<PAGE> 1
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of February, 1998,
Zindart Limited
(Translation of registrant's name into English)
Flat C & D, 25/F., Block 1, Tai Ping Industrial Centre,
57, Ting Kok Road, Tai Po, N.T., Hong Kong
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
--- ---
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes X No
--- ---
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- N/A
<PAGE> 2
ZINDART LIMITED
FORM 6-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SEQUENTIAL PAGE
<S> <C>
Press Release Issued February 17, 1998..................................................... 3
Supplemental Information................................................................... 5
Acquisition or Disposition of Assets............................................... 5
Sales of Equity Securities Pursuant to Regulation S................................ 7
Pro Forma Financial Data................................................................... 8
Pro Forma Consolidated Statement of Operations for the Year Ended
March 31, 1997 and the Nine Months Ended December 31, 1997 (unaudited)............. 8
Pro Forma Consolidated Balance Sheet at December 31, 1997.......................... 10
Hua Yang Financial Statements.............................................................. 12
Report of Independent Public Accountants........................................... 12
Consolidated Balance Sheets -- audited as of March 31, 1996 and 1997
and unaudited as of December 31, 1997.............................................. 13
Consolidated Statements of Operations -- audited for the three-month
period ended March 31, 1995 and each of the two years ended
March 31, 1996 and 1997 and unaudited for the nine-month periods
ended December 31, 1996 and 1997................................................... 14
Consolidated Statement of Cash Flows -- audited for the three-month
period ended March 31, 1995 and each of the two years ended
March 31, 1996 and 1997 and unaudited for the nine-month periods
ended December 31, 1996 and 1997................................................... 15
Consolidated Statement of Changes in Shareholders' Equity -- audited
for the three-month period ended March 31, 1995 and each of the two
years ended March 31, 1996 and 1997 and unaudited for the nine-month
periods ended December 31, 1996 and 1997........................................... 17
Notes to Consolidated Financial Statements......................................... 18
</TABLE>
2
<PAGE> 3
PRESS RELEASE
ZINDART LIMITED COMPLETES HUA YANG ACQUISITION
Tuesday, FEBRUARY 17, 1998
HONG KONG--Zindart Limited, a Hong Kong corporation (NASDAQ: ZNDTY), announced
today that it has completed the acquisition of Hua Yang Holdings Co., Ltd., a
leading printer and manufacturer of hand-made books, specialty packaging and
other paper products.
The total consideration for the acquisition was $35.0 million in cash and up to
1,000,000 new Zindart ordinary shares; however, up to 333,333 of such shares
will be issued only in the event that Hua Yang achieves certain performance
benchmarks during the two fiscal years ending March 31, 1999. The cash portion
of the transaction was substantially funded by a syndicate of lenders through a
new $30.0 million revolving credit facility that was arranged by Credit Suisse
First Boston, Hong Kong Branch.
Feather Fok, Chief Operating Officer and Chief Financial Officer of Zindart,
stated, "The acquisition of Hua Yang is a logical extension of Zindart's core
business because both companies produce quality hand-assembled products in large
quantities utilizing similar manufacturing philosophies and processes. We have
an added advantage of knowing Hua Yang well because it supplies box packaging to
two of our core customers, Hallmark and Mattel."
With headquarters in Hong Kong, Hua Yang has production facilities in the nearby
city of Shenzhen in the People's Republic of China. For the nine months ended
December 31, 1997, Hua Yang earned a net profit of $3.8 million as compared to a
net profit of $2.3 million for the nine months ended December 31, 1996, an
increase of 64.6%. Hua Yang's net sales for the 1997 period were $32.8 million
as compared to $26.7 million in the 1996 period, an increase of 23.0%. Such net
sales in both periods were largely generated through the production of "pop-up"
books, novelty books and board books for many of the world's leading publishing
houses and independent concept packagers. Hua Yang's packaging business, which
focuses on high value-added packaging boxes that involve complicated printing
techniques and hand assembly, also contributed significantly to net sales. Hua
Yang's gross margin for the 1997 period was 32.4% as compared to 30.0% in the
1996 period.
Founded in 1978, Zindart is a Hong Kong-based manufacturer of high-quality
detailed metal die-cast and plastic injection-molded collectibles, ornaments and
toys. Its major customers are in the United States.
3
<PAGE> 4
Zindart prepares its financial results in U.S. dollars in accordance with U.S.
GAAP.
FOR INFORMATION CONTACT:
Feather Fok
Chief Operation and Financial Officer
Zindart Limited
011-852-2666-1742
[email protected]
-or-
Deborah Passik
William Dunk Partners, Inc.
919-929-4100
4
<PAGE> 5
SUPPLEMENTAL INFORMATION
ACQUISITION OR DISPOSITION OF ASSETS
This supplemental information contains forward looking statements that
involve risks and uncertainties relating to the acquisition by Zindart Limited,
a Hong Kong corporation ("Zindart") of Hua Yang Holdings Co., Ltd., a Cayman
Islands corporation ("Hua Yang"), including, in addition to those discussed
elsewhere in this Form 6-K and without limitation, risks relating to the
possibility that integration of the operations, financial control systems,
corporate cultures, technologies, products and employees of Zindart and Hua Yang
might not occur as anticipated; that the synergies expected to result from the
merger described below might not occur as anticipated; that management's
attention might be diverted from day-do-day business activities; and other risks
described in Zindart's Annual Report on Form 20-F for the year ended March 31,
1997 (the "Form 20-F") and the Prospectus contained in the Company's
Registration Statement on Form F-1, dated February 17, 1998 (the "Prospectus"),
both of which are incorporated herein by reference. Actual results and
developments may differ materially from those anticipated or described in this
supplemental information. The Company undertakes no obligation to revise these
forward-looking statements to reflect subsequent events or circumstances.
Hua Yang is a leading printer and manufacturer of hand-made books,
specialty packaging and other paper products located in the People's Republic of
China ("PRC").
In February 1998, Zindart acquired 100% of the outstanding capital stock
of Hua Yang (the "Hua Yang Acquisition"). Zindart entered into an Exchange
Agreement (the "Exchange Agreement") with Hua Yang ("Parent"), Hua Yang Printing
Holdings Co., ("Subsidiary"), HYP Holdings Limited ("HYP"), Karl Chan (BVI)
Holdings Limited ("Chan Holdings"), Karl Chan ("Chan") (HYP, Chan Holdings and
Chan are hereinafter collectively referred to as the "Hua Yang Shareholders"),
certain investment funds operated by ChinaVest Limited ("ChinaVest") and by
Advent International Corporation ("Advent") that are shareholders of HYP (the
"Principal HYP Shareholders") and ChinaVest Management Limited, as the Agent on
behalf of the Hua Yang Shareholders and the Principal HYP Shareholders.
Pursuant to the Exchange Agreement, the Hua Yang Shareholders exchanged
all of Parent's outstanding ordinary shares and preferred shares for $35.0
million in cash and up to 1,000,000 Shares (collectively, The "Acquisition
Consideration"). Of the 1,000,000 Shares, 666,667 were issued at the closing of
the acquisition and placed in escrow for a period of six months to secure the
indemnification obligations of Hua Yang, the Hua Yang Shareholders, ChinaVest
and certain funds managed by Advent under the Exchange Agreement. The remaining
333,333 Shares will remain unissued until completion of an independent audits of
Hua Yang's financial results for the two years ending March 31, 1999. Upon
completion of the audits, a portion of such Shares will be issued to the extent
that Hua Yang's earnings before interest expense (net of interest income),
provision (benefit) for income taxes, depreciation and amortization ("EBITDA")
for such two-year period exceed $12.48 million (the "Earn Out"). All of such
Shares will be issued if Hua Yang's EBITDA for such two-year period equals or
exceeds $15.6 million.
5
<PAGE> 6
The Exchange Agreement contains detailed representations, warranties and
covenants by each of Subsidiary, Parent, the Hua Yang Shareholders and the
Principal HYP Shareholders relating to the business, assets and financial
condition of Subsidiary and Parent, including the joint ventures Shenzhen
Huaxuan Printing Product Co., Ltd., and Guangzhou Jin Yi Advertising Company
Ltd. The representations and warranties terminate on the second anniversary of
the closing date. Each of the Hua Yang Shareholders and the Principal HYP
Shareholders is jointly and severally liable for the accuracy of such
representations and warranties up to a maximum amount equal to the pro rata
portion of the Acquisition Consideration received by such Hua Yang Shareholder
(plus its portion of certain permitted redemptions of Parent preferred shares
prior to the closing) or Principal HYP Shareholder. Generally, no claim may be
made against any of the Hua Yang Shareholders and Principal HYP Shareholders in
respect of a breach of a representation or warranty until the aggregate amount
of all claims exceed $2.0 million. Certain representations and warranties,
including those involving due organization and valid existence, capitalization,
Parent's financial statements, bank accounts, real property, tax matters,
employee benefit plans and related party transactions, are not subject to this
deductible threshold.
The Hua Yang Acquisition, which was approved by committee of independent
members of Zindart's board of directors, closed in February 1998. As a condition
to the closing, Zindart received: (i) a legal opinion relating to Subsidiary,
Parent and the joint ventures; (ii) an opinion from Van Kasper & Company as to
the fairness of the transaction from a financial point of view to Zindart's
shareholders; and (iii) a release executed by each of the Hua Yang Shareholders
and the Principal HYP Shareholders in favor of Zindart, Parent and Subsidiary of
all claims arising prior to the closing date in their capacities as a
shareholder, officer or director of Parent or Subsidiary.
Pursuant to the Exchange Agreement, each of the Hua Yang Shareholders
agreed that, for a period of two years from the closing date, it will not
directly or indirectly engage in the business of manufacturing or selling
die-cast, injection-molded products, hand-made books, specialty packaging and
other paper products or any similar business in Hong Kong, the PRC and other
countries. Zindart also granted certain demand registration rights in connection
with the Ordinary Shares (or American Depositary Shares issuable upon exchange
thereof) issued or to be issued as part of the Acquisition consideration. Such
Ordinary Shares were issued pursuant to exemptions from the registration
requirements of the Securities Act provided by Regulation S and Regulation D
thereunder.
Zindart financed $30.0 million of the cash portion of Acquisition
Consideration and related fees and expenses from a credit facility syndicated by
Credit Suisse First Boston, Hong Kong Branch (the "Credit Facility"). The
remaining cash was provided by Zindart's working capital.
Zindart's majority shareholder is ZIC Holdings Limited, a Cayman Islands
corporation ("ZICHL"), which is in turn controlled by ChinaVest. Prior to the
acquisition, Hua Yang's majority shareholder was HYP Holdings Limited, a Cayman
Islands corporation, which is also controlled by ChinaVest. As a result, the Hua
Yang Acquisition is accounted for (i) as to the interest in Hua Yang
beneficially owned by ChinaVest, as a reorganization of companies under common
control (similar to a pooling of interests), and (ii) as to the remaining
beneficial interest in Hua Yang, as an acquisition.
6
<PAGE> 7
The Hua Yang Acquisition will result in approximately $504,000 of
estimated transaction costs being expensed in the quarter ended March 31, 1998.
The remaining estimated transaction costs of $696,000 are included in the
estimated goodwill of $12.2 million associated with the acquisition, which will
be capitalized and amortized over 20 years. The Company estimates that the
amortization of goodwill will be approximately $83,000 in the quarter ended
March 31, 1998 and $152,000 per quarter in future quarters.
SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S
The Company issued 23,333 Ordinary Shares (the "Reg S Shares") on
February 10, 1998 in connection with the Hua Yang Acquisition. The Reg S Shares
were distributed directly to Chan Holdings and Chan and no underwriter was
involved in the distribution of the Reg S Shares. The Reg S Shares were sold
pursuant to the Exchange Agreement in exchange for the 3.5% of the outstanding
securities of Hua Yang held by Chan Holdings and Chan and were not offered to
the public. The Company claimed an exemption from registering the Reg S Shares
under the Securities Act pursuant to Regulation S because Chan Holdings is a
British Virgin Islands corporation and Chan is a citizen of Hong Kong.
7
<PAGE> 8
PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
The following unaudited pro forma consolidated statement of operations data
give effect to the Hua Yang Acquisition as if it had occurred (i) on April 1,
1996 for the year ended March 31, 1997 and (ii) on April 1, 1997 for the nine
months ended December 31, 1997, with the expenses relating to the acquisition
recorded in the nine months ended December 31, 1997. The unaudited pro forma
consolidated balance sheet data give effect to the Hua Yang Acquisition as if it
had occurred on December 31, 1997. The unaudited pro forma financial data set
forth below reflect pro forma adjustments that are based upon available
information and certain assumptions that the Company believes are reasonable.
The unaudited pro forma financial data are not necessarily indicative of the
results that would have been achieved had such transaction been consummated as
of the dates indicated or the results that may be achieved in the future. The
following unaudited pro forma consolidated financial data should be read in
conjunction with "The Hua Yang Acquisition," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Description of
Senior Credit Facility" and the Consolidated Financial Statements of the Company
and the notes thereto contained elsewhere in the Prospectus.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
-----------------------------------------
PRO FORMA
RESTATED(A) ADJUSTMENTS PRO FORMA
----------- ----------- ---------
<S> <C> <C> <C>
Net sales................................................ $ 95,616 $ $ 95,616
Cost of goods sold....................................... (69,388) (69,388)
------- ------
Gross profit........................................... 26,228 26,228
Selling, general and administrative expenses............. (14,833) (303)(b) (15,136)
Interest expenses........................................ (1,150) (2,410)(d) (3,560)
Interest income.......................................... 272 (272)(d) --
Other income (expenses), net............................. 340 340
Amortization of goodwill................................. (10) (605)(c) (615)
------- ------
Income before income taxes............................. 10,847 7,257
Provision for income taxes............................... (781) (781)
------- ------
Income before minority interests....................... 10,066 6,476
Minority interests....................................... (2,920) 2,033(e) (887)
------- ------
Net income............................................. $ 7,146 $ 5,589
======= ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, 1997
-----------------------------------------
PRO FORMA
RESTATED(A) ADJUSTMENTS PRO FORMA
----------- ----------- ---------
<S> <C> <C> <C>
Net sales................................................ $ 88,773 $ $ 88,773
Cost of goods sold....................................... (61,393) (61,393)
----------- ---------
Gross profit........................................... 27,380 27,380
Selling, general and administrative expenses............. (14,691) (228)(b) (14,919)
Interest expense......................................... (297) (1,258)(d) (1,555)
Interest income.......................................... 815 (815)(d) --
Other income (expense), net.............................. 155 (504)(f) (349)
Amortization of goodwill................................. (7) (457)(c) (464)
----------- ---------
Income before income taxes............................. 13,355 10,093
Provision for income taxes............................... (1,221) (1,221)
----------- ---------
Income before minority interests....................... 12,134 8,872
Minority interests....................................... (3,303) 2,697(e) (606)
----------- ---------
Net income............................................. $ 8,831 $ 8,266
========= ========
</TABLE>
8
<PAGE> 9
- ---------------
(a) The financial statements of the Company include approximately 42% of the
results of Hua Yang to give retroactive effect to the Hua Yang Acquisition
as a reorganization of companies under common control, similar to a pooling
of interests. See "The Hua Yang Acquisition -- Accounting Treatment" in the
Prospectus.
(b) To record amortization of underwriting and management fees, which aggregate
approximately $850,000, over three years and an annual agency fee of $20,000
with respect to the Credit Facility.
(c) To record amortization of goodwill resulting from the Hua Yang Acquisition
over 20 years:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MARCH 31, 1997 DECEMBER 31, 1997
-------------- -------------------
<S> <C> <C>
Purchase consideration(1)................................ $ 43,833 $43,833
Estimated transaction cost related to the Hua Yang
Acquisition............................................ 1,200 1,200
------- -------
45,033 45,033
Less: Net tangible assets of Hua Yang (excluding
goodwill) after adjustment for the redemption of
certain outstanding preferred stock for $5.0 million... (24,023) (24,023)
------- -------
21,010 21,010
Ownership of Hua Yang not held under common control...... 57.6% 58.0%
------- -------
Goodwill................................................. $ 12,107 $12,190
======= =======
Periodic amortization.................................... $ 605 $ 457
======= =======
</TABLE>
(1) Includes $35.0 million in cash and 666,667 Shares (after excluding
333,333 Shares to be issued subject to the Earn-Out) issued at a
price, assumed for the purpose of the acquisition, of $13.25 per
Share.
(d) To provide for interest expenses that would have been incurred under the
Credit Facility and the reduction of interest income due to utilization of
cash for the payment of the Hua Yang Acquisition consideration and the
redemption of certain outstanding preferred stock by Hua Yang. See "The Hua
Yang Acquisition" and "Description of Senior Credit Facility" in the
Prospectus.
(e) To reverse minority interests in the results of Hua Yang relating to
shareholdings in Hua Yang other than those held under common control. The
adjusted minority interests represents Zindart's minority equity interests
in its mold-making subsidiaries.
(f) To record approximately 42% of the transaction costs related to the Hua Yang
Acquisition, in respect of the portion of the acquisition accounted for as
reorganization of companies under common control, in the nine months ended
December 31, 1997. For the purposes of this presentation, no such costs were
recorded in the year ended March 31, 1997. See "The Hua Yang
Acquisition -- Accounting Treatment" in the Prospectus.
9
<PAGE> 10
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------
PRO FORMA
RESTATED(A) ADJUSTMENTS PRO FORMA
----------- ----------- ---------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and bank deposits................................. $20,510 $ (870)(b) $ 8,802
(838)(c)
(5,000)(d)
(5,000)(f)
Accounts receivable, net............................... 27,025 27,025
Bills receivable....................................... 1,257 1,257
Due from related companies............................. 11 11
Deposits and prepayments............................... 3,649 870(b) 4,157
(362)(c)
Inventories, net....................................... 14,145 14,145
----------- ---------
Total current assets........................... 66,597 55,397
Property, machinery, equipment and capital leases, net... 29,310 29,310
Long-term investment..................................... 179 179
Goodwill, net............................................ 60 12,190(e) 12,250
----------- ---------
Total assets................................... $96,146 $ 97,136
========= ========
LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS' EQUITY:
Current liabilities:
Capital lease obligations, current portion............. $ 1,284 $ $ 1,284
Accounts payable....................................... 5,899 5,899
Receipts in advance.................................... 3,109 3,109
Accrued liabilities.................................... 13,109 13,109
Taxation payable....................................... 1,801 1,801
----------- ---------
Total current liabilities...................... 25,202 25,202
Long-term revolving bank loan facility................... -- 30,000(f) 30,000
Capital lease obligations, non-current portion........... 1,772 1,772
Deferred taxation........................................ 120 120
----------- ---------
Total liabilities.............................. 27,094 57,094
Minority interests....................................... 18,346 (16,696)(g) 1,650
Shareholders' equity..................................... 50,706 5,125(h) 38,392
(14,836)(i)
(504)(c)
(2,099)(j)
----------- ---------
Total liabilities, minority interests and
shareholders' equity......................... $96,146 $ 97,136
========= ========
</TABLE>
(a) The financial statements of the Company include approximately 42% of the net
assets of Hua Yang to give retroactive effect to the Hua Yang Acquisition as
a reorganization of companies under common control, similar to a pooling of
interests. See "The Hua Yang Acquisition -- Accounting Treatment" in the
Prospectus.
(b) To record the payment of the underwriting and management fees with respect
to the Credit Facility.
(c) To record the payment of transaction costs related to the Hua Yang
Acquisition of approximately $1.2 million, with 42% of the total transaction
cost being expensed, in respect of the portion of the acquisition accounted
for as reorganization of companies under common control. See "The Hua Yang
Acquisition -- Accounting Treatment" in the Prospectus.
(d) To record payment relating to the redemption of outstanding preferred stock
of Hua Yang for $5.0 million upon completion of the Hua Yang Acquisition.
10
<PAGE> 11
(e) To record goodwill resulting from the Hua Yang Acquisition:
<TABLE>
<S> <C>
Purchase consideration(1)................................. $ 43,833
Estimated transaction cost related to the Hua Yang
Acquisition............................................. 1,200
--------
45,033
Less: Net tangible assets of Hua Yang (excluding goodwill)
after adjustment for the redemption of outstanding
preferred stock for $5.0 million........................ (24,023)
--------
21,010
Ownership of Hua Yang not held under common control....... 58.0%
--------
Goodwill.................................................. $ 12,190
========
</TABLE>
- ---------------
(1) Includes $35.0 million in cash and 666,667 Shares (after excluding
333,333 Shares to be issued subject to the Earn-Out) issued at a
price, assumed for the purpose of the acquisition, of $13.25 per
Share.
(f) To record the Credit Facility and $5.0 million in cash paid from the
Company's working capital.
(g) To reverse minority interests in the net asset values of Hua Yang relating
to shareholdings in Hua Yang other than those held under common control. The
adjusted minority interests represents Zindart's minority equity interests
in its mold-making subsidiaries.
(h) To record the issuance of approximately 58% of the 666,667 Shares (after
excluding 333,333 Shares to be issued subject to the Earn-Out) to be issued
to the holders of Shares of Hua Yang other than Shares held under common
control at the closing of the Hua Yang Acquisition at a price, assumed for
the purpose of the acquisition, of $13.25 per Share. Approximately 42% of
the 666,667 Shares had been accounted for retroactively in the consolidated
financial statements of the Company in respect of the portion of the
acquisition accounted for as a reorganization of companies under common
control. See "The Hua Yang Acquisition -- Accounting Treatment" in the
Prospectus.
(i) To recognize approximately 42% of $35.0 million cash consideration ($30.0
million of which was financed by the Credit Facility and $5.0 million of
which was paid from the Company's working capital) to be paid in respect of
the portion of the Hua Yang Acquisition accounted for as a reorganization of
companies under common control.
(j) To record approximately 42% of the redemption of outstanding preferred stock
of Hua Yang in respect of the portion of the Hua Yang Acquisition accounted
for as a reorganization of companies under common control.
11
<PAGE> 12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Hua Yang Holdings Co., Ltd.:
We have audited the accompanying consolidated balance sheets of Hua Yang
Holdings Co., Ltd. (incorporated in the Cayman Islands; the "Company") and
Subsidiaries (the "Group") as of March 31, 1996 and 1997, and the related
consolidated statements of operations, cash flows and changes in shareholders'
equity for the period from January 17, 1995 (date of incorporation) to March 31,
1995 and for the years ended March 31, 1996 and 1997. 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 generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audits 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 financial position of Hua Yang
Holdings Co., Ltd. and Subsidiaries as of March 31, 1996 and 1997, and the
results of their operations and their cash flows for the period from January 17,
1995 (date of incorporation) to March 31, 1995 and for the years ended March 31,
1996 and 1997, in conformity with generally accepted accounting principles in
the United States of America.
ARTHUR ANDERSEN & CO.
Certified Public Accountants
Hong Kong
Hong Kong,
January 27, 1998.
12
<PAGE> 13
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND 1997 (AUDITED)
AND DECEMBER 31, 1997 (UNAUDITED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
<TABLE>
<CAPTION>
MARCH 31,
--------------- DECEMBER 31,
NOTE 1996 1997 1997
---- ------ ------ ------------
<S> <C> <C> <C> <C>
$'000 $'000 $'000
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and bank deposits................................. 2,973 8,755 7,316
Accounts receivable, net............................... 4 8,045 7,553 13,819
Bills receivable....................................... 351 -- 1,257
Due from ultimate holding company...................... 16 3 6 11
Due from related companies............................. 16 514 160 --
Deposits and prepayments............................... 314 275 326
Inventories, net....................................... 5 6,186 5,292 4,908
------ ------ ------
Total current assets........................... 18,386 22,041 27,637
Property, machinery, equipment and capital leases, net... 6 10,234 9,916 9,479
Goodwill, net............................................ 7 21,114 19,938 19,122
------ ------ ------
Total assets................................... 49,734 51,895 56,238
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings............................. 8 656 881 --
Long-term bank loans, current portion.................. 10 94 94 --
Capital lease obligations, current portion............. 11 563 584 638
Accounts payable....................................... 2,099 2,482 2,634
Accrued liabilities.................................... 9 2,154 1,965 3,387
Taxation payable....................................... -- 146 667
------ ------ ------
Total current liabilities...................... 5,566 6,152 7,326
Long-term bank loans, non-current portion................ 10 306 211 --
Capital lease obligations, non-current portion........... 11 1,887 1,275 767
------ ------ ------
Total liabilities.............................. 7,759 7,638 8,093
------ ------ ------
Shareholders' equity:
Common stock, par value $0.0129 (equivalent of HK$0.1);
authorized -- 30,000,000 shares as of March 31, 1996
and 1997 and December 31, 1997; outstanding and
fully paid -- 20,000,000 shares as of March 31, 1996
and 20,176,471 shares as of March 31, 1997 and
December 31, 1997................................... 12 258 260 260
Preferred stock, par value $0.00129 (equivalent of
HK$0.01); authorized -- 3,000,000,000 shares as of
March 31, 1996 and 1997 and December 31, 1997;
outstanding and fully paid -- 280,000,000 shares as
of March 31, 1996 and 1997 and December 31, 1997.... 12 363 363 363
Additional paid-in capital............................. 12 35,813 35,873 35,873
Retained earnings...................................... 5,496 7,824 11,657
Cumulative translation adjustments..................... 45 (63) (8)
------ ------ ------
Total shareholders' equity..................... 41,975 44,257 48,145
------ ------ ------
Total liabilities and shareholders' equity..... 49,734 51,895 56,238
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 14
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 17, 1995 (DATE OF INCORPORATION)
TO MARCH 31, 1995 (AUDITED) AND
FOR THE YEARS ENDED MARCH 31, 1996 AND 1997 (AUDITED)
AND NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997 (UNAUDITED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
PERIOD/YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------ -----------------------
NOTE 1995 1996 1997 1996 1997
---- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$'000 $'000 $'000 $'000 $'000
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... 17.a 6,600 36,403 33,409 26,671 32,813
Cost of goods sold............. (4,827) (22,794) (23,656) (18,657) (22,177)
---------- ---------- ---------- ---------- ----------
Gross profit.............. 1,773 13,609 9,753 8,014 10,636
Selling, general and
administrative expenses...... (1,698) (6,660) (5,888) (4,579) (5,689)
Interest expenses.............. (2) (221) (282) (222) (137)
Interest income................ 3 40 127 60 364
Other income (expenses), net... 23 (14) (60) 12 (4)
Amortization of goodwill....... (234) (1,123) (1,176) (842) (816)
---------- ---------- ---------- ---------- ----------
Income (Loss) before
income taxes............ (135) 5,631 2,474 2,443 4,354
Provision for income taxes..... 13 -- -- (146) (114) (521)
---------- ---------- ---------- ---------- ----------
Net income (loss)......... (135) 5,631 2,328 2,329 3,833
========== ========== ========== ========== ==========
Earnings (Loss) per common
share........................ $ (0.01) $ 0.28 $ 0.12 $ 0.12 $ 0.19
========== ========== ========== ========== ==========
Weighted average number of
common shares outstanding.... 20,000,000 20,000,000 20,077,840 20,033,844 20,176,471
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 15
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 17, 1995 (DATE OF INCORPORATION)
TO MARCH 31, 1995 (AUDITED) AND
FOR THE YEARS ENDED MARCH 31, 1996 AND 1997 (AUDITED)
AND NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997 (UNAUDITED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
PERIOD/YEAR ENDED MARCH 31, DECEMBER 31,
---------------------------------- ---------------------
1995 1996 1997 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... (135) 5,631 2,328 2,329 3,833
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities --
Amortization of goodwill............. 234 1,123 1,176 842 816
Depreciation of property, machinery
and equipment..................... 157 869 1,151 629 938
Net (gain) loss on disposals of
property, machinery and
equipment......................... 7 (7) 6 45 49
Provision for permanent diminution in
value on investment in a
subsidiary........................ -- -- 84 -- --
Others............................... -- -- 62 62 --
(Increase) Decrease in operating
assets --
Accounts receivable, net............. 921 (565) 492 (1,716) (6,266)
Bills receivable..................... (143) (208) 351 351 (1,257)
Deposits and prepayments............. 59 (200) 39 (100) (51)
Inventories, net..................... (912) (791) 894 1,342 384
Increase (Decrease) in operating
liabilities --
Accounts payable..................... (1,570) (414) 383 (162) 152
Accrued liabilities.................. 1,308 845 (189) 20 1,422
Taxation payable..................... -- -- 146 114 521
------- ------- ------- ------- -------
Net cash provided by (used
in) operating activities... (74) 6,283 6,923 3,756 541
------- ------- ------- ------- -------
Cash flows from investing activities:
Acquisition of new business, net of
cash and bank deposits acquired... (25,739) -- -- -- --
Increase in investment of a
subsidiary........................ -- -- (323) (323) --
Decrease in investment of a
subsidiary........................ -- -- 239 239 --
Acquisition of property, machinery
and equipment..................... (1,539) (4,177) (890) (480) (705)
Proceeds from disposals of property,
machinery and equipment........... 212 233 51 168 155
Increase in due from ultimate holding
company........................... -- (3) (3) (3) (5)
(Increase) Decrease in due from
related companies................. (409) (105) 354 36 160
Effect of cumulative translation
adjustments....................... 47 (2) (108) (28) 55
------- ------- ------- ------- -------
Net cash used in investing
activities................. (27,428) (4,054) (680) (391) (340)
</TABLE>
15
<PAGE> 16
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 17, 1995 (DATE OF INCORPORATION)
TO MARCH 31, 1995 (AUDITED) AND
FOR THE YEARS ENDED MARCH 31, 1996 AND 1997 (AUDITED)
AND NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997 (UNAUDITED) (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
PERIOD/YEAR ENDED MARCH 31, DECEMBER 31,
----------------------------- --------------------------
1995 1996 1997 1996 1997
------- ------- ------- ----------- -----------
$'000 $'000 $'000 $'000 $'000
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Net proceeds from issuance of common
stock and preferred stock............ 27,326 -- -- -- --
Increase (Decrease) in bank
overdrafts........................... 294 -- 522 -- (522)
New import trust receipt bank loans..... -- 4,681 2,511 1,878 1,722
Repayment of import trust receipt bank
loans................................ -- (4,319) (2,808) (2,287) (2,081)
New long-term bank loans................ -- 471 -- -- --
Repayment of long-term bank loans....... -- (71) (95) (71) (305)
New capital lease obligations........... -- 2,545 -- -- --
Repayment of capital element of capital
lease obligations.................... -- (95) (591) (435) (454)
Increase (Decrease) in due to a related
company.............................. 72 (72) -- -- --
Repayment of due to a director.......... -- (2,586) -- -- --
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities.......... 27,692 554 (461) (915) (1,640)
------- ------- ------- ------- -------
Net increase (decrease) in cash and bank
deposits................................ 190 2,783 5,782 2,450 (1,439)
Cash and bank deposits, as of beginning of
period/year............................. -- 190 2,973 2,973 8,755
------- ------- ------- ------- -------
Cash and bank deposits, as of end of
period/year............................. 190 2,973 8,755 5,423 7,316
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 17
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 17, 1995 (DATE OF INCORPORATION)
TO MARCH 31, 1995 (AUDITED) AND
FOR THE YEARS ENDED MARCH 31, 1996 AND 1997 (AUDITED)
AND NINE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
PREFERRED STOCK
COMMON STOCK ------------------ ADDITIONAL CUMULATIVE
------------------ NUMBER OF PAID-IN RETAINED TRANSLATION
NUMBER OF AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS
SHARES ------ --------- ------ ---------- -------- -----------
--------- $'000 '000 $'000 $'000 $'000 $'000
'000
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 17, 1995
(date of incorporation)..... -- -- -- -- -- -- --
Issuance of common stock and
preferred stock for cash.... 15,000 194 210,000 272 26,860 -- --
Issuance of common stock and
preferred stock for
acquisition of business
(Note 1).................... 5,000 64 70,000 91 8,953 -- --
Net loss...................... -- -- -- -- -- (135) --
Translation adjustments....... -- -- -- -- -- -- 47
------ --- ------- --- ------ ------ ----
Balance as of March 31,
1995........................ 20,000 258 280,000 363 35,813 (135) 47
Net income.................... -- -- -- -- -- 5,631 --
Translation adjustments....... -- -- -- -- -- -- (2)
------ --- ------- --- ------ ------ ----
Balance as of March 31,
1996........................ 20,000 258 280,000 363 35,813 5,496 45
Issuance of common stock...... 176 2 -- -- 60 -- --
Net income.................... -- -- -- -- -- 2,328 --
Translation adjustments....... -- -- -- -- -- -- (108)
------ --- ------- --- ------ ------ ----
Balance as of March 31,
1997........................ 20,176 260 280,000 363 35,873 7,824 (63)
Net income (unaudited)........ -- -- -- -- -- 3,833 --
Translation adjustments
(unaudited)................. -- -- -- -- -- -- 55
------ --- ------- --- ------ ------ ----
Balance as of December 31,
1997 (unaudited)............ 20,176 260 280,000 363 35,873 11,657 (8)
====== === ======= === ====== ====== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 18
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Hua Yang Holdings Co., Ltd. (the "Company") was incorporated in the Cayman
Islands on January 17, 1995. On January 26, 1995, the Company issued to HYP
Holdings Limited (a company incorporated in the Cayman Islands) 15,000,000
shares of common stock for cash consideration of HK$0.10 per share (par value),
and 210,000,000 shares of preferred stock for cash consideration of HK$1.00 per
share (par value of HK$0.01 per share and premium of HK$0.99 per share), and
raised an aggregate amount of HK$211,500,000 (equivalent to approximately
$27,326,000). In January 1995, the Company through its wholly owned
subsidiary -- Hua Yang Printing Holdings Co., Limited (a company incorporated in
Hong Kong and formerly known as Hi-Link International Limited) acquired certain
assets and liabilities and the major business operations of Hua Yang Printing
Company Limited (a company incorporated in Hong Kong and majority owned by Mr.
Karl Chan Kok Wai) for a consideration of HK$282,000,000 (equivalent to
approximately $36,434,000), which was settled by cash of HK$211,500,000,
5,000,000 shares of common stock of the Company valued at HK$0.10 per share (par
value), and 70,000,000 shares of preferred stock of the Company valued at
HK$1.00 per share (par value of HK$0.01 per share and premium of HK$0.99 per
share).
On May 28, 1995, Hua Yang Printing Holdings Co., Limited entered into an
agreement to establish a contractual joint venture in the People's Republic of
China (the "PRC") to be operated for an initial term of operations of 15
years -- Shenzhen Huaxuan Printing Product Co., Ltd. ("SHPP"). Hua Yang Printing
Holdings Co., Limited contributed to SHPP capital of Rmb20,000,000 (equivalent
to approximately $2,418,000), representing 100% of the registered capital of
SHPP. Pursuant to the joint venture agreement, Hua Yang Printing Holdings Co.,
Limited is entitled to all of the profit and has to assume all of the loss of
SHPP, while the PRC joint venture partner is entitled to a pre-determined annual
fee (see Note 14.b).
On April 25, 1996, the Group invested in a 90% interest in Guangzhou Jin Yi
Advertising Company Ltd., a contractual joint venture established in the PRC,
for HK$2,500,000 (equivalent to approximately $323,000), and subsequently
recovered HK$1,852,000 (equivalent to approximately $239,000) of its investment
cost. As of March 31, 1997, the Group was in the process of dissolving Guangzhou
Jin Yi Advertising Company Ltd. and had made full provision against the
remaining balance of its investment in Guangzhou Jin Yi Advertising Company Ltd.
On October 22, 1996, the Company issued to Mr. Karl Chan Kok Wai 176,471
shares of common stock of the Company in return for his executive services as a
director of the Company. These shares were valued at approximately $62,000
(equivalent to approximately HK$2.72 per share -- par value of HK$0.10 per share
and premium of HK$2.62 per share). As a result, the Company was 74.3% owned by
HYP Holdings Limited and 25.7% owned by a company controlled by Mr. Karl Chan
Kok Wai or Mr. Karl Chan Kok Wai.
The Company is an investment holding company. Its wholly owned
subsidiaries -- Hua Yang Printing Holdings Co., Limited and Shenzhen Huaxuan
Printing Product Co., Ltd. are engaged in printing and assembly of books, paper
box packaging and other paper products. The Group maintains its head office in
Hong Kong where it coordinates sales and marketing, purchasing and certain
administrative functions. Its production facilities are located in Guangdong
Province, the PRC.
18
<PAGE> 19
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUBSIDIARIES
Details of the Company's subsidiaries (which together with the Company are
collectively referred to as the "Group") as of March 31, 1997 were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
EQUITY INTEREST
PLACE OF ATTRIBUTABLE TO PRINCIPAL
NAME INCORPORATION THE GROUP ACTIVITIES
---------------------------------------- ------------- ---------------- --------------------
<S> <C> <C> <C>
Hua Yang Printing....................... Hong Kong 100% Printing and
Holdings Co., assembly of
Limited books and
specialty
packaging
Shenzhen Huaxuan........................ The PRC 100% Printing and
Printing Product Co., Ltd. assembly of
("SHPP") books and
specialty
packaging
Guangzhou Jin Yi........................ The PRC 90% Inactive
Advertising Company
Ltd.
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of consolidation
The consolidated financial statements include the accounts of the Company,
its subsidiaries and its contractual joint ventures which are considered as de
facto subsidiaries. All material intra-group balances and transactions have been
eliminated on consolidation.
b. Contractual joint ventures
A contractual joint venture is an entity established between the Group and
one or more other parties, with the rights and obligations of the joint venture
partners governed by a contract. If the Group owns more than 50% of the joint
venture and is able to govern and control its financial and operating policies
and its board of directors, such joint venture is considered as a de facto
subsidiary and is accounted for as a subsidiary.
c. Inventories
Inventories are stated at the lower of cost, on a first-in first-out basis,
or market value. Costs of work-in-progress and finished goods are composed of
direct materials, direct labour and an attributable portion of production
overheads.
d. Property, machinery, equipment and capital leases
Property, machinery, equipment and capital leases are recorded at cost.
Gains or losses on disposals are reflected in current operations. Depreciation
for financial reporting purpose is provided using the straight-line method over
the estimated useful lives of the assets as follows: land and buildings -- 50
years, machinery and tools -- 3 to 10 years, furniture and office equipment -- 5
to 8 years, and motor vehicles -- 4 years. All ordinary repair and maintenance
costs are expensed as incurred.
The Company recognizes an impairment loss on a fixed asset when evidence,
such as the sum of expected future cash flows (undiscounted and without interest
charges), indicates that future operations will not produce sufficient revenue
to cover the related future costs, including depreciation, and when the carrying
amount of the asset cannot be realized through sale. Measurement of the
impairment loss is based on the fair value of the assets.
19
<PAGE> 20
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
e. Goodwill
Goodwill, being the excess of cost over the fair value of the net assets
relating to the acquisition of the business of Hua Yang Printing Company Limited
(see Note 1), is amortized on a straight-line basis over twenty years. The
amortization recorded during the period/years ended March 31, 1995, 1996 and
1997 was approximately $234,000, $1,123,000 and $1,176,000, respectively, and
during the nine months ended December 31, 1996 and 1997 was approximately
$842,000 and $816,000, respectively. Accumulated amortization as of March 31,
1996 and 1997 and December 31, 1997 was approximately $1,357,000, $2,533,000 and
$3,349,000, respectively. Management assesses the remaining life of the goodwill
annually, taking into consideration of current operating results and future
prospects of the business.
f. Sales
Sales represent the invoiced value of merchandise supplied to customers.
Sales are recognized when the merchandise is shipped and title passes to
customers.
g. Income taxes
The Group accounts for income tax under the provisions of Statement of
Financial Accounting Standards No. 109, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Deferred
income taxes are provided using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities.
h. Operating leases
Operating leases represent those leases under which substantially all the
risks and rewards of ownership of the leased assets remain with the lessors.
Rental payments under operating leases are charged to expense on the
straight-line basis over the period of the relevant leases.
i. Foreign currency translation
The Company considers United States dollars as its functional currency as a
substantial portion of the Group's business activities are based in United
States dollars.
The translation of the financial statements of subsidiaries into United
States dollars is performed for balance sheet accounts using the closing
exchange rate in effect at the balance sheet date and for revenue and expense
accounts using an average exchange rate during each reporting period. The gains
or losses resulting from translation are included in shareholders' equity
separately as cumulative translation adjustments. Aggregate gains (losses) from
foreign currency transactions included in the results of operations for the
period/years ended March 31, 1995, 1996 and 1997 were approximately $27,000,
$(60,000) and $6,000, respectively, and for the nine months ended December 31,
1996 and 1997 were approximately $6,000 and $(39,000), respectively.
j. Earnings per common share
Earnings per common share is computed by dividing net income for each
period/year by the weighted average number of shares of common stock outstanding
during the periods/years.
20
<PAGE> 21
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
k. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates.
l. Fair value of financial instruments
The Group's financial instruments consist of cash, cash equivalents, bills
receivable, trade receivables and trade payables. The book values of these
instruments are considered to be representative of their fair values.
4. ACCOUNTS RECEIVABLE
Accounts receivable comprised:
<TABLE>
<CAPTION>
MARCH 31,
--------------- DECEMBER 31,
1996 1997 1997
----- ----- -------------
$'000 $'000 $'000
(UNAUDITED)
<S> <C> <C> <C>
Trade receivables...................................... 8,313 8,267 14,416
Less: Allowance for doubtful accounts.................. (268) (714) (597)
----- ----- ------
Accounts receivable, net............................... 8,045 7,553 13,819
===== ===== ======
</TABLE>
5. INVENTORIES
Inventories comprised:
<TABLE>
<CAPTION>
MARCH 31,
--------------- DECEMBER 31,
1996 1997 1997
----- ----- -------------
$'000 $'000 $'000
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.......................................... 4,378 3,927 3,325
Work-in-process........................................ 1,472 1,142 735
Finished goods......................................... 789 752 1,636
----- ----- -----
6,639 5,821 5,696
Less: Allowance for obsolescence....................... (453) (529) (788)
----- ----- -----
Inventories, net....................................... 6,186 5,292 4,908
===== ===== =====
</TABLE>
21
<PAGE> 22
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, MACHINERY, EQUIPMENT AND CAPITAL LEASES
Property, machinery, equipment and capital leases comprised:
<TABLE>
<CAPTION>
MARCH 31,
----------------- DECEMBER 31,
1996 1997 1997
------ ------ -------------
$'000 $'000 $'000
(UNAUDITED)
<S> <C> <C> <C>
Property, machinery and equipment:
Land............................................... 357 357 357
Buildings.......................................... 357 357 357
Machinery and tools................................ 5,579 5,906 5,966
Furniture and office equipment..................... 1,310 1,819 2,166
Motor vehicles..................................... 178 165 214
Capital leases:
Machinery and tools................................ 3,458 3,449 3,453
------ ------ ------
Cost................................................. 11,239 12,053 12,513
Less: Accumulated depreciation:
Property, machinery and equipment.................. (867) (1,723) (2,411)
Capital leases..................................... (138) (414) (623)
------ ------ ------
Property, machinery, equipment and capital leases,
net................................................ 10,234 9,916 9,479
====== ====== ======
</TABLE>
Land and buildings were located in Hong Kong and were held under leases
expiring in 2047.
As of March 31, 1996 and 1997 and December 31, 1997, land and buildings
with a net book value of approximately $710,000, $694,000 and Nil, respectively,
and machinery with a net book value of approximately $4,908,000, $4,674,000 and
$4,283,000, respectively, were mortgaged or otherwise pledged as collateral for
the Group's banking facilities.
7. GOODWILL
<TABLE>
<CAPTION>
MARCH 31,
----------------- DECEMBER 31,
1996 1997 1997
------ ------ ------------
$'000 $'000 $'000
(UNAUDITED)
<S> <C> <C> <C>
Goodwill............................................. 22,471 22,471 22,471
Less: Accumulated amortization....................... (1,357) (2,533) (3,349)
------ ------ ------
Goodwill, net........................................ 21,114 19,938 19,122
====== ====== ======
</TABLE>
8. SHORT-TERM BANK BORROWINGS
Short-term bank borrowings comprised:
<TABLE>
<CAPTION>
MARCH 31,
--------------- DECEMBER 31,
1996 1997 1997
----- ----- ------------
$'000 $'000 $'000
(UNAUDITED)
<S> <C> <C> <C>
Bank overdrafts.......................................... -- 522 --
Import trust receipt bank loans.......................... 656 359 --
--
--- ---
656 881 --
=== === ==
</TABLE>
22
<PAGE> 23
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SHORT-TERM BANK BORROWINGS -- (CONTINUED)
Short-term bank borrowings were denominated in Hong Kong dollars and bore
interest at the floating commercial bank lending rates in Hong Kong, which
ranged from 8.63% to 8.75% per annum as of March 31, 1997. They were
collateralized by certain land and buildings, machinery, accounts receivable and
inventories of the Group. They were drawn for working capital purposes and were
renewable with the consent of the relevant banks.
Supplemental information with respect to short-term bank borrowings for the
year ended March 31, 1997 and for the nine months ended December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE
AMOUNT AMOUNT WEIGHTED WEIGHTED
OUTSTANDING OUTSTANDING AVERAGE INTEREST AVERAGE INTEREST
DURING THE DURING THE RATE AT THE END RATE DURING THE
YEAR/PERIOD YEAR/PERIOD OF YEAR/PERIOD YEAR/PERIOD
----------- ----------- ---------------- ----------------
$'000 $'000
<S> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1997
Bank overdrafts............................. 1,159 340 8.63% 8.69%
===== === ==== ====
Import trust receipt bank loans............. 971 504 8.63% 8.63%
===== === ==== ====
NINE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
Bank overdrafts............................. 522 108 -- 8.99%
===== === ==== ====
Import trust receipt bank loans............. 359 46 -- 8.63%
===== === ==== ====
</TABLE>
9. ACCRUED LIABILITIES
Accrued liabilities comprised:
<TABLE>
<CAPTION>
MARCH 31,
--------------- DECEMBER 31,
1996 1997 1997
----- ----- -------------
$'000 $'000 $'000
(UNAUDITED)
<S> <C> <C> <C>
Accruals for operating expenses
-- Subcontracting charges............................ 348 314 687
-- Salaries and bonus................................ 165 385 500
-- Freight charges................................... 224 225 271
-- Others............................................ 411 788 727
Accruals for raw materials purchases................... 1,006 253 730
Provision for claims................................... -- -- 472
----- ----- -----
2,154 1,965 3,387
===== ===== =====
</TABLE>
23
<PAGE> 24
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. LONG-TERM BANK LOANS
Long-term bank loans were denominated in Hong Kong dollars and bore
interest at rates ranging from 10.50% to 11.00% per annum as of March 31, 1997.
They were collateralized by certain land and buildings, machinery, accounts
receivable and inventories of the Group, and were repayable as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------- DECEMBER 31,
1996 1997 1997
----- ----- -------------
$'000 $'000 $'000
(UNAUDITED)
<S> <C> <C> <C>
Payable during the following period
-- Within one year..................................... 94 94 --
-- Over one year but not exceeding two years........... 94 94 --
-- Over two years but not exceeding three years........ 94 94 --
-- Over three years but not exceeding four years....... 94 23 --
-- Over four years but not exceeding five years........ 24 -- --
----- ---- - -----
Total bank loans......................................... 400 305 --
Less: Current portion.................................... (94) (94) --
----- ---- - -----
Non-current portion...................................... 306 211 --
===== ===== =====
</TABLE>
11. CAPITAL LEASE OBLIGATIONS
Future minimum lease payments under the capital leases, together with the
present value of the minimum lease payments are:
<TABLE>
<CAPTION>
MARCH 31,
--------------- DECEMBER 31,
1996 1997 1997
----- ----- -------------
$'000 $'000 $'000
(UNAUDITED)
<S> <C> <C> <C>
Payable during the following period
-- Within one year................................... 781 779 780
-- Over one year but not exceeding two years......... 781 779 770
-- Over two years but not exceeding three years...... 781 673 91
-- Over three years but not exceeding four years..... 675 76 --
-- Over four years but not exceeding five years...... 77 -- --
----- ----- -----
Total minimum lease payments........................... 3,095 2,307 1,641
Less: Amount representing interest..................... (645) (448) (236)
----- ----- -----
Present value of minimum lease payments................ 2,450 1,859 1,405
Less: Current portion.................................. (563) (584) (638)
----- ----- -----
Non-current portion.................................... 1,887 1,275 767
===== ===== =====
</TABLE>
12. SHARE CAPITAL
Upon incorporation, the Company had an authorized share capital of
HK$33,000,000, divided into 30,000,000 shares of common stock with a par value
of HK$0.10 per share and 300,000,000 shares of preferred stock with a par value
of HK$0.10 per share. On January 26, 1995, the Company consummated a 10 for 1
stock split of its preferred stock and as a result 3,000,000,000 shares of
preferred stock with a par value of HK$0.01 per share were authorized. The
preferred stock is redeemable at HK$1.00 per share upon approval
24
<PAGE> 25
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SHARE CAPITAL -- (CONTINUED)
by the Company's Board of Directors, carries no voting rights, is not entitled
to dividends, and must be redeemed in full upon winding up before any
distribution is made to holders of common stock.
Subsequent to the stock split on January 26, 1995, the Company issued
15,000,000 shares of common stock for cash consideration of HK$0.1 per share
(par value) and 210,000,000 shares of preferred stock for cash consideration of
HK$1.00 per share (par value of HK$0.01 per share and premium of HK$0.99 per
share). In addition, the Company issued 5,000,000 shares of common stock at a
value of HK$0.10 per share (par value) and 70,000,000 shares of preferred stock
at a value of HK$1.00 per share (par value of HK$0.01 per share and premium of
HK$0.99 per share) as part of the consideration for the acquisition of certain
assets, liabilities and the major business operations of Hua Yang Printing
Company Limited (see Note 1).
On October 22, 1996, the Company issued to Mr. Karl Chan Kok Wai 176,471
shares of common stock in return for his executive services as a director of the
Company, with the shares valued at approximately $62,000, representing a per
share par value of HK$0.10 and premium of HK$2.62.
13. INCOME TAXES
The Company and its subsidiaries are subject to income taxes on an entity
basis on income arising in or derived from the tax jurisdiction in which they
operate. The Company is incorporated under the Companies Law of the Cayman
Islands as a limited liability exempted company and, accordingly, is exempted
from payment of the Cayman Islands income taxes until 2014. The Hong Kong
subsidiary is subject to Hong Kong profits tax at a rate of 16.5%. The joint
venture enterprise -- SHPP is established in a special economic zone in the PRC
and is subject to PRC income taxes at a rate of 15%. However, SHPP is exempted
from PRC state and local income taxes for two years starting from the first year
of profitable operations and then followed by a 50% reduction for the next three
years. The first profitable year for SHPP was the year ended March 31, 1997.
If the tax holiday for SHPP did not exist, the Group's income tax
liabilities would have been increased by approximately Nil and $246,000 for the
years ended March 31, 1996 and 1997, respectively, and approximately $273,000
and $376,000 for the nine months ended December 31, 1996 and 1997, respectively.
Provision for income taxes for the year ended March 31, 1997 and for the
nine months ended December 31, 1996 and 1997 represented provision for current
Hong Kong profits tax. The reconciliation of the Hong Kong statutory profits tax
rate to the effective income tax rate based on income (loss) before income taxes
stated in the consolidated statements of operations is as follows:
<TABLE>
<CAPTION>
PERIOD/YEAR ENDED NINE MONTHS ENDED
MARCH 1, DECEMBER 31,
------------------------- ---------------------------
1995 1996 1997 1996 1997
----- ----- ----- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Hong Kong statutory profits tax
rate.............................. 16.5% 16.5% 16.5% 16.5% 16.5%
Effect of tax exemption for SHPP.... -- -- (11.0)% (12.3)% (7.7)%
Non-taxable income arising from
activities which qualified as
offshore.......................... -- (2.3)% -- -- --
Non-taxable/non-deductible
activities........................ -- 5.2% 7.7% 6.1% 3.2%
Tax loss not recognized............. (16.5)% (19.4)% (7.3)% (5.6)% --
----- ----- ----- ----- -----
Effective income tax rate........... -- -- 5.9% 4.7% 12.0%
===== ===== ===== ===== =====
</TABLE>
25
<PAGE> 26
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. COMMITMENTS
a. Operating lease commitments
The Group has various operating lease agreements for factory premises,
which extend through 2007. Rental expenses for the period/years ended March 31,
1995, 1996 and 1997 were approximately $176,000, $941,000 and $929,000,
respectively, and for the nine months ended December 31, 1996 and 1997 were
approximately $697,000 and $544,000, respectively. Most leases contain renewal
options. Future minimum rental payments as of March 31, 1997 and December 31,
1997, under agreements classified as operating leases with non-cancellable terms
in excess of one year, are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
--------- ------------
<S> <C> <C>
$'000 $'000
(UNAUDITED)
<S> <C> <C>
Payable during the following period
-- Within one year........................................ 546 326
-- Over one year but not exceeding two years.............. 533 169
-- Over two years but not exceeding three years........... 323 78
-- Over three years but not exceeding four years.......... 303 73
-- Over four years but not exceeding five years........... 303 73
-- Thereafter............................................. 1,244 343
----- -----
3,252 1,062
===== =====
</TABLE>
b. Commitment related to a contractual joint venture
Under the joint venture agreement for the establishment of Shenzhen Huaxuan
Printing Product Co., Ltd., the Group has committed to pay a pre-determined
annual fee to the third-party joint venture partner during the period from
October 1995 to October 2010. As of March 31, 1997 and December 31, 1997, the
total commitment for this pre-determined fee are $6,626,000 and $6,367,000,
respectively, which are analyzed as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
--------- ------------
<S> <C> <C>
$'000 $'000
(UNAUDITED)
<S> <C> <C>
Payable during the following period
-- Within one year........................................ 354 368
-- Over one year but not exceeding two years.............. 372 387
-- Over two years but not exceeding three years........... 390 406
-- Over three years but not exceeding four years.......... 410 426
-- Over four years but not exceeding five years........... 430 447
-- Thereafter............................................. 4,670 4,333
----- -----
6,626 6,367
===== =====
</TABLE>
15. BANKING FACILITIES
As of March 31, 1997 and December 31, 1997, the Group had banking
facilities of approximately $15,247,000 and $14,961,000, respectively, for
overdrafts, loans and trade financing. Unused facilities as of the same dates
amounted to approximately $13,415,000 and $14,961,000, respectively. These
facilities were secured by:
26
<PAGE> 27
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. BANKING FACILITIES -- (CONTINUED)
a. mortgages over the Group's land and buildings with a net book value
of approximately $694,000 and Nil as of March 31, 1997 and December 31,
1997, respectively;
b. pledges over the Group's machinery with a net book value of
approximately $4,674,000 and $4,283,000 as of March 31, 1997 and December
31, 1997, respectively; and
c. floating charge on all of the Group's accounts receivable and
inventories.
16. RELATED PARTY TRANSACTIONS
The Group entered into the following transactions with related companies:
<TABLE>
<CAPTION>
PERIOD/YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
---------------------- ---------------------------
1995 1996 1997 1996 1997
---- ---- ---- ----------- -----------
<S> <C> <C> <C> <C> <C>
$'000 $'000 $'000 $'000 $'000
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Purchase of assets from Jumbo Light
International Limited (Note a)
-- Inventories....................... -- 59 -- -- --
-- Equipment......................... -- 154 -- -- --
Management fee paid to ZIC Holdings
Limited (Note b)..................... 105 421 -- -- --
Rental expenses paid to Mr. Karl Chan
Kok Wai, a director, and a company
majority owned by him................ 176 338 338 253 253
=== === === ===
</TABLE>
The Group had the following outstanding balances with related companies:
<TABLE>
<CAPTION>
MARCH 31,
------------- DECEMBER 31,
1996 1997 1997
---- ---- -------------
$'000 $'000 $'000
(UNAUDITED)
<S> <C> <C> <C>
Due from HYP Holdings Limited, the
ultimate holding company................................ 3 6 11
=== === ==
Due from related companies
-- Jumbo Light International Limited
(Note a)............................................. 184 160 --
-- Hua Yang Printing Company Limited
(Note a)............................................. 319 -- --
-- ZIC Holdings Limited (Note b)........................ 11 -- --
--- ---
514 160 --
=== === ==
</TABLE>
The balances due from the ultimate holding company and the related
companies were unsecured, non-interest bearing and without pre-determined
repayment terms.
NOTES --
a. Jumbo Light International Limited and Hua Yang Printing Company Limited
are beneficially owned by Mr. Karl Chan Kok Wai, who is a director of
and has beneficial interest in the Company.
b. ZIC Holdings Limited is a company in which certain directors of the
Company are also directors.
27
<PAGE> 28
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. SEGMENTAL ANALYSIS
a. Net sales
Net sales comprised:
<TABLE>
<CAPTION>
PERIOD/YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
----------------------- -------------------------
1995 1996 1997 1996 1997
----- ------ ------ ----------- -----------
$'000 $'000 $'000 $'000 $'000
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales of books............................ 5,369 25,831 17,697 15,103 18,896
Sales of paper box packaging.............. 852 8,271 13,053 9,436 12,788
Others.................................... 379 2,301 2,659 2,132 1,129
----- ------ ------ ------ ------
6,600 36,403 33,409 26,671 32,813
===== ====== ====== ====== ======
</TABLE>
Geographical analysis of net sales is as follows:
<TABLE>
<CAPTION>
PERIOD/YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
----------------------- -------------------------
1995 1996 1997 1996 1997
----- ------ ------ ----------- -----------
$'000 $'000 $'000 $'000 $'000
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Hong Kong................................. 2,109 9,543 5,422 4,435 4,367
U.S.A. (export sales)..................... 3,399 20,228 19,244 14,821 17,461
United Kingdom (export sales)............. 581 3,358 5,176 4,419 5,651
Europe except United Kingdom (export
sales).................................. 71 856 1,714 1,679 2,073
Others (export sales)..................... 440 2,418 1,853 1,317 3,261
----- ------ ------ ------ ------
6,600 36,403 33,409 26,671 32,813
===== ====== ====== ====== ======
</TABLE>
b. Assets
Substantially all of the Group's assets are located in Hong Kong and the
PRC.
c. Major customers
Details of individual customers accounting for more than 5% of the Group's
sales are as follows:
<TABLE>
<CAPTION>
PERIOD/YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------ -------------------------
1995 1996 1997 1996 1997
---- ---- ---- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Mattel HK Ltd. ................................ 3.0% 12.8% 23.8% 20.4% 26.0%
Jetta Co., Ltd. ............................... 11.8% 10.8% 12.1% 12.3% 11.2%
Intervisual Books Inc. ........................ 17.9% 12.4% 10.6% 13.0% 8.8%
Imago Publishing Ltd. ......................... 4.0% 4.8% 6.5% 7.7% 2.6%
The Putnam Publishing Group.................... 9.5% 5.4% 5.9% 5.2% 0.7%
Joshua Morris Publishing Inc./Victoria House
Publishing Ltd. ............................. 11.6% 9.5% 4.7% 5.7% 7.4%
Watermark International Inc. .................. 6.4% 0.8% 0.7% 0.9% 0.8%
UR1 International Fty. Ltd..................... -- -- 3.8% -- 5.7%
Van Der Meer Paper Design Ltd.................. 5.0% 3.7% 2.7% 3.4% 5.1%
==== ==== ==== ==== ====
</TABLE>
28
<PAGE> 29
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. SEGMENTAL ANALYSIS -- (CONTINUED)
d. Major suppliers
Details of individual suppliers accounting for more than 5% of the Group's
purchases are as follows:
<TABLE>
<CAPTION>
PERIOD/YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
----------------- -------------------------
1995 1996 1997 1996 1997
--- ---- ---- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Mattel Toys (H.K.) Ltd. ........................ -- 6.7% 16.3% 14.3% 12.5%
Sun Hing Paper Co. Ltd. ........................ 5.8% 10.0% 9.7% 9.8% 10.5%
Sung Kee Hong Ltd. ............................. 6.9% 8.6% 9.6% 8.8% 10.8%
U Kwong Industrial Ltd. ........................ 0.7% 4.1% 8.3% 7.0% 6.2%
Votra Hymsum Ltd. .............................. 1.1% 12.5% 1.0% 1.0% 0.9%
Spicer Paper (H.K.) Ltd. ....................... 6.9% 4.5% 2.1% 2.0% 0.9%
Yuen Cheung Paper Merchant...................... 2.0% 4.0% 4.6% 4.3% 8.6%
Riverwood International Asia Pacific............ -- -- 3.8% 2.0% 6.3%
=== ==== ==== ==== ====
</TABLE>
18. OPERATING RISK
a. Country risk
The Group's operations are conducted in Hong Kong and the PRC. Accordingly,
the Group's business, financial condition and results of operations may be
influenced by the political, economic and legal environments in Hong Kong and
the PRC, and by the general state of the Hong Kong and the PRC economies.
Effective from July 1, 1997, sovereignty over Hong Kong was transferred
from the United Kingdom to the PRC, and Hong Kong became a Special
Administrative Region of the PRC (the "Hong Kong SAR"). As provided in the Basic
Law of the Hong Kong SAR of the PRC, the Hong Kong SAR will have full economic
autonomy and its own legislative, legal and judicial systems for fifty years.
The Group's management does not believe that the transfer of sovereignty over
Hong Kong has an adverse impact on the Company's financial and operating
environment. There can be no assurance, however, that changes in political or
other conditions will not result in such an adverse impact.
The Group's operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange. The
Group's results may be adversely affected by changes in the political and social
conditions in the PRC, and by changes in governmental policies with respect to
laws and regulations, anti-inflationary measures, currency conversion and
remittance abroad, and rates and methods of taxation, among other things.
b. Dependence on strategic relationship
The Group conducts its manufacturing operations through a contractual joint
venture (SHPP) established between the Group and a PRC party. The deterioration
of this strategic relationship may have an adverse effect on the operations of
the Group.
29
<PAGE> 30
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. OPERATING RISK -- (CONTINUED)
c. Concentration of credit risk
Concentration of accounts receivable as of March 31, 1996 and 1997 and
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------- DECEMBER 31,
1996 1997 1997
---- ---- ------------
$'000 $'000 $'000
(UNAUDITED)
<S> <C> <C> <C>
Five largest accounts receivable.......................... 49% 61% 58%
==== ==== ===
</TABLE>
The Group performs ongoing credit evaluation of each customer's financial
condition. It maintains reserves for potential credit losses and such losses in
the aggregate have not exceeded management's projections.
19. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
a. Cash paid for interest is as follows:
<TABLE>
<CAPTION>
PERIOD/YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------------- ---------------------------
1995 1996 1997 1996 1997
----- ----- ----- ----------- -----------
$'000 $'000 $'000 $'000 $'000
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest.............................. 2 221 282 222 137
==== ==== ==== ==== ====
</TABLE>
b. Supplemental disclosure of non-cash investing activities:
During the year ended March 31, 1996, the Group entered into capital lease
arrangements to purchase property, machinery and equipment with a total capital
value at the inception of leases of approximately $2,545,000.
c. Supplemental disclosure of non-cash financing activities:
<TABLE>
<CAPTION>
PERIOD/YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------------- ---------------------------
1995 1996 1997 1996 1997
----- ----- ----- ----------- -----------
$'000 $'000 $'000 $'000 $'000
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Issuance of common stock and
preferred stock for acquisition of
business (NOTE 1).................. 9,108 -- -- -- --
==== ==== ==== ==== ====
</TABLE>
30
<PAGE> 31
HUA YANG HOLDINGS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -- (CONTINUED)
d. Supplemental disclosure of investing activities:
<TABLE>
<CAPTION>
PERIOD/YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
-------------------------- ---------------------------
1995 1996 1997 1996 1997
------ ----- ----- ----------- -----------
$'000 $'000 $'000 $'000 $'000
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Fair value of assets acquired....... 20,625 -- -- -- --
Liabilities assumed................. (6,662) -- -- -- --
Goodwill............................ 22,471 -- -- -- --
Common stock issued................. (9,108) -- -- -- --
--- ----- ---- - ---- - ---- -
Cash paid........................... 27,326 -- -- -- --
Less: Cash acquired................. (1,587) -- -- -- --
--- ----- ---- - ---- - ---- -
Net cash paid for acquisition of 25,739 -- -- -- --
business..........................
====== ===== ===== ===== =====
</TABLE>
20. OTHER SUPPLEMENTAL INFORMATION
The following items were included in the consolidated statements of
operations:
<TABLE>
<CAPTION>
PERIOD/YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------------- ---------------------------
1995 1996 1997 1996 1997
----- ----- ----- ----------- -----------
$'000 $'000 $'000 $'000 $'000
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Depreciation of property, machinery
and equipment
-- owned assets................... 157 731 875 422 731
-- assets held under capital
leases......................... -- 138 276 207 207
Provision for bad and doubtful trade
receivables....................... 268 -- 446 59 408
Provision for slow-moving and
obsolete inventories.............. 453 -- 76 58 259
Provision for claims................ -- -- -- -- 472
Provision for permanent diminution
in value of investment in a
subsidiary........................ -- -- 84 -- --
Interest expenses for
-- bank overdrafts and loans...... 2 172 85 68 9
-- capital lease obligations...... -- 49 197 154 128
Operating lease rentals for
premises.......................... 176 941 929 697 544
Repairs and maintenance expenses.... 15 11 10 8 10
Salary and employee benefits........ 703 4,580 5,004 3,967 3,750
Interest income from bank
deposits.......................... 3 40 127 60 364
Net foreign exchange gain (loss).... 27 (60) 6 6 (39)
=== ===== ===== ===== =====
</TABLE>
31
<PAGE> 32
Exhibits
99.1(1) Exchange Agreement among Zindart Limited, Hua Yang Holdings
Co. Limited, Hua Yang Printing Holdings Co. Limited, the
shareholders of Hua Yang Holdings Co. Limited and certain
beneficial owners of such shareholders.
99.2(1) Revolving Credit Facility Agreement among Zindart Limited,
Credit Suisse First Boston Hong Kong Branch, Credit Suisse First
Boston Singapore Branch, Credit Suisse First Boston Labuan
Branch and Standard Chartered Bank dated as of February 9, 1998
99.3 Consent from Arthur Andersen & Co. to the Company, dated March
2, 1998, with respect to the use of Arthur Andersen & Co.'s
reports on the consolidated financial statements of Hua Yang
Holdings Co., Ltd. and subsidiaries as of March 31, 1996 and
1997, and for the period from January 17, 1995 (date of
incorporation) to March 31, 1995 and for the years ended March
31, 1996 and 1997 contained elsewhere in this Form 6-K.
- --------
(1) Incorporated by reference to Exhibits 2.1 and 10.10 to the Company's
Registration Statement on Form F-1, dated as of December 23, 1997, as amended.
32
<PAGE> 33
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, thereunto duly authorized.
Zindart Limited
Date: March 4, 1998 By /s/ Feather S.Y. Fok
--------------- --------------------
Feather S.Y. Fok
Chief Financial Officer and
Chief Operating Officer
33
<PAGE> 34
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Discription Page
- ------- ----------- ____
<S> <C> <C>
99.1(1) Exchange Agreement among Zindart Limited, Hua Yang Holdings
Co. Limited, Hua Yang Printing Holdings Co. Limited, the
shareholders of Hua Yang Holdings Co. Limited and certain
beneficial owners of such shareholders................................
99.2(1) Revolving Credit Facility Agreement among Zindart Limited,
Credit Suisse First Boston Hong Kong Branch, Credit Suisse First
Boston Singapore Branch, Credit Suisse First Boston Labuan
Branch and Standard Chartered Bank dated as of February 9, 1998.......
99.3 Consent from Arthur Andersen & Co. to the Company, dated March
2, 1998, with respect to the use of Arthur Andersen & Co.'s
reports on the consolidated financial statements of Hua Yang
Holdings Co., Ltd. and subsidiaries as of March 31, 1996 and
1997, and for the period from January 17, 1995 (date of
incorporation) to March 31, 1995 and for the years ended March
31, 1996 and 1997 contained elsewhere in this Form 6-K................
</TABLE>
- --------
(1) Incorporated by reference to Exhibits 2.1 and 10.10 to the Company's
Registration Statement on Form F-1, dated as of December 23, 1997, as amended.
<PAGE> 1
EXHIBIT 99.3
[ARTHUR ANDERSEN LOGO]
March 2, 1998
The Directors
Zindart Limited
Flat C & D, 25th Floor
Tai Ptng Industrial Centre - Block 1
57 Ting Kok Road
Tai Po
New Territories
Hong Kong
Dear Sirs,
As independent public accountants, we hereby consent to the use of our report on
the audits of the financial statements of Hua Yang Holdings Co., Ltd. for the
period/years ended March 31, 1995, 1996 and 1997, and as of March 31, 1996 and
1997, and to all references to our Firm included in or made a part of Zindart
Limited's Form 6-K dated March 2, 1998.
Very truly yours,
ARTHUR ANDERSEN & CO.
