UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
|X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended March 31, 2006 or
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
COMMISSION FILE NUMBER: 001-31747
UNIVERSAL SECURITY INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 52-0898545
--------------------------------- ---------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7-A Gwynns Mill Court Owings Mills, Maryland 21117
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (410) 363-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
----------------------------- -----------------------------------------
COMMON STOCK, $0.01 PAR VALUE AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
None
--------------
Title of Class
Indicate by check mark if the registrant is a well-known seasoned issuer (as
defined in Rule 405 of the Act). Yes |_| No |X|
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act. Yes |_| No |X|
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or other information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
Indicate by check mark if the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Act).
Large accelerated filer |_| Accelerated filer |_| Non-Accelerated Filer |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes |_| No |X|
The aggregate market value of Common Stock, $.01 par value, held by
non-affiliates of the registrant based on the closing sales price of the Common
Stock on the American Stock Exchange Stock on September 30, 2005, was
$28,211,326.
The number of shares of common stock outstanding as of June 29, 2006 was
1,808,951.
DOCUMENTS INCORPORATED BY REFERENCE
To the extent specified, Part III of this Form 10-K incorporates information by
reference to the Registrant's definitive proxy statement for its 2006 Annual
Meeting of Shareholders (to be filed).
The Registrant hereby amends its Annual Report on Form 10-K for the fiscal year
ended March 31, 2006, which was filed with the Commission on June 29, 2006, to
include an unredacted Exhibit 10.2 in Item 15(a)(3), and unredacted financial
statements required by Regulation S-X included in Item 15(c).
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
-------- ------------------------------------------
(A) 1. FINANCIAL STATEMENTS. (Previously filed)
Page
----
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets as of March 31, 2006 and 2005 F-2
Consolidated Statements of Income for the Years Ended March 31, 2006, 2005 and
2004 F-3
Consolidated Statements of Shareholders' Equity for the Years Ended March 31,
2006, 2005 and 2004 F-4
Consolidated Statements of Cash Flows for the Years Ended March 31, 2006, 2005
and 2004 F-5
Notes to Consolidated Financial Statements F-6
(A) 2. FINANCIAL STATEMENT SCHEDULES. (Previously filed)
Schedule II - Valuation of Qualifying Accounts S-1
(A) 3. EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K.
Exhibit No.
-----------
3.1 Articles of Incorporation (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the period ended December 31, 1988, File
No. 1-31747)
3.2 Articles Supplementary, filed October 14, 2003 (incorporated by reference
to Exhibit 3.1 to the Company's Current Report on Form 8-K filed October
31, 2002, file No. 1-31747)
3.3 Bylaws, as amended (incorporated by reference to Exhibit 3 to the
Company's Form 8-A/A filed July 24, 2003)
10.1 Non-Qualified Stock Option Plan, as amended (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period
ended September 30, 2003, File No. 1-31747)
10.2 Hong Kong Joint Venture Agreement, as amended*
10.3 Amended Factoring Agreement with CIT Group (successor to Congress Talcott,
Inc.) dated November 14, 1999 (incorporated by reference to Exhibit 10.3
to the Company's Annual Report on Form 10-K for the year ended March 31,
2003, File No. 1-31747)
10.4 Amendment to Factoring Agreement with CIT Group (incorporated by reference
to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2002, File No. 1-31747)
10.5 Amendment to Factoring Agreement with CIT Group dated September 28, 2004
(incorporated by reference to Exhibit 10.5 to the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 2004, File No.
1-31747)
10.6 Lease between Universal Security Instruments, Inc. and National
Instruments Company dated October 21, 1999 for its office and warehouse
located at 7-A Gwynns Mill Court, Owings Mills, Maryland 21117
(incorporated by reference to Exhibit 10.19 to the Company's Annual Report
on Form 10-K for the Fiscal Year Ended March 31, 2000, File No. 1-31747)
10.7 Amended and Restated Employment Agreement dated July 18, 2005 between the
Company and Harvey B. Grossblatt (incorporated by reference to Exhibit
10.7 to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 2005, File No. 1-31747)
14 Code of Ethics (incorporated by reference to Exhibit 14 to the Company's
Annual Report on Form 10-K for the year ended March 31, 2004, File No.
1-31747)
21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 14 to
the Company's Annual Report on Form 10-K for the year ended March 31,
2004, File No. 1-31747)
23.1 Consent of Grant Thornton LLP (Previously filed)
23.2 Consent of Grant Thornton LLP (Hong Kong) (Previously filed)
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*
32.1 Section 1350 Certifications*
99.1 Press Release dated June 29, 2006 (Previously filed)
*Filed herewith
(C) FINANCIAL STATEMENTS REQUIRED BY REGULATION S-X.
Separate financial statements of the Hong Kong Joint Venture
Independent Auditors' Report JV-1
Report of Independent Registered Public Accounting Firm JV-2
Consolidated Income Statement JV-3
Consolidated Balance Sheet JV-4
Balance Sheet JV-5
Consolidated Statement of Changes in Equity JV-6
Consolidated Cash Flow Statement JV-7
Notes to Financial Statements JV-8
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereto duly authorized.
Date: September 7, 2006 UNIVERSAL SECURITY INSTRUMENTS, INC.
By: /s/ Harvey B. Grossblatt
------------------------------------
Harvey B. Grossblatt, President
EYSTON COMPANY LIMITED
Reports and Financial Statements
For the year ended 31 March 2006
EYSTON COMPANY LIMITED
Contents
Auditors' Report JV-1
Consolidated Income Statement JV-2
Consolidated Balance Sheet JV-3
Balance Sheet JV-4
Consolidated Statement of Changes in Equity JV-5
Consolidated Cash Flow Statement JV-6
Notes to the Financial Statements JV-7
Expressed in Hong Kong dollars ("HK$")
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF DIRECTORS OF EYSTON COMPANY LIMITED :
We have audited the accompanying consolidated balance sheets of EYSTON COMPANY
LIMITED and subsidiaries ("the Company"), as of March 31, 2006 and 2005, and the
related consolidated statements of income, changes in equity, and cash flows for
each of the two years in the period ended March 31, 2006. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of March 31, 2006 and 2005, and the consolidated results of its
income and its cash flows for each of the two years in the period ended March
31, 2006, in conformity with accounting principles generally accepted in Hong
Kong.
GRANT THORNTON
Certified Public Accountants
Hong Kong
June 23, 2006
JV-1
EYSTON COMPANY LIMITED
Consolidated income statement
for the year ended 31 March 2006
Notes 2006 2005
HK$ HK$
Turnover 5 192,697,968 201,851,572
Cost of sales (125,843,197) (134,128,970)
-------------------------------------------------------------------------------
Gross profit 66,854,771 67,722,602
Other income 6 2,798,681 2,550,272
Administrative expenses (33,160,250) (27,242,707)
-------------------------------------------------------------------------------
Profit from operations 36,493,202 43,030,167
Finance costs 7 (265,063) (239,239)
-------------------------------------------------------------------------------
Profit before income tax 8 36,228,139 42,790,928
Income tax expense 9 (3,912,698) (3,776,352)
-------------------------------------------------------------------------------
Profit for the year 10 32,315,441 39,014,576
-------------------------------------------------------------------------------
Dividends 11 17,163,365 18,508,258
-------------------------------------------------------------------------------
JV-2
EYSTON COMPANY LIMITED
Consolidated balance sheet
as at 31 March 2006
(Restated)
Notes 2006 2005
HK$ HK$
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment 12 41,660,661 35,042,071
Advanced lease payments 13 8,708,432 8,971,370
Available-for-sale financial assets/Other investments 14 34,277,991 27,047,797
------------------------------------------------------------------------------------------------------
84,647,084 71,061,238
Current assets
Inventories 16 18,922,905 18,298,036
Trade and other receivables 17 8,280,783 6,146,091
Loan to a shareholder 19 3,900,000 3,900,000
Cash and cash equivalents 26,322,005 19,468,905
------------------------------------------------------------------------------------------------------
57,425,693 47,813,032
Current liabilities
Trade and other payables 20,844,537 15,573,010
Amount due to a related company 20 2,914,238 3,612,866
Dividend payable 21 11,700,000 11,700,000
Amount due to a shareholder 20 409,907 250,995
Loans from shareholders 22 2,868,954 2,868,954
Collateralised bank advances 23 3,435,122 -
Provision for taxation 1,081,046 1,379,231
------------------------------------------------------------------------------------------------------
43,253,804 35,385,056
------------------------------------------------------------------------------------------------------
Net current assets 14,171,889 12,427,976
------------------------------------------------------------------------------------------------------
Total assets less current liabilities 98,818,973 83,489,214
Non-current liabilities
Provision for deferred taxation 24 255,000 193,000
------------------------------------------------------------------------------------------------------
Net assets 98,563,973 83,296,214
------------------------------------------------------------------------------------------------------
EQUITY
Share capital 25 200 200
Reserves 26 98,563,773 83,296,014
------------------------------------------------------------------------------------------------------
98,563,973 83,296,214
------------------------------------------------------------------------------------------------------
JV-3
EYSTON COMPANY LIMITED
Balance sheet
as at 31 March 2006
(Restated)
Notes 2006 2005
HK$ HK$
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment 12 5,024,417 4,802,684
Advanced lease payments 13 1,191,701 1,451,292
Available-for-sale financial assets/Other investments 14 34,277,991 27,047,797
Interests in subsidiaries 15 39,793,122 50,752,225
------------------------------------------------------------------------------------------------------
80,287,231 84,053,998
Current assets
Inventories 16 18,922,905 18,001,256
Other receivables 904,638 2,563,000
Amounts due from subsidiaries 18 26,647,470 8,414,502
Cash and cash equivalents 20,200,914 10,362,598
------------------------------------------------------------------------------------------------------
66,675,927 39,341,356
Current liabilities
Trade and other payables 16,817,998 13,986,626
Amount due to a related company 20 2,914,238 3,612,866
Dividend payable 21 11,700,000 11,700,000
Loans from shareholders 22 2,868,954 2,868,954
Provision for taxation 1,081,046 1,379,231
------------------------------------------------------------------------------------------------------
35,382,236 33,547,677
------------------------------------------------------------------------------------------------------
Net current assets 31,293,691 5,793,679
------------------------------------------------------------------------------------------------------
Total assets less current liabilities 111,580,922 89,847,677
Non-current liabilities
Provision for deferred taxation 24 255,000 193,000
------------------------------------------------------------------------------------------------------
Net assets 111,325,922 89,654,677
------------------------------------------------------------------------------------------------------
EQUITY
Share capital 25 200 200
Reserves 26 111,325,722 89,654,477
------------------------------------------------------------------------------------------------------
111,325,922 89,654,677
------------------------------------------------------------------------------------------------------
JV-4
EYSTON COMPANY LIMITED
Consolidated statement of changes in equity
for the year ended 31 March 2006
Share Exchange Fair value Retained
capital reserve reserve profits Total
HK$ HK$ HK$ HK$ HK$
Balance at 1 April 2004 200 8,378 - 62,755,463 62,764,041
Exchange differences arising on
translation of a subsidiary - 25,855 - - 25,855
Profit for the year - - - 39,014,576 39,014,576
Dividends - - - (18,508,258) (18,508,258)
-----------------------------------------------------------------------------------------------------------
Balance at 31 March 2005 200 34,233 - 83,261,781 83,296,214
-----------------------------------------------------------------------------------------------------------
Balance at 1 April 2005 - prior to
opening adjustment 200 34,233 - 83,261,781 83,296,214
Opening adjustment on adoption of
HKAS 39 (note 2.2) - - (251,023) 251,023 -
-----------------------------------------------------------------------------------------------------------
Adjusted balance at 1 April 2005 200 34,233 (251,023) 83,512,804 83,296,214
Change in fair value of
available-for-sale financial
assets - - (499,606) - (499,606)
Exchange differences arising on
translation of a subsidiary - 615,289 - - 615,289
Profit for the year - - - 32,315,441 32,315,441
Dividends - - - (17,163,365) (17,163,365)
-----------------------------------------------------------------------------------------------------------
Balance at 31 March 2006 200 649,522 (750,629) 98,664,880 98,563,973
-----------------------------------------------------------------------------------------------------------
JV-5
EYSTON COMPANY LIMITED
Consolidated cash flow statement
for the year ended 31 March 2006
(Restated)
2006 2005
HK$ HK$
Cash flows from operating activities
Profit before income tax 36,228,139 42,790,928
Adjustments for :
Amortisation of advanced lease payment 415,454 235,133
Bad debts written off - 138,614
Depreciation of property, plant and equipment 4,414,388 3,855,819
Gain on disposal of other investments - (42,686)
Loss/(Gain) on disposal of property, plant and
equipment 9,985 (343,779)
Interest expense 265,063 239,239
Interest income (1,761,425) (1,301,047)
Unrealised holding loss on other investments - 843,964
------------------------------------------------------------------------------------------------------
Operating profit before working capital changes 39,571,604 46,416,185
Decrease in amount due to a shareholder (3,845,777) (541,886)
(Increase)/Decrease in inventories (624,869) 2,117,483
Decrease in trade and other receivables 1,300,430 33,661
Increase in loan to a shareholder - (3,900,000)
(Decrease)/Increase in amount due to a related
company (698,628) 430,083
Increase in trade and other payables 5,271,527 763,264
------------------------------------------------------------------------------------------------------
Cash generated from operations 40,974,287 45,318,790
Interest received 1,761,425 1,301,047
Interest paid (265,063) (239,239)
Dividends paid (13,158,676) (14,926,185)
Hong Kong profits tax paid (4,148,883) (1,864,407)
------------------------------------------------------------------------------------------------------
Net cash generated from operating activities 25,163,090 29,590,006
------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of property, plant and equipment (10,630,878) (16,671,896)
Purchase of available-for-sale financial assets/other
investments (7,729,800) (7,782,840)
Proceeds from disposal of available-for-sale
financial assets/other investments - 3,925,126
Proceeds from disposal of property, plant and
equipment 5,919 350,000
------------------------------------------------------------------------------------------------------
Net cash used in investing activities (18,354,759) (20,179,610)
------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 6,808,331 9,410,396
Cash and cash equivalents at beginning of the year 19,468,905 10,032,654
Effect of foreign exchange rate changes, net 44,769 25,855
------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the year 26,322,005 19,468,905
------------------------------------------------------------------------------------------------------
JV-6
Eyston Company Limited
Notes to the financial statements
for the year ended 31 March 2006
1. GENERAL INFORMATION
The company is a limited liability company incorporated and domiciled in
Hong Kong. The address of the company's registered office and principal
place of business is B2, 3/F., Fortune Factory Building, 40 Lee Chung
Street, Chai Wan, Hong Kong.
The financial statements have been prepared in accordance with Hong Kong
Financial Reporting Standards ("HKFRS") as issued by the Hong Kong
Institute of Certified Public Accountants and the Hong Kong Companies
Ordinance.
The financial statements for the year ended 31 March 2006 were approved by
the board of directors on 23 June 2006.
2. ADOPTION OF NEW OR REVISED HKFRS
From 1 April 2005, the group has adopted, for the first time, the new or
revised standards and interpretations of HKFRS, which are relevant to its
operations. This includes the following new, revised and renamed
standards:
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 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 24 Related Party Disclosures
HKAS 27 Consolidated and Separate Financial Statements
HKAS 32 Financial Instruments : Disclosure and Presentation
HKAS 36 Impairment of Assets
HKAS 37 Provisions, Contingent Liabilities and Contingent Assets
HKAS 39 Financial Instruments : Recognition and Measurement
HK(SIC)-Int 15 Operating leases - Incentives
JV-7
Eyston Company Limited
2. ADOPTION OF NEW OR REVISED HKFRS (Continued)
All the standards have been applied retrospectively except where specific
transitional provisions require a different treatment and accordingly the
2005 financial statements and their presentation have been amended in
accordance with HKAS 8. Due to the change in accounting policies, the 2005
comparatives contained in these financial statements differ from those
published in the financial statements for the year ended 31 March 2005.
Significant effects on current, prior or future periods arising from the
first-time application of the standards listed above in respect to
presentation, recognition and measurement of accounts are described in the
following notes :
2.1 Adoption of HKAS 17
The adoption of HKAS 17 has resulted in a change in the accounting
policy relating to the reclassification of leasehold land and land
use rights from property, plant and equipment to operating leases.
The up-front prepayments made for the leasehold land and land use
rights are charged to the income statement on a straight-line basis
over the period of the lease. In prior years, leasehold land and
buildings were not separated. Leasehold land and buildings and land
use rights were classified under property, plant and equipment and
carried at cost less accumulated depreciation and accumulated
impairment losses. The reclassification does not give rise to any
adjustment to prior year's profit.
2.2 Adoption of HKAS 32 and HKAS 39
Prior to the adoption of HKAS 39, investments of the group were
classified into unlisted equity securities and listed debt
securities, which were stated in the balance sheet at cost less any
impairment losses and at fair value, respectively. Any impairment
losses on unlisted equity securities and changes in fair value of
listed debt securities were recognised in the income statement in
the period in which they arose.
On the adoption of HKAS 39, the listed debt securities as at 31
March 2005 were redesignated into available-for-sale financial
assets on 1 April 2005. After initial recognition,
available-for-sale financial assets are measured at fair value with
gains or losses being recognised as a separate component of equity
until the investment is sold, collected or otherwise disposed of or
until the investment is determined to be impaired at which time the
aggregate gain or loss previously reported in equity is included in
the income statement.
JV-8
Eyston Company Limited
2. ADOPTION OF NEW OR REVISED HKFRS (Continued)
2.2 Adoption of HKAS 32 and HKAS 39 (Continued)
In accordance with the transitional provisions of HKAS 39, the
recognition, derecognition and measurement of financial assets and
liabilities on a retrospective basis is not permitted. Accordingly,
an adjustment has been made to restate the aggregate changes in fair
value of the group's listed debt securities of HK$251,023 from
retained profits to fair value reserve at 1 April 2005.
According to the relevant transitional provisions of HKAS 39, the
group's bills discounted with full recourse, which were derecognised
and treated as contingent liabilities (note 29) until 31 March 2005,
have been accounted for as collateralised bank advances (note 23)
and bills receivable (note 17) prospectively on or after 1 April
2005 as the financial assets derecognition conditions as stipulated
in HKAS 39 have not been fulfilled.
2.3 Other standards adopted
All other standards did not result in significant changes to the
group's accounting policies. The specific transitional provisions
contained in some of these standards were considered. The adoption
of these standards and interpretations did not result in any
significant changes to the amounts or disclosures in these financial
statements.
JV-9
Eyston Company Limited
2. ADOPTION OF NEW OR REVISED HKFRS (Continued)
2.4 New standards or interpretations that have been issued but are not
yet effective.
The group has not early adopted the following standards or
interpretations that have been issued but are not yet effective. The
directors of the company anticipate that the adoption of such
standards and interpretations will not result in substantial changes
to the group's accounting policies.
HKAS 1 (Amendment) Capital Disclosures (1)
HKAS 19 (Amendment) Employee Benefits - Actuarial Gains and Losses, Group Plans
and Disclosures (2)
HKAS 21 (Amendment) The Effects of Changes in Foreign Exchange Rates - Net
Investment in a Foreign Operation(2)
HKAS 39 (Amendment) Cash Flow Hedge Accounting of Forecast Intragroup
Transactions (2)
HKAS 39 (Amendment) The Fair Value Options (2)
HKAS 39 & HKFRS 4 Financial Instruments : Recognition and Measurement and
(Amendment) Insurance Contracts - Financial Guarantee Contracts (2)
HKFRS 1& HKFRS 6 First-time Adoption of Hong Kong Financial Reporting
(Amendments) Standards and Exploration for and Evaluation of Mineral
Resources (2)
HKFRS 6 Exploration for and Evaluation of Mineral Resources (2)
HKFRS 7 Financial Instruments - Disclosures (1)
HK(IFRIC) - Int 4 Determining whether an Arrangement contains a Lease(2)
HK(IFRIC) - Int 5 Rights to Interests Arising from Decommissioning, Restoration
and Environmental Rehabilitation Funds (2)
HK(IFRIC) - Int 6 Liabilities Arising from Participating in a Specific Market -
Waste Electrical and Electronic Equipment (3)
HK(IFRIC) - Int 7 Applying the Restatement Approach under HKAS 29 Financial
Reporting in Hyperinflationary Economies (4)
HK(IFRIC) - Int 8 Scope of HKFRS 2 (5)
HK(IFRIC) - Int 9 Reassessment of embedded derivatives (6)
(1) Effective for annual periods beginning on or after 1 January 2007
(2) Effective for annual periods beginning on or after 1 January 2006
(3) Effective for annual periods beginning on or after 1 December 2005
(4) Effective for annual periods beginning on or after 1 March 2006
(5) Effective for annual periods beginning on or after 1 May 2006
(5) Effective for annual periods beginning on or after 1 June 2006
JV-10
Eyston Company Limited
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1 Basis of preparation
The significant accounting policies that have been used in the
preparation of these financial statements are summarised below.
The financial statements have been prepared on the historical cost
basis except for the revaluation of certain financial assets and
liabilities. The measurement bases are fully described in the
accounting policies below.
It should be noted that accounting estimates and assumptions are
used in preparation of the financial statements. Although these
estimates are based on management's best knowledge of current events
and actions, actual results may ultimately differ from those
estimates.
3.2 Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the company and its subsidiaries made up to 31 March
each year.
3.3 Subsidiaries
Subsidiaries are those entities in which the company controls more
than half of the voting power, or holds more than half of the issued
share capital, or controls the composition of the board of
directors. Subsidiaries are fully consolidated from the date on
which control is transferred to the group. They are de-consolidated
from date that control ceases.
Inter-company transactions, balances and unrealised gains on
transactions between group companies are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence
of an impairment of the asset transferred.
In the company's balance sheet, subsidiaries are carried at cost
less any impairment loss. The results of the subsidiaries are
accounted for by the company on the basis of dividends received and
receivable at the balance sheet date.
JV-11
Eyston Company Limited
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.4 Property, plant and equipment
Property, plant and equipment are stated at acquisition cost less
accumulated depreciation and impairment losses.
Subsequent costs are included in the asset's carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will
flow to the group and company and the cost of the item can be
measured reliably. All other repairs and maintenance are charged to
the income statement during the period in which they are incurred.
Depreciation is provided to write off the cost of property, plant
and equipment less their residual valuesover their estimated useful
lives, using the straight line method, at the following rates per
annum :
Buildings 5% or where shorter over 16 - 19 years
Leasehold improvements 20%
Plant and machinery 10%
Furniture and fixtures 20%
Motor vehicles 20%
Computer equipment and software 50%
Construction in progress represents costs incurred in the
construction of buildings. These costs are not depreciated until
such time as the relevant assets are completed and put into use, at
which time the relevant costs are transferred to the appropriate
category of property, plant and equipment.
The asset's residual values and useful lives are reviewed, and
adjusted if appropriate, at each balance sheet date.
The gain or loss arising on the disposal is determined as the
difference between the sales proceeds and the carrying amount of the
asset and is recognised in the income statement.
JV-12
Eyston Company Limited
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.5 Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost comprises direct materials computed using first-in,
first-out method and, where applicable, direct labour and those
overheads that have been incurred in bringing the inventories to
their present location and condition. Net realisable value is
calculated as the actual or estimated selling price less all further
costs of completion and estimated costs necessary to make the sale.
3.6 Financial assets
The financial assets include available-for-sale financial assets,
trade and other receivables, bills receivable, and amounts due from
group companies.
In previous years, the group classified its investments in debt
securities as other investments. Other investments which were held
for non-trading purpose were stated at fair value at the balance
sheet date. Changes in fair value of other investments were
recognised in the income statement as they arose. Gains or losses on
disposal of other investments, representing the difference between
the net sales proceeds and the carrying amounts, were recognised in
the income statement as they arose.
From 1 April 2005 onwards, the group classifies its financial assets
into loans and receivables and available-for-sale financial assets.
Management determines the classification of its financial assets at
initial recognition depending on the purpose for which the financial
assets were acquired and where allowed and appropriate, re-evaluates
this designation at every reporting date.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
Loans and receivables are initially recognised at fair value and
subsequently measured at amortised cost using the effective interest
method less any impairment. Any changes in their value are
recognised in income statement.
JV-13
Eyston Company Limited
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.6 Financial assets (Continued)
Loans and receivables (Continued)
Loans and receivables are provided against when objective evidence
is received that the group will not be able to collect all amounts
due to it in accordance with the original terms of the receivables.
The amount of the impairment is the difference between the asset's
carrying amount and the present value of expected cash flows,
discounted at the effective interest rate.
Available-for-sale financial assets
Available-for-sale financial assets include non-derivative financial
assets that are either designated to this category or do not qualify
for inclusion in any of the other categories of financial assets.
All financial assets within this category are subsequently measured
at fair value, with changes in value recognised in equity (i.e. fair
value reserve). Upon disposal, the cumulative gain or loss
previously recognised in equity is transferred to the income
statement. When a decline in the fair value of an available-for-sale
financial asset has been recognised directly in equity and there is
objective evidence that the asset is impaired, the cumulative loss
that had been recognised directly in equity is removed from equity
and recognised in the income statement even though the financial
asset has not been derecognised. Impairment losses previously
recognised in the income statement on equity instruments will not
reverse in subsequent periods. Impairment losses previously
recognised in income statement are subsequently reversed if an
increase in the fair value of the investment can be objectively
related to an event occurring after the recognition of the
impairment loss.
Derecognition of financial assets occurs when the rights to receive
cash flows from the investments expire or are transferred and
substantially all of the risks and rewards of ownership have been
transferred. An assessment for impairment is undertaken at least at
each balance sheet date whether or not there is objective evidence
that a financial asset or a group of financial assets is impaired.
3.7 Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand.
JV-14
Eyston Company Limited
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.8 Impairment of assets
Property, plant and equipment are subject to impairment testing.
For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows
(cash-generating units). As a result, some assets are tested
individually for impairment and some are tested at cash-generating
unit level.
All individual assets or cash-generating units are tested for
impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset's
or cash-generating unit's carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of fair value,
reflecting market conditions less costs to sell and value in use,
based on an internal discounted cash flow evaluation. Any impairment
loss is charged pro rata to the assets in the cash generating unit.
An impairment loss is reversed if there has been a change in the
estimates used to determine the asset's recoverable amount and only
to the extent that the asset's carrying amount does not exceed the
carrying amount that would have been determined, net of
depreciation, if no impairment had been recognised.
3.9 Financial liabilities
The financial liabilities include trade and other payables, amounts
due to group and related companies and borrowings.
Financial liabilities are recognised when the group or the company
becomes a party to the contractual agreements of the instrument. All
interest related charges are recognised as an expense in the income
statement.
Trade and other payables and amounts due to group and related
companies are recognised initially at their fair value and
subsequently measured at amortised cost, using the effective
interest method.
Borrowings are recognised initially at fair value, net of
transaction costs incurred. 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.
JV-15
Eyston Company Limited
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.10 Employee benefits
Retirement benefits costs
The company operates a defined contribution Mandatory Provident Fund
retirement benefits scheme (the "MPF Scheme") under the Mandatory
Provident Fund Schemes Ordinance, for all of its employees in Hong
Kong. The MPF Scheme became effective on 1 December 2000.
Contributions are made based on a percentage of the employees' basic
salaries, limited to a maximum of HK$1,000 per month, and are
charged to the income statement as they become payable in accordance
with the rules of the MPF Scheme. The assets of the MPF Scheme are
held separately from those of the company in an independently
administered fund. The company's employer contributions vest fully
with the employees when contributed into the MPF Scheme.
3.11 Equity
Ordinary shares are classified as equity. Share capital is
determined using the nominal value of shares that have been issued.
The transaction costs of an equity transaction are accounted for as
deduction from equity (net of any related income tax benefits) to
the extent they are incremental cost directly attributable to the
equity transaction that otherwise would have been avoided. The cost
of an equity transaction that is abandoned are recognised as an
expense.
3.12 Foreign currencies
The financial statements are presented in Hong Kong Dollars (HK$),
which is also the functional currency of the company.
In the separate financial statements of the consolidated entities,
foreign currency transactions are translated into the functional
currency of the individual entity 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 of monetary assets and liabilities denominated
in foreign currencies at year-end exchange rates are recognised in
the income statement. Non-monetary items that are measured in terms
of historical cost in a foreign currency are not retranslated.
JV-16
Eyston Company Limited
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.12 Foreign currencies (Continued)
In the consolidated financial statements, all separate financial
statements of subsidiaries, originally presented in a currency
different from the group's presentation currency, have been
converted into Hong Kong dollars. Assets and liabilities have been
translated into Hong Kong dollars at the closing rate at the balance
sheet date. Income and expenses have been converted into Hong Kong
dollars at the average rates over the reporting period. Any
differences arising from this procedure have been dealt with in the
exchange reserve in equity.
3.13 Accounting for income taxes
Income tax comprises current tax and deferred tax.
Current income tax assets and/or liabilities comprise those
obligations to, or claims from, tax authorities relating to the
current or prior reporting period, that are unpaid at the balance
sheet date. They are calculated according to the tax rates and tax
laws applicable to the periods to which they relate, based on the
taxable profit for the year. All changes to current tax assets or
liabilities are recognised as a component of income tax expense in
the income statement.
Deferred tax is calculated using the liability method on temporary
differences at the balance sheet date between the carrying amounts
of assets and liabilities in the financial statements with their
respective tax bases. Deferred tax liabilities are generally
recognised for all taxable temporary differences. Deferred tax
assets are recognised for all deductible temporary differences, tax
losses available to be carried forward as well as other unused tax
credits, to the extent that it is probable that taxable profit will
be available against which the deductible temporary differences,
unused tax losses and unused tax credits can be utilised.
Deferred tax is calculated, without discounting, at tax rates that
are expected to apply in the period the liability is settled or the
asset realised, provided they are enacted or substantively enacted
at the balance sheet date.
Changes in deferred tax assets or liabilities are recognised in the
income statement, or in equity if they relate to items that are
charged or credited directly to equity.
JV-17
Eyston Company Limited
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.14 Leases
Leases where substantially all the risks and rewards of ownership of
assets remain with the lessor are accounted for as operating leases.
Operating lease payments are recognised as an expense on a
straight-line basis. Affiliated costs, such as maintenance and
insurance, are expensed as incurred. Contingent rentals are charged
to the income statement in the accounting period in which they are
incurred.
3.15 Recognition of revenue
Revenue from the sale of goods is recognised when the significant
risks and rewards of ownership of the goods have been transferred to
customers.
Rental income from properties letting under operating leases is
recognised on the straight line basis over the lease terms.
Interest income is recognised on a time proportion basis.
3.16 Related parties
Parties are considered to be related to the group if :
(i) directly, or indirectly through one or more intermediaries,
the party : -controls, is controlled by, or is under common
control with, the group; -has an interest in the group that
gives it significant influence over the group; -has joint
control over the group;
(ii) the party is a jointly-controlled entity;
(iii) the party is an associate;
(iv) the party is a member of the key management personnel of the
group or its parent;
(v) the party is a close member of the family of any individual
referred to in (i) or (iv);
JV-18
Eyston Company Limited
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.16 Related parties (Continued)
(vi) the party is an entity that is controlled, jointly-controlled
or significantly influenced by or for which significant voting
power in such entity resides with, directly or indirectly, any
individual referred to in (iv) or (v); or
(vii) the party is a post-employment benefit plan for the benefit of
employees of the group, or of any entity that is a related
party of the group.
3.17 Contingent liabilities
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 the outflow is probable, it will then
be recognised as a provision.
4. 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 :
JV-19
Eyston Company Limited
Depreciation and amortisation
The group and company depreciated the property, plant and equipment on a
straight-line basis over the estimated useful lives, starting from the
date on which the assets are placed into productive use. The estimated
useful lives reflect the directors' estimate of the periods that the group
intends to derive future economic benefits from the use of the group's and
company's property, plant and equipment.
JV-20
Eyston Company Limited
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)
Impairment of receivables
The policy for the impairment of receivables of the group is based on the
evaluation of collectibility and ageing analysis of accounts and on the
management's judgement. A considerable amount of judgement is required in
assessing the ultimate realisation of these receivables, including the
current creditworthiness and the past collection history of each debtor.
Net realisable value of inventories
Net realisable value of inventories is the actual or estimated selling
price in the ordinary course of business, less further costs of completion
and the estimated costs necessary to make the sale. These estimates are
based on the current market condition and the historical experience of
selling products of similar nature. It could change significantly as a
result of competitor actions in response to the changes in market
condition. Management reassess these estimations at the balance sheet
date.
Current taxation and deferred taxation
The group is subject to income taxes in Hong Kong and the People's
Republic of China ("PRC"). Significant judgement is required in
determining the amount of the provision of taxation and the timing of
payment of the related taxations. There are many transactions and
calculations for which the ultimate tax determination is uncertain during
the ordinary course of business. Where the final tax outcome of these
matters is different from the amounts that were initially recorded, such
differences will impact the income tax and deferred tax provisions in the
period in which such determination is made.
5. TURNOVER
Revenue, which is also the group's turnover, represents total invoiced
value of goods supplied, less discounts and returns.
JV-21
Eyston Company Limited
6. OTHER INCOME
2006 2005
HK$ HK$
Exchange gain, net - 49,278
Gain on disposal of property, plant and equipment 150 343,779
Interest income 1,761,425 1,301,047
Rental income, less outgoings 268,800 268,800
Sundry income 768,306 587,368
----------------------------------------------------------------------------------------------
2,798,681 2,550,272
----------------------------------------------------------------------------------------------
7. FINANCE COSTS
2006 2005
HK$ HK$
Interest charges on :
- Discounted bills 265,063 192,281
- Others - 46,958
----------------------------------------------------------------------------------------------
265,063 239,239
----------------------------------------------------------------------------------------------
8. PROFIT BEFORE INCOME TAX
(Restated)
2006 2005
HK$ HK$
Profit before income tax is arrived at after
charging :
Amortisation of advanced lease payments 415,454 235,133
Auditors' remuneration 187,020 200,000
Bad debts written off - 138,614
Cost of inventories recognised as expenses 125,843,197 134,128,970
Depreciation of property, plant and equipment 4,414,388 3,855,819
Exchange loss, net 598,754 -
Loss on disposal of property, plant and equipment 9,178 -
Operating lease charges in respect of land and
buildings 1,334,433 1,284,926
Retirement benefits scheme contributions 226,818 190,984
Staff costs (excluding retirement benefits scheme
contributions) 14,213,294 11,576,614
Unrealised holding loss on other investments - 843,964
----------------------------------------------------------------------------------------------
JV-22
Eyston Company Limited
9. INCOME TAX EXPENSE
2006 2005
HK$ HK$
The tax charge comprises :
Hong Kong profits tax
- current year 3,922,325 3,860,000
- overprovision in prior years (71,627) (201,648)
----------------------------------------------------------------------------------------------
3,850,698 3,658,352
----------------------------------------------------------------------------------------------
Deferred taxation (Note 24)
- current year 62,000 118,000
----------------------------------------------------------------------------------------------
Total income tax expense 3,912,698 3,776,352
----------------------------------------------------------------------------------------------
Hong Kong profits tax has been provided at the rate of 17.5% (2005 :
17.5%) on the group's estimated assessable profits arising in Hong Kong
for the year.
No provision for PRC Enterprise Income Tax has been made as the group
has no assessable profit in Mainland China (2005 : Nil).
Reconciliation between tax expense and accounting profit at applicable tax rates :
2006 2005
HK$ HK$
Profit before income tax 36,228,139 42,790,928
----------------------------------------------------------------------------------------------
Notional tax on profit before income tax, calculated
at the rates applicable to profits in the tax
jurisdictions concerned 6,028,317 7,293,735
Tax effect of non-deductible expenses 1,105,380 379,463
Tax effect of non-taxable revenue (4,248,502) (4,202,248)
Tax effect on temporary differences not recognised 478,546 393,086
Tax effect on unrecognised tax losses 620,584 113,964
Overprovision in prior years (71,627) (201,648)
----------------------------------------------------------------------------------------------
Actual tax expense 3,912,698 3,776,352
----------------------------------------------------------------------------------------------
JV-23
Eyston Company Limited
10. PROFIT FOR THE YEAR
Of the consolidated profit attributable to shareholders of
HK$32,315,441 (2005 : HK$39,014,576), HK$39,334,216 (2005 :
HK$42,542,423) has been dealt with in the financial statements of the
company.
11. DIVIDENDS
2006 2005
HK$ HK$
Dividends attributable to the year :
First interim dividend of HK$1,667,865 (2005 :
HK$1,168,350) per share 3,335,730 2,336,700
Second interim dividend of HK$2,336,824 (2005 :
HK$2,413,723) per share 4,673,649 4,827,446
Third interim dividend of HK$2,014,406 (2005 :
HK$2,580,752) per share 4,028,813 5,161,504
Fourth interim dividend of HK$2,562,586 (2005 :
HK$3,091,304) per share 5,125,173 6,182,608
----------------------------------------------------------------------------------------------
17,163,365 18,508,258
----------------------------------------------------------------------------------------------
JV-24
Eyston Company Limited
12. PROPERTY, PLANT AND EQUIPMENT
Group
Computer
Leasehold Construction Plant and Furniture Motor equipment
Buildings improvements in progress machinery and fixtures vehicles and software Total
HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$
(Restated)
At 1 April 2004
Cost 13,711,906 10,384,240 5,693,589 31,745,665 3,974,371 3,997,766 1,462,240 70,969,777
Accumulated depreciation (7,092,955) (8,141,900) - (27,214,851) (3,358,584) (1,814,806) (1,114,466) (48,737,562)
------------------------------------------------------------------------------------------------------------------------------------
Net book amount 6,618,951 2,242,340 5,693,589 4,530,814 615,787 2,182,960 347,774 22,232,215
------------------------------------------------------------------------------------------------------------------------------------
Year ended 31 March 2005
Opening net book amount 6,618,951 2,242,340 5,693,589 4,530,814 615,787 2,182,960 347,774 22,232,215
Additions - 429,650 12,560,638 2,122,395 296,239 976,974 286,000 16,671,896
Disposals - - - (5,075) - - (1,146) (6,221)
Depreciation (760,043) (772,782) - (955,096) (262,873) (732,644) (372,381) (3,855,819)
Exchange differences - - - - - - - -
Reclassifications - - - - - - - -
------------------------------------------------------------------------------------------------------------------------------------
Closing net book amount 5,858,908 1,899,208 18,254,227 5,693,038 649,153 2,427,290 260,247 35,042,071
------------------------------------------------------------------------------------------------------------------------------------
At 31 March 2005
Cost 13,711,906 10,813,890 18,254,227 29,168,238 4,001,317 4,802,240 1,731,260 82,483,078
Accumulated depreciation (7,852,998) (8,914,682) - (23,475,200) (3,352,164) (2,374,950) (1,471,013) (47,441,007)
------------------------------------------------------------------------------------------------------------------------------------
Net book amount 5,858,908 1,899,208 18,254,227 5,693,038 649,153 2,427,290 260,247 35,042,071
------------------------------------------------------------------------------------------------------------------------------------
Year ended 31 March 2006
Opening net book amount 5,858,908 1,899,208 18,254,227 5,693,038 649,153 2,427,290 260,247 35,042,071
Additions 71,154 43,319 6,332,090 2,828,123 991,463 183,182 181,547 10,630,878
Disposals - (11,083) - (1,733) (2,280) - (808) (15,904)
Depreciation (1,271,697) (769,939) - (1,026,319) (304,012) (767,634) (274,787) (4,414,388)
Exchange differences - - 395,175 - 2,513 19,476 840 418,004
Reclassifications 22,971,168 - (24,981,492) 2,010,324 - - - -
------------------------------------------------------------------------------------------------------------------------------------
Closing net book amount 27,629,533 1,161,505 - 9,503,433 1,336,837 1,862,314 167,039 41,660,661
------------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005
Cost 36,754,228 10,822,209 - 33,801,485 4,976,520 5,016,736 1,896,641 93,267,819
Accumulated depreciation 9,124,695 9,660,704 - 24,298,052 3,639,683 3,154,422 1,729,602 51,607,158
------------------------------------------------------------------------------------------------------------------------------------
Net book amount 27,629,533 1,161,505 - 9,503,433 1,336,837 1,862,314 167,039 41,660,661
------------------------------------------------------------------------------------------------------------------------------------
JV-25
Eyston Company Limited
12. PROPERTY, PLANT AND EQUIPMENT
Company
Computer
Leasehold Construction Plant and Furniture Motor equipment
Buildings Improvements in progress machinery and fixtures vehicles and software Total
HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$
(Restated)
At 1 April 2004
Cost 2,829,732 2,354,287 - 449,414 1,404,622 2,116,733 776,779 9,931,567
Accumulated depreciation 1,806,262 2,007,883 - 24,912 1,143,839 1,450,543 490,123 6,923,562
-----------------------------------------------------------------------------------------------------------------------------------
Net book amount 1,023,470 346,404 - 424,502 260,783 666,190 286,656 3,008,005
-----------------------------------------------------------------------------------------------------------------------------------
Year ended 31 March 2005
Opening net book amount 1,023,470 346,404 - 424,502 260,783 666,190 286,656 3,008,005
Additions - 429,650 - 2,122,395 171,754 - 263,149 2,986,948
Disposals - - - - - - (1,147) (1,147)
Depreciation (141,486) (152,141) - (146,517) (115,793) (328,847) (306,338) (1,191,122)
Exchange differences - - - - - - - -
Reclassifications - - - - - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Closing net book amount 881,984 623,913 - 2,400,380 316,744 337,343 242,320 4,802,684
-----------------------------------------------------------------------------------------------------------------------------------
At 31 March 2005
Cost 2,829,732 2,783,937 - 2,571,809 1,576,376 1,944,233 1,022,948 12,729,035
Accumulated depreciation 1,947,748 2,160,024 - 171,429 1,259,632 1,606,890 780,628 7,926,351
-----------------------------------------------------------------------------------------------------------------------------------
Net book amount 881,984 623,913 - 2,400,380 316,744 337,343 242,330 4,802,684
-----------------------------------------------------------------------------------------------------------------------------------
Year ended 31 March 2006
Opening net book amount 881,984 623,913 - 2,400,380 316,744 337,343 242,320 4,802,684
Additions - 6,800 - 1,230,371 20,990 - 119,074 1,377,235
Disposals - - - - - - - -
Depreciation (141,486) (191,471) - (301,321) (105,894) (181,717) (233,613) (1,155,502)
Exchange differences - - - - - - - -
Reclassifications - - - - - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Closing net book amount 740,498 439,242 - 3,329,430 231,840 155,626 127,781 5,024,417
-----------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005
Cost 2,829,732 2,790,737 - 3,802,180 1,593,416 1,944,233 1,125,032 14,085,330
Accumulated depreciation 2,089,234 2,351,495 - 472,750 1,361,576 1,788,607 997,251 9,060,913
-----------------------------------------------------------------------------------------------------------------------------------
Net book amount 740,498 439,242 - 3,329,430 231,840 155,626 127,781 5,024,417
-----------------------------------------------------------------------------------------------------------------------------------
JV-26
Eyston Company Limited
13. ADVANCED LEASE PAYMENTS
Group Company
(Restated) (Restated)
2006 2005 2006 2005
HK$ HK$ HK$ HK$
Land use rights 7,516,731 7,520,078 - -
Advanced lease payments, net 1,191,701 1,451,292 1,191,701 1,451,292
------------------------------------------------------------------------------------------------
8,708,432 8,971,370 1,191,701 1,451,292
------------------------------------------------------------------------------------------------
14. AVAILABLE-FOR-SALE FINANCIAL ASSETS/ OTHER INVESTMENTS
Group Company
2006 2005 2006 2005
HK$ HK$ HK$ HK$
Available-for-sale financial assets:
Listed outside Hong Kong, at
market value 34,277,991 - 34,277,991 -
Debt securities :
Listed outside Hong Kong, at
market value - 27,047,797 - 27,047,797
------------------------------------------------------------------------------------------------
34,277,991 27,047,797 34,277,991 27,047,797
------------------------------------------------------------------------------------------------
JV-27
Eyston Company Limited
15. INTERESTS IN SUBSIDIARIES
Company
2006 2005
HK$ HK$
Unlisted shares, at cost 39,993,130 32,658,008
Less : Impairment (200,000) (200,000)
-----------------------------------------------------------------------
39,793,130 32,458,008
Amounts due from subsidiaries - 19,079,609
Less : Impairment - (785,384)
-----------------------------------------------------------------------
- 18,294,225
Amount due to a subsidiary (8) (8)
-----------------------------------------------------------------------
39,793,122 50,752,225
-----------------------------------------------------------------------
At 31 March 2006, the amount due to a subsidiary is unsecured,
interest-free and has no fixed terms of repayment and the amounts due
from subsidiaries are repayable on demand and accordingly, are
classified as current assets (note 18).
At 31 March 2005, the amounts due from/(to) subsidiaries were
unsecured, interest-free and had no fixed terms of repayment. In the
opinion of the directors, no part of amounts would be repayable within
one year from the balance sheet date and the balances were therefore
shown as non-current assets.
JV-28
Eyston Company Limited
15. INTERESTS IN SUBSIDIARIES (Continued)
Details of the subsidiaries as at 31 March 2006 are as follows :
Percentage of
Nominal value of issued
Place of issued capital held
incorporation/ capital/registered by the Principal
Name establishment capital company activities
directly
Fujian Taisun Electronics The PRC US$15,000,000 100% Manufacture of consumer
Technologies Co., Ltd. electronic products
(operations not
commenced yet)
Fujian Taisun Fire The PRC US$5,000,000 100% Manufacture of consumer
Safety Technologies electronic products
Co., Ltd. (operations not
commenced yet)
Sound Well (Hong Kong) Hong Kong HK$200,000 100% Trading of consumer
Co. Limited electronic products
and investment holding
Kimbager International British Virgin US$1 100% Trading of machinery
Limited Islands and equipment
Kimbager Limited Hong Kong HK$10,000 100% Dormant
JV-29
Eyston Company Limited
16. INVENTORIES
Group Company
2006 2005 2006 2005
HK$ HK$ HK$ HK$
Raw materials 10,583,470 12,704,515 10,583,470 12,704,515
Work in progress 3,420,355 2,051,929 3,420,355 2,051,929
Finished goods 4,919,080 3,541,592 4,919,080 3,244,812
----------------------------------------------------------------------------------
18,922,905 18,298,036 18,922,905 18,001,256
----------------------------------------------------------------------------------
JV-30
Eyston Company Limited
17. TRADE AND OTHER RECEIVABLES
Group
2006 2005
HK$ HK$
Accounts receivable 3,511,654 3,133,328
Bills receivable (note 2.2) 3,435,122 -
Deposits, prepayments and other receivables 1,334,007 3,012,763
------------------------------------------------------------------------
8,280,783 6,146,091
------------------------------------------------------------------------
18. AMOUNTS DUE FROM SUBSIDIARIES
2006 2005
HK$ HK$
Trade * 7,371,509 8,414,502
Non-trade ** 20,251,108 -
------------------------------------------------------------------------
27,622,617 8,414,502
Less : Impairment (975,147) -
------------------------------------------------------------------------
26,647,470 8,414,502
------------------------------------------------------------------------
* The amount is unsecured and arises from trading activities of which
the settlement period is in accordance with normal commercial terms.
Interest is charged on the overdue portion over HK$3,900,000
(equivalent to US$500,000) at 6% per annum.
** The amount is unsecured, interest-free and repayable on demand.
JV-31
Eyston Company Limited
19. LOAN TO A SHAREHOLDER
The loan to a shareholder is unsecured, interest bearing at 6% per annum
and is repayable on demand.
20. AMOUNT DUE TO A RELATED COMPANY/ A SHAREHOLDER
The amount is unsecured, interest-free and repayable on demand.
21. DIVIDEND PAYABLE
At a board meeting held on 7 February 2004, the directors declared a final
dividend of HK$5,850,000 per share, totalling HK$11,700,000, which is
expected to be payable to the shareholders upon successful initial listing
of the company's shares on the Main Board of The Stock Exchange of Hong
Kong Limited ("the HKEX").
22. LOANS FROM SHAREHOLDERS
The loans are unsecured, interest-free and repayable on demand by the
respective shareholders with the consent of each other and upon successful
initial listing of the company's shares on the Main Board of HKEX,
whichever is earlier.
23. COLLATERALISED BANK ADVANCES
As described in note 2.2 to the financial statements, this amount
represents the recognition of the bills discounted with recourse at 31
March 2006.
JV-32
Eyston Company Limited
24. DEFERRED TAXATION
At 31 March 2006, the major deferred tax liabilities recognised in the
balance sheets and the movements during the current and prior years :
Group and Company
Accelerated tax
depreciation
HK$
Balance at 1 April 2004 75,000
Charge to income statement 118,000
----------------------------------------------------------------------
Balance at 31 March 2005 and 1 April 2005 193,000
Charge to income statement (Note 9) 62,000
255,000
----------------------------------------------------------------------
Balance at 31 March 2006
----------------------------------------------------------------------
2006 2005
HK$ HK$
Deferred tax liabilities recognised in the
balance sheets of the group and company 255,000 193,000
------------------------------------------------------------------------
At the balance sheet date, the major component of the deferred tax assets
has not been recognised is the temporary difference in respect of the
pre-operating expenses incurred by Fujian Taisun, the PRC subsidiary of
the company, of approximately HK$1,524,303 (2005 : HK$1,074,000) as it is
not certain that future taxable profits will be available against which
this deductible temporary difference can be utilised.
25. SHARE CAPITAL
2006 2005
HK$ HK$
Authorised :
100 ordinary shares of HK$100 each 10,000 10,000
-----------------------------------------------------------------------
Issued and fully paid :
2 ordinary shares of HK$100 each 200 200
-----------------------------------------------------------------------
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Eyston Company Limited
26. RESERVES
Group
2006 2005
HK$ HK$
Exchange reserve 649,522 34,233
Fair value reserve (750,629) -
Retained profits 98,664,880 83,261,781
------------------------------------------------------------------------
98,563,773 83,296,014
------------------------------------------------------------------------
Details of the movements in the above reserves during the year are set out
in the consolidated statement of changes in equity on page 6.
Company
Retained Fair value
profits reserve Total
HK$ HK$ HK$
Balance at 1 April 2004 65,620,312 - 65,620,312
Profit for the year 42,542,423 - 42,542,423
Dividends (18,508,258) - (18,508,258)
----------------------------------------------------------------------------------
Balance at 31 March 2005 89,654,477 - 89,654,477
----------------------------------------------------------------------------------
Balance at 1 April 2005 - prior to
opening adjustment 89,654,477 - 89,654,477
Opening adjustment on adoption of
HKAS 39 (note 2.2) 251,023 (251,023) -
----------------------------------------------------------------------------------
Adjusted balance at 1 April 2005 89,905,500 (251,023) 89,654,477
Profit for the year 39,334,216 - 39,334,216
Change in fair value of
available-for-sale financial
assets - (499,606) (499,606)
Dividends (17,163,365) - (17,163,365)
----------------------------------------------------------------------------------
Balance at 31 March 2006 112,076,351 (750,629) 111,325,722
----------------------------------------------------------------------------------
JV-34
Eyston Company Limited
27. OPERATING LEASE ARRANGEMENTS
At 31 March 2006, the total future minimum rental receivable under
non-cancellable operating leases in respect of land and buildings are as
follows :
Group and Company
2006 2005
HK$ HK$
Within one year 53,265 76,800
In the second to fifth years - 53,265
-------------------------------------------------------------------------
53,265 130,065
-------------------------------------------------------------------------
At 31 March 2006, the total future minimum lease payments under
non-cancellable operating leases in respect of land and buildings are
payable as follows :
Group Company
2006 2005 2006 2005
HK$ HK$ HK$ HK$
Within one year 1,160,600 1,202,000 1,000,000 996,000
In the second to fifth years 140,000 1,054,516 140,000 980,000
-------------------------------------------------------------------------------------
1,300,600 2,256,516 1,140,000 1,976,000
-------------------------------------------------------------------------------------
The group and the company lease land and buildings under operating leases.
The leases run for an initial period of one to two years, with an option
to renew the leases at the expiry dates. None of the leases includes
contingent rentals.
JV-35
Eyston Company Limited
28. CAPITAL COMMITMENTS
Group Company
2006 2005 2006 2005
HK$ HK$ HK$ HK$
Contracted but not provided for the
purchase of property, plant and
equipment 3,853,794 3,548,800 6,100,930 9,779,740
Contracted but not provided for
the construction of the factory
premises in the PRC 2,780,697 5,462,297 - -
Capital contributions payable to
PRC wholly-owned subsidiaries - - 116,216,878 84,552,000
----------------------------------------------------------------------------------------------
6,634,491 9,011,097 122,317,808 94,331,740
----------------------------------------------------------------------------------------------
29. CONTINGENT LIABILITIES
The current and prior years' tax provisions have been prepared on the
basis that the management fees and bonuses are deductible in the
determination of the assessable profits of the company and the company is
entitled to the offshore claims. During the year ended 31 March 2006, the
company received enquiries from the Hong Kong Inland Revenue Department
regarding these deductions and offshore claims. The directors have
assessed the circumstances as at the date of approval of these financial
statements, no additional tax provision being suggested since the outcome
is uncertain. The total contingent tax exposures to the group and company
in respect of the deductions and offshore claims are estimated to be
approximately HK$2.8 million and HK$8.3 million, respectively.
At 31 March 2005, the group has a contingent liability of HK$3,906,240 in
respect of the bills discounted with recourse.
Save as disclosed above, the group and company have no contingent
liabilities at 31 March 2006.
JV-36
Eyston Company Limited
30. DIRECTORS' REMUNERATION
Remuneration of the directors of the company disclosed pursuant to section
161 of the Hong Kong Companies Ordinance is as follows :
Group Company
2006 2005 2006 2005
HK$ HK$ HK$ HK$
Fees - - - -
Other emoluments - - - -
------------------------------------------------------------------------
31. RELATED PARTY TRANSACTIONS
During the year, the following transactions were carried out with related
parties :
Group
2006 2005
HK$ HK$
Transactions with a related company
Rental expense 840,000 840,000
Management fee expense 4,434,600 4,434,600
Management bonus expense 2,914,238 3,337,730
Transactions with a shareholder
Sales 95,570,482 82,241,295
Purchases 5,713,786 2,410,042
Sales commission expense 605,942 1,111,515
Interest income 234,000 229,550
Interest expenses - 46,957
Transaction with a director
Rental expenses 240,000 240,000
------------------------------------------------------------------------
32. MAJOR NON-CASH TRANSACTION
During the year ended 31 March 2006, HK$4,004,689 (2005 : HK$3,582,073) of
the dividends for the year was settled through the current account with a
shareholder.
JV-37
Eyston Company Limited
33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The group's major financial assets and liabilities include bank balances
and cash, available-for-sale financial assets, trade receivables and
payables. Details of these financial instruments are disclosed in
respective notes. The risks associated with these financial instruments
and the policies on how to mitigate these risks are set out below. The
management manages and monitors these exposures to ensure appropriate
measures are implemented on a timely and effective manner.
(a) Interest rate risk
The group does not have any significant exposure to interest rate
risk as the group currently has no financial assets and liabilities
with floating interest rates.
(b) Foreign currency risk
The group's exposure to risk resulting from changes in foreign
currency exchange rates is minimal.
(c) Credit risks
The company's bank balances are all deposited with major banks in
Hong Kong and the PRC.
The carrying amount of trade and other receivables represent the
group's maximum exposure to credit risk in relation to its financial
assets. No other financial assets carry a significant exposure to
credit risk. The group has no significant concentration of credit
risk.
(d) Fair values
The fair values of the group's current financial assets and
liabilities are not materially different from their carrying amounts
because of the immediate or short term maturity of these financial
instruments.
JV-38