China Wonder Limited
01 June 2007
CHINA WONDER LIMITED
Final results for the year ended 31 December 2006
CHAIRMAN'S STATEMENT
These are the consolidated results of China Wonder Limited and Jinzhou Wonder
Packaging Machinery Co. Ltd, our principal operating subsidiary, ('China Wonder'
or 'the Group'). For the year ended 31 December 2006 the Group recorded a profit
before tax of £209,449 (2005 - £229,019) on sales revenue of £1,064,479 (2005 -
1,216,297). Basic earnings per ordinary share amounted to 1.41p (2005 - 1.57p).
At the year-end, Group cash and cash equivalents amounted to £262,080 (2005 -
£428,587). At 31 December 2006 we had no bank borrowings. Indeed, during 2006 we
repaid bank borrowings of £216,277.
2006 has been a positive year for China Wonder. Export growth almost made up for
the slowing of domestic sales as a result of the Government's price capping of
medicines and its restriction on the grant of new licences for drugs.
We have been working hard to close the technology gap between us and leading
European manufacturers. The results are showing: the standards now being
achieved are reflected in our recent export sales to Belgium and Spain.
The acquisition of Wonder Equipment Limited ('WE') after the year-end will widen
our product range as well as further extending our geographic reach. WE has
recently sold a batch of specialist machines to Argentina.
The Board continues to search for opportunities to expand - both organically and
by acquisition. The large amount of management time spent on our first
acquisition and placing will be seen as an important learning experience for the
future.
The Company will not be paying a dividend but will keep the situation under
review.
I would finally like to thank all the staff for their efforts this year, certain
that they will be reflected in the future.
Yours sincerely,
Peter G Dellar
Chairman
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2006
2006 2005
Note £ £
REVENUE 3 1,064,479 1,216,297
Cost of sales (530,234) (598,841)
GROSS PROFIT 534,245 617,456
OTHER OPERATING INCOME 3 54,085 47,597
OPERATING EXPENSES
Distribution expenses (112,241) (135,791)
Administrative expenses (262,534) (296,696)
(374,775) (432,487)
PROFIT FROM OPERATIONS 4 213,555 232,566
Finance income 3 187 143
Finance costs 7 (4,293) (3,690)
PROFIT BEFORE TAX 209,449 229,019
TAXATION 8 (53,943) (57,642)
PROFIT FOR THE YEAR ATTRIBUTABLE
TO EQUITY HOLDERS OF THE PARENT 20 155,506 171,377
EARNINGS PER SHARE 9
Basic 1.41 p 1.57 p
Diluted 1.40 p 1.54 p
All amounts relate to continuing operations.
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the year ended 31 December 2006
2006 2005
£ £
Exchange differences on translation of (118,523) 152,750
foreign operations
Net (expense)/income recognised directly (118,523) 152,750
in equity
Profit for the 155,506 171,377
year
TOTAL RECOGNISED INCOME AND EXPENSE FOR THE YEAR
ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 36,983 324,127
STATEMENT OF RECOGNISED INCOME AND EXPENSE
IN THE PARENT COMPANY
for the year ended 31 December 2006
2006 2005
£ £
(Loss)/Profit for the (52,493) 215,883
year
TOTAL RECOGNISED INCOME AND EXPENSE FOR THE YEAR
ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT (52,493) 215,883
CONSOLIDATED BALANCE SHEET
at 31 December 2006
31 December 2006 31 December 2005
Note £ £ £ £
ASSETS
Non-current assets
Property, plant and 13 560,111 683,832
equipment
Intangible assets 14 64,062 39,079
Deferred tax asset 8 6,738 5,557
630,911 728,468
Current assets
Inventories 15 277,259 225,785
Trade and other receivables 16 648,612 806,179
Cash and cash equivalents 262,080 428,587
1,187,951 1,460,551
TOTAL ASSETS 1,818,862 2,189,019
LIABILITIES
Current
liabilities
Short-term loan 17 - (216,277)
Trade and other payables 18 (649,411) (787,325)
Tax liabilities (35,485) (88,434)
(684,896) (1,092,036)
NET ASSETS 1,133,966 1,096,983
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS
OF THE PARENT
Share capital 19 275,000 275,000
Share premium 20 519,730 519,730
Statutory reserves 20 97,848 63,072
Translation 20 (28,967) 89,556
reserve
Retained earnings 20 270,355 149,625
TOTAL EQUITY 1,133,966 1,096,983
Approved and authorised for issue by the Board on 17th May 2007
and signed on its behalf by:
ZHAO QINGJIE MIAO GUOJUN
Director Director
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2006
2006 2005
£ £ £ £
PROFIT FROM OPERATIONS 213,555 232,566
Depreciation of property, plant and 41,352 46,821
equipment
Amortisation of intangibles 1,874 1,406
OPERATING CASH FLOW BEFORE WORKING CAPITAL 256,781 280,793
Decrease/(increase) in (72,361) 88,587
inventories
Decrease/(increase) in 83,162 (428,496)
receivables
Decrease in payables (133,279) (23,699)
Interest paid (4,293) (3,690)
Tax paid (98,711) (57,642)
NET CASH GENERATED/(ABSORBED) BY
OPERATING ACTIVITIES 31,299 (144,147)
INVESTING ACTIVITIES
Purchase of property, plant and (50,737) (41,536)
equipment
Interest received 187 143
Net cash used in investing (50,550) (41,393)
activities
FINANCING ACTIVITIES
Issue of ordinary share - 120,000
capital
New bank loan (repaid) (196,270) 216,277
Net cash from financing (196,270) 336,277
activities
NET INCREASE IN CASH
AND CASH EQUIVALENTS (215,521) 150,737
Cash and cash equivalents
at the beginning of the year/ 428,587 216,217
period
Effect of foreign exchange 49,014 61,633
differences
CASH AND CASH EQUIVALENTS
AT THE END OF THE YEAR/PERIOD 262,080 428,587
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 31 December 2006
1. GENERAL INFORMATION
The Company is a public limited company incorporated in Jersey under Companies
(Jersey) Law 1991. The address of the registered office is given on page 1. The
nature of the Group's operations and its principal activities are set out in the
Director's Report. The principal place of business of the Group's operations is
Qilihe Village Economic Development District, Jinzhou City, Liaoning Province,
People's Republic of China.
These financial statements present information about the Company on a stand-alone
basis and as a consolidated group of companies, and are set out in pounds
sterling reflecting the company's quotation on the UK Alternative Investment
Market. The functional currency of the Company's subsidiary is the Renminbi of
the People's Republic of China.
2. ACCOUNTING POLICIES
The preparation of financial statements in conformity with IFRSs requires
management to make assumptions that affects the application of accounting
policies and the amounts of assets, liabilities, income and expenditure. The
estimates and associated assumptions are based on historical experience and other
relevant factors, the results of which form the basis for the judgements that
underlie the carrying value of the assets and liabilities. Actual results may
differ from these estimates. The most significant areas in which judgements are
required relate to the estimate of useful economic lives and residual values of
non-current assets and the recoverable amount of current and non-current assets
(in particular inventories and trade receivables). The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimates are revised if the revision
affects only that period, or in the period of revision and future periods if the
revision affects both the current and future periods.
Statement of compliance
The financial statements have been prepared in accordance with those
International Financial Reporting Standards and Interpretations in force
('IFRSs'), as adopted by the European Union. In accordance with the transitional
arrangements provided in IFRS 2 Share-based payments, IFRS 2 has not been applied
to the Company's share options as they had fully vested prior to 1 January 2005.
At the date of authorisation of these financial statements, the following
standards and interpretations were in issue but not yet effective:
• IFRS 7 'Financial Instruments: Disclosure' (effective accounting periods
beginning 1/1/07)
• IFRS 8 'Operating Segments' (effective accounting periods beginning 1/1/
09)
• IFRIC 7 'Applying the Restatement Approach under IAS 29' (effective
accounting periods beginning 1/3/06)
• IFRIC 8 'Scope of IFRS 2' (effective accounting periods beginning 1/5/06)
• IFRIC 9 'Reassessment of Embedded Derivatives' (effective accounting
periods beginning 1/6/06)
• IFRIC 10 'Interim Financial Reporting and Impairment' (effective
accounting periods beginning 1/11/06)
• IFRIC 11 'Group and treasury Share Transactions' (effective accounting
periods beginning 1/3/07)
• IFRC 12 'Service Concession Agreements' (effective accounting periods
beginning 1/1/08)
• IAS 23 Revised 'Borrowing Costs' (effective accounting periods beginning 1
/1/09)
• Amendment to IAS 1 'Presentation of Financial Statements: Capital
Disclosures' (effective accounting periods beginning 1/1/07)
None of the above standards and interpretations are expected to have a
significant impact on the financial statements.
Basis of consolidation
Where the company has the power, either directly or indirectly, to govern the
financial and operating policies of another entity or business so as to obtain
benefits from its activities, it is classified as a subsidiary. The consolidated
financial statements present the results of the Company and its subsidiaries
('the Group') as if they formed a single entity. Inter-company transactions and
balances between group companies are therefore eliminated in full.
Goodwill
Goodwill represents the excess of the cost of a business combination over the
interest in the fair value of identifiable assets, liabilities and contingent
liabilities acquired. Cost comprises the fair values of assets given, liabilities
assumed and equity instruments issued, plus any direct costs of acquisition.
Goodwill is capitalised as an intangible asset with any impairment in carrying
value being charged to the income statement, through administrative expenses, and
is not subsequently reversed.
Where the fair value of identifiable assets, liabilities and contingent
liabilities exceed the fair value of consideration paid, the excess is credited
in full to the income statement.
Foreign currency
Transactions entered into by group entities in a currency other than the
currency of the primary economic environment in which it operates (the
'functional currency') are recorded at the rates ruling when the transactions
occur. Foreign currency monetary assets and liabilities are translated at the
rates ruling at the balance sheet date. Exchange differences arising on the
retranslation of unsettled monetary assets and liabilities are similarly
recognised immediately in the income statement, except for foreign currency
borrowings qualifying as a hedge of a net investment in a foreign operation.
On consolidation, the results of overseas operations are translated into
sterling at rates approximating to those ruling when the transactions took
place. All assets and liabilities of overseas operations, including goodwill
arising on the acquisition of those operations, are translated at the rate
ruling at the balance sheet date. Exchange differences arising on translating
the opening net assets at opening rate and the results of overseas operations
at actual rate are recognised directly in equity (the 'Translation reserve').
Exchange differences recognised in the income statement of group entities'
separate financial statements on the translation of long-term monetary items
forming part of the group's net investment in the overseas operation
concerned are reclassified to the Translation reserve.
On disposal of a foreign operation, the cumulative exchange differences
recognised in the foreign exchange reserve relating to that operation up to
the date of disposal are transferred to the income statement as part of the
profit or loss on disposal.
Borrowing costs
All borrowings costs are recognised in the income statement in the period in
which they are incurred.
Income tax
Income tax for the financial year comprises current and deferred tax. Income
tax is recognised in the income statement except to the extent that it
relates to items recognised directly in equity, in which case such tax is
recognised in equity.
Current tax is the expected tax payable on the taxable income for the
financial year, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustment to tax payable in respect of previous
financial years.
Deferred tax is provided using the liability method, providing for temporary
differences as at the balance sheet date between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for taxation purposes except for differences arising on:
• the initial recognition of goodwill,
• the initial recognition of an asset or liability in a transaction which is
not a business combination and, at the time of the transaction, affects
neither accounting or taxable profit, and
• investments in subsidiaries and jointly controlled entities where the
group is able to control the timing of the reversal of the difference and
it is probable that the difference will not reverse in the foreseeable
future.
The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable
that future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
Dividends
Equity dividends are recognised when they become legally payable. In respect
of interim dividends to equity shareholders, this is when they are declared
and paid. In respect of final dividends to equity shareholders, this is when
they are approved by the members at the Annual General Meeting.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and impairment losses. 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. Depreciation is
calculated so as to write off the cost of an asset, less its estimated
residual value, over its useful economic life, using the straight-line
method. The estimated useful lives are as follows:
Buildings 20 years
Plant, machinery, furniture and 5-10
fixtures years
Motor vehicles 5 years
Land use rights and patent rights
Expenditure on land use rights and patents rights are capitalised and treated
as an intangible fixed asset.
Land use rights and patents are amortised through administrative expenses
over the period to which the rights or patent relate.
The estimated useful lives are as follows:
Land use right 41-43
years
Patent rights 10 years
Impairment of assets
The carrying amounts of assets are reviewed at each balance sheet date to
determine whether there is any indication of impairment. If any such
indication exists, the asset's recoverable amount is estimated. For goodwill,
the recoverable amount is estimated at each balance sheet date. An impairment
loss is recognised whenever the carrying amount of the asset or its
cash-generating unit exceeds its recoverable amount. Impairment losses are
recognised through administrative expenses in the income statement.
The recoverable amount is the higher of an asset's net selling price and
value in use. The net selling price is the amount obtainable from the sale of
an asset in an arm's length transaction. Value in use is the present value of
estimated future cash flows expected to arise from the continuing use of an
asset and from its disposal at the end of its useful life. Recoverable
amounts are estimated for individual assets or, if it is not possible, for
the cash generating unit.
An impairment loss is reversed if there has been a change in the estimates
used to determine the recoverable amount. An impairment loss is reversed only
to the extent that the asset's carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation, if no impairment
loss had been recognised. Reversals of impairment losses are recognised in
the income statement. Impairment losses in respect of goodwill are not
reversed.
Investment in subsidiary undertakings
Investments in subsidiaries are stated at cost less provision for any
impairment in value.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
determined using the weighted average cost method. The cost of finished goods
comprises raw materials, direct labour, other direct costs and related
production overheads but excludes borrowing costs. Net realisable value is
the estimated selling price in the ordinary course of business, less the
costs of completion and selling expenses.
Financial assets
Financial assets are cash and bank balances, trade and other receivables and
amounts due from related parties.
Trade and other receivables and amounts due from related parties are stated
at cost as reduced by appropriate allowances for estimated irrecoverable
amounts.
Known bad receivables are written off as incurred when collection for the
full amount is no longer probable, and an estimate for doubtful debts made
based on past experience.
Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents are
short-term, highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in
value.
Financial liabilities and
equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. Financial liabilities
include trade and other payables, amounts due to related parties and
shareholders, bank borrowings and notes payable.
Trade and other payables are carried at cost which is the fair value of the
consideration to be paid in the future for goods and services received,
whether or not billed to the Group.
All borrowings and overdrafts are recorded at fair value, being the proceeds
received, net of direct issue costs. Finance charges are charged to the
income statement on an accruals basis using the effective interest rate
method.
Equity instruments are recorded at the fair value of the consideration
received, net of direct issue costs.
Sales revenue recognition
Sales revenue is recognised when goods are delivered and commissioned at the
customers' premises which is taken to be the point in time when the customer
has accepted the goods and the related risks and rewards of ownership. Sales
revenue excludes value added or other sales taxes and is after deduction of
any trade discounts.
Government grants
Government grants received on capital expenditure are deducted in arriving at
the carrying amount of the asset purchased. Grants for revenue expenditure
are netted against the cost incurred by the Group.
Where retention of the government grant is dependent on the Group satisfying
certain criteria it is initially recognised as deferred income. When the
criteria for retention have been satisfied, the deferred income balance is
released to the income statement or netted against the asset purchased as
appropriate.
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.
3. INCOME
Income is analysed as follows:
2006 2005
£ £
Revenue from the sale of 1,064,479 1,216,297
goods
Other operating income - government 54,085 47,597
subsidy
Interest received on cash 187 143
deposits
1,118,751 1,264,037
All sales revenue arises from the sale of packaging machinery and associated spare parts which
forms the Group's sole business segment.
All operations and assets are based in Jinzhou Province, People's Republic of China. Revenue from
the sale of goods is analysed as follows:
2006 2005
£ £
China 952,130 1,197,122
Export sales
Algeria 17,383 19,175
Bangladesh 24,625 -
Belgium 16,398 -
Mexico 14,022 -
Philippines 12,747 -
Russia 15,586 -
Vietnam 11,588 -
1,064,479 1,216,297
The Group receives a subsidy in accordance with local tax regulations in Jinzhou Province due to
the reinvestment of profits in its subsidiary company.
4. PROFIT FROM OPERATIONS
2006 2005
£ £
Profit from operations has been arrived at after charging/
(crediting):
Staff costs (note 5) 108,759 120,589
Depreciation on property, plant and 41,352 46,821
machinery
Amortisation of intangible 1,874 1,406
assets
Provision for bad debts 26,624 6,626
Loss on exchange 1 24
Auditors' fees
audit services 18,285 23,000
5. STAFF COSTS
2006 2005
£ £
Short-term employee 98,240 110,156
benefits
Social security costs 10,519 10,433
108,759 120,589
The average number of persons, including directors, employed by the Group during the year/period
was:
2006 2005
Number Number
Management 29 29
Other 65 68
94 97
6. DIRECTORS
2006 2005
£ £
Emoluments - executive 10,000 21,000
Emoluments - non-executive 15,000 18,750
25,000 39,750
Included in the above amounts are emoluments earned by Mark E Chapman and J Michael Spittal/James
Wolfson, which are chargeable by their employers, Messrs Cathay Corporate Managers Limited and
Trident Trust Company Limited respectively, in the sums of £12,500 (2005 - £12,500) and £3,500
(2005 - £3,500). All other directors' emoluments are payable to the individual directors.
7. FINANCE COSTS
2006 2005
£ £
Interest on bank loans 4,293 3,690
8. TAXATION
The taxation charge of £53,943 (2005 - £57,642) represents an exempt taxation charge of £600
arising in Jersey and £53,343 (2004 - £57,042 ) income tax arising in the People's Republic of
China ('PRC'). The group's subsidiary company qualifies as a foreign investment production
enterprise and is established in a technological economic development zone. Accordingly the
applicable tax rates are Enterprise Income tax of 24% (reduced by 50%) and a local tax of 3%
(reduced by 50%).
2006 2005
£ £
Income tax expense is as
follows:
Current income tax 55,704 62,783
Deferred income tax - accelerated (1,761) (5,141)
capital allowances
53,943 57,642
Deferred tax assets
At 1 January 2006 5,557 -
Transfer to/(from) income statement 1,761 5,141
Exchange differences (580) 416
At 31 December 2006 6,738 5,557
Tax effect of temporary difference arising from the different
treatment
of certain expenditure for tax and financial reporting 6,738 5,557
purposes
Reconciliation of effective tax rates
Profit before tax 209,393 229,019
Tax on profits at the prevailing rate 28,268 30,917
applicable
Charge for exempt company status 600 600
Expenses not deductible 20,656 26,125
for tax
Income exempted from tax (11,556) -
Others 15,975 -
Tax expense for the period 53,943 57,642
9. EARNINGS PER SHARE
The earnings per share is based on the profit for the year of £155,506 (2005 - £171,377) and on the
weighted average number of ordinary shares of 11,000,000 (2005 - 10,897,260) in issue for the year.
The weighted average number of ordinary shares used in the calculation of earnings per share has
been derived as follows:
2006 2005
Weighted average number of ordinary 11,000,000 10,897,260
shares - basic
Dilutive effect of share 78,533 250,400
options
Weighted average number of ordinary shares - diluted 11,078,533 11,147,660
10. DIVIDENDS
The Directors do not propose a dividend in respect of the year ended 31 December 2006 (2005 - nil).
11. RESULTS FOR THE FINANCIAL YEAR
In accordance with Jersey practice the Company has not presented its own income statement in these
financial statements. The Company acts as a holding company and generated a loss of £52,493 (2005 -
profit of £215,883) after taxation for the year.
12. INVESTMENTS
COMPANY
2006 2005
£ £
Investment in Jinzhou Wonder Packing Machinery Co. Ltd ('WP') at
cost
At 1 January 639,942 300,000
Increase in the registered capital of - 339,942
WP
At 31 December 639,942 639,942
Jinzhou Wonder Packing Machinery Co. Ltd is a wholly owned subsidiary of the company and is
incorporated in the People's Republic of China. The nature of its business is the manufacture and
sale of packaging machines and associated spare parts. The registered capital of WP was increased
in 2005 by the reinvestment of a dividend amounting to RMB 4,962,000.
13. PROPERTY, PLANT AND EQUIPMENT
GROUP
Buildings and Machinery Motor vehicles Office Total
plant equipment
£ £ £ £ £
2006
COST
At 1 January 2006 547,589 179,876 68,837 28,189 824,491
Exchange adjustment (49,517) (16,759) (7,102) (2,658) (76,036)
Additions - 4,037 8,899 2,854 15,790
Disposals - - (5,241) (2,303) (7,544)
Transfers (32,951) - - - (32,951)
At 31 December 2006 465,121 167,154 65,393 26,082 723,750
DEPRECIATION
At 1 January 2006 (59,803) (45,481) (19,712) (15,663) (140,659)
Exchange adjustment 5,319 4,226 1,831 1,422 12,798
Charge for the year (17,714) (14,779) (5,702) (3,157) (41,352)
Disposals - - 1,022 2,073 3,095
Transfers 2,479 - - - 2,479
At 31 December 2006 (69,719) (56,034) (22,561) (15,325) (163,639)
NET BOOK VALUE
At 31 December 2006 395,402 111,120 42,832 10,757 560,111
2005
COST
At 1 January 2005 448,323 123,681 60,213 21,985 654,202
Exchange adjustment 64,212 18,507 8,624 2,356 93,699
Additions - 37,688 - 3,848 41,536
Transfers 35,054 - - - 35,054
At 31 December 2005 547,589 179,876 68,837 28,189 824,491
DEPRECIATION
At 1 January 2005 (33,052) (25,888) (11,816) (10,521) (81,277)
Exchange adjustment (6,244) (3,898) (1,701) (1,308) (13,151)
Charge for the (21,097) (15,695) (6,195) (3,834) (46,821)
period
Transfers 590 - - - 590
At 31 December 2005 (59,803) (45,481) (19,712) (15,663) (140,659)
NET BOOK VALUE
At 31 December 2005 487,786 134,395 49,125 12,526 683,832
14. INTANGIBLE ASSETS
GROUP
Land use right Patent Total
rights
£ £ £
2006
COST
At 1 January 2006 41,410 1,081 42,491
Exchange adjustment (3,831) (99) (3,930)
Additions - - -
Disposals - - -
Transfers 32,951 - 32,951
At 31 December 2006 70,530 982 71,512
AMORTISATION
At 1 January 2006 (2,969) (443) (3,412)
Exchange adjustment 275 40 315
Charge for the year (1,678) (196) (1,874)
Disposals - - -
Transfers (2,479) - (2,479)
At 31 December 2006 (6,851) (599) (7,450)
NET BOOK VALUE
At 31 December 2006 63,679 383 64,062
2005
COST
At 1 January 2005 65,018 946 65,964
Exchange adjustment 11,446 135 11,581
Transfers (35,054) - (35,054)
At 31 December 2005 41,410 1,081 42,491
AMORTISATION
At 1 January 2005 (404) - (404)
Exchange adjustment (2,192) - (2,192)
Charge for the year (963) (443) (1,406)
Transfers 590 - 590
At 31 December 2005 (2,969) (443) (3,412)
NET BOOK VALUE
At 31 December 2005 38,441 638 39,079
15. INVENTORIES
GROUP
2006 2005
£ £
Raw materials 128,423 73,274
Work in progress 118,451 145,858
Finished goods 30,385 6,653
277,259 225,785
16. TRADE AND OTHER RECEIVABLES
The Group The Company
2006 2005 2006 2005
£ £ £ £
Trade receivables 537,455 484,625 - -
Allowance for doubtful (50,733) (27,651) - -
receivables
Sub-total 486,722 456,974 - -
Other receivables 158,972 345,746 840 840
Prepayments and accrued 2,918 3,459 1,085 1,045
income
648,612 806,179 1,925 1,885
17. SHORT-TERM LOAN
GROUP
2006 2005
£ £
Bank loan - 216,277
- 216,277
The short-term bank loan of RMB 3,000,000 was secured by land use right, bore interest at the rate
of 7.254% per annum and was repaid within 12 months. The book value of the loan approximated to its
fair value.
18. TRADE AND OTHER PAYABLES
The Group The Company
2006 2005 2006 2005
£ £ £ £
Trade payables 293,836 560,656 57,886 75,228
Other payables 211,500 164,419 167,706 115,826
Accruals and deferred 144,075 62,250 80,000 62,250
income
649,411 787,325 305,592 253,304
19. SHARE CAPITAL
2006 2005
£ £
Authorised share capital:
65,000,000 ordinary shares of 2.5p 1,625,000 1,625,000
each
Allotted and fully paid:
At 1 January 275,000 262,500
Additions:
Exercise of options over 500,000 ordinary - 12,500
shares
At 31 December 275,000 275,000
On 16 March 2005 options on 500,000 ordinary shares of 2.5p each were exercised at a price of 24p.
By way of a written resolution dated 28 September 2004 the Company granted sine die an unencumbered
authority and power to the directors to deal with the authorised share capital of the Company. Such
authority places the shares at the disposal of the directors who may allot, grant options over or
otherwise deal with or dispose of the shares to such persons at such times and generally on such
terms and conditions as they think proper.
Options on the Company's shares outstanding at 31 December 2006 were as follows:
Grantee Exercise period Exercise price per Number
share
Oakhill Enterprises plc 01.10.04 - 30.09.09 24.00 p 250,000
CYC Holdings plc 01.10.04 - 30.09.09 24.00 p 250,000
500,000
20. RESERVES
(a) GROUP
Share Statutory Translation Retained
premium reserve reserve earnings
reserve
£ £ £ £
2006
At 1 January 2006 519,730 63,072 89,556 149,625
Transfers - 34,776 - (34,776)
Profit for the year - - - 155,506
Foreign exchange - - (118,523) -
differences
At 31 December 2006 519,730 97,848 (28,967) 270,355
2005
At 1 January 2005 412,230 - (63,194) 41,320
Transfers - 63,072 - (63,072)
Premium on new share
capital subscribed
16 March 2005 107,500 - - -
Profit for the year - - - 171,377
Foreign exchange - - 152,750 -
differences
At 31 December 2005 519,730 63,072 89,556 149,625
(b) COMPANY
Share premium Retained
earnings
£ £
2006
At 1 January 2006 519,730 (405,784)
Loss for the year - (52,493)
At 31 December 2006 519,730 (458,277)
2005
At 1 January 2005 412,230 (621,667)
Premium on new share
capital subscribed
16 March 2005 107,500 -
Profit for the year - 215,883
At 31 December 2005 519,730 (405,784)
(c) Description of the nature and purpose of reserves
Share premium reserve
The share premium represents the amount subscribed for share capital in excess of the nominal
value, less allowable share issue expenses.
Statutory reserve
The statutory reserve represents appropriations from the retained earnings reserve in accordance
with the People's Republic of China law, to be used for certain restricted purposes.
Translation reserve
The foreign currency translation reserve comprises the gains and losses arising on translating the
net assets of overseas operations into pounds sterling.
Retained earnings
The retained earnings reserve comprises the cumulative net gains and losses recognised in the
consolidated income statement.
21. RECONCILIATION OF EQUITY
The Group The Company
2006 2005 2006 2005
£ £ £ £
Profit/(loss) for the year 155,506 171,377 (52,493) 215,883
Foreign exchange (118,523) 152,750 - -
differences
Total income and expenses 36,983 324,127 (52,493) 215,883
Share capital issued - 12,500 - 12,500
Premium on issue of shares (net of - 107,500 - 107,500
expenses)
36,983 444,127 (52,493) 335,883
22. RELATED PARTIES
In addition to directors' remuneration set out in Note 6 and transactions with the Company's
subsidiary referred to in the footnote to the cash flow statement the following transactions which
occurred during the financial period under review are relevant:
• In 2005 the Group made a loan of RMB 3,181,315 to Jinzhou Laifu Technical Development Co Ltd, a
company of which Mr Qingjie Zhao is a director. In 2006 the sum of £50,000 was repaid and the
balance owed at 31 December 2006 amounting to £158,132 (2005 - £229,348) is included in Note 16
'Other receivables'.
• The Company owed at 31 December 2006 an amount of £124,520 (2005 - £115,825) to CYC Holdings
Plc, a company in which Mark Chapman's family is a significant investor, and which company holds
13.3% of the issued capital of the Company.
23. FINANCIAL INSTRUMENTS
The Group is exposed to interest rate and other market risks arising in the normal course of
business. The Group does not hold or issue derivative financial instruments for trading purposes or
to hedge against fluctuations, if any, in interest rates and foreign exchange rates.
Credit risk
Credit risk refers to the risk that a counter party will default on its contractual obligations
resulting in a loss to the Group. The Group has adopted the policy of only dealing with
creditworthy counter parties and monitors their balances.
The Group's credit risk is primarily attributable to its trade and other receivables. Cash is
placed with creditworthy financial institutions. The trade and other receivables presented in the
balance sheet are net of an allowance for doubtful receivables, estimated by management based on
current economic conditions.
The carrying amount of financial assets recorded in the financial statements net of any allowance
for doubtful receivables, represents the Group's maximum exposure to credit risk.
Interest rate risk
Interest rate risk arises from the potential changes in interest rates that may have an adverse
effect on the Group in the current reporting period and in future years.
The Group is exposed to interest rate risk through the impact of change in interest rates on
interest bearing debts and interest-bearing cash. All of the Group's interest bearing debts and
interest-bearing cash are at fixed rates. The Group does not enter into any derivative instruments
to hedge this risk.
Foreign currency risk
Foreign exchange risk refers to the risk that movement in foreign currency exchange rates against
the Group's functional or reporting currency will affect the Group's financial results and cash
flows. Substantially all the Group's transactions are in RMB, and all of the Group's interest
bearing financial assets and liabilities are in RMB.
Liquidity risk
Liquidity risk arises from the possibility that the Group is unable to meet its obligations towards
other counter parties.
The Group monitors and maintains a level of cash and cash equivalents deemed adequate by the
management to finance the Group's operations and mitigate the effects of fluctuations in cash
flows.
Fair values
The carrying amounts of the financial assets and financial liabilities in the financial statements
approximate their fair values.
Derivatives
The Group has not entered into any derivative transactions.
Operating and finance
leases
There are no operating or finance lease arrangements.
24. SIGNIFICANT POST-BALANCE SHEET EVENTS
The following significant events took place since 31 December 2006:
a. On 23 February 2007 the Company agreed to purchase the entire share capital of Wonder Equipment
Limited for a consideration of £100,000 in cash and the issue of 5,500,000 shares in the
Company.
b. On 27 February 2007 1,500,000 shares were issued for cash at a price of 13.5p raising for the
Company £202,500. On that day control of Wonder Equipment Limited passed to the Company.
c. The consideration for the purchase of Wonder Equipment Limited is calculated as follows:
£
5,500,000 shares at market price on the date of acquisition (25.5p) 1,402,500
Cash 100,000
Total consideration 1,502,500
The carrying values of the assets and liabilities of Wonder Equipment Limited at the date of
acquisition were:
£
Net assets acquired at
valuation
Property, plant and equipment 95,424
Current assets 497,399
Current liabilities (446,566)
Value of net assets 146,257
acquired
Goodwill 1,356,243
1,502,500
In accordance with the company's accounting policies goodwill will be capitalised as an
intangible asset with any impairment in carrying value being charged to the income statement
through administrative expenses.
d. On 16 April 2007 the 5,500,000 shares referred to in paragraph (a) above were admitted to
trading on AIM, thereby bringing the total number of shares in issue and traded on AIM to
18,000,000.
This information is provided by RNS
The company news service from the London Stock Exchange