<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): March 13, 1998
----------------------------
Leading Edge Packaging, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-28868 22-3432883
-------- ------- ----------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.
350 Fifth Avenue, Suite 3922
New York, New York 10118
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) Zip code
Registrant's telephone number, including area code: (212) 239-1865
---------------------------
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On January 23, 1998, the Company entered into a Share Exchange
Agreement (the "Agreement") with its corporate parent, Chung Hwa Development
Holdings Limited, a Bermuda company which is listed on The Stock Exchange of
Hong Kong Limited ("Chung Hwa" or the "Majority Stockholder"). The Company and
Chung Hwa completed the transaction on March 13, 1998, subject to the issuance
of 2,250,000 shares of the Company's common stock to Chung Hwa. On June 10,
1998, the Company issued 1,250,000 shares to Chung Hwa, which is the maximum
permitted under the Company's currently authorized share capital. The Majority
Stockholder, by a "Written Consent of the Majority Stockholder," has approved an
amendment to the Company's certificate of incorporation, increasing its
authorized share capital by 3,000,000 shares. The amendment will be filed with
the Delaware Secretary of State 20 days after the distribution of an Information
Statement to the Company's stockholders informing them of the Written Consent of
the Majority Stockholder. The Information Statement is currently being reviewed
by the Securities and Exchange Commission and will be distributed upon
completion of its review. Pursuant to the Agreement, the Company received all of
the issued and outstanding shares of Justrite Investments Limited ("Justrite"),
a wholly owned subsidiary of Chung Hwa in exchange for the 2,250,000 shares of
the Company's common stock valued at $6.00 per share (the "Exchange").
Justrite is the parent corporation of Leading Edge Packaging Limited
(formerly known as Rich City International Packaging Limited) ("LEP-Hong Kong").
LEP-Hong Kong is the Company's supplier of packaging products, which the Company
distributes in North America. LEP-Hong Kong distributes its packaging products
in other parts of the world, including Europe, the Middle East and Asia.
Justrite also owns 100% of Breakspear Limited, a British Virgin Islands company,
which in turn holds a 60% interest in a joint venture in the People's Republic
of China. LEP-Hong Kong also has indirect interests in a joint venture in China.
See description of each of these entities below. The Company believes that the
acquisition will enable it to consolidate the manufacture and distribution of
its packaging products and to expand its sales into additional territories.
The Company believes that the Exchange will provide it with direct
control over Justrite's management team, subsidiaries and production facilities
in China as well as access to a greater market share for its packaging products
in Europe and Asia, formerly territories of LEP-Hong Kong. There can be no
assurance, however, that the Exchange will produce the anticipated results for
the Company. In addition, under a certain Assignment and Distribution Agreement,
dated September 23, 1997, by and between the Company and LEP-Hong Kong, the
Company would have been required to pay to LEP-Hong Kong a royalty in the amount
of $2,000,000 by September 23, 1999. Consummation of the Exchange will eliminate
the royalty requirement specified in the Assignment and Distribution Agreement.
The Share Exchange Agreement
The Agreement provides that the Company is to acquire all of the
outstanding capital stock of Justrite in exchange for the issuance to the
Majority Stockholder of 2,250,000 shares of the Company's common stock, par
value $.01 per share. Aside from the amendment to the
<PAGE>
Company's certificate of incorporation and the issuance of the remaining shares
to Chung Hwa, all other conditions to closing under the Agreement have been
satisfied or waived. The amendment to the certificate of incorporation and the
issuance of the remaining shares to the Majority Stockholder is expected to take
place 20 days from the date of mailing of the Information Statement to the
Company's stockholders. Prior to the issuance of the shares to the Majority
Stockholder, it holds approximately 57% of the Company's common stock. Upon
issuance of all of the 2,250,000 shares, it will hold approximately 74% of the
common stock.
The Agreement contains certain warranties by the Majority Stockholder
with respect to Justrite and its subsidiaries. The Agreement limits the
liability of the Majority Stockholder arising under the Agreement to no more
than US$13,500,000. The Agreement also provides for the assumption by the
Company of any guarantees and letters of undertaking by the Majority Stockholder
for the benefit of Justrite or its subsidiaries.
The 2,250,000 shares of the Company's common stock issuable to the
Majority Stockholder under the Agreement have been valued by the Company and the
Majority Stockholder at $6.00 per share, as specified in the Agreement, or
US$13,500,000 in the aggregate. The Majority Stockholder undertakes, pursuant to
the Agreement, that in the event the audited net assets of Justrite for the year
ended March 31,1998, as reflected in its audited report and financial
statements, is less than US$4,500,000, the Majority Stockholder will pay to the
Company, on a US-dollar for US-dollar basis, the amount of any shortfall. The
US$13,500,000 valuation was reached by negotiations between the parties and
takes account of the $4.5 million net asset value undertaking referred to above,
profits generated by Justrite and the subsidiaries in prior years and an
adjustment for estimated downtime during the setup of new facilities.
The foregoing discussion contains forward-looking statements, within
the meaning of the Private Securities Litigation Reform Act of 1995, which are
inherently subject to risks and uncertainties.
Justrite and the Subsidiaries
Justrite
- --------
Justrite is an investment holding company for its operating
subsidiaries which are engaged in the manufacture and distribution of packaging
products. Justrite is incorporated in the British Virgin Islands and has its
headquarters in Hong Kong. Prior to the Exchange, 100% of the outstanding share
capital of Justrite was held by the Majority Stockholder and is being
transferred to the Company in the Exchange.
LEP-Hong Kong
- -------------
LEP-Hong Kong is the primary operating subsidiary of Justrite. LEP-Hong
Kong is incorporated in Hong Kong. Of the 2,000,000 shares of LEP-Hong Kong
outstanding, 1,999,999 are held by Justrite, and one share is held by a third
party. LEP-Hong Kong coordinates the distribution of packaging products produced
by the other subsidiaries to its customers throughout
<PAGE>
Europe, the Middle East, Asia and, through the Company, North America.
LEP-Hong Kong has a sales force in Hong Kong to deal directly with its European,
Middle Eastern and Asian customers. The packaging products distributed by
LEP-Hong Kong are essentially the same types of products distributed by the
Company in North America. LEP-Hong Kong owns a 50% interest in Circle Round
Limited and Dongguan Shilong Wah Rich Packaging (see discussion below).
Breakspear Limited
- ------------------
Breakspear Limited is a wholly-owned subsidiary of Justrite. It is
incorporated in the British Virgin Islands. Breakspear serves as a holding
company for a 60% interest in Dongguan Walford Ornaments Packaging Limited, a
manufacturing joint venture in China. Breakspear also performs administrative
services in connection with the distribution of the packaging products. It
serves as the contractual management company for the factories in China. It
purchases all of the products from the China joint ventures and sells them to
LEP-Hong Kong. For tax planning purposes, it retains most of the profits from
these sales.
Circle Round Limited
- --------------------
Circle Round Limited is a 50% owned subsidiary of LEP-Hong Kong. It is
a property holding company and holds title to the office/showroom/warehouse
premises in Hong Kong, which are used by LEP-Hong Kong.
China Joint Ventures
- --------------------
Dongguan Shilong Wah Rich Packaging Limited is a manufacturing joint
venture in China which is 50% owned by LEP-Hong Kong and 50% owned by a China
party, Dongguan City Shek Long Wah Nam Enterprises Company. This is one of two
joint ventures involved in the manufacture of packaging products for
distribution by the other subsidiaries. Dongguan Shilong operates pursuant to a
management agreement between Breakspear Limited and the China party. Under the
management agreement, Breakspear Limited is responsible for all of the assets
and liabilities of the joint venture and is entitled to all of the net profits
from its operations after the payment of a fixed amount as a management fee to
the China party each year. LEP-Hong Kong leases property from the China party
for use by the joint venture. Although the actual production of the packaging
products has been transferred from Dongguan Shilong to Dongguan Walford, this
entity is maintained in existence for tax planning purposes.
Dongguan Walford Ornaments Packaging Company Limited is the primary
manufacturing joint venture in China, which is 60% owned by Breakspear and 40%
owned by Dongguan City Shek Long Wah Nam Enterprises Company. Breakspear has a
management agreement and profit sharing arrangement with the China party similar
to that of Dongguan Shilong. Dongguan Walford has assumed the actual production
of the packaging products from Dongguan Shilong.
Both of the joint ventures are managed by Breakspear Limited. They
produce packaging products exclusively for Breakspear Limited and are prohibited
from selling to third parties. The two factories in which the products are
manufactured are approximately 450,000 square feet in
<PAGE>
the aggregate and employ between 2,850 and 3,100 workers, depending upon worker
turnover, production demands and the local employment market. The two factories
are under one management team. All workers in both factories are employed by
Dongguan Walford.
The above paragraphs contain forward-looking statements which are
inherently subject to risks and uncertainties. The Company cannot be certain of
the date on which the issuance of shares will occur or the effects that the
share exchange will have on its operations or profitability. Actual events could
differ materially from the Company's anticipation.
Item 5. Other Events.
In connection with the transaction described in Item 2, the Company is
amending its certificate of incorporation to increase its authorized share
capital from 5,000,000 to 8,000,000 shares of common stock. The amendment is
expected to take place 20 days after the delivery of an Information Statement on
Schedule 14C to the Company's stockholders. The Information Statement is
currently under review by the Securities and Exchange Commission. The amendment
was approved by the Written Consent of the Majority Stockholder dated February
9, 1998.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
<TABLE>
<CAPTION>
<S> <C>
JUSTRITE INVESTMENTS LIMITED
Auditors' report F - 2
Consolidated profit and loss accounts for the years ended
March 31, 1995, 1996 and 1997 and for the nine months
ended December 31, 1996 (unaudited) and 1997 (unaudited) F - 4
Consolidated balance sheets as at March 31, 1995, 1996 and 1997
and December 31, 1996 (unaudited) and 1997 (unaudited) F - 5
Consolidated cash flow statements for the years ended March 31, 1995,
1996 and 1997 and for the nine months ended December 31, 1996
(unaudited) and 1997 (unaudited) F - 6
Notes to financial statements F - 7
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION FOR LEADING EDGE PACKAGING, INC.
Introduction to unaudited pro forma financial information F - 19
Unaudited pro forma consolidated statements of income for the years ended
March 31, 1995 and 1996 F - 20
Unaudited pro forma consolidated statement of income for the year ended
March 31, 1997 F - 21
Unaudited pro forma interim consolidated statement of income for the
nine months ended December 31, 1996 F - 22
Unaudited pro forma interim consolidated statement of income for the
nine months ended December 31, 1997 F - 23
Unaudited pro forma interim consolidated balance sheet at
December 31, 1997 F - 24
Notes to unaudited pro forma consolidated financial statements F - 25
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LEADING EDGE PACKAGING, INC.
(Registrant)
Date: September 9, 1998 By: /s/ Casey K. Tjang
-----------------------------------
Casey K. Tjang,
Chief Financial Officer (Principal
Accounting Officer) and Secretary
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
JUSTRITE INVESTMENTS LIMITED
Auditors' report F - 2
Consolidated profit and loss accounts for the years ended
March 31, 1995, 1996 and 1997 and for the nine months
ended December 31, 1996 (unaudited) and 1997 (unaudited) F - 4
Consolidated balance sheets as at March 31, 1995, 1996 and 1997
and December 31, 1996 (unaudited) and 1997 (unaudited) F - 5
Consolidated cash flow statements for the years ended March 31, 1995,
1996 and 1997 and for the nine months ended December 31, 1996
(unaudited) and 1997 (unaudited) F - 6
Notes to financial statements F - 7
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION FOR LEADING EDGE PACKAGING, INC.
Introduction to unaudited pro forma financial information F - 19
Unaudited pro forma consolidated statements of income for the years ended
March 31, 1995 and 1996 F - 20
Unaudited pro forma consolidated statement of income for the year ended
March 31, 1997 F - 21
Unaudited pro forma interim consolidated statement of income for the
nine months ended December 31, 1996 F - 22
Unaudited pro forma interim consolidated statement of income for the
nine months ended December 31, 1997 F - 23
Unaudited pro forma interim consolidated balance sheet at
December 31, 1997 F - 24
Notes to unaudited pro forma consolidated financial statements F - 25
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF JUSTRITE INVESTMENTS LIMITED ("COMPANY")
We have audited the accompanying consolidated financial statements ("financial
statements") of the Company and its subsidiaries (collectively the "Group") for
each of the three years ended March 31, 1997 which have been prepared in
accordance with accounting principles generally accepted in Hong Kong.
Respective responsibilities of directors and auditors
The Company's directors are responsible for the preparation of the financial
statements which give a true and fair view. In preparing financial statements
under generally accepted accounting principles in Hong Kong which give a true
and fair view it is fundamental that appropriate accounting policies are
selected and applied consistently.
It is our responsibility to form an independent opinion, based on our audit, on
those statements and to report our opinion to you.
Basis of opinion
We conducted our audit in accordance with Statements of Auditing Standards
issued by the Hong Kong Society of Accountants (which do not differ in any
material respects from auditing standards generally accepted in the United
States of America). 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 Group's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis for
our opinion.
F-2
<PAGE>
JUSTRITE INVESTMENTS LIMITED
AUDITORS' REPORT - continued
Opinion
In our opinion the financial statements give a true and fair view of the state
of the affairs of the Group as at March 31, 1995, 1996 and 1997 and of the
profit and cash flows of the Group for each of the three years ended March 31,
1997.
Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
shareholders' funds and financial position at March 31, 1995, 1996 and 1997 to
the extent summarized in Note 24.
Our audits also comprehended the translation of Hong Kong dollar amounts into
U.S. dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 3. Such U.S. dollar amounts are
presented solely for the convenience of readers in the United States of America.
Deloitte Touche Tomahtsu
April 28, 1998
Hong Kong
F-3
<PAGE>
JUSTRITE INVESTMENTS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
Year ended March 31
-----------------------------------------------
NOTES 1995 1996 1997 1997
----- ---- ---- ---- ----
HK$ HK$ HK$ US$
<S> <C> <C> <C> <C> <C>
Turnover 128,863,374 169,620,506 148,989,110 19,299,108
Cost of sales 74,532,656 93,437,055 97,945,5541 2,687,248
---------- ----------- ----------- ---------
Gross profit 54,330,718 76,183,451 51,043,556 6,611,860
Selling, general and administrative
expenses 37,818,448 39,192,419 36,753,035 4,760,756
---------- ----------- ----------- ---------
Operating profit 16,512,270 36,991,032 14,290,521 1,851,104
Interest expense (2,690,018) (2,741,466) (2,673,460) (346,303)
Interest income 1,089,652 347,413 290,853 37,675
Other income 1,116,710 1,632,665 1,171,922 151,718
---------- ----------- ----------- ---------
Profit before exceptional item 4 16,028,614 36,229,644 13,079,836 1,694,194
Exceptional item 5 - - - -
---------- ----------- ----------- ---------
Profit before taxation 16,028,614 36,229,644 13,079,836 1,694,194
Taxation credit (charge) 6 849,947 (1,479,592) 104,307 13,596
---------- ----------- ----------- ---------
Profit for the year/period 16,878,561 34,750,052 13,184,143 1,707,790
---------- ----------- ----------- ---------
Nine months ended December 31
-----------------------------
1996 1997 1997
---- ---- ----
HK$ HK$ US$
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Turnover 122,871,880 108,089,064 14,001,174
Cost of sales 79,297,162 75,270,758 9,750,582
----------- ---------- ----------
Gross profit 43,574,718 32,818,306 4,250,592
Selling, general and administrative
expenses 22,838,116 23,030,727 2,983,255
----------- ---------- ----------
Operating profit 20,736,602 9,787,579 1,267,337
Interest expense (1,740,774) (2,717,886) (352,058)
Interest income 44,458 38,196 4,948
Other income 849,791 684,195 88,626
----------- ---------- ----------
Profit before exceptional item 19,890,077 7,792,084 1,008,853
Exceptional item - (2,890,460) (373,928)
----------- ---------- ----------
Profit before taxation 19,890,077 4,901,624 634,925
Taxation credit (charge) 71,000 75,120 9,731
----------- ---------- ----------
Profit for the year/period 19,961,077 4,976,744 644,656
----------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
JUSTRITE INVESTMENTS LIMITED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at March 31 As at December 31
-------------------------------------------- -----------------
NOTES 1995 1996 1997 1997 1997 1997
----- ---- ---- ---- ---- ---- ----
HK$ HK$ HK$ US$ HK$ US$
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED ASSETS 7 48,128,232 46,938,897 44,651,757 5,783,906 41,775,833 5,411,377
LONG TERM RECEIVABLE 8 5,643,320 4,369,520 - - - -
CURRENT ASSETS
Stocks 9 53,869,880 44,450,150 39,727,870 5,146,097 38,898,841 5,038,710
Short-term investment 10 - - 3,860,000 500,000 - -
Debtors, deposits and prepayments 36,888,420 29,965,000 34,810,797 4,509,171 30,413,551 3,939,579
Bills receivable 5,145,673 2,911,616 5,014,384 649,532 1,156,564 149,814
Amount due from ultimate holding
company - - - - 21,910,673 2,838,170
Amount due from a fellow subsidiary 17,545,577 90,015,461 119,179,859 15,437,805 9,179,859 1,189,101
Bank balances and cash 6,599,284 2,107,546 2,825,984 366,060 643,038 83,295
----------- ----------- ----------- ----------- ----------- -----------
120,048,834 169,449,773 205,418,894 26,608,665 102,202,526 13,238,669
----------- ----------- ----------- ----------- ----------- -----------
CURRENT LIABILITIES
Creditors and accrued charges 20,307,958 24,421,611 24,361,517 3,155,637 60,327,181 7,814,402
Bills payable 1,790,198 1,173,594 321,448 41,638 287,736 37,271
Taxation 3,917,756 5,433,253 5,417,756 701,782 5,417,756 701,782
Amount due to ultimate holding
company 33,086,320 39,890,365 59,682,198 7,730,855 - -
Obligations under finance leases
and hire purchase contracts 14 1,120,182 219,453 - - - -
Bank borrowings repayable
within one year 15 10,084,102 13,304,058 11,739,488 1,520,659 36,048,698 4,669,520
----------- ----------- ----------- ----------- ----------- -----------
70,306,516 84,442,334 101,522,407 13,150,571 102,081,371 13,222,975
----------- ----------- ----------- ----------- ----------- -----------
NET CURRENT ASSETS 49,742,318 85,007,439 103,896,487 13,458,094 121,155 15,694
----------- ----------- ----------- ----------- ----------- -----------
103,513,870 136,315,856 148,548,244 19,242,000 41,896,988 5,427,071
----------- ----------- ----------- ----------- ----------- -----------
Financed by:
SHARE CAPITAL 11 780 780 780 100 780 100
RESERVES 12 80,964,080 115,714,132 128,898,275 16,696,669 23,875,019 3,092,621
----------- ----------- ----------- ----------- ----------- -----------
SHAREHOLDERS' FUNDS 80,964,860 115,714,912 128,899,055 16,696,769 23,875,799 3,092,721
MINORITY INTERESTS 16 15,000,000 15,000,000 15,000,000 1,943,005 15,000,000 1,943,005
DEFERRED TAXATION 13 658,270 607,139 502,832 65,133 427,712 55,402
OBLIGATIONS UNDER
FINANCE LEASES AND
HIRE PURCHASE
CONTRACTS REPAYABLE
AFTER ONE YEAR 14 219,453 - - - - -
BANK BORROWINGS
REPAYABLE AFTER
ONE YEAR 15 6,671,287 4,993,805 4,146,357 537,093 2,593,477 335,943
----------- ----------- ----------- ----------- ----------- -----------
103,513,870 136,315,856 148,548,244 19,242,000 41,896,988 5,427,071
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
JUSTRITE INVESTMENTS LIMITED
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
Year ended March 31 Nine months ended December 31
-------------------------------------- -----------------------------
NOTES 1995 1996 1997 1997 1996 1997 1997
HK$ HK$ HK$ US$ HK$ HK$ US$
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET CASH INFLOW (OUTFLOW)
FROM OPERATING ACTIVITIES 17 18,467,939 1,724,212 11,919,537 1,543,896 91,628 (25,547,646) (3,309,281)
---------- ----------- --------- --------- --------- ---------- ---------
RETURNS ON INVESTMENTS
AND SERVICING OF
FINANCE
Interest received 1,089,652 347,413 290,853 37,675 44,458 38,196 4,948
Interest paid (2,331,047) (2,560,366)(2,641,279) (342,135)(1,708,593) (2,717,886) (352,058)
Interest on obligations under
finance leases and hire purchase
contracts (358,971) (181,100) (32,181) (4,168) (32,181) - -
---------- ----------- --------- --------- --------- ---------- ---------
NET CASH OUTFLOW FROM
RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE (1,600,366) (2,394,053) (2,382,607) (308,628)(1,696,316) (2,679,690) (347,110)
---------- ----------- --------- --------- --------- ---------- ---------
TAXATION
Hong Kong Profits Tax paid (238,995) (15,226) (15,497) (1,922) (15,497) - -
---------- ----------- --------- --------- --------- ---------- ---------
INVESTING ACTIVITIES
Purchase of short-term investment - - (3,860,000) (500,000)(3,860,000) - -
Proceeds from disposals of short-
term investment - - - - - 3,860,000 500,000
Purchase of fixed assets (9,798,639) (4,241,744) (2,311,524) (299,420)(2,108,388) (571,940) (74,085)
Proceeds from disposals of fixed
assets 2,012,260 12,781 - - - - -
---------- ----------- --------- --------- --------- ---------- ---------
NET CASH INFLOW (OUTFLOW)
FROM INVESTING ACTIVITIES (7,786,379) (4,228,963) (6,171,524) (799,420)(5,968,388) 3,288,060 425,915
---------- ----------- --------- --------- --------- ---------- ---------
NET CASH INFLOW
(OUTFLOW) BEFORE
FINANCING 8,842,199 (4,914,030) 3,349,909 433,926 (7,588,573)(24,939,276)(3,230,476)
---------- ----------- --------- --------- --------- ---------- ---------
FINANCING 18
Bank loans raised - - 1,108,296 143,562 5,701,366 - -
Repayment of bank loans (4,195,506) (1,490,683) (1,539,783) (199,454)(1,374,605) (1,584,297) (205,220)
Repayment of obligations under
finance leases and hire purchase
contracts (2,305,028) (1,120,182) (219,453) (28,427) (219,453) - -
---------- ----------- --------- --------- --------- ---------- ---------
NET CASH INFLOW (OUTFLOW)
FROM FINANCING (6,500,534) (2,610,865) (650,940) (84,319) 4,107,308 (1,584,297) (205,220)
---------- ----------- --------- --------- --------- ---------- ---------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS 2,341,665 (7,524,895) 2,698,969 349,607 (3,481,265)(26,523,573)(3,435,696)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF THE YEAR
/PERIOD (4,340,953) (1,999,288) (9,524,183)(1,233,702)(9,524,183)(6,825,214) (884,095)
---------- ----------- --------- --------- --------- ---------- ---------
CASH AND CASH EQUIVALENTS
AT END OF THE YEAR/PERIOD 19 (1,999,288) (9,524,183) (6,825,214) (884,095)(13,005,448)(33,348,787)(4,319,791)
---------- ----------- --------- --------- --------- ---------- ---------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
JUSTRITE INVESTMENTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL
The Company is a wholly owned private limited company incorporated in the
British Virgin Islands. Its ultimate holding company is Chung Hwa
Development Holdings Limited, a limited company incorporated in Bermuda and
listed on The Stock Exchange of Hong Kong Limited.
2. CASH FLOW STATEMENT COMPARATIVE FIGURES NOT PREPARED
The Company has not prepared comparative figures for the cash flow
statement for the year ended March 31, 1995, as in the opinion of the
directors, the comparative figures do not provide valuable information to
the readers.
3. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies which have been adopted in preparing
these financial statements and which conform with accounting principles
generally accepted in Hong Kong are as follows:
Basis of consolidation
The consolidated financial statements incorporate the financial statements
of the Company and its subsidiaries made up to March 31 each year.
The results of the subsidiaries acquired or disposed of during the year are
included in the consolidated profit and loss account from the effective
date of acquisition or up to the effective date of disposal, as
appropriate.
All significant intercompany transactions and balances within the Group
have been eliminated on consolidation.
F-7
<PAGE>
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Turnover
Turnover represents the net amounts received and receivable for goods sold
during the year.
Revenue recognition
Sale of goods are recognised when goods are delivered and title has been
passed.
Interest income from bank deposits is accrued on a time basis by reference
to the principal outstanding and at the rate applicable.
Fixed assets and depreciation
Fixed assets are stated at cost less depreciation. 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 fixed assets has been put into
operation, such as repairs and maintenance and overhaul costs, is normally
charged to the profit and loss account 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 fixed asset, the expenditure is
capitalised as an additional cost of the fixed asset. When assets are sold
or retired, their costs and accumulated depreciation are removed from the
accounts and any gain or loss resulting from their disposals is included in
the profit and loss account.
Depreciation is provided to write off the costs of fixed assets over their
estimated useful lives using the straight line method, at the following
rates per annum:
Land held on long term leases Over the terms of the leases
Land held on medium term leases 2.5% or over the terms of the leases
whichever is shorter
Buildings 2.5% or over the terms of the leases
whichever is shorter
Property under development Nil
Leasehold improvements 10% or over the terms of the leases
whichever is shorter
Furniture, fixtures and equipment 10 - 20%
Plant and machinery 10%
Motor vehicles 20%
Assets held under finance leases and hire purchase contracts
Leases are classified as finance leases whenever the terms of the leases
transfer substantially all the risks and rewards of ownership to the Group.
Assets held under finance leases and hire purchase contracts are
capitalised at their fair value at the date of acquisition. The principal
portion of the corresponding contractual commitments are shown as
obligations under finance leases and hire purchase contracts. The finance
costs, which represent the difference between the total leasing commitments
and their fair value of the assets acquired, are charged to the profit and
loss account over the period of the respective leases so as to produce a
constant periodic rate of charge on the remaining obligations for each
accounting period.
All other leases are classified as operating leases and their rentals are
charged to the profit and loss account on a straight line basis over the
respective lease terms.
F-8
<PAGE>
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Short-term investment
Listed shares which are held for short term, are stated at the lower of
cost and market value.
Foreign currencies
Transactions in foreign currencies are translated at the rates ruling on
the dates of the transactions. Monetary assets and liabilities denominated
in foreign currencies are re-translated at the rates ruling on the balance
sheet date. Profits and losses arising on exchange are dealt with in the
profit and loss account.
On consolidation, the financial statements of the subsidiaries in the
People's Republic of China (the "PRC") are translated using the temporal
method. Exchange differences arising on translation are dealt with in the
profit and loss account. The functional currency of the PRC subsidiaries is
Hong Kong dollars.
Translation of amounts from Hong Kong dollars (HK$) into United States
dollars (US$) for the convenience of the reader has been made at US$1.00 =
HK$7.72. No representation is made that the HK$ amounts could have been, or
could be, converted into US$ at that rate on December 31, 1997 or on any
other date.
Taxation
The charge for taxation is based on the results for the year as adjusted
for items which are non-assessable or disallowed. Timing differences arise
from the recognition for tax purposes of certain items of income and
expense in a different accounting period from that in which they are
recognised in the financial statements. The tax effect of timing
differences, computed under the liability method, is recognised as deferred
taxation in the financial statements to the extent that it is probable a
liability or asset will crystallise in the foreseeable future.
Cash equivalents
Cash equivalents represent short term, highly liquid investments which are
readily convertible into known amounts of cash and which were within three
months of maturity when acquired, less advances from banks repayable within
three months from the date of the advance.
F-9
<PAGE>
JUSTRITE INVESTMENTS LIMITED
4. PROFIT BEFORE EXCEPTIONAL ITEM
<TABLE>
<CAPTION>
Year ended March 31 Nine months ended December 31
-------------------------------------- ------------------------------
1995 1996 1997 1997 1996 1997 1997
---- ---- ---- ---- ---- ---- ----
HK$ HK$ HK$ US$ HK$ HK$ US$
(Unaudited) (Unaudited)(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Profit before exceptional item has been
arrived at after charging:
Auditors' remuneration 762,780 757,330 717,000 92,876 540,000 531,000 68,782
Depreciation
Owned assets 4,227,320 4,921,023 4,230,145 547,946 3,123,206 3,171,475 410,813
Assets held under finance leases
and hire purchase contracts 524,784 379,743 368,519 47,736 287,612 276,389 35,802
Directors' remuneration
Fees - - - - - - -
Other emoluments 348,000 2,348,000 1,266,667 164,076 950,000 967,572 125,333
Interest on
Finance leases and hire purchase
contracts 358,971 181,100 32,181 4,168 32,181 - -
Bank borrowings wholly repayable
within five years 1,311,594 2,394,458 2,387,974 309,323 1,524,285 2,507,448 324,799
Bank borrowings wholly repayable
after five years 1,019,453 165,908 253,305 32,812 184,308 210,439 27,259
Operating lease payments in respect
of rented premises 4,116,792 4,816,294 4,472,063 579,283 3,518,637 3,616,701 468,485
Provision for doubtful debts - - 1,689,470 218,843 - - -
and after crediting:
Interest income 1,089,652 347,413 290,853 6,587 44,458 38,196 4,958
--------- --------- --------- ------- --------- --------- -------
</TABLE>
5. EXCEPTIONAL ITEM
The amount represents misappropriation of inventories and cash by a manager
of the Group's factory established in the People' Republic of China.
6. TAXATION CREDIT (CHARGE)
<TABLE>
<CAPTION>
Year ended March 31 Nine months ended December 31
-------------------------------------- -----------------------------
1995 1996 1997 1997 1996 1997 1997
---- ---- ---- ---- ---- ---- ----
HK$ HK$ HK$ US$ HK$ HK$ US$
(Unaudited) (Unaudited)(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Profit for the year
Hong Kong - (30,723) - - - - -
Overseas 1,000,000 (1,500,000) - - - - -
Prior year underprovision for
Hong Kong Profits Tax (28,995) - - - - - -
Deferred taxation credit (charge)
(note 13) (121,058) 51,131 104,307 13,596 71,000 75,120 9,731
--------- -------- ------- ----- ------ ------ -----
849,947 (1,479,592) 104,307 13,596 71,000 75,120 9,731
--------- -------- ------- ----- ------ ------ -----
</TABLE>
A substantial portion of the Group's profit neither arises in, nor is
derived from, Hong Kong. Accordingly, that portion of the Group's profit is
not subject to Hong Kong Profits Tax.
Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable
profit for the year. Overseas taxation is calculated at the rates
prevailing in the respective jurisdictions.
F-10
<PAGE>
JUSTRITE INVESTMENTS LIMITED
7. FIXED ASSETS
<TABLE>
<CAPTION>
As at
As at March 31 December 31
---------------------------------------- -----------
1995 1996 1997 1997
---- ---- ---- ----
HK$ HK$ HK$ HK$
(unaudited)
<S> <C> <C> <C> <C>
COST
Leasehold land and buildings 20,969,000 23,223,000 25,317,916 25,317,916
Property under development 2,992,864 738,864 - -
Leasehold improvements 6,831,429 7,951,267 8,118,175 8,383,019
Furniture, fixtures and equipment 4,978,888 5,364,588 5,523,132 5,702,878
Plant and machinery 22,163,279 23,973,973 24,603,993 25,389,808
Motor vehicles 366,613 366,613 366,613 366,613
--------------- --------------- --------------- ---------------
58,302,073 61,618,305 63,929,829 65,160,234
--------------- --------------- --------------- ---------------
DEPRECIATION
Leasehold land and buildings 254,994 462,256 1,012,547 1,434,279
Property under development - - - -
Leasehold improvements 3,060,002 4,357,708 5,223,823 6,068,613
Furniture, fixtures and equipment 934,957 1,585,841 2,269,106 2,855,198
Plant and machinery 5,803,121 8,079,513 10,505,183 12,703,907
Motor vehicles 120,767 194,090 267,413 322,404
--------------- --------------- --------------- ---------------
10,173,841 14,679,408 19,278,072 23,384,401
--------------- --------------- --------------- ---------------
NET BOOK VALUES
Leasehold land and buildings 20,714,006 22,760,744 24,305,369 23,883,637
Property under development 2,992,864 738,864 - -
Leasehold improvements 3,771,427 3,593,559 2,894,352 2,314,406
Furniture, fixtures and equipment 4,043,931 3,778,747 3,254,026 2,847,680
Plant and machinery 16,360,158 15,894,460 14,098,810 12,685,901
Motor vehicles 245,846 172,523 99,200 44,209
--------------- --------------- --------------- ---------------
48,128,232 46,938,897 44,651,757 41,775,833
--------------- --------------- --------------- ---------------
The Group's property interest comprises:
Leasehold properties held in Hong
Kong under long term leases 20,714,006 20,506,744 20,040,063 19,683,565
Leasehold properties held in the
PRC under a medium term lease - 2,254,000 4,265,306 4,200,072
--------------- --------------- --------------- ---------------
20,714,006 22,760,744 24,305,369 23,883,637
Property under development held in
the PRC under a medium term lease 2,992,864 738,864 - -
--------------- --------------- --------------- ---------------
23,706,870 23,499,608 24,305,369 23,883,637
--------------- --------------- --------------- ---------------
</TABLE>
The net book values of fixed assets held under finance leases and hire
purchase contracts as at March 31, 1995, 1996 and 1997 are
HK$3,131,604, HK$3,833,145 and HK$nil respectively.
F-11
<PAGE>
JUSTRITE INVESTMENTS LIMITED
8. LONG TERM RECEIVABLE
The amount represents long term portion of a trade receivable and is
unsecured, interest free and is expected to be fully repaid before August
15, 1997. The amount has been re-classified as a current asset in 1997 and
provision for doubtful debts has been made on the uncollectible amount.
9. STOCKS
<TABLE>
<CAPTION>
As at March 31 As at December 31
-------------------------------------------- -----------------
1995 1996 1997 1997 1997 1997
---- ---- ---- ---- ---- ----
HK$ HK$ HK$ US$ HK$ US$
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Raw materials 47,770,827 37,835,578 32,778,343 4,245,899 32,605,301 4,223,485
Finished goods 6,099,053 6,614,572 6,949,527 900,198 6,293,540 815,225
---------- ---------- ---------- ---------- ---------- ----------
53,869,880 44,450,150 39,727,870 5,146,097 38,898,841 5,038,710
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
10. SHORT-TERM INVESTMENT
<TABLE>
<CAPTION>
As at March 31 As at December 31
-------------------------------------------- -----------------
1995 1996 1997 1997 1997 1997
---- ---- ---- ---- ---- ----
HK$ HK$ HK$ US$ US$ US$
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Listed shares overseas at cost - - 3,860,000 500,000 - -
---------- ---------- ---------- ---------- ---------- ----------
Market value of listed shares - - 83,339,063 10,795,215 - -
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
Details of the short-term investment as at March 31, 1997 are as follows:
<TABLE>
<CAPTION>
Place of
incorporation/ Issued and fully Attributable
registration paid ordinary equity interest
Name and operation share capital held by the Group Principal activity
---- ------------- ------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Leading Edge Packaging, Inc. United States US$33,125 56.6% Distribution of packaging
("LEPI") of America products
("U.S.")
</TABLE>
LEPI was incorporated on December 15, 1995 to take up the Group's North
American distribution business effective from April 1, 1996. On December 2,
1996, LEPI listed its shares on the Nasdaq National Market System, U.S..
Subsequent to March 31, 1997, the Group transferred the investment to its
ultimate holding company.
The results of LEPI not been consolidated with the Group as the control of
this investment is intended to be temporary and accordingly, the amount has
been included under current assets.
F-12
<PAGE>
JUSTRITE INVESTMENTS LIMITED
11. SHARE CAPITAL
<TABLE>
<CAPTION>
1997 & 1996 & 1995
---------------------------------
HK$ US$
<S> <C> <C>
Authorised:
Ordinary shares of US$1 each 390,000 50,000
----------- ---------
Issued and fully paid:
Ordinary shares of US$1 each 780 100
----------- ---------
</TABLE>
12. RESERVES
<TABLE>
<CAPTION>
Capital Retained
reserve profits Total
--------- ------------ -----------
HK$ HK$ HK$
<S> <C> <C> <C>
At April 1, 1994 1,999,376 62,086,143 64,085,519
Profit for the year - 16,878,561 16,878,561
------------- --------------- ---------------
At March 31, 1995 1,999,376 78,964,704 80,964,080
Profit for the year - 34,750,052 34,750,052
------------- --------------- ---------------
At March 31, 1996 1,999,376 113,714,756 115,714,132
Profit for the year - 13,184,143 13,184,143
------------- --------------- ---------------
At March 31, 1997 1,999,376 126,898,899 128,898,275
Profit for the period (unaudited) - 4,976,744 4,976,744
Dividend (HK$1,100,000 per share) - (110,000,000) (110,000,000)
------------- --------------- ---------------
At December 31, 1997 (unaudited) 1,999,376 21,875,643 23,875,019
------------- --------------- ---------------
</TABLE>
13. DEFERRED TAXATION
<TABLE>
<CAPTION>
As at March 31 As at December 31
-------------------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
1995 1996 1997 1997 1997 1997
---- ---- ---- ---- ---- ----
HK$ HK$ HK$ US$ HK$ US$
(Unaudited) (Unaudited)
At April 1 537,212 658,270 607,139 78,729 502,832 65,133
Charge (credit) for the year
/period (note 6) 121,058 (51,131) (104,307) (13,596) (75,120) (9,731)
------- ------- ------- ------- ------- -------
At March 31/December 31 658,270 607,139 502,832 65,133 427,712 55,402
------- ------- ------- ------- ------- -------
</TABLE>
At the balance sheet dates, the deferred taxation liabilities provided
represent mainly the tax effect of timing differences between depreciation
allowances claimed on fixed assets for tax purposes and depreciation
charged in the financial statements.
There is no significant unprovided deferred tax for the year/period or
at the balance sheet dates.
F-13
<PAGE>
JUSTRITE INVESTMENTS LIMITED
14. OBLIGATIONS UNDER FINANCE LEASES AND HIRE PURCHASE CONTRACTS
<TABLE>
<CAPTION>
As at March 31 As at December 31
-------------------------------------------- -----------------
1995 1996 1997 1997 1997 1997
---- ---- ---- ---- ---- ----
HK$ HK$ HK$ US$ HK$ US$
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
The maturity of obligations under
finance leases and hire purchase
contracts is as follows:
Within one year 1,120,182 219,453 - - - -
Between one to two year 219,453 - - - - -
--------- ------- ------- ------- ------- -------
1,339,635 219,453 - - - -
Less: Amount due within one year
shown under current liabilities (1,120,182) (219,453) - - - -
--------- ------- ------- ------- ------- -------
219,453 - - - - -
--------- ------- ------- ------- ------- -------
</TABLE>
15. BANK BORROWINGS
<TABLE>
<CAPTION>
As at March 31 As at December 31
-------------------------------------------- -----------------
1995 1996 1997 1997 1997 1997
---- ---- ---- ---- ---- ----
HK$ HK$ HK$ US$ HK$ US$
(Unaudited) (Unaudited)
<C> <C> <C> <C> <C> <C>
Bank borrowings comprise the followings:
Trust receipt and packing loans 8,598,572 9,177,228 9,006,436 1,166,637 33,785,030 4,376,299
Bank loans 8,156,817 6,666,134 6,234,647 807,597 4,650,350 602,377
Bank overdraft - 2,454,501 644,762 83,518 206,795 26,787
---------- ---------- ---------- ---------- ---------- ----------
16,755,389 18,297,863 15,885,845 2,057,752 38,642,175 5,005,463
---------- ---------- ---------- ---------- ---------- ----------
Analysed as:
Secured 8,156,817 13,600,635 11,366,386 1,472,330 14,273,140 1,848,852
Unsecured 8,598,572 4,697,228 4,519,459 585,422 24,369,035 3,156,611
---------- ---------- ---------- ---------- ---------- ----------
16,755,389 18,297,863 15,885,845 2,057,752 38,642,175 5,005,463
---------- ---------- ---------- ---------- ---------- ----------
The maturity of bank borrowings is as follows:
Within one year 10,084,102 13,304,058 11,739,488 1,520,659 36,048,698 4,669,520
Between one to two years 1,658,047 1,857,383 2,134,789 276,527 678,784 87,925
Between two to five years 4,035,943 2,334,289 704,094 91,204 658,474 85,295
More than five years 977,297 802,133 1,307,474 169,362 1,256,219 162,723
---------- ---------- ---------- ---------- ---------- ----------
16,755,389 18,297,863 15,885,845 2,057,752 38,642,175 5,005,463
Less: Amount due within one year
shown under current liabilities (10,084,102) (13,304,058) (11,739,488) (1,520,659) (36,048,698) 4,669,520
---------- ---------- ---------- ---------- ---------- ----------
Amount due after one year 6,671,287 4,993,805 4,146,357 537,093 2,593,477 335,943
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
F-14
<PAGE>
JUSTRITE INVESTMENTS LIMITED
16. MINORITY INTEREST
The amount represents the minority shareholders' share of total
investments. It comprises HK$12,000,000 capital contribution and
HK$3,000,000 shareholders' loan pursuant to the joint venture agreement.
The loan is unsecured, non interest-bearing and is to be repaid upon
termination of the joint venture agreement.
17. RECONCILIATION OF PROFIT BEFORE TAXATION TO NET CASH INFLOW (OUTFLOW) FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
Year ended March 31 Nine months ended December 31
-------------------------------------- -----------------------------
1995 1996 1997 1997 1996 1997 1997
---- ---- ---- ---- ---- ---- ----
HK$ HK$ HK$ US$ HK$ HK$ US$
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Profit before taxation 16,028,614 36,229,644 13,079,836 1,694,194 19,890,077 4,901,624 634,925
Interest income (1,089,652) (347,413) (290,853) (37,675) (44,458) (38,196) (4,948)
Interest expenses 2,331,047 2,560,366 2,641,279 342,135 1,708,593 2,717,886 352,058
Interest on obligations under finance
leases and hire purchase contracts 358,971 181,100 32,181 4,168 32,181 - -
Depreciation 4,752,104 5,300,766 4,598,664 595,682 3,410,818 3,447,864 446,615
Loss on disposals of fixed assets 229,065 117,532 - - - - -
(Increase) decrease in long term
receivable (5,643,320) 1,273,800 4,369,520 566,000 4,369,520 - -
(Increase) decrease in stocks (8,691,631) 9,419,730 4,722,280 611,694 8,542,151 829,029 107,387
(Increase) decrease in debtors,
deposits and prepayments 7,517,113 6,923,420 (4,845,797) (627,694) (21,987,617) 4,397,246 569,591
(Increase) decrease in bills
receivable (5,145,673) 2,234,057 (2,102,768) (272,379) 899,774 3,857,820 499,718
Decrease in amount due from
ultimate holding company - - - - - (21,910,673) (2,838,170)
Increase in amount due from a
fellow subsidiary (17,545,577) (72,469,884) (29,164,398)(3,777,772)(22,603,702) - -
Increase (decrease) in creditors
and accrued charges (9,266,816) 4,113,653 (60,094) (7,784) 9,472,716 35,965,664 4,658,765
Increase (decrease) in bills payable 1,294,705 (616,604) (852,146) (110,382) (658,439) (33,712) (4,367)
Increase in amount due to ultimate
holding company 33,338,989 6,804,045 19,791,833 2,563,709 (2,939,986) (59,682,198)(7,730,855)
---------- --------- ---------- --------- --------- --------- ---------
NET CASH INFLOW (OUTFLOW)
FROM OPERATING ACTIVITIES 18,467,939 1,724,212 11,919,537 1,543,896 91,628 (25,547,646)(3,309,281)
---------- --------- ---------- --------- --------- --------- ---------
</TABLE>
F-15
<PAGE>
JUSTRITE INVESTMENTS LIMITED
18. ANALYSIS OF CHANGES IN FINANCING DURING THE YEAR/PERIOD
<TABLE>
<CAPTION>
Obligations
under finance
leases and hire
Bank loans purchase contracts
---------- ------------------
HK$ HK$
<S> <C> <C>
At April 1, 1994 12,352,323 3,644,663
Repayment of bank loans (4,195,506) -
Repayment of obligations under finance leases
and hire purchase contracts - (2,305,028)
-------------- -------------
At March 31, 1995 8,156,817 1,339,635
Repayment of bank loans (1,490,683) -
Repayment of obligations under finance leases
and hire purchase contracts - (1,120,182)
-------------- -------------
At March 31, 1996 6,666,134 219,453
Bank loans raised 1,108,296 -
Repayment of bank loans (1,539,783) -
Repayment of obligations under finance leases
and hire purchase contracts - (219,453)
-------------- -------------
At March 31, 1997 6,234,647 -
Repayment of bank loans (unaudited) (1,584,297) -
-------------- -------------
At December 31, 1997 (unaudited) 4,650,350 -
-------------- -------------
Analysis of changes in financing during the nine months ended
December 31, 1996 (unaudited):
At April, 1996 6,666,134 219,453
Bank loan raised 5,701,366 -
Repayment of bank loans (1,374,605) -
Repayment of obligations under finances leases
and hire purchase contracts - (219,453)
-------------- -------------
At December 31, 1996 10,992,895 -
-------------- -------------
</TABLE>
F-16
<PAGE>
JUSTRITE INVESTMENTS LIMITED
19. ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
As at March 31 As at December 31
-------------------------------------- -------------------------
1995 1996 1997 1997 1996 1997 1997
---- ---- ---- ---- ---- ---- ----
HK$ HK$ HK$ US$ HK$ HK$ US$
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Bank balances and cash 6,599,284 2,107,546 2,825,984 366,060 3,169,078 643,038 83,295
Trust receipt and packing loans (8,598,572) (9,177,228) (9,006,436) (1,166,637) (13,057,992) (33,785,030) (4,376,299)
Bank overdraft - (2,454,501) (644,762) (83,518) (3,116,534) (206,795) (26,787)
--------- --------- --------- --------- --------- --------- ---------
(1,999,288) (9,524,183) (6,825,214) (884,095) (13,005,448) (33,348,787) (4,319,791)
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
20. OPERATING LEASE COMMITMENTS
At the balance sheet date, the Company had the following commitments
payable within the next year under non-cancellable operating leases in
respect of rented premises:
<TABLE>
<CAPTION>
As at March 31 As at December 31
-------------------------------------------- -----------------
1995 1996 1997 1997 1997 1997
---- ---- ---- ---- ---- ----
HK$ HK$ HK$ US$ HK$ US$
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating leases which expire:
Within one year 52,691 448,307 148,185 19,195 832,740 107,868
In the second to fifth years
inclusive 2,653,759 3,191,423 5,227,721 677,166 2,734,167 354,167
--------- --------- --------- ------- --------- -------
2,706,450 3,639,730 5,375,906 696,361 3,566,907 462,035
--------- --------- --------- ------- --------- -------
</TABLE>
21. CAPITAL COMMITMENTS
<TABLE>
<CAPTION>
As at March 31 As at December 31
-------------------------------------------- -----------------
1995 1996 1997 1997 1997 1997
---- ---- ---- ---- ---- ----
HK$ HK$ HK$ US$ HK$ US$
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Capital expenditure contracted for but
not provided in the financial
statements - - 1,108,296 143,562 56,699 7,344
------- ------- --------- --------- ------ ------
</TABLE>
22. CONTINGENT LIABILITIES
<TABLE>
<CAPTION>
As at March 31 As at December 31
-------------------------------------------- -----------------
1995 1996 1997 1997 1997 1997
---- ---- ---- ---- ---- ----
HK$ HK$ HK$ US$ HK$ US$
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Bills discounted with recourse 6,066,843 11,528,574 9,775,826 1,266,299 4,863,138 629,940
--------- --------- --------- --------- --------- -------
</TABLE>
23. PLEDGE OF ASSETS
As at March 31, 1995, 1996 and 1997, the Group had pledged its leasehold
land and buildings to banks to secure general banking facilities granted to
the Group. The net book values of leasehold land and buildings pledged as
at March 31, 1995, 1996 and 1997 were HK$14,319,940, HK$22,760,744 and
HK$24,305,369 (1997: US$3,148,364) respectively.
F-17
<PAGE>
JUSTRITE INVESTMENTS LIMITED
24. SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The Company's financial statements are prepared in accordance with
accounting principles generally accepted in Hong Kong (HK GAAP) which
differ in certain significant respects from United States generally
accepted accounting principles (US GAAP). The significant difference
relates principally to the following item and the adjustment necessary to
restate shareholders' equity in accordance with US GAAP is shown in the
table set out below.
Accounting for short-term investment
Under HK GAAP, the Company has not accounted for the unrealized gain on
revaluation of short-term investment. Under US GAAP, the Company would
account for the unrealized gain as a credit within shareholders' funds and
record the short-term investment at market value.
The following table summarizes the effect on shareholders' funds of the
significant difference between HK GAAP and US GAAP:
<TABLE>
<CAPTION>
As at March 31 As at December 31
-------------------------------------------- -----------------
1995 1996 1997 1997 1997 1997
---- ---- ---- ---- ---- ----
HK$ HK$ HK$ US$ HK$ US$
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Shareholders' funds as reported
under HK GAAP 80,964,860 115,114,912 128,899,055 16,696,769 23,875,019 3,092,620
US GAAP material adjustment:
Unrealized gain on revaluation
of short-term investment - - 79,479,063 10,295,215 - -
---------- ----------- ----------- ---------- ---------- ---------
Shareholders' funds under US GAAP 80,964,860 115,114,912 208,378,118 26,991,984 23,875,019 3,092,620
---------- ----------- ----------- ---------- ---------- ---------
</TABLE>
In addition to the above adjustments required to restate HK GAAP amounts
to US GAAP amounts, the Company's cash and cash equivalents under HK
GAAP include bank borrowings repayable within three months from the date
of advance, under US GAAP, such bank borrowings would be included in
financing activities.
25. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The financial statements for the nine months ended December 31, 1996 and
1997 are unaudited. In the opinion of the directors, such information
contains adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for those periods.
- -------------------------------------------------------------------------------
F-18
<PAGE>
LEADING EDGE PACKAGING, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On January 23, 1998, Leading Edge entered into a Share Exchange Agreement (the
"Agreement") with its ultimate holding company, Chung Hwa Development Holdings
Limited ("Chung Hwa"). Chung Hwa is a Bermuda company and its shares are listed
on The Stock Exchange of Hong Kong Limited. Pursuant to the Agreement, Leading
Edge received all of the issued and outstanding shares of Justrite Investments
Limited ("Justrite"), a wholly owned subsidiary of Chung Hwa in exchange for
2,250,000 shares of the Leading Edge common stock valued at $6.00 per share (the
"Exchange"). Leading Edge and Chung Hwa completed the transaction on March 13,
1998, subject to the issuance of 2,250,000 shares of Leading Edge's common stock
to Chung Hwa. The Company's management believes that presentation of Unaudited
Pro Forma Consolidated Financial Information is necessary to supplement the
historical financial information.
The unaudited pro forma consolidated statements of income are based on the
historical statements of income of Leading Edge and Justrite, after giving
effect to pro forma adjustments described in the notes thereto as if the
issuance of the Company's shares in exchange for the shares held by Chung Hwa
in Justrite had occurred on April 1, 1994.
The unaudited pro forma consolidated balance sheet as of December 31, 1997, are
based on the historical balance sheets of Leading Edge and Justrite, after
giving effect to the pro forma adjustments described in the notes thereto as
if the issuance of the Company's shares in exchange for the shares held by
Chung Hwa in Justrite had occurred on December 31, 1997.
The unaudited pro forma consolidated financial information does not purport to
represent what the results of operations or the financial position would have
actually been if the exchange had occurred on such a date or at the beginning of
such period, or to project the results of operations for any future date or
period.
The unaudited pro forma consolidated financial information should be read in
conjunction with the consolidated financial statements of the Company and its
subsidiaries.
As Leading Edge was incorporated on December 15, 1995 and started trading from
April 1, 1996, there was no difference between the historical and the proforma
statements of income of Justrite for the year ended March 31, 1995 and 1996.
F-19
<PAGE>
LEADING EDGE PACKAGING, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1995 and 1996
<TABLE>
<CAPTION>
Historical and Proforma for Justrite
1995 1996
US$ US$
<S> <C> <C>
Turnover 16,692,147 21,971,568
Cost of sales 9,654,489 12,103,245
-------------- --------------
Gross profit 7,037,658 9,868,323
Selling, general and
administrative expenses 4,898,763 5,076,739
-------------- --------------
Operating profit 2,138,895 4,791,584
Interest expense (348,448) (355,112)
Interest income 141,147 45,002
Other income 144,651 211,485
-------------- --------------
Profit before taxation 2,076,245 4,692,959
Taxation credit (charge) 110,097 (191,657)
-------------- --------------
Profit for the year 2,186,342 4,510,302
-------------- --------------
Pro forma earnings per share 0.97 2.00
-------------- --------------
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial information
F-20
<PAGE>
LEADING EDGE PACKAGING, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Historical Pro forma
Leading Edge Justrite adjustments Pro forma
US$ US$ US$ US$
<S> <C> <C> <C> <C>
Turnover 12,987,263 19,299,108 (8,406,548) (a) 23,879,823
Cost of sales 8,406,548 12,687,248 (8,406,548) (a) 12,736,217
48,969 (b)
-------------- -------------- --------------
Gross profit 4,580,715 6,611,860 11,143,606
Selling, general and
administrative expenses 1,221,849 4,760,756 5,982,605
-------------- -------------- --------------
Operating profit 3,358,866 1,851,104 5,161,001
Interest expense (7,165) (346,303) (353,468)
Interest income - 37,675 37,675
Other income 81,606 151,718 233,324
-------------- -------------- --------------
Profit before taxation 3,433,307 1,694,194 5,078,532
Taxation (charge) credit (1,342,224) 13,596 (1,328,628)
-------------- -------------- --------------
Profit for the year 2,091,083 1,707,790 3,749,904
-------------- -------------- --------------
Pro forma earnings per share 0.82
--------------
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial information
F-21
<PAGE>
LEADING EDGE PACKAGING, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Historical Pro forma
Leading Edge Justrite adjustments Pro forma
US$ US$ US$ US$
<S> <C> <C> <C> <C>
Turnover 9,246,970 15,916,047 (6,893,742) (a) 18,269,275
Cost of sales 6,315,827 10,271,653 (6,893,742) (a) 9,733,814
40,076 (b)
--------------- --------------- ---------------
Gross profit 2,931,143 5,644,394 8,535,461
Selling, general and
administrative expenses 580,270 2,958,305 3,538,575
--------------- --------------- ---------------
Operating profit 2,350,873 2,686,089 4,996,886
Interest expense (1,288) (225,489) (226,777)
Interest income 13,003 5,759 18,762
Other income - 110,077 110,077
--------------- --------------- ---------------
Profit before taxation 2,362,588 2,576,436 4,898,948
Taxation (charge) credit (897,783) 9,197 (888,586)
--------------- --------------- ---------------
Profit for the period 1,464,805 2,585,633 4,010,362
--------------- --------------- ---------------
Pro forma earnings per share 0.94
--------------
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial information
F-22
<PAGE>
LEADING EDGE PACKAGING, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Historical Pro forma
Leading Edge Justrite adjustments Pro forma
US$ US$ US$ US$
<S> <C> <C> <C> <C>
Turnover 9,042,843 14,001,174 (6,760,636) (a) 16,283,381
Cost of sales 5,849,024 9,750,582 (6,760,636) (a) 8,898,599
59,629 (b)
-------------- --------------- ---------------
Gross profit 3,193,819 4,250,592 7,384,782
Selling, general and
administrative expenses 1,674,869 2,983,255 4,658,124
Non-recurring expense - 373,928 373,928
-------------- --------------- ---------------
Operating profit 1,518,950 893,409 2,352,730
Interest expense (87,338) (352,058) (439,396)
Interest income 89,225 4,948 94,173
Other income - 88,626 88,626
-------------- --------------- ---------------
Profit before taxation 1,520,837 634,925 2,096,133
Taxation (charge) credit (565,000) 9,731 (555,269)
-------------- --------------- ---------------
Profit for the period 955,837 644,656 1,540,864
-------------- --------------- ---------------
Pro forma earnings per share 0.28
--------------
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial information
F-23
<PAGE>
LEADING EDGE PACKAGING, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
Historical Pro forma
Leading Edge Justrite adjustments Pro forma
US$ US$ US$ US$
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 673,198 83,295 756,493
Accounts receivable 3,667,776 3,203,212 6,870,988
Bills receivable 1,269,734 149,814 1,419,548
Inventories 1,660,008 5,038,710 (108,599) (b) 6,590,119
Deposits to a related party 815,772 - (815,772) (a) -
Receivable from Chung Hwa Group 2,699,668 4,027,271 (2,699,668) (a) 4,027,271
Prepaid expenses 149,632 736,367 885,999
-------------- -------------- --------------
Total current assets 10,935,788 13,238,669 20,550,418
Property, plant and machinery, net of
accumulated depreciation 251,183 5,411,377 5,662,560
-------------- -------------- --------------
TOTAL ASSETS 11,186,971 18,650,046 26,212,978
-------------- -------------- --------------
CURRENT LIABILITIES
Accounts payable 87,286 2,272,587 2,359,873
Payable to a related party - 2,699,668 (2,699,668) (a) -
Bills payable 699,120 37,271 736,391
Accrued liabilities 8,860 2,026,375 2,035,235
Deposits from a related party - 815,772 (815,772) (a) -
Income taxes payable 245,171 701,782 946,953
Bank borrowings - 4,669,520 4,669,520
Capital lease obligation - current portion 1,143 - 1,143
-------------- -------------- --------------
Total current liabilities 1,041,580 13,222,975 10,749,115
-------------- -------------- --------------
LONG TERM LIABILITIES
Deferred income taxes - 55,402 55,402
Bank borrowings - 335,943 335,943
Long term borrowings - 388,601 388,601
Capital lease obligations 3,646 - 3,646
-------------- -------------- --------------
Total long term liabilities 3,646 779,946 783,592
-------------- -------------- --------------
MINORITY INTERESTS - 1,554,404 1,554,404
-------------- -------------- --------------
SHAREHOLDERS' EQUITY
Common stock 33,125 100 33,255
Additional paid in capital 7,061,699 258,989 7,320,688
Retained earnings 3,046,921 2,833,632 (108,599) (b) 5,771,954
-------------- -------------- --------------
10,141,745 3,092,721 13,125,867
-------------- -------------- --------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 11,186,971 18,650,046 26,212,978
-------------- -------------- --------------
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial information
F-24
<PAGE>
LEADING EDGE PACKAGING, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
1. ASSUMPTIONS AND DESCRIPTION OF PRO FORMA ADJUSTMENTS
The Restructuring has been accounted for as a reorganization of entities
under common control similar to a pooling of interests. The financial
statements present the results of Leading Edge and its subsidiaries as if
the companies had been combined for all periods presented. Because the
entities have been under common control for the relevant periods
(including periods in which Leading Edge was a majority - owned
subsidiary of Justrite) the basis of the preparation of the unaudited
pro forma consolidated financial information is the same as the audited
consolidated financial information appearing in the Annual Report on
Form 10-K of Leading Edge for the year ended March 31, 1998.
The financial statements of Justrite are maintained in Hong Kong dollars.
The amounts have been translated into U.S. dollars for all periods
presented at the rate of HK$7.72 to US$1.
The pro forma adjustments include:
(a) Elimination of intercompany transactions and balances with Justrite on
consolidation.
(b) Elimination of unrealized gain on inventories.
2. PRO FORMA EARNINGS PER SHARE
The pro forma earnings per share have been calculated by adding to the
relevant outstanding share totals for all periods up to April 1, 1994 to
2,250,000 Common Shares issued in connection with the exchange.
Accordingly, pro forma earnings per share is based on 5,562,500 Common
Shares outstanding for the year ended March 31, 1997, for the nine months
ended December 31, 1996 and 1997.
F-25
