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Lung Kee (Bermuda) Holdings Limited

Notes to the Financial Statements
For the year ended 31st March, 1999
Note: [10] [11] [12] [13] [14] [15] [16] [17] [18] [19]

10. FIXED ASSETS

                                                              Furniture,                                Properties
                                  Investment      Land and  fixtures and     Plant and         Motor         under
                                  properties     buildings      fittings     machinery      vehicles  construction         Total
                                         HK$           HK$           HK$           HK$           HK$           HK$           HK$

THE GROUP
AT COST OR VALUATION
At 1st April, 1998                         -   117,299,800   61,662,218    307,604,013    20,336,258    37,524,602   544,426,891
Currency realignment                       -        27,049      (92,905)      (269,861)      (53,964)       57,616      (332,065)
Reclassification                   8,113,140    12,352,507            -              -             -   (20,465,647)            -
On acquisition of a subsidiary             -     1,429,883      994,673     10,030,181     1,400,582             -    13,855,319
Additions                                  -     3,582,733    2,927,996     32,387,138     5,681,384    42,565,684    87,144,935
Disposals                                  -    (1,868,187)    (451,401)      (179,800)   (3,632,168)            -    (6,131,556)
Deficit arising on revaluation    (3,613,140)            -            -              -             -             -    (3,613,140)
                                  ----------   -----------   ----------    -----------    ----------   -----------   ----------- 
At 31st March, 1999                4,500,000   132,823,785   65,040,581    349,571,671    23,732,092    59,682,255   635,350,384
                                  ----------   -----------   ----------    -----------    ----------   -----------   -----------
Comprising:

At valuation 1999                  4,500,000             -            -              -             -             -     4,500,000
At cost                                    -   132,823,785   65,040,581    349,571,671    23,732,092    59,682,255   630,850,384
                                  ----------   -----------   ----------    -----------    ----------   -----------   -----------
                                   4,500,000   132,823,785   65,040,581    349,571,671    23,732,092    59,682,255   635,350,384
                                  ==========   ===========   ==========    ===========    ==========   ===========   ===========
DEPRECIATION AND AMORTISATION
At 1st April, 1998                         -     9,173,823   29,670,998    155,940,265    13,635,591             -   208,420,677
Currency realignment                       -       (58,219)     (66,989)      (375,314)      (11,049)            -      (511,571)
Reclassification                     757,227      (757,227)           -              -             -             -             -
On acquisition of a subsidiary             -             -      265,089      1,594,268       421,695             -     2,281,052
Provided for the year                      -     2,535,320    8,347,692     48,454,444     5,046,141             -    64,383,597
Eliminated on disposals                    -      (141,671)    (357,007)      (177,820)   (2,906,309)            -    (3,582,807)
Deficit arising on revaluation      (757,227)            -            -              -             -             -      (757,227)
                                  ----------   -----------   ----------    -----------    ----------   -----------   -----------
At 31st March, 1999                        -    10,752,026   37,859,783    205,435,843    16,186,069             -   270,233,721
                                  ----------   -----------   ----------    -----------    ----------   -----------   -----------
NET BOOK VALUE
At 31st March, 1999                4,500,000   122,071,759   27,180,798    144,135,828     7,546,023    59,682,255   365,116,663
                                  ==========   ===========   ==========    ===========    ==========   ===========   ===========
At 31st March, 1998                        -   108,125,977   31,991,220    151,663,748     6,700,667    37,524,602   336,006,214
                                  ==========   ===========   ==========    ===========    ==========   ===========   ===========

The investment properties of the Company were revalued at 31st March, 1999 on an open market value basis by Chung Sen Surveyors Limited, a firm of independent professional valuers. The deficit arising on revaluation of HK$2,855,913 has been charged to the profit and loss account.

The net book value of investment properties and land and buildings shown above comprises:

                                                     1999          1998
                                                      HK$           HK$

Properties in Hong Kong held under
 medium-term leases                            41,216,346    46,745,955
Properties outside Hong Kong:
 -- freehold                                    6,138,872     5,252,281
 -- held under medium-term leases of
  less than fifty year                         79,216,541    56,127,741
                                              -----------   -----------
                                              126,571,759   108,125,977
                                              ===========   ===========

The properties under construction are situated outside Hong Kong and are held under medium-term leases of less than fifty years.

At 31st March, 1999, one of the Group's freehold properties with a net book value of HK$1,373,527 (1998: nil) was pledged to a bank as security for general banking facilities granted to the Group. None of the facilities was utilised as at the balance sheet date.

At 31st March, 1998, one of the Group's leasehold properties with a net book value of HK$1,726,516 had been pledged to a bank as security for the mortgage loan facilities granted to the Group. The mortgage loan was fully repaid during the year.

The net book value of fixed assets included an amount of HK$3,190,548 (1998: HK$4,897,844) in respect of assets held under finance leases.


11. INTERESTS IN SUBSIDIARIES

                                                        THE COMPANY
                                                     1999          1998
                                                      HK$           HK$

Unlisted shares, at cost                       55,856,000    55,856,000
Amount due from a subsidiary                  118,497,853   134,798,527
Loans to subsidiaries                          17,000,000             -
                                              -----------   -----------
                                              191,353,853   190,654,527
                                              ===========   ===========

The carrying value of the unlisted shares is based on the book values of the underlying net assets of the subsidiaries attributable to the Group as at the date on which the Company became the ultimate holding company of the Group under the group reorganisation in 1993.

The amount due from a subsidiary is unsecured, non-interest bearing and has no fixed repayment terms.

Loans to subsidiaries are unsecured, interest bearing at Hong Kong prime rate and have no fixed repayment terms.

Details of the Company's subsidiaries at 31st March, 1999 are set out in note 30.

None of the subsidiaries had any loan capital outstanding at the end of the year or at any time during the year.


12. INTERESTS IN JOINTLY CONTROLLED ENTITIES

                                                           THE GROUP
                                                     1999          1998
                                                      HK$           HK$

Share of net liabilities                       (1,337,304)   (1,577,736)
Amounts due from jointly controlled entities    4,242,128    11,238,876
                                               ----------    ----------
                                                2,904,824     9,661,140
Less: Provision                                (2,904,824)            -
                                               ----------    ----------
                                                        -     9,661,140
                                               ==========    ==========

At 31st March, 1999, the Group had a 37.5% equity interest in Lung Kee Metal Japan Co., Ltd., a company incorporated in Japan and is engaged in the manufacturing and marketing of mould bases. As Lung Kee Metal Japan Co., Ltd. had net liabilities at 31st March, 1999, the Group's interests in this company were fully provided.

At 31st March, 1998, the Company also had interests in the following companies:

                                             Proportion of
                                          nominal value of
                                            issued capital
                              Country of       held by the   Principal
Name of company               incorporation          Group   activities

Lung Kee (Metal) Malaysia     Malaysia              37.5%    Manufacturing
 Sdn. Bhd. ("Lung Kee                                         and marketing
 Malaysia" formerly known as                                  of mould
 United Challenge Sdn. Bhd.)                                  bases and
 (note a)                                                     related
                                                              products

Lung Kee Japan Co., Ltd.      Japan                 37.5%    Inactive
 (note b)

Notes:

a. On 1st April, 1998, Lung Kee International Limited ("Lung Kee International"), a 75% owned subsidiary, entered into various arrangements with the remaining shareholder of Lung Kee Malaysia pursuant to which the 50% economic interest in Lung Kee Malaysia not registered in the name of Lung Kee International was effectively surrendered to Lung Kee International. As the Group also had management control over this company, Lung Kee Malaysia was accounted for as a subsidiary for accounting purposes from 1st April, 1998 onwards.

b. Lung Kee Japan Co. Ltd. was liquidated and the Group's interests in this company was fully written off.

The amounts due from jointly controlled entities are unsecured, non-interest bearing and have no fixed repayment terms.


13. INTERESTS IN AN ASSOCIATED COMPANY

                                                           THE GROUP
                                                     1999          1998
                                                      HK$           HK$

Share of net assets                                     -     3,475,495
Amount due from an associated company                   -     3,186,852
                                               ----------    ----------
                                                        -     6,662,347
                                               ==========    ==========

The Group had a 15% equity interest in Fu Yu Moulding and Tooling (Dongguan) Co. Ltd. ("Fu Yu"), a company established in the PRC and engaged in the marketing of plastic products. The Group ceased to be in a position to exercise significant influence over this company during the year and on 27th May, 1999 the Group entered into an agreement with the remaining shareholder of Fu Yu to dispose of its entire interest for HK$3,187,498. The Group's interest in this company at 31st March, 1999 was reclassified as other investment under current assets (note 15) and was stated at the net realisable value of HK$3,187,498.

The amount due from an associated company was unsecured, non-interest bearing and was repaid during the year.


14. LONG-TERM INVESTMENT

                                                           THE GROUP
                                                     1999          1998
                                                      HK$           HK$

Unlisted shares, at cost                           50,000        50,000
                                               ==========    ==========

The Group holds 16.7% of the ordinary share capital of Jetlink (H.K.) Limited, a private company incorporated in Hong Kong which was inactive during the year. In the opinion of the directors, the unlisted shares are worth at least cost.


15. NET CURRENT ASSETS (LIABILITIES)

                                    THE GROUP                THE COMPANY
                                1999         1998         1999         1998
                                 HK$          HK$          HK$          HK$

CURRENT ASSETS
Inventories (note 16)    207,340,327  225,123,281            -            -
Debtors, deposits
 and prepayments         176,274,188  207,315,315      255,610      167,221
Bills receivable           2,284,838    5,311,552            -            -
Other investment
 (note 13)                 3,187,498            -            -            -
Amounts due from jointly
 controlled entities               -   12,418,894            -       59,915
Taxation recoverable       2,710,696            -            -            -
Bank balances, deposits
 and cash                121,168,763  118,560,941       21,250       20,297
                         -----------  -----------  -----------  -----------
                         512,966,310  568,729,983      276,860      247,433
                         -----------  -----------  -----------  -----------
CURRENT LIABILITIES
Creditors and
 accrued charges          62,034,226   61,472,290      268,989      252,789
Taxation payable           3,815,229    9,718,666            -            -
Proposed dividend         26,569,157   37,955,938   26,569,157   37,955,938
Borrowings --
 due within one year      24,713,329   17,438,335            -            -
 (note 21)
Obligations under
 finance leases --
 due within one year
 (note 22)                 2,227,236    2,391,904            -            -
                         -----------  -----------  -----------  -----------
                         119,359,177  128,977,133   26,838,146   38,208,727
                         -----------  -----------  -----------  -----------
NET CURRENT ASSETS
 (LIABILITIES)           393,607,133  439,752,850  (26,561,286) (37,961,294)
                         ===========  ===========  ===========  ===========

16. INVENTORIES

                                                           THE GROUP
                                                     1999          1998
                                                      HK$           HK$

Raw materials                                 177,797,237   169,819,251
Work in progress                               18,154,203    39,510,491
Finished goods                                 11,388,887    15,793,539
                                              -----------   -----------
                                              207,340,327   225,123,281
                                              ===========   ===========

The cost of inventories recognised as an expense during the year was HK$432,304,909 (1998: HK$386,589,621).


17. SHARE CAPITAL

                                                            1999 & 1998
                                                                    HK$

Shares of HK$0.10 each
 Authorised                                                  60,000,000
                                                            ===========
 Issued and fully paid                                       37,955,938
                                                            ===========

18. SHARE OPTIONS

(i) The Company has a share option scheme (the "Scheme") under which the Board of Directors of the Company may grant options to eligible employees, including executive directors, of the Company and its subsidiaries, to subscribe for shares in the Company at a price equal to the higher of the nominal value of the shares and 80% of the average of the closing prices of the shares on the Stock Exchange on the five trading days immediately preceding the date of the grant of the options. The maximum number of shares in respect of which options may be granted under the Scheme shall not exceed 10% of the issued share capital of the Company from time to time.

Options granted are exercisable for a period of 3 years commencing on the expiry of 6 months after the date the options are granted.

Details of the movements in the number of share options granted under the Scheme during the year are as follows:

                    Number of share options
               ---------------------------------
Exercise price         At    Granted          At
per share      1st April,     during 31st March,
HK$                  1998   the year        1999  Exercisable period

1.440             225,000          -     225,000  21st September, 1997 to
                                                   20th September, 2000

1.865           4,000,000          -   4,000,000  1st May, 1998 to
                                                   30th April, 2001

1.205           4,200,000          -   4,200,000  3rd September, 1998 to
                                                   2nd September, 2001

0.550                   -  3,910,000   3,910,000  29th September, 1999 to
                                                   28th September, 2002
               ----------  ---------  ----------
                8,425,000  3,910,000  12,335,000
               ==========  =========  ==========

No significant consideration was received by the Company for options granted during the year.

(ii) A subsidiary of the Company, LKMH, also has a share option scheme (the "LKMH Scheme") under which the Board of Directors of LKMH may grant options to eligible employees, including executive directors, of LKMH and its subsidiaries, to subscribe for shares in LKMH at a price equal to the higher of the nominal value of the shares and 80% of the average of the closing prices of the shares on the Main Board of the Stock Exchange of Singapore Limited on the three trading days immediately preceding the date of the grant of the options. The maximum number of shares in respect of which options may be granted under the LKMH Scheme shall not exceed 10% of the share capital of LKMH from time to time.

Options granted are exercisable for a period of 4 years commencing on the expiry of 12 months after the date the options are granted.

Details of the movements in the number of share options granted under the LKMH Scheme during the year are as follows:

                    Number of share options
               ---------------------------------
Exercise price         At    Granted          At
per share      1st April,     during 31st March,
US$                  1998   the year        1999  Exercisable period

0.42            3,000,000          -   3,000,000  15th January, 1999 to
                                                   14th January, 2003

0.13                    -  3,500,000   3,500,000  14th August, 1999 to
                                                   13th August, 2003
               ----------  ---------  ----------
                3,000,000  3,500,000   6,500,000
               ==========  =========  ==========

No significant consideration was received by LKMH for options granted during the year.


19. RESERVES

                                                    Retained
                              Share     Capital      profits Translation
                            premium     reserve    (deficit)     reserve        Total
                                HK$         HK$          HK$         HK$          HK$

THE GROUP
At 1st April, 1998      106,101,047  11,801,902  351,074,323     426,193  469,403,465
Realised on liquidation
 of a subsidiary                  -    (151,827)           -           -     (151,827)
Goodwill on acquisition
 of a subsidiary                  -  (1,710,850)           -           -   (1,710,850)
Exchange differences
 arising from
 translation of
 foreign currency
 financial statements             -           -            -     427,777      427,777
Profit for the year               -           -   66,368,855           -   66,368,855
Dividends (note 8)                -           -  (37,955,938)          -  (37,955,938)
                        -----------  ----------  -----------  ----------  -----------
At 31st March, 1999     106,101,047   9,939,225  379,487,240     853,970  496,381,482
                        ===========  ==========  ===========  ==========  ===========
Attributable to:
The Company
 and subsidiaries       106,101,047   9,939,225  382,731,384     853,970  499,625,626
Jointly controlled
 entity                           -           -   (3,244,144)          -   (3,244,144)
                        -----------  ----------  -----------  ----------  -----------
At 31st March, 1999     106,101,047   9,939,225  379,487,240     853,970  496,381,482
                        ===========  ==========  ===========  ==========  ===========

Included in the above are the Group's share of post acquisition reserves of jointly controlled entities and associated company:


At 1st April, 1998                -           -   (6,973,781)    508,957   (6,464,824)
Share of results
 for the year                     -           -     (199,323)          -     (199,323)
Transferred to
 group reserves                   -           -    3,928,960    (508,957)   3,420,003
                        -----------  ----------  -----------  ----------  -----------
At 31st March, 1999               -           -   (3,244,144)          -   (3,244,144)
                        ===========  ==========  ===========  ==========  ===========

The capital reserve of the Group includes an amount of HK$11,870,047 arising from the reorganisation of the Group, representing the aggregate of (i) the deferred shares of Lung Kee International Limited and Lung Kee Metal Limited; and (ii) the difference between the nominal amount of the share capital issued by the Company in exchange for the nominal amount of the share capital of its subsidiaries acquired at the date of the group reorganisation.

                              Share premium  Retained profits        Total
                                        HK$               HK$          HK$

THE COMPANY
At 1st April, 1998              106,101,047         8,636,248  114,737,295
Profit for the year (note 7)              -        50,055,272   50,055,272
Dividends (note 8)                        -       (37,955,938) (37,955,938)
                                -----------       -----------  -----------
At 31st March, 1999             106,101,047        20,735,582  126,836,629
                                ===========       ===========  ===========

The Company's reserves available for distribution to shareholders at 31st March, 1999 represent its retained profits of HK$20,735,582 (1998: HK$8,636,248).


Source: Lung Kee (Bermuda) Holdings Limited
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