EXHIBIT 99
Report of the Directors
Audited Consolidated Financial Statements
HARMONIC HALL INVESTMENT
HOLDINGS LIMITED
(Incorporated in the British Virgin Islands with limited liability)
30 June 1999
ERNST&YOUNG
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
CONTENTS
Pages
REPORT OF THE DIRECTORS 3-4
REPORT OF THE AUDITORS 5
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated profit and loss account 6
Consolidated balance sheet 7-8
Consolidated cash flow statement 9-10
Notes to consolidated financial statements 11-29
2
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
REPORT OF THE DIRECTORS
The directors herein present their report and the audited consolidated financial
statements of the Group for the year ended 30 June 1999.
Principal activities
---------------------
The principal activity of the Company is investment holding. The principal
activities of the subsidiaries have not changed during the year and consisted of
the manufacturing, production, distribution and trading of records, cassette
tapes, video cassette tapes, compact discs, laser discs, read only memory
compact discs, rewritable compact discs and cinematography films and property
letting.
Results and dividends
---------------------
The Group's loss for the year ended 30 June 1999 and its state of affairs of the
Group at that date are set out in the consolidated financial statements on pages
4 to 27. The directors do not recommend the payment of any dividends in respect
of the year.
Fixed assets
-------------
Details of movements in the fixed assets of the Group are set out in note 7 to
the consolidated financial statements.
Subsidiaries
------------
Particulars of the Company's subsidiaries at 30 June 1999 are set out in note 24
to the consolidated financial statements.
Associated companies
--------------------
Particulars of the Group's associated companies at 30 June 1999 are set out in
note 8 to the consolidated financial statements.
Reserves
--------
Details of movements in the reserves of the Group are set out in note 19 to the
consolidated financial statements.
Directors
---------
The directors of the Company during the year were:
Yiu Siu Hung
Ho Kin Man
Chan Sik Hong, David
There being no provision to the contrary in the Company's Articles of
Association, all remaining directors continue in office.
Directors' interests
--------------------
At no time during the year was the Company or any of its subsidiaries a party to
any arrangements to enable the Company's directors to acquire benefits by means
of the acquisition of shares in or debentures of the Company or any other body
corporate.
3
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
REPORT OF THE DIRECTORS
Directors' interests in contracts
---------------------------------
Except as detailed in note 2 to the consolidated financial statements, no
director had a significant beneficial interest in any contract of significance
to the business of the Company to which the Company or any of its subsidiaries
was a party during the year.
Auditors
--------
Ernst & Young retire and a resolution for their reappointment as auditors of the
Company will be proposed at the forthcoming annual general meeting.
ON BEHALF OF THE BOARD
/s/
--------------------------------
Chairman
Hong Kong
31 March 2000
4
<PAGE>
ERNST&YOUNG
Certified Public Accountants Phone: 852 29561188
10/F, Tower 2, The Gateway Fax: 852 29560118
25-27 Canton Road
Kowloon, Hong Kong
To the members
Harmonic Hall Investment Holdings Limited
(Incorporated in the British Virgin Islands with limited liability)
We have audited the consolidated financial statements on pages 4 to 27 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 consolidated
financial statements which give a true and fair view. In preparing consolidated
financial statements 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. An audit includes an
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the consolidated financial statements. It also includes an
assessment of the significant estimates and judgements made by the directors in
the preparation of the consolidated 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 consolidated financial statements are free from material
misstatement. In forming our opinion we also evaluated the overall adequacy of
the presentation of information in the consolidated financial statements. We
believe that our audit provides a reasonable basis for our opinion.
Opinion
-------
In our opinion the consolidated financial statements give a true and fair view,
in all material respects, of the state of affairs of the Group as at 30 June
1999 and of the loss and cash flows of the Group for the year then ended and
have been properly prepared in accordance with the disclosure requirements of
the Hong Kong Companies Ordinance.
Ernst & Young
Hong Kong
31 March 2000
5
<PAGE>
<TABLE>
<CAPTION>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year ended 30 June 1999
Notes 1999 1998
HK$ HK$
----- ----------- -----------
<S> <C> <C> <C>
TURNOVER 3 144,677,656 156,431,118
=========== ===========
OPERATING LOSS 4 (12,000,382) (6,355,443)
Share of profits less losses of
associated companies 98,980 626,137
----------- -----------
LOSS BEFORE TAXATION (11,901,402) (5,729,306)
Taxation 6 (2,029) 44,588
----------- -----------
LOSS AFTER TAXATION BUT BEFORE
MINORITY INTERESTS (11,903,431) (5,684,718)
Minority interests (375,076) (296,081)
----------- -----------
NET LOSS ATTRIBUTABLE TO SHAREHOLDERS (12,278,507) (5,980,799)
Retained profits at beginning of year 57,822,820 63,803,619
----------- -----------
RETAINED PROFITS AT END OF YEAR 45,544,313 57,822,820
=========== ===========
RETAINED AS FOLLOWS:
Company and subsidiaries 43,327,432 55,704,919
Associated companies 2,216,881 2,117,901
----------- -----------
45,544,313 57,822,820
=========== ===========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEET
30 June 1999
Notes 1999 1998
HK$ HK$
----- ----------- -----------
<S> <C> <C> <C>
FIXED ASSETS 7 264,202,663 304,466,634
INTERESTS IN ASSOCIATED COMPANIES 8 4,356,452 4,257,472
DEFERRED EXPENDITURE 9 367,150 1,578,115
DEFERRED DEVELOPMENT COSTS 10 7,133,172 --
CURRENT ASSETS
Cash and bank balances 2,370,431 2,665,632
Accounts receivable, prepayments,
deposits and other receivables 27,182,432 27,923,113
Due from directors 11 249,322 --
Inventories 12 27,030,430 28,745,133
Film rights 13 1,374,109 2,038,100
----------- -----------
58,206,724 61,371,978
----------- -----------
CURRENT LIABILITIES
Bank overdrafts, secured 7,14 23,482,584 25,295,012
Bank loans, secured 7,14,15 48,381,496 40,012,000
Accounts payable and accrued liabilities 19,661,353 21,790,441
Trust receipt loans, secured 7,14 11,715,558 37,622,779
Current portion of finance lease payables 16 11,043,514 9,560,440
Due to a related company 2 2,331,594 4,846,385
Taxation -- 3,385
----------- -----------
116,616,099 139,130,442
----------- -----------
NET CURRENT LIABILITIES (58,409,375) (77,758,464)
----------- -----------
TOTAL ASSETS LESS CURRENT LIABILITIES 218,650,062 232,543,757
----------- -----------
LONG TERM LIABILITIES
Bank loans, secured 7,14,15 22,570,882 13,646,000
Long term portion of finance lease
payables 16 13,483,333 20,893,706
Due to a director 2 -- 270,343
Deferred taxation 17 7,586,260 7,586,260
----------- -----------
43,640,475 42,396,309
----------- -----------
MINORITY INTERESTS 4,977,373 9,126,085
----------- -----------
170,032,214 181,021,363
=========== ===========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEET (continued)
30 June 1999
Notes 1999 1998
HK$ HK$
----- ----------- -----------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY
Share capital 18 7,800 7,800
Reserves 19 124,480,101 123,190,743
Retained profits 45,544,313 57,822,820
----------- -----------
170,032,214 181,021,363
=========== ===========
</TABLE>
/s/ /s/
------------------------ ------------------------
Director Director
8
<PAGE>
<TABLE>
<CAPTION>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
CONSOLIDATED CASH FLOW STATEMENT
Year ended 30 June 1999
Notes 1999 1998
HK$ HK$
----- ----------- -----------
<S> <C> <C> <C>
NET CASH INFLOW FROM OPERATING
ACTIVITIES 20(a) 14,626,455 77,131,407
RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE
Interest received 277,519 180,173
Interest paid (11,306,818) (8,466,558)
Interest element of finance lease
payments (2,932,101) (3,952,564)
----------- -----------
Net cash outflow from returns on
investments and servicing of finance (13,961,400) (12,238,949)
----------- -----------
TAXATION
Hong Kong profits taxes paid (3,270) --
PRC profits taxes paid (2,144) --
----------- -----------
Taxes paid (5,414) --
----------- -----------
INVESTING ACTIVITIES
Purchases of fixed assets (4,223,665) (50,643,965)
Proceeds from disposal of fixed assets 6,189,146 125,206
Acquisition of additional interests in
subsidiaries ( 3,087,629) --
Proceed from disposal of interest in
an associated company -- 535,149
Increase in amount due from associated
companies -- (2,251)
Payment of deferred expenditure (412,189) (1,578,115)
Payment of deferred development costs (8,558,012) --
----------- -----------
Net cash outflow from investing activities (10,092,349) (51,563,976)
----------- -----------
NET CASH INFLOW/(OUTFLOW) BEFORE
FINANCING ACTIVITIES (9,432,708) 13,328,482
----------- -----------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
CONSOLIDATED CASH FLOW STATEMENT (continued)
Year ended 30 June 1999
Notes 1999 1998
HK$ HK$
----- ----------- -----------
<S> <C> <C> <C>
FINANCING ACTIVITIES 20(b)
New bank loans, secured 37,454,000 20,000,000
Repayment of bank loans, secured (20,159,622) (17,039,400)
Cash inflow from sales and leaseback
transaction -- 18,665,715
Capital element of finance lease
payments (5,927,299) (25,474,676)
Repayment of amount due to a
director (270,343) (8,613,816)
Minority contribution on additional
investment in subsidiaries -- 150,036
Advance from minority interests -- 146,801
Repayment to minority interests (146,801) (1,860,000)
----------- -----------
Net cash inflow/(outflow) from
financing activities 10,949,935 (14,025,340)
----------- -----------
INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 1,517,227 (696,858)
Cash and cash equivalents at beginning
of year (22,629,380) (21,932,522)
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR (21,112,153) (22,629,380)
=========== ===========
ANALYSIS OF THE BALANCES OF CASH AND
CASH EQUIVALENTS
Cash and bank balances 2,370,431 2,665,632
Bank overdrafts, secured (23,482,584) (25,295,012)
----------- -----------
(21,112,153) (22,629,380)
=========== ===========
</TABLE>
10
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recent events
-------------
As shown in the consolidated financial statements, the Group reported
a consolidated loss attributable to shareholders of approximately HK$12.3
million for the year ended 30 June 1999 and as at that date, the Group had net
current liabilities of approximately HK$58.4 million. However, as at the balance
sheet date, a majority shareholder who is also a director of the Company (the
"Shareholder"), has undertaken to provide continuing financial support to the
Group to meet its liabilities as and when they fall due. In addition, subsequent
to the year end date, the Group has entered into agreements with a potential
investor whereby the investor agrees to invest HK$80 million in cash into the
Group upon fulfillment of certain conditions. In the opinion of the directors,
there are strong indications that these conditions will be fulfilled.
The directors are of the opinion that, in light of the continued support
from the Group's Shareholder and the new funding to be provided by the new
investor, the Group will have sufficient cash resources to meet its working
capital and other financing requirements. Accordingly, the financial statements
have been prepared on a going concern basis on the assumption of the Shareholder
will provide continuing financial support and the new investor will inject
funding to the Group to maintain it as a going concern.
If the going concern basis is not appropriate, adjustments would have to
be made to restate the values of the assets to their break up values, to provide
for any further liabilities which might arise and to reclassify non-current
assets and liabilities as current assets and current liabilities, respectively.
Basis of presentation and consolidation
---------------------------------------
The consolidated financial statements incorporate the financial statements
of the Company and its subsidiaries for the year ended 30 June 1999 together
with the Group's share of the results for the year and post-acquisition reserves
of its associated companies as set out below. The results of the subsidiaries
and associated companies acquired or disposed of during the year are
consolidated from or to their respective dates of acquisition or disposal,
respectively All significant intercompany transactions and balances within the
Group have been eliminated on consolidation.
Basis of accounting
-------------------
These consolidated financial statements have been prepared in accordance
with Hong Kong Statements of Standard Accounting Practice, accounting principles
generally accepted in Hong Kong and the disclosure requirements of the Hong Kong
Companies Ordinance.
Goodwill or capital reserve
---------------------------
Goodwill or capital reserve arising on acquisition of subsidiaries and
associated companies represents the excess or shortfall of the purchase
consideration paid for subsidiaries or associated companies over the fair values
ascribed to their net underlying assets at the date of acquisition and is
written off or credited to reserves, respectively in the year of acquisition. On
disposal of subsidiaries or associated companies, the relevant portion of
attributable goodwill or capital reserve previously written off or credited to
reserves is realised and accounted for in arriving at the gain or loss on
disposal.
11
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Subsidiaries
------------
A subsidiary is a company in which the Company, directly or indirectly,
controls more than half of its voting power or issued share capital or controls
the composition of its board of directors.
Associated companies
---------------------
An associated company is a company, not being a subsidiary, in which the
Group has a long term interest and over which it is in a position to exercise
significant influence, including participation in commercial and financial
policy decisions. The Group's share of the post-acquisition results of
associated companies is included in the consolidated profit and loss account.
The Group's investments in associated companies are stated in the consolidated
balance sheet at the Group's share of net assets other than goodwill recorded in
the associated companies' own financial statements.
Related parties
---------------
Parties are considered to be related if one party has the ability, directly
or indirectly, to control the other party, or exercise significant influence
over the other party in making financial and operating decisions. Parties are
also considered to be related if they are subject to common control or common
significant influence. Related parties may be individuals or corporate entities.
Fixed assets and depreciation
-----------------------------
Fixed assets, other than investment properties, are stated at cost or valu-
ation less accumulated 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 have been put into operation, such as repairs and maintenance, 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.
Depreciation is calculated on the straight-line basis to write off the
cost or valuation of each asset over the following estimated useful lives:
<TABLE>
over the lease terms
<S> <C>
Long term leasehold land 50 years
Leasehold buildings 7 years
Plant and machinery 7 years
Furniture, fixtures and equipment 7 years
Motor vehicles 7 years
</TABLE>
12
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Fixed assets and depreciation (continued)
--------------------------------
The gain or loss on disposal or retirement of a fixed asset recognised
in the profit and loss account is the difference between the sales proceeds and
the carrying amount of the relevant asset. On disposal or retirement, the
attributable revaluation surplus not previously dealt with in retained profits
is transferred directly to retained profits. Investment properties are interests
in land and buildings in respect of which construction work and development have
been completed and which are intended to be held on a long term basis for their
investment potential. Such properties are stated at cost as their open market
value, as estimated by the directors, is less than HK$50 million. No
depreciation is provided on investment properties which are held on leases with
an unexpired term, including the renewable period, of more than twenty years.
Leased assets
--------------
Leases and hire purchase contracts that transfer substantially all the
rewards and risks of ownership of assets to the Group, other than legal title,
are accounted for as finance leases. At the inception of a finance lease, the
cost of the asset is capitalised at the present value of the minimum lease
payments and recorded together with the obligation, excluding the interest
element, to reflect the purchase and financing. Assets held under capitalised
finance leases and hire purchase contracts are included in fixed assets and
depreciated over the estimated useful lives of the assets or in the cases of
finance leases, over the lease term, if this is shorter. The finance costs of
such leases are charged to the profit and loss account so as to produce a
constant periodic rate of charge over the lease terms.
Leases where substantially all the rewards and risks of ownership of assets
remain with the leasing company are accounted for as operating leases. Rentals
applicable to such operating leases are charged or credited to the profit and
loss account on the straight-line basis over the lease terms.
Inventories
-----------
Inventories are stated at the lower of cost and net realisable value. Cost
is determined on the first-in, first-out basis and, in the case of work in
progress and finished goods, comprises direct materials, direct labour and an
appropriate portion of overheads . Net realisable value is based on estimated
selling prices less further costs expected to be incurred to completion and
disposal.
Film rights
-----------
The Group enters into licensing arrangements with film producers or their
agents to obtain the right to manufacture laser discs, video cassette tapes,
video compact discs and digital video discs of film titles for distribution in
specified geographical area and time periods. Under these film licensing
arrangements, predetermined advances or payments are payable by the Group at
various stages: on signing of agreements, on first theatrical release in Hong
Kong and on receipt of the master copy of the film by the Group. All advances
made under these film licensing arrangements are shown in the balance sheet as
film rights and any balance payable under the arrangement is shown as capital
commitment. The advances are generally not refundable but can be used to set off
against royalties payable by the Group under the respective licensing
arrangements.
13
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Film rights (continued)
-----------
Upon the release of the laser discs and video cassette tapes of film
titles, the whole amount of the Film rights are charged to the profit and loss
account. Upon the release of the video compact discs and digital video discs of
film titles, the relevant portion of the film rights are charged to the profit
and loss account.
In cases where there is a permanent diminution in value of the film rights,
the balance is written down to its estimated recoverable amount.
Research and development costs
------------------------------
All research costs are charged to the profit and loss account as incurred.
Expenditure incurred on projects to develop new products is capitalised and
deferred only when the projects are clearly defined; the expenditure is
separately identifiable and can be measured reliably; there is reasonable
certainty that the projects are technically feasible; and the products have
commercial value. Product development expenditure which does not meet these
criteria is expensed when incurred.
Deferred development costs are amortised using the straight-line basis over
the commercial lives of the underlying products not exceeding three years,
commencing from the date when the products are put into commercial production.
Deferred expenditure
---------------------
Deferred expenditure represents pre-operating expenses incurred in
setting up and testing of the production line prior to the commencement of
commercial operations and are amortised, using the straight-line basis, over
periods not exceeding three years from the date of commencement of commercial
operations.
Revenue
-------
Revenue is recognised when it is probable that the economic benefits will
flow to the Group and when the revenue can be measured reliably, on the
following bases:
(a) on the sale of goods, when the significant risks and rewards of
ownership have been transferred to the buyer, provided that the Group
maintains neither managerial involvement to the degree usually
associated with ownership, nor effective control over the goods sold;
(b) on the rendering of services, in the period in which such services
are rendered;
(c) interest, on a time proportion basis, taking into account the
principal outstanding and the effective rate of interest applicable;
and
(d) rental income, in the period in which the properties are let out and on
the straight-line basis over the lease terms.
14
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Deferred taxation
-----------------
Deferred taxation is provided, using the liability method, on all signifi-
cant timing differences to the extent it is probable that the liability will
crystallise in the foreseeable future. A deferred tax asset is not recognised
until its realisation is assured beyond reasonable doubt.
Foreign currencies
------------------
Foreign currency transactions are recorded at the rates of exchange ruling
at the transaction dates. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated at the rates of exchange
ruling at that date. Exchange differences are dealt with in the profit and loss
account.
On consolidation, the financial statements of overseas subsidiaries and
associated companies are translated to Hong Kong dollars using the temporal
method. The resulting translation differences are dealt with in the profit and
loss account.
2. RELATED PARTY TRANSACTIONS
During the year, the Group had the following material transactions with
related parties during the year:
<TABLE>
Notes 1999 1998
HK$ HK$
----- ----------- -----------
<S> <C> <C> <C>
Rental expenses paid to a related party (i) 1,170,000 1,080,000
Interest expenses paid to a director (ii) 155,682 209,161
Management fees from a related party (iii) 300,000 300,000
Consultancy fee received from a related
party (iv) 4,400,000 --
Interest expenses paid to a related
party (v) 635,368 394,883
(i) Rental expenses were paid to related company of which a director of the
Company is a shareholder and director, on a monthly basis of HK$97,500
(1998: HK$90,000).
(ii) Interest expenses were paid to Mr. Yin Siu Hung, a director of the
Company, on the amount due to him. Interest expenses were calculated at
0.75% above prime rate per annum on the outstanding balance on a monthly
basis.
(iii) The management fee income were received from City Records Limited, of
which a director of the Company is a director and shareholder, on
a monthly basis of HK$25,000.
(iv) Consultancy fee arose from the consultancy services provided to City
Records Limited in respect of the development of 'Media Safe', a new
technology for the prevention of the piration of CD and VCD. The consi-
deration was based on arm length discussion between the management of the
two parties.
15
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
2. RELATED PARTY TRANSACTIONS (continued)
(v) Interest expenses were paid to City Records Limited on amount due to
it. Interest expenses were calculated at 0.5% above prime rate per
annum on the outstanding balance on a monthly basis.
</TABLE>
3. TURNOVER AND REVENUE
Turnover represents the invoiced value of goods sold, net of discounts and
returns, and services provided. Revenue from the following activities has been
included in turnover.
<TABLE>
1999 1998
HK$ HK$
----------- -----------
<S> <C> <C>
Sale of goods 144,285,466 156,164,182
Rendering of services 392,190 266,936
----------- -----------
144,677,656 156,431,118
=========== ===========
</TABLE>
4. OPERATING LOSS
The Group's operating loss is arrived at after charging:
<TABLE>
1999 1998
HK$ HK$
----------- -----------
<S> <C> <C>
Cost of inventories sold 118,457,480 119,766,672
Depreciation: 19,763,838 14,031,928
Owned fixed assets 21,568,195 23,577,532
Leased fixed assets
Interest: 11,151,136 8,257,397
On bank loans wholly repayable within
five years 155,682 209,161
On other loans wholly repayable
after five years 2,932,101 3,952,564
On obligations under finance leases -- (391,784)
----------- -----------
Less: Interest capitalised in fixed
assets 14,238,919 12,027,338
----------- -----------
Amortisation of deferred expenditure 623,154 --
Amortisation of deferred development
costs 1,424,840 --
Operating lease rentals on land
and buildings 334,684 245,168
Auditors' remuneration 522,951 456,891
Provision for doubtful debts 3,204,140 1,187,853
Provision for inventories 4,973,268 2,449,509
Exchange loss, net 2,753,907 728,601
16
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
4. OPERATING LOSS (continued)
1999 1998
HK$ HK$
----------- -----------
and after crediting:
Net rental income from land and buildings 250,953 220,000
Gross rental income from investment
properties 746,400 743,700
Less: Outgoings (1,200) (1,200)
----------- -----------
Net rental income from investment
properties 745,200 742,500
----------- -----------
Gain on disposal of fixed assets 3,033,543 82,236
=========== ===========
</TABLE>
5. DIRECTORS' REMUNERATION
<TABLE>
1999 1998
HK$ HK$
----------- -----------
<S> <C> <C>
Fees -- --
Other emoluments 3,317,173 2,451,000
----------- -----------
3,317,173 2,451,000
=========== ===========
</TABLE>
6. TAXATION
No provision for Hong Kong profits tax has been made as the Group did not
generate any assessable profits arising in Hong Kong during the year (1998:
Nil).
<TABLE>
1999 1998
HK$ HK$
----------- -----------
<S> <C> <C>
Group:
Hong Kong - overprovision in prior year (115) --
PRC - current year 2,144 --
Deferred (note 17) -- (200,000)
----------- -----------
2,029 (200,000)
----------- -----------
Associated companies:
Elsewhere - 155,412
----------- -----------
Taxation charge/(credit)for the year 2,029 (44,588)
=========== ===========
</TABLE>
17
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
7. FIXED ASSETS
<TABLE>
Leasehold Furniture,
Investment land and Plant and fixtures and Motor
properties buildings machinery equipment vehicles Total
HK$ HK$ HK$ HK$ HK$ HK$
---------- --------- --------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Cost or valuation:
At beginning of year 3,362,697 143,311,833 283,252,982 17,856,646 2,835,160 450,619,318
Additions - - 4,027,321 196,344 - 4,223,665
Disposals - - (19,087,419) (38,027) - (19,125,446)
Reclassification - (100,735) 2,078,884 (1,978,149) - -
--------- ----------- ----------- ---------- --------- -----------
At 30 June 1999 3,362,697 143,211,098 270,271,768 16,036,814 2,835,160 435,717,537
--------- ----------- ----------- ---------- --------- -----------
At cost 3,362,697 9,211,098 270,271,768 16,036,814 2,835,160 301,717,537
At valuation - 134,000,000 - - - 134,000,000
--------- ----------- ----------- ---------- --------- -----------
3,362,697 143,211,098 270,271,768 16,036,814 2,835,160 435,717,537
--------- ----------- ----------- ---------- --------- -----------
Accumulated depreciation:
At beginning of year - 10,185,087 125,929,320 8,138,020 1,900,257 146,152,684
Provided during the year - 2,792,284 36,538,847 1,746,151 254,751 41,332,033
Disposals - - ( 15,964,369) ( 5,474) - (15,969,843)
Reclassification - ( 1,199) 78,436 ( 77,237) - -
--------- ----------- ----------- ---------- --------- -----------
At 30 June 1999 - 12,976,172 146,582,234 9,801,460 2,155,008 171,514,874
--------- ----------- ----------- ---------- --------- -----------
Net book value:
At 30 June 1999 3,362,697 130,234,926 123,689,534 6,235,354 680,152 264,202,663
========= =========== =========== ========== ========= ===========
At 30 June 1998 3,362,697 133,126,746 157,323,662 9,718,626 934,903 304,466,634
========= =========== =========== ========== ========= ===========
</TABLE>
Included in the total amount of fixed assets, the net book value of assets
held under finance leases at 30 June 1999 amounted to HK$54,556,304 (1998:
HK$72,532,061).
The investment properties are situated in Hong Kong and are held on long
term leases.
The locations of the Group's leasehold land and buildings, which are all
held on long term leases, are as follows:
<TABLE>
1999 1998
HK$ HK$
----------- -----------
<S> <C> <C>
Situated in Hong Kong 122,146,153 124,774,615
Situated in the People's Republic of China 8,088,773 8,352,131
----------- -----------
130,234,926 133,126,746
=========== ===========
</TABLE>
18
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
7. FIXED ASSETS (continued)
The leasehold land and buildings and investment properties were pledged to
banks to secure banking facilities granted.
The leasehold land and buildings were valued by the directors at 30 June
1994 based on valuation made by Brooke Hillier Parker, a firm of professional
valuers, as at 20 May 1994, on an open market value existing use basis.
The Group has adopted the transitional provisions of Statement of Standard
Accounting Practice No. 17 "Property, plant and equipment" issued by the Hong
Kong Society of Accountants of not making regular revaluations by class of those
assets stated at revalued amounts based on revaluations which were reflected in
the prior year consolidated financial statements.
Had the Group's leasehold land and buildings been carried at cost less
accumulated depreciation, they would have been included in the consolidated
financial statements at approximately HK$70,683,000 (1998: HK$72,112,000).
8. INTERESTS IN ASSOCIATED COMPANIES
<TABLE>
1999 1998
HK$ HK$
----------- -----------
<S> <C> <C>
Share of net assets other than goodwill 4,289,545 4,190,565
Capital reserve arising from 27,019 27,019
acquisition of associated companies --------- ---------
4,316,564 4,217,584
Due from associated companies 39,888 39,888
--------- ---------
4,356,452 4,257,472
========= =========
</TABLE>
The Group's share of the post-acquisition accumulated reserves of
associated companies at 30 June 1999 was HK$2,216,881 (1998: HK$2,117,901).
19
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
<TABLE>
<CAPTION>
8. INTERESTS IN ASSOCIATED COMPANIES (continued)
Particulars of the associated companies are as follows:
Issued Percentage
Place of share of equity
incorporation/ capital/ attributable to
registration paid up the Group Principal
Name and operations capital directly activities
<S> <C> <C> <C> <C>
Pacific Fair Industrial
Limited Hong Kong HK$100 20 Dormant
Speedy Video Malaysia RM2,725,000 9.1 Production,
Distributors recording,
Sdn. Bhd. distribution,
wholesale,
retailing in
the sellthrough
and rental
of home
entertainment
and property
investment
</TABLE>
The amounts due from associated companies are unsecured, interest-free and have
no fixed terms of repayment.
9. DEFERRED EXPENDITURE
<TABLE>
<CAPTION>
1999 1998
Cost: HK$ HK$
<S> <C> <C>
At beginning of year 1,578,115 -
Additions 412,189 1,578,115
------- ---------
At 30 June 1,990,304 1,578,115
-- --------- ---------
Accumulated amortisation:
At beginning of year - -
Additions 623,154 -
------- ---------
At 30 June 623,154 -
------- ---------
Net book value:
At 30 June 1,367,150 1,578,115
========= =========
</TABLE>
20
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
<TABLE>
<CAPTION>
10. DEFERRED DEVELOPMENT COSTS
HK$
Cost:
<S> <C>
Additions and balance at 30 June 1999 8,558,012
---------
Accumulated amortisation:
Provided during the year and balance at 30 June 1999 1,424,840
---------
Net book value:
At 30 June 1999 7,133,172
=========
</TABLE>
11. DUE FROM DIRECTORS
Particulars of balance due from directors disclosed pursuant to Section 161B of
the Hong Kong Companies Ordinance are as follows:
<TABLE>
<CAPTION>
Maximum
30 June outstanding I July Security
Name of director 1999 during the year 1998 held
HK$ HK$ HK$
<S> <C> <C> <C> <C>
Ho Kin Man 166,000 176,000 - Nil
Yiu Siu Hung 83,322 832,287 - Nil
------ ======= ------
249,322 -
======= ======
</TABLE>
The amounts due from directors are interest-free, unsecured and have no fixed
terms of repayment.
12. INVENTORIES
<TABLE>
<CAPTION>
1999 1998
HK$ HK$
<S> <C> <C>
Raw materials 3,854,225 5,984,339
Spare parts 5,611,931 6,704,402
Work in progress 448,296 662,021
Finished goods 17,115,978 15,394,371
---------- ----------
27,030,430 28,745,133
========== ==========
</TABLE>
The carrying amount of inventories carried at net realisable value included in
the above is HK$2,572,349 (1998: Nil).
21
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
3. FILM RIGHTS
<TABLE>
<CAPTION>
1999 1998
HK$ HK$
<S> <C> <C>
Balance at beginning of year 2,038,100 3,588,076
Advances and payments made and
cost incurred during the year 226,696 7,192,500
------- ---------
2,264,796 10,780,576
Transfer to cost of production and cost of sales (890,687) (8,742,476)
-------- ----------
1,374,109 2,038,100
========= =========
</TABLE>
14. BANKING FACILITIES
At the balance sheet date, the banking facilities of the Group were secured by
the investment properties and leasehold land and buildings. In addition, the
facilities were further secured by unlimited guarantees given by a related
company and a director of the Company.
15 BANK LOANS, SECURED
<TABLE>
<CAPTION>
1999 1998
HK$ HK$
<S> <C> <C>
Repayable within Five years 70,952,378 53,658,000
Portion classified as current liabilities (48,381,496) (40,012,000)
----------- -----------
Long term portion 22,570,882 13,646,000
========== ==========
</TABLE>
22
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
16. FINANCE LEASE PAYABLES
There were commitments under finance leases at the balance sheet date as
follows:
<TABLE>
<CAPTION>
1999 1998
HK$ HK$
Amounts payable:
<S> <C> <C>
Within one year 12,683,839 12,622,652
In the second to fifth years, inclusive 14,058,895 23,397,637
---------- ----------
Total minimum lease payments 26,742,734 36,020,289
Future finance charges (2,215,887) (5,566,143)
---------- ----------
Total net finance lease payables 24,526,847 30,454,146
Portion classified as current liabilities (11,043,514) (9,560,440)
----------- ----------
Long term portion of finance lease payables 13,483,333 20,893,706
========== ==========
</TABLE>
17. DEFERRED TAXATION
Deferred taxation has been provided under the liability method at the rate of
16% (1998:16%) on timing difference between taxable profit and profit reported
in the financial statements:
<TABLE>
<CAPTION>
1999 1998
HK$ HK$
<S> <C> <C>
Balance at beginning of year 7,586,260 7,786,260
Credit for the year (note 6) - (200,000)
- --------- ---------
At 30 June 7,586,260 7,586,260
========= =========
</TABLE>
The principal components of the Group's deferred taxation liabilities/(assets)
provided at the balance sheet date calculated at 16% (1998: 16%) are as follows:
<TABLE>
<CAPTION>
1999 1998
HK$ HK$
<S> <C> <C>
Accelerated capital allowances 13,151,597 13,151,597
Tax losses carried forward (5,037,337) (5,037,337)
Others (528,000) (528,000)
-------- --------
7,586,260 7,586,260
========= =========
</TABLE>
23
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
17. DEFERRED TAXATION (continued)
The principal components of the Group's deferred taxation liabilities/(assets)
not provided at the balance sheet date calculated at 16% (1888 : 16%) are as
follows:
<TABLE>
<CAPTION>
1999 1998
HK$ HK$
<S> <C> <C>
Accelerated capital allowances 3,213,796 5,897,812
Tax losses carried forward (2,942,806) (6,712,904)
Others 528,000 16,000
======= ======
</TABLE>
Deferred taxation has not been provided on the revaluation of the leasehold land
and buildings as, in the opinion of the directors, the disposal of such
buildings would not result in a tax liability.
18. SHARE CAPITAL
<TABLE>
<CAPTION>
Shares
1999 1998
HK$ HK$
Authorized:
<S> <C> <C>
50,000 ordinary shares of US$1 each 390,000 390,000
======= =======
Issued and fully paid:
1,000 ordinary shares of US$1 each 7,800 7,800
===== =====
</TABLE>
The Company was incorporated with an authorised share capital of US$50,000
divided into 50,000 ordinary shares of US$1 each.
Share option
In 1998, the Company had granted a share option to Poon Siu Sin, a director of a
subsidiary, to subscribe for a maximum of 20 shares at an exercise price of US$1
per share. Poon Siu Sin did not exercise any share option during the year and
all the share option were expired upon her resignation as the director of the
subsidiary on 14 August 1999.
24
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
19, RESERVES
<TABLE>
<CAPTION>
Property
Capital Share revaluation
reserve premium reserve Total
HK$ HK$ HK$ HK$
<S> <C> <C> <C> <C> <C>
At 30 June 1998 19,449,604 38,292,309 65,448,830 123,190,743
Capital reserves arising on acquisition 1,289,358 - - 1,289,358
of additional interests in subsidiaries ---------- ---------- ---------- -----------
At 30 June 1999 20,738,962 38,292,309 65,448,830 124,480,101
========== ========== ========== ===========
</TABLE>
20. NOTES TO CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
(a) Reconciliation of operating loss to net cash inflow from operating
activities
1999 1998
HK$ HK$
<S> <C> <C>
Operating loss (12,000,382) (6,355,443)
Interest income (277,519) (180,173)
Interest expenses 14,238,919 12,027,338
Depreciation 41,332,033 37,609,460
Amortisation of deferred expenditure 623,154 -
Amortisation of deferred development costs 1,424,840 -
Gain on disposal of fixed assets (3,033,543) (82,236)
Gain on disposal of interest in an associated company - (362,176)
Decrease in accounts receivable, prepayment,
deposits and other receivables 740,681 9,039,397
Decrease/(increase) in inventories 1,714,703 (5,750,667)
Decrease in film rights 663,991 1,549,976
Increase in amounts due from directors (249,322) -
Increase/(decrease) in accounts payable and
accrued liabilities (2,129,088) 1,745,191
Increase/(decrease) in trust receipt loans, secured (25,907,221) 27,890,740
Decrease in amount due to a related company (2,514,791) -
---------- ----------
Net cash inflow from operating activities 14,626,455 77,131,407
========== ==========
</TABLE>
25
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
20. NOTES TO CONSOLIDATED CASH FLOW STATEMENT (continued)
(b) Analysis of changes in financing during the years
<TABLE>
Finance
Bank loans, lease Due to a Minority
secured obligation director interests
HK$ HK$ HK$ HK$
----------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Balance at 1 July 1997 50,697,400 31,101,495 8,884,159 10,393,167
Cash inflow/(outflow) from financing 2,960,600 (25,474,676) (8,613,816) (1,713,199)
Inception of finance lease contracts - 6,161,612 - -
Sales and leaseback transaction - 18,665,715 - -
Minority interests in profit after taxation - - - 296,081
Minority contribution on additional
investment in subsidiaries - - - 150,036
---------- ---------- --------- ----------
Balance at 30 June 1998 and
I July 1998 53,658,000 30,454,146 270,343 9,126,085
Cash inflow/(outflow) from financing 17,294,378 (5,927,299) (270,343) (146,801)
Minority interests in profit after taxation - - - 375,076
Eliminated on additional investment in
subsidiaries - - - (4,376,987)
---------- ---------- --------- ----------
Balance at 30 June 1999 70,952,378 24,526,847 - 4,977,373
========== ========== ========= =========
</TABLE>
21. CONTINGENT LIABILITIES
<TABLE>
1999 1998
HK$ HK$
--------- ---------
<S> <C> <C>
Guarantees given to independent third party 730,000 730,000
Irrecoverable letters of credit 1,173,364 4,383,068
========= =========
</TABLE>
26
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
22. COMMITMENTS
<TABLE>
1999 1998
HK$ HK$
--------- ---------
<S> <C> <C>
Capital commitments:
Contracted for 14,959,989 26,000
========== ======
</TABLE>
23. LONG SERVICE PAYMENTS
At the balance sheet date, the Group had a number of employees who
have completed the required number of years of service under Hong Kong
Employment Ordinance (the "Ordinance") to be eligible for long service payment
on termination of their employment. The Group is only liable to make such
payments if the termination of employment meets the circumstances which are
specified in the Ordinance. Had the employment of all eligible employees been
terminated on 30 June 1999 under the circumstances specified by the Ordinance,
the maximum potential exposure would have been approximately HK$2,979,076 (1998:
HK$2,623,715). No provision has been made in the financial statements in respect
of such long service payments.
24. DETAILS OF SUBSIDIARIES
Particulars of the subsidiaries are as follows:
<TABLE>
Issued Percentage
Place of ordinary of equity
incorporation/ share capital/ attributable
registration registered to the Company Principal
Name and operations capital Directly Indirectly activities
-------------- -------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Anwell Industrial Limited Hong Kong HK$2,000,000 100 - Trading of cassette
tapes, compact discs
boxes and norelco
boxes
City Entertainment Services Limited British Virgin US$8 100 - Dormant
Islands
Daiichi Records Limited Hong Kong HK$2 - 100 Distribution and
trading of records,
cassette tapes and
compact discs
</TABLE>
27
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
24. DETAILS OF SUBSIDIARIES (continued)
<TABLE>
Issued Percentage
Place of ordinary of equity
incorporation/ share capital/ attributable
registration registered to the Company Principal
Name and operations capital Directly Indirectly activities
-------------- -------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Guang Zhou Anwell People's HK$31,000,000 - 90 Manufacture and
Moulding Industries Republic (note) sale of cassette
shells, compact
Limited of China disc boxes and
("GZ Anwell") norelco boxes
Harmonic (Holdings) British Virgin US$1,000 100 - Investment
Limited Islands holding
Harmonic Hall Optical Hong Kong HK$100 HK$100 95 - Duplication,
Disc Limited (note) loading, packing
("Harmonic Optical and sale of
Disc") audio cassette
tapes, compact
discs and
laser discs
City Laser & Video Hong Kong HK$2 - 100 Production,
Company Limited distribution
and trading of
video cassette
tapes, laser discs,
video compact
discs & digital
video discs
Tap Investment Limited Hong Kong HK$9,002 100 - Property
investment
Harmonic Hall British Virgin US$1 100 - Dormant
International Limited Islands
Rich Union British Virgin US$1,000 100 - Investment
International Limited Islands holding
Kiat Koon Limited British Virgin US$1 - 100 Trading of
Islands compact discs boxes
</TABLE>
28
<PAGE>
HARMONIC HALL INVESTMENT HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 1999
24. DETAILS OF SUBSIDIARIES (continued)
<TABLE>
<CAPTION>
Issued Percentage
Place of ordinary of equity
incorporation/ share capital/ attributable
registration registered to the Company Principal
Name and operations capital Directly Indirectly activities
<S> <C> <C> <C> <C> <C>
Siam Orchid British Virgin US$1 - 95 Trading of
compact discs
International Limited Islands
Harmonic Hall Hong Kong HK$2 - 95 Production,
Recordable Media distribution and
Limited trading of
rewritable
compact discs
Rosedale Studio People's RMB 800,000 - 100 Production,
Company Limited Republic (note) distribution and
("Rosedale") of China trading of audio
& video products
</TABLE>
In 1998, the Company's subsidiaries, New City Laser & Video Company Limited and
United Basic Laser & Video Company Limited, had applied for voluntarily
liquidation.
Note: During the year, the Group had acquired an additional interests of 10%,
2% and 20% in GZ Anwell, Harmonic Optical Disc and Rosedale,
respectively.
25. COMPARATIVE AMOUNTS
Certain comparative amounts have been reclassified to conform with the current
year's presentation,
26. APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements were approved by the board of directors on
31 March 2000.
29
