Docstoc

Defining Fineness

Document Sample
Defining Fineness Powered By Docstoc
					                ANNUAL REPORT 2006




fm holdings limited
             Defining Fineness
cONTENTS
P. 01   Corporate Profile

P. 02   Chairman’s Statement

P. 05   Operation’s Review

P. 07   Board of Directors

P. 10   Key Management

P. 11   Corporate Information

P. 12   Financial Highlights

P. 13   Corporate Governance Report

P. 25   Directors’ Report

P. 28   Financial Contents

P. 56   Shareholdings Statistics

P. 58   Notice of Annual General Meeting
                                                                  corporate profile
Established in 1993 and listed on the Singapore Exchange Securities
Trading Limited’s Dealing and Automated Quotation System (the
“SGX-Sesdaq”) in May 2005, FM Holdings Limited (“FM Holdings”
or the “Group”) is a designer and manufacturer of high quality polyresin
giftware products including figurines of various internationally well
recognized icon and characters, functional giftware, stationery products,
household products and gardening products. The Group produces
OEM and ODM products to various customers, where they are
principally located in Europe and North America. The Group provides
one stop solution, including design and development, materials
sourcing, mould making, and mass production. The Group has been
committed and dedicated to the high standard of quality to the
customers. The Group has also been actively participating in own
design products and customers’ products development.


The Group’s headquarters is in Hong Kong and it currently has
manufacturing operations in Dongguan, the PRC.



                                                                              P.01
                                                    FM HOLDINGS ANNUAL REPORT 2006
    CHAIRMAN’S
    STATEMENT
            Chairman’s Statement

            On behalf of the Board of Directors, I present to you the Group’s annual
            report for the financial year ended 31 March 2006 (“FY2006”)


            The Year In Review

            FY2006 was a year where opportunities and challenges came hand-in-
            hand.

            Our proactive marketing efforts towards our two key markets, Europe
            and North America, resulted in stronger demand for our premium
            polyresin giftware products. We secured an order to produce giftware
            for Ferrari, as well as an order of over USD2.0 million for the current
            FIFA World Cup 2006. In particular, the World Cup order is a significant
            milestone for us as it is the single largest order that we had obtained
            so far. Overall, our revenue grew a credible 19.6% to HK$169.9 million.

            However, our business conditions were also more challenging due to
            keener competition as well as rising raw material and labour costs. In
            addition, one-time expenses related to our Initial Public Offering exercise
            in June 2005 and provisions made due to the financial restructuring of
            one of our major customers added further pressure to our profitability.
            As such, profit for the year declined by 22% to HK$12.9 million in
            FY2006.

            Despite these challenges, our financial position remained healthy, with
            a current ratio of 2.37 (FY2005: 1.53), cash position of HK$33.6 million
            (FY2005: HK$17 million) and a substantially lower gearing of 0.32
            (FY2005: 0.60) at 31 March 2006.

            Our Positioning

            As a leading maker of premium polyresin giftware products in the PRC,
            our market is primarily the medium to high-end segments, which require
            higher craftsmanship and product development resources. This
            differentiates us from the bulk of the industry players, which cater to the
            mass markets.

            Our business model can be articulated best as a dual OEM and ODM
            product line supported by a strong and established capability in developing
            premium products as well as extensive distribution and marketing
            networks.




P.02
FM HOLDINGS ANNUAL REPORT 2006
CHAIRMAN’S
STATEMENT
 Our key directions for our OEM product line are to maintain our quality
 and cost competitiveness while continuing our strong marketing efforts
 toward existing and new customers. Development of our ODM product
 line is a long-term business strategy and we have recorded increasing
 revenue contribution from this product line over the past five years. We
 expect the ODM business would gradually reduce our reliance on OEM
 business.

 Outlook & Future Plans
 FY2007 is likely to remain challenging due to higher operating costs as
 a result of higher raw material and energy costs.The market competition
 will remain tense. The possibility of a rising yuan could also make our
 products less competitive on the international marketplace. Any further
 increase in interest rate in USA may also adversely impact consumers’
 demand for giftware. However, there are several notable positives on
 the horizon:

    ·    Our product design and development team is dedicated to
         designing trendy and innovative products to suit consumer
         preferences and market demands. In FY2006, we have rolled
         out over 1000 new products items. We have also increased the
         number of designers and sculptors in anticipation of the rollout
         of even more designs this year.

    ·     Several of our major customers’ businesses are on a rising
         trend. As such, we are optimistic of obtaining more orders from
         them based on our strong track record. In addition, many new
         customers were obtained via referrals due to our premium
         craftsmanship. We believe that these new customers will increase
         their orders in FY2007.

    ·     In March 2006, we have set up a liaison office in one of our major
         markets, the United Kingdom, with promotion and marketing activities
         slated to commence at the end of 2006. Our presence in the United
         Kingdom will allow us to market directly to customers and be more
         attuned to consumer trends and preferences, leading to more business
         opportunities. Concurrently, we are also stepping up marketing activities
         to other parts of Europe as well as America.


 Operating under the uncertainties faced in FY2006, we are, regrettably,
 unable to recommend a dividend. However, with the aforementioned
 measures in place, we hope that we could soon be in a position to pay
 our first dividend to our shareholders in the new future.



                                                                                 P.03
                                                       FM HOLDINGS ANNUAL REPORT 2006
    CHAIRMAN’S
    STATEMENT
            Appreciation

            Let me take this opportunity to thank our shareholders who have
            steadfastly stood by us. I would also like to express my appreciation to
            our staff, Board of Directors, customers, suppliers and business associates
            for their continued commitment and support that have been an invaluable
            source of strength for FM Holdings.


            Yours faithfully




            Ko Yui Wai
            Chairman and Managing Director




P.04
FM HOLDINGS ANNUAL REPORT 2006
operation’S
  reviews
 Revenue


                                 FY2006       FY2005        Change
                                HK$’000       HK$’000
 By Geographical Region              %                %         %


 North America             74,644    44     63,243   44.5     18.0
 Europe                    87,551   51.5    73,535   51.0     19.1
 Other countries            7,701    4.5     6,363    4.5      21


 Total                    169,896   100    142,141   100      19.5


 By Customers Group
 OEM                      137,626   81.0   113,571   79.9     21.2
 ODM                       32,370   19.0    28,570   20.1     13.3


 Total                    169,896   100    142,141   100      19.5




                                                                       P.05
                                             FM HOLDINGS ANNUAL REPORT 2006
   operation’S
     reviews
           Our sales revenue increased by HK$27.8M or 19.6% from HK$142.1M
           in FY05 to HK$169.9M in FY06. The growth was derived from the
           stronger demand for polyresin giftware products both from Europe and
           North America as a result of our increased marketing efforts in these
           two markets. In addition, the Group has also benefited and obtained
           orders from the FIFA World Cup 2006 for FY2006. In line with our efforts
           at increasing the range of ODM products to our customers, revenue
           contribution from ODM products had increased proportionately.

           The Group’s gross profit margin decreased from 28.7% in FY05 to 23.2%
           in FY06 due to increase in raw material prices, labour cost and keen
           competition in the market.

           Selling and distribution expenses declined slightly by 6% to HK$4.0M,
           mainly due to the decrease in transportation charges which resulted in
           a decrease in overall transportation cost. Administrative expenses
           increased by 21.4% to HK$19.3M, mainly due to an increase of HK$1.3M
           in depreciation and HK$1.6M charges for IPO listing expenses.

           Other operating expenses amounted to HK$1.5M in FY06, which included
           HK$0.5M of provision for trade receivables, HK$0.5M of provision for
           inventories and HK$0.5M of provision for impairment loss for property,
           plant and equipment. After the FY06 year-end, the parent company of
           our major customer, which accounted for less than 20% of our total
           revenue in FY 06, has announced that it is undergoing a financial
           restructuring. The group has provided HK$0.5M for bad debts, HK$0.5M
           for obsolete stocks and HK$0.5M for impairment to plant and machinery.
           The abovementioned HK$1.5M charges are thus made to reflect possible
           losses to the group as at 31 March 2006 in respect of our sale to the
           abovementioned customer.

           Income tax expenses decreased from HK$3.3M in FY05 to HK$2.1M
           in FY06, mainly due to a decrease in operating profit and tax benefit
           that arose from a tax arrangement for one of the subsidiaries.

           As such, profit for the year decreased by 22% to HK$12.9M due to the
           erosion of profit margin and higher administrative expenses.

           The Group recorded healthy net cash from operating activities of
           HK$6.2M. On the whole, our bank borrowings had declined marginally
           by HK$0.2M to HK$22.9M. Overall, cash position increased significantly
           by HK$16.5M to HK$33.6M.




P.06
FM HOLDINGS ANNUAL REPORT 2006
     BOARD OF
    DIRECTORS
Ko Yui Wai

Mr Ko Yui Wai is our Groups’ Chairman and
Managing Director. He is responsible for formulating
the overall business strategy of our Group and is
involved in major corporate decision making. He
has served our Group for over 10 years. He also
has over 10 years experience in polyresin giftware
industry both in sales & marketing and production.
His expertise in the industry is one of the keys to
our Groups’ success for the past years.




                                                       Zhang Aibin

                                                       Ms Zhang Aibin is an Executive Director of our
                                                       Group. She is currently responsible for all
                                                       administrative and human resource matters of our
                                                       Group. She holds a degree in politics from Harbin
                                                       Teachers University. As one of the key management
                                                       members of our Group, she helped to set up the
                                                       organizational structure and master our human
                                                       resource deployment.




                                                                                               P.07
                                                                     FM HOLDINGS ANNUAL REPORT 2006
      BOARD OF
     DIRECTORS
                                                       Alex Chan Sing Nun

                                                       Mr Chan Sing Nun is an Executive Director and
                                                       Financial Controller of our Group. He is responsible
                                                       for the finance and accounting operations of our
                                                       Group. Mr Chan holds a High Diploma in
                                                       Accountancy from the City University of Hong Kong.
                                                       He is also an affiliate member of the Association of
                                                       Chartered Certified Accountants as well as a member
                                                       of the Hong Kong Institute of Certified Public
                                                       Accountants. He used to work in an auditing firm in
                                                       Hong Kong. He has over 8 years experience in
                                                       accounting, auditing and taxation fields.




 Alex Lau Tsz Bun

 Mr Lau Tsz Bun is an Independent Director of our
 Group. He is currently the director of Premium
 Financial Consulting Co., Limited, in charge of its
 day-to-day management. Mr Lau used to work in
 certain international auditing firms like, Ernst &
 Young, Deloitte Touche & Tomatsu and KPMG. He
 has wide experience in accounting and auditing
 field. Mr Lau holds a Bachelor of Arts (Honours)
 degree in accountancy from The Hong Kong
 Polytechnic University. He is a Chartered Financial
 Analyst member of the Hong Kong Institute of
 Certified Public Accountants and fellow member of
 the Association of Chartered Certified Accountants.




P.08
FM HOLDINGS ANNUAL REPORT 2006
     BOARD OF
    DIRECTORS
Lee Kim Lian, Juliana

Ms Lee Kim Lian, Juliana is an Independent Director
of our Group. She is a partner of Chui, Sim, Goh &
Lim, a firm of advocates and solicitors. She has
more than 14 years of experience in legal practice
and currently heads the corporate practice of Chui,
Sim, Goh & Lim. Her main areas of practice are
corporate law, corporate finance, mergers and
acquisitions and venture capital. She holds a
Bachelor of Laws (Honours) degree from the National
University of Singapore. She is also a member of
the Singapore Institute of Directors




                                                      Leong Koon Weng

                                                      Mr Leong Koon Weng is an Independent Director
                                                      of our Group. He is currently an executive director
                                                      of Gates Electronics Limited, a company listed on
                                                      the SGX-SESDAQ. He joined Gates Electronics
                                                      Limited in 2003.
                                                      Mr Leong has 18 years experience in corporate
                                                      banking in both foreign and local banks. Prior to
                                                      joining Gates Electronics Limited, he was a Vice
                                                      President in Enterprise Banking of Oversea-Chinese
                                                      Banking Corporation Limited heading a team that
                                                      extends credit facilities to the electronics industry in
                                                      Singapore. He also held positions with Keppel Tatlee
                                                      Bank Limited, ABN Amro Bank N.V., American
                                                      Express Bank, Security Pacific National Bank and
                                                      Overseas Union Bank Limited.

                                                      Mr Leong holds a Bachelor of Social Science (Hons)
                                                      and a Bachelor of Arts (majoring in Economics) from
                                                      the National University of Singapore. He is a member
                                                      of the Singapore Institute of Directors.




                                                                                              P.09
                                                                    FM HOLDINGS ANNUAL REPORT 2006
KEY MANAGEMENT
   Wu Ping

   Ms Wu Ping ("Ms Wu") is the Product Design and Development Manager of our Group and is
   currently responsible for monitoring our Group's product design and development activities. She
   has vast products development experience in giftware industry. Ms Wu joined our Group in August
   1995 and was promoted to her current position in August 2005.




   Zhang Aiwu

   Ms Zhang Aiwu is the Quality Control Manager of our Group and is currently responsible for
   monitoring our quality control team and ensuring the quality of products. She joined our Group
   as a quality control officer in December 1998 and was appointed as the quality control manager
   in April 2000. Ms Zhang holds a degree in management from the Construction Engineering Institute
   of Harbin.




   Fung Ka Fan

   Mr Fung Ka Fan (”Mr Fung”) is the Sales and Marketing Manager of our Group and is currently
   responsible for overseeing the sales and marketing operations of our Group. Mr Fung has various
   experience in sales and marketing field. He first joined our Group as a senior marketing officer
   in July 2002. He was promoted to sales and marketing manager in October 2005.




P.10
FM HOLDINGS ANNUAL REPORT 2006
   CORPORATE
  iNFORMATION
BOARD OF DIRECTORS    Ko Yui Wai (Chairman and Managing Director)
                      Zhang Aibin (Executive Director)
                      Alex Chan Sing Nun (Executive Director)
                      Alex Lau Tsz Bun (Independent Director)
                      Lee Kim Lian, Juliana (Independent Director)
                      Leong Koon Weng (Independent Director)
COMPANY SECRETARIES   Chan Sing Nun, CPA, HKICPA
                      Abdul Jabbar Bin Karam Din, LLB
ASSISTANT SECRETARY   Ira Stuart Outerbridge III, FCIS
REGISTERED OFFICE     Clarendon House
                      2 Church Street
                      Hamilton HM 11
                      Bermuda
                      Tel: 441 2951422
                      Fax: 441 2924720
PRINCIPAL PLACES OF   Unit 1502
BUSINESS              15th Floor
                      88 Hing Fat Street
                      Causeway Bay
                      Hong Kong
                      Sijia Village
                      Shijie Town
                      Dongguan City
                      Guangdong Province
                      PRC
BERMUDA SHARE         Codan Services Limited
REGISTRAR             Clarendon House
                      2 Church Street
                      Hamilton HM 11
                      Bermuda
SINGAPORE SHARE       Lim Associates (Pte) Ltd
TRANSFER AGENT        10 Collyer Quay #19-08
                      Ocean Building
                      Singapore 049315
MANAGER               China Construction Bank Corporation
                      Singapore Branch
                      9 Raffles Place #33-01
                      Republic Plaza
                      Singapore 048619
PRINCIPAL BANKER      DBS Bank (Hong Kong) Limited
                      16/F, The Centre
                      99 Queen’s Road Central
                      Hong Kong

                      The Bank of East Asia Limited
                      137 Market Street
                      Bank of East Asia Building
                      Singapore 048943
AUDITORS              Grant Thornton
                      Certified Public Accountants
                      13th Floor, Gloucester Tower
                      The Landmark
                      11 Pedder Street
                      Central
                      Hong Kong
                      Partner-In-Charge: Andrew Lam
                      (appointed since 2004)




                                                          P.11
                               FM HOLDINGS ANNUAL REPORT 2006
      Financial
      highlights

              Sales (HK$’000)                               Net Profit (HK$’000)

           180,000
           160,000                              169,896   160,000
                                                                                       16,567
           140,000                    142,141
                                                          140,000
                                                                              13,332
           120,000                                        120,000
                                                                                                12,928
           100,000            103,507                     100,000
            80,000                                         80,000
                     75,060
            60,000                                         60,000
                                                                     6,373
            40,000                                         40,000
            20,000                                         20,000

                     FY03 FY04 FY05 FY06                             FY03 FY04 FY05 FY06


              Earnings per share (HK cents)                 Gross Profit (HK$’000)


              22                        22.2              60,000
              20                                          40,000                       40,808 39,394
                                                                              31,145
              18                                          20,000     21,652
              16               17.7
                                                                     FY03 FY04 FY05 FY06
              14
                                                 13.3
              12
                                                            Net Tangible assets per share (HK cents)
              10
               8      8.5                                    80
                                                                                                 70
               6                                             60
               4                                             40                         51

                                                             20                 29
               2

                     FY03 FY04 FY05 FY06                             FY03 FY04 FY05 FY06




P.12
FM HOLDINGS ANNUAL REPORT 2006
Corporate
Governance
FM Holdings Limited (the "Company") is committed to ensuring and maintaining a high standard
of corporate governance within the Group. Good corporate governance establishes and
maintains a legal and ethical environment, which helps to preserve and enhance the interests
of all shareholders.

This report describes the corporate governance framework and practices of the Company with
specific reference made to each of the principles of the Code of Corporate Governance (the
"Code") issued by the Singapore Exchange Securities Trading Limited ("SGX-ST").
(A)    BOARD MATTERS

Board's Conduct of its Affairs

Principle 1 : Every company should be headed by an effective Board to lead and control
the company.
Role of the Board of Directors (the "Board")

The Board assumes responsibility for stewardship of the Company and its subsidiaries (the
"Group") and is primarily responsible for the protection and enhancement of long-term value
and returns for the shareholders. It supervises the management of the business and affairs
of the Group, provides corporate direction, monitors managerial performance and reviews
financial results of the Group. In addition, the Board is directly responsible for decision making
in respect of the following matters:

a.    appointment of directors and key managerial personnel;
b.    announcements including approval and release of financial results and annual reports;
c.    business strategy including significant acquisition and disposal of subsidiaries or assets
      and liabilities;
d.    operating budgets, significant investments and capital expenditures; and
e.    corporate policies in keeping with good corporate governance and business practice.

To assist in the execution of its responsibilities, the Board has established a number of Board
committees which include an Audit Committee ("AC"), a Nominating Committee ("NC") and a
Remuneration Committee ("RC"), each of which functions within clearly defined terms of
reference and operating procedures which are reviewed on a regular basis.

Board Meetings and Meetings of Board Committees

The Board meets twice yearly and whenever necessary for the discharge of their duties. Dates
of the Board meetings are normally set by the directors well in advance.

The number of meetings held by the Board and Board committees and attendance thereat
during the past financial year are as follows:
DIRECTORS                 BOARD                   NC                    RC                         AC
                        No. of  Attended    No. of    Attended    No. of     Attended    No. of     Attended
                       Meetings            Meetings              Meetings               Meetings

Ko Yui Wai                2       1           1         1           1          1           2            1
Zhang Aibin               2       -           1         -           1          -           2            -
Alex Chan Sing Nun        2       2           1         1           1          1           2            1
Alex Lau Tsz Bun          2       2           1         1           1          1           2            2
Juliana Lee Kim Lian      2       2           1         1           1          1           2            2
Leong Koon Weng           2       2           1         1           1          1           2            2




                                                                                              P.13
                                                                    FM HOLDINGS ANNUAL REPORT 2006
  Corporate
  Governance
      Training

      All directors are familiar with their duties and responsibilities as directors. In addition, the
      Company has in place a program whereby newly appointed directors will be given briefings
      and orientation training by the Managing Director and top management of the Company on the
      business activities of the Group and its strategic directions, as well as their duties and
      responsibilities as directors.

      The directors are also briefed by professionals either during Board meetings or at separate
      meetings on regulatory changes which have an important bearing on the Company and the
      directors' obligations to the Company.

      Board Composition and Balance

      Principle 2 : There should be a strong and independent element on the Board, which is
      able to exercise objective judgement on corporate affairs independently, in particular,
      from Management. No individual or small group of individuals should be allowed to
      dominate the Board's decision making.

      The Board consists of six (6) directors of whom three (3) are independent. The list of directors
      is as follows:

      Executive Directors

      Ko Yui Wai                             (Chairman and Managing Director)
      Zhang Aibin                            (Executive Director)
      Alex Chan Sing Nun                     (Executive Director)

      Non Executive Directors

      Alex Lau Tsz Bun                       (Independent Director)
      Leong Koon Weng                        (Independent Director)
      Lee Kim Lian, Juliana                  (Independent Director)

      The composition of the Board is reviewed by the NC which is of the view that the current Board
      size of six (6) directors of which three (3) are independent directors, is appropriate and effective,
      taking into account the nature and scope of the Company's operations.

      The Board comprises persons who as a group provide core competencies necessary to meet
      the Company's requirements. The directors' objective judgement on corporate affairs and
      collective experience and knowledge are invaluable to the Group.

      Independence of directors

      The NC reviews the independence of each director on an annual basis based on the Code's
      definition of what constitutes an independent director. The NC is of the view that the three (3)
      independent directors (who represent more than one-third of the Board) are independent and
      no individual or small group of individuals dominates the Board's decision-making process.




P.14
FM HOLDINGS ANNUAL REPORT 2006
Corporate
Governance
Chairman and Chief Executive Officer

Principle 3 : There should be a clear division of responsibilities at the top of the company
– the working of the Board and the executive responsibility of the company's business
– which will ensure a balance of power and authority, such that no one individual
represents a considerable concentration of power.

The Chairman of the Board, Mr Ko Yui Wai, is also the Managing Director (‘MD’). The Board
is of the view that it is in the best interests of the Group to adopt a single leadership structure
where the MD and the Chairman of the Board are the same person, so as to ensure that the
decision-making process of the Group would not be unnecessarily hindered.

As Chairman and MD, Mr Ko is responsible for, inter alia, the day-to-day running of the Group
and the exercise of control over the quality, quantity and timeliness of the flow of information
between the management of the Company and the Board. He also schedules Board meetings,
oversees the preparation of the agenda for Board meetings and assists in ensuring compliance
with the Group's guidelines on corporate governance. Mr Ko has played an instrumental role
in developing the business of the Group and has also provided the Group with strong leadership
and vision. Mr Ko together with the management comprising each subsidiary's general managers
and key senior managers, are responsible for the day-to-day management of the Group.

Although the roles and responsibilities for both the Chairman and MD are vested in Mr Ko, the
Board believes that there are adequate measures in place against an uneven concentration
of power and authority in one individual, for example, all major decisions made by Mr Ko will
be reviewed by the Board, his performance and appointment to the Board will be reviewed
periodically by the NC and his remuneration package will be reviewed periodically by the RC.
In view of the above, the Board is of the opinion that the role of Mr Ko as the Chairman and
MD of the Company does not affect the effective running of the Board.


Board Membership

Principle 4 : There should be a formal and transparent process for the appointment of
new directors to the Board. As a principle of good corporate governance, all directors
should be required to submit themselves for re-nomination and re-election at regular
intervals.

The NC was established on 25 March 2005. It is chaired by Ms Lee Kim Lian, Juliana (an
independent director) with the following directors as members:

Leong Koon Weng                       (independent)
Ko Yui Wai

The primary functions of the NC are as follows:

    • to identify candidates and review all nominations for the appointment or reappointment
      of members of the Board, the MD of the Group, and to determine the selection criteria
      therefor;




                                                                                          P.15
                                                                FM HOLDINGS ANNUAL REPORT 2006
 Corporate
 Governance
     Board Membership (cont’d)


     •       to ensure that all Board appointees undergo an appropriate induction programme;
     •       to regularly review the Board structure, size and composition and make recommendations
             to the Board with regard to any adjustments that are deemed necessary;
     •       to identify gaps in the mix of skills, experience and other qualities required in an effective
             Board and to nominate or recommend suitable candidates to fill these gaps;
     •       to decide whether a director is able to and has been adequately carrying out his duties
             as director of the Company, particularly where the director has multiple board
             representations;
     •       to review the independence of each director annually;
     •      to decide how the Board's performance may be evaluated and propose objective
            performance criteria for the Board's approval; and
     •       to assess the effectiveness of the Board as a whole.

     For the year under review, the NC held one meeting.

     The directors submit themselves for re-nomination and re-election at regular intervals of at least
     once every three (3) years. Under the Company's existing Bye-Laws, one-third of the directors
     for the time being (or if their number is not a multiple of three, the number nearest to but not
     less than one-third) shall retire from office by rotation, save for the MD who shall not be subject
     to retirement by rotation nor be taken into account in determining the number of directors to
     retire.
     Board Performance

     Principle 5 : There should be a formal assessment of the effectiveness of the Board as
     a whole and the contribution by each director to the effectiveness of the Board.

     The NC reviews the criteria for evaluating the Board's performance. Based on the
     recommendations of the NC, the Board has established processes for evaluating the effectiveness
     of the Board as a whole.

     The performance criteria for the Board evaluation includes an evaluation of the size and
     composition of the Board, the Board's access to information, accountability, Board processes,
     Board performance in relation to discharging its principal responsibilities, communication with
     management and standards of conduct of the directors.




P.16
FM HOLDINGS ANNUAL REPORT 2006
Corporate
Governance
Access to Information

Principle 6 : In order to fulfil their responsibilities, board members should be provided
with complete, adequate and timely information prior to board meetings and on an on-
going basis.

To assist the Board in fulfilling its responsibilities, the management provides the Board with a
management report containing complete, adequate and timely information prior to the Board
meetings. All directors have separate and independent access to the management, including
the Company Secretary, at all times. The Company Secretary attends all Board meetings and
ensures that Board procedures and all other rules and regulations applicable to the Company
are complied with.

The Company has in place the procedure to enable the directors, whether as a group or
individually, to obtain independent professional advice as and when necessary in furtherance
of their duties at the Company's expense. The appointment of such independent professional
advisor is subject to approval by the Board.

(B)       REMUNERATION MATTERS

Procedures for Developing Remuneration Policies

Principle 7 : There should be a formal and transparent procedure for fixing the remuneration
packages of individual directors. No director should be involved in deciding his own
remuneration.

The RC was established on 25 March 2005, comprising of independent non-executive directors.
It is chaired by Mr Leong Koon Weng with Mr Alex Lau Tsz Bun and Ms Lee Kim Lian, Juliana
as members.

The members of the RC have many years of corporate experience and are knowledgeable in
the field of executive compensation. In addition, the RC has access to expert professional
advice on remuneration matters as and when necessary.




                                                                                        P.17
                                                              FM HOLDINGS ANNUAL REPORT 2006
  Corporate
  Governance
     Procedures for Developing Remuneration Policies (cont’d)

     The responsibilities of the RC include the following:
     •    to attract, retain and reward well-qualified people to serve the Group by pegging remuneration
           and benefits at competitive market rates;
     •    to review directors' fees to ensure that they are at sufficiently competitive levels;
     •    to reward staff based on their merit and performance through annual merit service
           increments;
     •    to administer the Company's Employee Share Option Scheme ("ESOS") for directors,
           senior management and executives;
     •    to review and advise the Board on the terms of appointment and remuneration of its
           members and senior management of the Group;
     •    to review the terms of the employment arrangements with management so as to develop
           consistent group wide employment practices subject to regional differences; and
     •    to recommend to the Board in consultation with senior management and the Chairman
           of the Board, any long term incentive scheme.

     The RC reviews all aspects of remuneration including but not limited to directors' fees, salaries,
     allowances, bonuses, options and benefits-in-kind.

     No director is involved in determining his own remuneration.

     Level and Mix of Remuneration

     Principle 8 : The level of remuneration should be appropriate to attract, retain and motivate
     the directors needed to run the company successfully but companies should avoid
     paying more for this purpose. A proportion of the remuneration, especially that of
     executive directors, should be linked to performance.

     In setting remuneration packages, the RC takes into consideration the pay and employment
     conditions within the industry and in comparable companies. As part of its review, the RC
     ensures that the performance related elements of remuneration form a significant part of the
     total remuneration package of executive directors and is designed to align the directors' interests
     with those of shareholders and link rewards to corporate and individual performance. The RC
     also reviews all matters concerning the remuneration of non-executive directors to ensure that
     the remuneration commensurate with the contribution and responsibilities of the directors. The
     Company submits the quantum of directors' fees of each year to the shareholders for approval
     at each Annual General Meeting.

     Non-executive directors have no service contracts. The executive directors have service contracts
     for a period of two years commencing from 1 April 2005.




P.18
FM HOLDINGS ANNUAL REPORT 2006
Corporate
Governance
Level and Mix of Remuneration (cont’d)

Long term incentive scheme

The Employee Share Option Scheme ("ESOS") was implemented on 23 March 2005 as a long-
term incentive plan for more senior level staff based on individual performance. It is administered
by the RC. Details of the ESOS are set out in note 27 to financial statements in the Annual
Report on page 51 to 52.

Disclosure on Remuneration

Principle 9 : Each company should provide clear disclosure of its remuneration policy,
level and mix of remuneration, and the procedure for setting remuneration, in the
company's annual report.

A breakdown of the remuneration of the directors and the top 4 key executives (who are not
directors) for the FY2006 are set out below:

Remuneration of the directors

Remuneration band and                      Salary     Bonus Directors' Other Share
names of directors                                           fees (1) Benefits Options(2)

<S$250,000

Ko Yui Wai                                  100%
Zhang Aibin                                 100%
Alex Chan Sing Nun                          100%
Alex Lau Tsz Bun                                                   100%
Leong Koon Weng                                                    100%
Lee Kim Lian Juliana                                               100%


Details on share options granted to the directors are set out in the Directors' Report on page
26.

Remuneration of top 4 Key Executives (who are not directors)

Remuneration band and names of key executive
(who are not directors) below S$250,000                                     Salary

Fung Ka Fan                                                                  100%
Liu Li Xi                                                                    100%
Zhang Aiwu (3)                                                               100%
Wu Ping                                                                      100%




                                                                                          P.19
                                                                FM HOLDINGS ANNUAL REPORT 2006
  Corporate
  Governance
       Notes:
       (1)      The directors' fees are subject to the approval of the shareholders at the Annual
                General Meeting.
       (2)      This relates to share options granted under the ESOS. Since the approval by shareholders
                on 25 March 2005, no share options have been granted under the ESOS.
       (3)      Ms Zhang Aiwu is the sister of Ms Zhang Aibin and the sister-in-law of Mr Ko Yui Wai.

       (4)      No profit sharing incentive bonus was received by the Executive Directors under their
                respective Services Agreement for FY2006.

     There are no employees of the Group who are immediate family members of a director or the
     MD whose remuneration exceeded S$150,000 during the financial year ended 31 March 2006.

     (C)        ACCOUNTABILITY AND AUDIT

     Accountability

     Principle 10 : The Board is accountable to the shareholders while the Management is
     accountable to the Board.

     As stated above, the Board's primary role is to protect and enhance long-term value and returns
     for the shareholders. In the discharge of its duties to the shareholders, the Board, when
     presenting annual financial statements and announcements, seeks to provide the shareholders
     with a detailed analysis, explanation and assessment of the Group's financial position and
     prospects. Management currently provides the Board with appropriately detailed management
     accounts of the Group's performance, position and prospects on a regular basis.

     Audit Committee

     Principle 11 : The Board should establish an Audit Committee ("AC") with written terms
     of reference which clearly set out its authority and duties.

     The AC comprises all non-executive and independent directors, namely, Mr Alex Lau Tsz Bun
     (who also acts as the Chairman), Mr Leong Koon Weng and Ms Lee Kim Lian, Juliana.

     All members of the AC have many years of experience in senior management positions in both
     financial and industrial sectors. The Board is of the view that the AC members, having accounting
     and related financial management expertise or experience, are appropriately qualified to
     discharge their responsibilities.




P.20
FM HOLDINGS ANNUAL REPORT 2006
Corporate
Governance
Audit Committee (cont’d)

During the past financial year, the AC held two (2) meetings with the management and the
external auditors of the Company to discuss and review the following matters:
    · the audit plans of the external auditors of the Company, and their reports arising from
      the audit;
    · the adequacy of the assistance and cooperation given by the Company's management
      to the internal and external auditors;
    · the financial statements of the Company and the consolidated financial statements of
      the Group;
    · the quarterly and annual announcement of the results of the Group before submission
      to the Board for approval;
    · the adequacy of the Group's internal controls in respect of the management, business
      and service systems and practices;
    · legal and regulatory matters that may have material impact on the financial statements,
      compliance policies and programmes and any reports received from regulators;
    · the cost effectiveness, independence and objectivity of the external auditors;
    · the approval of compensation to the external auditors;
    · the nature and extent of non-audit services provided by the external auditors;
    · the recommendation to the Board for the appointment or re-appointment of the external
      auditors of the Company;
    · reporting of actions and minutes of the AC to the Board with such recommendations as
      the AC considers appropriate; and
    · interested person transactions to ensure that the current procedures for monitoring of
      interested party transactions have been complied with.

In performing its functions, the AC :
    · has explicit authority to investigate any matter relating to the Group's accounting, auditing,
       internal controls and financial practices brought to its attention with full access to records,
       resources and personnel to enable it to discharge its function properly;
    · has full access to and cooperation of the management and full discretion to invite any
       director or executive officer to attend its meetings.

The external auditors have unrestricted access to the AC.

The AC noted that other than HK$0.5 million charged to the FY2006 income statement for the
service rendered by the external auditors for the Company's Initial Public Offer exercise during
the year, there were no non-audit services provided by the external auditors. The AC was of
the view that the volume of non-audit services rendered to the Group by the external auditors
as well as the nature and extent of such services would not prejudice the independence and
objectivity of the external auditors.

Internal Controls

Principle 12 : The Board should ensure that the Management maintains a sound system
of internal controls to safeguard the shareholders' investments and the company's
assets.




                                                                                            P.21
                                                                  FM HOLDINGS ANNUAL REPORT 2006
  Corporate
  Governance
      Internal Controls (cont’d)

      The Board believes that, in the absence of any evidence to the contrary, the system of internal
      controls maintained by the Group's management throughout the financial year ended 31 March
      2006 up to the date of this report is adequate to meet the needs of the Group in its current
      business environment.

      The system of internal controls provides reasonable, but not absolute, assurance that the Group
      will not be adversely affected by any event that could be reasonably foreseen as it strives to
      achieve its business objectives.

      However, the Board notes that no system of internal controls could provide absolute assurance
      in this regard, or absolute assurance against the occurrence of material errors, poor judgement
      in decision-making, human error, losses, fraud or other irregularities.

      The Group's external auditors have, in the course of their statutory audit, carried out a review
      of the effectiveness of the Group's material internal controls within the scope of their statutory
      audit. Material non-compliance and internal control weaknesses noted during their audit and
      the auditors' recommendations are reported to the AC. The AC will review the external and
      internal auditors' reports and ensure that there are adequate internal controls in the Group.

      Risks arising from the Group's financial operations are separately discussed in the notes to the
      financial statements on pages 53.

      Internal Audit

      Principle 13 : The company should establish an internal audit function that is independent
      of the activities it audits.

      At present, the Company does not have an internal audit function as the Board is of the view
      that this is not necessary under the current circumstances, taking into account the corporate
      structure and the scope of the Company’s operations.

      The Board acknowledges that it is responsible for the overall internal control framework, but
      recognises that no cost effective internal control system will preclude all errors and irregularities,
      as a system is designed to manage rather than eliminate the risk of failure to achieve business
      objectives, and can provide only reasonable and not absolute assurance against material
      misstatement or loss. The Board believes that in the absence of any evidence to the contrary
      and from due enquiry, the system of internal controls that has been maintained by the Company’s
      management throughout the financial year is adequate to meet the needs of the Company in
      its current business environment.

      The system of internal controls provides reasonable, but not absolute, assurance that the Group
      will not be adversely affected by any event that could be reasonably foreseen as it strives to
      achieve its business objectives.

      However, the Board notes that no system of internal controls could provide absolute assurance
      in this regard, or absolute assurance against the occurrence of material errors, poor judgement
      in decision-making, human error, losses, fraud or other irregularities.




P.22
FM HOLDINGS ANNUAL REPORT 2006
Corporate
Governance
Internal Audit

The effectiveness of the internal financial control systems and procedures is monitored by the
management. The Financial Controller identifies, analyses and manages the risks incurred by
the Group in its activities and is responsible for promoting continuous improvement to the
Group’s operations. At least once every half year, all major operating entities are closely
examined by the Financial Controller, who reports to the chairman of the AC on any material
non-compliance and internal control weaknesses and the AC will oversee and monitor the
implementation of any improvements thereto.

The Group's external auditors have, in the course of their statutory audit, carried out a review
of the effectiveness of the Group's material internal controls within the scope of their statutory
audit. Material non-compliance and internal control weaknesses noted during their audit and
the auditors' recommendations are reported to the AC. The AC will review the external auditors'
reports and ensure that there are adequate internal controls in the Group.

(D)      COMMUNICATION WITH SHAREHOLDERS

Communication with Shareholders

Principle 14 : Companies should engage in regular, effective and fair communication
with shareholders.

Principle 15 : Companies should encourage greater shareholder participation at AGMs,
and allow shareholders the opportunity to communicate their views on various matters
affecting the company.

The Company believes that a high standard of disclosure is key to raising the level of corporate
governance. Accordingly, the Company holds analyst briefing of its half yearly results. Half
yearly results are published through the SGXNET, news releases and the Company's website.
All information of the Company's new initiatives are first disseminated via SGXNET followed
by a news release, which is also available on the website.

The Company does not practise selective disclosure. Price sensitive information is publicly
released and results and annual reports are announced or issued within the mandatory period
and are available on the Company's website. All shareholders of the Company receive the
annual report and notice of Annual General Meeting.

The Company welcomes the views of the shareholders on matters concerning the Company
and encourages shareholders' participation at Annual General Meetings. The chairmen of the
AC, NC and RC, and the external auditors of the Company are normally present at the general
meetings to answer questions from the shareholders.




                                                                                         P.23
                                                               FM HOLDINGS ANNUAL REPORT 2006
  Corporate
  Governance
     (E)      DEALINGS IN SECURITIES

     The Company has issued an Internal Compliance Code on Securities Transactions to Directors
     and key employees (including employees with access to price-sensitive information on the
     Company's shares) of the Group which sets out the code of conduct on transactions in the
     Company's shares by these persons, the implications of insider trading and the recommendations
     of the Best Practices Guide issued by the SGX-ST.

     Compliance with Existing Best Practices Guide of the SGX-ST

     The Board confirms that for the financial year ended 31 March 2006, the Company has complied
     with the principal corporate governance recommendations set out in the Best Practices Guide
     issued by the SGX-ST.




P.24
FM HOLDINGS ANNUAL REPORT 2006
Directors’
  Report
The directors present their report to the members together with the audited financial statements
of the Group for the financial year ended 31 March 2006 and the balance sheet of the Company
as at 31 March 2006.

Restructuring Exercise

The Company was incorporated in Bermuda under the Companies Act 1981 of Bermuda on
27 August 2004 as an exempted company with limited liability. Pursuant to a restructuring
exercise (the “Restructuring Exercise”) to rationalise the Group structure in preparation for the
listing of the Company’s shares on the Singapore Exchange Securities Trading Limited (the
“SGX-ST”), the Company became the holding company of the Group on 31 March 2005. Further
details of the Restructuring Exercise together with details of the subsidiaries acquired pursuant
thereto, are set out in note 2 to the accompanying financial statements and the Company’s
prospectus dated 12 May 2005.

Directors

The Directors of the Company in office at the date of this report are:

Ko Yui Wai                          -          Chairman and Managing Director
Zhang Aibin                         -          Executive Director
Alex Chan Sing Nun                  -          Executive Director
Alex Lau Tsz Bun                    -          Independent Director
Lee Kim Lian, Juliana               -          Independent Director
Leong Koon Weng                     -          Independent Director

Directors’ Interest in Contracts

No contracts of significance in relation to the Group’s business to which the Company or any
of its subsidiaries was a party and in which a director of the Company had a material interest,
whether directly or indirectly, existed at the end of the period or at any time during the financial
period, except as disclosed in the Corporate Governance Report and note 27 to accompanying
financial statements.

Arrangements to Enable Directors to Acquire Shares or Debentures

Neither at the end of nor at any time during the financial period was the Company a party to
any arrangement whose object is to enable the directors of the Company to acquire benefits
by means of the acquisition of shares or debentures of the Company or any other body corporate.

The Company implemented the FM Employee Share Option Scheme (the “Scheme”) on 23
March 2005. This Scheme enables both executive and non executive directors and employees
of our Group to acquire shares through options granted to them, if any, pursuant to the terms
of the Scheme.




                                                                                           P.25
                                                                 FM HOLDINGS ANNUAL REPORT 2006
      Directors’
        Report
     Directors’ Interests in Equity or Debt Securities

     The directors holding office at the end of the financial period and their interests in the share
     capital and debentures of the Company and related corporations as recorded in the registered
     of directors’ shareholdings kept by the Company are as follows:


                                      Direct Interest                            Deemed Interest
                        At the beginning of    As at end of the   At the beginning of    As at end of the
                        the financial period   financial period   the financial period   financial period

     Ko Yui Wai                            -                  -             74,410,625       70,410,625
     Alex Chan Sing Nun              200,000            200,000                      -                -
     Zhang Aibin                           -                  -                      -                -
     Alex Lau Tsz Bun                      -                  -                      -                -
     Lee Kim Lian, Juliana                 -                  -                      -                -
     Leong Koon Weng                       -                  -                      -                -


     During the financial year, no option to take up unissued shares of the Company or any corporation
     in the Group was granted.

     There was no change in any of the above mentioned interests between the end of the financial
     period and 21 April 2006.

     Mr Ko Yui Wai owns the entire shares through Chance Investment Inc. which is wholly-owned
     by him.


     Directors’ Service Contracts

     The Company entered into separate agreements (the “Service Agreements”) with the executive
     directors, Ko Yui Wai, Zhang Aibin and Chan Sing Nun, for a period of two years with effect
     from 1 April 2005 (unless otherwise terminated by either party giving not less than three months’
     notice to the other). The Company may also terminate their respective Service Agreement if
     any of these executive directors is guilty of dishonesty, gross misconduct or wilful neglect of
     duty.

     Apart from the foregoing, no director proposed for re-election at the forthcoming annual general
     meeting has a service contract with the Company which is not determinable by the Company
     within one year without payment other than statutory compensation.

     Option Exercised

     During the financial year, there were no shares of the Company or any corporation in the Group
     issued by virtue of the exercise of an option to take up unissued shares.




P.26
FM HOLDINGS ANNUAL REPORT 2006
Directors’
  Report
Unissued Shares under Option

At the end of the financial year, there were no unissued shares of the Company or any corporation
in the Group under option.

Audit Committee, Nominating Committee and Remuneration Committee

Details of the Company’s audit committee, nominating committee and remuneration committee
are set out in the Statement of the Corporate Governance Report on page 15 to 21 of this
Annual Report.

Auditors

Grant Thornton, Certified Public Accountants, Hong Kong have expressed their willingness to
accept reappointment.

Material Information

No material contract to which the Company or its subsidiaries, is a party and which involve
directors’ interests subsisted at the end of the financial year or have been entered into since
the end of the previous financial year.

Interested Person Transactions

Save as disclosed in the financial statements for the year ended 31 March 2006 and that a
director provided a first legal charge of a property in Hong Kong and his personal guarantee
to secure credit facilities granted to a subsidiary of the company, there were no interested
person transactions during the year.

On behalf of the directors



Ko Yui Wai
Chairman and Managing Director
12 June 2006




                                                                                         P.27
                                                               FM HOLDINGS ANNUAL REPORT 2006
Financial cONTENTS




                     P.   29   Report of the Auditors
                     P.   30   Consolidated Income Statement
                     P.   31   Balance Sheets
                     P.   32   Consolidated Statement of Changes in Equity
                     P.   33   Consolidated Cash Flow Statement
                     P.   34   Notes to the Financial Statements
                     P.   55   Statement of Directors
                                 To the members of FM Holdings Limited
                                 (Incorporated in Bermuda with limited liability)

                                 We have audited the accompanying financial statements of FM Holdings
                                 Limited (the “Company”) and its subsidiaries (the "Group") set out on pages
                                 30 to 54. These financial statements are the responsibility of the Company’s
                                 directors whose opinion thereon is set out on page 55. Our responsibility
                                 is to express an opinion on these financial statements based on our audit
                                 and to report our opinion solely to you, as a body, in accordance with
                                 Section 90 of the Bermuda Companies Act, and for no other purpose. We




                                                                                                                Report of the Auditors
                                 do not assume responsibility towards or accept liability to any other person
                                 for the contents of this report.


                                 We conducted our audit in accordance with International Standards on
                                 Auditing. Those standards require that we plan and perform the audit to
                                 obtain reasonable assurance about whether the financial statements are
                                 free of material misstatement. An audit includes examining, on a test basis,
                                 evidence supporting the amounts and disclosures in the financial statements.
                                 An audit also includes assessing the accounting principles used and
                                 significant estimates made by the Company’s directors, as well as evaluating
                                 the overall financial statement presentation. We believe that our audit
                                 provides a reasonable basis for our opinion.


                                 In our opinion, the financial statements give a true and fair view of the
                                 financial position of the Company and of the Group as at 31 March 2006
                                 and of the profit and cash flows of the Group for the year then ended in
                                 accordance with International Financial Reporting Standards.




                                 Grant Thornton
                                 Certified Public Accountants
                                 Hong Kong

                                 12 June 2006
FM HOLDINGS ANNUAL REPORT 2006




                                                                                                                29
                                                                                                         Notes      2006        2005
                                                                                                                  HK$'000     HK$'000

                                                                 Revenue                                  6       169,896     142,141

                                                                 Cost of sales                                   (130,502)   (101,333)

                                                                 Gross profit                                      39,394      40,808

                                                                 Other operating income                   6          2,106         510
                                                                 Selling and distribution expenses                 (3,975)     (4,244)
                                                                 Administrative expenses                          (19,264)    (15,864)
Consolidated Income Statement for the year ended 31 march 2006




                                                                 Other operating expenses                          (1,500)           -

                                                                 Operating profit                                  16,761      21,210
                                                                 Finance costs                            8        (1,780)     (1,331)

                                                                 Profit before income tax                 9        14,981      19,879
                                                                 Income tax expenses                      10       (2,053)     (3,312)

                                                                 Profit for the year                               12,928      16,567

                                                                 Attributable to:
                                                                 Equity holders of the Company                     12,928      16,553
                                                                 Minority interests                                     -          14

                                                                 Profit for the year                               12,928      16,567

                                                                 Earnings per share for profit
                                                                    attributable to the equity holders
                                                                    of the Company                        11

                                                                 - Basic (HK cents)                                  13.3        22.2

                                                                 - Diluted (HK cents)                                 N/A         N/A

                                                                                                                                         FM HOLDINGS ANNUAL REPORT 2006




  30
                                                                                    Group               Company
                                                                      Notes    2006      2005        2006    2005
                                                                              HK$'000 HK$'000       HK$'000 HK$'000

                                 ASSETS AND LIABILITIES
                                 Non-current assets
                                 Property, plant and equipment         14      21,202     18,082          -        -
                                 Prepaid license fee                                -          95         -        -
                                 Leasehold interest in land            15       4,968      4,974          -        -
                                 Goodwill                              16         197         197         -        -
                                 Interest in subsidiaries              17           -           -    23,070   23,070
                                                                               26,367     23,348     23,070   23,070




                                                                                                                       Balance Sheets as at 31 March 2005
                                 Current assets
                                 Inventories                           18      20,750      14,914         -        -
                                 Trade receivables                             18,748      13,720         -        -
                                 Prepayments and deposits
                                    paid                               19       7,334       7,230         -        -
                                 Amount due from subsidiaries          20           -           -    15,704        -
                                 Pledged bank deposits                 21      12,242      11,000         -        -
                                 Cash and cash equivalents             22      21,309       6,087     1,458        -
                                                                               80,383      52,951    17,162        -

                                 Current liabilities
                                 Trade payables                                 3,453       4,496         -        -
                                 Bills payable                                    189       1,524         -        -
                                 Deposits received, accruals
                                     and other payable                 23       1,707       1,615        85        -
                                 Provision for tax                              5,752       5,018         -        -
                                 Obligations under hire
                                      purchase contracts due
                                      within one year                  24        813         821          -        -
                                 Secured borrowings from
                                     banks and other financial
                                     institutions due within
                                     one year                         25       22,044      21,155         -        -
                                                                               33,958      34,629        85        -
                                 Net current assets                            46,425      18,322    17,077        -
                                 Total assets less
                                    current liabilities                        72,792      41,670    40,147   23,070

                                 Non-current liabilities
                                 Obligations under hire purchase
                                    contracts due after one year       24        136         945          -        -
                                 Secured borrowings from
                                    banks and other financial
                                    institutions due after one year    25         817       1,951         -        -
FM HOLDINGS ANNUAL REPORT 2006




                                 Deferred taxation                     26         735         735         -        -
                                                                                1,688       3,631         -        -
                                 Net assets                                    71,104      38,039    40,147   23,070

                                 Equity attributable to equity
                                   holders of the Company
                                 Share capital                         27      31,418      23,070    31,418   23,070
                                 Reserves                              28      39,686      14,969     8,729        -
                                                                               71,104      38,039    40,147   23,070




                                                Ko Yui Wai
                                                 Director
                                                                                        Chan Sing Nun
                                                                                           Director                     31
32

      Consolidated Statement of Changes in Equity for the year ended 31 March 2006
                                                                       Equity attributable to equity holders of the Company               Minority interests     Total

                                                              Share             Share       Exchange          Merger          Retained
                                                             capital         premium          reserve        reserve            profits
                                                            HK$'000           HK$'000        HK$'000         HK$'000          HK$'000          HK$'000         HK$'000

      At 1 April 2004, as previously reported as equity          31                  -               4               -          21,450                -         21,485
      At 1 April 2004, as previously reported as minority
          interests                                               -                  -               -               -               -              407            407
      At 1 April 2004, as restated                               31                  -               4               -          21,450              407         21,892
      Profit for the year – total recognised income
         for the year                                              -                 -               -               -          16,553               14         16,567
      Adjustment arising from the Acquisition and
         Restructuring Exercise (note 27(e))                    (31)                 -               -               -                -               -            (31)
      Issue of shares pursuant to the Acquisition and
         Restructuring Exercise (note 27(b))                 23,070                  -               -               -                -               -         23,070
      Merger reserve arising from Acquisition and
         Restructuring Exercise (note 28(a))                      -                  -               -        (23,038)               -                -        (23,038)
      Acquisition of further 20% interest in a subsidiary         -                  -               -               -               -            (421)           (421)
      At 31 March and 1 April 2005                           23,070                  -               4        (23,038)          38,003                -          38,039
      Exchange difference from translation of foreign
         subsidiaries – net income recognised directly
         in equity                                                -                  -             578               -               -                -             578
      Profit for the year                                         -                  -               -               -          12,928                -         12,928
      Total recongised income for the year                        -                  -             578               -          12,928                -         13,506
      Issue of new shares (note 27(d))                        8,348            17,734                -               -               -                -         26,082
      Share issue expenses                                        -            (6,523)               -               -               -                -         (6,523)
      At 31 March 2006                                       31,418             11,211             582        (23,038)          50,931                -         71,104




FM HOLDINGS ANNUAL REPORT 2006
                                                                                       Note      2006       2005
                                                                                              HK$’000     HK$’000
                                 Cash flows from operating activities
                                 Profit before income tax                                      14,981      19,879
                                 Adjustments for :
                                   Interest income                                              (382)          (3)
                                   Amortisation of leasehold interest in land                     101          50
                                   Depreciation of property, plant and equipment                5,481       4,232
                                   Loss on disposal of property, plant and equipment                -         557
                                   Provision for trade receivables                                500            -
                                   Provision for inventories                                      500            -




                                                                                                                     Consolidated Cash Flow Statement for the year ended 31 March 2006
                                   Impairment loss for property, plant and equipment              500            -
                                   Bank interest expense                                        1,702       1,224
                                   Finance charges on obligations under hire
                                       purchase contracts                                           78         107
                                 Operating profit before working capital changes               23,461      26,046
                                 Decrease in prepaid license fee                                    95          95
                                 Increase in inventories                                       (6,336)     (5,365)
                                 Increase in trade receivables                                 (5,528)     (3,818)
                                 Increase in prepayments and deposits paid                       (104)     (1,837)
                                 Decrease in amount due to a director                                -     (1,159)
                                 (Decrease)/increase in trade payables                         (1,043)         599
                                 (Decrease)/increase in bills payable                          (1,335)         410
                                 Increase/(decrease) in deposits received, accruals
                                   and other payable                                                92       (254)
                                 Cash generated from operations                                  9,302     14,717
                                 Bank interest paid                                            (1,702)     (1,224)
                                 Finance charges paid on obligations under hire
                                   purchase contracts                                              (78)      (107)
                                 Income tax paid                                               (1,319)     (2,600)
                                 Net cash generated from operating activities                    6,203     10,786

                                 Cash flows from investing activities
                                 Interest received                                                 382           3
                                 Purchase of property, plant and equipment             33      (8,917)     (8,639)
                                 Acquisition of leasehold interest in land                           -     (5,024)
                                 Acquisition of additional equity interest in a
                                   subsidiary                                                        -       (617)
                                 Increase in pledged bank deposits                             (1,242)     (4,500)
                                 Net cash used in investing activities                         (9,777)    (18,777)

                                 Cash flows from financing activities
                                 Proceeds from issuance of new shares                          26,082            -
                                 Share issue expenses paid                                     (6,523)           -
                                 New bank borrowings raised                                      8,902     14,365
                                 Repayment of bank borrowings                                  (8,577)     (1,549)
                                 Repayment of obligations under hire purchase
FM HOLDINGS ANNUAL REPORT 2006




                                   contracts                                                    (817)      (1,018)
                                 Net cash generated from financing activities                  19,067       11,798

                                 Net increase in cash and cash equivalents                     15,493       3,807
                                 Effect of foreign exchange rate changes                          299           -
                                 Cash and cash equivalents at the beginning for the year        5,517       1,710

                                 Cash and cash equivalents at the end of
                                   the year                                                    21,309       5,517

                                 Analysis of the balance of cash and cash
                                   equivalents
                                 Cash at banks and in hand                                     21,309       6,087
                                 Bank overdrafts                                                    -
                                                                                               21,309
                                                                                                            (570)
                                                                                                            5,517
                                                                                                                     33
                                                                     1.   GENERAL INFORMATION

                                                                          The Company was incorporated in Bermuda as an exempted company with limited
                                                                          liability under the Companies Act of Bermuda on 27 August 2004. The registered
                                                                          office of the Company is located at Clarendon House, 2 Church Street, Hamilton
                                                                          HM 11, Bermuda and its principal place of business is in the People's Republic
                                                                          of China ("PRC"). The Company's shares are listed on the Official List of The
                                                                          Singapore Exchange Securities Trading Limited ("SGX-ST") Dealing and Automated
                                                                          Quotation System ("SGX-SESDAQ").

                                                                          The principal activity of the Company is investment holding. The principal activities
                                                                          of the Company's subsidiaries are set out in note 17 to the financial statements.

                                                                          The financial statements on pages 30 to 54 have been prepared in accordance
Notes to the Financial Statements for the year ended 31 March 2006




                                                                          with International Financial Reporting Standards ("IFRS") issued by the International
                                                                          Accounting Standards Board ("IASB").

                                                                          The financial statements for the year ended 31 March 2006 were approved by
                                                                          the board of directors on 12 June 2006.

                                                                     2.   RESTRUCTURING EXERCISE AND BASIS OF PRESENTATION

                                                                          Pursuant to a restructuring exercise completed on 23 March 2005 to rationalise
                                                                          the Group's structure in the preparation for the listing of the Company's shares
                                                                          on the SGX-SESDAQ (the "Acquisition and Restructuring Exercise"), the Company
                                                                          became the holding company of the subsidiaries as set out in note 17 (collectively
                                                                          referred to as the "Group"). Details of the Acquisition and Restructuring Exercise
                                                                          were set out in the prospectus of the Company dated 12 May 2005.

                                                                          The Group is regarded as a continuing entity resulting from the Acquisition and
                                                                          Restructuring Exercise since all of the entities which took part in the Acquisition
                                                                          and Restructuring Exercise were owned by the same ultimate shareholder before
                                                                          and immediately after the Acquisition and Restructuring Exercise with the exception
                                                                          of the remaining 20% equity interest in Dongguan Finemakers Gift Factory
                                                                          Company Limited ("DGFM") which was acquired by the Group on 24 September
                                                                          2004. Consequently, there was a continuation of the risks and benefits to the
                                                                          ultimate shareholder that existed prior to the Acquisition and Restructuring Exercise.
                                                                          The Acquisition and Restructuring Exercise has been accounted for as a
                                                                          reorganisation under common control in a manner similar to pooling of interests
                                                                          except for the acquisition of the remaining 20% interest in DGFM which has been
                                                                          accounted for using the purchase method from its date of acquisition. Accordingly,
                                                                          the consolidated financial statements have been prepared on the basis of pooling
                                                                          of interests method, under which the Company was the holding company of the
                                                                          Group for the year presented, rather than from 23 March 2005. Furthermore, the
                                                                          results of the Group for the year ended 31 March 2005 include the results of the
                                                                          Company and its subsidiaries with effect from 1 April 2004 as if the current group
                                                                          structure had been in existence throughout the year ended 31 March 2005 except
                                                                          for the results of the remaining 20% interest in DGFM which are included from
                                                                          24 September 2004, its date of acquisition.

                                                                     3.   ADOPTION OF NEW AND REVISED IFRS

                                                                          In the current year, the Group has adopted all of the new and revised standards
                                                                                                                                                                   FM HOLDINGS ANNUAL REPORT 2006




                                                                          and interpretations issued by the IASB and the International Financial Reporting
                                                                          Interpretations Committee (the "IFRIC") of the IASB that are relevant to its
                                                                          operations and effective for accounting periods beginning on 1 April 2005.

                                                                          All the standards have been applied retrospectively except where specific transitional
                                                                          provisions require a different treatment and accordingly the 2005 financial
                                                                          statements and their presentation have been amended in accordance with IAS
                                                                          8 "Accounting Policies, Changes in Accounting Estimates and Errors". Due to
                                                                          the change in accounting policies, the 2005 comparatives contained in these
                                                                          financial statements differ from those published in the Company's annual report
                                                                          for the year ended 31 March 2005.

                                                                          The principal effect of the change in policy is discussed below.


    34
                                 3.    ADOPTION OF NEW AND REVISED IFRS (cont’d)

                                 3.1   Adoption of IAS 1 (revised), Presentation of Financial Statements

                                       The application of IAS 1 (revised) led to an update of the presentation of financial
                                       statements. Minority interest is now included as a separate line item within
                                       equity. Profit and loss attributable to minority interest and that attributable to
                                       equity holders of the Company is now presented as an allocation of the net result
                                       of the year.

                                 3.2   Other standards adopted

                                       The adoption of other new or revised standards and interpretations did not result




                                                                                                                                Notes to the Financial Statements for the year ended 31 March 2006
                                       in significant alterations to the Group’s accounting policies. The specific provisions
                                       contained in some of these standards were considered. The adoption of these
                                       other standards did not result in any changes to the amounts or disclosures in
                                       these financial statements.

                                 3.3   New standards or interpretations that have been issued but are not yet effective.

                                       The Group has not early adopted the following standards or interpretations that
                                       have been issued but are not yet effective. The directors of the Company
                                       anticipate that the adoption of such standards and interpretations will not result
                                       in substantial changes to the Group's accounting policies.

                                                                                                1
                                             IAS 1 (Amendment)             Capital Disclosures
                                             IAS 19 (Amendment)            Employee Benefits - Actuarial Gains and
                                                                                                                     2
                                                                              Losses, Group Plans and Disclosures
                                             IAS 21 (Amendment)            The Effects of Changes in Foreign Exchange
                                                                              Rates – Net Investment in a Foreign
                                                                                         2
                                                                              Operation
                                             IAS 39 (Amendment)            Cash Flow Hedge Accounting of Forecast
                                                                                                      2
                                                                              Intragroup Transactions
                                                                                                 2
                                             IAS 39 (Amendment)            The Fair Value Option
                                             IAS 39 & IFRS 4               Financial Instruments: Recognition and
                                               (Amendment)                    Measurement and Insurance Contracts -
                                                                                                              2
                                                                              (Financial Guarantee) Contracts
                                                                                                              1
                                             IFRS 7                        Financial Instruments – Disclosures
                                             IFRIC 4                       Determining whether an Arrangement contains
                                                                                       2
                                                                              a Lease

                                               1
                                                 Effective for annual periods beginning on or after 1 January 2007
                                               2
                                                 Effective for annual periods beginning on or after 1 January 2006

                                 4.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                                       (a)    Basis of preparation

                                              The significant accounting policies that have been used in the preparation
                                              of these financial statements are summarised below.
FM HOLDINGS ANNUAL REPORT 2006




                                              The financial statements have been prepared under the historical cost
                                              convention.

                                              It should be noted that accounting estimates and assumptions are used in
                                              preparing these financial statements. Although these estimates are based
                                              on management's best knowledge of current events and actions, actual
                                              results may ultimately differ from those estimates.

                                       (b)    Basis of consolidation

                                              The consolidated financial statements incorporate the financial statements
                                              of the Company and all of its subsidiaries up to 31 March each year.

                                              Minority interests represent the interests of outside shareholders in the
                                              operating results and net assets of subsidiaries.

                                                                                                                                35
                                                                     4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

                                                                          (c)   Subsidiaries

                                                                                Subsidiaries are entities over which the Company has the power to control
                                                                                the financial and operating policies. The existence and effect of potential
                                                                                voting rights that are currently exercisable or convertible are considered
                                                                                when assessing whether the Company controls another entity. Subsidiaries
                                                                                are fully consolidated from the date on which control is transferred to the
                                                                                Company. They are de-consolidated from the date that control ceases.

                                                                                Acquired subsidiaries are subject to application of the purchase method.
                                                                                This involves the revaluation at fair value of all identifiable assets and
                                                                                liabilities, including contingent liabilities of the subsidiary, at the acquisition
Notes to the Financial Statements for the year ended 31 March 2006




                                                                                date, regardless of whether or not they were recorded in the financial
                                                                                statements of the subsidiary prior to acquisition. On initial recognition, the
                                                                                assets and liabilities of the subsidiary are included in the consolidated
                                                                                balance sheet at their revalued amounts, which are also used as the bases
                                                                                for subsequent measurement in accordance with the Group's accounting
                                                                                policies. Goodwill represents the excess of acquisition cost over the fair
                                                                                value of the Group's share of the net identifiable assets of the acquired
                                                                                subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries
                                                                                is presented separately in the consolidated balance sheet.

                                                                                Inter-company transactions, balances and unrealised gains on transactions
                                                                                between group companies are eliminated. Unrealised losses are also
                                                                                eliminated unless the transaction provides evidence of an impairment of the
                                                                                asset transferred.

                                                                                In the Company's balance sheet, subsidiaries are carried at cost less any
                                                                                impairment loss. The results of the subsidiaries are accounted for by the
                                                                                Company on the basis of dividends received and receivable at the balance
                                                                                sheet date.

                                                                          (d)   Foreign currency translation

                                                                                The financial statements are presented in Hong Kong dollars (HK$), which
                                                                                is also the functional currency of the Company.

                                                                                In the separate financial statements of the consolidated entities, foreign
                                                                                currency transactions are translated into the functional currency of the
                                                                                individual entity using the exchange rates prevailing at the dates of the
                                                                                transactions. Foreign exchange gains and losses resulting from the settlement
                                                                                of such transactions and from the translation of monetary assets and liabilities
                                                                                denominated in foreign currencies at year-end exchange rates are recognised
                                                                                in the income statement.

                                                                                In the consolidated financial statements, all separate financial statements
                                                                                of subsidiaries originally presented in a currency different from the Group’s
                                                                                presentation currency, have been converted into Hong Kong dollars. Assets
                                                                                and liabilities have been translated into Hong Kong dollars at the closing
                                                                                rate at the balance sheet date. Income and expenses have been converted
                                                                                into Hong Kong dollars at the average rates over the reporting period. Any
                                                                                differences arising from this procedure have been dealt with in the exchange
                                                                                                                                                                      FM HOLDINGS ANNUAL REPORT 2006




                                                                                reserve in equity. Goodwill and fair value adjustments arising on the acquisition
                                                                                of a foreign entity have been treated as assets and liabilities of the foreign
                                                                                entity and translated into Hong Kong dollars at the closing rates.

                                                                          (e)   Income and expense recognition

                                                                                Revenue comprises the fair value for the sale of goods and services, net of
                                                                                rebates and discounts and after eliminating sales within the Group.

                                                                                Revenue is recognised when it is probable that the economics benefits will
                                                                                flow to the Group and when the revenue and costs, if applicable, can be
                                                                                measured reliably and on the following bases:

                                                                                (i)   Sales of goods are recognised when the significant risks and rewards
                                                                                      of ownership have been transferred to the buyer, provided that the Group
     36                                                                               maintains neither managerial involvement to the degree usually associated
                                                                                      with ownership, nor effective control over the goods sold.
                                 4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

                                       (e)   Income and expense recognition (con’td)

                                             (ii) Interest income is recognised on a time proportion basis using the
                                                  effective interest rate method.

                                             Operating expenses are charged to the income statement when incurred.

                                      (f)    Borrowing costs

                                             All borrowing costs are expensed as incurred.

                                      (g)    Goodwill




                                                                                                                                   Notes to the Financial Statements for the year ended 31 March 2006
                                             Goodwill arising on acquisition of subsidiaries represents the excess of the
                                             cost of an acquisition over the Group's interest in fair value of identifiable
                                             assets and liabilities, including contingent liabilities of the acquired subsidiary
                                             at the date of acquisition. Goodwill is tested annually for impairment and
                                             whenever there is indication that the cash generating unit to which the goodwill
                                             relates becomes impaired. Goodwill is carried at cost less accumulated
                                             impairment losses. Gains and losses on the disposal of an entity include the
                                             carrying amount of goodwill relating to the entity sold.

                                      (h)    Property, plant and equipment

                                             Property, plant and equipment are stated at acquisition cost less accumulated
                                             depreciation and accumulated impairment losses. The cost of asset comprises
                                             its purchase price and any directly attributable cost of bringing the asset to
                                             its working condition and location for its intended use.

                                             Depreciation on property, plant and equipment is calculated using the straight-
                                             line method to allocate their cost over their estimated useful lives, at the
                                             following rates per annum:

                                                  Buildings                                2%
                                                  Leasehold improvement                    5% - 20%
                                                  Furniture and fixtures                   10% - 20%
                                                  Office equipment                         10% - 20%
                                                  Plant and machinery                      10%
                                                  Motor vehicles                           10% - 30%
                                                  Moulds                                   20%

                                             Assets held under hire purchase contracts are depreciated over their estimated
                                             useful lives or, where shorter, the terms of the leases using the same method
                                             as owned assets in the same category.

                                             The assets' useful lives are reviewed, and adjusted if appropriate, at each
                                             balance sheet date.

                                             The gain or loss arising on the disposal is determined as the difference
                                             between the sales proceeds and the carrying amount of the asset and is
                                             recognised in the income statement.
FM HOLDINGS ANNUAL REPORT 2006




                                             Subsequent costs are included in the asset's carrying amount or recognised
                                             as a separate asset, as appropriate, only when it is probable that future
                                             economic benefits associated with the item will flow to the Group and the
                                             cost of the item can be measured reliably. All other repairs and maintenance
                                             are charged to the income statement during the financial period in which they
                                             are incurred.

                                      (i)    Impairment of assets

                                             Goodwill, property, plant and equipment, leasehold interest in land and interest
                                             in subsidiaries are subject to impairment testing.

                                             For the purposes of assessing impairment, assets are grouped at the lowest
                                             levels for which there are separately identifiable cash flows (cash-generating
                                             units). As a result, some assets are tested individually for impairment and
                                             some are tested at cash-generating unit level. Goodwill in particular is
                                             allocated to those cash-generating units that are expected to benefit from
                                                                                                                                   37
                                                                     4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

                                                                          (i) Impairment of assets (Cont’d)

                                                                              synergies of the related business combination and represent the lowest level
                                                                              within the Group at which management controls the related cash flows.

                                                                              Individual assets or cash-generating units that include goodwill are tested for
                                                                              impairment at least annually, irrespective of whether there is any indication
                                                                              that they are impaired. All other individual assets or cash-generating units
                                                                              are tested for impairment whenever events or changes in circumstances
                                                                              indicate that the carrying amount may not be recoverable.
Notes to the Financial Statements for the year ended 31 March 2006




                                                                              An impairment loss is recognised as an expense immediately for the amount
                                                                              by which the asset’s or cash-generating unit’s carrying amount exceeds its
                                                                              recoverable amount. The recoverable amount is the higher of fair value,
                                                                              reflecting market conditions less costs to sell, and value in use based on an
                                                                              internal discounted cash flow evaluation. Impairment losses recognised for
                                                                              cash-generating units, to which goodwill has been allocated, are credited
                                                                              initially to the carrying amount of goodwill. Any remaining impairment loss
                                                                              is charged pro rata to the other assets in the cash generating unit.

                                                                              An impairment loss on goodwill is not reversed in subsequent periods. In
                                                                              respect of other assets, an impairment loss is reversed if there has been a
                                                                              change in the estimates used to determine the asset's recoverable amount
                                                                              and only to the extent that the asset's carrying amount does not exceed the
                                                                              carrying amount that would have been determined, net of depreciation or
                                                                              amortisation, if no impairment loss had been recognised.

                                                                          (j) Leases

                                                                              (i)   Hire purchase contracts

                                                                                    Leases are classified as obligations under hire purchase contracts
                                                                                    whenever the terms of the leases transfer substantially all the risks and
                                                                                    rewards of ownership of the assets to the Group. Assets acquired by
                                                                                    way of hire purchase contracts are stated at an amount equal to the
                                                                                    lower of the fair value and the present value of the minimum lease
                                                                                    payments at inception of the lease. The corresponding liabilities net of
                                                                                    finance charges are recorded as obligations under hire purchase
                                                                                    contracts. Finance charges implicit in the lease payments are charged
                                                                                    to the income statement over the period of the leases so as to produce
                                                                                    a constant periodic rate of interest on the remaining balance of the
                                                                                    obligations for each accounting period.

                                                                              (ii) Operating lease

                                                                                    Leases where substantially all the risks and rewards of ownership of
                                                                                    assets remain with the lessor are accounted for as operating leases.
                                                                                    Annual rentals applicable to such operating leases are charged to the
                                                                                    income statement on a straight line basis over the lease term except
                                                                                    where an alternative basis is more representative of the pattern of benefits
                                                                                    to be derived from the leased assets. Lease incentives received are
                                                                                                                                                                   FM HOLDINGS ANNUAL REPORT 2006




                                                                                    recognised in the income statement as an integral part of the aggregate
                                                                                    net lease payments made. Contingent rentals are charged to the income
                                                                                    statement in the accounting period in which they are incurred.

                                                                              (iii) Leasehold interest in land is up-front payments to acquire the leasehold
                                                                                    land. The payments are stated at cost less accumulated amortisation
                                                                                    and any impairment losses. Amortisation is calculated on the straightline
                                                                                    basis to write off the up-front payments over the lease terms.

                                                                          (k) Financial assets

                                                                              The Group's financial assets include loans and receivables. Financial assets
                                                                              are assigned to the different categories by management on initial recognition,
                                                                              depending on the purpose for which the financial assets were acquired. The

38
                                                                              designation of financial assets is reclassified at every reporting date at which
                                                                              a choice of classification or accounting treatment is available.
                                 4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

                                      (k) Financial assets (Cont’d)

                                            All financial assets are recognised on their trade date. When financial assets
                                            are recognised initially, they are measured at fair value, plus directly
                                            attributable transaction costs.

                                            Derecognition of financial assets occurs when the rights to receive cash
                                            flows from the financial assets expire or are transferred and substantially
                                            all of the risks and rewards of ownership have been transferred. An
                                            assessment for impairment is undertaken at least at each balance sheet
                                            date whether or not there is objective evidence that a financial asset or a




                                                                                                                                  Notes to the Financial Statements for the year ended 31 March 2006
                                            group of financial assets is impaired.

                                            Loans and receivables are non-derivative financial assets with fixed or
                                            determinable payments that are not quoted in an active market and initially
                                            recognised at fair value and subsequently measured at amortised cost using
                                            the effective interest method, less any impairment losses. Any changes in
                                            their value are recognised in income statement.

                                            Loans and receivables are provided against when objective evidence is
                                            received that the Group will not be able to collect all amounts due to it in
                                            accordance with the original terms of the receivables. The amount of the
                                            write-down is determined as the difference between the asset's carrying
                                            amount and the present value of estimated future cash flows.

                                      (l)   Inventories

                                            Inventories are stated at the lower of cost and net realisable value. Cost,
                                            calculated on the weighted average method, comprises direct materials and,
                                            where applicable, direct labour and those overheads that have been incurred
                                            in bringing the inventories to their present location and condition. Net
                                            realisable value is calculated as the actual or estimated selling price less
                                            all further costs of completion and the estimated costs necessary to make
                                            the sale.

                                      (m) Accounting for income tax

                                            Income tax comprises current tax and deferred tax.

                                            Current income tax assets and/or liabilities comprise those obligations to,
                                            or claims from, tax authorities relating to the current or prior reporting period,
                                            that are unpaid at the balance sheet date. They are calculated according
                                            to the tax rates and tax laws applicable to the tax periods to which they
                                            relate, based on the taxable profit for the year. All changes to current tax
                                            assets or liabilities are recognised as a component of tax expense in the
                                            income statement.

                                            Deferred income taxes are calculated using the liability method on temporary
                                            differences. This involves the comparison of the carrying amounts of assets
                                            and liabilities in the consolidated financial statements with their respective
                                            tax bases. No deferred taxes are recognised on temporary differences
FM HOLDINGS ANNUAL REPORT 2006




                                            associated with shares in subsidiaries if reversal of these temporary differences
                                            can be controlled by the Group and it is probable that reversal will not occur
                                            in the foreseeable future. In addition, tax losses available to be carried
                                            forward as well as other income tax credits to the Group are assessed for
                                            recognition as deferred tax assets.

                                            Deferred tax liabilities are provided for in full. Deferred tax assets are
                                            recognised to the extent that it is probable that they will be able to be offset
                                            against future taxable income. Deferred tax assets and liabilities are
                                            calculated, without discounting, at tax rates that are expected to apply to
                                            their respective period of realisation, provided they are enacted or substantively
                                            enacted at the balance sheet date.

                                            Most changes in deferred tax assets or liabilities are recognised as a
                                            component of tax expense in the income statement. Only changes in deferred
                                            tax assets or liabilities that relate to a change in value of assets or liabilities
                                            that is charged directly to equity are charged or credited directly to equity.        39
                                                                     4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

                                                                          (n)         Cash and cash equivalents

                                                                                      Cash and cash equivalents include cash at bank and in hand as well as
                                                                                      short term bank deposits.

                                                                          (o)         Share capital

                                                                                      Ordinary shares are classified as equity. Share capital is determined
                                                                                      using the nominal value of shares that have been issued.

                                                                                      Any transaction costs associated with the issuing of shares are deducted
                                                                                      from the proceeds (net of any related income tax benefits), to the extent
Notes to the Financial Statements for the year ended 31 March 2006




                                                                                      they are incidental costs directly attributable to the equity transaction.

                                                                          (p) Employee benefits

                                                                                (i)   Employee entitlements

                                                                                      Employee entitlements to annual leave are recognised when they accrue
                                                                                      to employees. A provision is made for the estimated liability for annual
                                                                                      leave as a result of services rendered by employees up to the balance
                                                                                      sheet date.

                                                                                (ii) Retirement benefit obligations

                                                                                      The Group contributes to a defined contribution retirement benefit scheme
                                                                                      ("MPF Scheme") under the Mandatory Provident Fund Schemes
                                                                                      Ordinance which is available to its employees in Hong Kong. Contributions
                                                                                      to the MPF Scheme by the Group and employees are calculated as
                                                                                      percentages of employees’ basic salaries. The retirement benefit scheme
                                                                                      cost charged to the income statement represents contributions payable
                                                                                      by the Group to the MPF Scheme. The assets of the MPF Scheme are
                                                                                      held separately from those of the Group in independently administered
                                                                                      funds.

                                                                                      Pursuant to the relevant regulations in the PRC, the Group has participated
                                                                                      in a local municipal government retirement benefit scheme (the "Scheme"),
                                                                                      whereby the Group is required to contribute a certain percentage of basic
                                                                                      salaries of its employees to the Scheme to fund their retirement benefits.
                                                                                      The local municipal government undertakes to assume the retirement
                                                                                      benefits obligations of all existing and future retired employees of a
                                                                                      subsidiary in the PRC. The only obligation of the Group with respect to
                                                                                      the Scheme is to pay the ongoing required contributions under the
                                                                                      Scheme mentioned above.

                                                                                      The Group's contributions to the retirement benefit schemes are expensed
                                                                                      as incurred.

                                                                          (q)         Financial liabilities

                                                                                      The Group's financial liabilities include borrowings, obligations under
                                                                                      hire purchase contracts, trade payables, bills payable and accruals and
                                                                                                                                                                    FM HOLDINGS ANNUAL REPORT 2006




                                                                                      other payable. They are included in balance sheet line items as "secured
                                                                                      borrowings from banks and other financial institutions" and "obligation
                                                                                      under hire purchase contracts" under current and non-current liabilities,
                                                                                      "trade payables", "bills payable" and "deposits received, accruals and
                                                                                      other payable" under current liabilities.

                                                                                      Financial liabilities are recognised when the Group becomes a party to
                                                                                      the contractual agreements of the instrument. All interest related charges
                                                                                      are recognised as an expense in finance costs in the income statement.

                                                                                      Borrowings, which include bank loans and loans from other financial
                                                                                      institutions and obligations under hire purchase contracts are recognised
                                                                                      initially at fair value, net of transaction costs incurred. Borrowings are
                                                                                      subsequently stated at amortised cost, any difference between the
                                                                                      proceeds (net of transaction costs) and the redemption value is recognised
  40                                                                                  in the income statement over the period of the borrowings using the
                                                                                      effective interest method.
                                 4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

                                      (q) Financial liabilities (cont’d)


                                              Borrowings are classified as current liabilities unless the Group has an
                                              unconditional right to defer settlement of the liability for at least 12 months
                                              after the balance sheet date.

                                              Trade payables, bills payable and accruals and other payable are recognised
                                              initially at their fair value and subsequently measured at amortised cost, using
                                              the effective interest rate method.

                                      (r)     Segmental reporting

                                              A business segment is a group of assets and operations engaged in providing
                                              products that are subject to risks and returns that are different from those
                                              of other business segments. A geographical segment is a group of assets
                                              and operations engaged in providing products within a particular economic




                                                                                                                                  Notes to the Financial Statements for the year ended 31 March 2006
                                              environment that is subject to risks and returns that are different from those
                                              of segments operating in other economic environments.


                                      (s) Related parties

                                              Parties are considered to be related to if:

                                              (i)   directly, or indirectly through one or more intermediaries, the Group:

                                                     - controls, is controlled by, or is under common control with, the entity;

                                                     -   has an interest in the entity that gives it significant influence over
                                                         the entity;

                                                     - has joint control over the entity;

                                              (ii) the party is a member of the key management personnel of the Group
                                                   or its parent;

                                              (iii) the party is a close member of the family or any individual referred to in
                                                    (i) or (ii);

                                              (iv) the party is an entity that is controlled or significantly influenced by or
                                                   for which significant voting power in such entity resides with, directly or
                                                   indirectly, any individual referred to in (ii) or (iii); or

                                              (v) the party is a post-employment benefit plan for the benefit of employees
                                                  of the Group, or of any entity that is a related party of the Group.

                                 5.   CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

                                      Estimates and judgements are continually evaluated and are based on historical
                                      experience and other factors, including expectations of future events that are
                                      believed to be reasonable under the circumstances.

                                      The Group makes estimates and assumptions concerning the future. The resulting
                                      accounting estimates will, by definition, seldom equal the related actual results.
                                      The estimates and assumptions that have a significant risk of causing a material
                                      adjustment to the carrying amounts of assets and liabilities within the next financial
                                      year are discussed below.

                                      (i)       Impairment of goodwill

                                                The Group tests annually whether goodwill has suffered any impairment in
FM HOLDINGS ANNUAL REPORT 2006




                                                accordance with the accounting policy stated in note 4(i). The recoverable
                                                amounts of cash-generating unit have been determined based on fair values
                                                (less costs to sell) determined by a professional valuer.

                                      (ii)      Depreciation

                                                The Group depreciates the property, plant and equipment on a straight-line
                                                basis over the estimated useful lives of 3 1/3 to 50 years, starting from the
                                                date on which the assets are placed into productive use. The estimated
                                                useful lives reflect the directors' estimate of the periods that the Group
                                                intends to derive future economic benefits from the use of the Group's
                                                property, plant and equipment.

                                      (iii)     Impairment of receivables

                                                The Group's management determines impairment of receivables on a
                                                regular basis. This estimate is based on the credit history of its customers
                                                and current market conditions. Management reassess the impairment of
                                                                                                                                  41
                                                receivables at the balance sheet date.
                                                                     5.   CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (cont’d)

                                                                          (iv) Net realisable value of inventories

                                                                               Net realisable value of inventories is the estimated selling prices in the
                                                                               ordinary course of business less estimated costs of completion and selling
                                                                               expenses. These estimates are based on the current market condition and
                                                                               the historical experience of selling products of similar nature. It could change
                                                                               significantly as a result of competitor actions in response to severe industry
                                                                               cycle. Management reassess these estimations at the balance sheet date
                                                                               to ensure inventory is shown at the lower of cost and net realisable value.

                                                                     6.   REVENUE AND OTHER OPERATING INCOME

                                                                          Revenue, which is also the Group's turnover, represents total invoiced value of
                                                                          goods supplied and services rendered. Revenue recognised during the year is
Notes to the Financial Statements for the year ended 31 March 2006




                                                                          as follows:

                                                                                                                                  2006          2005
                                                                                                                                HK$'000       HK$'000
                                                                          Revenue
                                                                          Sales of polyresin giftware products                  169,896       142,141

                                                                          Other operating income
                                                                          Bank interest income                                       382             3
                                                                          Moulding charge                                            559           318
                                                                          Sample sales                                               354           157
                                                                          Sundry income                                              327            32
                                                                          Exchange gain                                              484             -
                                                                                                                                   2,106           510

                                                                     7.   SEGMENT INFORMATION

                                                                          Business segment

                                                                          The Group operates principally as a single business segment for the sales of
                                                                          polyresin giftware products.

                                                                          Geographical segment

                                                                          In presenting information on the basis of geographical segments, segment revenue
                                                                          is based on the geographical presence of the customers. Segment capital
                                                                          expenditure and assets are based on the geographical location of the assets.
                                                                          Geographical information about the Group's revenue, capital expenditure and
                                                                          assets are as follows:
                                                                                                                                Year ended 31 March

                                                                                                                                  2006          2005
                                                                                                                                HK$'000       HK$'000
                                                                          Segment revenue
                                                                          North America                                          74,644        63,243
                                                                          Europe                                                 87,551        72,535
                                                                          Other countries                                         7,701         6,363
                                                                                                                                169,896       142,141

                                                                          Capital expenditure
                                                                          Hong Kong                                                  100          402
                                                                          PRC (note (a))                                           7,597       15,691
                                                                          Macau                                                    1,220            -
                                                                                                                                                                  FM HOLDINGS ANNUAL REPORT 2006




                                                                                                                                   8,917       16,093


                                                                                                                                     At 31 March

                                                                                                                                 2006          2005
                                                                                                                               HK$'000       HK$'000
                                                                          Segment assets
                                                                          Hong Kong                                              51,046        31,750
                                                                          PRC                                                    52,492        39,802
                                                                          Macau                                                     714             -
                                                                          Singapore                                               1,459             -
                                                                                                                                105,711        71,552
                                                                          Unallocated assets                                      1,039         4,747
                                                                                                                               106,750         76,299


     42
                                 7.    SEGMENT INFORMATION (Con’td)

                                       (a)    Capital expenditure included the consideration of acquiring leasehold interest
                                              in land of HK$5,024,000 for the year ended 31 March 2005.

                                 8.    FINANCE COSTS

                                                                                                 2006    2005
                                                                                               HK$'000 HK$'000

                                       Interest on borrowings from banks and
                                           other financial institutions wholly repayable
                                           within five years                                       1,702      1,224
                                       Finance charges on obligations under hire
                                           purchase contracts                                         78        107




                                                                                                                               Notes to the Financial Statements for the year ended 31 March 2006
                                                                                                   1,780      1,331

                                 9.    PROFIT BEFORE INCOME TAX


                                                                                                 2006        2005
                                                                                               HK$'000     HK$'000
                                       Profit before income tax is arrived at after
                                       charging/(crediting) :

                                       Auditors' remuneration:
                                       - Audit fee: current year                                    400        250
                                                    underprovision in previous year                 190          -
                                       - Non-audit fee                                              504          -
                                       Cost of inventories recognised as expense                130,502    101,333
                                       Depreciation of*
                                       - Owned assets                                             4,947       3,600
                                       - Assets held under hire purchase contracts                  534         632
                                                                                                  5,481       4,232
                                       Amortisation of leasehold interest in land                   101          50
                                       Provision for trade receivables **                           500           -
                                       Provision for inventories **                                 500           -
                                       Impairment loss for property, plant and equipment**          500           -
                                       Exchange loss                                                  -         310
                                       Loss on disposal of property, plant and equipment              -         557
                                       Operating lease rentals in respect of land and
                                          buildings                                                  361        738
                                       Bank interest income                                        (382)         (3)



                                       *     Depreciation expense of HK$5,164,000 (2005: HK$3,889,000) has been
                                             expensed in cost of sales and HK$317,000 (2005: HK$343,000) in
                                             administrative expenses.

                                       **    Other operating expenses included provision for trade receivable of
                                             HK$500,000, provision for inventories of HK$500,000 and impairment loss
                                             for property, plant and equipment of HK$500,000.

                                 10.   INCOME TAX EXPENSES

                                       The Group's profits derived in Hong Kong are subject to Hong Kong profits tax
                                       which was 17.5% for the year (2005: 17.5%).
FM HOLDINGS ANNUAL REPORT 2006




                                       Macau Complementary Tax has been calculated at 12% for the year on the
                                       estimated assessable profit of a wholly owned subsidiary of the Group established
                                       in Macau (2005: 15.75%).

                                       The Group's profits derived in the PRC are subject to a PRC Corporate Income
                                       Tax of 12% in accordance with the relevant laws and regulations in the PRC for
                                       the year (2005: 12%). During the year, a subsidiary of the Group applied to the
                                       relevant authority for a 50% deduction from the payment of PRC Corporate Income
                                       Tax as this subsidiary's export sales had exceeded 70% of its total sales. Such
                                       deduction is updated annually upon application by the subsidiary to the relevant
                                       authority.

                                       Tax has not been provided by the Company as the Company did not derive any
                                       assessable profits during the year (2005: Nil).



                                                                                                                               43
                                                                     10.   INCOME TAX EXPENSES(Cont’d)

                                                                                                                                        2006           2005
                                                                                                                                      HK$'000        HK$'000
                                                                           Current tax expenses
                                                                           - Hong Kong profits tax                                      1,110          1,400
                                                                           - Macau Complementary Tax                                      830          1,785
                                                                           - Corporate Income Tax in the PRC                              113             27
                                                                                                                                        2,053          3,212

                                                                           Deferred tax                                                     -            100
                                                                           Total income tax expenses                                    2,053          3,312
Notes to the Financial Statements for the year ended 31 March 2006




                                                                           Reconciliation between tax expense and accounting profit before income tax at
                                                                           applicable tax rates is as follows:

                                                                                                                                        2006           2005
                                                                                                                                      HK$'000        HK$'000

                                                                           Profit before income tax                                    14,981         19,879

                                                                           Tax on profit before income tax, calculated at the
                                                                               rates applicable to profits in the tax jurisdictions     1,879          3,248
                                                                           Tax effect of non-deductible expenses                          147               3
                                                                           Tax effect of non-taxable income                               (56)              -
                                                                           Tax effect of prior year's tax losses utilised this year          -           (22)
                                                                           Others                                                           83             83
                                                                           Income tax expenses                                          2,053          3,312


                                                                           The amount of the deferred tax charge for the year is as follows:

                                                                                                                                        2006           2005
                                                                                                                                      HK$'000        HK$'000
                                                                           Tax effect of temporary differences attributable to:
                                                                           Accelerated depreciation allowances                               -          100


                                                                     11.   EARNINGS PER SHARE

                                                                           The calculation of basic earnings per share is based on the consolidated profit
                                                                           attributable to equity holders of the Company of HK$12,928,000 (2005:
                                                                           HK$16,553,000) and on the weighted average of 97,110,625 (2005: 74,610,625)
                                                                           ordinary shares in issue during the year.

                                                                           Diluted earnings per share for the year was not presented as there is no dilutive
                                                                           potential share (2005: Nil).


                                                                     12.   EMPLOYEE BENEFIT EXPENSE (INCLUDING DIRECTORS' EMOLUMENTS)

                                                                                                                                        2006           2005
                                                                                                                                      HK$'000        HK$'000
                                                                           Staff costs, excluding directors' remuneration
                                                                               and contributions to retirement benefit schemes          5,886          5,300
                                                                           Directors' remuneration (excluding
                                                                               retirement benefit scheme contributions)                 1,800          1,057
                                                                                                                                                                FM HOLDINGS ANNUAL REPORT 2006




                                                                           Retirement benefit scheme contributions
                                                                               - defined contribution plans                               109            121
                                                                                                                                        7,795          6,478

                                                                     13.   Directors' Remuneration

                                                                           The remuneration of the directors of the Company analysed into the following
                                                                           bands is disclosed in compliance with paragraph 1207.11 of Chapter 12 of the
                                                                           Listing Manual of the SGX-ST:

                                                                                                              Executive         Non-executive
                                                                                                               directors             directors       Total

                                                                           Below SG$250,000
                                                                             (equivalent to HK$1,150,000)               3                        3       6


  44
 FM HOLDINGS ANNUAL REPORT 2006

     14.   PROPERTY, PLANT AND EQUIPMENT - GROUP

                                                                 Leasehold     Furniture         Office   Plant and     Motor
                                                   Buildings   improvement   and fixtures   equipement    machinery   vehicles    Moulds       Total
                                                   HK$'000         HK$'000     HK$'000        HK$'000      HK$'000    HK$'000    HK$'000    HK$'000

           At 1 April 2004
           Cost                                           -          6,555        1,238           2,953       1,923     1,458     10,095      24,222
           Accumulated depreciation                       -        (2,361)        (591)         (1,639)       (879)     (657)     (6,293)   (12,420)

           Net book amount                                -          4,194          647          1,314        1,044       801      3,802     11,802

           Year ended 31 March 2005
           Opening net book value                         -          4,194           647         1,314        1,044        801      3,802     11,802
           Additions                                 3,938           1,132           790            92        2,616          -      2,501     11,069
           Disposals                                      -          (420)             -         (137)            -          -          -      (557)
           Depreciation                                (39)          (651)         (217)         (410)        (674)      (276)    (1,965)    (4,232)

           Closing net book value                    3,899           4,255        1,220            859        2,986       525      4,338     18,082

           At 31 March 2005
           Cost                                      3,938           6,987        2,028           2,358       4,539     1,458     12,596      33,904
           Accumulated depreciation                    (39)        (2,732)        (808)         (1,499)     (1,553)     (933)     (8,258)   (15,822)

           Net book amount                           3,899           4,255        1,220            859        2,986       525      4,338     18,082

           Year ended 31 March 2006
           Opening net book value                    3,899           4,255        1,220            859        2,986        525      4,338    18,082
           Exchange difference                           74             64           19              5           15          7          -        184
           Additions                                      -          1,665          421            130        2,740        350      3,611      8,917
           Depreciation                                (79)          (963)        (339)          (419)        (953)      (359)    (2,369)    (5,481)
           Impairment                                     -              -            -              -            -          -      (500)      (500)

           Closing net book value                    3,894           5,021        1,321            575        4,788       523      5,080     21,202

           At 31 March 2006
           Cost                                      4,012           8,768         2,477          2,504       7,320      1,826     15,329     42,236
           Accumulated depreciation                  (118)         (3,747)       (1,156)        (1,929)     (2,532)    (1,303)   (10,249)   (21,034)

           Net book amount                           3,894           5,021        1,321            575        4,788       523      5,080     21,202
45




                     Notes to the Financial Statements for the year ended 31 March 2006
                                                                     14.   PROPERTY, PLANT AND EQUIPMENT – GROUP (Cont’d)

                                                                           Buildings with carrying amount of HK$3,894,000 (2005: HK$3,899,000) have
                                                                           been charged to other financial institution to secure the banking facilities granted
                                                                           to the Group.

                                                                           The cost of property, plant and equipment includes amounts of approximately
                                                                           HK$486,000 (2005: HK$486,000) and HK$2,430,000 (2005: HK$2,430,000) in
                                                                           respect of motor vehicles and plant and machinery respectively held under
                                                                           obligations under hire purchase contracts and the related accumulated depreciation
                                                                           amounted to approximately HK$486,000 (2005: HK$438,000) and HK$972,000
                                                                           (2005: HK$486,000) respectively.


                                                                     15.   LEASEHOLD INTEREST IN LAND
Notes to the Financial Statements for the year ended 31 March 2006




                                                                                                               Group                      Company
                                                                                                          2006       2005              2006     2005
                                                                                                        HK$'000   HK$'000            HK$'000 HK$'000

                                                                           Opening net book amount         4,974            -              -            -
                                                                           Additions during the year           -        5,024               -           -
                                                                           Exchange difference                95             -              -           -
                                                                           Amortisation charge for
                                                                             the year                      (101)          (50)              -           -
                                                                           Closing net book amount         4,968        4,974               -           -


                                                                           The leasehold interest in land is held in the PRC on medium term lease and
                                                                           charged to a PRC financial institution to secure the loan granted to the Group.

                                                                     16.   GOODWILL

                                                                           The net carrying amount of goodwill can be analysed as follows:


                                                                                                                   Group                   Company
                                                                                                              2006       2005            2006    2005
                                                                                                            HK$'000   HK$'000          HK$'000 HK$'000

                                                                           Gross amount
                                                                           Carrying amount at the
                                                                             beginning of the year               197             -              -           -
                                                                           Further acquisition of 20%
                                                                             equity interest in DGFM                -         197               -           -
                                                                           Carrying amount at the end of
                                                                             the year                            197          197               -           -

                                                                           The goodwill at 31 March 2006 comprises goodwill arising from the further
                                                                           acquisition of DGFM (note 2).

                                                                           The carrying amount of goodwill has been allocated to the cash-generating units
                                                                           for impairment testing, i.e. the factory plant which was engaged in manufacturing
                                                                           and trading of polyresin giftware products in the PRC. The recoverable amount
                                                                           for the cash-generating unit was determined to be the fair value (less costs to
                                                                                                                                                                  FM HOLDINGS ANNUAL REPORT 2006




                                                                           sell) determined by a professional valuer, which assume that there are no material
                                                                           adverse changes in the underlying manufacturing and trading operations of DGFM.
                                                                           No impairment provision is considered necessary.




     46
 FM HOLDINGS ANNUAL REPORT 2006

     17.   INTEREST IN SUBSIDIARIES

                                                                                               Group                                        Company
                                                                                     2006                         2005                   2006                       2005
                                                                                   HK$'000                      HK$'000                HK$'000                    HK$'000

           Unlisted investments, at cost                                                   -                           -                 23,070                     23,070


           Particulars of the subsidiaries at 31 March 2006 are as follows:
                                                                                 Place of                Particulars of        Effective equity         Principal activities
                                                                              incorporation/                issued/            interest held %             and place of
           Name of company                                                     registeration           registered capital                                   operation

           Directly held :

           Assure International Limited ("AIL")                           British Virgin Islands    2,984,425 ordinary                 100              Investment holding
                                                                                  ("BVI")          shares of US$1 each                                      Hong Kong

           Indirectly held :

           Fine Makers (HK) Limited ("FMHK")                                   Hong Kong             10,000 ordinary                  100                Design and trading
                                                                                                   shares of HK$1 each                            of polyresin giftware products
                                                                                                                                                              The PRC

           Fine Makers Limited ("FML")                                         Hong Kong             12,500 ordinary                  100               Investment holding
                                                                                                   shares of HK$1 each                                      Hong Kong

           Fine Makers Manufacturing Company Limited ("FMM")                       BVI               1,000 ordinary                   100               Trading of polyresin
                                                                                                   shares of US$1 each                                   giftware products
                                                                                                                                                              Macau

           Fine Makers (Macao Commercial Offshore) Limited ("MCO")                Macau                  MOP100,000                   100               Trading of polyresin
                                                                                                                                                         giftware products
                                                                                                                                                              Macau

           DGFM                                                                 The PRC                  US$ 530,000                  100               Manufacturing and
                                                                                                                                                        trading of polyresin
                                                                                                                                                         giftware products
                                                                                                                                                              The PRC

           The financial statements of the above subsidiaries are audited by Grant Thornton, Hong Kong, for statutory purpose and/or for the purpose of the Group consolidation
           of FM Holdings Limited.
47




                      Notes to the Financial Statements for the year ended 31 March 2006
                                                                     18.   INVENTORIES

                                                                                                                    Group                  Company
                                                                                                                2006      2005         2006     2005
                                                                                                              HK$'000 HK$'000        HK$'000 HK$'000

                                                                           Raw materials                       10,803    10,029              -          -
                                                                           Work in progress                     1,419       537              -          -
                                                                           Finished goods                       8,528     4,348              -          -
                                                                                                               20,750    14,914              -          -


                                                                     19.   PREPAYMENTS AND DEPOSITS PAID

                                                                                                                    Group                  Company
Notes to the Financial Statements for the year ended 31 March 2006




                                                                                                                2006      2005         2006     2005
                                                                                                              HK$'000 HK$'000        HK$'000 HK$'000

                                                                           Prepayments                            620     4,197              -          -
                                                                           Trade deposits paid                  6,714     3,033              -          -
                                                                                                                7,334     7,230              -          -


                                                                     20.   AMOUNT DUE FROM SUBSIDIARIES - COMPANY

                                                                           The amount due is unsecured, interest free and repayable on demand.

                                                                     21.   PLEDGED BANK DEPOSITS

                                                                           The Group's time deposits of HK$12,242,000 (2005: HK$11,000,000) have been
                                                                           pledged to secure the Group's banking facilities. The effective interest rates of
                                                                           the pledged bank deposits ranged from 0.01% to 3.7% per annum (2005: 0.01%
                                                                           to 3.7% per annum).

                                                                     22.   CASH AND CASH EQUIVALENTS

                                                                                                                    Group                  Company
                                                                                                                2006      2005         2006     2005
                                                                                                              HK$'000 HK$'000        HK$'000 HK$'000

                                                                           Cash at banks and in hand           21,309     6,087         1,458           -

                                                                           Included in cash at banks and in hand of the Group is HK$208,000 (2005:
                                                                           HK$34,000) of bank balances denominated in Renminbi ("RMB") placed with
                                                                           banks in the PRC. RMB is not a freely convertible currency.


                                                                     23.   DEPOSITS RECEIVED, ACCRUALS AND OTHER PAYABLE

                                                                                                                    Group                  Company
                                                                                                                2006      2005         2006     2005
                                                                                                              HK$'000 HK$'000        HK$'000 HK$'000

                                                                           Trade deposits received                701       720             -           -
                                                                           Accruals and other payable           1,006       895            85           -
                                                                                                                1,707     1,615            85           -
                                                                                                                                                               FM HOLDINGS ANNUAL REPORT 2006




                                                                     24.   OBLIGATIONS UNDER HIRE PURCHASE CONTRACTS

                                                                                                                    Group                  Company
                                                                                                                2006      2005        2006     2005
                                                                                                              HK$'000 HK$'000       HK$'000 HK$'000

                                                                           Due within one year                    878       895              -          -
                                                                           Due in the second to fifth years       145     1,023              -          -
                                                                                                                1,023     1,918              -          -
                                                                           Future finance charges on
                                                                              obligations under hire purchase
                                                                              contracts                          (74)     (152)              -          -

                                                                           Present value of obligations
                                                                              under hire purchase
  48                                                                          contracts                           949     1,766              -          -
                                 24.   OBLIGATIONS UNDER HIRE PURCHASE CONTRACTS (Cont’d)

                                       The present value of obligations under hire purchase contracts is as follows:

                                                                                      Group         Company
                                                                                 2006     2005   2006    2005
                                                                               HK$'000 HK$'000 HK$'000 HK$'000

                                       Due within one year                         813       821           -           -
                                       Due in the second to fifth years            136       945           -           -
                                                                                   949     1,766           -           -
                                       Less : amount due within one year
                                        included under current liabilities        (813)    (821)           -           -

                                       Non-current portion included under




                                                                                                                             Notes to the Financial Statements for the year ended 31 March 2006
                                            non-current liabilities                136       945           -           -


                                       The average lease terms are four years. At 31 March 2006, the average effective
                                       borrowing rate was 3% (2005: 3%) per annum. Interest rates are fixed at the
                                       contract dates.

                                 25.   SECURED BORROWINGS FROM BANKS AND OTHER FINANCIAL
                                       INSTITUTIONS

                                                                                      Group             Company
                                                                                 2006     2005       2006    2005
                                                                               HK$'000 HK$'000     HK$'000 HK$'000

                                       Bank overdraft                                -       570           -           -
                                       Trust receipts                           18,298    15,324           -           -
                                       Other loans from banks and
                                        other financial institutions             4,563     7,212           -           -
                                                                                22,861    23,106           -           -

                                       The sercue borrowings from banks
                                        and other financial institutions are
                                        repayable as follows :

                                       Due within one year                      22,044    21,155           -          -
                                       Due in the second to fifth year             817     1,951           -          -
                                                                                22,861    23,106           -          -
                                       Less : amount due within one
                                        year included under current
                                        liabilities                            (22,044) (21,155)           -          -
                                       Non-current portion included
                                        under non-current liabilities              817     1,951           -          -


                                       Bank borrowings and loans from other financial institutions of HK$18,485,000
                                       (2005: HK$18,415,000) and HK$2,385,000 (2005: HK$1,658,000) bear interest
                                       at variable rates ranging from 6.50% to 9.50% per annum at 31 March 2006
                                       (2005: 5.50% to 6.75% per annum) and 7.25% per annum at 31 March 2006
                                       (2005: 6.00% per annum) respectively. All these bank borrowings and loans from
                                       other financial institutions were denominated in Hong Kong dollars.

                                       Loans from other financial institutions of HK$1,991,000 (2005: HK$3,033,000)
FM HOLDINGS ANNUAL REPORT 2006




                                       were denominated in RMB and bear fixed interest rate of 6.26% per annum (2005:
                                       6.26% per annum).

                                       The Group's bank borrowings and loans from other financial institutions were
                                       secured by:

                                       a) pledged bank deposits held by a subsidiary of HK$12,242,000 (2005:
                                          HK$11,000,000) (note 21);

                                       b) pledged bank deposits held by a director of the Company of HK$Nil (2005:
                                          HK$1,000,000);

                                       c) personal guarantee provided by a director of the Company;

                                       d) first legal charge of buildings and leasehold interest in land in the PRC held
                                          by a subsidiary (notes 14 and 15); and


                                                                                                                             49
                                       e) first legal charge of a property in Hong Kong held by a director of the Company.
                                                                     26.   DEFERRED TAXATION

                                                                           Deferred taxation is calculated in full on temporary differences under the balance
                                                                           sheet liability method. Major deferred tax liabilities arising from accelerated
                                                                           depreciation allowances recognised in the consolidated balance sheet and the
                                                                           movements during the year is as follows:


                                                                                                                 Group                  Company
                                                                                                            2006      2005          2006      2005
                                                                                                          HK$'000 HK$'000         HK$'000  HK$'000

                                                                           At the beginning of the year         735        635             -           -
                                                                           Deferred tax arising from
                                                                            accelerated depreciation
                                                                            allowances charged
                                                                            to the consolidated
Notes to the Financial Statements for the year ended 31 March 2006




                                                                            income statement                       -       100             -           -

                                                                           At the end of the year               735        735             -           -


                                                                     27.   SHARE CAPITAL
                                                                                                                                      Company

                                                                                                                        Number of               Amount
                                                                                                                         shares        Amount equivalent to
                                                                                                                          ’000         US$’000  HK$’000
                                                                           Authorised:

                                                                           On date of incorporation,
                                                                              ordinary share of US$1 each
                                                                              (note 27(a))                                       12            12      93
                                                                           Increase on 23 March 2005,
                                                                              ordinary share of US$1 each
                                                                              (note 27(c))                                 49,988        49,988 386,407

                                                                           Ordinary shares of US$1.00 each                 50,000        50,000 386,500
                                                                           Sub-division of every 1 ordinary
                                                                             share of US$1 each into 25 ordinary
                                                                             shares of US$0.04 each on
                                                                             23 March 2005 (note 27(c))                 1,200,000               -          -

                                                                           Ordinary shares of US$0.04 each at
                                                                             31 March 2005 and 31 March 2006            1,250,000        50,000 386,500

                                                                           Issued and fully paid:
                                                                           On date of incorporation, issue of
                                                                              12,000 nil-paid ordinary shares at
                                                                              US$1 each (note 27(a))                             12             -          -

                                                                           Issue of 2,972,425 ordinary shares at
                                                                              US$1 each, pursuant to the
                                                                              Acquisition and Restructuring Exercise
                                                                              on 23 March 2005 (note 27(b))                 2,972         2,972     22,977

                                                                           Credit as fully-paid, the 12,000 existing
                                                                             but nil-paid shares of US$1.00 each,
                                                                                                                                                                FM HOLDINGS ANNUAL REPORT 2006




                                                                             pursuant to the Acquisition and
                                                                             Restructuring exercise on
                                                                             23 March 2005 (note 27(b))                           -            12      93

                                                                           Ordinary shares of US$1.00 each                  2,984         2,984     23,070
                                                                           Sub-division of every 1 ordinary share
                                                                             of US$1 each into 25 ordinary shares
                                                                             of US$0.04 each on 23 March 2005
                                                                             (note 27(c))                                  71,626               -          -

                                                                           Ordinary shares of US$0.04 each at
                                                                              31 March 2005 and 1 April 2005               74,610         2,984     23,070
                                                                           Issue of shares by initial public offering
                                                                              as fully paid (note 27(d))                   27,000         1,080      8,348

                                                                           Ordinary shares of US$0.04 each
  50                                                                         at 31 March 2006                             101,610         4,064     31,418
                                 27.   SHARE CAPITAL (cont’d)

                                       (a)   At the date of incorporation, the authorised share capital of the Company
                                             was US$12,000 divided into 12,000 ordinary shares of US$1 each. All
                                             ordinary shares were allotted and issued nil paid to a director of the
                                             Company, Mr. Ko Yui Wai ("Mr. Ko") on 7 September 2004.

                                       (b)   On 23 March 2005, the Company entered into a share swap agreement
                                             with Chance Investment Inc. ("Chance Investment") to acquire the entire
                                             issued and paid-up share capital of AIL comprising 2,984,425 shares of
                                             par value US$1.00 each. The aggregate consideration for the acquisition
                                             was US$2,984,425 and was satisfied by crediting as fully paid, at par,
                                             the12,000 nil-paid shares of US$1.00 each held by Chance Investment,
                                             as well as allotting and issuing 2,972,425 new ordinary shares of US$1.00
                                             each, credited as fully paid, at par, to Chance Investment.




                                                                                                                            Notes to the Financial Statements for the year ended 31 March 2006
                                       (c)   Pursuant to written resolutions dated 23 March 2005, Chance Investment,
                                             approved, inter alia, the following:

                                             (i)     the increase in the authorised share capital of the Company from
                                                     US$12,000 divided into 12,000 ordinary shares of US$1.00 each
                                                     toUS$50,000,000 divided into 50,000,000 ordinary shares of
                                                     US$1.00 each;

                                             (ii)    the allotment and issue of 2,972,425 new ordinary shares of
                                                     US$1.00 each and the crediting as fully-paid, the 12,000 existing
                                                     but nil-paid shares of US$1.00 each in the Company pursuant to
                                                     the Acquisition and Restructuring Exercise, and

                                             (iii)   the sub-division of every 1 ordinary share of US$1.00 in the
                                                     authorised and issued share capital of the Company into 25 ordinary
                                                     shares of US$0.04 each.

                                       (d)   On 23 May 2005, the Company allotted and issued 27,000,000 ordinary
                                             shares of US$0.04 each upon listing of the shares on the SGX-SESDAQ
                                             at a price of SG$0.21 per share.

                                       (e)   Share capital as at 1 April 2004 represented the combined share capital
                                             of the Company's subsidiaries, namely FML, FMHK and FMM, as the
                                             Company had no issued share capital on that date.

                                       On 23 March 2005, the sole shareholder of the Company approved an employee
                                       share option scheme known as the FM Employee Share Option Scheme (the
                                       "ESOS"). The ESOS complies with the relevant rules of the SGX-ST as set out
                                       in Chapter 8 of the Listing Manual. The ESOS will provide eligible participants
                                       with an opportunity to participate in the equity of the Company and to motivate
                                       them towards better performance through increased dedication and loyalty. The
                                       ESOS is designed to primarily reward and retain executive directors, non-executive
                                       directors and employees of the Group whose services are vital to the well being
                                       and success of the Group. As at 31 March 2006, no options have been granted
                                       under the ESOS (2005: Nil).

                                       Under the rules of the ESOS, executive and non-executive directors (including
                                       the independent directors) and employees of the Group, who are not controlling
                                       shareholders or their associates, are eligible to participate in the ESOS.

                                       The ESOS shall be administered by the remuneration committee with powers to
                                       determine, inter alia, the following:

                                             (a)     persons to be granted options;
FM HOLDINGS ANNUAL REPORT 2006




                                             (b)     number of options to be granted; and

                                             (c)     recommendations for modifications to the ESOS.

                                       The aggregate number of shares over which the remuneration committee may
                                       grant options on any date, when added to the nominal amount of shares issued
                                       and issuable in respect of all options granted under the ESOS, shall not exceed
                                       5% of the issued share capital of the Company on the day immediately preceding
                                       the date of the relevant grant.

                                       The aggregate number of shares comprised in any option to be offered to a
                                       participant under the ESOS shall be determined at the absolute discretion of the
                                       remuneration committee, which shall take into account (where applicable) criteria
                                       such as rank, past performance, years of service, potential for future development
                                       of that participant.
                                                                                                                            51
                                                                     27.   SHARE CAPITAL (Cont’d)

                                                                           The options that are granted under the ESOS may have exercise prices that are,
                                                                           at the remuneration committee's discretion, set at a price (the "Market Price")
                                                                           equal to the average of the last dealt prices for the shares on the Official List of
                                                                           the SGX-SESDAQ for the five consecutive market days immediately preceding
                                                                           the relevant date of grant of the relevant option, or at a discount to the Market
                                                                           Price (subject to a maximum discount of 20%). Options which are fixed at the
                                                                           Market Price may be exercised after the first anniversary of the date of grant of
                                                                           that option while options exercisable at a discount to the Market Price may only
                                                                           be exercised after the second anniversary from the date of grant of the option.
                                                                           Options granted under the ESOS will have a life span of 10 years. Under no
                                                                           circumstances shall the exercise price be less than the nominal value of a share.

                                                                           The ESOS shall continue in operation for a maximum duration of 10 years and
Notes to the Financial Statements for the year ended 31 March 2006




                                                                           may be continued for any further period thereafter with the approval of our
                                                                           shareholders by ordinary resolution in general meeting and of any relevant
                                                                           authorities which may then be required.

                                                                     28.   RESERVES

                                                                           (a) The Group

                                                                           The amounts of the Group’s reserves and the movements therein for the current
                                                                           year and the prior period are presented in the consolidated statement of changes
                                                                           in equity of the financial statements.

                                                                           The share premium account of the Group includes the premium arising from issue
                                                                           of shares of the Company at a premium.

                                                                           The merger reserve of the Group arose as a result of the Acquisition and
                                                                           Restructuring Exercise completed on 23 March 2005 (note 2) and represents the
                                                                           difference between the nominal value of the Company’s shares issued under the
                                                                           Acquisition and Restructuring Exercise and the nominal value of the aggregate
                                                                           share capital of the subsidiaries then acquired.

                                                                           (b) The Company
                                                                                                                      Share   Accumulated
                                                                                                                   premium         losses           Total
                                                                                                                    HK$’000       HK$’000         HK$’000
                                                                           At 27 August 2004
                                                                             (date of incorporation),
                                                                             31 March 2005 and 1 April 2005               -                -             -
                                                                           Issue of new shares (note 27(d))         17,734                 -       17,734
                                                                           Share issue expenses                     (6,523)                -       (6,523)
                                                                           Loss for the year                              -          (2,482)       (2,482)

                                                                           At 31 March 2006                          11,211          (2,482)         8,729


                                                                           Details of share premium account of the Company are set out in note 28(a) above.


                                                                     29.   OPERATING LEASE COMMITMENTS

                                                                           At 31 March 2006, the total future minimum lease payments under operating
                                                                           leases in respect of land and buildings for the Group are payable as follows:
                                                                                                                                                                  FM HOLDINGS ANNUAL REPORT 2006




                                                                                                                                       2006         2005
                                                                                                                                    HK$’000       HK$’000

                                                                           Within one year                                               244           286
                                                                           In the second to fifth year inclusive                           9           190
                                                                                                                                         253           476

                                                                           The leases run for an initial period of two years (2005: two years), without an
                                                                           option to renew the lease terms at the expiry dates as mutually agreed between
                                                                           a subsidiary of the Company and the landlords. There is no contingent rental
                                                                           under the leases.

                                                                           The Company did not have any lease commitments as at 31 March 2006 (2005:
                                                                           Nil).



52
                                 30.   CONTINGENT LIABILITIES

                                       At 31 March 2006, the Company had given guarantees to banks in connection
                                       with banking facilities granted to certain subsidiaries in an aggregate amount of
                                       HK$32,441,000 (2005: Nil) of which approximately HK$22,861,000 (2005:
                                       HK$23,106,000) was utilised at the balance sheet date.

                                 31.   RELATED PARTY TRANSACTIONS

                                       In addition to the transactions and balances disclosed elsewhere in these financial
                                       statements, the Group had the following material transactions with related parties
                                       during the year:

                                                                                                   2006          2005
                                                                                                HK$’000        HK$’000




                                                                                                                               Notes to the Financial Statements for the year ended 31 March 2006
                                       Compensation of key management personnel -
                                       Salaries and allowances                                     1,290          1,057
                                       Retirement benefit scheme contributions                        23             13
                                       Fees                                                          510              -
                                       Total remuneration of directors and other members
                                         of key management during the year                         1,823          1,070

                                 32.   RISK MANAGEMENT OBJECTIVES AND POLICIES

                                       The Group does not have written risk management policies and guidelines.
                                       However, the board of directors meets periodically to analyse and formulate
                                       measures to manage the Group's exposure to market risk, including principally
                                       changes in interest rates and currency exchange rates. Generally, the Group
                                       employs a conservative strategy regarding its risk management. As the directors
                                       of the Company consider that the Group's exposure to market risk is kept at a
                                       minimum level, the Group has not used any derivatives or other instruments for
                                       hedging purposes. The Group does not hold or issue derivative financial instruments
                                       for trading purposes.

                                       The financial assets of the Group comprise primarily trade receivables and bank
                                       balances and cash (including pledged bank deposits). The financial liabilities of
                                       the Group comprise trade payables, bills payable, accruals and other payable,
                                       obligations under hire purchase contracts and secured borrowings from banks
                                       and other financial institutions.

                                       (a) Interest rate risk

                                           The interest rate risk and maturity of the hire purchase contracts and secured
                                           borrowings from banks and other financial institutions are disclosed in notes
                                           24 and 25 respectively.

                                       (b) Foreign currency risk

                                           The Group’s sales are mainly denominated in Euro, Sterling Pounds and US
                                           dollars. The Group’s purchases are denominated in RMB and Hong Kong
                                           dollars. The management considered the Group's exposure to risk resulting
                                           from changes in foreign currency exchange rates is minimal.

                                       (c) Credit risk

                                           All the Group's cash and cash equivalents are deposits with major banks
                                           located in Hong Kong and the PRC.

                                           The carrying amounts of trade receivables represent the Group’s maximum
                                           exposure to credit risk in relation to its financial assets. The Group has no
FM HOLDINGS ANNUAL REPORT 2006




                                           other significant concentration of credit risk.

                                           The Group performs ongoing credit evaluation of its customers' financial
                                           position and requires no collateral from its customers. The Group has no
                                           significant concentration of credit risk due to its large customer base.

                                       (d) Fair value

                                           The fair value of the Group's financial assets and liabilities are not materially
                                           different from their carrying amounts because of the immediate or short term
                                           maturity of these financial instruments. The fair value of long-term liabilities
                                           was not disclosed because the carrying value is not materially different from
                                           the fair value.




                                                                                                                               53
                                                                     33.   NOTE TO THE CONSOLIDATED CASH FLOW STATEMENT

                                                                           Major non-cash transaction

                                                                           The Acquisition and Restructuring Exercise (note 2) and inception of obligation
                                                                           under hire purchase contracts of HK$2,430,000 for plant and machinery (note
                                                                           24) during the year ended 31 March 2005 were non-cash transactions.

                                                                     34.   ULTIMATE HOLDING COMPANY

                                                                           The directors regard Chance Investment which is beneficially owned by Mr. Ko,
                                                                           as being the ultimate holding company of the Group.
Notes to the Financial Statements for the year ended 31 March 2006




                                                                                                                                                             FM HOLDINGS ANNUAL REPORT 2006




     54
                                 I, Ko Yui Wai, being the chairman and managing director of FM Holdings Limited, do
                                 hereby state that in the opinion of the directors:

                                 1.      The financial statements set out on pages 30 to 54 of this Annual Report are
                                         drawn up so as to give a true and fair view of the state of affairs of the Company
                                         and of the Group as at 31 March 2006, and of the results of the business and
                                         cash flows of the Group and of the changes in equity of the company and of the
                                         Group for the year then ended; and

                                 2.      at the date of this statement there are reasonable grounds to believe that the
                                         Company will be able to pay its debts as and when they fall due.

                                 The Board of Directors has, on the date of this statement, authorised these financial




                                                                                                                              Statement of Directors
                                 statements for issue on 12 June 2006.

                                 On behalf of the Board of Directors




                                 Ko Yui Wai
                                 Chairman & Managing Director
                                 12 June 2006
FM HOLDINGS ANNUAL REPORT 2006




                                                                                                                              55
                                              Authorised share capital            :         US$50,000,000.00
                                              Issued and fully paid up            :         US$4,064,425.00
                                              Class of shares                     :         Ordinary shares of US$0.04 each
                                              Voting rights                       :         One vote per share

                                              Shareholdings Held in Hands of Public

                                              Based on information available to the Company as at 14 June 2006, 30.51% of the issued
                                              ordinary shares of the Company is held by the public and therefore Rule 723 of the Listing
                                              Manual is complied with.


                                              Analysis of Shareholders by Size of Shareholdings as at 14 June 2006
Shareholdings Statistics as at 14 June 2006




                                                                            No. of
                                              Size of shareholdings      Shareholders          %        No of shares          %

                                              1,000 - 10,000                     244       61.15          1,589,000         1.56
                                              10,001 - 1,000,000                 150       37.60         12,941,000        12.74
                                              1,000,001 and above                  5        1.25         87,080,625        85.70

                                                           TOTAL                 399      100.00        101,610,625      100.00



                                              Substantial Shareholders

                                              (as defined under the Singapore Companies Act, Cap 50)
                                              as recorded in the register of Substantial Shareholders as at 14 June 2006




                                              Name                                                                Deemed
                                                                                 Direct Interest                   Interest
                                                                                Number of Shares                 Number of
                                                                                                         %        Shares           %

                                              CHANCE INVESTMENT INC.                    70,410,625   69.29              -         -
                                              KO YUI WAI*                                        -       -     70,410,625     69.29


                                              *    Mr Ko Yui Wai owns the entire issued and paid-up capital of Chance Investment Inc.
                                                  Mr Ko is deemed to have an interest in all the shares held by Chance Investment Inc.
                                                  in the Company.                                                                          FM HOLDINGS ANNUAL REPORT 2006




 56
                                 List of Twenty Largest Shareholders as at 14 June 2006


                                 No.   Name                                               No. of Shares   %

                                 1     CHANCE INVESTMENT INC                                70,410,625    69.29
                                 2     KIM ENG SECURITIES PTE. LTD.                          7,490,000    7.37
                                 3     UOB KAY HIAN PTE LTD                                  4,300,000    4.23
                                 4     MARTIN HOWARD OTWAY                                   3,160,000    3.11
                                 5     KIM SENG HOLDINGS PTE LTD                             1,720,000    1.69
                                 6     TAN TZYH CHYANG @TANUWIDJAJA DJADJANG                 1,000,000    0.98
                                 7     CHNG SENG CHYE @ CHNG HUNG SENG                         580,000    0.57
                                 8     GOH BEE LAN                                             450,000    0.44
                                 9     PHILLIP SECURITIES PTE LTD                              374,000    0.37




                                                                                                                  Shareholdings Statistics as at 14 June 2006
                                 10    TAN BRIAN ROY                                           370,000    0.36
                                 11    LIM CHYE HUAT @ BOBBY LIM CHYE HUAT                     350,000    0.34
                                 12    YEO WEI HUANG                                           340,000    0.33
                                 13    ANG YEE LIM                                             328,000    0.32
                                 14    CHNG GIM HUAT                                           320,000    0.31
                                 15    ONG MEI LENG                                            300,000    0.30
                                 16    LIM SIA HWEE OR NG BEE SEK                              282,000    0.28
                                 17    CHAN TIAN HOE                                           260,000    0.26
                                 18    LIM CHEOW LENG                                          250,000    0.25
                                 19    NG KHET SHEN                                            250,000    0.25
                                 20    ZEN PROPERTY MANAGEMENT PTE LTD                         250,000    0.25
                                       TOTAL                                                92,784,625    91.30
FM HOLDINGS ANNUAL REPORT 2006




                                                                                                                  57
                                                                    FM HOLDINGS LIMITED
                                                                   (Incorporated in Bermuda)

                                                         NOTICE OF ANNUAL GENERAL MEETING


                                   NOTICE IS HEREBY GIVEN that the Annual General Meeting of FM Holdings Limited *
                                   (the “Company”) will be held at The Executives’ Club, 65 Chulia Street #33-01 OCBC
                                   Centre (West Lobby) Singapore 049513 on Tuesday, 25 July 2006 at 9.30 am for the
                                   following purposes:

                                   AS ORDINARY BUSINESS

                                      1.    To receive and adopt the Directors’ Report and the Audited Accounts of the
Notice of Annual General Meeting




                                            Company for the financial year ended 31 March 2006 together with the Auditors’
                                            Report thereon.
                                                                                                          (Resolution 1)

                                      2.    (a) To re-elect Ms Zhang Aibin, a Director retiring pursuant to Bye-Law 86(1) of
                                                the Company’s Bye-Laws.
                                                                                                             (Resolution 2a)

                                            (b) To re-elect Mr Chan Sing Nun, a Director retiring pursuant to Bye-Law86(1)
                                                of the Company’s Bye-Laws.
                                                                                                           (Resolution 2b)

                                      3.    To approve the payment of Directors’ fees of S$90,000 for the financial year
                                            ending 31 March 2007, to be paid half-yearly in arrears. [2006: S$111,000]

                                                                                                               (Resolution 3)

                                      4.    To re-appoint Messrs Grant Thornton, Certified Public Accountants, Hong Kong
                                            as the Company’s Auditors and to authorise the Directors to fix their remuneration.

                                                                                                               (Resolution 4)

                                      5.    To transact any other ordinary business which may properly be transacted at an
                                            Annual General Meeting.


                                   AS SPECIAL BUSINESS

                                   To consider and, if thought fit, to pass the following resolutions as Ordinary Resolutions,
                                   with or without modifications:

                                      6.    “That pursuant to the listing rules of the Singapore Exchange Securities Trading
                                             Limited (“SGX-ST”) and notwithstanding the provisions of the Company’s Bye-
                                             Laws, authority be and is hereby given to the Directors of the Company to:

                                           a.   (i)    issue shares in the capital of the Company (whether by way of rights,
                                                       bonus or otherwise); and/or

                                                (ii)   make or grant offers, agreements or options (collectively, “instruments”)
                                                       that may or would require shares to be issued, including but not limited
                                                       to the creation and issue of warrants, debentures or other instruments
                                                       convertible into shares,

                                                at any time and upon such terms and conditions and for such purposes and
                                                                                                                                   FM HOLDINGS ANNUAL REPORT 2006




                                                to such persons as the Directors may in their absolute discretion deem fit;
                                                and

                                            b. (notwithstanding that the authority conferred by this Resolution may have
                                               ceased to be in force) issue shares in pursuance of any instrument made or
                                               granted by the Directors while this Resolution was in force,
                                                 provided that
                                                (i)    the aggregate number of shares to be issued pursuant to this Resolution
                                                       (including shares to be issued in pursuance of instruments made or
                                                       granted pursuant to this Resolution) does not exceed fifty per cent.
                                                       (50%) of the issued share capital of the Company (as calculated in
                                                       accordance with sub-paragraph (ii) below), of which the aggregate
                                                       number of shares to be issued other than on a pro rata basis to
                                                       shareholders of the Company with registered addresses in Singapore
                                                       (including shares to be issued in pursuance of instruments made or
                                                       granted pursuant to this Resolution) does not exceed twenty per cent.
 58                                                    (20%) of the issued share capital of the Company (as calculated in
                                                       accordance with sub-paragraph (ii) below);
                                           (ii)   for the purpose of determining the aggregate number of shares that may
                                                  be issued under sub-paragraph (i) above, the percentage of the issued
                                                  share capital of the Company shall be calculated based on the issued
                                                  share capital of the Company at the time of the passing of this Resolution,
                                                  after adjusting for:

                                                  (1)   new shares arising from the conversion or exercise of any convertible
                                                        securities;

                                                  (2)   new shares arising from exercise of share options or vesting of
                                                        share awards outstanding or subsisting at the time of the passing
                                                        of this Resolution, provided the options or awards were granted in
                                                        compliance with Part VIII of Chapter 8 of the Listing Manual of the
                                                        SGX-ST; and

                                                  (3)   any subsequent consolidation or subdivision of shares;




                                                                                                                                Notice of Annual General Meeting
                                           (iii) in exercising the authority conferred by this Resolution, the Company shall
                                                 comply with the provisions of the Listing Manual of the SGX-ST for the
                                                 time being in force (unless such compliance has been waived by the SGX-
                                                 ST) and the Articles of Association for the time being of the Company;
                                                 and

                                           (iv) unless revoked or varied by the Company in general meeting, the authority
                                                conferred by this Resolution shall continue in force until the conclusion
                                                of the next Annual General Meeting of the Company or the date by which
                                                the next Annual General Meeting of the Company is required by law to
                                                be held, whichever is the earlier.” [See Explanatory Note (i)].
                                                                                                          (Resolution 5)

                                 7.      “That the Directors of the Company be and are hereby authorised to offer and
                                         grant options in accordance with the provisions of the FM Employee Share Option
                                         Scheme (“Scheme”) and to allot and issue from time to time such number of
                                         shares in the capital of the Company as may be required to be issued pursuant
                                         to the exercise of the options under the Scheme provided always that the aggregate
                                         number of shares to be issued pursuant to the Scheme shall not exceed five per
                                         cent. (5%) of the issued share capital of the Company from time to time.” [See
                                         Explanatory Note (ii)].
                                                                                                            (Resolution 6)

                                 By Order of the Board


                                 Chan Sing Nun
                                 Joint Company Secretary

                                 Singapore, 7 July 2006
FM HOLDINGS ANNUAL REPORT 2006




                                                                                                                                59
                                                                      FM HOLDINGS LIMITED
                                                                     (Incorporated in Bermuda)

                                                           NOTICE OF ANNUAL GENERAL MEETING



                                   Notes:

                                   1.       If a shareholder being a Depositor (who is not a natural person) whose name appears
                                            in the Depository Register (as defined in Section 130A of the Companies Act, Cap.
                                            50 of Singapore) wishes to attend and vote at the Annual General Meeting, then it
                                            should complete the Proxy Form and deposit the duly completed Proxy Form at the
                                            office of the Singapore Share Transfer Agent, Lim Associates (Pte) Ltd, at 10 Collyer
                                            Quay #19-08 Ocean Building, Singapore 049315, at least 48 hours before the time
Notice of Annual General Meeting




                                            of the Annual General Meeting. A Depositor who is a natural person need not
                                            complete the Proxy Form if he/she intends to attend in person.

                                   2.     If a Depositor/shareholder wishes to appoint a proxy/proxies, then the Proxy Form
                                          must be deposited at the office of the Singapore Share Transfer Agent, Lim Associates
                                          (Pte) Ltd, at 10 Collyer Quay #19-08 Ocean Building, Singapore 049315, at least
                                          48 hours before the time of the Annual General Meeting.


                                   EXPLANATORY NOTES ON SPECIAL BUSINESS TO BE TRANSACTED:

                                   (i)    Resolution 5 is to empower the Directors to issue shares in the capital of the
                                          Company and/or instruments (as defined above). The aggregate number of shares
                                          to be issued pursuant to Resolution 5 (including shares to be issued in pursuance
                                          of instruments made or granted) shall not exceed fifty per cent. (50%) of the issued
                                          share capital of the Company, with a sub-limit of twenty per cent. (20%) for shares
                                          issued other than on a pro rata basis (including shares to be issued in pursuance
                                          of instruments made or granted pursuant to this Resolution) to shareholders. For
                                          the purpose of determining the aggregate number of shares that may be issued, the
                                          percentage of the issued share capital of the Company will be calculated based on
                                          the issued share capital of the Company at the time of the passing of Resolution 5,
                                          after adjusting for (a) new shares arising from the conversion or exercise of any
                                          convertible securities; (b) new shares arising from exercise of share options or
                                          vesting of share awards outstanding or subsisting at the time of the passing of
                                          Resolution 5, provided the options or awards were granted in compliance with Part
                                          VIII of Chapter 8 of the Listing Manual of the SGX-ST; and (c) any subsequent
                                          consolidation or subdivision of shares.

                                   (ii)   Resolution 6 is to authorise the Directors to offer and grant options in accordance
                                          with the provisions of the FM Employee Share Option Scheme (“Scheme”) and to
                                          allot and issue shares under the Scheme.
                                                                                                                                    FM HOLDINGS ANNUAL REPORT 2006




  60
            FM HOLDINGS LIMITED
Unit 1502, 15/F., 88 Hing Fat Street, Causeway Bay, Hong Kong
                   (Incorporated in Bermuda)




                                                       Designed by:   Tel: 6438-2990

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:19
posted:9/28/2011
language:English
pages:64