 |
| Decrease in trade payables | (1,714) | (269) |
| (Decrease)/increase in accruals and other payables | (41,337) | 132 |
| Increase/(decrease) in receipts in advance | 1,335 | (9,699) |
| (Decrease)/increase in amounts due to related companies | (34,226) | 34,283 |
| Cash (used in)/generated from operations | (58,407) | 14,393 |
| Tax paid | (3,303) | — |
| Net cash (used in)/generated from operating activities | (61,710) | 14,393 |
— 19 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
| | 2006
HK$'000 | 2005
HK$'000 |
| --- | --- | --- |
| INVESTING ACTIVITIES | | |
| Interest received | 4,314 | 1,339 |
| Dividend income | 754 | — |
| Proceeds from disposals of leasehold land and buildings | — | 9,000 |
| Proceeds from disposals of financial assets at fair value
through profit or loss | 13,461 | — |
| Effect from acquisition of a subsidiary | 415 | 95 |
| Additions to investment properties | (15,852) | — |
| Purchase of financial assets at fair value
through profit or loss | (5,634) | — |
| Purchase of property, plant and equipment | (1,156) | (53) |
| Net cash (used in)/generated from investing activities | (3,698) | 10,381 |
| FINANCING ACTIVITIES | | |
| Interest paid | (9,615) | (340) |
| Issuance of new shares | — | 131,179 |
| Issuance of new shares upon exercise of warrants | — | 706 |
| Repayment of a secured bank loan | (250,000) | — |
| New secured bank loan raised | 250,470 | — |
| Repayment of convertible notes payable | — | (33,800) |
| Repayment of capital element of a finance lease | — | (6) |
| Net cash (used in)/generated from financing activities | (9,145) | 97,739 |
| Net (decrease)/increase in cash and cash equivalents | (74,553) | 122,513 |
| Effect on foreign exchange rate | (280) | — |
| Cash and cash equivalents at the beginning of the year | 137,973 | 15,460 |
| Cash and cash equivalents at the end of the year | 63,140 | 137,973 |
| Analysis of the balances of cash and cash equivalents: | | |
| Cash and bank balances | 63,140 | 137,973 |
— 20 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
Notes to the Financial Statements
31 December 2006
1. General
The Company was incorporated in Bermuda as an exempted company with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited (the "Stock Exchange").
The address of the registered office of the Company is Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.
The Company's principal activity is investment holding and the principal activities of its subsidiaries are set out in note 9 to the financial statements.
2. Application of New and Revised Hong Kong Financial Reporting Standards
In the current year, the Group has applied, for the first time, a number of new standards, amendments and interpretations (the "new HKFRSs") issued by the Hong Kong Institute of Certified Public Accountants (the "HKICPA") that are relevant to its operations and effective for accounting periods beginning on or after 1 December 2005 or 1 January 2006. A summary of the new HKFRSs is set out as below:
HKAS 21 (Amendment) Net Investment in a Foreign Operation
HKAS 39 (Amendment) Cash Flow Hedge Accounting of Forecast Intragroup Transactions
HKAS 39 (Amendment) The Fair Value Option
HKAS 39 & HKFRS 4 Financial Guarantee Contracts
(Amendment)
HKFRS — Int 4 Determining whether an Arrangement contains a Lease
The adoption of the above new HKFRSs did not have significant impact on the Group's result and financial position for the current or prior accounting periods.
The Group has not early applied the following new standards, amendments or interpretations that have been issued but are not yet effective. The directors of the Company anticipate that the application of these new standards, amendments or interpretations will have no material impact on the results and the financial position of the Group.
HKAS 1 (Amendment) Capital Disclosures¹
HKFRS 7 Financial Instruments: Disclosures¹
HKFRS 8 Operating Segments²
HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies³
HK(IFRIC)-Int 8 Scope of HKFRS 2⁴
HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives⁵
HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment⁶
HK(IFRIC)-Int 11 HKFRS 2 — Group and Treasury Share Transactions⁷
HK(IFRIC)-Int 12 Service Concession Arrangements⁸
1 Effective for annual periods beginning on or after 1 January 2007
2 Effective for annual periods beginning on or after 1 January 2009
3 Effective for annual periods beginning on or after 1 March 2006
4 Effective for annual periods beginning on or after 1 May 2006
5 Effective for annual periods beginning on or after 1 June 2006
6 Effective for annual periods beginning on or after 1 November 2006
7 Effective for annual periods beginning on or after 1 March 2007
8 Effective for annual periods beginning on or after 1 January 2008
— 21 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
3. Summary of Significant Accounting Policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
(a) Basis of preparation
The financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which is a collective term that includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”), and Interpretations (“Ints”) issued by the HKICPA, accounting principles generally accepted in Hong Kong. In addition, the financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange (the “Listing Rules”) and by the Hong Kong Companies Ordinance.
The financial statements have been prepared under historical cost convention except for certain financial assets of fair value through profit or loss and investment properties which are carried at fair value. The preparation of financial statements in conformity with HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies.
The Group’s books and records are maintained in Hong Kong Dollar (“HK$”), the currency in which the majority of the Group’s transactions is denominated.
(b) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
All intra-group transactions, balance, income and expenses are eliminated in full on consolidation.
Minority interests in the net assets of consolidated subsidiaries are presented separately from the Group’s equity therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.
(c) Revenue recognition
Revenue from distribution of films is recognised when video products or master materials of films are delivered to customers and the title has passed.
Revenue from sub-licensing of film rights is recognised upon delivery of master materials of films to customers.
— 22 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
Proceeds from sales of financial assets at fair value through profit or loss are recognised when sale and purchase contracts became unconditional.
Rental income, including rentals invoiced in advance, from properties under operating lease is recognised on a straight-line basis over the period of the respective leases.
Dividend income from investments is recognised when the shareholders’ right to receive payment has been established.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable.
(d) Impairment of assets
Internal and external sources of information are reviewed at each balance sheet date to determine whether there is any indication of impairment of assets, or whether there is any indication that an impairment loss previously recognised no longer exists or may have decreased. If any such indication exists, the recoverable amount of the asset is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the income statement in the year in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant policy for that revalued asset.
i. Calculation of recoverable amount
The recoverable amount of an asset is the higher of its net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction while value in use is the present value of estimated future cash flows expected to arise from the continuing use of any asset and from its disposal at the end of its useful life. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of asset that generates cash inflows independently (i.e. a cash-generating unit).
ii. Reversals of impairment losses
In respect of assets other than goodwill, an impairment loss is reversed if there has been change in the estimates used to determine the recoverable amount. An impairment loss of goodwill is reversed only if the loss was caused by a specific external event of an exceptional nature that is not expected to recur, and the increase in recoverable amount relates the reversal effect of that specific event.
A reversal of impairment losses is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to the income statement in the year in which the reversals are recognised.
— 23 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
(e) Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit is the profit for the year, determined in accordance with the rules established by the taxation authorities, upon which income taxes are payable.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary difference can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investment in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
(f) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.
The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the 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 the property, plant and equipment, the expenditure is capitalised as an additional cost of that asset.
— 24 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
Depreciation is provided to write off the cost of property, plant and equipment, using the straight-line method, over their estimated useful lives. The principal annual rates are as follows:
| Buildings | 2% |
|---|---|
| Leasehold improvements | 33.3% |
| Office equipment | 20% |
| Motor vehicles | 20% |
| Furniture and fixtures | 15% |
The gain or loss arising from disposal of property, plant and equipment is determined as the difference between the net sale proceeds and the carrying amount of the relevant asset and is recognised in the income statement in the year the asset is derecognised.
(g) Investment properties
On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured using the fair value model. Gains or losses arising from changes in the fair values of investment properties are included in the income statements the year in which they arise.
An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the investment properties (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year in which the asset is derecognised.
(h) Investments in subsidiaries
A subsidiary is an enterprise controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. In the Company's balance sheet, investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.
(i) Goodwill
Goodwill arising on an acquisition of a subsidiary or an associate represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant subsidiary or associate at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.
Capitalised goodwill arising on an acquisition of a subsidiary is presented separately in the balance sheet. Capitalised goodwill arising on an acquisition of an associate is included in the cost of the investment of the relevant associate.
For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the acquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a financial
— 25 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the income statement. An impairment loss for goodwill is not reversed in subsequent periods.
On subsequent disposal of a subsidiary or an associate, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.
(j) Inventories
Inventories on finished goods are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method.
Inventories on stock of properties, which are held for trading, is stated at the lower of cost and net realisable value. Net realisable value is determined by reference to sale proceeds received after the balance sheet date less selling expenses, or by management estimates based on the prevailing market conditions.
(k) Financial instruments
The Group classifies its investment in securities in the following categories depends on the purpose of such investment were acquired. Management determines the classification of its investments at initial recognition and re-evaluate this designation at every reporting date.
(1) Financial assets at fair value through profit or loss
A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.
(2) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables included loan receivables, convertible notes receivables and trade receivables.
(3) Available-for-sale financial assets
Available-for-sale financial assets are non-derivative that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.
— 26 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
Purchases and sales of investments are recognised on trade-date — the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risk and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are included in the income statement in the year in which they arise. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale financial assets are recognised in equity. When securities classified as available-for-sale financial assets are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains or losses from investment securities.
The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer's specific circumstances.
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale financial assets, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the income statement — is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement.
(l) Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement.
(m) Cash and cash equivalent
Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.
— 27 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
(n) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, including fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
(o) Leases
Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership of the assets concerned to the Group. Assets held under finance leases are capitalised at the lower of fair values or the present value of the minimum lease payments. The corresponding liability to the lessor, net of interest charges, is included in the balance sheet as a finance lease obligation. Finance costs are charged to the income statement over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period.
All other leases are classified as operating leases and the annual rentals are charged to the income statement on a straight-line basis over the relevant lease term.
(p) Translation of foreign currencies
(i) Functional and presentation currency
Items included in the accounts of Group are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The financial statements are presented in Hong Kong dollars ("HK$").
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges or qualifying net investment hedges.
Translation differences on non-monetary items, such as equity instruments held at fair value through profit or loss, are reported as part of the fair value gain or loss. Transaction difference on non-monetary items, such as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity.
— 28 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
(q) Employee benefits
(i) Bonuses
The Group recognises a liability for bonuses when there is a contractual obligation and the amount can be estimated reliably.
(ii) Retirement benefit obligations
The Group operates the Mandatory Provident Fund Scheme (the "MPF Scheme") under the Hong Kong Mandatory Provident Fund Schemes Ordinance for those employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF Scheme is a defined contribution scheme, the assets of which are held in separate trustee-administered funds.
Under the MPF Scheme, the employer and its employees are each required to make contributions to the scheme at 5% to 10% of the employees' relevant income, with the employees' contributions subject to a cap of monthly relevant income of HK$20,000. The Group's contributions to the scheme are expensed as incurred. 5% of relevant income vests immediately upon the completion of service in the relevant service period, while the remaining portion vests in accordance with the scheme's vesting scales. Where employees leave the scheme prior to the full vesting of the employer's contributions, the amount of forfeited contributions is used to reduce the contributions payable by the Group.
(iii) Share-based compensation
The fair value of the employee services received in exchange for the grant of the share options and restricted share awards is recognised as an expense in the income statement.
The total amount to be expensed over the vesting period is determined with reference to the fair value of the share options and restricted share awards granted. At each balance sheet date, the Company revises its estimates of the number of share options that are expected to become exercisable and the number of restricted share awards that become vested. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity in the balance sheet will be made over the remaining vesting periods.
The proceeds received, net of any directly attributable transaction costs, are credited to share capital and share premium accounts when the share options are exercised and when the restricted share awards are vested.
(r) Contingent liabilities and contingent assets
A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. A contingent asset is not recognised but is disclosed in the notes to the financial statements when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.
(s) Related parties transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influences. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
(t) Financial guarantees issued and provisions
Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the "holder") for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
Where the Group issues a financial guarantee, the fair value of the guarantee (being the transaction price, unless the fair value can otherwise be reliably estimated) is initially recognised as deferred income within creditors and accruals. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the Group's policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognised in the income statement on initial recognition of any deferred income.
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligations. Provisions are measured at the directors' best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.
4. Financial Risk Management
4.1 Financial risk factors
The Group's activities expose it to a variety of financial risks: market risk (including price risk), credit risk, liquidity risk and cash flow interest-rate risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.
(a) Market risk — Price risk
The Group is exposed to equity securities price risk because investments held by the Group are classified on the consolidated balance sheet either as available-for-sale financial assets or as financial assets at fair value through profit or loss. The Group is not exposed to commodity price risk.
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
(b) Credit risk
The Group has no significant concentrations of credit risk. It has policies in place to ensure that distribution of films and sub-licensing of film rights to customers with an appropriate credit history.
(c) Liquidity risk
The Group manages its liquidity risk by ensuring it has sufficient liquid cash balances to meet its payment obligations as they fall due.
(d) Cash flow and fair value interest rate risk
The Group’s cash flow interest-rate risk arises from bank borrowings. The Group’s fair value interest-rate risk mainly arises from fixed-rate short-term bank deposits. The Group currently does not have an interest-rate hedging policy. However, the management monitors interest-rate exposure and will consider hedging significant interest-rate exposure should need arises.
4.2 Fair value estimation
The carrying amounts of the Group’s financial assets, including cash and bank balances, trade receivables, deposits, prepayments and other receivables, and financial liabilities, including trade payables, other payables, accruals and amounts due to related companies, approximate to their fair values due to their short maturities. The face values less any credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate to their fair values.
The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments.
In assessing the fair value of financial instruments traded in active markets (such as financial assets at fair value through profit or loss) is based on quoted market prices at the balance sheet date. The quoted market prices used for financial assets held by the Group are the current bid price.
The fair value of financial instrument that are not traded in an active market (for example, available-for-sale financial assets) is determined by using valuation techniques. The Group uses a variety of methods, such as estimated discounted value of future cash flows, and makes assumptions that are based on market conditions existing at each balance sheet date.
— 31 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
5. Critical Accounting Estimates and Judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions 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.
(a) Estimated impairment of goodwill
The Group performs annual tests on whether there has been impairment of goodwill in accordance with the accounting policy stated in note 3(i) to the financial statements. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates and assumptions made by management on the future operation of the business, pre-tax discount rates, and other assumptions underlying the value-in-use calculations. Information about the assumptions and the risk factors on impairment of goodwill are stated in note 10 to the financial statements.
(b) Trade debtors
The aged debt profile of trade debtors is reviewed on a regular basis to ensure that the trade debtor balances are collectible and follow up actions are promptly carried out if the agreed credit periods have been exceeded. However, from time to time, the Group may experience delays in collection. Where recoverability of trade debtor balances are called into doubts, specific provisions for bad and doubtful debts are made based on credit status of the customers, the aged analysis of the trade receivable balances and write-off history. Certain receivables may be initially identified as collectible, yet subsequently become uncollectible and result in a subsequent write-off of the related receivable to the income statement. Changes in the collectibility of trade receivables for which provisions are not made could affect our results of operations.
(c) Useful lives of property, plant and equipment
In accordance with HKAS 16, the Group estimates the useful lives of fixed assets in order to determine the amount of depreciation expenses to be recorded. The useful lives are estimated at the time the asset is acquired based on historical experience, the expected usage, wear and tear of the assets, as well as technical obsolescence arising from changes in the market demands or service output of the assets. The Group also performs annual reviews on whether the assumptions made on useful lives continue to be valid.
(d) Estimate of fair values of investment properties
As described in note 8 to the financial statements, the investment properties were revalued at the balance sheet date on market value basis by reference to independent professional valuers. Such valuation was based on certain assumptions, which are subject to uncertainty and might materially differ from the actual results. In making the judgement, the Group considers information from current prices in an active market for similar properties and uses assumptions that are mainly based on market conditions at each balance sheet date.
— 32 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
6. Business and Geographical Segments
Business segments
For management purposes, the Group is currently organised into four operating divisions, namely distribution, sub-licensing, sales of financial assets and property investment. These divisions are the basis on which the Group reports its primary segment information.
Principal activities are as follows:
Distribution
Distribution of films
Sub-licensing
Sub-licensing of film rights
Sales of financial assets
Sales of financial assets at fair value through profit or loss
Property investment
Leasing of rental properties
Segment information about these businesses for the years ended 31 December 2006 and 2005 is presented below.
Consolidated income statement for the year ended 31 December 2006
| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Sales of financial assets
HK$'000 | Property investment
HK$'000 | Consolidated
HK$'000 |
| --- | --- | --- | --- | --- | --- |
| Turnover | 164 | 200 | 15,229 | 1,883 | 17,476 |
| Segment profit | 74 | 23 | 1,768 | 1,613 | 3,478 |
| Unallocated corporate income | | | | | 11,849 |
| Unallocated corporate expenses | | | | | (26,811) |
| Loss from operations | | | | | (11,484) |
| Finance costs | | | | | (9,615) |
| Loss before taxation | | | | | (21,099) |
| Taxation | | | | | (195) |
| Net loss for the year attributable to equity holders of the Company | | | | | (21,294) |
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
Consolidated balance sheet at 31 December 2006
| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Sales of financial assets
HK$'000 | Property investment
HK$'000 | Consolidated
HK$'000 |
| --- | --- | --- | --- | --- | --- |
| Assets | | | | | |
| Segment assets | 804 | 7,593 | 32,156 | 815,360 | 855,913 |
| Unallocated corporate assets | | | | | 66,315 |
| Consolidated total assets | | | | | 922,228 |
| Liabilities | | | | | |
| Segment liabilities | — | 3,055 | 970 | 486,954 | 490,979 |
| Unallocated corporate liabilities | | | | | 27,717 |
| Consolidated total liabilities | | | | | 518,696 |
Other segment information for the year ended 31 December 2006
| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Sales of financial assets
HK$'000 | Property investment
HK$'000 | Consolidated
HK$'000 |
| --- | --- | --- | --- | --- | --- |
| Additions of property, plant and equipment | — | — | 24 | 18 | 42 |
| Depreciation and amortisation | 143 | 1 | 468 | 40 | 652 |
| Impairment losses recognised | 1,295 | — | — | — | 1,295 |
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
Consolidated income statement for the year ended 31 December 2005
| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Sales of financial assets
HK$'000 | Consolidated
HK$'000 |
| --- | --- | --- | --- | --- |
| Turnover | 9,382 | 10,534 | 18,423 | 38,339 |
| Segment profit/(loss) before impairment losses recognised in respect of film rights and goodwill | 2,443 | (4,613) | (2,045) | (4,215) |
| Impairment loss recognised in respect of film rights | (8,956) | — | — | (8,956) |
| Impairment loss recognised in respect of goodwill | — | (12,056) | — | (12,056) |
| Segment loss | (6,513) | (16,669) | (2,045) | (25,227) |
| Unallocated corporate income | | | | 9,176 |
| Unallocated corporate expenses | | | | (13,273) |
| Loss from operations | | | | (29,324) |
| Finance costs | | | | (340) |
| Loss before taxation | | | | (29,664) |
| Taxation | | | | — |
| Net loss for the year attributable to equity holders of the Company | | | | (29,664) |
Consolidated balance sheet at 31 December 2005
| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Sales of financial assets
HK$'000 | Consolidated
HK$'000 |
| --- | --- | --- | --- | --- |
| Assets | | | | |
| Segment assets | 4,582 | 4,729 | 41,869 | 51,180 |
| Unallocated corporate assets | | | | 184,047 |
| Consolidated total assets | | | | 235,227 |
| Liabilities | | | | |
| Segment liabilities | 2,439 | 6,172 | — | 8,611 |
| Unallocated corporate liabilities | | | | 59,006 |
| Consolidated total liabilities | | | | 67,617 |
— 35 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
Other segment information for the year ended 31 December 2005
| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Sales of financial assets
HK$'000 | Unallocated
HK$'0000 | Consolidated
HK$'000 |
| --- | --- | --- | --- | --- | --- |
| Additions of film rights | 3,600 | 5,347 | — | — | 8,947 |
| Depreciation and amortisation | 3,246 | 7,086 | 1,108 | 10 | 11,450 |
| Impairment losses recognised | 1,661 | 8,483 | 12,056 | — | 22,200 |
Geographical segments
The Group mainly operates in Hong Kong, Macau and The People's Republic of China ("the PRC"). The following table provides an analysis of the Group's turnover and segment results by geographical market, irrespective of the origin of the goods and services:
| Turnover | Segment Results | |||
|---|---|---|---|---|
| 2006 | 2005 | 2006 | 2005 | |
| HK$'000 | HK$'000 | HK$'000 | HK$'000 | |
| Hong Kong and Macau | 15,393 | 18,892 | 7,201 | (1,550) |
| PRC | 2,083 | 19,447 | 1,636 | 3,422 |
| 17,476 | 38,339 | 8,837 | 1,872 |
The following is an analysis of the carrying amounts of segment assets, segment liabilities, capital expenditures and depreciation, analysed by geographical area in which the assets and liabilities located:
| Segment assets | Segment liabilities | Capital expenditures | Depreciation | |||||
|---|---|---|---|---|---|---|---|---|
| 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |
| HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | HK$'000 | |
| Hong Kong and Macau | 32,960 | 56,198 | 970 | 1,161 | 1,139 | 52 | 611 | 1,086 |
| PRC | 822,953 | 5,101 | 490,009 | 3,740 | 18 | — | 41 | 2 |
| 855,913 | 61,299 | 490,979 | 4,901 | 1,157 | 52 | 652 | 1,088 |
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
7. Property, Plant and Equipment
The Group
| | Buildings
HK$'000 | Leasehold improvements
HK$'000 | Office equipment
HK$'000 | Motor vehicles
HK$'000 | Furniture and fixtures
HK$'000 | Total
HK$'000 |
| --- | --- | --- | --- | --- | --- | --- |
| Cost | | | | | | |
| At 1 January 2005 | 3,537 | 2,136 | 4,058 | 1,633 | 2,128 | 13,492 |
| Additions | — | 39 | 14 | — | — | 53 |
| Disposals | (3,537) | — | (1) | — | — | (3,538) |
| At 31 December 2005 and 1 January 2006 | — | 2,175 | 4,071 | 1,633 | 2,128 | 10,007 |
| Additions | — | 1,115 | 41 | — | — | 1,156 |
| Acquired on acquisition of a subsidiary (note 33) | — | — | 1,926 | — | — | 1,926 |
| Disposals | — | (909) | (5,297) | — | (1,030) | (7,236) |
| Exchange realignment | — | — | 20 | — | — | 20 |
| At 31 December 2006 | — | 2,381 | 761 | 1,633 | 1,098 | 5,873 |
| Accumulated depreciation | | | | | | |
| At 1 January 2005 | — | 1,572 | 2,400 | 576 | 969 | 5,517 |
| Charged for the year | 35 | 385 | 310 | 211 | 167 | 1,108 |
| Eliminated on disposals | (35) | — | (1) | — | — | (36) |
| At 31 December 2005 and 1 January 2006 | — | 1,957 | 2,709 | 787 | 1,136 | 6,589 |
| Charged for the year | — | 223 | 155 | 169 | 105 | 652 |
| Acquired on acquisition of a subsidiary (note 33) | — | — | 1,446 | — | — | 1,446 |
| Eliminated on disposals | — | (873) | (3,831) | — | (576) | (5,280) |
| Exchange realignment | — | — | (2) | — | — | (2) |
| At 31 December 2006 | — | 1,307 | 477 | 956 | 665 | 3,405 |
| Net book value | | | | | | |
| At 31 December 2006 | — | 1,074 | 284 | 677 | 433 | 2,468 |
| At 31 December 2005 | — | 218 | 1,362 | 846 | 992 | 3,418 |
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
8. Investment Properties
HK$'000
At 31 December 2005 and 1 January 2006
—
Acquired on acquisition of a subsidiary (note 33)
641,982
Additions
15,852
Exchange realignment
19,576
Net increase in fair value recognised in the consolidated income statement
590
At 31 December 2006
678,000
The fair value of the Group’s investment properties at 31 December 2006 have been arrived at on the basis of a valuation carried out on that date by DTZ Debenham Tie Leung Limited, independent qualified professional valuers not connected with the Group. DTZ Debenham Tie Leung Limited is member of the Hong Kong Institute of Valuers, has appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations. The valuation, which conforms to International Valuation Standards, were arrived at by reference to market evidence of transaction prices for similar properties.
The fair value of investment properties shown above comprises:
| 2006 | 2005 | |
|---|---|---|
| HK$'000 | HK$'000 | |
| Outside Hong Kong: | ||
| Long-term lease | 678,000 | — |
All of the Group’s property interests held under operating leases to earn rentals or for capital appreciation purpose are measured using the fair value model and are classified and accounted for as investment properties.
All of the Group’s investment properties have been pledged to secure banking facilities granted to the Group.
9. Interests in Subsidiaries
| The Company | ||
|---|---|---|
| 2006 | 2005 | |
| HK$'000 | HK$'000 | |
| Unlisted shares, at cost | 83,553 | 83,553 |
| Impairment loss recognised | (83,553) | (83,553) |
| — | — | |
| Amounts due from subsidiaries | 562,170 | 249,304 |
| Provision for impairment | (520,346) | (249,304) |
| 41,824 | — |
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
The amounts due from subsidiaries are unsecured, interest-free and have no fixed repayment terms. In the opinion of the directors, the carrying amounts of the amounts due from subsidiaries at 31 December 2006 approximate to their fair values. They will not be demanded for repayment within twelve months from the balance sheet date and the amounts due from subsidiaries are therefore shown as non-current.
The carrying amounts of the interests in subsidiaries are reduced to their recoverable amounts which are determined by reference to the estimation of future cash flows expected to be generated from the respective subsidiaries.
The amounts due to subsidiaries are unsecured, interest free and repayable on demand. The carrying amounts of amounts due to subsidiaries approximate to their fair values.
Details of the Company’s subsidiaries at 31 December 2006 are set out as follows:
| Name of subsidiary | Country/place of incorporation | Particulars of issued share capital/registered capital | Principal activities and place of operation |
|---|---|---|---|
| Beijing Jianguo Real Estate Development Co., Limited | British Virgin Islands | 1 ordinary share of US$1 | Dormat |
| Bluelagoon Investment Holdings Limited | British Virgin Islands | 1 ordinary share of US$1 | Investment holding, sales of financial assets, distribution of films and sub-licensing of film rights in the PRC |
| Dragon Leader Limited | British Virgin Islands | 1 ordinary share of US$1 | Investment holding |
| Gainful Fortune Limited | British Virgin Islands | 160,000,100 ordinary shares of HK$1 each | Holdings of film rights |
| Legend Rich Limited | British Virgin Islands | 1 ordinary share of US$1 | Distribution of video products in the PRC through a PRC agent |
| Ocean Shores Licensing Limited | British Virgin Islands | 10,000 ordinary shares of US$1 each | Holdings of film rights outside Hong Kong |
| Riche Advertising Limited | British Virgin Islands | 1 ordinary share of US$1 | Sales of financial assets |
| Riche (BVI) Limited | British Virgin Islands | 1,000 ordinary shares of US$1 each | Investment holding in Hong Kong |
| Riche Distribution Limited | Hong Kong | 1,000,000 ordinary shares of HK$1 each | Sub-licensing of film rights in Hong Kong and sales of financial assets |
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
| Name of subsidiary | Country/place of incorporation | Particulars of issued share capital/registered capital | Principal activities and place of operation |
|---|---|---|---|
| Riche International (Macao Commercial Offshore) Limited | Macau | 1 share of MOP100,000 | Distribution of films and sub-licensing of film rights in the PRC |
| Riche Multi-Media Limited | Hong Kong | 2 ordinary shares of HK$1 each | Distribution of films and other video features in the PRC |
| Riche Pictures Limited | British Virgin Islands | 1 ordinary share of US$1 | Investment holding in Hong Kong |
| Riche Video Limited | Hong Kong | 10 ordinary shares of HK$100 each | |
| 20,000 non-voting deferred shares of HK$100 each* | Distribution of video products in Hong Kong | ||
| Shinhan-Golden Faith International Development Limited | the PRC | 10,000,000 ordinary shares of US$1 each | Investment holding in the PRC |
| World East Investments Limited | British Virgin Islands | 1 ordinary share of US$1 | Distribution of films and sub-licensing of film rights in the PRC through a PRC agent |
| 北京建國房地產開發有限公司(“Beijing Jian Guo Real Estate Development Co. Ltd”) | the PRC | Registered capital of US$15,000,000 | Property investment in the PRC |
- The non-voting deferred shares, which are not held by the Group, carry practically no rights to dividends nor to receive notice of nor to attend or vote at any general meeting of the relevant company nor to participate in any distribution on winding up.
The Company directly holds the interest in Riche (BVI) Limited. All other subsidiaries are indirectly held by the Company.
All of the subsidiaries are wholly-owned by the Company, except 北京建國房地產開發有限公司 (“Beijing Jianguo”) in which the Company holds 96.7% equity interest.
None of the subsidiaries had any debt securities outstanding at the end of the year, or at any time during the year.
— 40 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
10. Goodwill
The Group
| HK$'000 | |
|---|---|
| Cost | |
| At 1 January 2005 | 39,530 |
| Elimination of goodwill on adoption of HKFRS 3 | (7,058) |
| Acquisition of a subsidiary (note i) | 7,656 |
| At 31 December 2005 and 1 January 2006 | 40,128 |
| Acquired on acquisition of a subsidiary (note ii) | 77,284 |
| At 31 December 2006 | 117,412 |
| Accumulated impairment | |
| At 1 January 2005 | 35,130 |
| Elimination of goodwill on adoption of HKFRS 3 | (7,058) |
| Impairment loss recognised (note iii) | 12,056 |
| At 31 December 2005 and 1 January 2006 | 40,128 |
| Impairment loss recognised | — |
| At 31 December 2006 | 40,128 |
| Carrying amounts | |
| At 31 December 2006 | 77,284 |
| At 31 December 2005 | — |
Notes:
(i) On 19 April 2005, the Group exercised the right under the convertible notes issued by Gainful Fortune Limited (“Gainful Fortune”) to convert the outstanding principal of HK$160,000,000 into shares of Gainful Fortune at a conversion price of HK$1 per share. Since then, Gainful Fortune and its wholly-owned subsidiary, Ocean Shores Licensing Limited, (hereinafter collectively refer to as the “Gainful Fortune Group”) have became subsidiaries of the Company. As a result, a positive goodwill of approximately HK$7,656,000 arose from the acquisition of Gainful Fortune.
(ii) On 21 June 2006, the Group acquired 100% of the issued share capital of Shinhan-Golden Faith International Development Limited (“Shinhan-Golden”) and the debts owed by Shinhan-Golden to Northbay Investments Holdings Limited (“Northbay”). The total consideration of the acquisition at fair value was approximately HK$246,109,000. As a result, a positive goodwill of approximately HK$77,284,000 arose from the acquisition of Shinhan-Golden.
(iii) Due to the continuous losses incurred by the Gainful Fortune Group and World East Investments Limited, the directors reassessed the recoverable amounts of goodwill and made impairment losses on goodwill of approximately HK$7,656,000 and HK$4,400,000 respectively in the year ended 31 December 2005.
— 41 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
Impairment of goodwill
Goodwill arising from the acquisition of Shinhan-Golden has been allocated to the leasing of rental property, which is property investment segment and is the cash-generating units (“CGU”) identified.
During the year, the directors reassessed the recoverable amount of the CGU with reference to the valuation performed by Grant Sherman Appraisal Limited, an independent firm of professional valuers, and determined that no impairment loss on goodwill associated with the CGU was identified.
The recoverable amount of the CGU was assessed by reference to value-in-use calculation. A discount rate of 16.14% per annum was applied in the value-in-use model which uses cash flow projection based on financial forecasts approved by the directors (the “Approved Forecast”) covering a five-year period. Cash flows beyond the five-year period have been extrapolated using a steady 7% growth rate. The growth rate is made by reference to National Bureau of Statistics of China and does not exceed the long-term average growth rate for the market in which the CGU operates. There are a number of assumptions and estimates involved for the preparation of the cash flow projection for the period covered by the Approved Forecast. Key assumptions include gross margin, growth and discount rate which are determined by management of the Group based on past experience and its expectation for market development. Gross margin are budgeted gross margin. Growth rate represents the rate used to extrapolate cash flows beyond the five-year budgeted period and is consistent with the Approved Forecast. The discount rate used is pre-tax and reflects specific risks relating to the market.
11. Inventories
| The Group | ||
|---|---|---|
| 2006 | 2005 | |
| HK$'000 | HK$'000 | |
| Finished goods | — | 6 |
| Properties held for sale | 45,154 | — |
| 45,154 | 6 |
At 31 December 2006, all inventories were carried at lower of cost and net realisable value.
Properties held for sale solely comprised of certain units of apartment held by Beijing Jianguo, a subsidiary of Shinhan-Golden, of which sale and purchase agreements were entered into and full considerations have been received by Beijing Jianguo in respect of these units of apartment (note 21 to the financial statements). However, the transfer of legal titles of these units of apartment have not yet been completed at the date of the approval of these financial statements.
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
12. Trade Receivables
The granting of distribution rights and sub-licensing of film rights are covered by customers' deposits placed with the Group. The balance is receivable upon delivery of master materials to customers.
The following is an aged analysis of fair value of the trade receivables at the balance sheet date:
| The Group | ||
|---|---|---|
| 2006 | 2005 | |
| HK$'000 | HK$'000 | |
| 0 — 30 days | — | 386 |
| 31 — 60 days | — | 258 |
| 61 — 90 days | — | 426 |
| Over 90 days | 1,986 | 4,743 |
| 1,986 | 5,813 | |
| Less: Impairment loss recognised in respect of trade receivables | (1,050) | (1,084) |
| 936 | 4,729 |
The Group allows an average credit period of 90 days to its customers.
The carrying amounts of trade receivables approximate to their fair values.
13. Deposits, Prepayments and Other Receivables
| The Group | The Company | |||
|---|---|---|---|---|
| 2006 | 2005 | 2006 | 2005 | |
| HK$'000 | HK$'000 | HK$'000 | HK$'000 | |
| Deposits | 9,356 | 41,734 | 1,801 | — |
| Prepayments | 1,842 | 1,195 | — | — |
| Other receivables | 8,187 | 13,851 | — | — |
| 19,385 | 56,780 | 1,801 | — | |
| Less: Impairment loss recognised in respect of prepayments | (131) | (1,188) | — | — |
| Impairment loss on provision of bad and doubtful debts | — | (1,390) | — | — |
| 19,254 | 54,202 | 1,801 | — |
The carrying amounts of deposits, prepayments and other receivables approximate to their fair values.
— 43 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
14. Financial Assets at Fair Value through Profit or Loss
| The Group | ||
|---|---|---|
| 2006 | 2005 | |
| HK$'000 | HK$'000 | |
| Equity securities | ||
| — listed in Hong Kong, at market value | 28,100 | 30,567 |
At the balance sheet date, all financial assets at fair value through profit or loss are stated at fair values. Fair values of those listed investments have been determined by reference to the quoted market bid price available on the Stock Exchanges.
15. Tax Prepayments
| The Group | ||
|---|---|---|
| 2006 | 2005 | |
| HK$'000 | HK$'000 | |
| Tax reserve certificate | 3,055 | 3,055 |
| Tax paid in advance | 4,665 | 1,091 |
| 7,720 | 4,146 |
Tax reserve certificate bears interest rate at 0.01% per annum. Details of the tax paid in advance were set out in note 31 to the financial statements.
16. Cash and Cash Equivalents
| The Group | The Company | |||
|---|---|---|---|---|
| 2006 | 2005 | 2006 | 2005 | |
| HK$'000 | HK$'000 | HK$'000 | HK$'000 | |
| Deposits with banks and other financial institutions | 52,097 | 132,250 | 52,097 | 132,250 |
| Cash at bank and in hand | 11,043 | 5,723 | 3,765 | 4,420 |
| Cash and cash equivalents per cash flow statement | 63,140 | 137,973 | 55,862 | 136,670 |
The effective interest rates of deposits in banks and other financial institutions for the year were 3% to 4.8% (2005: 3% to 4.2%).
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
17. Share Capital
Shares
Movements in the share capital of the Company during the year were as follows:
| Number of shares | Share capital | |||
|---|---|---|---|---|
| 2006 | 2005 | 2006 | 2005 | |
| '000 | '000 | HK$'000 | HK$'000 | |
| Ordinary shares of HK$0.01 each | ||||
| Authorised: | ||||
| At 31 December | 20,000,000 | 20,000,000 | 200,000 | 200,000 |
| Issued and fully paid: | ||||
| At 1 January | 5,154,018 | 475,200 | 51,540 | 47,520 |
| Share subdivision (note i) | — | 4,276,800 | — | — |
| Issuance of new shares (notes ii and iii) | 1,330,322 | 402,018 | 13,303 | 4,020 |
| At 31 December | 6,484,340 | 5,154,018 | 64,843 | 51,540 |
Notes:
(i) At the general meeting of the Company held on 14 January 2005, resolutions were passed to approve, among other things, the share subdivision on the basis of one share of HK$0.10 in the issued and unissued share capital of the Company be subdivided into 10 subdivided shares of HK$0.01 each in the issued and unissued share capital of the Company. The share subdivision became effective on 17 January 2005.
(ii) On 12 September 2005, 400,000,000 new shares of HK$0.01 each were allotted and issued at a price of HK$0.34 per share pursuant to a placing and subscription agreement dated 7 September 2005. The net proceeds of approximately HK$131,179,000 were intended to be used for investment in other relevant business opportunities that may arise in the future and for general working of the Group. An amount of approximately HK$132,000,000 has been recognised as share premium during the year ended 31 December 2005.
(iii) On 21 June 2006, 1,330,321,745 new shares of HK$0.01 each were allotted and issued to Northbay at a price of HK$0.20 per share to settle the consideration of HK$266,064,350 in respect of the acquisition of 100% interest in the issued share capital of Shinhan-Golden and the debts owed by Shinhan-Golden to Northbay. An amount of approximately HK$252,761,000 has been recognised as share premium during the year ended 31 December 2006.
Warrants
During the year ended 31 December 2002, the Company issued 95,040,000 warrants by way of bonus to the shareholders on the basis of one warrant for every five shares of HK$0.10 each in the share capital of the Company held on 27 May 2002. Each warrant entitled the holder to subscribe for one share of HK$0.10 in the Company at an initial subscription price of HK$3.60 per share, subject to adjustment, at any time on or after 17 June 2002 up to and including 16 June 2005.
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
As a result of the share subdivision in January 2005, the subscription price of the warrants was adjusted from HK$3.60 per share of HK$0.10 to HK$0.36 per share of HK$0.01 with effect from 17 January 2005.
During the year ended 31 December 2005, 2,018,000 warrants were exercised and converted into 2,018,000 shares of HK$0.01 each at HK$0.36 per share. All other warrants expired on 16 June 2005.
18. Reserves
The Company
| Share premium HK$’000 | Contributed surplus HK$’000 | Accumulated losses HK$’000 | Total HK$’000 | |
|---|---|---|---|---|
| At 1 January 2005 | — | *163,456 | (150,603) | 12,853 |
| Issuance of new shares | 132,706 | — | — | 132,706 |
| Share issue expenses | (4,841) | — | — | (4,841) |
| Net loss for the year | — | — | (93,239) | (93,239) |
| At 31 December 2005 and 1 January 2006 | 127,865 | *163,456 | (243,842) | 47,479 |
| Issuance of new shares | 252,761 | — | — | 252,761 |
| Net loss for the year | — | — | (274,532) | (274,532) |
| At 31 December 2006 | 380,626 | *163,456 | (518,374) | 25,708 |
- The contributed surplus of the Company represents the difference between the underlying net assets of the subsidiaries acquired by the Company as at the date of the group reorganisation and the nominal amount of the Company's share capital issued as consideration for the acquisition as well as the net amount transferred from the share premium account and to the accumulated losses account pursuant to the special resolution passed at a special general meeting on 22 August 2003.
Under the Companies Act 1981 of Bermuda (as amended), the contributed surplus account of the Company is available for distribution. However, the Company cannot declare or pay a dividend, or make a distribution out of contributed surplus, if:
(i) it is, or would after the payment be, unable to pay its liabilities as they become due; or
(ii) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.
At 31 December 2006, the Company had no reserve available for distribution.
— 46 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
19. Trade Payables
The following is an aged analysis of fair value of the trade payables at the balance sheet date:
| The Group | ||
|---|---|---|
| 2006 | ||
| HK$'000 | 2005 | |
| HK$'000 | ||
| China Star Entertainment Limited and its subsidiaries | ||
| ("China Star Group"): | ||
| 0 — 30 days | — | 3 |
| 31 — 60 days | — | — |
| 61 — 90 days | — | — |
| Over 90 days | — | 15 |
| — | 18 | |
| The Group | ||
| 2006 | ||
| HK$'000 | 2005 | |
| HK$'000 | ||
| Others: | ||
| 0 — 30 days | — | — |
| 61 — 90 days | — | — |
| Over 90 days | — | 1,696 |
| — | 1,696 | |
| — | 1,714 |
China Star Entertainment Limited ("China Star") is a substantial shareholder of the Company.
20. Accruals and other Payables
| The Group | The Company | |||
|---|---|---|---|---|
| 2006 | ||||
| HK$'000 | 2005 | |||
| HK$'000 | 2006 | |||
| HK$'000 | 2005 | |||
| HK$'000 | ||||
| Accruals | 2,965 | 1,971 | 233 | 1,118 |
| Other payables | 11,203 | 5,648 | — | — |
| Tax payables (note i) | 6,040 | — | — | — |
| 20,208 | 7,619 | 233 | 1,118 |
Note:
(i) The tax payable represented provision for land appreciation tax on certain units of apartment sold by Beijing Jianguo prior to 2003 (note 11 to the financial statements). According to the PRC tax law and regulation, 30% of land appreciation tax was accrued in the financial statements.
The carrying amounts of accruals and other payables approximate to their fair values.
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
21. Receipts in Advance
| The Group | ||
|---|---|---|
| 2006 | 2005 | |
| HK$'000 | HK$'000 | |
| Trade deposit received | 483 | 483 |
| Receipts in advance | 60,415 | — |
| 60,898 | 483 |
At 31 December 2006, receipts in advance represented the full amount of considerations received from sales of certain units of apartment, details of which are set out in note 11 to the financial statements. Since the transfer of legal titles on the ownerships of these units have not yet been completed at the date of the approval of these financial statements, no revenue could be recognised for the year and the total amount was recorded as receipts in advance.
22. Amounts due to Related Companies
| The Group | The Company | |||
|---|---|---|---|---|
| 2006 | 2005 | 2006 | 2005 | |
| HK$'000 | HK$'000 | HK$'000 | HK$'000 | |
| China Star (note i) | — | 33,800 | — | 33,800 |
| China Star’s subsidiaries (note ii) | 606 | 1,032 | — | — |
| 606 | 34,832 | — | 33,800 |
Notes:
(i) The amount due to China Star was unsecured, interest bearing at 1% per annum and matured on 19 April 2006.
(ii) The amounts due to China Star’s subsidiaries are unsecured, non-interest bearing and have no fixed terms of repayment.
— 48 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
23. Secured Bank Loans
| The Group | ||
|---|---|---|
| 2006 | 2005 | |
| HK$'000 | HK$'000 | |
| Secured bank loans | 357,427 | — |
| The maturity of the above borrowings is as follows: | ||
| Within one year | 5,470 | — |
| Between one and two years | 25,000 | — |
| Between two and five years | 326,957 | — |
| Over five years | — | — |
| 357,427 | — | |
| Less: Amount due within one year shown under current liabilities | (5,470) | — |
| Amount due after one year | 351,957 | — |
The secured bank loans bear interest at rates ranging from 6.16% to 6.41% per annum.
All the Group’s secured bank loans are denominated in RMB.
The secured bank loans are secured by the Group’s investment properties in the PRC with fair value of approximately HK$678,000,000.
The carrying amounts of the secured bank loans approximate to their fair values.
24. Deferred Taxation
The followings are the major deferred tax liabilities and assets recognised by the Group and movements thereon:
| Accelerated tax depreciation HK$'000 | Estimated tax losses HK$'000 | Revaluation of investment properties HK$'000 | Total HK$'000 | |
|---|---|---|---|---|
| At 1 January 2005 | 427 | (427) | — | — |
| Credit to income statement for the year (note 31) | (173) | 173 | — | — |
| At 31 December 2005 and 1 January 2006 | 254 | (254) | — | — |
| Acquisition of a subsidiary | — | — | 54,488 | 54,488 |
| Exchange alignment | — | — | 1,634 | 1,634 |
| Charge to income statement for the year (note 31) | — | — | 195 | 195 |
| At 31 December 2006 | 254 | (254) | 56,317 | 56,317 |
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
At 31 December 2006, the Group had unused estimated tax losses of approximately HK$80,960,000 (2005: HK$50,935,000) available for offset against future profits. A deferred tax asset of approximately $254,000 (2005: HK$254,000) has been recognised. No deferred tax asset has been recognised in respect of the remaining balance of approximately HK$14,422,000 (2005: HK$8,666,000) due to the unpredictability of future profit streams.
- Turnover
| 2006 | 2005 | |
|---|---|---|
| HK$'000 | HK$'000 | |
| Distribution of films | 164 | 9,382 |
| Sub-licensing of film rights | 200 | 10,534 |
| Sales of financial assets at fair value through profit or loss | 15,229 | 18,423 |
| Rental income | 1,883 | — |
| 17,476 | 38,339 |
- Other Revenue and other Income
| 2006 | 2005 | |
|---|---|---|
| HK$'000 | HK$'000 | |
| Other revenue | ||
| Dividend income from financial assets at fair value through profit or loss | 754 | 627 |
| Interest income on bank deposits | 4,314 | 1,339 |
| Sundry income | 631 | 100 |
| 5,699 | 2,066 | |
| Other income | ||
| Gain on disposal of leasehold land and buildings | — | 7,110 |
| Increase in fair value of financial assets at fair value through profit or loss | 5,360 | — |
| Reversal of overprovision of accruals in previous years | 200 | — |
| 5,560 | 7,110 |
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
27. Loss from Operations
| 2006 | 2005 | |
|---|---|---|
| HK$'000 | HK$'000 | |
| Loss from operations has been arrived after charging: | ||
| Amortisation of prepaid operating lease payment | — | 10 |
| Amortisation of film rights | — | 10,332 |
| Auditors’ remuneration | 600 | 500 |
| Cost of inventories sold | 89 | 33 |
| Decrease in fair value of financial assets at fair value through profit or loss | — | 3,928 |
| Depreciation of property, plant and equipment | ||
| — owned assets | 652 | 1,098 |
| — leased assets | — | 10 |
| 652 | 1,108 | |
| Impairment loss recognised in respect of trade receivables | 1,050 | 1,084 |
| Impairment loss on provision of bad and doubtful debts | — | 1,390 |
| Impairment loss recognised in respect of film right deposits | 14 | — |
| Impairment loss recognised in respect of prepayments | 131 | 1,188 |
| Loss on disposal of property, plant and equipment | 1,956 | — |
| Operating lease rental in respect of rented premises | 1,710 | 900 |
| Staff costs including directors’ emoluments | ||
| — Salaries | 7,258 | 6,813 |
| — Contribution to retirement benefits scheme | 117 | 143 |
| 7,375 | 6,956 |
28. Finance Costs
| 2006 | 2005 | |
|---|---|---|
| HK$'000 | HK$'000 | |
| Interest on borrowing wholly repayable within five years: | ||
| — convertible notes payable | — | 100 |
| — loan payable | 100 | 238 |
| — secured bank loans | 9,515 | — |
| — a finance lease | — | 2 |
| 9,615 | 340 |
— 51 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
29. Directors' Emoluments
The board of directors of the Company is currently composed of two executive directors and three independent non-executive directors.
The aggregate amount of emoluments payable to the directors during the year was HK$360,000 (2005: HK$1,710,000). The remuneration of every director for the years ended 31 December 2006 and 2005 is as below:
| Name of director | Fees | Salaries and bonuses | Mandatory provident fund | Total | ||||
|---|---|---|---|---|---|---|---|---|
| 2006 HK$'000 | 2005 HK$'000 | 2006 HK$000 | 2005 HK$'000 | 2006 HK$'000 | 2005 HK$'000 | 2006 HK$'000 | 2005 HK$'000 | |
| Mr. Heung Wah Keung | — | — | — | — | — | — | — | — |
| Ms. Chen Ming Yin, Tiffany | — | — | — | — | — | — | — | — |
| Mr. Lei Hong Wai (note i) | — | — | — | 1,341 | — | 9 | — | 1,350 |
| Mr. Tang Chak Lam, Gilbert | 120 | 120 | — | — | — | — | 120 | 120 |
| Mr. Ho Wai Chi, Paul | 120 | 120 | — | — | — | — | 120 | 120 |
| Mr. Lien Wai Hung (note ii) | 120 | 90 | — | — | — | — | 120 | 90 |
| Mr. Lai Hok Lim (note iii) | — | 30 | — | — | — | — | — | 30 |
| 360 | 360 | — | 1,341 | — | 9 | 360 | 1,710 |
Notes:
(i) Mr. Lei Hong Wai resigned as a director on 13 October 2005.
(ii) Mr. Lien Wai Hung was appointed as a director on 12 April 2005.
(iii) Mr. Lai Hok Lim resigned as a director on 12 April 2005.
30. Five Highest Paid Individuals
Of the five individuals whose emoluments were the highest in the Group for the year include Nil (2005: one) director whose emoluments are reflected in note 29 to the financial statements and amounted to HK$ Nil (2005: HK$ 1,350,000). The emoluments payable to the remaining five individual (2005: four) during the year were as follow:
| 2006 | 2005 | |
|---|---|---|
| HK$'000 | HK$'000 | |
| Salaries and other allowances | 4,545 | 2,244 |
| Retirement benefits scheme contributions | 48 | 48 |
| 4,593 | 2,292 |
During the year, no emoluments were paid by the Group to the directors as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors has waived any emoluments during the year.
— 52 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
31. Taxation
The taxation charge is as follows:
| 2006 | 2005 | |
|---|---|---|
| HK$'000 | HK$'000 | |
| Transfer from deferred tax (note 24) | 195 | — |
No provision for Hong Kong Profits Tax has been made for the years ended 31 December 2006 and 2005 as the Group either has no estimated assessable profit or its estimated assessable profit is wholly absorbed by the estimated tax loss brought forward.
The taxation for the year can be reconciled to the loss before taxation per the consolidated income statement as follows:
| 2006 | 2005 | |||
|---|---|---|---|---|
| HK$'000 | % | HK$'000 | % | |
| Loss before taxation | (21,099) | (29,664) | ||
| Taxation at income tax rate of 17.5% | 3,692 | 17.5 | 5,191 | 17.5 |
| Tax effect of income that is not taxable in determining taxable profit | 10,628 | 50.4 | 8,554 | 28.8 |
| Tax effect of expenses that are not deductible in determining tax profit | (1,833) | (8.7) | (11,308) | (38.1) |
| Tax losses not yet recognised | (12,487) | (59.2) | (2,437) | (8.2) |
| Increase in deferred tax | (195) | (0.9) | — | — |
| Taxation charge for the year | (195) | (0.9) | — | — |
In April 2002, April 2003, March 2004, and January 2005, the Inland Revenue Department ("the IRD") of Hong Kong issued estimated assessments to Ocean Shores Licensing Limited ("OSLL") in respect of its potential tax liabilities for the years of assessments from 1995/1996 to 2000/2001 in the amount of HK$22,971,000. OSLL has formally objected to the estimated assessments. The directors consider appropriate tax provision has already been made in the financial statements.
At the request of the IRD, the Group has already paid deposits totaling approximately HK$4,146,000 by way of purchase of tax reserve certificate and monthly cash instalments.
— 53 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
32. Loss per Share
The calculation of the basic and diluted loss per share is based on the following data:
| | 2006
HK$'000 | 2005
HK$'000 |
| --- | --- | --- |
| Loss attributable to equity holders of the Company
for the purposes of basic and diluted loss per share | (21,294) | (29,664) |
| | '000 | '000 |
| Number of shares | | |
| Weighted average number of ordinary shares for the purposes
of basic loss per share | 6,484,340 | 4,865,190 |
| Effect on dilutive potential ordinary shares: | | |
| Share options | — | — |
| Weighted averaged number of ordinary share for the purposes
of diluted loss per share | 6,484,340 | 4,865,190 |
The computation of diluted loss per share for the years ended 31 December 2006 and 2005 did not assume the exercise of the Company's share options because the effect of exercising an option to subscribe for an additional share in the Company would result in a decrease of loss per share.
33. Acquisition of Subsidiaries
On 21 June 2006, the Group acquired 100% interest of the issued share capital of Shinhan-Golden and the debts owed by Shinhan-Golden to Northbay for consideration of approximately HK$266,064,000 and was settled by issue of 1,330,322,745 ordinary shares of HK$0.01 each in the share capital of the Company, which were allotted, issued and credited as fully paid at the price of HK$0.20 each. The aggregate amount of goodwill arising as a result of the acquisition was approximately HK$77,284,000.
— 54 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
The fair value of net assets acquired in the transaction and the goodwill arising are as follow:
| Acquiree's carrying amount before combination HK$'000 | Fair value adjustments HK'000 | Fair value HK$'000 | |
|---|---|---|---|
| Property, plant and equipment | 480 | — | 480 |
| Investment properties (note i) | 483,802 | 158,180 | 641,982 |
| Trade receivables | 12 | — | 12 |
| Inventories | 43,839 | — | 43,839 |
| Deposits, prepayments and other receivables | 171 | — | 171 |
| Cash and cash equivalents | 415 | — | 415 |
| Accruals and other payables | (54,126) | — | (54,126) |
| Receipts in advance | (59,080) | — | (59,080) |
| Secured bank loans | (346,484) | — | (346,484) |
| Minority interests | (3,896) | — | (3,896) |
| Deferred taxation | — | (54,488) | (54,488) |
| Net assets acquired | 65,133 | 103,692 | 168,825 |
| Goodwill | 77,284 | ||
| 246,109 | |||
| Special reserve (note ii) | 19,955 | ||
| 266,064 | |||
| Fair value of purchase consideration settled in issuance of new shares (note iii) | 246,109 | ||
| Net cash flow from acquisition of a subsidiary: | |||
| Cash paid | — | ||
| Cash and bank balances acquired | 415 | ||
| 415 |
Notes:
(i) The fair value of the investment properties was determined based on the valuation performed by DTZ Debenham Tie Leung Limited, an independent firm of qualified professional valuers and not connected with the Group, as at the acquisition date.
(ii) The difference between the fair value and the contracted value of consideration paid in respect of the acquisition of the acquired subsidiary.
(iii) The fair value of the consideration shares is determined based on the quoted closing price of the Company's share of HK$0.185 at the date of acquisition and 1,330,322,745 shares.
— 55 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
Details of the acquisition were disclosed in the Company's circular date 19 May 2006.
If the acquisition had been completed on 1 January 2006, total group turnover for the year would have been HK$19,803,000, and loss for the year would have been HK$21,867,000. The pro forma information is for illustrative purposes only and is not necessarily an indication of turnover and results of the Group that actually would have been achieved had the acquisition been completed on 1 January 2006, nor is it intended to be a projection of future results.
During the year ended 31 December 2005, the Company acquired the remaining 59.99% interest in Gainful Fortune. The fair value of assets acquired and liabilities assumed as follows:
| 2005 | |
|---|---|
| HK$'000 | |
| Net assets acquired | |
| Other receivables | 784 |
| Cash and bank balances | 95 |
| Tax receivables | 4,133 |
| Receipts in advance | (8,978) |
| Accruals and other payables | (3,690) |
| (7,656) | |
| Goodwill | 7,656 |
| — | |
| Satisfied by Cash | — |
Analysis of the net cash outflow in respect of the purchase of subsidiary:
| 2005 | |
|---|---|
| HK$'000 | |
| Cash consideration | — |
| Bank balances and cash in hand acquired | 95 |
| Net cash inflow in respect of the acquisition of subsidiary | 95 |
No turnover was contributed from the subsidiary acquired during the year ended 31 December 2005 but contributed to the Group a loss of approximately HK$155,000 for the year. The subsidiary acquired contributed approximately HK$110,000 to the Group's net operating cash outflows. There was no significant impact of the Group's cash flows for investing and financing activities and payment of tax.
— 56 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
34. Commitments
(a) Lease commitments
As lessee
At 31 December 2006, the Group had commitments for future minimum lease payments under non-cancellable operating leases in respect of land and buildings which fall due as follows:
| The Group | ||
|---|---|---|
| 2006 | ||
| HK$’000 | 2005 | |
| HK$’000 | ||
| Within one year | 1,332 | 539 |
| In the second to fifth year inclusive | 1,646 | 38 |
| 2,978 | 577 |
Operating lease payments represented rentals payable by the Group for its office premises. Leases are mainly negotiated for an average term of two years and rentals are fixed for an average of two years.
As lessor
At 31 December 2006 the Group had contracted with tenants for future minimum lease payments under non-cancellable operating leases in respect of the Group’s investment properties, which fall due as follows:
| The Group | ||
|---|---|---|
| 2006 | ||
| HK$’000 | 2005 | |
| HK$’000 | ||
| Within one year | 2,700 | — |
At the balance sheet date, the Company did not have any lease commitments.
(b) Other commitments
(i) At 31 December 2006, the Group had other commitments contracted but not provided for in the financial statements:
| | 2006
HK$’000 | 2005
HK$’000 |
| --- | --- | --- |
| Renovation work in respect of the Group’s investment properties | 63,739 | — |
| | 63,739 | — |
— 57 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
(ii) Pursuant to the undertaking letters issued by the owners of 上海昇平文化發展有限公司 (“Shanghai Shengping”) during the year ended 31 December 2003, they will transfer their ownership in Shanghai Shengping to the Group at price determined by the valuers in the PRC when the laws in the PRC allow foreign investors to own more than 51% in Shanghai Shengping.
(iii) On 9 April 2005, the Group entered into a conditional sale and purchase agreement with Leadfirst Limited, a company wholly-owned by Mr. Benny Ki, as a seller, and Mr. Benny Ki, as a guarantor, pursuant to which the Group agreed to acquire 100% of the issued share capital of Best Winning Group Limited from Leadfirst Limited at a consideration of HK$600,000,000. Upon completion of the conditional sale and purchase agreement, the consideration shall be satisfied by the issue of convertible notes in principal amount of HK$500,000,000 and the payment of cash of HK$100,000,000. At 31 December 2005, the Group paid deposits amounted to HK$40,000,000 to Leadfirst Limited.
On 31 March 2006, the Company announced that the conditional sale and purchase agreement ceased and determined.
35. Contingencies
Save as disclosed in note 37 to the financial statements, the Group has no material contingent liabilities outstanding at 31 December 2006.
36. Banking Facilities
The Group’s secured bank loans of approximately HK$357,427,000 (2005:HK$Nil) at 31 December 2006 were secured by:
(a) Legal charges over the Group’s investment properties with the fair value of approximately HK$678,000,000; and
(b) Corporate guarantee provided by the Company.
37. Litigation
At 31 December 2006, save as disclosed below, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance known to the directors to be pending or threatened against any member of the Group.
(a) The Commissioner of Inland Revenue had issued proceedings on 30 March 2005 against OSLL in respect of an aggregate amount of outstanding taxation of HK$13,928,226 for the estimated assessments for the years of assessments from 1998/1999 to 2000/2001. Provision for this amount has been made in the Group’s audited financial statements for the year ended 31 December 2006. OSLL has formally objected to the estimated assessments and paid the outstanding tax by monthly cash instalments;
(b) A writ of summons and statement of claim was made by CL3 Architects Limited (“CL3”) against Beijing Jianguo for a claim of approximately HK$2,500,000 over design contracts for the investment property with Beijing Jianguo. In the opinion of the directors, the outcome of this case is yet to be certain and considered no provision should be made; and
— 58 —
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
(c) A writ of summons and statement of claim was made by ICBC against Beijing Jianguo for a claim of approximately RMB1,197,000 (or approximately HK$1,197,000) over the non-repayment of a mortgage loan granted to a owner (the "Borrower") of an apartment unit in the Group's investment properties. The Borrower purchased the apartment unit from Beijing Jianguo in 2001 and the legal title of the apartment unit has not yet been transferred from Beijing Jianguo to the Borrower. On 15 December 2006, the PRC court made a verdict that Beijing Jianguo was liable to pay RMB1,197,000 if the Borrower failed to pay RMB1,197,000 to ICBC. Beijing Jianguo has appealed to the PRC court. Up to the date of this report, the PRC court is processing the appeal. In the opinion of the directors, no provision for this liability should be made as the sale proceed of the apartment unit has been fully received by Beijing Jianguo and the legal title of the apartment unit remains with Beijing Jianguo.
38. Equity Settled Share-Based Transactions
(A) Share option scheme
Pursuant to an ordinary resolution passed at a special general meeting of the company held on 21 January 2002, the Company adopted a share option scheme (the "Option Scheme") to replace the share option scheme adopted by the Company on 19 January 2000.
The major terms of the Option Scheme are summarised as follows:
(a) the purpose was to provide incentives to:
(i) award and retain the participants who have made contributions to the Group; or
(ii) attract potential candidates to serve the Group for the benefit of the development of the Group.
(b) the participants included:
(i) any director or proposed director (whether executive or non-executive, including any independent non-executive director), employee or proposed employee (whether full time or part time) of, or
any individual for the time being seconded to work for,
any member of the Group or any controlling shareholder or any company controlled by a controlling shareholder.
(ii) any holder of any securities issued by any member of the Group or any controlling shareholder or any company controlled by a controlling shareholder.
(iii) any business or joint venture partner, contractor, agent or representative of,
- any person of entity that provides research, development or other technological support or any advisory, consultancy, professional or other services to,
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
— any supplier, producer or licensor of films, television programmes, video features, goods or services to,
— any customer, licensee (including any sub-licensee) or distributor of films, television programmes, video features, goods or services of, or
— any landlord or tenant (including any sub-tenant) of,
any member of the Group or any controlling shareholder or a company controlled by a controlling shareholder.
and, for the purposes of the Option Scheme, shall include any company controlled by one or more persons belonging to any of the above classes of participants.
(c) The maximum number of shares in respect of which share options might be granted under the Option Scheme must not exceed 10% of the issued share capital of the Company as at the date of approval of the Option Scheme and such limit might be refreshed by shareholders in general meeting. The total maximum number of shares which might be issued upon exercise of all outstanding share options granted and yet to be exercised under the Option Scheme and any other share option scheme must not exceed 30% of the shares in issue from time to time. The total number of shares available for issue under the Option Scheme at 31 December 2006 was approximately 475,401,800, which represented 7.33% of the issued share capital of the Company at 31 December 2006.
(d) The maximum number of shares in respect of share which share options might be granted to a participant, when aggregate with shares issued and issuable (including exercised and outstanding options and the options cancelled) under any share option granted to the same participant under the Option Scheme or any other share option scheme within any 12 month period, must not exceed 1% of the shares in issue from time to time.
(e) The exercise period should be any period fixed by the board of directors upon grant of the share option but in any event the share option period should not go beyond 10 years from the date of offer for grant.
(f) There was no requirement for a grantee to hold the share option for a certain period before exercising the share option save as determined by the board of directors and provided in the offer of grant of share option.
(g) The acceptance of a share option, if accepted, must be made within 30 days from the date of grant with a non-refundable payment of HK$1 from the grantee to the Company.
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APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
(h) The exercise price of a share option must be highest of:
(i) the closing price of the share of the Company on the date of grant which day must be a trading day;
(ii) the average closing price of the share of the Company for the 5 trading days immediately preceding the date of grant; and
(iii) the nominal value of the share of the Company.
(i) The life of the Option Scheme is effective for 10 years from the date of adoption until the date of expiry.
The following table discloses details of the Company’s share options granted under the Option Scheme held by the directors and the employees and movements in such holdings during the year:
(B) Share-based payment compensation
Following to the adoption of HKFRS2, Share-based Payment, the fair value of the employee services received in exchange for the grant of the options after 7 November 2002 is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted.
(i) The terms and conditions of the grants that existed during the year are as follows, whereby all options are settled by physical delivery of shares:
| Category of participants | Date of grant | Exercise price per share HK$ | Exercisable period (note i) | Number of share options | ||
|---|---|---|---|---|---|---|
| Outstanding at 1.1.2005 and 1.1.2006 | Granted during 2006 (note ii) | Outstanding at 31.12.2006 | ||||
| Employees | 8.3.2002 | 0.26 | 8.3.2002 - 7.3.2012 | 190,000,000 | — | 190,000,000 |
| Employees | 13.12.2004 | 0.194 | 13.12.2004 - 12.12.2014 | 275,700,000 | — | 275,700,000 |
| 465,700,000 | — | 465,700,000 |
Notes:
(i) The exercisable period commenced on the date of grant of the relevant share options.
(ii) No share option was cancelled and exercised during the year.
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
39. Retirement Benefits Schemes
With effect from 1 December 2000, the Group has set up a defined contribution retirement scheme, the Mandatory Provident Fund Scheme (the "MPF Scheme"), for all the eligible employees of the Group. The Group did not provide retirement benefits for its employees prior to set up of the MPF Scheme.
Under the MPF Scheme, the employees are required to contribute 5% of their monthly salaries up to maximum of HK$1,000 per employee and they can choose to make additional contributions. The employer's monthly contributions are calculated at 5% of each employee's monthly salaries up to a maximum of HK$1,000 (the "Mandatory Contribution"). The employees are entitled to 100% of the employer's Mandatory Contribution upon their retirement at the age of 65 years old, death or total incapacity.
40. Material Related Party Transactions
(a) During the year, the Group entered into the following transactions with China Star Group:
| | Notes | 2006
HK$'000 | 2005
HK$'000 |
| --- | --- | --- | --- |
| Nature of transactions | | | |
| Interest expense | | | |
| — Loan interest | (i) | 100 | 100 |
| — Interest on convertible notes payable | (i) | — | 238 |
| Repayment of convertible notes payable | (i) | — | 33,800 |
| Post-production expenses | (ii) | 90 | 736 |
| Loan received | (i) | — | (33,800) |
| Sale of leasehold land and buildings | (iii) | — | (9,000) |
| Purchase of distribution rights to films | (iv) | — | 3,600 |
| Purchase of film rights | (v) | — | 5,347 |
| Sale of film right | (vi) | (200) | — |
| Repayment of loan | (vii) | 33,800 | — |
Notes:
(i) On 19 April 2005, the convertible notes payable of HK$33,800,000 issued by the Company were matured. China Star Group did not exercise the right to convert the outstanding principal amount of HK$33,800,000 into shares of the Company and the Company repaid HK$33,800,000 to China Star Group. On the same date, China Star granted a one year term loan of HK$33,800,000 to the Company. The loan was unsecured, interest bearing at 1% per annum and repayable on 19 April 2006.
(ii) The amounts were determined at prices agreed between the parties.
(iii) On 7 July 2005, the Group disposed of its leasehold land and buildings to China Star Group at a total consideration of HK$9,000,000. The consideration was agreed between the parties on arms' length negotiations with reference to a property valuation done by an independent firm of professional chartered surveyors appointed by China Star Group.
The disposal constitutes a discloseable and connected transaction for the Company under Chapter 14 of the Listing Rules. Please refer to the Company's announcement dated 7 July 2005 and circular dated 29 July 2005 for details.
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
(iv) During the year ended 31 December 2005, the Group acquired the distribution rights of 5 films from China Star Group at a total consideration of HK$3,600,000.
(v) During the year ended 31 December 2005, the Group acquired the theatrical rights of 5 films from China Star Group at total license fees of HK$5,347,000.
(vi) During the year ended 31 December 2006, the Group sold four film rights to China Star Group.
(vii) During the year ended 31 December 2006, the Company repaid the one year term loan of HK$33,800,000 to China Star.
(b) Compensation for key management personnel
Remuneration for key management personnel, including amount paid to the Company's directors and certain of the highest paid employee, as disclosed in notes 29 and 30 to the financial statements, is as follows:
| 2006 | 2005 | |
|---|---|---|
| HK$'000 | HK$'000 | |
| Salaries | 3,954 | 3,276 |
| Contribution to retirement benefits scheme | 24 | 36 |
| 3,978 | 3,312 |
41. Pledge of Assets
At 31 December 2006, the Group has pledged its investment properties with fair value of HK$678,000,000 which are held by Beijing Jianguo to secure the bank loans amounted to HK$357,427,000.
42. Subsequent Events
(a) On 19 March 2007, Classical Statue Limited, a substantial shareholder of the Company, entered into a placing agreement and a top-up subscription agreement with a placing agent and the Company respectively. Pursuant to the placing agreement, Classical Statue Limited agreed to place, through the placing agent, an aggregate of 1,296,860,000 shares of HK$0.01 each, on a fully underwritten basis, to not fewer than six independent investors at a price of HK$0.04 per share (the "Placing"). Pursuant to the top-up subscription agreement, Classical Statue Limited conditionally agreed to subscribe for an aggregate of 1,296,860,000 new share of HK$0.01 each at a price of HK$0.04 per share (the "Top-Up Subscription"). The net proceeds from the Top-Up Subscription of HK$50,500,000 are intended to be used for financing the possible diversified investments of the Group and the general working capital of the Group. The Placing and Top-Up Subscription were completed on 22 March 2007 and 30 March 2007 respectively.
APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
(b) On acquisition of Shinhan-Golden, Beijing Jianguo had a secured bank loan of RMB361,734,837 (or approximately HK$361,735,000) granted by China Merchants Bank, of which RMB250,000,000 (or approximately HK$250,000,000) was the principal portion and RMB106,956,000 (or approximately HK$106,956,000) was the interest portion. On 21 December 2006, the Group had borrowed RMB250,000,000 (or approximately HK$250,000,000) from Hang Seng Limited to repay the principal portion of the secured bank loan granted by China Merchants Bank. On 23 March 2007, the Group received a confirmation from China Merchants Bank stating China Merchants Bank agreed to waive the interest portion of RMB106,956,000 (or approximately HK$106,956,000)
(c) On 4 April 2007, the board of directors proposes that every ten existing ordinary shares of HK$0.01 each in the issued and unissued share capital of the Company be consolidated into one ordinary share of HK$0.10 each (the "Consolidated Shares") in the issued and unissued share capital of the Company (the "Share Consolidation"). The implementation of the Share Consolidation is conditional upon (i) the passing of the resolution by the shareholders to approve the Share Consolidation at the special general meeting which is expected to be held in May 2007; and (ii) the Listing Committee of the Stock Exchange granting or agreeing to grant the listing of, and permission to deal in, the Consolidated Shares in issue upon the Share Consolidation becoming effective and any Consolidated Shares which may fail to be issued upon exercise of the share options.
(d) On 4 April 2007, the Company has conditionally agreed to place (the "Placing"), through a placing agent on a fully underwritten basis, 155,620,000 Consolidated Shares (the "Placing Shares") to independent investors at a price of HK$0.55 per Placing Share. The Placing is conditional upon (i) the Share Consolidation becoming effective; (ii) the passing of the resolution by the shareholders to approve the allotment, issue and dealing with the Placing Shares under the Placing at a special general meeting which is expected to be held in May 2007; (iii) the Listing Committee of the Stock Exchange granting and agreeing to grant the listing of, and permission to deal in, the Placing Shares; and (iv) the obligations of the placing agent under the placing agreement becoming unconditional and not being terminated in accordance with the terms of the placing agreement, including provisions regarding force majeure event. The net proceeds from the Placing of HK$83,300,000 are intended to be used for financing the possible diversified investments of the Group and the general working capital of the Group.
- Approval of Financial Statements
The financial statements were approved by the board of directors on 26 April 2007.
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APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
3. STATEMENT OF INDEBTEDNESS
As at the close of business of 30 April 2007, being the latest practicable date for the purpose of the statement of indebtedness prior to the printing of this circular, the Group had borrowings, contingencies and commitments amounting to approximately HK$267,557,000, HK$17,600,000 and HK$63,176,000 respectively, details of which are as follows:
Borrowings
The following table illustrates the Group’s bank borrowings as at 30 April 2007:
Bank borrowings
— secured
HK$267,557,000
Note:
As at 30 April 2007, the Group’s secured bank borrowings are secured by the Group’s investment properties in the PRC with fair values of approximately HK$696,000,000.
Contingencies
Litigations
As at 30 April 2007, save as disclosed below, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance known to the Directors to be pending or threatened against any member of the Group.
i. The Commissioner of Inland Revenue had issued proceedings on 30 March 2005 against Ocean Shares Licensing Limited (“OSLL”), an indirect subsidiary of the Company, in respect of an aggregate amount of outstanding taxation of HK$13,928,226 for the estimated assessments for the years of assessments from 1998/1999 to 2000/2001. Provision for this amount has been made in the Group’s audited consolidated financial statements for the year ended 31 December 2006. OSLL has formally objected to the estimated assessments and paid the outstanding tax by monthly cash instalments. On 23 January 2007, the Inland Revenue Department issued a letter to OSLL requesting for more information on the offshore income claim made by OSLL. The tax representatives of OSLL is preparing a reply to the Inland Revenue Department.
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APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
ii. A writ of summons and statement of claim was made by CL3 Architects Limited against 北京建國房地產開發有限公司(“Beijing Jianguo”), an indirect subsidiary of the Company, in February 2006 for a claim of approximately HK$2,500,000 over design contracts for the investment property with Beijing Jianguo. A verdict was issued by the PRC court that Beijing Jianguo was liable to pay HK$2,500,000 to CL3 Architects Limited. Beijing Jianguo is seeking further legal advice in relation to this judgement.
iii. A writ of summons and statement of claim was made by ICBC on 28 July 2006 against Beijing Jianguo for a claim of approximately RMB1,197,000 (or approximately HK$1,197,000) over the non-payment of a mortgage loan granted to a owner (the “Borrower”) of an apartment unit in the Group’s investment properties. The Borrower purchased the apartment unit from Beijing Jianguo in 2001 and the legal title of the apartment unit has not yet been transferred from Beijing Jianguo to the Borrower. On 15 December 2006, the PRC court made a verdict that Beijing Jianguo was liable to pay RMB1,197,000 if the Borrower failed to pay RMB1,197,000 to ICBC. Beijing Jianguo has appealed to the PRC court.
Commitments
i. As at 30 April 2007, the Group had outstanding commitments under non-cancellable operating leases in the amount of approximately HK$2,304,000.
ii. As at 30 April 2007, the Group had commitments in respect of renovation contracts in the amount of approximately HK$60,872,000 which were not provided for in the consolidated financial statements.
iii. Pursuant to the undertaking letters issued by the owners of 上海昇平文化發展有限公司 (“Shanghai Shengping”) during the year ended 31 December 2003, they will transfer their ownership in Shanghai Shenping to the Group at price determined by the valuers in the PRC when the laws in the PRC allow foreign investors own more than 51% in Shanghai Shengping.
Disclaimer
Saved as disclosed above and apart from intra-group liabilities, the Group did not have any loan capital issued and outstanding or agreed to be issued, any loan capital, bank overdrafts and liabilities under acceptances or other similar indebtedness, debentures, mortgages, charges or loans or acceptance credits or hire purchase commitments, capital commitments, guarantees or other material contingent liabilities as at the close of business on 30 April 2007.
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APPENDIX I
FINANCIAL INFORMATION ON THE GROUP
4. WORKING CAPITAL
As at the Latest Practicable Date, after taking into account of the available credit facilities and the internal resources of the Group, the Directors were of the opinion that the Group had sufficient working capital for the 12-month period from the date of this circular.
5. MATERIAL ADVERSE CHANGE
As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2006, being the date to which the latest audited consolidated financial statements of the Group were made up.
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APPENDIX II
GENERAL INFORMATION
- RESPONSIBILITY STATEMENT
This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. 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.
- DIRECTORS' AND CHIEF EXECUTIVE'S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES
As at the Latest Practicable Date, none of the Directors or chief executive of the Company had or was deemed to have interests or short position in the Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified 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 they were taken or deemed 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 Companies of the Listing Rules, to be notified to the Company and the Stock Exchange.
- INTERESTS AND SHORT POSITIONS OF SUBSTANTIAL SHAREHOLDERS
Save as disclosed below, as at the Latest Practicable Date, according to the register of interests kept by the Company under Section 336 of the SFO and so far as was known to the Directors, no other person or companies had an interest 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 were, directly or
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APPENDIX II
GENERAL INFORMATION
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 or had any option in respect of such capital:
Long Positions
| Name | Notes | Capacity | Interest in Shares | Interest in underlying Shares | Total interest in Shares | Percentage of the issued capital of the Company |
|---|---|---|---|---|---|---|
| China Star Entertainment Limited | 1 and 3 | Interest of corporation | 223,251,000 | nil | 223,251,000 | 23.11% |
| China Star Entertainment (BVI) Limited | 1 and 3 | Interest of corporation | 223,251,000 | nil | 223,251,000 | 23.11% |
| Classical Statue Limited | 1 and 3 | Beneficial owner | 223,251,000 | nil | 223,251,000 | 23.11% |
| Mr. Andrew Nan Sherrill | 2 | Interest of corporation | 129,492,174 | nil | 129,492,174 | 13.40% |
| Asia Vest Partners Limited | 2 | Interest of corporation | 129,492,174 | nil | 129,492,174 | 13.40% |
| Asia Vest Partners VII Limited | 2 | Interest of corporation | 129,492,174 | nil | 129,492,174 | 13.40% |
| Asia Vest Partners X Limited | 2 | Interest of corporation | 129,492,174 | nil | 129,492,174 | 13.40% |
| Northbay Investments Holdings Limited | 2 | Beneficial owner | 129,492,174 | nil | 129,492,174 | 13.40% |
Notes:
(a) 223,251,000 Shares are beneficially owned by Classical Statue Limited. Classical Statue Limited is a wholly-owned subsidiary of China Star Entertainment (BVI) Limited. China Star Entertainment (BVI) Limited is a wholly-owned subsidiary of China Star Entertainment Limited, a company listed on the Stock Exchange. China Star Entertainment Limited and China Star Entertainment (BVI) Limited are deemed to be interested in Shares owned by Classical Statue Limited.
APPENDIX II
GENERAL INFORMATION
(b) 129,492,174 Shares are beneficially owned by Northbay Investments Holdings Limited. 35.5% and 64.5% of the shareholding of Northbay Investments Holdings Limited are respectively owned by Asia Vest Partners VII Limited and Asia Vest Partners X Limited, and both of them are indirectly wholly-owned by Mr. Andrew Nan Sherrill through Asia Vest Partners Limited.
(c) Mr. Heung Wah Keung, Ms. Chen Ming Yin, Tiffany and Mr. Ho Wai Chi, Paul are directors of the Company and China Star Entertainment Limited. Mr. Heung Wah Keung and Ms. Chen Ming Yin, Tiffany are directors of the Company, China Star Entertainment (BVI) Limited and Classical Statue Limited.
4. DIRECTORS' INTERESTS IN CONTRACTS AND ASSETS
None of the Directors was materially interested, directly or indirectly, in any contract or arrangement entered into by any member of the Group which was subsisting as at the date of this circular and which was significant in relation to the business of the Group.
None of the Directors has or had any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to member of the Group since 31 December 2006, being the date to which the latest published audited accounts of the Group were made up.
5. COMPETING INTEREST
As at the Latest Practicable Date, none of the Directors nor their respective associates had any business or interest that competes or may compete with the business of the Group or any other conflicts of interest with the Group.
6. LITIGATION
As at the Latest Practicable Date, save as disclosed below, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance known to the Directors to be pending or threatened against any member of the Group.
(a) The Commissioner of Inland Revenue had issued proceedings on 30 March, 2005 against Ocean Shores Licensing Limited ("OSLL"), an indirect subsidiary of the Company, in respect of an aggregate amount of outstanding taxation of HK$13,928,226 for the estimated assessments for the years of assessments from 1998/1999 to 2000/2001. Provision for this amount has been made in the Group's audited consolidated financial statements for the year ended 31 December 2006. OSLL has formally objected to the estimated assessments and paid the outstanding tax by monthly cash instalments. On 23 January 2007, the Inland Revenue Department issued a letter to OSLL requesting for more information on the offshore income claim made by OSLL. The tax representatives of OSLL is preparing a reply to the Inland Revenue Department.
APPENDIX II
GENERAL INFORMATION
(b) A writ of summons and statement of claim was made by CL3 Architects Limited against Beijing Jianguo in February 2006 for a claim of approximately HK$2,500,000 over design contracts for the investment property with Beijing Jianguo. A verdict was issued by the PRC court that Beijing Jianguo was liable to pay HK$2,500,000 to CL3 Architects Limited. Beijing Jianguo is seeking further legal advice in relation to this judgment.
(c) A writ of summons and statement of claim was made by ICBC on 28 July 2006 against Beijing Jianguo for a claim of approximately RMB1,197,000 (or approximately HK$1,197,000) over the non-repayment of a mortgage loan granted to an owner (the "Borrower") of an apartment unit in the Group's investment properties. The Borrower purchased the apartment unit from Beijing Jianguo in 2001 and the legal title of the apartment unit has not yet been transferred from Beijing Jianguo to the Borrower. On 15 December 2006, the PRC court gave a verdict that Beijing Jianguo was liable to pay RMB1,197,000 if the Borrower failed to pay RMB1,197,000 to ICBC. Beijing Jianguo had appealed to the PRC court. On 28 May 2007, the PRC court made a judgment that Beijing Jianguo was liable to pay RMB1,080,000 to ICBC and a same amount was paid to the PRC court by Beijing Jianguo for payment to ICBC under the PRC court judgment.
- SERVICES CONTRACTS
As at the Latest Practicable Date, none of the Directors had entered into any service contracts with any member of the Group which was not determinable by the Company within one year without payment of compensation, other than statutory compensation.
-
MISCELLANEOUS
-
The registered office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda and the principal office of the Company is situated at Unit 3408, Shun Tak Centre, West Tower, 168-200 Connaught Road Central, Hong Kong.
-
The Hong Kong branch share registrar and transfer office of the Company is Standard Registrars Limited at 26th Floor, Tesbury Centre, 28 Queen's Road Central, Hong Kong.
-
Mr. Chan Kin Wah, Billy, the company secretary and qualified accountant of the Company, is an associate member of the Hong Kong Institute of Certified Public Accountants, a CPA member of CPA Australia and a non-practicing member of the Chinese Institute of Certified Public Accountants. He holds a Bachelor of Administration Degree from the University of Ottawa in Canada and a Master of Commerce Degree in Professional Accounting from the University of New South Wales in Australia.
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APPENDIX II
GENERAL INFORMATION
The English text of this circular shall prevail over the Chinese text in the case of inconsistency.
9. MATERIAL CONTRACTS
The following contracts (not being contracts in the ordinary course of business) have been entered into by the members of the Group within the two years immediately preceding the Latest Practicable Date:
(i) a conditional sale and purchase agreement entered into between Dragon Leader Limited, a wholly-owned subsidiary of the Company, Leadfirst Limited and Mr. Benny Ki dated 9 April 2005 in relation to the acquisition of the entire issued share capital of Best Winning Group Limited by Dragon Leader Limited for a total consideration of HK$600,000,000;
(ii) an unconditional agreement entered into between Riche Video Limited, a wholly-owned subsidiary of the Company, and China Star Laser Disc Company Limited, a wholly-owned subsidiary of China Star Entertainment Limited, dated 7 July 2005, pursuant to which China Star Laser Disc Company Limited agreed to acquire and Riche Video Limited agreed to sell Units 5-18, 9 and 10, and private parking space P5 on the 15th (including respective roof), 6th and 2nd Floors respectively of Leader Industrial Centre, Nos. 57-59 Au Pui Wan Street, Shatin, New Territories, Hong Kong at a total consideration of HK$9,000,000;
(iii) a deed of variation dated 29 December 2005 entered into between Dragon Leader Limited, Leadfirst Limited as Mr. Benny Ki relating to the agreement referred to in (i) above;
(iv) a placing agreement dated 7 September 2005 in relation to the placing by Goldbond Securities Limited of up to 400,000,000 new ordinary shares of HK$0.01 each in the share capital of the Company at a price of HK$0.34 per share;
(v) a facilities letter entered into between the Company and Kingston Finance Limited dated 30 March 2006 relating to a HK$250,000,000 loan facility;
(vi) a conditional sale and purchase agreement dated 17 February 2006 entered into among Riche (BVI) Limited and Northbay Investments Holdings Limited ("Northbay") relating to the acquisition of 100% interest in the issued share capital of Shinhan-Golden Faith International Development Limited ("Shinhan-Golden") and all debts owing or incurred by Shinhan-Golden to Northbay Investments (the "S&P Agreement");
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APPENDIX II
GENERAL INFORMATION
(vii) the supplemental agreement dated 10 May 2006 entered into between the parties to the S&P Agreement relating to the S&P Agreement;
(viii) a placing agreement dated 19 March 2007 entered into between Classical Statute Limited and Kingston Securities Limited in relation to the top-up placing of 1,296,860,000 new ordinary shares at HK$0.01 each in the share capital of the Company at a price of HK$0.04 per share;
(ix) a conditional placing agreement dated 4 April 2007 entered into between the Company and Kingston Securities Limited in relation to the placing of 155,620,000 new Shares at a price of HK$0.55 per Share;
(x) the JV Agreement; and
(xi) the Facility Agreement.
10. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents are available for inspection at the principal place of business of the Company at Unit 3408, Shun Tak Centre, West Tower, 168-200 Connaught Road Central, Hong Kong during normal business hours on any weekday other than public holidays, up to and including the date of the SGM:
(a) the Memorandum and Bye-Laws of the Company;
(b) the material contracts referred to in the paragraph headed “Material Contracts” to this Appendix;
(c) the annual reports of the Group for the three financial years ended 31 December 2004, 2005 and 2006; and
(d) a copy of each of the circulars issued by the Company pursuant to the requirements set out in Chapter 14 and/or 14A of the Listing Rules since 31 December 2006 (being the date to which the latest published audited consolidated financial statements of the Group was made up).
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NOTICE OF SPECIAL GENERAL MEETING
RICHE MULTI-MEDIA HOLDINGS LIMITED
(Incorporated in Bermuda with limited liability)
(Stock Code: 764)
NOTICE IS HEREBY GIVEN that the special general meeting of Riche Multi-Media Holdings Limited (the "Company") will be held at Unit 3408, Shun Tak Centre, West Tower, 168-200 Connaught Road Central, Hong Kong on Tuesday, 10 July 2007, at 4:00 p.m. for the purpose of considering and, if thought fit, passing with or without modification the following resolution as an ordinary resolution of the Company:
ORDINARY RESOLUTION
"That
(i) the agreement dated 11 May 2007 entered into between Legend Rich Limited, the Company and Steve Leung Hotel Design and Management Limited (the "JV Agreement") (a copy of which has been produced to the meeting marked "A" and signed by the Chairman of the meeting for the purpose of identification), in relation to the formation of Best Season Holdings Corp. (the "JV Co."); and
(ii) the agreement dated 11 May 2007 entered into between Rich Joy Investments Limited ("Rich Joy") and JV Co. (the "Facility Agreement") (a copy of which has been produced to the meeting marked "B" and signed by the Chairman of the meeting for the purpose of identification), in relation to the revolving facility of up to HK$200,000,000 to be granted by Rich Joy to JV Co.
be and are hereby approved, ratified and confirmed in all respects and that all transactions contemplated under the JV Agreement and the Facility Agreement be and are hereby approved and that any one director of the Company be and is hereby authorised to do or execute all such acts or such other documents which the director may deem to be necessary, desirable or expedient to carry into effect or to give effect to all the transactions contemplated under the JV Agreement and the Facility Agreement."
By Order of the Board
Chan Kin Wah Billy
Company Secretary
Hong Kong, 22 June 2007
NOTICE OF SPECIAL GENERAL MEETING
Head office and principal place of business in Hong Kong:
Unit 3408
Shun Tak Centre, West Tower
168-200 Connaught Road Central
Hong Kong
Notes:
- A form of proxy for use at the meeting is enclosed herewith.
- 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 any officer, attorney or other person authorised to sign the same.
- Any shareholder of the Company entitled to attend and vote at the meeting convened by the above notice shall be entitled to appoint one or more proxies to attend and vote instead of him. A proxy needs not be a shareholder of the Company.
- In order to be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power of attorney or authority, must be deposited at the Company's branch share registrar in Hong Kong, Standard Registrars Limited at 26th Floor, Tesbury Centre, 28 Queen's Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding of the above meeting or any adjournment thereof.
- Completion and return of the form of proxy will not preclude a shareholder of the Company from attending and voting in person at the meeting convened or at any adjourned meeting and in such event, the form of proxy will be deemed to be revoked.
- Where there are joint holders of any share of the Company, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he/she were solely entitled thereto, but if more than one of such joint holders are present at the meeting, the most senior shall alone be entitled to vote, whether in person or by proxy. For this purpose, seniority shall be determined by the order in which the names stand on the register of members of the Company in respect of the joint holding.
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