SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A5
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 31, 2000
MORROW SNOWBOARDS, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Oregon 0-27002 93-1011046
-------------------------------- --------------------- --------------------
(State or other jurisdiction of (Commission File No.) (I.R.S. Employer
incorporation or organization) Identification No.)
599 Menlo Drive, Suite 200
Rocklin, California 95765
(916) 315-2020
-------------------------------------------------------------
(Address and telephone number of principal executive offices)
Item 2. Acquisition of Disposition of Assets
On February 1, 2000, Morrow Snowboards, Inc., doing business as Granite Bay
Technologies (the "Company") filed a Current Report on Form 8-K disclosing its
acquisition of International DisplayWorks, Inc., a Delaware corporation ("IDW")
on January 31, 2000, and the Company's loan to IDW to finance the acquisition of
MULCD Microelectronics Company Ltd. and IDW Shenzhen Technology Development
Company Ltd., two companies organized and under the laws of the Peoples Republic
of China (collectively the "PRC Companies").
At the time of the Current Report, and as amended on four prior occasions on
Form 8-K/As, filed on February 16, 2000, February 24, 2000, and March 31, 2000,
the Company noted that it was unable to file the audited financial statements of
the PRC Companies due to additional time required by the auditors to test the
subsidiaries books and accounts. The Company has now received those audited
financial statements and is filing them herewith.
<PAGE>2
Item 7. Financial Statements, Pro Forma Financial Information, and Exhibits
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
(1) Financial statements of Vikay Science & Technology
Development (Shenzhen) Co. Ltd. for the years ended December
31, 1997, 1998, and 1999 are attached hereto as pages
F-1 - F-52.
(2) Financial statements of MULCD Microelectronics (Shenzhen)
Co. Ltd. for the years ended December 31, 1997, 1998, and
1999 are attached hereto as pages F-53 - F-95.
(b) PRO FORMA FINANCIAL INFORMATION
(1) Unaudited pro forma condensed consolidated financial
information is attached hereto as pages F-96 - F-101.
(c) EXHIBITS
Exhibit No. Exhibit Description
1. Placement Agent Agreement dated January 13, 2000 between the
Company and CBS (Incorporated by reference to Form 8-K/A filed
February 15, 2000).
99.13 Securities Purchase Agreement, effective as of January 31, 2000,
among Morrow Snowboards, Inc. and the Sellers (Incorporated by
reference to Form 8-K/A1 filed February 16, 2000).
99.14 Sale and Purchase Agreement [February 1, 2000] among Vikay
Industrial Ltd., Vikay Industrial (Hong Kong) Ltd. and
International DisplayWorks, Inc. (Incorporated by reference to
Form 8-K/A2 filed February 16, 2000).
99.15 Supplemental Deed and Charge, dated [February 1, 2000]
between International DisplayWorks (Hong Kong) Ltd. and
International DisplayWorks, Inc., as Chargors, and Vikay
Industrial Ltd. (in Judicial Management) and Vikay Industrial
(Hong Kong) Ltd., as Chargees (Incorporated by reference to Form
8-K/A2 filed February 16, 2000).
<PAGE>3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: July 17, 2000 MORROW SNOWBOARDS, INC.
an Oregon Corporation
/s/ P. BLAIR MULLIN
--------------------------------------
P. Blair Mullin, President and C.F.O.
(Principal Executive Officer and
Principal Financial and Principal
Accounting Officer)
<PAGE>F-1
Audited Financial Statements
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
(Registered in the People's Republic of China with limited liability)
31 December 1997
ERNST & YOUNG
HONG KONG
<PAGE>F-2
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
CONTENTS
Pages
REPORT OF THE AUDITORS 1 - 2
AUDITED FINANCIAL STATEMENTS
Profit and loss account 3
Balance sheet 4
Cash flow statement 5
Notes to financial statements 6 - 14
<PAGE>F-3
REPORT OF THE AUDITORS
To the members
Vikay Science & Technology Development (Shenzhen) Co., Ltd.
(Registered in the People's Republic of China with limited liability)
We have audited the financial statements on pages 3 to 14 which have been
prepared in accordance with the basis of presentation as set out in note 1 to
the financial statements.
Respective responsibilities of directors and auditors
-----------------------------------------------------
The Company's directors are responsible for the preparation of financial
statements which give a true and fair view. In preparing 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 financial statements. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis for
our opinion.
Fundamental uncertainty
-----------------------
In forming our opinion, we have considered the adequacy of the disclosures made
in the financial statements concerning the basis of their preparation by the
directors. As further explained in note 1 to the financial statements, the
ability of the Company to meet its liabilities as they fall due is dependent on
(i) the availability of the financial support from Vikay Industrial Limited, the
Company's holding company incorporated in Singapore, which has been under
judicial management since 6 December 1997, pursuant to a judgment issued by the
High Court of Singapore; (ii) the ability of the holding company to repay its
amount due to the Company of US$19,883,684; and (iii) the ability of the fellow
subsidiaries, namely MULCD Micro Electronic (Shenzhen) Co., Ltd. and Vickman
International Limited which are also relying on the availability of the
financial support from the Company's holding company, to repay their amounts due
to the Company totally US$10,470,420. The financial statements have been
prepared on a going concern basis, the validity of which depends upon the
availability of future continued funding. The financial statements do not
include any adjustments that would result from the inability of Vikay Industrial
Limited to provide such financial support and/or repay the above debt. We
consider that appropriate disclosures have been made.
<PAGE>F-4
REPORT OF THE AUDITORS (continued)
Qualified opinion: Disclaimer on view given by financial statements
-------------------------------------------------------------------
Because of the significance of the possible effects of the fundamental
uncertainty relating to the going concern basis as set out above, we are unable
to form an opinion as to whether the financial statements give a true and fair
view of the state of affairs of the Company as at 31 December 1998 or its loss
and cash flows for the year ended 31 December 1997 in accordance with the basis
of presentation as set out in note 1 to the financial statements.
In respect alone of the availability of continued financial support to the
Company, we have not obtained all the information and explanations that we
considered necessary for the purposes of our audit.
Hong Kong
13 April 1999
<PAGE>F-5
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
PROFIT AND LOSS ACCOUNT
Year ended 31 December 1997
<TABLE>
<CAPTION>
1997 1996
Notes US$ US$
----- ---------- ----------
<S> <C> <C> <C>
TURNOVER 4 53,286,086 10,949,834
OPERATING PROFIT/(LOSS) BEFORE
EXCEPTIONAL ITEM 5 (1,783,349) 517,572
Exceptional item 6 (3,039,177) -
OPERATING PROFIT/(LOSS) BEFORE TAXATION (4,822,526) 517,572
Taxation 7 - -
---------- ----------
NET PROFIT/(LOSS) FOR THE YEAR (4,822,526) 517,572
Retained profit at the beginning of year 517,572 -
---------- ----------
RETAINED PROFITS/ACCUMULATED LOSSES)
AT END OF YEAR 14 (4,304,954) 517,572
========== ==========
</TABLE>
<PAGE>F-6
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
BALANCE SHEET
Year ended 31 December 1997
<TABLE>
<CAPTION>
1997 1996
Notes US$ US$
----- ----------- ----------
<S> <C> <C> <C>
NON-CURRENT ASSETS 8 12,826,668 11,354,304
DEFERRED EXPENSES 9 3,205,469 4,011,773
GOODWILL 10 445,207 573,299
CURRENT ASSETS
Cash and bank balances 781,077 41,425
Deposits and other receivables 83,398 2,354,717
Inventories 11 7,509,465 10,674,685
Due from a related company 12 - 4,905
Due from fellow subsidiaries 3 10,470,420 1,695,814
Due from holding company 3 19,883,684 6,085,151
----------- ----------
38,728,044 20,856,697
----------- ----------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 3,286,275 1,044,233
Due to fellow subsidiaries 3 50,050,898 29,234,268
----------- ----------
53,337,173 30,278,501
----------- ----------
NET CURRENT LIABILITIES (14,609,129) (9,421,804)
----------- ----------
1,868,215 6,517,572
=========== ==========
SHAREHOLDERS' EQUITY
Paid-up capital 13 6,000,000 6,000,000
Reserves 14 (4,131,785) 517,572
----------- ----------
1,868,215 6,517,572
=========== ==========
</TABLE>
------------------------------------- -------------------------------------
Director Director
<PAGE>F-7
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
CASH FLOW STATEMENT
Year ended 31 December 1997
<TABLE>
<CAPTION>
1997 1996
Notes US$ US$
----- ---------- ----------
<S> <C> <C> <C>
NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES 15(a) 4,263,568 5,452,127
INVESTING ACTIVITIES
Purchases of fixed assets (3,592,652) (6,820,920)
Increase in deferred expenses - (1,850,874)
Proceeds on disposal of fixed assets 67,636 -
---------- ----------
Net cash outflow from investing activities (3,525,016) (8,671,794)
---------- ----------
NET CASH INFLOW/(OUTFLOW) BEFORE
FINANCING ACTIVITIES 738,552 (3,219,667)
FINANCING ACTIVITIES
Injection of capital - 3,200,000
---------- ----------
Net cash inflow from financing activities - 3,200,000
---------- ----------
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS 738,552 (19,667)
Cash and cash equivalents at beginning of year 41,425 61,092
Effect of foreign exchange rate changes, net 1,100 -
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR 781,077 41,425
========== ==========
ANALYSIS OF BALANCES OF CASH AND CASH
EQUIVALENTS
Cash and bank balances 781,077 41,425
========== ==========
</TABLE>
<PAGE>F-8
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1997
1. BASIS OF PRESENTATION
These non-statutory financial statements have been prepared in accordance
with Hong Kong Statement of Standard Accounting Practice, accounting
principles generally accepted in Hong Kong and the disclosure requirements
of the Hong Kong Companies Ordinance.
These financial statements are prepared on the presumption that the Company
will continue to operate as a going concern notwithstanding that the
Company had net current liabilities at the balance sheet date. The ability
of the Company to meet its liabilities as they fall due is dependent on (i)
the availability of the financial support from Vikay Industrial Limited,
the Company's holding company, which was placed under Judicial Management
on 6 December 1997, to the Company, and (ii) the recoverability of the
amount due from VIL of US$19,883,684, and amounts due from MULCD Micro
Electronics (Shenzhen) Co. Ltd. and Vickman International Limited, fellow
subsidiaries of the Company totaling US$10,470,420. The directors believe
that with the availability of continued financial support upon the
successful restructuring of Vikay Industrial Limited through future actions
taken by the judicial managers, the Company will have sufficient working
capital for its current requirements and the financial statements have been
prepared on a going concern basis.
2. DETAILS OF FORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Details of formation
The Company was formed under the Laws of the People's Republic of China as
a wholly-owned foreign enterprise on 23 May 1995. The tenure of the Company
is for a period of fifty years and can be extended by the board of
directors with the approval of the relevant authorities.
Fixed assets and depreciation
Fixed assets are stated at cost 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 capitalized as
an additional cost of the fixed asset.
Depreciation is calculated on the straight-line basis to write off the cost
of each asset (less an estimated residual value of 10% of cost) over its
estimated useful life. The useful lives used for this purpose are as
follows:
<PAGE>F-9
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1997
2. DETAILS OF FORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Leasehold land and buildings 30 years
Furniture, fittings and leasehold improvements 5 - 10 years
Office equipment and computers 5 years
Plant and machinery 5 - 10 years
The gain or loss on disposal or retirement of a fixed asset recognized in
the profit and loss account is the difference between the sales proceeds
and the carrying amount of the relevant asset.
Deferred expenses
Deferred expenses represent production expenses and trading expenses
incurred during the initial set-up stage. They are amortized on the
straight-line basis over a period of five years starting from the
commencement date of commercial production.
Goodwill
Goodwill represents the excess of the purchase consideration paid for the
branches over the fair value ascribed to the net underlying assets acquired
and is amortized on the straight-line basis over five years.
Revenue
Revenue is recognized when it is probable that the economic benefits will
flow to the Company and when the revenue can be measured reliably. Revenue
arising from the sale of goods are recognized when the significant risks
and rewards of ownership have been transferred to the buyers.
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.
Inventories
Inventories are stated at the lower of cost and net realizable 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 labor and
an appropriate proportion of overheads. Net realizable value is based on
estimated selling prices less any estimated costs to be incurred to
completion and disposal.
<PAGE>F-10
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1997
2. DETAILS OF FORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Foreign currency transactions
The Company's financial records are maintained in Renminbi ("RMB") and the
financial statements are stated in United States dollars.
Foreign currency transactions are recorded at the applicable 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 applicable rates of exchange ruling at that date. Exchange
differences are dealt with in the profit and loss account.
In the translation of the financial statements to United States dollars,
all assets and liabilities, except the equity accounts, are translated to
United States dollars at the applicable rates of exchange ruling at the
balance sheet date. The owner's equity is translated at historical rates.
All exchange differences arising on translation are recorded in the
exchange fluctuation reserve, which is shown as a component of the equity
accounts.
Cash equivalents
Cash equivalents represent short term liquid investments which are readily
convertible into known amounts of cash and which were within three months
of maturity when required, less advances from banks repayable within three
months from the date of the advance.
3. CORPORATE AFFILIATION
The Company is a wholly-owned subsidiary of Vikay Industrial Limited, a
company incorporated in Singapore and listed on the Stock Exchange of
Singapore Dealing and Automated Quotation System, which is considered by
the directors to be the Company's ultimate holding company.
A portion of the Company's business is represented by transactions to which
other members of the Vikay Industrial Limited group are parties and these
financial statements reflect the effect of these transactions which are
conducted on the bases determined within the group.
The balances with group companies are unsecured, interest-free and have no
fixed terms of repayment.
4. TURNOVER
Turnover represents the invoiced value of goods sold, net of discounts and
returns.
<PAGE>F-10
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1997
5. OPERATING PROFIT/(LOSS) BEFORE EXCEPTIONAL ITEM
Operating profit/(loss) before exceptional item is arrived at after
charging/(crediting):
1997 1996
US$ US$
--------- --------
Directors' remuneration:
Fees - -
Other emoluments - -
Amortization of goodwill 143,325 143,325
Amortization of deferred expenses 912,897 240,634
Depreciation 1,052,589 516,430
Less: capitalized as deferred expenses - (211,746)
--------- --------
1,052,589 304,684
--------- --------
Operating lease rentals on land and buildings 315,128 194,197
Less: capitalized as deferred expenses - (58,894)
--------- --------
315,128 135,213
--------- --------
Loss on disposal of fixed assets 467,219 67,337
Exchange (gain)/losses, net (548,802) 248,279
========= ========
6. EXCEPTIONAL ITEM
Exception item represents provision for obsolete stocks.
7. TAXATION
No provision for profits tax has been made as the Company has no assessable
income in any relevant jurisdiction (1996: Nil).
<PAGE>F-11
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1997
8. FIXED ASSETS
<TABLE>
<CAPTION>
Furniture, Office
fittings and equipment
Construction Leasehold leasehold and Plant and
in progress land and improvements computers machinery Subtotal
US$ buildings US$ US$ US$ US$ US$ Total US$
---------- --------- --------- ------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cost:
At 1 January 1997 3,827,439 2,583,018 416,371 243,418 5,186,088 8,428,895 12,256,334
Additions 1,851,311 - 12,486 187,90 1,541,665 1,741,341 3,592,652
Disposals - - - (35,640) (607,518) (643,158) (643,158)
Transferred from CIP (4,820,264) - 3,237,895 5,918 1,576,451 4,820,264 -
Transferred to group
company (834,527) - - - - - (834,527)
Exchange difference 101,695 68,631 11,062 6,467 137,795 223,955 325,650
---------- --------- --------- ------- --------- ---------- ----------
At 31 December 1997 125,654 2,651,649 3,677,814 407,353 7,834,481 14,571,297 14,696,951
---------- --------- --------- ------- --------- ---------- ----------
Accumulated depreciation:
At 1 January 1997 - 97,151 121,418 70,061 613,400 902,030 902,030
Charge for the year - 89,095 377,206 52,668 533,620 1,052,589 1,052,589
Disposals - - - (377) (107,926) (108,303) (108,303)
Exchange difference - 2,582 3,226 1,861 16,298 23,967 23,967
At 31 December 1997 188,828 501,850 124,213 1,055,392 1,870,283 1,870,283
---------- --------- --------- ------- --------- ---------- ----------
Net book value:
At 31 December 1997 125,654 2,462,821 3,175,964 283,140 6,779,809 12,701,014 12,826,668
========== ========= ========= ======= ========= ========== ==========
At 31 December 1996 3,827,439 2,485,867 294,953 173,357 4,572,688 7,526,865 11,354,304
========== ========= ========= ======= ========= ========== ==========
</TABLE>
The land and buildings are situated in the People's Republic of China and are
held under a medium term lease.
<PAGE>F-12
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1997
9. DEFERRED EXPENSES
US$
Cost:
At beginning of year 4,476,657
Additions -
Exchange adjustments 118,945
---------
At 31 December 1997 4,595,602
---------
Accumulated amortization:
At beginning of year 464,884
Provided during the year 912,897
Exchange adjustments 12,352
---------
At 31 December 1998 1,390,133
---------
Net book value:
At 31 December 1997 3,205,469
=========
At 31 December 1996 4,011,773
=========
10. GOODWILL
US$
Cost:
At beginning of year 716,624
Exchange adjustments 19,041
-------
At 31 December 1997 735,665
-------
Accumulated amortization:
At beginning of year 143,325
Provided during the year 143,325
Exchange adjustments 3,808
-------
At 31 December 1997 290,458
-------
Net book value:
At 31 December 1997 445,207
=======
At 31 December 1996 573,299
=======
<PAGE>F-13
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1997
11. INVENTORIES
1997 1996
US$ US$
Raw materials 4,140,433 3,275,991
Work in progress 1,812,760 5,845,601
Finished goods 1,556,272 1,553,093
--------- ----------
7,509,465 10,674,685
========= ==========
12. DUE FROM A RELATED COMPANY
The amount due from a related company is unsecured, interest-free and has
no fixed terms of repayment.
13. PAID-UP CAPITAL
1997 1996
US$ US$
Registered capital 6,000,000 6,000,000
========= =========
Paid-up capital 6,000,000 6,000,000
========= =========
At 31 December 1997, the paid-up capital was validated by the PRC Certified
Public Accountants.
14. RESERVES
Retained
profits/ Exchange
(accumulated fluctuation
losses) reserve Total
US$ US$ US$
At beginning of year 517,572 - 517,572
Net profit for the year (4,822,526) - (4,822,526)
Exchange adjustments - 173,169 173,169
---------- ------- -----------
(4,304,954) 173,169 (4,131,785)
========== ======= ==========
<PAGE>F-14
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1997
15. NET CASH INFLOW FROM OPERATING ACTIVITIES
(a) Reconciliation of operating profit/(loss) before taxation to net cash
inflow from operating activities:
<TABLE>
<CAPTION>
1997 1996
US$ US$
<S> <C> <C>
Operating profit/(loss) before taxation (4,822,526) 517,572
Provision for obsolete stock 3,039,177 -
Depreciation 1,052,589 516,430
Amortization of deferred expenses 912,897 240,634
Amortization of goodwill 143,325 143,325
Loss on disposal of fixed assets 467,219 67,337
Decrease/(increase) in deposits and other receivables 2,333,883 (661,756)
Decrease/(increase) in inventories 409,669 (9,904,051)
Decrease in due from a related company 5,035 (85)
Movement in balances with fellow subsidiaries 12,144,853 19,843,019
Increase in due from ultimate holding company (13,636,850) (6,085,151)
Increase in accounts payable and accrued liabilities 2,214,297 774,853
----------- ----------
Net cash inflow from operating activities 4,263,568 5,452,127
=========== ==========
</TABLE>
(b) Major non-cash transactions
During the year, the Company transferred fixed assets amounting to US
$834,527 to a fellow subsidiary. The consideration was settled through
intercompany current accounts.
<PAGE>F-15
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1997
16. COMMITMENTS
1997 1996
US$ US$
Capital commitments:
Contracted for 396,793 1,759,238
======= =========
Non-cancellable operating lease commitments in
respect of:
Land and buildings expiring:
Within one year 16,848 16,941
In the second to fifth years, inclusive 291,218 -
After five years 1,159
Motor vehicle expiring:
Within one year 49,034 -
In the second to fifth years, inclusive 19,324 -
After five years - -
======= =========
377,583 16,941
======= =========
17. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved by the board of directors on 13
April 1999.
<PAGE>F-16
Audited Financial Statements
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
(Registered in the People's Republic of China with limited liability)
31 December 1998
ERNST & YOUNG
HONG KONG
<PAGE>F-17
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
CONTENTS
Pages
REPORT OF THE AUDITORS 1 - 2
AUDITED FINANCIAL STATEMENTS
Profit and loss account 3
Statement of recognized gains and losses 4
Balance sheet 5
Cash flow statement 6
Notes to financial statements 7 - 17
<PAGE>F-18
REPORT OF THE AUDITORS
To the members
Vikay Science & Technology Development (Shenzhen) Co., Ltd.
(Registered in the People's Republic of China with limited liability)
We have audited the financial statements on pages 3 to 15 which have been
prepared in accordance with the basis of presentation as set out in note 3 to
the financial statements.
Respective responsibilities of directors and auditors
-----------------------------------------------------
The Company's directors are responsible for the preparation of financial
statements which give a true and fair view. In preparing 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 financial statements. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis for
our opinion.
Fundamental uncertainty
-----------------------
In forming our opinion, we have considered the adequacy of the disclosures made
in the financial statements concerning the basis of their preparation by the
directors. As further explained in note 3 to the financial statements, the
ability of the Company to meet its liabilities as they fall due is dependent on
(i) the availability of the financial support from Vikay Industrial Limited
("VIL"), the Company's ultimate holding company incorporated in Singapore, which
has been under judicial management since 6 December 1997, pursuant to a judgment
issued by the High Court of Singapore; (ii) the ability of VIL to repay its
amount due to the Company of US$16,817,351; and (iii) the ability of the fellow
subsidiaries, namely MULCD Micro Electronic (Shenzhen) Co., Ltd. and Vickman
International Limited which are also relying on the availability of the
financial support from VIL, to repay their amounts due to the Company totally
US$18,020,731. The financial statements have been prepared on a going concern
basis, the validity of which depends upon the availability of future continued
funding. The financial statements do not include any adjustments that would
result from the inability of VIL to provide such financial support and/or repay
the above debt. We consider that appropriate disclosures have been made.
<PAGE>F-19
REPORT OF THE AUDITORS (continued)
Qualified opinion: Disclaimer on view given by financial statements
-------------------------------------------------------------------
Because of the significance of the possible effects of the fundamental
uncertainty relating to the going concern basis as set out above, we are unable
to form an opinion as to whether the financial statements give a true and fair
view of the state of affairs of the Company as at 31 December 1998 or its loss
and cash flows for the year then ended in accordance with the basis of
presentation as set out in note 3 to the financial statements.
In respect alone of the availability of continued financial support to the
Company, we have not obtained all the information and explanations that we
considered necessary for the purposes of our audit.
Hong Kong
[date]
<PAGE>F-20
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
PROFIT AND LOSS ACCOUNT
Year ended 31 December 1998
<TABLE>
<CAPTION>
Notes 1998 1997
US$ US$
----------- -----------
<S> <C> <C> <C>
TURNOVER 6 38,889,470 53,286,086
Cost of sales (38,530,456) (51,605,962)
----------- -----------
Gross profit 359,014 1,680,124
Other income 497,757 105,216
Administrative expenses (2,647,443) (2,655,792)
Other operating expenses (610,224) (3,039,177)
----------- -----------
OPERATING LOSS BEFORE TAX 7 (2,400,896) (3,909,629)
Tax 8 - -
----------- -----------
NET LOSS FOR THE YEAR (2,400,896) (3,909,629)
Accumulated losses at the beginning of year 13 (7,403,830) (3,494,201)
----------- -----------
ACCUMULATED LOSSES AT END OF YEAR 13 (9,804,726) (7,403,830)
=========== ===========
</TABLE>
<PAGE>F-21
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
STATEMENT OF RECOGNIZED GAINS AND LOSSES
Year ended 31 December 1998
<TABLE>
<CAPTION>
Notes 1998 1997
US$ US$
---------- ----------
<S> <C> <C> <C>
Exchange gain on translation of the financial statements 13 - 66,576
Net loss for the year (2,400,896) (3,909,629)
---------- ----------
Total recognized losses (2,400,896) (3,843,053)
========== ==========
Effect of change in accounting policy:
Increase in accumulated losses at 1 January 1997 (4,011,773)
Decrease in loss for the year ended 31 December 1997 912,897
----------
Net adjustment to the accumulated losses as at 31 December 1997 (3,098,876)
==========
</TABLE>
<PAGE>F-22
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
BALANCE SHEET
Year ended 31 December 1998
<TABLE>
<CAPTION>
Notes 1998 1997
US$ US$
----------- -----------
<S> <C> <C> <C>
NON-CURRENT ASSETS
Fixed assets 9 9,889,755 12,826,668
Goodwill 10 - 445,207
----------- -----------
9,889,755 13,271,875
----------- -----------
CURRENT ASSETS
Due from ultimate holding company 5 16,817,351 19,883,684
Due from fellow subsidiaries 5 18,036,550 10,470,420
Inventories 11 738,922 7,509,465
Deposits and other receivables 111,786 83,398
Cash and bank balances 142,553 781,077
----------- -----------
35,847,162 38,728,044
----------- -----------
CURRENT LIABILITIES
Due to fellow subsidiaries 5 48,205,160 50,050,898
Accounts payable and accrued liabilities 1,269,907 3,286,275
----------- -----------
49,475,067 53,337,173
----------- -----------
NET CURRENT LIABILITIES (13,627,905) (14,609,129)
----------- -----------
(3,738,150) (1,337,254)
=========== ===========
CAPITAL AND RESERVES
Paid-up capital 12 6,000,000 6,000,000
Reserves 13 (9,738,150) (7,337,254)
----------- -----------
(3,738,150) (1,337,254)
=========== ===========
</TABLE>
------------------------------------- -------------------------------------
Director Director
<PAGE>F-23
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
CASH FLOW STATEMENT
Year ended 31 December 1998
<TABLE>
<CAPTION>
Note 1998 1997
US$ US$
-------- ----------
<S> <C> <C> <C>
NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES 14(a) (398,342) 4,263,568
INVESTING ACTIVITIES
Purchases of fixed assets (398,818) (3,592,652)
Proceeds on disposal of fixed assets 158,636 67,636
-------- ----------
Net cash outflow from investing activities (240,182) (3,525,016)
-------- ----------
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS (638,524) 738,552
Cash and cash equivalents at beginning of year 781,077 41,425
Effect of foreign exchange rate changes, net - 1,100
-------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR 142,553 781,077
======== ==========
ANALYSIS OF BALANCES OF CASH AND CASH
EQUIVALENTS
Cash and bank balances 142,553 781,077
======== ==========
</TABLE>
<PAGE>F-24
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
1. CORPORATE INFORMATION
The registered office of Vikay Science & Technology Development (Shenzhen)
Co., Ltd. is 102 Li Jia Road, Heng Gang, Leng Gang Zone, Shenzhen, China.
During the year, the Company was engaged in the manufacturing and the
trading of electronic components.
2. IMPACT OF NEW STATEMENTS OF STANDARD ACCOUNTING PRACTICE ("SSAPS")
The following sets out the Accounting Standards which have been adopted for
the first time in the preparation of the current year's financial
statements, together with a summary of their major effects.
o SSAP 1:Presentation of Financial Statements
o SSAP 2:Net Profit or Loss for the Period, Fundamental Errors and
Changes in Accounting Policies
SSAP 1 prescribes the basis for the presentation of financial statements
and sets out guidelines for their structure and minimum requirements for
the content therein. The formats of the profit and loss account and the
balance sheets, as set out on pages 3 and 5, respectively, have been
revised in accordance with the SSAP, and a statement of recognized gains
and losses, not previously required, is included on page 4. Additional
disclosures as required are included in the supporting notes to the
financial statements.
SSAP 2 prescribes the classification, disclosure and accounting treatment
of certain items in the profit and loss account, and specifies the
accounting treatment for changes in accounting estimates, changes in
accounting policies and the correction of fundamental errors. The principal
impact of the SSAP on the preparation of these financial statements is that
exceptional items, previously disclosed on the face of the profit and loss
account, are now primarily disclosed by way of a note (note 7 to the
financial statements) and are no longer specifically referred to as
"exceptional."
3. BASIS OF PRESENTATION
These non-statutory financial statements have been prepared in accordance
with Hong Kong Statement of Standard Accounting Practice, accounting
principles generally accepted in Hong Kong and the disclosure requirements
of the Hong Kong Companies Ordinance. They have been prepared under the
historical cost convention.
These financial statements are prepared on the presumption that the Company
will continue to operate as a going concern notwithstanding that the
Company had net current liabilities at the balance sheet date. The ability
of the Company to meet its liabilities as they fall due is dependent on
<PAGE>F-25
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
3. BASIS OF PRESENTATION (continued)
(i) the availability of the financial support from Vikay Industrial Limited
("VIL"), the Company's holding company, which was placed under Judicial
Management on 6 December 1997, to the Company, and (ii) the recoverability
of the amount due from VIL of US$16,817,351, and amounts due from MULCD
Micro Electronics (Shenzhen) Co. Ltd. and Vickman International Limited,
fellow subsidiaries of the Company totaling US$18,020,731. The directors
believe that with the availability of continued financial support upon the
successful restructuring of VIL through future actions taken by the
judicial managers, the Company will have sufficient working capital for its
current requirements and the financial statements have been prepared on a
going concern basis.
A reconciliation of the profit and loss account and certain balance sheet
item between these non-statutory financial statements and the financial
statements if prepared in accordance with accounting principles generally
accepted in the United States of America has been set out in the
supplementary information section, which does not form part of the audited
financial statements of the Company.
4. DETAILS OF FORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Details of formation
The Company was formed under the Laws of the People's Republic of China as
a wholly-owned foreign enterprise on 23 May 1995. The tenure of the Company
is for a period of fifty years and can be extended by the board of
directors with the approval of the relevant authorities.
Fixed assets and depreciation
Fixed assets are stated at cost 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 capitalized as
an additional cost of the fixed asset.
Depreciation is calculated on the straight-line basis to write off the cost
of each asset (less an estimated residual value of 10% of cost) over its
estimated useful life. The useful lives used for this purpose are as
follows:
<PAGE>F-26
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
4. DETAILS OF FORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Leasehold land and buildings 30 years
Furniture, fittings and leasehold improvements 5 - 10 years
Office equipment and computers 5 years
Plant and machinery 5 - 10 years
The gain or loss on disposal or retirement of a fixed asset recognized in
the profit and loss account is the difference between the sales proceeds
and the carrying amount of the relevant asset.
Goodwill
Goodwill represents the excess of the purchase consideration paid for the
branches over the fair values ascribed to the net underlying assets
acquired and is amortized on the straight-line basis over five years.
Revenue recognition
Revenue is recognized when it is probable that the economic benefits will
flow to the Company 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 buyers, provided that the
Company maintains neither managerial involvement to the degree usually
associated with ownership, nor effective control over the goods sold;
(b) on the rendering of services, when the services are rendered.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost
is determined on the weighted average basis, which approximates the
first-in, first-out basis, and in the case of work in progress and finished
goods, comprises direct materials, direct labor and an appropriate
proportion of overheads. Net realizable value is based on estimated selling
prices less any estimated costs to be incurred to completion and disposal.
Foreign currencies
The Company's financial records are maintained in Renminbi ("RMB") and the
financial statements are stated in United States dollars.
<PAGE>F-27
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
4. DETAILS OF FORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Foreign currency transactions are recorded at the applicable 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 applicable rates of exchange ruling at that date. Exchange
differences are dealt with in the profit and loss account.
In the translation of the financial statements to United States dollars,
all assets and liabilities, except the equity accounts, are translated to
United States dollars at the applicable rates of exchange ruling at the
balance sheet date. The owner's equity is translated at historical rates.
All exchange differences arising on translation, if any, are recorded in
the exchange fluctuation reserve, which is shown as a component of the
equity accounts.
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.
Cash equivalents
For the purpose of the cash flow statement, cash equivalents represent
short term highly liquid investments which are readily convertible into
known amounts of cash and which were within three months of maturity when
required, less advances from banks repayable within three months from the
date of the advance. For the purpose of balance sheet classification cash
equivalents represents assets similar to cash, which are not restricted as
to use.
5. CORPORATE AFFILIATION
The Company is a wholly-owned subsidiary of Vikay Industrial Limited, a
company incorporated in Singapore and listed on the Stock Exchange of
Singapore Dealing and Automated Quotation System, which is considered by
the directors to be the Company's ultimate holding company.
A portion of the Company's business is represented by transactions to which
other members of the Vikay Industrial Limited group are parties and these
financial statements reflect the effect of these transactions which are
conducted on the bases determined within the group.
<PAGE>F-28
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
5. CORPORATE AFFILIATION (continued)
The significant transaction during the year are summarized below:
<TABLE>
<CAPTION>
Notes 1998 1997
US$ US$
<S> <C> <C> <C>
Sales to group companies (i) (38,641,201) 53,286,086
Purchase from group companies (ii) (21,036,744) 15,643,438
Management fee received from a fellow subsidiary (iii) 449,888 105,216
Sale of fixed assets to a fellow subsidiary (iv) 1,101,751 834,527
============ ============
</TABLE>
Notes:
(i) Sales to group companies were made at prices mutually agreed between the
parties.
(ii) Purchase from group companies were made at prices mutually agreed between
the parties.
(iii)Management fee related to the provision of administrative services to a
fellow subsidiary. The management fee was mutually agreed between the
parties.
(iv) Fixed assets were disposed of at their respective net book value amounts.
The balances with group companies are unsecured, interest-free and have no
fixed terms of repayment.
6. TURNOVER
Turnover represents the invoiced value of goods sold, net of discounts and
returns.
<PAGE>F-29
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
7. OPERATING LOSS BEFORE TAX
Operating loss before tax is arrived at after charging/(crediting):
1998 1997
US$ US$
(Restated)
Directors' remuneration:
Fees - -
Other emoluments (108,592) -
Provision for obsolete stocks 312,150 3,039,177
Goodwill written off 298,074 -
Amortization of goodwill 147,133 143,325
Depreciation 1,484,176 1,052,589
Auditors' remuneration 50,121 30,000
Staff costs 675,990 669,912
Operating lease rentals on land and buildings 291,708 315,128
Loss on disposal of fixed assets 591,168 467,219
Exchange gains, net (1,682) (548,802)
========= =========
8. TAX
No provision for profits tax has been made as the Company has no assessable
income in any relevant jurisdiction (1997: Nil).
<PAGE>F-30
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
9. FIXED ASSETS
<TABLE>
<CAPTION>
Furniture, Office
fittings and equipment
Construction Leasehold leasehold and Plant and
in progress land and improvements computers machinery Subtotal
US$ buildings US$ US$ US$ US$ US$ Total US$
-------- --------- --------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cost:
At 1 January 1998 125,654 2,651,649 3,677,814 407,353 7,834,481 14,571,297 14,696,951
Additions 192,442 - 5,857 49,683 150,836 206,376 398,818
Disposals - - - - (1,059,586) (1,059,586) (1,059,586)
Transferred to and from
construction in progress (318,096) - 211,328 - 106,768 318,096 -
Transferred to group
company - - - (4,196) (1,484,906) (1,489,102) (1,489,102)
-------- --------- --------- ------- ---------- ---------- ----------
At 31 December 1998 - 2,651,649 3,894,999 452,840 5,547,593 12,547,081 12,547,081
-------- --------- --------- ------- ---------- ---------- ----------
Accumulated depreciation:
At 1 January 1998 - 188,828 501,850 124,213 1,055,392 1,870,283 1,870,283
Charge for the year - 79,549 683,267 79,571 641,789 1,484,176 1,484,176
Disposals - - - - (309,782) (309,782) (309,782)
Transferred to group
company - - - (1,474) (385,877) (387,351) (387,351)
-------- --------- --------- ------- ---------- ---------- ----------
At 31 December 1998 - 268,377 1,185,117 202,310 1,001,522 2,657,326 2,657,326
-------- --------- --------- ------- ---------- ---------- ----------
Net book value:
At 31 December 1998 - 2,383,272 2,709,882 250,530 4,546,071 9,889,755 9,889,755
======== ========= ========= ======= ========== ========== ==========
At 31 December 1997 125,654 2,462,821 3,175,964 283,140 6,779,089 12,701,014 12,896,668
======== ========= ========= ======= ========== ========== ==========
</TABLE>
The land and buildings are situated in the People's Republic of China and are
held under a medium term lease.
<PAGE>F-31
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
10. GOODWILL
US$
Cost:
At beginning of year 735,665
Goodwill written off (298,074)
At 31 December 1998 437,591
--------
Accumulated amortization:
At beginning of year 290,458
Provided during the year 147,133
At 31 December 1998 437,591
--------
Net book value:
At 31 December 1998 -
========
At 31 December 1997 445,207
========
11. INVENTORIES
1998 1997
US$ US$
Raw materials 625,673 4,140,433
Work in progress 78,863 1,812,760
Finished goods 34,386 1,556,272
------- ---------
738,922 7,509,465
======= =========
12. PAID-UP CAPITAL
1998 1997
US$ US$
Registered capital 6,000,000 6,000,000
========= =========
Paid-up capital 6,000,000 6,000,000
========= =========
At 31 December 1998, the paid-up capital was validated by the PRC Certified
Public Accountants.
<PAGE>F-32
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
13. RESERVES
Exchange
Accumulated fluctuation
losses reserve Total
US$ US$ US$
At beginning of year
As previous reported (4,304,954) 173,169 (4,131,785)
Prior year adjustment (3,098,876) (106,593) (3,205,469)
---------- -------- ----------
As restated (7,403,830) 66,576 (7,337,254)
Net loss for the year (2,400,896) - (2,400,896)
---------- -------- ----------
(9,804,726) 66,576 (9,738,150)
========== ======== ==========
In prior year, deferred expenses were stated at cost and amortized on the
straight-line basis over a period of five years starting form the
commencement date of commercial production. After the implementation of
Interpretation 9 "Accounting for pre-operating costs," these deferred
expenses are now written off to the profit and loss account in the period
in which they are incurred. In applying the new accounting policy, the loss
for the year was decreased by US $912,897 (1997: US $912,897), representing
the amortization of deferred expenses for the years then ended. The
cumulative effect on prior years was to write off the deferred expenses at
31 December 1996 of US $4,011,773 to accumulated losses at 1 January 1997.
<PAGE>F-32
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
14. NOTES TO THE CASH FLOW STATEMENT
(a) Reconciliation of operating loss before tax to net cash
inflow/(outflow) from operating activities:
<TABLE>
<CAPTION>
1999 1998
US$ US$
<S> <C> <C>
Operating loss before tax (2,400,896) (3,909,629)
Provision for obsolete stock 312,150 3,039,177
Goodwill written off 298,074 -
Amortization of goodwill 147,133 143,325
Depreciation 1,484,176 1,052,589
Loss on disposal of fixed assets 591,168 467,219
Decrease/(increase) in deposits and other receivables (28,388) 2,333,883
Decrease in inventories 6,458,393 409,669
Decrease in due from a related company - 5,035
Movement in balances with fellow subsidiaries (8,310,117) 12,144,853
Decrease/(increase) in due from ultimate holding company 3,066,333 (13,636,850)
Increase/(decrease) in accounts payable and accrued liabilities (2,016,368) 2,214,297
Net cash inflow/(outflow) from operating activities (398,342) 4,263,568
========== ===========
</TABLE>
(b) Major non-cash transactions
During the year, the Company transferred fixed assets amounting to US
$1,101,751 (1997: US $834,527) to a fellow subsidiary. The
consideration was settled through intercompany current accounts.
<PAGE>F-33
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
15. COMMITMENTS
1999 1998
US$ US$
Capital commitments:
Contracted for 378,472 396,793
======= =======
Non-cancellable operating lease commitments
in respect of:
Land and buildings expiring:
Within one year 5,314 16,848
In the second to fifth years, inclusive 13,913 291,218
After five years 317,703 1,159
Motor vehicle expiring:
Within one year 45,452 49,034
In the second to fifth years, inclusive - 19,324
======= =======
382,382 377,583
======= =======
16. COMPARATIVE AMOUNTS
As further explained in note 2 to the financial statements, due to the
adoption of new SSAPs during the current year, the presentation of the
profit and loss account, the balance sheet and certain supporting notes
have been revised to comply with the new requirements. Accordingly, certain
comparative amounts have been reclassified to conform with the current
year's presentation.
17. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved by the board of directors on
________________
<PAGE>F-34
THE FOLLOWING STATEMENT DOES NOT FORM PART
OF THE AUDITED FINANCIAL STATEMENTS
OF THE COMPANY
<PAGE>F-35
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
SUPPLEMENTARY INFORMATION
31 December 1998
The Company's non-statutory financial statements are prepared in accordance with
accounting principles generally accepted in Hong Kong ("HK GAAP"), which differ
in certain significant respect from accounting principles generally accepted in
the United States of America ("US GAAP"). The difference related principally to
the following item and the estimated effect of the adjustment is set out below.
Income taxes
A reconciliation of income taxes computed at the PRC income tax rate of 15% to
the effective income tax provision recorded is as follows:
1998 1997
US$ US$
Income tax benefit computed at the PRC income tax rate (360,134) (586,444)
Non-deductible items 91,534 455,876
Benefits from operating losses not recorded 268,600 130,568
-------- --------
- -
======== ========
Significant components of the Company's deferred tax assets consist of the
following:
1998 1997
HK$ HK$
Net operating loss carry forwards 321,533 52,932
Valuation allowance (321,533) (52,932)
-------- -------
- -
======== =======
Due to its history of losses, the Company does not believe that sufficient
objective, positive evidence currently exists to conclude that recoverability of
its net deferred tax assets is more likely than not. Consequently, the Company
has provided a valuation allowance covering 100% of its net deferred tax assets.
<PAGE>F-36
Audited Financial Statements
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
(Registered in the People's Republic of China with limited liability)
31 December 1999
ERNST & YOUNG
HONG KONG
<PAGE>F-37
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
CONTENTS
Pages
REPORT OF THE AUDITORS 1 - 2
AUDITED FINANCIAL STATEMENTS
Profit and loss account 3
Balance sheet 4
Cash flow statement 5
Notes to financial statements 6 - 13
<PAGE>F-38
REPORT OF THE AUDITORS
To the members
Vikay Science & Technology Development (Shenzhen) Co., Ltd.
(Registered in the People's Republic of China with limited liability)
We have audited the financial statements on pages 3 to 13 which have been
prepared in accordance with the basis of presentation as set out in note 2 to
the financial statements.
Respective responsibilities of directors and auditors
-----------------------------------------------------
The Company's directors are responsible for the preparation of financial
statements which give a true and fair view. In preparing 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 financial statements. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis for
our opinion.
Fundamental uncertainty
-----------------------
In forming our opinion, we have considered the adequacy of the disclosures made
in the financial statements concerning the basis of their preparation by the
directors. As further explained in note 2 to the financial statements, the
ability of the Company to meet its liabilities as they fall due is dependent on
(i) the availability of the financial support from Vikay Industrial Limited
("VIL"), the Company's ultimate holding company incorporated in Singapore, which
has been under judicial management since 6 December 1997, pursuant to a judgment
issued by the High Court of Singapore; (ii) the ability of VIL to repay its
amount due to the Company of US$17,710,755; and (iii) the ability of the fellow
subsidiaries, namely MULCD Micro Electronic (Shenzhen) Co., Ltd., Vickman
International Limited and Promax Enterprises Limited which are also relying on
the availability of the financial support from VIL, to repay their amounts due
to the Company totally US$13,788,533. The financial statements have been
prepared on a going concern basis, the validity of which depends upon the
availability of future continued funding. The financial statements do not
include any adjustments that would result from the inability of VIL to provide
such financial support and/or repay the above debt. We consider that appropriate
disclosures have been made.
<PAGE>F-39
REPORT OF THE AUDITORS (continued)
Qualified opinion: Disclaimer on view given by financial statements
-------------------------------------------------------------------
Because of the significance of the possible effects of the fundamental
uncertainty relating to the going concern basis as set out above, we are unable
to form an opinion as to whether the financial statements give a true and fair
view of the state of affairs of the Company as at 31 December 1999 or its loss
and cash flows for the year then ended in accordance with the basis of
presentation as set out in note 2 to the financial statements.
In respect alone of the availability of continued financial support to the
Company, we have not obtained all the information and explanations that we
considered necessary for the purposes of our audit.
Hong Kong
27 June 2000
<PAGE>F-40
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
PROFIT AND LOSS ACCOUNT
Year ended 31 December 1999
<TABLE>
<CAPTION>
Notes 1999 1998
US$ US$
---------- -----------
<S> <C> <C> <C>
TURNOVER 5 9,396,340 38,889,470
Cost of sales (8,619,747) (38,530,456)
---------- -----------
Gross profit 776,593 359,014
Other income 511,057 497,757
Administrative expenses (1,180,765) (2,647,443)
Other operating expenses (226,220) (610,224)
---------- -----------
OPERATING LOSS BEFORE TAX 6 (119,335) (2,400,869)
Tax 7 - -
---------- -----------
NET LOSS FOR THE YEAR (119,335) (2,400,896)
Accumulated losses at the beginning of year 11 (9,804,726) (7,403,830)
---------- -----------
ACCUMULATED LOSSES AT END OF YEAR 11 (9,924,061) (9,804,726)
========== ===========
</TABLE>
Other than the net loss for the year, the Company had no recognized gains or
losses. Accordingly, a statement of recognized gains and losses is not presented
in the financial statements.
<PAGE>F-41
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
BALANCE SHEET
Year ended 31 December 1999
<TABLE>
<CAPTION>
Notes 1999 1998
US$ US$
----------- -----------
<S> <C> <C> <C>
NON-CURRENT ASSETS
Fixed assets 8 9,057,167 9,889,755
CURRENT ASSETS
Due from ultimate holding company 4 17,710,755 16,817,351
Due from fellow subsidiaries 4 13,788,533 18,036,550
Inventories 9 449,935 738,922
Accounts receivable 52,996 -
Deposits and other receivables 437,497 111,786
Cash and bank balances 157,192 142,553
----------- -----------
32,596,908 35,847,162
----------- -----------
CURRENT LIABILITIES
Due to fellow subsidiaries 4 44,157,486 48,205,160
Accounts payable and accrued liabilities 1,354,074 1,269,907
----------- -----------
45,511,560 49,475,067
----------- -----------
NET CURRENT LIABILITIES (12,914,652) (13,627,905)
----------- -----------
(3,857,485) (3,738,150)
----------- -----------
DEFICIENCY IN ASSETS
Paid-up capital 10 6,000,000 6,000,000
Reserves 11 (9,857,485) (9,738,150)
----------- -----------
(3,857,485) (3,738,150)
----------- -----------
</TABLE>
------------------------------------- -------------------------------------
Director Director
<PAGE>F-42
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
CASH FLOW STATEMENT
Year ended 31 December 1999
<TABLE>
<CAPTION>
Note 1999 1998
US$ US$
-------- --------
<S> <C> <C> <C>
NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES 12(a) 569,851 (398,342)
INVESTING ACTIVITIES
Purchases of fixed assets (555,212) (398,818)
Proceeds on disposal of fixed assets - 158,636
-------- --------
Net cash outflow from investing activities (555,212) (240,182)
-------- --------
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS 14,639 (638,524)
Cash and cash equivalents at beginning of year 142,553 781,077
-------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR 157,192 142,553
======== ========
ANALYSIS OF BALANCES OF CASH AND CASH
EQUIVALENTS
Cash and bank balances 157,192 142,553
======== ========
</TABLE>
<PAGE>F-43
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1999
1. CORPORATE INFORMATION
The registered office of Vikay Science & Technology Development (Shenzhen)
Co., Ltd. is 102 Li Jia Road, Heng Gang, Leng Gang Zone, Shenzhen, China.
During the year, the Company was engaged in the manufacturing and the
trading of electronic components.
2. BASIS OF PRESENTATION
These non-statutory financial statements have been prepared in accordance
with Hong Kong Statement of Standard Accounting Practice, accounting
principles generally accepted in Hong Kong and the disclosure requirements
of the Hong Kong Companies Ordinance. They have been prepared under the
historical cost convention.
These financial statements are prepared on the presumption that the Company
will continue to operate as a going concern notwithstanding that the
Company had deficiency in assets and net current liabilities at the balance
sheet date. The ability of the Company to meet its liabilities as they fall
due is dependent on (i) the availability of the financial support from
Vikay Industrial Limited ("VIL"), the Company's holding company, which was
placed under Judicial Management on 6 December 1997, to the Company, and
(ii) the recoverability of the amount due from VIL of US$17,710,755, and
amounts due from MULCD Micro Electronics (Shenzhen) Co. Ltd., Vickman
International Limited, and Promax Enterprises Limited, fellow subsidiaries
of the Company totaling US$13,788,533. The directors believe that with the
availability of continued financial support upon the successful
restructuring of VIL through future actions taken by the judicial managers,
the Company will have sufficient working capital for its current
requirements and the financial statements have been prepared on a going
concern basis.
A reconciliation of the profit and loss account and certain balance sheet
item between these non-statutory financial statements and the financial
statements if prepared in accordance with accounting principles generally
accepted in the United States of America has been set out in the
supplementary information section, which does not form part of the audited
financial statements of the Company.
3. DETAILS OF FORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Details of formation
The Company was formed under the Laws of the People's Republic of China as
a wholly-owned foreign enterprise on 23 May 1995. The tenure of the Company
is for a period of fifty years and can be extended by the board of
directors with the approval of the relevant authorities.
<PAGE>F-44
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1999
3. DETAILS OF FORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Fixed assets and depreciation
Fixed assets are stated at cost 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 capitalized as
an additional cost of the fixed assets.
Depreciation is calculated on the straight-line basis to write off the cost
of each asset (less an estimated residual value of 10% of cost) over its
estimated useful life. The useful lives used for this purpose are as
follows:
Leasehold land and buildings 30 years
Furniture, fittings and leasehold improvements 5 - 10 years
Office equipment and computers 5 years
Plant and machinery 5 - 10 years
The gain or loss on disposal or retirement of a fixed asset recognized in
the profit and loss account is the difference between the sales proceeds
and the carrying amount of the relevant asset.
Revenue recognition
Revenue is recognized when it is probable that the economic benefits will
flow to the Company 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 buyers, provided that the
Company maintains neither managerial involvement to the degree usually
associated with ownership, nor effective control over the goods sold;
(b) on the rendering of services, when the services are rendered.
<PAGE>F-45
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1999
3. DETAILS OF FORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost
is determined on the weighted average basis, which approximates the
first-in, first-out basis, and in the case of work in progress and finished
goods, comprises direct materials, direct labor and an appropriate
proportion of overheads. Net realizable value is based on estimated selling
prices less any estimated costs to be incurred to completion and disposal.
Foreign currencies
The Company's financial records are maintained in Renminbi ("RMB") and the
financial statements are stated in United States dollars.
Foreign currency transactions are recorded at the applicable 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 applicable rates of exchange ruling at that date. Exchange
differences are dealt with in the profit and loss account.
In the translation of the financial statements to United States dollars,
all assets and liabilities, except the equity accounts, are translated to
United States dollars at the applicable rates of exchange ruling at the
balance sheet date. The owner's equity is translated at historical rates.
All exchange differences arising on translation, if any, are recorded in
the exchange fluctuation reserve, which is shown as a component of the
equity accounts.
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.
Cash equivalents
For the purpose of the cash flow statement, cash equivalents represent
short term highly liquid investments which are readily convertible into
known amounts of cash and which were within three months of maturity when
required, less advances from banks repayable within three months from the
date of the advance. For the purpose of balance sheet classification cash
equivalents represents assets similar to cash, which are not restricted as
to use.
<PAGE>F-46
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1999
4. CORPORATE AFFILIATION
The Company is a wholly-owned subsidiary of Vikay Industrial Limited, a
company incorporated in Singapore and listed on the Stock Exchange of
Singapore Dealing and Automated Quotation System, which is considered by
the directors to be the Company's ultimate holding company.
A portion of the Company's business is represented by transactions to which
other members of the Vikay Industrial Limited group are parties and these
financial statements reflect the effect of these transactions which are
conducted on the bases determined within the group.
The significant transaction during the year are summarized below:
<TABLE>
<CAPTION>
Notes 1999 1998
US$ US$
<S> <C> <C> <C>
Sales to group companies (i) 9,396,340 38,889,340
Purchase from group companies (ii) 3,856,691 22,013,576
Management fee received from a fellow subsidiary (iii) 511,057 449,888
Sale of fixed assets to a fellow subsidiary (iv) - 1,101,751
========= ==========
</TABLE>
Notes:
(i) Sales to group companies were made at prices mutually agreed between the
parties.
(ii) Purchase from group companies were made at prices mutually agreed between
the parties.
(iii)Management fee related to the provision of administrative services to a
fellow subsidiary. The management fee was mutually agreed between the
parties.
(iv) Fixed assets were disposed of at their respective net book value amounts.
The balances with group companies are unsecured, interest-free and have no fixed
terms of repayment.
5. TURNOVER
Turnover represents the invoiced value of goods sold, net of discounts and
returns.
<PAGE>F-47
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1999
6. OPERATING LOSS BEFORE TAX
Operating loss before tax is arrived at after charging/(crediting):
1999 1998
US$ US$
Directors' remuneration:
Fees - -
Other emoluments 187,192 38,536
Provision for obsolete stocks 226,220 312,150
Goodwill written off - 298,074
Amortization of goodwill - 147,133
Depreciation 1,387,800 1,484,176
Auditors' remuneration 50,676 50,121
Staff costs 1,052,227 1,823,324
Operating lease rentals on land and buildings 116,571 291,708
Loss on disposal of fixed assets - 591,168
Exchange gains, net 59,239 (1,682)
========= =========
7. TAX
The PRC corporate income tax is provided on the estimated assessable
profits generated during the year at a rate of 15%. In accordance with the
relevant tax rules and regulations in the PRC, the Company is entitled to
an income tax exemption for two years starting from the first profitable
year, followed by a 50% reduction in tax rate for the next three years. The
Company did not generate any profits during the years and, accordingly, no
PRC income tax was accrued as at 31 December 1999 (1998: Nil).
<PAGE>F-48
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1999
8. FIXED ASSETS
<TABLE>
<CAPTION>
Furniture, Office
fittings and equipment
Construction Leasehold leasehold and Plant and
in progress land and improvements computers machinery Subtotal
US$ buildings US$ US$ US$ US$ US$ Total US$
------ --------- --------- ------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cost:
At 1 January 1999 - 2,651,649 3,894,999 452,840 5,547,593 12,547,081 12,547,081
Additions 16,881 386,664 74,861 16,699 60,107 538,331 555,212
------ --------- --------- ------- --------- ---------- ----------
At 31 December 1999 16,881 3,038,313 3,969,860 469,539 5,607,700 13,085,412 13,102,293
------ --------- --------- ------- --------- ---------- ----------
Accumulated depreciation:
At 1 January 1999 - 268,377 1,185,117 202,310 1,001,522 2,657,326 2,657,326
Charge for the year - 94,979 695,260 76,868 520,693 1,387,800 1,387,800
------ --------- --------- ------- --------- ---------- ----------
At 31 December 1999 - 363,356 1,880,377 279,178 1,522,215 4,045,126 4,045,126
------ --------- --------- ------- --------- ---------- ----------
Net book value:
At 31 December 1999 16,881 2,674,957 2,089,483 190,361 4,085,485 9,040,286 9,057,167
====== ========= ========= ======= ========= ========== ===========
At 31 December 1998 - 2,383,272 2,709,882 250,530 4,546,071 9,889,755 9,889,755
====== ========= ========= ======= ========= ========== ===========
</TABLE>
The land and buildings are situated in the People's Republic of China and
are held under a medium term lease.
9. INVENTORIES
1999 1998
US$ US$
Raw materials 382,541 625,673
Work in progress 44,317 78,863
Finished goods 23,077 34,386
======= ========
449,935 738,922
======= =======
<PAGE>F-49
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1999
10. PAID-UP CAPITAL
1999 1998
US$ US$
Registered capital 6,000,000 6,000,000
========= =========
Paid-up capital 6,000,000 6,000,000
========= =========
11. RESERVES
Exchange
Accumulated fluctuation
losses reserve Total
US$ US$ US$
At beginning of year (9,804,726) 66,576 (9,738,150)
Net loss for the year (119,335) - (119,335)
---------- ------ ----------
(9,924,061) 66,576 (9,857,485)
========== ====== ==========
12. NOTES TO THE CASH FLOW STATEMENT
(a) Reconciliation of operating loss before tax to net cash
inflow/(outflow) from operating activities:
<TABLE>
<CAPTION>
1999 1998
US$ US$
<S> <C> <C>
Operating loss before tax (119,335) (2,400,896)
Provision for obsolete stock 226,220 312,150
Goodwill written off - 298,074
Amortization of goodwill - 147,133
Depreciation 1,387,800 1,484,176
Loss on disposal of fixed assets - 591,168
Increase in deposits and other receivables (325,711) (28,388)
Increase in accounts receivable (52,996) -
Decrease in inventories 62,767 6,458,393
Movement in balances with fellow subsidiaries 200,343 (8,310,117)
Decrease/(increase) in due from ultimate holding company (893,404) 3,066,333
Increase/(decrease) in accounts payable and accrued liabilities 84,167 (2,016,368)
--------- ----------
Net cash inflow/(outflow) from operating activities 569,851 (398,342)
========= ==========
</TABLE>
<PAGE>F-50
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1999
12. NOTES TO THE CASH FLOW STATEMENT (continued)
(b) Major non-cash transactions
In prior year, the Company transferred fixed assets amounting to
US$1,101,751 to a fellow subsidiary. The consideration was settled
through intercompany current accounts.
13. COMMITMENTS
1999 1998
US$ US$
Capital commitments:
Contracted for - 378,472
======= =======
Non-cancellable operating lease commitments
in respect of:
Land and buildings expiring:
Within one year 8,357 5,314
In the second to fifth years, inclusive 27,681 13,913
After five years 233,757 317,703
Motor vehicle expiring within one year 12,862 45,452
------- -------
282,657 382,382
======= =======
14. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved by the board of directors on 27 June
2000.
<PAGE>F-51
THE FOLLOWING STATEMENT DOES NOT FORM PART
OF THE AUDITED FINANCIAL STATEMENTS
OF THE COMPANY
<PAGE>F-52
VIKAY SCIENCE & TECHNOLOGY DEVELOPMENT (SHENZHEN) CO., LTD.
SUPPLEMENTARY INFORMATION
31 December 1999
The Company's non-statutory financial statements are prepared in accordance with
accounting principles generally accepted in Hong Kong ("HK GAAP"), which differ
in certain significant respect from accounting principles generally accepted in
the United States of America ("US GAAP"). The difference related principally to
the following item and the estimated effect of the adjustment is set out below.
Income taxes
A reconciliation of income taxes computed at the PRC income tax rate of 15% to
the effective income tax provision recorded is as follows:
<TABLE>
<CAPTION>
1999 1998
US$ US$
<S> <C> <C>
Income tax benefit computed at the PRC income tax rate (17,900) (360,134)
Non-deductible items 33,933 91,534
Benefits from operating losses not recorded - 268,600
Offsetting against net operating loss brought forward (16,033) -
------- --------
- -
======= ========
</TABLE>
Significant components of the Company's deferred tax assets consist of the
following:
1999 1998
HK$ HK$
Net operating loss carry forwards 305,500 321,533
Valuation allowance (305,500) (321,533)
-------- --------
Net deferred taxes - -
======== ========
Due to its history of losses, the Company does not believe that sufficient
objective, positive evidence currently exists to conclude that recoverability of
its net deferred tax assets is more likely than not. Consequently, the Company
has provided a valuation allowance covering 100% of its net deferred tax assets.
<PAGE>F-53
Audited Financial Statements
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
(Registered in the People's Republic of China with limited liability)
7 December 1995 (date of registration) to 31 December 1997
ERNST & YOUNG
HONG KONG
<PAGE>F-54
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
CONTENTS
Pages
REPORT OF THE AUDITORS 1 - 2
AUDITED FINANCIAL STATEMENTS
Profit and loss account 3
Balance sheet 4
Notes to financial statements 5 - 9
<PAGE>F-55
REPORT OF THE AUDITORS
To the members
MULCD Micro Electronics (Shenzhen) Co., Ltd.
(Registered in the People's Republic of China with limited liability)
We have audited the financial statements on pages 3 to 8 which have been
prepared in accordance with the basis of presentation as set out in note 1 to
the financial statements.
Respective responsibilities of directors and auditors
-----------------------------------------------------
The Company's directors are responsible to prepare financial statements which
give a true and fair view. In preparing 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 financial statements. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis for
our opinion.
Fundamental uncertainty
-----------------------
In forming our opinion, we have considered the adequacy of the disclosures made
in the financial statements concerning the basis of their preparation by the
directors. As further explained in Note 1 to the financial statements, the
Company had net current liabilities as at the balance sheet date. The ability of
the Company to meet its liabilities as they fall due is dependent on the
availability of the financial support from Vikay Industrial Limited, the
Company's ultimate holding company incorporated in Singapore, which has been
under judicial management since 6 December 1997, pursuant to a judgment issued
by the High Court of Singapore. The financial statements have been prepared on a
going concern basis, the validity of which depends upon the availability of
future continued funding. The financial statements do not include any
adjustments that would result from the inability of Vikay Industrial Limited to
provide such financial support. We consider that appropriate disclosures have
been made.
<PAGE>F-56
REPORT OF THE AUDITORS
Qualified opinion: Disclaimer on view given by financial statements
-------------------------------------------------------------------
Because of the significance of the possible effects of the fundamental
uncertainty relating to the going concern basis as set out above, we are unable
to form an opinion as to whether the financial statements give a true and fair
view of the state of affairs of the Company as at 31 December 1997 or its loss
for the period from 7 December 1995 (date of registration) to 31 December 1997
in accordance with the basis of presentation as set out in note 1 to the
financial statements.
In respect alone of the availability of continued financial support to the
Company, we have not obtained all the information and explanations that we
considered necessary for the purpose of our audit.
Hong Kong
13 April 1999
<PAGE>F-57
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
PROFIT AND LOSS ACCOUNT
Year ended 31 December 1997
7 December
1995 (date of
registration) to
31 December
Notes 1997
US$
----------
TURNOVER 4 2,055,532
==========
OPERATING LOSS BEFORE TAX 5 (1,842,827)
Taxation 6 -
----------
NET LOSS FOR THE PERIOD AND ACCUMULATED LOSS
AT END OF PERIOD (1,842,827)
==========
<PAGE>F-58
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
BALANCE SHEET
Year ended 31 December 1997
1997
Notes US$
-----------
FIXED ASSETS 7 10,003,864
DEFERRED EXPENSES 8 2,348,377
CURRENT ASSETS
Inventories 9 660,616
-----------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 153,639
Due to fellow subsidiaries 3 5,745,975
Due to immediate holding company 3 5,957,467
Due to ultimate holding company 3 189,622
-----------
12,046,703
-----------
NET CURRENT LIABILITIES (11,386,087)
-----------
966,154
===========
SHAREHOLDERS' EQUITY
Paid-up capital 10 2,808,981
Accumulated losses (1,842,827)
-----------
966,154
===========
------------------------------------- -------------------------------------
Director Director
<PAGE>F-59
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1997
1. BASIS OF PRESENTATION
These non-statutory financial statements have been prepared in accordance
with Hong Kong Statement of Standard Accounting Practice, accounting
principles generally accepted in Hong Kong and the disclosure requirements
of the Hong Kong Companies Ordinance.
These financial statements are prepared on the presumption that the Company
will continue to operate as a going concern notwithstanding that the
Company had net current liabilities at the balance sheet date. The ability
of the Company to meet its liabilities as they fall due is dependent on the
availability of the financial support from Vikay Industrial Limited, the
ultimate holding company, which was placed under Judicial Management on 6
December 1997, to the Company. The directors believe that with the
availability of continued financial support upon the successful
restructuring of Vikay Industrial Limited through future actions taken by
the judicial managers, the Company will have sufficient working capital for
its current requirements and the financial statements have been prepared on
a going concern basis.
2. DETAILS OF FORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Details of formation
The Company was formed under the Laws of the People's Republic of China as
a wholly-owned foreign enterprise on 7 December 1995. The tenure of the
Company is for a period of fifteen years and can be extended by the board
of directors with the approval of the relevant authorities.
Fixed assets and depreciation
Fixed assets are stated at cost 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 capitalized as
an additional cost of the fixed asset.
Depreciation is calculated on the straight-line basis to write off the cost
of each asset (less an estimated residual value of 10% of cost) over its
estimated useful life. The useful lives used for this purpose are as
follows:
Leasehold improvements 5 years
Furniture, fittings and office equipment 5 - 10 years
Plant and machinery 5 - 10 years
<PAGE>F-60
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1997
2. DETAILS OF FORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
The gain or loss on disposal or retirement of a fixed asset recognized in
the profit and loss account is the difference between the sale proceeds and
the carrying amount of the relevant asset.
Deferred expenses
Deferred expenses represent production expenses and trading expenses
incurred during the initial set-up stage. They are amortized on the
straight line basis over a period of five years starting from the
commencement date of commercial production.
Revenue
Revenue is recognized when it is probable that the economic benefits will
flow to the Company and when the revenue can be measured reliably. Revenue
arising from the sale of goods is recognized when the significant risks and
rewards of ownership have been transferred to the buyers.
Inventories
Inventories are stated at the lower of cost and net realizable 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 labor and
an appropriate proportion of overheads. Net realizable value is based on
estimated selling prices less any estimated costs to be incurred to
completion and disposal.
Foreign currency transactions
The Company's financial records are maintained in Renminbi ("RMB") and the
financial statements are stated in United States dollars.
Foreign currency transactions are recorded at the applicable 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 applicable rates of exchange ruling at that date. Exchange
differences are dealt with in the profit and loss account.
In the translation of the financial statements to United States dollars,
all assets and liabilities, except the equity accounts, are translated to
United States dollars at the applicable rates of exchange ruling at the
balance sheet date. The owner's equity is translated at historical rates.
All exchange differences arising on translation, if any, are recorded in
the exchange fluctuation reserve, which is shown as a component of the
equity accounts.
<PAGE>F-61
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1997
3. CORPORATE AFFILIATION
The Company is a wholly-owned subsidiary of Vikay Industrial (Hong Kong)
Limited, a company incorporated in Hong Kong. Vikay Industrial Limited, a
company incorporated in Singapore and listed on the Stock Exchange of
Singapore Dealing and Automated Quotation System, is considered by the
directors to be the Company's ultimate holding company.
A portion of the Company's business is represented by transactions to which
other members of the Vikay Industrial Limited group are parties and these
financial statements reflect the effect of these transactions which are
conducted on the bases determined within the group.
The balances with group companies are unsecured, interest-free and have no
fixed terms of repayment.
4. TURNOVER
Turnover represents the invoiced value of goods sold, net of discounts and
returns.
5. OPERATING LOSS BEFORE TAXATION
Operating loss before tax is arrived at after charging:
1997
US$
Directors' remuneration:
Fees -
Other emoluments -
Depreciation 435,842
Amortization of deferred expenses 234,480
Operating lease rentals on land and buildings 37,440
========
6. TAXATION
No provision for profits tax has been made as the Company has no assessable
income in any relevant jurisdiction.
<PAGE>F-62
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1997
7. FIXED ASSETS
<TABLE>
<CAPTION>
Furniture,
fittings and
Leasehold office Plant and
improvements equipment machinery
US$ US$ US$ Total US$
<S> <C> <C> <C> <C>
Cost:
Additions during the period and at 31 December 1997 816,598 366,166 9,256,942 10,439,706
Accumulated depreciation:
Provided during the period and at 31 December 1997 61,245 27,462 347,135 435,842
------- ------- --------- ----------
Net book value:
At 31 December 1997 755,353 338,704 8,909,807 10,003,864
======= ======= ========= ==========
</TABLE>
8. DEFERRED EXPENSES
Total US$
Cost:
Additions during the period and 2,582,857
at 31 December 1997
Accumulated depreciation:
Provided during the period and
at 31 December 1997 (234,480)
---------
Net book value:
At 31 December 1997 2,348,377
=========
9. INVENTORIES
1997
US$
Raw materials 377,622
Work in progress 186,070
Finished goods 96,924
-------
660,616
=======
<PAGE>F-63
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1997
10. PAID-UP CAPITAL
1997
US$
Registered capital 6,000,000
=========
Paid-up capital 2,808,981
=========
At 31 December 1997, the paid-up capital was validated by a PRC Certified
Public Accountant.
Subsequent to the balance sheet date, on 29 July 1998, the paid-up capital
is increased to US$6,000,000 and was validated by a PRC Certified Public
Accountants.
11. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved by the board of directors on 13
April 1999.
<PAGE>F-64
Audited Financial Statements
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
(Registered in the People's Republic of China with limited liability)
31 December 1998
ERNST & YOUNG
HONG KONG
<PAGE>F-65
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
CONTENTS
Pages
REPORT OF THE AUDITORS 1 - 2
AUDITED FINANCIAL STATEMENTS
Profit and loss account 3
Balance sheet 4
Notes to financial statements 5 - 11
<PAGE>F-66
REPORT OF THE AUDITORS
To the members
MULCD Micro Electronics (Shenzhen) Co., Ltd.
(Registered in the People's Republic of China with limited liability)
We have audited the financial statements on pages 3 to 10 which have been
prepared in accordance with the basis of presentation as set out in note 3 to
the financial statements.
Respective responsibilities of directors and auditors
-----------------------------------------------------
The Company's directors are responsible for the preparation of financial
statements which give a true and fair view. In preparing 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 financial statements. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis for
our opinion.
Fundamental uncertainty
-----------------------
In forming our opinion, we have considered the adequacy of the disclosures made
in the financial statements concerning the basis of their preparation by the
directors. As further explained in note 3 to the financial statements, the
ability of the Company to meet its liabilities as they fall due is dependent on
(i) the availability of the financial support from Vikay Industrial Limited
("VIL"), the Company's ultimate holding company incorporated in Singapore, which
has been under judicial management since 6 December 1997, pursuant to a judgment
issued by the High Court of Singapore; (ii) the ability of VIL to repay its
amount due to the Company of US$462,220; and (iii) the ability of the immediate
holding company to repay their amounts due to the Company of US$3,348,379. The
immediate holding company in turn relies on the financial support from VIL to
operate. The financial statements have been prepared on a going concern basis,
the validity of which depends upon the availability of future continued funding.
The financial statements do not include any adjustments that would result from
the inability of VIL to provide such financial support and/or repay the above
debt. We consider that appropriate disclosures have been made.
<PAGE>F-67
REPORT OF AUDITORS
Qualified opinion: Disclaimer on view given by financial statements
-------------------------------------------------------------------
Because of the significance of the possible effects of the fundamental
uncertainty relating to the going concern basis as set out above, we are unable
to form an opinion as to whether the financial statements give a true and fair
view of the state of affairs of the Company as at 31 December 1998 or of its
loss for the year then ended in accordance with the basis of presentation as set
out in note 3 to the financial statements.
In respect alone of the availability of continued financial support to the
Company, we have not obtained all the information and explanations that we
considered necessary for the purposes of our audit.
Hong Kong
[Date]
<PAGE>F-68
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
PROFIT AND LOSS ACCOUNT
Year ended 31 December 1998
<TABLE>
<CAPTION>
(Restated)
Period from 7
December 1995
(date of
Year ended 31 registration) to
December 31 December
1998 1997
Notes US$ US$
---------- ----------
<S> <C> <C> <C>
TURNOVER 6 9,277,146 2,055,532
Cost of sales (9,440,952) (3,004,345)
---------- ----------
Gross loss (163,806) (948,813)
Administrative expenses (1,406,715) (659,534)
Other operating expenses - (2,582,857)
---------- ----------
OPERATING LOSS BEFORE TAX 7 (1,570,521) (4,191,204)
Tax 8 - -
---------- ----------
NET LOSS FOR THE YEAR (1,570,521) (4,191,204)
Accumulated losses at the beginning of year/period:
As previously reported (1,842,827) -
Prior year adjustment 9 (2,348,377) -
---------- ----------
(4,191,204) -
---------- ----------
ACCUMULATED LOSSES AT END OF YEAR (5,761,725) (4,191,204)
========== ==========
</TABLE>
Other than the net loss for the year, the Company had no recognized gains or
losses. Accordingly, a statement of recognized gains and losses is not presented
in the financial statements.
<PAGE>F-69
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
BALANCE SHEET
Year ended 31 December 1998
<TABLE>
<CAPTION>
(Restated)
1998 1997
Notes US$ US$
---------- -----------
<S> <C> <C> <C>
NON-CURRENT ASSETS
Fixed assets 10 9,722,551 10,003,864
CURRENT ASSETS
Due from the ultimate holding company 5 462,220 -
Due from the immediate holding company 5 3,348,379 -
Due from a fellow subsidiary 5 9,386 -
Inventories 11 590,818 660,616
Deposits and other receivables 57,035 -
---------- -----------
4,467,838 660,616
---------- -----------
CURRENT LIABILITIES
Due to the ultimate holding company 5 - 189,622
Due to the immediate holding company 5 - 5,957,467
Due to fellow subsidiaries 5 12,960,265 5,745,975
Accounts payable and accrued liabilities 991,849 153,639
---------- -----------
13,952,114 12,046,703
NET CURRENT LIABILITIES (9,484,276) (11,386,087)
---------- -----------
238,275 (1,382,223)
SHAREHOLDERS' EQUITY/(DEFICIENCY IN ASSETS)
Paid-up capital 12 6,000,000 2,808,981
Accumulated losses (5,761,725) (4,191,204)
---------- -----------
238,275 (1,382,223)
========== ===========
</TABLE>
------------------------------------- -------------------------------------
Director Director
<PAGE>F-70
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
1. CORPORATE INFORMATION
The registered office of MULCD Micro Electronics (Shenzhen) Co., Ltd. is
102 Li Jia Road, Heng Gang, Long Gang Zone, Shenzhen, China. During the
year, the Company was engaged in the manufacturing and the trading of
electronic components.
2. IMPACT OF NEW STATEMENT OF STANDARD ACCOUNTING PRACTICE ("SSAP")
SSAP 1: Presentation of Financial statements has been adopted for the first
time in the preparation of the current year's financial statements,
together with a summary of its major effect.
SSAP 1 prescribes the basis for the presentation of financial statements
and sets out guidelines for their structure and minimum requirements for
the content therein. The formats of the profits and loss account and the
balance sheet, as set out on pages 3 and 4, respectively, have been revised
in accordance with the SSAP. Additional disclosures as required are
included in the supporting notes to the financial statements.
3. BASIS OF PRESENTATION
These non-statutory financial statements have been prepared in accordance
with Hong Kong Statement of Standard Accounting Practice, accounting
principles generally accepted in Hong Kong and the disclosure requirements
of the Hong Kong Companies Ordinance. They have been prepared under the
historical cost convention.
These financial statements are prepared on the presumption that the Company
will continue to operate as a going concern notwithstanding that the
Company had net current liabilities at the balance sheet date. The ability
of the Company to meet its liabilities as they fall due is dependent on (i)
the availability of the financial support from Vikay Industrial Limited
("VIL"), the ultimate holding company, which was placed under Judicial
Management on 6 December 1997, to the Company, and (ii) the recoverability
of the amount due from VIL and immediate holding company of US$462,220 and
US$3,348,379, respectively. The directors believe that with the
availability of continued financial support upon the successful
restructuring of VIL through future actions taken by the judicial managers,
the Company will have sufficient working capital for its current
requirements and the financial statements have been prepared on a going
concern basis.
<PAGE>F-71
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
3. BASIS OF PRESENTATION (continued)
A reconciliation of the profit and loss account and certain balance sheet
item between these non-statutory financial statements and the financial
statements if prepared in accordance with accounting principles generally
accepted in the United States of America has been set out in the
supplementary information section, which does not form part of the audited
financial statements of the Company.
4. DETAILS OF FORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Details of formation
The Company was formed under the Laws of the People's Republic of China as
a wholly-owned foreign enterprise on 7 December 1995. The tenure of the
Company is for a period of fifteen years and can be extended by the board
of directors with the approval of the relevant authorities.
Fixed assets and depreciation
Fixed assets are stated at cost 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 capitalized as
an additional cost of the fixed asset.
Depreciation is calculated on the straight-line basis to write off the cost
of each asset (less an estimated residual value of 10% of cost) over its
estimated useful life. The useful lives used for this purpose are as
follows:
Leasehold improvements 5 years
Furniture, fittings and office equipment 5 - 10 years
Plant and machinery 5 - 10 years
The gain or loss on disposal or retirement of a fixed asset recognized in
the profit and loss account is the difference between the sales proceeds
and the carrying amount of the relevant asset.
<PAGE>F-72
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
4. DETAILS OF FORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Revenue recognition
Revenue is recognized when it is probable that the economic benefits will
flow to the Company and when the revenue can be measured reliably. Revenue
arising from the sale of goods is recognized when the significant risks and
rewards of ownership have been transferred to the buyers.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost
is determined on the weighted average basis, which approximates the
first-in, first-out basis, and in the case of work in progress and finished
goods, comprises direct materials, direct labor and an appropriate
proportion of overheads. Net realizable value is based on estimated selling
prices less any estimated costs to be incurred to completion and disposal.
Foreign currency transactions
The Company's financial records are maintained in Renminbi ("RMB") and the
financial statements are stated in United States dollars.
Foreign currency transactions are recorded at the applicable 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 applicable rates of exchange ruling at that date. Exchange
differences are dealt with in the profit and loss account.
In the translation of the financial statements to United States dollars,
all assets and liabilities, except the equity accounts, are translated to
United States dollars at the applicable rates of exchange ruling at the
balance sheet date. The owner's equity is translated at historical rates.
All exchange differences arising on translation, if any, are recorded in
the exchange fluctuation reserve, which is shown as a component of the
equity accounts.
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.
<PAGE>F-73
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
5. CORPORATE AFFILIATION
The Company is a wholly-owned subsidiary of Vikay Industrial (Hong Kong)
Limited, a company incorporated in Hong Kong. VIL, a company incorporated
in Singapore and listed on the Stock Exchange of Singapore Dealing and
Automated Quotation System, is considered by the directors to be the
Company's ultimate holding company.
A portion of the Company's business is represented by transactions to which
other members of the VIL group are parties and these financial statements
reflect the effect of these transactions which are conducted on the bases
determined within the group.
The significant transaction during the year are summarized below:
<TABLE>
<CAPTION>
Notes 1998 1997
US$ US$
<S> <C> <C> <C>
Sales to group companies (i) 9,277,146 2,055,532
Management fee paid to a fellow subsidiary (ii) 449,888 834,527
Purchase of fixed assets from a fellow subsidiary (iii) 1,101,751 834,527
========= =========
</TABLE>
Notes:
(i) Sales to group companies were made at a margin of the final resale price
mutually agreed between the parties.
(ii) Management fee related to the provision of administrative service to a
fellow subsidiary. The management fee was mutually agreed between the
parties.
(iii) Fixed assets were disposed of at their net book value amounts.
The balances with group companies are unsecured, interest-free and have no
fixed terms of repayment.
6. TURNOVER
Turnover represents the invoiced value of goods sold, net of discounts and
returns.
<PAGE>F-74
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
7. OPERATING LOSS BEFORE TAX
Operating loss before tax is arrived at after charging/(crediting):
1998 1997
US$ US$
Directors' remuneration:
Fees - -
Other emoluments - -
Deferred expenses written off - 2,582,857
Depreciation 1,099,190 435,842
Staff costs 425,282 161,227
Operating lease rentals on land and buildings 110,574 161,227
Auditors' remuneration 31,014 -
Exchange gains, net (35,694) -
========= =======
8. TAX
No provision for profits tax has been made as the Company has no assessable
income in any relevant jurisdiction (1997: Nil).
9. PRIOR YEAR ADJUSTMENT
In prior year, deferred expenses were stated at cost and were amortized on
the straight-line basis over a period of five years starting from the
commencement date of commercial production. Following the issuance of
Interpretation 9 "Accounting for pre-operating costs" by the Hong Kong
Society of Accountants, these deferred expenses are now written off to the
profit and loss account in the period in which they are incurred. In
applying the new accounting policy retroactively, the loss for the year was
decreased by US$516,571, representing the amortization of deferred expenses
for the year then ended. The cumulative effect on prior year was to write
off the deferred expenses at 31 December 1997 of US$2,348,377 to
accumulated losses at 1 January 1998.
<PAGE>F-75
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
10. FIXED ASSETS
<TABLE>
<CAPTION>
Furniture,
fittings and
Leasehold office Plant and
improvements equipment machinery
US$ US$ US$ Total US$
<S> <C> <C> <C> <C>
Cost:
At 1 January 1998 816,598 366,166 9,256,942 10,439,706
Transferred from group company - 146,345 1,342,757 1,489,102
Additions - 37,487 52,350 89,387
Disposals - (2,560) (371,458) (374,018)
------- ------- ---------- ----------
At 31 December 1998 816,598 547,438 10,280,591 11,644,627
======= ======= ========== ==========
Accumulated depreciation:
At 1 January 1998 61,245 27,462 347,135 435,842
Transferred from group company - 105,311 282,040 387,351
Charge for the year 146,987 76,545 875,658 1,099,190
Disposals - (307) - (307)
------- ------- --------- ----------
At 31 December 1999 208,232 209,011 1,504,833 1,922,076
======= ======= ========= ==========
Net book value:
At 31 December 1998 608,366 338,427 8,775,758 9,722,551
======= ======= ========= ==========
At 31 December 1997 755,353 338,704 8,909,807 10,003,864
======= ======= ========= ==========
</TABLE>
11. INVENTORIES
1998 1997
US$ US$
Raw materials 255,760 377,622
Work in progress 283,155 186,070
Finished goods 51,903 96,924
======= =======
590,818 660,616
======= =======
<PAGE>F-76
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1998
12. PAID-UP CAPITAL
1998 1997
US$ US$
Registered capital 6,000,000 6,000,000
========= =========
Paid-up capital 6,000,000 2,808,981
========= =========
At 31 December 1998, the paid-up capital was validated by a PRC Certified
Public Accountant.
Subsequent to the balance sheet date, on 9 November 1999, the registered
and paid-up capital was increased to US$8,100,000 and was validated by a
PRC Certified Public Accountants.
13. CASH FLOW STATEMENT
As all cash payments are made by a fellow subsidiary, VKSTD, no cash flow
statement is prepared accordingly.
14. COMPARATIVE AMOUNTS
As further explained in note 2 to the financial statements, due to the
adoption of new SSAP during the current year, the presentation of the
profit and loss account, the balance sheet and certain supporting notes
have been revised to comply with the new requirements. Accordingly, certain
comparative amounts have been reclassified to conform with the current
year's presentation.
15. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved by the board of directors on
____________.
<PAGE>F-77
THE FOLLOWING STATEMENT DOES NOT FORM PART
OF THE AUDITED FINANCIAL STATEMENTS
OF THE COMPANY
<PAGE>F-78
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
SUPPLEMENTARY INFORMATION
31 December 1998
The Company's non-statutory financial statements are prepared in accordance with
accounting principles generally accepted in Hong Kong ("HK GAAP"), which differ
in certain significant respect from accounting principles generally accepted in
the United States of America ("US GAAP"). The difference related principally to
the following item and the estimated effect of the adjustment is set out below.
Income taxes
A reconciliation of income taxes computed at the PRC income tax rate of 15% to
the effective income tax provision recorded is as follows:
<TABLE>
<CAPTION>
1998 1997
US$ US$
<S> <C> <C>
Income tax benefit computed at the PRC income tax rate (232,865) (628,681)
Non-deductible items - 387,429
Valuation allowance 232,865 241,252
------- -------
Effect to the reported net loss for the year/period - -
======= =======
</TABLE>
Significant components of the Company's deferred tax assets consist of the
following:
1998 1997
US$ US$
Net operating loss carry forwards 474,117 241,252
Valuation allowance (474,117) (241,252)
-------- --------
Net deferred taxes - -
======== ========
Due to the Company's history of losses, the directors of the Company do not
believe that there are sufficient objective and positive evidence to conclude
that recoverability of its net deferred tax assets is more likely than not.
Consequently, valuation allowances covering 100% of its net deferred tax assets
were provided for at respective balance sheet dates.
<PAGE>F-79
Audited Financial Statements
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
(Registered in the People's Republic of China with limited liability)
31 December 1999
ERNST & YOUNG
HONG KONG
<PAGE>F-80
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
CONTENTS
Pages
REPORT OF THE AUDITORS 1 - 2
AUDITED FINANCIAL STATEMENTS
Profit and loss account 3
Balance sheet 4
Cash flow statement 5
Notes to financial statements 6 - 13
<PAGE>F-81
REPORT OF THE AUDITORS
To the members
MULCD Micro Electronics (Shenzhen) Co., Ltd.
(Registered in the People's Republic of China with limited liability)
We have audited the financial statements on pages 3 to 12 which have been
prepared in accordance with the basis of presentation as set out in note 2 to
the financial statements.
Respective responsibilities of directors and auditors
-----------------------------------------------------
The Company's directors are responsible for the preparation of financial
statements which give a true and fair view. In preparing 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 financial statements. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis for
our opinion.
Fundamental uncertainty
-----------------------
In forming our opinion, we have considered the adequacy of the disclosures made
in the financial statements concerning the basis of their preparation by the
directors. As further explained in note 2 to the financial statements, the
ability of the Company to meet its liabilities as they fall due is dependent on
(i) the availability of the financial support from Vikay Industrial Limited
("VIL"), the Company's ultimate holding company incorporated in Singapore, which
has been under judicial management since 6 December 1997, pursuant to a judgment
issued by the High Court of Singapore; (ii) the ability of VIL to repay its
amount due to the Company of US$1,837,314; and (iii) the ability of the
immediate holding company to repay their amounts due to the Company of
US$1,926,387. The immediate holding company in turn relies on the financial
support from VIL to operate. The financial statements have been prepared on a
going concern basis, the validity of which depends upon the availability of
future continued funding. The financial statements do not include any
adjustments that would result from the inability of VIL to provide such
financial support and/or repay the above debt. We consider that appropriate
disclosures have been made.
<PAGE>F-82
REPORT OF THE AUDITORS
Qualified opinion: Disclaimer on view given by financial statements
-------------------------------------------------------------------
Because of the significance of the possible effects of the fundamental
uncertainty relating to the going concern basis as set out above, we are unable
to form an opinion as to whether the financial statements give a true and fair
view of the state of affairs of the Company as at 31 December 1999 or of its
profit and cash flows for the year then ended in accordance with the basis of
presentation as set out in note 2 to the financial statements.
In respect alone of the availability of continued financial support to the
Company, we have not obtained all the information and explanations that we
considered necessary for the purposes of our audit.
Hong Kong
27 June 2000
<PAGE>F-83
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
PROFIT AND LOSS ACCOUNT
Year ended 31 December 1999
<TABLE>
<CAPTION>
Notes 1999 1998
US$ US$
----------- ----------
<S> <C> <C> <C>
TURNOVER 5 12,895,220 9,277,146
Cost of sales (10,579,650) (9,440,952)
----------- ----------
Gross profit/(LOSS) 2,315,570 (163,806)
Administrative expenses (1,957,312) (1,406,715)
Other operating expenses (89,932) -
----------- ----------
OPERATING LOSS BEFORE TAX 6 268,326 (1,570,521)
Tax 7 - -
NET PROFIT/(LOSS) FOR THE YEAR 268,326 (1,570,521)
Accumulated losses at the beginning of year 11 (5,761,725) (4,191,204)
----------- ----------
ACCUMULATED LOSSES AT END OF YEAR 11 (5,493,399) (5,761,725)
=========== ==========
</TABLE>
Other than the net loss for the year, the Company had no recognized gains or
losses. Accordingly, a statement of recognized gains and losses is not presented
in the financial statements.
<PAGE>F-84
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
BALANCE SHEET
Year ended 31 December 1999
<TABLE>
<CAPTION>
Notes 1999 1998
US$ US$
---------- -----------
<S> <C> <C> <C>
NON-CURRENT ASSETS
Fixed assets 8 8,603,159 9,722,551
CURRENT ASSETS
Due from the ultimate holding company 4 1,837,314 462,220
Due from the immediate holding company 4 1,926,387 3,348,379
Due from a fellow subsidiary 4 31,755 9,386
Inventories 9 824,611 590,818
Deposits and other receivables 96,527 57,035
Cash and bank balances 24,642 -
---------- -----------
4,741,236 4,467,838
---------- -----------
CURRENT LIABILITIES
Due to fellow subsidiaries 4 9,113,714 12,960,265
Accounts payable and accrued liabilities 1,620,080 991,849
---------- -----------
10,733,794 13,952,114
---------- -----------
NET CURRENT LIABILITIES (5,992,558) (9,484,276)
---------- -----------
(2,610,601) 238,275
========== ===========
SHAREHOLDERS' EQUITY
Paid-up capital 10 8,100,000 6,000,000
Reserves 11 (5,489,399) (5,761,725)
---------- -----------
2,610,601 238,275
========== ===========
</TABLE>
------------------------------------- -------------------------------------
Director Director
<PAGE>F-85
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
CASH FLOW STATEMENT
Year ended 31 December 1999
Note 1999
US$
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 12(a) 69,277
INVESTING ACTIVITIES
Purchases of fixed assets (44,635)
Net cash outflow from investing activities (44,635)
-------
CASH AND CASH EQUIVALENTS AT END OF YEAR 24,642
=======
ANALYSIS OF BALANCES OF CASH AND CASH
EQUIVALENTS
Cash and bank balances 24,642
=======
In prior years, all cash payments were made by a fellow subsidiary and no cash
flow statement was prepared accordingly.
<PAGE>F-86
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1999
1. CORPORATE INFORMATION
The registered office of MULCD Micro Electronics (Shenzhen) Co., Ltd. is
102 Li Jia Road, Heng Gang, Leng Gang Zone, Shenzhen, China. During the
year, the Company was engaged in the manufacturing and the trading of
electronic components.
2. BASIS OF PRESENTATION
These non-statutory financial statements have been prepared in accordance
with Hong Kong Statement of Standard Accounting Practice, accounting
principles generally accepted in Hong Kong and the disclosure requirements
of the Hong Kong Companies Ordinance. They have been prepared under the
historical cost convention.
These financial statements are prepared on the presumption that the Company
will continue to operate as a going concern notwithstanding that the
Company had net current liabilities at the balance sheet date. The ability
of the Company to meet its liabilities as they fall due is dependent on (i)
the availability of the financial support from Vikay Industrial Limited
("VIL"), the ultimate holding company, which was placed under Judicial
Management on 6 December 1997, to the Company, and (ii) the recoverability
of the amount due from VIL and immediate holding company of US$1,837,314
(1998: US$462,220) and US$1,926,387 (1998: US$3,348,379), respectively. The
directors believe that with the availability of continued financial support
upon the successful restructuring of VIL through future actions taken by
the judicial managers, the Company will have sufficient working capital for
its current requirements and the financial statements have been prepared on
a going concern basis.
A reconciliation of the profit and loss account and certain balance sheet
item between these non-statutory financial statements and the financial
statements if prepared in accordance with accounting principles generally
accepted in the United States of America has been set out in the
supplementary information section, which does not form part of the audited
financial statements of the Company.
3. DETAILS OF FORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Details of formation
The Company was formed under the Laws of the People's Republic of China as
a wholly-owned foreign enterprise on 7 December 1995. The tenure of the
Company is for a period of fifteen years and can be extended by the board
of directors with the approval of the relevant authorities.
<PAGE>F-87
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1999
3. DETAILS OF FORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Fixed assets and depreciation
Fixed assets are stated at cost 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 capitalized as
an additional cost of the fixed assets.
Depreciation is calculated on the straight-line basis to write off the cost
of each asset (less an estimated residual value of 10% of cost) over its
estimated useful life. The useful lives used for this purpose are as
follows:
Leasehold improvements 5 years
Furniture, fittings and office equipment 5 - 10 years
Plant and machinery 5 years
The gain or loss on disposal or retirement of a fixed asset recognized in
the profit and loss account is the difference between the sales proceeds
and the carrying amount of the relevant asset.
Revenue recognition
Revenue is recognized when it is probable that the economic benefits will
flow to the Company and when the revenue can be measured reliably. Revenue
arising from the sale of goods is recognized when the significant risks and
rewards of ownership have been transferred to the buyers.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost
is determined on the weighted average basis, which approximates the
first-in, first-out basis, and in the case of work in progress and finished
goods, comprises direct materials, direct labor and an appropriate
proportion of overheads. Net realizable value is based on estimated selling
prices less any estimated costs to be incurred to completion and disposal.
<PAGE>F-88
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1999
3. DETAILS OF FORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Foreign currency transactions
The Company's financial records are maintained in Renminbi ("RMB") and the
financial statements are stated in United States dollars.
Foreign currency transactions are recorded at the applicable 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 applicable rates of exchange ruling at that date. Exchange
differences are dealt with in the profit and loss account.
In the translation of the financial statements to United States dollars,
all assets and liabilities, except the equity accounts, are translated to
United States dollars at the applicable rates of exchange ruling at the
balance sheet date. The owner's equity is translated at historical rates.
All exchange differences arising on translation, if any, are recorded in
the exchange fluctuation reserve, which is shown as a component of the
equity accounts.
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.
Cash equivalents
For the purpose of the consolidated cash flow statement, cash equivalents
represent short term highly liquid investments which are readily
convertible into known amounts of cash and which were within three months
of maturity when acquired, less advances from banks repayable within three
months from the date of the advance. For the purpose of balance sheet
classification cash equivalents represents assets similar to cash, which
are not restricted as to use.
4. CORPORATE AFFILIATION
The Company is a wholly-owned subsidiary of Vikay Industrial (Hong Kong)
Limited, a company incorporated in Hong Kong. VIL, a company incorporated
in Singapore and listed on the Stock Exchange of Singapore Dealing and
Automated Quotation System, is considered by the directors to be the
Company's ultimate holding company.
<PAGE>F-89
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1999
4. CORPORATE AFFILIATION (continued)
A portion of the Company's business is represented by transactions to which
other members of the Vikay Industrial Limited group are parties and these
financial statements reflect the effect of these transactions which are
conducted on the bases determined within the group.
The significant transaction during the year are summarized below:
<TABLE>
<CAPTION>
Notes 1999 1998
US$ US$
<S> <C> <C> <C>
Sales to group companies (i) 12,895,220 9,277,146
Management fee paid to a fellow subsidiary (ii) 511,057 449,888
Purchase of fixed assets from a fellow subsidiary (iii) - 1,101,751
========== =========
</TABLE>
Notes:
(i) Sales to group companies were made at a margin of the final resale price
mutually agreed between the parties.
(ii) Management fee related to the provision of administrative service to a
fellow subsidiary. The management fee was mutually agreed between the
parties.
(iii) Fixed assets were disposed of at their net book value amounts.
The balances with group companies are unsecured, interest-free and have no fixed
terms of repayment.
5. TURNOVER
Turnover represents the invoiced value of goods sold, net of discounts and
returns.
<PAGE>F-90
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1999
6. OPERATING PROFIT/(LOSS) BEFORE TAX
Operating profit/(loss) before tax is arrived at after
charging/(crediting):
1999 1998
US$ US$
Directors' remuneration:
Fees - -
Other emoluments - -
Depreciation 1,164,027 1,099,190
Provision for obsolete stocks 89,932 -
Staff costs 1,467,979 1,565,327
Operating lease rentals on land and buildings 161,912 110,574
Auditors' remuneration 31,014 31,014
Exchange gains, net 118,235 35,694
========= =========
7. TAX
In accordance with the relevant tax rules and regulations in the PRC, the
Company is entitled to income tax exemption for two years starting from the
first profitable year of operations, followed by a 50% reduction in tax
rate for the next three years. Accordingly, no PRC income tax was accrued
for the year ended 31 December 1999. In the prior year, no provision for
income tax had been made as the Company had no assessable income in any
relevant jurisdiction.
<PAGE>F-91
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1999
8. FIXED ASSETS
<TABLE>
<CAPTION>
Furniture,
fittings and
Construction Leasehold office Plant and
in progress improvements equipment machinery
US$ US$ US$ US$ Total US$
----- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cost:
At 1 January 1999 - 816,598 547,438 10,280,591 11,644,627
Additions 2,826 14,140 16,129 11,540 44,635
----- ------- ------- ---------- ----------
At 31 December 1999 2,826 830,738 563,567 10,292,131 11,689,262
----- ------- ------- ---------- ----------
Accumulated depreciation:
At 1 January 1999 - 208,232 209,011 1,504,833 1,922,076
Charge for the year - 147,332 91,330 925,365 1,164,027
----- ------- ------- ---------- ----------
At 31 December 1999 - 355,564 300,341 2,430,198 3,086,103
----- ------- ------- ---------- ----------
Net book value:
At 31 December 1999 2,826 475,174 263,226 7,861,933 8,603,159
===== ====== ======= ========== ==========
At 31 December 1998 - 608,366 338,427 8,775,758 9,722,551
===== ====== ======= ========== ==========
</TABLE>
9. INVENTORIES
1999 1998
US$ US$
Raw materials 323,313 255,760
Work in progress 291,015 283,155
Finished goods 210,283 51,903
------- -------
824,611 590,818
======= =======
<PAGE>F-92
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1999
10. PAID-UP CAPITAL
1999 1998
US$ US$
Registered capital 8,100,000 6,000,000
========= =========
Paid-up capital 8,100,000 6,000,000
========= =========
11. RESERVES
<TABLE>
<CAPTION>
Accumulated Capital
losses reserve Total
US$ US$ US$
<S> <C> <C> <C>
At beginning of year (5,761,725) - (5,761,725)
Net loss for the year 268,326 - 268,326
Capital reserve arising from the excess of
contributed net assets over the paid-up capital - 4,000 4,000
---------- ----- ----------
(5,493,399) 4,000 (5,489,399)
========== ===== ==========
</TABLE>
12. NOTES TO THE CASH FLOW STATEMENT
(a) Reconciliation of operating loss before tax to net cash
inflow/(outflow) from operating activities:
1999
US$
Operating loss before tax 268,326
Provision for obsolete stock 89,932
Depreciation 1,164,027
Increase in deposits and other receivables (39,492)
Increase in inventories (323,725)
Movement in balances with fellow subsidiaries (1,764,920)
Increase in due from ultimate holding company (1,375,094)
Decrease in due from the immediate holding company 1,421,992
Increase in accounts payable and accrued liabilities 628,231
Net cash inflow from operating activities 69,277
==========
<PAGE>F-93
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
NOTES TO FINANCIAL STATEMENTS
31 December 1999
12. NOTES TO THE CASH FLOW STATEMENT (continued)
(b) Analysis of changes in financing during the year:
Paid-up Capital
capital US$ reserve
US$
Balance at beginning of year 6,000,000 -
Increase in paid-up capital for non-cash consideration 2,100,000 -
Capital reserve arising on the excess of contributed
net assets over the paid-up capital - 4,000
--------- -----
At 31 December 1999 8,100,000 4,000
========= =====
(c) Major non-cash transactions
During the year, the paid-up capital was increased by US$2,100,000
through the capitalization of intercompany accounts. The excess of
contributed net assets over the paid-up capital in an amount of
US$4,000 has been capitalized as a capital reserve.
13. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved by the board of directors on 27 June
2000.
<PAGE>F-94
THE FOLLOWING STATEMENT DOES NOT FORM PART
OF THE AUDITED FINANCIAL STATEMENTS
OF THE COMPANY
<PAGE>F-95
MULCD MICRO ELECTRONICS (SHENZHEN) CO., LTD.
SUPPLEMENTARY INFORMATION
31 December 1999
The Company's non-statutory financial statements are prepared in accordance with
accounting principles generally accepted in Hong Kong ("HK GAAP"), which differ
in certain significant respect from accounting principles generally accepted in
the United States of America ("US GAAP"). The difference related principally to
the following item and the estimated effect of the adjustment is set out below.
Income taxes
A reconciliation of income taxes computed at the PRC income tax rate of 15% to
the effective income tax provision recorded is as follows:
<TABLE>
<CAPTION>
1999 1998
US$ US$
<S> <C> <C>
Income tax effect/(benefit) computed at the PRC income tax rate 40,249 (235,578)
Non-deductible items 13,489 -
Valuation allowance - 235,578
Offsetting against net operating loss brought forward (53,738) -
------- --------
Effect to the reported net profit/(loss) for the year - -
======= ========
</TABLE>
Significant components of the Company's deferred tax assets consist of the
following:
1999 1998
US$ US$
Net operating loss carry forwards 423,092 476,830
Valuation allowance (423,092) (476,830)
-------- --------
Net deferred taxes - -
======== ========
Due to the Company's history of losses, the directors of the Company does not
believe that there are sufficient objective and positive evidence to conclude
that recoverability of its net deferred tax assets is more likely than not.
Consequently, valuation allowances covering 100% of its net deferred tax assets
were provided for at respective balance sheet dates.
<PAGE>F-96
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial information for Morrow
Snowboards, Inc. and Subsidiaries dba Granite Bay Technologies (the "Company")
set forth on the following pages gives effect to the acquisition by the Company
of Vikay Science & Technology Development (Shenzhen) Co., Ltd. and MULCD
Microelectronics (Shenzen) Co., Ltd. (collectively the "PRC Companies"). The
historical financial information set forth in the unaudited pro forma condensed
combined financial information has been derived from, and is qualified by
reference to, the financial statements of the Company and the PRC Companies for
the year ended December 31, 1999, and should be read in conjunction with those
financial statements and the notes thereto. The unaudited pro forma condensed
combined financial information presents the combined results of operations of
the companies for the year ended January 1, 2000, giving effect to the Company's
acquisition of the PRC Companies as if such acquisition had been consummated
January 2, 1999, using the purchase method of accounting. The information should
be read in conjunction with the Company's reports and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The unaudited
pro forma condensed combined financial information does not purport to represent
what the consolidated results of operations or financial condition of the
Company would actually have been if the PRC Companies acquisition had in fact
occurred on January 2, 1999, nor does it purport to be indicative of the
consolidated results of operations or financial condition of the Company that
may be achieved in the future.
<PAGE>F-97
MORROW SNOWBOARDS, INC. AND SUBSIDIARIES
dba GRANITE BAY TECHNOLOGIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Morrow MULCD VKSTD Proforma Adjustments Consolidated
1999 1999 1999 1999
------------- ------------ ------------ -------------------- -------------
ASSETS
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,921,950 $ 24,642 $ 157,192 $ 2,103,784
Receivable from holding company 3,763,701 17,710,755 (3) 21,474,456 -
Receivable from related companies 31,755 13,788,533 (3) 13,820,288 -
Accounts receivable, less allowance
for uncollectible accounts - 96,527 52,996 149,523
Inventories - 824,611 449,935 1,274,546
Prepaid expense 128,000 - - 128,000
Refundable income taxes 54,000 - - 54,000
Deposits and other receivables 437,497 437,497
Other current assets - - - 2,500,000 (4) 2,500,000
Net current assets of discontinued
operations 2,332,000 - - 2,332,000
------------- ------------ ------------ -------------
Total current assets 4,435,950 4,741,236 32,596,908 8,979,350
Equipment and fixtures, net 3,098,757 8,603,159 9,057,167 (3) 9,277,057 11,482,026
Other assets:
Investments 1,000,000 - - 1,000,000
Investments - IDWT / MULCD - - - 7,303,524 (4) -
- - - (5) 7,303,524
Goodwill, net - - - 340,000 (1) 315,714
- - - (2) 24,286
Net non-current assets of
discontinued operations 72,000 - - 72,000
Other assets, net 1,000,000 - - (4) 1,000,000 -
------------- ------------ ------------ -------------
Total other assets 2,072,000 - - 1,387,714
------------- ------------ ------------ -------------
Total assets $ 9,606,707 $ 13,344,395 $ 41,654,075 $ 21,849,090
============= ============ ============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,812,000 $ 1,620,080 $ 1,354,074 $ 5,786,154
Accrued liabilities 502,000 - - 502,000
Accrued interest note payable - - - (8) 148,531 148,531
Note payable related party 200,000 9,113,714 44,157,486 53,271,200 (3) 200,000
Note payable PRC Companies (4) 8,803,524 4,975,524
3,828,000 (8)
Current portion of long term debt 675,000 - - 675,000
------------- ------------ ------------ -------------
Total current liabilities 4,189,000 10,733,794 45,511,560 12,287,209
Commitments and Contingencies
Shareholders' Equity
Preferred stock - - -
Common stock $ 28,866,000 $ 8,100,000 $ 6,000,000 1,000,000 (1) 1,340,000 $ 33,034,000
6,796,476 (3)
7,303,524 (5)
(8) 3,828,000
Accumulated deficit (23,436,293) (5,489,399) (9,857,485) - (23,460,119)
24,286 (2)
(3) 15,495,875
148,531 (8)
Cumulative translation adjustment (12,000) (12,000)
------------- ------------ ------------ -------------
Total Shareholders' Equity (Deficit) 5,417,707 2,610,601 (3,857,485) 9,561,881
------------- ------------ ------------ -------------
Total Liabilities and Shareholders'
Equity (Deficit) $ 9,606,707 $ 13,344,395 $ 41,654,075 $ 21,849,090
============= ============ ============ =============
</TABLE>
<PAGE>F-98
MORROW SNOWBOARDS, INC. AND SUBSIDIARIES
dba GRANITE BAY TECHNOLOGIES
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Morrow MULCD VKSTD Total Proforma Adjustments Consolidated
1999 1999 1999 1999 1999
------------ ------------ ----------- ------------ -------------------- ------------
ASSETS
<S> <C> <C> <C> <C> <C>
Revenues $ - $ 12,895,220 $ 9,907,397 $ 22,802,617 $ 511,057 (6) $ 18,434,869
3,856,691 (7)
Cost of goods sold - 10,579,650 8,619,747 19,199,397 (7) 3,856,691 15,342,706
------------ ------------ ----------- ------------ ------------
Gross profit - 2,315,570 1,287,650 3,603,220 3,092,163
Operating expenses 560,293 2,047,244 1,406,985 4,014,522 (6) 511,057 3,651,996
148,531 (8)
Amortization of goodwill - - - 24,286 (2) 24,286
Loss from discontinued
operations 3,276,000 - 3,276,000 3,276,000
------------ ------------ ----------- ------------ ------------
Net income (loss) $ (3,836,293) $ 268,326 $ (119,335) $ (3,687,302) $ (3,860,119)
============ ============ =========== ============ ------------
</TABLE>
Historical Pro forma
Net loss per share - continuing operations
Basic $ (0.09) $ (0.04)
======= =======
Diluted $ (0.09) $ (0.04)
======= =======
Net income (loss) per share - discontinued
operations
Basic $ (0.51) $ (0.22)
======= =======
Diluted $ (0.51) $ (0.22)
======= =======
Net income (loss) per share:
Basic $ (0.61) $ (0.26)
======= =======
Diluted $ (0.61) $ (0.26)
======= =======
Weighted average number of shares used in
computing per share amounts:
Basic 6,377,556 14,857,556
========= ==========
Diluted 6,377,556 14,857,556
========= ==========
<PAGE>F-99
MORROW SNOWBOARDS, INC. AND SUBSIDIARIES
dba GRANITE BAY TECHNOLOGIES
PRO FORMA ADJUSTMENTS
Debit Credit
(1) Goodwill 340,000
Capital Stock 1,340,000
Equity - IDW USA 1,000,000
(2) Amortization Expense (RE) 24,286
Goodwill 24,286
Record Goodwill Amoritzation for
12 months ended 12/31/99 @
14 year amort. Period
(3) Note payable related company 53,271,200
Capital Stock - VKSTD 2,888,699
Capital Stock - MULCD 3,907,777
Receivable from Holding Company 21,474,456
Receivable from related company 13,820,288
Retained Earnings - VKSTD 9,738,150
Retained Earnings - MULCD 5,757,725
Fixed Asset Revaluation - VKSTD 5,023,962
Fixed Asset Revaluation - MULCD 4,253,095
To Close Intercompany obligations,
eliminate RE before acqusition,
Record Negative Goodwill on acqustion
(4) Accounts Receivable - JM 2,500,000
Investment in IDW PRC Co's. 7,303,524
Deposits 1,000,000
Note Payable - JM 8,803,524
To Record Note to JM for purchase
(5) Capial Stock - PRC Companies 7,303,524
Investment in PRC Companies 7,303,524
To Eliminate equity / Inv. Accts.
(6) Revenue - VKSTD 511,057
Operating Expense - MULCD 511,057
To eliminate Mgmt Fee to MULCD
(7) Sales - MULCD 3,856,691
Cost of Goods - VKSTD 3,856,691
Eliminated Interco Sales
(8) Note Payable - JM 3,828,000
Capital Stock (5.8M Shares) 3,828,000
To record sale of stock for
acqusition of PRC Companies
(9) Interest Expense 148,531
Note Payable - JM 148,531
Accrue Interest for 12 Months @ 6%
86,883,289 86,883,289
<PAGE>F-100
Accumulated Deficit Capital Stock
Morrow 12/31/99 $ 23,250,000
Balance 12/31/99 $ 27,866,000
IDW 12/31/99 186,293
Shares Issued for IDW 1,340,000
MULCD (268,326) (2,680,000 @ $.50)
Capital Raised 3,828,000
VKSTD 119,335 ------------
Adjusted Balance 33,034,000
============
Interest 148,531
Balance Sheet 33,034,000
============
Amortization 24,286
==========
Accumulated Deficit 23,460,119
==========
Balance Sheet 23,460,119
==========
<PAGE>F-101
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
In January 2000, the Company acquired certain assets of the PRC Companies for
approximately $9.8 million. The acquisition has been accounted for using the
purchase method of accounting. The operations of the PRC Companies are included
in the historical consolidated financial statements of the Company from the date
of acquisition. In addition, in January 2000, the Company acquired all of the
outstanding shares of International Display Works (IDW) in exchange for
2,680,000 shares of the Company's common stock. Due to immateriality, IDW
financial position and results of operations have been combined with the
Company's finanical position and results of operations in the unaudited pro
forma condensed combined financial statements (pro formas).
Adjustments to unaudited pro forma condensed combined financial statements have
been made to present the acquisitions described above as if they had occurred on
January 2, 1999. The Company consummated the sale of 5,800,000 shares of its
common stock for $3,828,000 subsequent to January 1, 2000, to finance the
acquisition of the PRC Companies. The sale of stock has been recorded in the pro
formas as if the sale occurred in the first quarter of the 1999 fiscal year and
the proceeds used to reduce the note payable for the purchase of the PRC
Companies. The note payable has been further reduced by a $1,000,000 deposit on
the acquisition reflected in the Company's financial statements as "Other
assets". Interest expense on the balance of the note payable has been reflected
in the pro forma results of operations. In addition, the pro formas reflect the
accrual of approximately $2,500,000 in accounts receivable due to the Company
upon final payment on the note payable. The accrual represents the managements
estimates of collections of the PRC Companies accounts receivable held by the
Judicial Manager until the final payment on the purchase has been received.
All inter-company transactions between the respective PRC Companies during the
year have been eliminated. Further, the assets and liabilities of the PRC
Companies which were not acquired by the Company (consisting of amounts due from
and due to entities related to the PRC Companies) were eliminated as were the
respective common stock and accumulated deficit accounts of each PRC Company.
The excess of the net book value of the PRC Companies assets acquired over the
purchase price paid has been applied to reduce the book value of the plant and
equipment accounts.
The acquisition of IDW's common stock, for pro forma purposes, has been recorded
as if the transaction occurred on January 2, 1999. Goodwill of $340,000 reflects
the excess of the fair market value of the Company's common stock exchanged over
the net book value of the IDW assets acquired, net of amortization.
