ZO Future Group — Audit Report / Information 2006

Jul 26, 2006

Listed Company Information

Listed Company Information
GRANDTOP INT'L<02309> - Results Announcement Grandtop International Holdings Limited announced on 26/07/2006: (stock code: 02309 ) Year end date: 31/03/2006 Currency: HKD Auditors' Report: Qualified (Audited ) (Audited ) Last Current Corresponding Period Period from 01/04/2005 from 01/04/2004 to 31/03/2006 to 31/03/2005 Note ('000 ) ('000 ) Turnover : 48,428 101,974 Profit/(Loss) from Operations : (60,556) 13,952 Finance cost : (149) (193) Share of Profit/(Loss) of Associates : N/A N/A Share of Profit/(Loss) of Jointly Controlled Entities : N/A N/A Profit/(Loss) after Tax & MI : (79,610) 2,160 % Change over Last Period : N/A % EPS/(LPS)-Basic (in dollars) : (0.2488) 0.007 -Diluted (in dollars) : N/A N/A Extraordinary (ETD) Gain/(Loss) : N/A N/A Profit/(Loss) after ETD Items : (79,610) 2,160 Final Dividend : N/A N/A per Share (Specify if with other : N/A N/A options) B/C Dates for Final Dividend : N/A Payable Date : N/A B/C Dates for (-) General Meeting : N/A Other Distribution for : N/A Current Period B/C Dates for Other Distribution : N/A Remarks: 1. Basis of preparation and presentation The consolidated financial statements of Grandtop International Holdings Limited 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 ("Int") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance and applicable disclosure provisions of The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules "). The measurement basis used in the preparation of the financial statements is historical cost convention and modified the revaluation of available- for-sale financial assets, which are carried at fair value. In preparing the financial statements, the directors of the Company (the "Directors") have given consideration to the future liquidity of the Group in light of the following: (i) As at 31 March 2006, the Group has net current liabilities of approximately HK$11,448,000. The Group also incurred a net loss from ordinary activities attributable to equity holders amounted to approximately HK$79,610,000 for the year ended 31 March 2006; and (ii) Tax liabilities in relation to the estimated assessments issued by the Hong Kong Inland Revenue Department of approximately HK$19,918,000 in respect of non-taxable claim of non-Hong Kong sourced income for the years of assessments of 1998/1999 to 2003/2004. Detail of which has been set out in note 27 to the financial statements. These financial statements have been prepared on a going concern basis, the validity of which depends upon the outcome of the Tax Obligations on the Group and the financial support of a controlling shareholder, at a level sufficient to finance the working capital requirement of the Group. The controlling shareholder has agreed to provide adequate funds for the Group to meet its liabilities as they fall due. If the going concern basis is not used, adjustments would have to be made to the financial statements to reduce the value of the Group's assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets and liabilities as current assets and liabilities, respectively. The preparation of the financial statements requires management to exercise its judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements. From the beginning of the financial year ended 31 March 2006, the Group adopted the new/revised standards and interpretations of HKFRS below, which are relevant to its operations. The comparatives figures for the year ended 31 March 2005 have been restated as required, in accordance with the relevant requirements. A summary of the new and revised HKFRSs is set out as below:- HKAS 1 Presentation of Financial Statements HKAS 2 Inventories HKAS 7 Cash Flow Statements HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors HKAS 10 Events after the Balance Sheet Date HKAS 12 Income Taxes HKAS 14 Segment Reporting HKAS 16 Property, Plant and Equipment HKAS 17 Leases HKAS 18 Revenue HKAS 19 Employee Benefits HKAS 21 The Effects of Changes in Foreign Exchange Rates HKAS 23 Borrowing Costs HKAS 24 Related Party Disclosures HKAS 27 Consolidated and Separate Financial Statements HKAS 32 Financial Instruments: Presentation and Disclosure HKAS 33 Earnings Per Share HKAS 36 Impairment of Assets HKAS 37 Provisions, Contingent Liabilities and Contingent Assets HKAS 38 Intangible Assets HKAS 39 Financial Instruments: Recognition and Measurement HKAS 39 Transitional and Initial Recognition of (Amendment) Financial Assets and Financial Liabilities HKAS-Int 4 Lease - Determination of the Length of Lease Term in respect of Hong Kong Land Leases HKAS-Int 15 Operating Leases - Incentives HKFRS 2 Share-based Payments HKFRS 3 Business Combinations The adoption of new and revised HKASs 1, 2, 7, 8, 10, 12, 14, 16, 18, 19, 21, 23, 24, 27, 33, 37 HKAS-Int4 and 15 did not result in substantial changes to the Group's accounting policies. In summary: - HKAS 1 has affected the presentation of minority interest, share of net after-tax results of associates and other disclosures. In the consolidated balance sheet, minority interests are now shown within total equity. In the consolidated income statement, minority interests are presented as an allocation of the total profit or loss for the year. - HKASs 2, 7, 8, 10, 12, 14, 16, 18, 19, 23, 27, 33, 37, HKAS-Int 4 and 15 had no material effect on the Group's policies. - HKAS 21 had no material effect on the Group's policy. The functional currency of each of the consolidated entities has been re- evaluated based on the guidance to the revised standard. All the Group entities have the same functional currency as the presentation currency for respective entity financial statements. - HKAS 24 has affected the identification of related parties and some other related-party disclosures. The adoption of revised HKAS 17 has resulted in a change in the accounting policy relating to the reclassification of leasehold land from property, plant and equipment to operating leases. The up-front prepayments made for the leasehold land are expensed in the income statement on a straight-line basis over the period of the lease or when there is impairment, the impairment is expensed in the income statement. A lease of land and building is split into a lease of land and a lease of building in proportion to the relative fair values of the leasehold interests in land element and the building element of the lease at the inception of the lease. The lease of land is stated at cost and amortised over the period of the lease whereas the building is stated at cost less accumulated depreciation. In prior years, leasehold land was classified under property, plant and equipment at cost less impairment. The adoption of HKAS 32 and 39 has resulted in a change in the accounting policy relating to the classification of financial assets at fair value through profit or loss and available-for-sale financial assets. It has also resulted in the recognition of derivative financial instruments at fair value and the change in the recognition and measurement of hedging activities. The adoption of HKFRS 2 has resulted in a change in the accounting policy for share-based payments. With effect form 1 April 2005, the Group recognises the fair value of share options granted as an expense in the income statement over the vesting period with a corresponding increase being recognised in share-based payment reserve. The share-based payment reserve is transferred to share capital and share premium, together with the exercise price, when the option holder exercise price, when the option holder exercises its rights. The adoption of HKFRS 3, HKAS 36 and HKAS 38 results in a change in the accounting policy for positive goodwill prospective application is required. Until 31 March 2005, positive goodwill was capitalised and amortised on a straight line basis over its useful economic life of 15 years and was subject to impairment testing when there were indications of impairment. In accordance with the provisions of HKFRS 3: - the Group ceased amortisation of goodwill from 1 April 2005; - accumulated amortisation as at 31 March 2005 has been eliminated with a corresponding decrease in the cost of goodwill; - from the year ended 31 March 2006 onwards, goodwill is tested annually for impairment, as well as when there is indication of impairment; The Group has reassessed the useful lives of its intangible assets in accordance with the provisions of HKAS 38. No adjustment resulted from this reassessment. All changes in the accounting policies have been made in accordance with the transition provisions in the respective standards, wherever applicable. All standards adopted by the Group require retrospective application other than: - HKAS 16 - the initial measurement of an item of property, plant and equipment acquired in an exchange of assets transaction is accounted at fair value prospectively only to future transactions; - HKAS 21 - prospective accounting for goodwill and fair value adjustments as part of foreign operations; - HKAS 39 - does not permit to recognise, derecognise and measure financial assets and liabilities in accordance with this standard on a retrospective basis. The Group applied the previous SSAP 24 "Accounting for investments in securities" to investments in securities and also to hedge relationships for the 2004 comparative information. The adjustments required for the accounting differences between SSAP 24 and HKAS 39 are determined and recognised at 1 April 2005. - HKFRS 3 - prospectively after 1 April 2005. The effect on the adoption of the new accounting policies in consolidated balance sheet and consolidated income statement were summarised as follow :- Consolidated balance sheet As at 31 March 2006 HKFRS 3, HKAS 17 HKAS 36 and 38 HKAS 39 Total HK$'000 HK$'000 HK$'000 HK$'000 Decrease in property, plant and equipment (5,757) - - (5,757) Increase in leasehold land 5,757 - - 5,757 Decrease in investment in securities - - (35,940) (35,940) Increase in available-for-sale financial assets - - 2,695 2,695 Decrease in trade receivables - - (4,685) (4,685) Decrease in goodwill - (5,524) - (5,524) Decrease in prepayments, deposits and other receivables - - (4,745) (4,745) ___________________________________________________________________ - (5,524) (42,675) (48,199) =================================================================== Reserve - (5,524) (42,675) (48,199) =================================================================== Consolidated income statement For the year ended 31 March 2006 HKFRS 3, HKAS 17 HKAS 36 and 38 HKAS 39 Total HK$'000 HK$'000 HK$'000 HK$'000 Decrease in depreciation (484) - - (484) Increase in amortisation of leasehold lands 484 - - 484 Impairment of goodwill - 5,524 - 5,524 Impairment loss on available-for-sale financial assets - - 33,245 33,245 Impairment loss on trade receivables - - 4,685 4,685 Impairment loss on prepayments, deposits and other receivables - - 4,745 4,745 _________________________________________________________________ Increase in loss attributable to equity holders of the Company - 5,524 42,675 48,199 ================================================================ Increase in loss per share (HK$) - 0.017 0.133 0.150 ================================================================ Consolidated balance sheet As at 31 March 2005 HKFRS 3, HKAS 17 HKAS 36 and 38 HKAS 39 Total HK$'000 HK$'000 HK$'000 HK$'000 Decrease in property, plant and equipment (6,241) - - (6,241) Increase in leasehold land 6,241 - - 6,241 =================================================================== There was no impact on reserves from the adoption of HKAS 17 as at 31 March 2005. Consolidated income statement For the year ended 31 March 2005 HKFRS 3, HKAS 17 HKAS 36 and 38 HKAS 39 Total HK$'000 HK$'000 HK$'000 HK$'000 Decrease in depreciation (119) - - (119) Increase in amortisation of leasehold lands 119 - - 119 ================================================================== There was no impact on earnings per share from the adoption of HKAS 17 for the year ended 31 March 2005. 2. Turnover The Group's turnover comprised of the followings: 2006 2005 HK$'000 HK$'000 (Restated) Apparel sourcing services 4,524 81,984 Apparel trading 43,904 19,990 ___________________________ 48,428 101,974 =========================== Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts. All significant transactions among the companies comprising the Group have been eliminated on consolidation. 3. (Loss)/profits from operation Expenses included in cost of goods sold, selling expenses and administrative expenses are analysed as follows:- The Group 2006 2005 HK$'000 HK$'000 (Restated) Cost of inventories expensed 38,892 73,674 Employee benefit expenses 3,172 2,640 Depreciation 3,147 1,098 Amortisation of intangible assets - 233 Amortisation of goodwill - 271 Amortisation of leasehold lands 484 119 Auditors remuneration 660 500 Impairment loss on property, plant and equipment 436 - Impairment loss on investment deposits 2,745 - Impairment loss on loan receivables 2,000 - Provision for slow moving stock 6,689 - Operating lease rental respect of rental premises 1,163 516 Irrecoverable bad debts - 3,800 =========================== 4. (LOSS)/EARNINGS PER SHARE The calculation of the basic (loss)/earnings per share is based on the ( loss)/profit attributable to the Company's equity holders of HK$79,610,000 (2005: profit of HK$2,160,000) and on 320,000,000 (2005: 320,000,000) shares in issue during the year. There were no potential shares in existence for the year ended 31 March 2006 and 2005, and, accordingly, no diluted loss per share has been presented. 5. Extract from auditors' report BASIS OF OPINION We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company's and the Group's circumstances, consistently applied and adequately disclosed. We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion, we have considered the adequacy of the disclosure made in note 2 to the financial statements which explains that the circumstances giving rise to the fundamental uncertainties relating to the net loss and net current liability position of the Group and possible obligation arising from tax liabilities (the "Tax Obligations") imposed by the Inlands Revenue Department of the Hong Kong Special Administrative Region (the "HKIRD"). These financial statements have been prepared on a going concern basis, the validity of which depends upon the outcome of the Tax Obligations on the Group and upon the continuing financial support from the controlling shareholder of the Company. The financial statements do not include any adjustments that if the Group failed to obtain the necessary financial support from its controlling substantial shareholder. We have considered that appropriate disclosures have been made in the financial statements concerning this situation, but the evidence available to us was limited. In the absence of sufficient documentary evidence, we were unable to ascertain as to whether the assumption made by the directors of the Company in preparing the financial statements on a going concern basis, as set out in note 2 to the financial statements, are fair and reasonable. There were no other satisfactory audit procedures that we could adopt to satisfy ourselves as to the appropriateness of the going concern basis, which may have a consequential significant effect on the results for the year and its liquidity position as at 31 March 2006. These fundamental uncertainties relating to whether the going concern basis is appropriate is so extreme that we have disclaimed our opinion. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. QUALIFIED OPINION: DISCLAIMER ON VIEW GIVEN BY THE FINANCIAL STATEMENTS Because of the significance of the possible effect of the limitation in the evidence available to us relating to the matter referred to above, we are unable to form an opinion as to whether the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 31 March 2006 and of its loss and cash flows of the Group for the year then ended and as to whether the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.